Still on an upward curve

Angola offers solid investment opportunities in the financial sector, according to Treasury Secretary Manuel Costa Neto, who recently announced that factors such as peace, political stability and macroeconomic stability – reflected in inflationary control, exchange rate stability and the improvement in general economic environment – are behind the dynamism the Angolan economy has gained in recent years.

Over the past two decades, Angola has experienced three major transitions. The September elections in 1992 heralded the change from a single-party to a multiparty political system. Ten years later the country drew a line under a 27-year civil war and entered a new era of peace. Then more recently, the republic has moved from a centrally-planned to a market economy, actively promoting both local and foreign investment. “It was done very successfully,” says Minister of Economy Abraao Pio dos Santos Gourgel. “We were able to deal with macroeconomic stability in an exemplary way and with the participation and personal perseverance of President Jose Eduardo dos Santos, who had led and persevered to achieve successful macroeconomic stabilisation.”

Inflation under control

As an example of the country’s progress, Mr Gourgel points to the reining in of Angola’s galloping inflation, which has fallen from 325 per cent in 2000 to 11.4 per cent in October 2011, and has been lauded internationally.

“This performance could have been even better if external price shocks and exchange rates had cooled,” remarks Minister of Finance Carlos Alberto Lopes. “The country still imports most of its food from countries in the euro area and other currencies that have appreciated against the dollar, which serves as reference for the value of the kwanza against other currencies, influencing thus the evolution of domestic prices of imported products.”

Nevertheless, the country is on track to hit its target of no more than 12 per cent inflation by the end of 2011, and the general fall in inflation is forecast to continue moderately over the next few years, to reach 8.3 per cent in 2016.

Between 2001 and 2010, Angola had the fastest-growing economy in the world, averaging annual GDP growth of 11.1 per cent. The global economic slowdown brought down oil prices and demand for diamonds – Angola’s top income earners. Nevertheless, information released by the International Monetary Fund in September shows that Angola was one of the few countries in the world to escape recession in 2009, as its GDP grew 2.4 per cent while world GDP decreased 0.7 per cent. In 2010 the trend continued, as GDP grew 3.4 per cent and “the Angolan economic environment was characterised by the slow recovery in oil prices and the tax revenues to further consolidate the pillars of macroeconomic stability,” according to President Jose Eduardo dos Santos.

“Our anti-cyclical policy was guided by a firm determination to avoid a recession without resorting to the growth of debt issues and money,” the President said in his State of the Nation address in October. “Continuing to implement the Programme of Public Investments in physical reconstruction, and economic and social development, it was possible to maintain growth, avoid recession and continue the fight against hunger and poverty.”
 
Central bank reform

Major reforms and restructuring are underway at the central bank – Banco Nacional de Angola, BNA. A new department has been created to mitigate and support the management of liquidity, exchange rates and operational risk in the banking sector. As from October, under the direction of the bank’s governor Jose Massano, a new monetary policy committee (MPC) now meets every month to set the benchmark interest rate. The move brings Angola on par with other inflation-targeting central banks in the leading developed and emerging economies, and the change also promises to make monetary policy more transparent.

The Finance Minister believes the establishment of the central bank’s risk centre has been an important step forward in the modernisation of Angola’s financial system. “On the one hand, it reflects the confidence of banks in the central bank’s ability to record, without breaking any bank confidentiality, the real debt burden of bank customers,” he says. “On the other hand, it provides a reduction of credit risk, which is good for the reduction of interest rates charged on credit to the economy and the increase in the amount of credit to productive activity, such as recommended by the Executive’s strategy for sustainable growth and diversification of the national economy and increased job creation.”

Mr Lopes is also convinced that the country has emerged stronger from the recent global financial slowdown. “The crisis in 2009 has taught us valuable lesson, which reinforced our ability to develop and implement a debt plan able to cope with recurring bouts of volatility in oil prices without having to resort to a breach of commitments or measures that paralyse the economy.”

As a result of progress made in macroeconomic management, ratings agencies in 2011 improved their assessments of Angola, which creates the possibility of issuing sovereign securities outside the country.

Mr Lopes points out that through lines of credit on imports, Angola is in a privileged position to obtain from overseas the long-term and low-cost resources needed for large financial investments, such as the country’s reconstruction works, particularly in transport infrastructure projects building up the railways, roads and bridges that connect the provinces.

He says: “In addition, the conservative attitude of accumulating foreign exchange reserves taking advantage of the current phase of soaring oil prices, brings the country the comfort to see its liquidity for operations on the outside grow, while the Net International Reserves are approaching $20 billion, surpassing the total external debt ($16.3 billion, mostly long term).”

The Minister adds that the state’s public debt up to March 31,2011, stood at $29.9 billion, with $13.6 billion in internal and $16.3 billion external debt, “corresponding to 37 per cent of projected GDP for 2011: one of the lowest coefficients of the international scene. These conditions are ideal for Angola to debut in issuing sovereign securities in foreign markets.”

Gross domestic product

GDP growth in 2011 is expected to be 3.7 per cent, and the Economist Intelligence Unit forecasts GDP growth in 2012 and 2013 of 9.9 per cent and 7.1 per cent respectively, boosted by increasing efforts in economic diversification.

In his speech, the President pointed out that the increasing dynamism of the construction, agriculture, industry and services showed increasing participation of non-oil sectors in GDP, with growth of 8.3 per cent in 2009 and 7.8 per cent in 2010. Meanwhile, due to the sharp reduction in oil prices in 2009 and a reduction in oil production in 2010, the oil sector’s GDP contracted by -5.1 per cent and -3.0 per cent in 2009 and 2010 respectively.

 “We intend to create a legal framework that will govern all development areas, economic zones and buffer zones that have the conditions for the development of various products, etc.,” says the Economy Minister. “Now, the aim to boost special economic zones and enterprise parks involves creating industrial clusters (for energy, food, transport, etc.) and groups of companies that develop specific competence in those areas.

“The special economic zone in Luanda Bengo – which was the first one and is more suited to investors who can bring added value in terms of technology, productivity, etc. – has legal support of its own and is safeguarded by us. It is only at a quarter of its potential size but in the coming years we will continue with its restructuring since we have received requests from domestic and foreign investors interested in investing in this area.”

Foreign relations

Mr Gourgel adds that the government highly values its foreign connections: “In recent times we have made a great effort at economic diplomacy and have learned a lot from our partners and ourselves. Democracy has brought good results, such as the clear definition of six strategic partners, which are countries that – because of their importance to our economy and because of their volume of trade – deserve special attention from Angola, such as the US, United Kingdom, China, Brazil, South Africa and Portugal, with whom we have longstanding links.”

The recent visit by the former Lord Mayor of London Michael Bear and a delegation of financial experts from the City of London, who are helping Angola set up its first stock exchange, is a good example of how foreign companies can participate in win-win partnerships for Angola’s development. The stock exchange is seen a vital tool for increased medium-term investment in private companies and enabling them to attract funds for expansion.

Increased interaction between Angolan and British financial services companies is being actively encouraged on both sides and came up during the recent Lord Mayor’s visit. For example, Banco Africano de Investimentos (BAI), whose biggest shareholder is state oil company Sonangol, is looking to set up an office in London and Angola’s low penetration rate is piquing interest from British entities.

With only around 12 per cent of Angolans holding a bank account, compared to an average of 20 per cent in other African frontier markets, there is ample room for expansion in the banking sector, especially outside Luanda. One of the reasons for the low penetration rate is the current focus on the capital city, which holds more than half of the nation’s branches.

ccording to a study published in September by global audit firm KPMG, Angola’s oil-fuelled economic growth has allowed lenders to expand rapidly, with the sector jumping 21 per cent in total assets and 24 per cent in net profits last year. The study also reported that Angolan banks have invested in their networks, with the number of branches rising 22 per cent to 830 in 2010 and ATMs in the country increasing by a quarter. In addition, KPMG reported that around 80 per cent of the market is controlled by the largest five of the country’s 23 banks, but smaller rivals are gaining market share and “there is much room for organic growth.”

Also in September, several of the country’s top bankers called for Angola’s banks to use their strong capital and liquidity positions to help fund the diversification of the economy by providing loans for agriculture and industry projects. Reuters reported analysts labelling the sector as “well capitalised, highly profitable and liquid, and boasts resilient asset quality.”