Angola with B+ credit rating can reassured bond investors

By Commentary and Analysis by Afripol Organization

The independent nation of Angola, a former Portuguese colony received a good credit rating from Standard & Poor's, Fitch Ratings and Moody's Investors Service that commensurate with Nigeria, Lebanon and Belarus. “The southern African nation's creditworthiness was rated at B+ by S&P and Fitch, four levels below investment grade, according to statements by the ratings companies today. Moody's assigned an equivalent ranking of B1. “

Nigeria and Angola are the African largest oil producers and exporters in the continent. At a point Angola was out producing Nigeria due to Niger Delta disturbances. The largest revenue generated by Angola comes from oil revenue.

With this credit rating, Angola can move forward with issue of bonds which she planned to raise fund to rebuild and up grade her devastated infrastructures. The south-central African nation with recorded GDP of over $70 billion was decimated in the 30 years civil war. Before the country's independent in 1975 the vanguard Popular Movement for the Liberation of Angola (MPLA) and the rebel group Unita were engaged in ideological battle that became bloody and destructive. With the death of Unita leader, Joe Savimba, the ruling party and President San were able to finally end the war and began the reconstruction of the young nation.

Financial market observers and marketers were surprise of the credit rating received by Angola, for many were expected lower rating due lack of probity and corruption in the management of oil revenue of Angola. Angola government has denied any corruption and mismanagement on their part and this rating has become of the increasing better management of the oil revenues.

Emeka Chiakwelu, Principal policy strategist at Afripol welcomed the resourceful news: “Angola is emerging as second tier nation and the future can be brighter. Angola primarily received the B+ rating because of her low foreign debt and her increasing foreign reserve, which can become the war chest to protect her currency Kwanza. But her monetary and fiscal policies must be pro-growth and discouragement of a creeping inflationary trends for long term prospect,” he said.

According to IMF in 2009, Angola's foreign debt was 22.8% to gross domestic product ratio. Angola must continue to show discipline with regards to the accumulation of foreign debts. When the southern African nation over reach and borrow excessively, and fails to meet her domestic and foreign financial obligations, she will end up like Greece. Therefore Afripol Organization recommends a slower and deliberate procedure with issue of bonds. A prudent management of the funds raised and meeting of financial obligations will booster confidence of investors. Increasingly inflationary trend may discourage investors; therefore Afripol is suggesting that Angola government may issue inflation-index bonds.

“Angola may issue between $1 billion to $2 billion of international bonds this year, scaling back earlier plans to sell as much as $4 billion of the debt without a credit rating, Finance Minister Carlos Lopes said on April 15. The country, which vies with Nigeria to be the continent's biggest oil producer, relies on crude exports for more than 80 percent of its revenue.” This is the right path to be taken, to start at minimal level and progress as the market is being tested and management improves.

Sunny Oputa, Publisher and CEO of Energy & Corporate Africa, a senior fellow and political analyst at Afripol restated the significance of political stability for economic progress: “The most important fulcrum of a balanced and stable economy is political stability. Angola with increasing political stability can be a booster for the economy which contributed to the better credit rating,” he affirmed.

Angola must focus on upholding her currency Kwanza without overvaluing it and retards her export potentials. Kwanza is thriving with protection from the war chest of the foreign reserve and with low inflation its stability can be maintained. According to Afripol tracking data, kwanza on exchange rate and trading:

Thursday, May 27, 2010
1 US Dollar = 92.81600 Angolan New Kwanza
1 Angolan New Kwanza (AON) = 0.01077 US Dollar (USD)

Median price = 92.35400 / 92.81600 (bid/ask)
Minimum price = 92.35400 / 92.35400
Maximum price = 92.81600 / 92.81600 (Oanda)
Foreign debt: $12.83 billion (31 December 2009 est.)

As stated by published paper on IMF gazette, Angola government maintained that, “Despite significant new borrowings in 2010, the programmed net external borrowing for the year is some $1.3 billion (1.5 percent of GDP), with the debt-GDP ratio expected to rise by only 1 percent from 2009 to 2010. The authorities confirmed that the planned bond issuance (intended to boost reserves) would be in compliance with

the revised debt ceiling, even if it means postponing some projects to 2011” Angola can therefore be on her way of greater good by adhering to sound monetary policy, lower inflation and accumulation of substantial foreign reserve.

Africa Political and Economic Strategic Center (Afripol) is foremost a public policy center whose fundamental objective is to broaden the parameters of public policy debates in Africa. To advocate, promote and encourage free enterprise, democracy, sustainable green environment, human rights, conflict resolutions, transparency and probity in Africa. [email protected]