Angola: Finance Minister Vera Daves has one of Africa’s toughest jobs
When she took over as Angola’s Finance Minister last October, Vera Esperança dos Santos Daves had the gargantuan task of restructuring Africa’s fifth biggest economy.
That job has just got a lot harder.
Tasked by President João Lourenco with pulling the economy out of a four-year recession, Daves was targeting 1.8% growth this year.
Angola’s first woman finance minister, Daves’s meteoric rise started at the age of 31. She was appointed head of Luanda’s Capital Markets Commission in 2016.
This month, the price of oil – Angola’s main export – crashed by over $30 a barrel, due to the coronavirus pandemic and a price war between mega-producers Russia and Saudi Arabia.
Yields on Angola’s Eurobonds have more than tripled to 23% over past month.
As the economic effects of the coronavirus coursed through the markets, Daves gave an exclusive interview to The Africa Report about how the government is restructuring the economy in coordination with the IMF, privatising state companies worth billions of dollars and plans to raise more international finance when market conditions improve.
The Africa Report: As we are speaking, economists are making dire forecasts about the effects of the coronavirus on demand for oil and other commodities, economic growth and supply chains. How is Angola preparing for this?
We decided to take a conservative approach for our budget for the current year. But we understand that we need to follow closely what will happen in the world economy, the Chinese economy and the impact on the oil price.
We are looking at everything that we can do on the revenue side, on the expenditure side, on promoting a good business environment, to make sure that we can see other sectors contributing to the GDP, to compensate for something bad happening to the oil sector or the economy as a whole.
We should understand we need to look at the budget, what kind of expenditure we need to revise or cut. What we are doing until now is to try to find ways to compensate for this squeeze.
All the economy is interdependent – a China matter is not solely a China matter. We have some equipment we are importing from Germany … It is not being delivered to us because some part of it depends on material coming from China. So the equipment is not being provided.
The impact can be felt coming from countries that we were not expecting. This is because of the inter-dependency between the countries, their raw materials and their technology and people and their movement. Some countries are restricting movement.
So we need to watch closely and carefully for how long we will see this virus issue and what the effect on the economy will be and on business with our partners.
How concerned are you about balancing foreign and local debt obligations? What are Angola’s plans for Eurobond issuance over the next year? Will this remain a feasible financing option in terms of yield?
We are still focused on our strategy, making sure we are very disciplined on the expenditure side and very pro-active on the revenue side. This year we will have a peak of debt service that we need to manage.
We understand that in the next year and the years to come there will be an easier to manage framework for debt service. And that’s why we are being very conservative in our approach.
So, we intend to honour our commitments and pay our debts… we intend to avoid as far as possible contracting commercial lines [of credit], we want to move only with concessional and semi-concessional terms.
If we see that the conditions are good, we are expecting to go to the market this year. Why? Because we understand the process of due diligence, doing the roadshow is always an opportunity to show ourselves, to show the house, what we are doing and to help decrease negative perceptions of the Angolan economy.
That will not only help bring down the yields that the investors are charging on our bonds but also to invite them to come not only as portfolio investors but as private direct investors. That’s the message that will flow to the market.
We understand that the local banks need money to [energise] the economy. So we want to move forward less with commercial loans and more with concessional loans and semi-concessional loans and go to the markets to try to decrease the yields and improve the perception of Angola.
President João Lourenço’s government has led the search for Angola’s stolen assets with some high profile cases against Isabel dos Santos and other figures from the former government. We have been told that as much as $100bn left the country as illicit financial flows over the past two decades. Does the government have a target figure for how much can be retrieved?
No I don’t have a figure. What we are doing is working to make sure that each person and each entity that did not fulfil the law should feel the consequences of not fulfilling it. And we hope to see the benefits, financial benefits, coming from this process.
Of course it’s good to see the money and assets coming back. But more than that, it is important to establish a normalisation in our countries. All the entities in our country need to see that there are rules and they should be respected. That’s the most important fight at this point.
All the money and shares coming back will be welcome. The PGR [Attorney General’s office] and central bank are dealing closely with that and maybe they have some expectations [of how much money will come back].
At the ministry of finance, what we want to make sure is that the public finances are well managed and that public entities are respecting the laws and the citizens are feeling the benefits on their lives.
How important is the $3.7bn programme with the IMF to re-establishing international confidence in the Angolan government?
Our decision to move forward with a programme was related to, first of course, the money, but more importantly, our intention to be totally committed to our own goals. We had already established a macroeconomic stabilisation programme – 80% of the goals and measures were already there.
“We’re seeing a lot of people going to jail. It’s not good to see but it’s important to send a message …”
The government itself decided to move forward with a reformist agenda. But we understood that these types of reforms usually demand a lot of commitment, a lot of pressure, and it’s always easier to have extra help.
Not only to make sure that the policies are addressed by both the central government and municipalities, but also to make sure that someone is looking at the deliverables and that we see money coming from those deliverables.
That helps push the government more to make sure that we will implement our reforms.
So it was not the IMF telling us what we should do. It was us telling the IMF, “please help us to implement what we want to implement”. I think when the approach starts on those terms the process is easier for the authorities.
The money of course is a good part of it – it is on very good financial terms as opposed to commercial lines, commercial loans.
Having the IMF here helps us to have a good benchmark, to have a good narrative to sell to investors. So our commitment as a government, the benchmark that comes with getting funds on better terms, and also the disclosure of information that a country that is under an IMF programme needs to do, all together provides us with real benefits.
Of course every time that we issue a Eurobond we need to have a due diligence process, we have to disclose a lot of information. This process itself is very good but under an IMF programme we do it on a regular basis and the IMF published a report on their side so it’s positive information about Angola that helps us that is being disclosed.
Is the government’s crack down on illicit financial flows and pursuit of stolen funds changing perceptions and increasing investor interest?
What we are seeing coming from that – the investor interest is coming back.
Of course some investors didn’t yet decide to move forward with specific direct investments in Angola. But we have seen some interest coming, people asking questions.
Some years ago they would never listen to us – they would say “No, Angola is a mess, we don’t understand what you are doing there, you don’t respect your laws.”
And now the interest is coming back. They are seeing that we are imposing our laws, they are seeing that we are implementing the reforms and that we are committed to our citizens and to the IMF. They are seeing that it’s real.
So the questions are coming, the visitors are coming very regularly. We believe that if we keep moving on that path we will see the money coming in from different parts of the world.
We hear that the government, in coordination with the IMF, postponed the end of fuel subsidies while it set up a cash-transfer scheme for the most vulnerable people. How does this scheme work and will it offer a solution for other countries?
We are implementing structural reforms that are at different stages. We removed subsidies relating to water and electricity service provision. Now we are seeing new tariffs on that. We already have a free market. And we will move forward with transport and fuel.
We understand that the fuel subsidies removal is more complex in cities. We still have a lot of entities depending on generators and public transport services are not perfect so we have a lot of people going to their jobs using cars that need fuel.
The consequences on prices coming from removing subsidies are not negligible. They need to be implemented carefully. That’s why we are analysing it so that we can move forward with it but not provoke social clashes.
Because we already implemented important reforms – we implemented VAT and we are now establishing the process, we implemented the removal of subsidies on electricity and water – to move forward with this final step is a huge one. We need to make sure that the population feels as little negative impact as possible. Of course, we should pay more attention to poorer families.
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One of the measures to address that poverty is the cash transfer programme – but we are looking at other ways too, and that’s why we haven’t yet made the move. We are asking ourselves which additional measures we can implement to make sure poverty is addressed efficiently and to ensure there is as little impact as possible.
We know that we should do it. The IMF is not putting pressure on us for a date. It’s the opposite – they are asking us to move slowly, the IMF is being more conservative than the authorities. But we understand why they are concerned and of course we will take all necessary measures to make sure we do not compromise social stability.
In your list of reforms – transparency in public sector contracts, fiscal consolidation, recapitalization of the banks – where is the government making the most progress? What are the biggest obstacles?
Regarding fiscal consolidation we are seeing some important gains on two sides – on the revenue side we are implementing a lot of important reforms and we are collecting the benefits of it. We implemented Value Added Tax (VAT) and we collected near enough the amount we predicted in the supplementary budget for 2019. The numbers were very good.
We are changing the way we charge the taxes – moving from paper to technological systems to make sure that we see less corruption and less bureaucracy and the fiscal machines become more efficient in providing services. We are also seeing benefits from that.
On the expenditure side we are making good progress on the procurement process. Because we are seeing increasingly open procedures to hire different services for state public investment programmes and current expenditure too.
We publish information in the newspaper and the electronic platform for the procurement process.
So [the] transparency is coming back to our procurement process and that is great. We have a programme that we call the municipality intervention programme where we use part of the amount that we capitalise from the Sovereign Wealth Fund. All the procurement for projects within that programme are being done through open procedures.
We are refusing to hire only one company – we announce what we want to build, what we want to buy, and the companies send their proposals and we are choosing the best of them.
How is the government enforcing the new rules?
We are seeing a lot of people going into jail because of a bad use of public resources. It’s not good to see, but it’s important to send a message to the public and the state system. Managers who are not respecting the laws will face the consequences for not doing that.
That’s good progress as compared to some years before where we did not see this happen. On the side of the state-owned banks, we have some challenges because we still have a portfolio that is big in terms of non-performing loans. The banks are doing their job trying to recover it but they have capitalisation needs that should be addressed.
Now we are discussing how to address it and reconcile it with our privatisation programme when we hope to sell some of those banks on the market. We are discussing that internally and with the IMF.
Interview conducted by telephone from Luanda.