Angola needs more than ENSA sale to get privatisations on track

By David Whitehouse
Posted on Friday, 30 July 2021 10:23

joao lourenco angola
Angolan President Joao Lourenco at the Presidential Palace in Luanda, Angola on 17 February 2020. Andrew Caballero-Reynolds/Reuters

Angola’s plan to sell a majority stake in state-owned insurer Empresa Nacional de Seguros de Angola (ENSA) won’t be enough to revive its privatisation programme without more transparency and improved governance, analysts say.

The state is seeking to sell a majority stake in ENSA, the country’s only insurer with a nationwide branch network, by the end of November. The sale is open to foreign investors, with an application deadline of August 10.

ENSA has been through a long-term process of “deep restructuring and modernisation, which puts it on the top tier of insurance providers in Angola,” says Milton Delo, an economist in Luanda. He sees the privatisation as offering an attractive entry point for foreign investors in Angola.

Still, non-Angolan candidates will be “cautious over whether the state will seek to hold an indirect influence in ENSA after its privatisation,” says Robert Besseling, CEO of the Pangea Risk consultancy in Johannesburg. This, he says, could be in the shape of new sector legislation or the forced participation of a politically favoured local partner.

Angola’s Integral and Partial Privatisation Program for Public Companies (PROPRIV), which runs from 2019 and 2022, aims to transfer ownership of over 190 state-owned assets to the private sector. But the Covid-19 disruption means that only 39 divestments have taken place so far.

Most of the assets privatised under PROPRIV have gone to local investors, but ENSA will likely need foreign bidders, given the scale of financing needed, says Nathan Hayes, an analyst at the Economist Intelligence Unit (EIU) in London.

  • “Bidders have access to ENSA’s financial documents, so it’s a good chance for them to ‘kick the tyres’ and really assess what they’re buying,” Hayes says.
  • Bidders will need to be experienced operators with a solid growth strategy for the business, he adds.
  • The insurance industry in Angola is “nascent, constrained by low income per head and the weak regulatory environment. This will be a key test of a relatively major asset coming to [the] market.”

Economic diversification

President João Lourenço’s anti-corruption drive has helped earn him the support of the IMF, one of the key support mechanisms for privatisations to succeed, says Alisa Strobel, senior economist for sub-Saharan Africa at IHS Markit. Angola has shown a “strong commitment to following IMF guidelines so far”, she says.

A market share of 37% means ENSA is “most likely to attract regional peers” as bidders, Strobel says. Still, “generally poor records on transparency, efficiency and profitability are challenging for bidders for Angolan state owned enterprises.

  • “The business environment continues to be marred by weak infrastructure and high associated costs,” she says.
  • “Despite anti-corruption legislation, the risk of bribes being demanded will remain pervasive due mostly to lack of capability to fight this.”
  • She doubts that the original privatisation timetable will be met, and says that the program is very likely to be extended by more than a year.
  • “Many of the entities that are set to be privatised are likely to be empty shells and unlikely to offer real value for investors.”

Delo says the next company to be privatised is likely to be Banco de Comércio e Indústria (BCI). Privatisation of state oil company Sonangol, diamond miner Endiama and national airline TAAG is also scheduled for 2022.

Such selloffs may be the only way for Angola to reduce its massive public debt burden, diversify away from the oil sector, and end a five-year recession, Besseling says. “The prospect of sovereign debt default will rise again from next year as deferred interest payments become due.”

Industries such as banking and financial services will be the key drivers of economic diversification away from oil, says Hayes at the EIU.

  • But without “proper scrutiny of buyers and agreement terms, the privatisation of state assets could increase the concentration of ownership among the elite,” which could deter investment and constrain growth, he says.
  • Many of the companies earmarked for privatisation are loss-making, and the country’s “poor record” on corporate transparency will also remain an obstacle, Hayes says.
  • Long-term non-oil expansion will require “further efforts to tackle corruption, improve regulation and reduce crowding of private investment by the public sector.”

“Markets in Angola are not fully developed, and informality inhibits competitive outcomes,” Delo says. “For any investor trying to enter Angola, it is essential to incorporate a variable that accounts for the developments in the informal sector”.

READ MORE João Lourenço’s Angola

Risks when doing business in Angola include red tape, foreign exchange rates, ethics as well as country and political risks, Delo says. The country continues to suffer from a “chronic Dutch Disease that prevents diversification.” Angola needs a clear policy to support small and medium-sized enterprises, which currently are treated just like any other business, he adds.

Bottom line

Potential foreign investors still need clear signs showing that the privatisation programme won’t be loaded in favour of Angola’s elite.

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