Angola: ‘We look to our creditors for space to breathe and grow,’ says finance minister

By Patrick Smith, Zoe Eisenstein
Posted on Thursday, 3 March 2022 14:06

Angola's Finance Minister Vera Daves de Sousa.
Angola's Finance Minister Vera Daves de Sousa. (photo: Facebook /Vera Daves De Sousa)

Angola is one of the leading oil-producing economies set to benefit as Europe switches gas and oil supplies from Russia to Africa. Speaking exclusively to The Africa Report, Angola’s finance minister Vera Daves de Sousa sets out her plans to rebuild the national economy in the wake of the pandemic and commodity-price crash.

Juggling an onerous burden of public debt, market demands for fiscal discipline and the ruling party’s bid to win another term in office in national elections in August, finance minister Vera Daves de Sousa faces a year of finely balanced decisions. So far she has been winning, against the odds.

The economy, the fifth biggest in Africa, is growing again and the prospects of a debt-servicing crisis have receded. For the ruling Movimento Popular de Libertação de Angola (MPLA), shoring up the economy after several years of austerity is vital ahead of the elections. Facing budgetary pressures in 2020 and 2021, the government has had to pare back spending, cutting several subsidies. This year, it is likely to open the taps a little.

Angola, like Africa’s other oil and gas producers, could be a net beneficiary of the price hikes triggered by the Russia-Ukraine conflict. But Daves de Sousa warns the market is too volatile to allow Angola to relax.

Her priority is to build up enough reserves to act as a buffer should the oil price drop again, as it did in 2020 and 2015. She also wants to press ahead with structural reforms to speed up the diversification of the economy away from oil and diamonds.

Since independence in 1975, Angola had been a classic export-commodity-dependent economy. Daves de Sousa wants to encourage more local companies to start processing, manufacturing and service operations. She expects farming and fisheries to lead the field for local investors.

Now the IMF and a slew of commercial banks forecast that Angola will consolidate its recovery after five years of recession. Its economy should bounce back strongly this year with growth of around three per cent, and then more than four per cent in successive years, according to their figures.

With 95% of foreign exchange coming from oil exports, Angola’s revenue prospects are looking up after the global hike in oil prices to a peak in early March. Prospects for the industry in Angola are better now that European states are planning to buy more oil and gas from Africa after their political ruptures with Russia.

Daves de Sousa has scored some successes in her efforts to restructure some of Angola’s foreign debt, which was among the highest in the region. Her team agreed to a new arrangement with one of China’s banks and took advantage of the G20’s Debt Service Suspension Initiative, which allowed it to delay about $3bn in payments in 2020 and 2021.

That helped the treasury to manage its resources and reach the end of 2020 with no fiscal deficit, despite plummeting export revenue. Last year’s receipts improved, and the IMF positively reviewed Angola’s performance under its $4.5bn aid programme.

But there are more difficult bilateral negotiations on debt to come as the government’s programme with the IMF winds up. Although the IMF commended the government for improving budgetary discipline, it urged Luanda to move faster on the sale of state assets.

The government is working on plans to sell shares in a state insurance company and privatised a stake in a leading bank but progress in preparing Sonangol, the state oil company, and Endiama, its diamond company, has been slow. Much of the problem comes down to the complex web of contracts set up by the companies under the previous government of José Eduardo dos Santos.

Under President João Laurenço, investigators probed oil and diamond contracts linked to members of the dos Santos clan. These investigations and the opacity of the contracts have slowed the process of establishing a fair value for the companies’ assets. Resolving the status of Sonangol and the government’s plans to sell 30% of its equity have taken on critical importance as demand for African oil rises.

The Africa Report: How fast do you expect the economy to recover?

Vera Daves de Sousa: We are expecting 2.4% growth this year. We need more than 3% to compensate for the growth of our population. But 2.4% is a good start because we are coming out of five years of recession. If we see more growth, it will be a good surprise.

How will higher oil prices this year help Angola?

It’s such a volatile market that we need to be very careful about this price. We keep a kind of buffer if we see more coming in as compared to the reference price in our budget. We will also be ready if we see a turnaround and the market moves against us because we are working a lot on diversification, but we still have a high dependency on oil so it’s good to be prudent and create buffers, to be ready and avoid what we had to deal when the pandemic was at its worst.

As you diversify, what are your priorities?

We are expecting a lot from agriculture because we saw agriculture grow in the last four years, despite all other problems. If we keep investing in infrastructure, roads, electricity and water to ensure farmers can transport their goods to the cities and commercial centres, I think we will see even more interest in this sector.

Also, we are expecting to see a lot happening on fisheries. The informal economy is growing strongly, but we are putting efforts into formalising it to create space to see growth coming from that. Tourism has a lot of potential, as soon as we put in the infrastructure and services in those areas where it could develop.

The IMF says many of your policies have made “significant progress” but advised you to do more on diversification and developing business.

Yes, we are quite under our potential and still have a high dependency on the oil sector. […] So the IMF and the government know we need to keep working hard to ensure that we have a strong private sector, a local one, but also a foreign one that plays a key role and contributes to our GDP and fiscal revenues, helping us on the pathway to sustainable public finances.

What would speed up the development of local companies?

We did a lot on the legal framework: private investment law, competition law, trading rooms, so we have the legal infrastructure and institutional package to attract investment.

What we need to keep working on is the mentality of the public servants to ensure we are less bureaucratic, not involved in acts of bribery and very strict with any acts of corruption. Also to keep investing in infrastructure – if I have money to invest, I do not want to deal with a bad road where there are no bridges or electricity.

How are the privatisation plans going, especially the two biggest state companies, Sonangol and Endiama?

First, their balance sheets need to be clean and transparent. All the legal processes regarding the assets of those companies need to be resolved before starting the due diligence. This will ensure that the final value that the government gets from this sale is as good as possible.

What are your plans for an energy transition away from fossil fuels?

We are totally committed to the protection of the environment and limiting the impact of climate change. We are investing a lot of money and efforts in projects for solar power and hydro: dams in the centre and south.

We need to make the transition by first taking advantage of our non-green energy to create space, to have money to do more. Without those sources of income, it will be difficult for us to keep on a sustainable path and make investments in the non-oil sector and clean sources of energy.

How do you assess the G20’s debt sustainability initiative? Has it helped Angola?

I think we are in a position where it’s not quite fair to say: ‘You should do more for us’. I think each country needs to do their homework to understand what kind of solution they can reach with the big creditors.

It’s difficult to find a one-size-fits-all solution because each country has different types of portfolios and creditors. So it’s not easy to find a package for all the African countries, and I understand that.

Some governments are calling for rich countries to transfer a substantial sum of last year’s issue of $650bn worth of IMF Special Drawing Rights to African economies. What’s your view?

All help is useful, but [it’s useful] to listen to countries that will receive it: to make sure that the final results are as good as possible. Once again, each country has a different situation.

How are the preparations going to the elections in August, and what are the MPLA’s chances of victory?

That’s a perfect question for a minister of finance [laughs]. Well, I can answer you as a citizen. […] I want my country to remain peaceful, to grow, to create jobs, and I believe that the party to which I belong [the MPLA] can do it.

But I’m only one of 52 million Angolans. So Angolans will decide what they want for their future. I think the President … is committed to providing the best possible conditions to the population. We are coming from very difficult circumstances. It’s quite hard to fix it all in five years.

How can you bridge the gap between implementing good policies and getting positive change on the ground?

All the government, all the public and private institutions, need to be totally committed to the quality of expenditure. It’s something that we need to keep working on. That’s my flag as minister of finance – open procedures, transparency, saving money, choosing projects well, putting the people first. That’s my role doing this. As I mentioned, I’m only one, but I can shout loud.

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