In early December, Angolan president Joao Lourenco, who narrowly won re-election in 2022 with his ruling party losing 25 seats in parliament, was feted in Washington as a $2bn recipient of the G-7’s $600bn 5-year infrastructure partnership, its answer to China’s Belt and Road. President Joe Biden received him in the White House to announce separate $1bn investment in solar power and infrastructure, and $1bn for the so-called Lobito logistics corridor hinging on rail connection through neighbours Zambia and DR Congo.

Since the civil war ended, the country has been Beijing’s main Africa loan and contract destination for 10 years, good for $45bn or one-quarter the total for showcase projects like a $4bn hydropower facility. It ran up $20bn in debt, and Chinese policy and commercial banks agreed to a 3-year $5bn repayment pause in 2020 under the G20’s bilateral suspension initiative. The moratorium ended the first half of 2023 as quarterly external debt servicing doubled to $1.5bn, with China the main creditor at 40% of the total.

Lourenco reminded Biden that the top three African oil producer, which accounts for 90% of exports with slow diversification into agriculture and mining, runs a $1bn bilateral trade surplus helped by duty free treatment under the decades old African Growth and Opportunity Act (AGOA). In contrast, trade with China was off 20% through October from 2022 to $15bn. The turnabout was due to the Belt-Road bad loan legacy and adverse macro-economic indicators. After a devaluation in June, the kwanza currency is at the Sub-Sahara bottom with a 40% decline. It has fed through to inflation expected at 20% by year-end, with the central bank raising the benchmark rate 100 basis points to 18% in November.

Growth will be a meagre 2.5%, and despite overall balance and a 5% primary surplus, the non-oil fiscal deficit is around 10%. Angola is no longer in an IMF program, but Lourenco ignited an austerity firestorm with an abrupt fuel subsidy rollback which triggered riots months ago and compensated by halving value added tax to 5%. The current account surplus is a healthy 5% of gross domestic product, with $15bn in foreign exchange reserves meeting six months imports. However, the soft underbelly of stagflation and leverage remains as is common throughout Lusophone Africa despite Washington’s rose-tinted aspiration.

Angola’s 2049 Eurobond approaches distressed level with a 75 price and 13% yield, without major maturities until 2025. Fitch Ratings assigned a B-, positive outlook in January 2023, and noted mixed debt dynamics outside uncertain global oil price direction. The debt ratio to GDP has dropped to 65% since the Covid-19 era peak, and two-thirds is external with average maturity doubling to 10 years. Amortizations in 2023-2024 are close to $5bn annually, and three-quarters are at variable interest rate. Government debt is 80% linked or denominated in foreign currency, and interest/budget revenue at over 15% is steep compared to peers.

The IMF urges the central bank to float the currency and refrain from intervention and sudden changes like a 10% tax and new rules for the interbank market stifling trading. To raise revenue and productivity, and sustain foreign direct investment around $4bn annually, the Fund prods the Finance Ministry to hasten state company privatization, Long lists of assets have been compiled to go on the block, but progress has been erratic.

A breakthrough came in 2022 when a state bank listed a minority equity stake on the nascent stock exchange. The big prize will be either a 30% divestiture of the production unit or actual floating of the state oil giant Sonangol itself, which has been pushed back to at least 2025 by most accounts. Half its non-oil and gas subsidiaries have been privatized, and the operation is caught up in perennial insider intrigue and multi-billion-dollar asset recovery efforts from the disgraced former chief executive and ex-President relative Isabel dos Santos who is now in exile.

Mozambique, the continent’s other Portuguese speaking giant, has its own running soap opera in the form of the 2015 vintage fraudulent $2bn Tuna Bond, with serial trials at home and abroad to bring former foreign underwriters and local officials to justice. In the latest chapter the ex-Finance Minister has been extradited from his hideout in South Africa to face a New York court, while in London the government sued for $3bn in damages from the original fleet builder Privinvest, as well as arranger Credit Suisse a second time after it previously agreed to a $500mn penalty. It settled on undisclosed terms, and President Filipe Nyusi, who was involved in the transaction under his predecessor was scheduled to testify but was protected by sovereign immunity.

The saga led to years of ruptured relations with the IMF over misleading and missing accounts, only repaired last year with a new three-year $450mn agreement which has been half disbursed to date. The Economy Minister foresees 5% growth and 7% inflation in 2023, on the heels of Cyclone Freddy in Q1 that destroyed 100,000 residences and left 650,000 homeless. The main catalyst is resumption of Total Energies $20bn natural gas project slated for early next year, after the French giant was forced into indefinite hiatus with the 5-year Islamic rebel fight in Cabo Delgado province which has displaced almost one million. Defence spending contributes to the near 10% budget deficit, with a South African Community military force deployed with Rwandan troops in the lead to markedly quash the insurgency. Maputo could not afford such payment abroad without help on a current account gap already at 15% of GDP, and gross international reserves around $3bn.

The coupon on the country’s 2031 sovereign bond used to refinance the Tuna fiasco almost doubled from 5 to 9% this year, and overall public debt amortization will again be 4% of GDP in 2024. Fitch Ratings assigns a CCC without an outlook in this near default category with the 100% of GDP range ratio due to decline to the still onerous high 80s by mid-decade. Under the Fund strictures Angola can only borrow on concessional terms, as it clears arrears with Portugal, Brazil, and other bilateral creditors. On domestic debt it exhausted the $5bn issuance ceiling in 2023, and also failed to keep up with contractor payments spurring Standard & Poor’s to briefly declare default. Three-quarters of the debt stock is hard currency denominated, pinning the central bank into tight monetary policy and a narrow dollar corridor for the metical. The hammerlock along with regular climate disasters explains why Nyusi unabashedly made an $80bn transition pitch to official donors and private fund managers at COP 28 recently concluded in Dubai, which got a sympathetic hearing despite the extreme price tag.

The small Atlantic island of Cabo Verde, with tourism accounting for one-quarter of GDP, has been in the headlines with an initial $15mn debt for nature swap with Portugal that can expand tenfold. It is head of the small island state grouping at the IMF, and in December accessed a $30mn climate facility alongside an existing extended credit. In November its B- rating, positive outlook was upheld with gross government debt at 120% of GDP, twice its peer group. It has minimal costs with an average 2% interest rate, and long maturity at 15 years, 20 for external obligations. Visitors were up 35% in the first half and topped pre-covid levels, with growth set at 5%. The fiscal and current account deficits are 3% of GDP, and gross FX reserves will hit $800mn in 2024, covering six months of imports. Monetary and exchange rate policy warrants caution, with the escudo pegged to the euro, and the local central bank rate 350 basis points less than the ECB’s. So far noticeable capital flight has been averted, also due to the narrow current account shortfall compared with the Lusophone cohort with strong remittances from Europe and the US a mainstay.

Guinea Bissau in the West Africa franc zone suffers from languishing cashew exports and 75% debt/GDP aided by $50mn IMF support. The opposition party took power after June elections, and the region’s military coup curse has surfaced with a defeated attempt. With these setbacks Asian and Western investors should be on the alert for diplomatic posturing masquerading as due diligence, as these countries struggle for frontier market notice.

–  Gary Kleiman, senior partner, Kleiman International Consultants, Inc.