NewsSouthern AfricaAngola | Best-laid plans

Sun,18Nov2018

Posted on Friday, 19 October 2018 13:07

Angola | Best-laid plans

By José Gama in Luanda and Paulo Guilherme Figueiredo

The government intends to invest in large-scale food production to reduce imports - Credits: JOERG BOETHLING/HÉMIS.FR

The government wants to break free from oil dependency, but will it be able to improve electricity, finance and infrastructure enough to break crude’s hold?

 

For Angola to rise above its oil-fuelled cycle of booms and busts, the economy must become more diversified. President João Manuel Lourenço, who is a retired army general and who received military training in the former Soviet Union, says he is the man to break Angola’s oil curse. He calls himself a reformer along the lines of Deng Xiaoping, the Chinese communist leader who transitioned his country from a deeply centralised and impoverished econ­omy and laid the ground for the development of private enterprise.

Lourenço wants the country to attract foreign investment in agriculture, mining and manufacturing. So, in April of this year, the new government approved the Plano Nacional de Desenvolvimento (PND) 2018-2022, a 20-page document that sets out its economic and development strategy over the next four years.$85m invested by Isabel dos Santo-backed Sodiba in the construction of a state-of-the-art brewery at Bom Jesus with a capacity of 144m litres per year

Aguinaldo Jaime, who directed Angola’s foreign investment board in the late 1990s and has also served as finance minister and central bank governor, calls the PND “well-elaborated and almost unassailable from a theoretical point of view”. The shortcoming, however, lies in Angola’s “weak ability to implement” these policy instruments, “monitor results, correct any deviations or introduce the adjustments that the implementation reveals to be necessary or convenient,” adds Jaime, who currently heads the Angolan insurance regulator. Jaime tells The Africa Report that without diversification the economy will “remain vulnerable to external shocks. And even when it grows, it will not create massive employment.”

A new law passed in April of this year should boost investment and help create new clusters of economic activity, Jaime says. Notably, the law removes the requirement for foreign investors to have an Angolan partner.

Albertina Navemba Felisberto, an economist who previously worked in the department of agriculture, rural development and fisheries, says Lourenço’s rhetoric is nothing new and that the Movimento Popular de Libertação de Angola (MPLA) government has been talking about diversification since the 2008 financial crisis. She says that reforms would have been much easier during times of high oil prices. Felisberto, who is now a member of parliament representing the União Nacional para a Independência Total de Angola (UNITA)opposition party, argues that the PND is a step in the right direction but that its success “will depend on strengthening fiscal and monetary policy and deep structural reforms”.

Financing for farms

One of Lourenço’s first trips out of Luanda as president was to Huambo, in the country’s central highlands, for the opening of the 2017/2018 agricultural campaign. Lourenço, who owns a farm that produces potatoes and corn, gave assurances that the government will target agriculture in its diversification efforts. Currently, smallholders account for about 80% of cereal production and around 90% of roots and tubers. In May, the government announced that it would offer up more than 5m hectares of arable land for the 2018/2019 agricultural season for large-scale production of cereals, tubers, fruit, vegetables and oilseeds, to reduce imports. The PND’s goals include revitalising large-scale farms and promoting access to financing and insurance for agriculture and livestock, along with rolling out a subsidy for agricultural fuels. The World Bank signed off on a $130m loan to the Angolan government in order to strengthen agricultural corridors linking the central highlands to Luanda.

Measures set up to combat illegal and conflict mining had become a source of monopoly money - Credits: OLIVIER POLET/REPORTERS-REAMeasures set up to combat illegal and conflict mining had become a source of monopoly money - Credits: OLIVIER POLET/REPORTERS-REA

Cutting family ties

Another priority for the first year of Lourenço’s presidential term is ending monopolies in various sectors, almost all of them linked to the family of former president José Eduardo dos Santos. Bromangol, owned by José Filomeno ‘Zenú’ dos Santos, has a monopoly on lab tests for imported food. It has been the target of frequent complaints by importers regarding its high prices – around $5,000 for inspecting a single container.

After Angola joined the Kimberley Process diamond certification scheme in 2003, all diamond producers had to sell their diamonds to the Angola Selling Corporation (Ascorp), which also issues diamond certificates. The government has now taken Ascorp, partly owned by Isabel dos Santos (24.5%), out of the picture. In July, state-owned company Sodiam, which is responsible for the country’s diamond trade, also ended a contract for the purchase and sale of rough diamonds with Odyssey Holding, a company based in the United Arab Emirates that is linked to Isabel dos Santos. Sodiam has also ended privileges granted to Victoria Holding, owned by Isabel and her husband, Sindika Dokolo. The government is working on a series of other reforms to make diamond mining more attractive to international investors.

The government has not sought to stymie all of Isabel dos Santos’s business activities, however. In November 2017, the Sociedade de Distribuição de Bebidas de Angola (Sodiba), backed by Dos Santos, launched a new $85m brewery to produce Portuguese beer Sagres and local beer Luandina.

Aiming to open up the economy further, state-owned oil company Sonangol ended Trafigura’s effective monopoly on fuel imports in March 2018 by hiring two new trading and refining companies. Trafigura has enjoyed the exclusive right to sell refined oil to Angola and also controls 48.4% of Puma Energy, the owner of the Pumangol petrol stations. Puma is owned in part by Sonangol (30%) and private company Cochan (15%). Cochan is owned by army general Leopoldino ‘Dino’ Fragoso do Nascimento, a former chief of communications for Dos Santos.

THE VOLATILE IMPACT OF OIL       9.44m Size, in carats, of Angola’s 2017 diamond production, a 5% increase on 2016. Rough diamond sales in 2017 earned $1.102bn in revenue.

 

Austerity ahead?

Finance minister Augusto Archer Mangueira announced in August that the government will have the help of the International Monetary Fund (IMF) in its reform and diversification drives. Angola already had IMF technical assistance, and – if approved – Luanda can use the $4.5bn financial package for economic diversification, supporting the fragile banking sector, improving revenue collection and improving social safety nets.

According to former central bank governor Jaime, the recourse to foreign financing is insufficient to “mask the serious economic problems” that the country is facing. He adds that the crisis is “reaching alarming and unsustainable proportions, since no country or individual can live, eternally, beyond its means.”

According to Jaime, the government is already headed for the type of austerity measures that the IMF traditionally backs. “Inflation is already eating into wages, creating immense difficulties for our families and for the management of our companies, which have to bear nominally high interest rates on domestic bank loans. That is, even without the IMF, we are already experiencing a very difficult economic, financial and social situation”.

Because of the imbalances of the Angolan economy, the adjustment process will be “even more painful”, says Jaime. In that case, diversification cannot come soon enough. Angola ranked 175th out of 190 countries in the World Bank’s Doing Business rankings, scoring very poorly on issues like enforcing contracts and getting access to electricity and access to credit. That means Lourenço and his team will have to get to work on major infrastructure projects and banking reforms in order to turn the pro-diversification rhetoric into reality. 

 

This article first appeared in the October 2018 print edition of The Africa Report magazine
Top Photo: The government intends to invest in large-scale food production to reduce imports - Joerg Boethling/Hémis.fr



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