In June 2016, Angolan President José Eduardo dos Santos controversially appointed his billionaire daughter Isabel head of the state-owned oil company Sonangol, and under her watch, the firm can’t afford to pay for toilet paper, never mind repay $1.135 billion in debt.
Sonangol’s oil sales account for at least 90 percent of foreign exchange earnings in Angola, Africa’s No. 1 oil producer, but the management is unable – or unwilling – to buy bathroom supplies, employees told local media.
Isabel dos Santos, Africa’s richest woman, promised to make Sonangol more efficient and transparent to offset the impact of lower oil prices.
Angola has surpassed Nigeria as Africa’s No. 1 oil producer. Its oil boom saw billions in foreign investment, but a lack of economic diversification means 50 percent of GDP and 80 percent of government spending rely on oil, Global Risk Insights reported.
The collapse of oil prices is nothing new, but the nature of Angolan politics and the stranglehold of the dos Santos family are threatening economic collapse.
In October, Chevron Angola gave Sonangol a one-week ultimatum to come up with a payment plan for the $300 million debt it owed Chevron. The Sonangol board has since complied, promising to pay back the money.
A Sonangol press release said the company was processing close to US $300 million in Chevron payments for July, August, September and October 2015, Maka Angola reported.
Chevron said if it didn’t get paid, it would exercise its right to sell Sonangol’s 40 percent stake of Block 0 output to recover the debt as part of a joint operating agreement with Sonangol. Block 0 average daily production was 85,000 barrels per day in 2015.
Chevron isn’t the only Sonangol creditor.
Sonangol owes BP nearly $135 million; ENI $125 million; and Total $360 million. Chevron’s debt has risen with $380 million. This totals $1.135 billion, apart from undisclosed debts from other foreign and local companies, Ventures Africa reported.
The state oil company has been accused of paying obligations only to companies affiliated with President dos Santos.
When the president fired the previous Sonangol board and installed his daughter, the conflict of interest shocked the global oil industry. In the intervening months, things got worse at Sonangol, Maka Angola reported.
“Every worker has to bring their own toilet paper from home because Sonangol has been unable to pay its suppliers and we have a toilet paper crisis,” an official said, according to Oilprice.com.
Shortly after Isabel came on board as CEO, the government of Angola canceled talks with the IMF about a US$4.5-billion loan that would have helped it to prop up its oil crisis-battered finances, Oilprice.com reported.
Angola’s Supreme Court ordered an investigation of Isabel’s appointment after a group of 14 lawyers filed a case accusing the president of nepotism and breaking laws.
“The former (Sonangol) administration ‘ate’ well,” an employee told Maka Angola. “Now I suppose it’s the turn of the new administration.”
A Whatsapp group formed to discuss the issue, naming itself “There is no toilet paper,” Oilprice.com reported.
Isabel, 43, this month defended her appointment to head of Sonangol, saying her critics were being unreasonable. She said her father gave her the job because she has the expertise and competence, Reuters reported.
“The issue of my professional competence does not seem to be something reasonable,” she told reporters during the opening ceremony of a new school funded by Sonangol. “To me this looks to be part of the political games ahead of elections.”
Elections are scheduled for 2017. The president said he plans to retire in 2018.
Isabel is worth an estimated $3.1 billion, Forbes reported. She owns stakes in Angolan banking, cement and telecom firms that were transferred to her by her father. She repeatedly claims the transactions have been transparent and at arm’s length.
Sonangol bankrolls Angola, so if the company does poorly, the country does poorly, Global Risk Insights reported:
The country’s foreign exchange reserves shrank from $22.928 billion in September to $21.95 billion in October. The company has already sold off some non-oil assets. Despite receiving a $15 billion loan from the China Development Bank (CDB), Sonangol has been unable to pay its suppliers, forcing employees to bring their own toilet paper from home.
To add to the company’s problems, the CDB has refused to provide any further assistance citing a lack of transparency and bad governance. While Angola has managed to attract $1.5 billion from the African Development Bank, and $230 million from the World Bank for economic diversification projects, serious funding shortages remain.
So why did Angola pull-out of discussions with the IMF for a $4.5 billion loan soon after appointing Isabel in June?
Isabel’s banking monopoly is the reason, according to Gloabl Risk Insignts. She owns stakes in five of the largest Angolan banks: Banco Economico (BE), Banco Angolano de Investimentos (BAI), Banco de Poupanca e Crédito (BPC), Banco de Fomento de Angola (BFA), and Banco BIC (BIC).
There’s the risk that Sonangol’s troubles will contaminate the banking sector. Isabel has the power to pressure banks she controls to bail out the company, which funds the government. The reluctance of international lenders encourages Isabel to tap the country’s banks to bolster Sonangol.
This could dry up funds for other sectors in Angola. If the banks go bust, the funds of everyday Angolans disappear. If Sonangol goes bankrupt, its extensive holdings in Angolan banks will also cause them to go under.
The government’s funding alternatives in the face of low oil prices are also problematic. If Angola were to seek bridge funding by issuing bonds, it would face similar problems. Angolan bonds are issued in kwanzas, with an average 20 percent annual interest rate. But with annual inflation around 40 percent, prospective bond buyers would lose money, Global Risk Insights reported. This will keep foreign investors away, and the domestic banks controlled by Isabel would have to fill the gap to keep the government running.
Angola’s financial sector is only getting murkier, and the outlook for 2017 is very uncertain, said analyst Jeremy Luedi in a Global Risk Insights report.