Economic diversification has long been at the top of Angola’s agenda, but so far government plans have delivered little. While the country’s non-oil economy is growing, it is not doing so quickly enough to create jobs on a large scale.
It was hoped that a controversial new customs regime introduced on March 1 would change the situation by kick-starting Angola’s domestic manufacturing and agricultural output. The new system applies hefty import tariffs of up to 50% on various items and thus encourages them to be produced domestically.
Domestic focus
Analysts say it is a risky strategy that could lead to prices rising or monopolies benefiting from such protectionism. But if it works, it could also radically alter Angola’s economic outlook and give it a chance of a future beyond oil. “Theses new tariffs are really punitive but they push companies that want to be in Angola to produce locally,” says Anna Rosenberg of London-based consultancy Frontier Strategy Group.
Although admitting that inflationary pressures could rise, Ms Rosenberg says: “I understand why they have put these measures in place and, theoretically, it makes sense. The Angolan government knows that it only has a limited amount of oil left, another 20 or so years, so it has to diversify, for better or for worse. It doesn’t have an option not to.”
The new customs regime is backed by the country’s leading business lobby, the Associação Industrial de Angola (AIA), which says its members need protection to be given a chance to grow.
AIA president Jose Severino says: “Before the war Angola was self-sufficient and an exporter of consumption goods, now we are importing nearby 75% of food and other products, many of which could easily be produced by local businesses here if they had the right stimulus.”
If the policy works, Angola may soon start to compete regionally with its more developed neighbours and eventually enter into the Southern African Development Community (SADC) free-trade area, something it has fiercely resisted until now.
Roger Ballard-Tremeer, a former South African ambassador to Luanda and who now heads the Angola and South Africa Chamber of Commerce, disputes that the new tariffs will lead to sudden price rises. “The protectionist intentions of the new tariff regime have been in the Angolan public domain since late 2011, so no one should be expressing surprise at the new import duties,” he says.
New factories
Several large firms, including Portuguese beverages giant Unicer (which makes the Cristal and Superbock brands of beer) and Portuguese juice firm Sumol+Compal, have already said they will open up factories in Angola in a bid to beat the tariffs. Others have announced expansion plans for existing operations.
But Mohamed Zin El Abidine, an analyst at Moroccan consultancy Infomineo who visited Angola last year to study its agricultural sector, believes that, particularly in the case of food production, the introduced measures may be premature. “I believe [the government] should have waited until it had developed the local agricultural economy more and then slowly increased the tariffs,” he says. “You need to have something to protect in the first place.”
Neither is Carlos Rosado de Carvalho, a respected Angolan economist and editor of the local Expansão newspaper, convinced that the new tariffs will help the economy. “This is not new protectionism, this is just more protectionism,” he says. “If we couldn’t protect local industry with 30% tariffs, what difference will another 20% make? Many local industries in Angola are virtual monopolies, so in fact that is all we are protecting.”
He points out that tough operating conditions remain a burden on local businesses. “The big problem that we have is our infrastructure, and in particular the lack of electricity,” he says. “Until we resolve our energy deficit I think it will be very difficult to diversify our economy.”
Mr Rosado, who writes a popular weekly column on national economic policy, says the government is too stuck on securing big headline projects, and that it should do more to support smaller businesses. “We need to create jobs,” he says. “Our government likes these big projects but what is important is not the value of an investment but what it actually delivers, especially in terms of jobs.”
Tentative SWF steps
Angola’s $5bn sovereign wealth fund, the Fundo Soberano de Angola (FSDEA), gained plenty of positive headlines when it launched in October 2012, but it has since come under fire for its slow start and governance structure.
Much of the unease is caused by the decision to give the chairmanship of the fund to José Filomeno dos Santos, the eldest son of Angola’s long-serving president José Eduardo dos Santos. He took the job after the first chairman, Armando Manuel, became the country’s finance minister in May last year. Mr dos Santos Jr insists he is qualified to run the FSDEA, which stresses its commitment to transparency and auditing.
But not everyone is convinced that the fund will be able to take decisions transparently and independently. Its advisory board is made up of the ministers of finance, economy and planning, all of whom are handpicked by the president.
The FSDEA grew out of an earlier ‘Oil for Infrastructure Fund’, which pledged to collect revenues equivalent to 100,000 barrels of oil per day and then spend them on development projects. The FSDEA is expected to follow this method of top-up and it is estimated that its base amount could grow by $3.5bn a year. If so, this would soon make it the continent’s largest sovereign fund, overtaking Botswana’s diamond-fed $6.8bn Pula Fund. However, some analysts think that smaller sums will be allocated to the FSDEA now that the government has entered what is likely to be a long period of budget deficits, mainly because of stagnant oil production.
The FSDEA says it will allocate 50% of its assets to fixed-income instruments, such as sovereign bonds, and equities in G7 countries. Most of the other half will go on higher yielding bonds from emerging markets, as well as direct investments in commodities, agriculture, mining, infrastructure and property.
Some 7.5% of assets will be placed towards ‘social development’ and ‘socially responsible projects’ involving education, income generation, water and healthcare initiatives.
The FSDEA had said it would produce a full audited annual report by the end of the first quarter of this year, but has yet to do so. Speaking at a business summit in April, Mr dos Santos said the fund had so far invested in some “high-grade fixed-income securities” and would “start investing in agriculture, mining, infrastructure and hospitality projects soon”.
On governance, he said the FSDEA submitted detailed quarterly reports to the ministry of finance. The International Monetary Fund, which has called for more clarity on the FSDEA’s investment policy, suggested that it should submit these quarterly reports to parliament in order to “preserve transparency”.
Targeting SMEs
One flagship government initiative that is supposed to support small and medium-sized enterprises is Angola Investe. Launched in 2012, it gave government guarantees to commercial bank loans for new business proposals. But 18 months on, only a small amount of credit has been given out.
The government blames the banks, who in turn criticise weak business plans, uncreditworthy clients and a squeeze on credit due to a hike in non-performing loans, something partly attributed to the government’s own failure to pay its contractors on time.
Unimpressed by Angola Investe and its custodian, Mr Rosado believes Angola should open up to small overseas companies to allow them to bring their capital and, crucially, their experience to develop a manufacturing and processing sector that Angolan firms can learn from. This goes against the widely held view that Angolans should retain as much control over their economy as possible and that foreign firms should only operate as part of local partnerships.
Although many small overseas companies are interested in Angola, since 2011 their prospects of entering the country have waned because of the adoption of an investment law that requires an initial minimum investment of $1m for them to be eligible for tax breaks and other incentives. This was an increase from $50,000 for local investors and $100,000 for overseas businesses. The move has been highly contentious, even prompting some members of the ruling Movimento Popular de Libertação de Angola to speak up, a rarity in a country where few challenge the status quo.
The law’s defenders say that it has helped speed up decision making at the government’s private investment agency, Agência Nacional Para o Investimento Privado, which was becoming overwhelmed by the volume of applications. According to Mr Ballard-Tremeer, the change allows investors to negotiate specific investment incentives rather than accept one-size-fits-all terms.
Imbalanced results
But critics believe the case-by-case system has been highly subjective and has led to inequalities and imbalances because fewer firms have received incentives to set up outside Luanda in less developed parts of the country.
After noisy lobbying from members of the AIA, the law is now up for review and a public consultation took place earlier this year to see how it might be revised, though no date has been given about possible amendments.
The frequency with which legislation changes in Angola is one of the headaches investors face when they try to penetrate what is already a complicated business environment. The country – notorious for its traffic jams, heavy bureaucracy and high business costs – came 179th out of 189 countries in the World Bank’s 2014 Doing Business ranking, down one place from 2013.
Ms Rosenberg says the changes and amendments to laws are frustrating for her clients, but adds: “Angola as a country is still in the early stages of development. Everything has to be put in place – new laws, new systems, and often new laws to change ones that they thought were good but had secondary effects they had not bargained for. But this also shows they are learning from mistakes, and that is a good thing.”
And while she agrees that corruption was a problem in Angola, there are steps businesses can take to protect themselves, such as properly following legal processes and not “slipping up and needing to expedite something”.
“You need to plan,” she says. “For instance, don’t think goods are going to clear the port in two days, be prepared for it to take months, or you may be tempted to pay a bribe to get them out quicker to meet other deadlines.”
Mr Zin El Abidine says that despite Angola’s problems, its large and still rapidly growing economy – its gross domestic product, the third biggest in sub-Saharan Africa, is set to expand 5% to 7% this year – means it cannot be ignored by international investors. “Angola is not a country that you can miss,” he says. “It’s one of the places in Africa that you need to be. Firms are interested now in new frontiers and going into countries such as Angola.”
Green shoots in agriculture
Angola was once a major exporter of coffee and grain, but now imports nearly all its food. Thanks to a poor road network and weak supply chains, it is in many cases cheaper to do that than grow produce locally.
Insecure land rights, a lack of irrigation systems and more recently drought have also held back agricultural development, but there are green shoots emerging.
In Malange, in the north-east of Luanda, the 411,000-hectare Sociedade de Desenvolvimento do Pólo Agroindustrial de Capanda (Sodepac) project is trying to kick-start large-scale farming with concessions for crops, livestock and agri-processing.
Strategically located next to the Capanda Dam, and so in theory guaranteed regular electricity and water supplies, Sodepac already has several farms in operation. One is run by Chinese state-owned construction company Citic and another is managed by Brazil’s Odebrecht, which aims to start producing sugar and ethanol later this year.
At the other end of the scale, a government initiative launched in November 2013 aims to tackle local supply chain issues and get more produce from small and subsistence farmers to market. Sites are being set up in all 18 provinces where small-scale farmers can sell their goods, which are then transported in bulk to sales points.
The Programa de Aquisição de Produtos Agro-pecuários, a public-private partnership, also plans to open processing factories to can, freeze and process food so as to extend its shelf life and add value.
The near-compete rehabilitation of the country’s century-old rail network should be a boost for small-scale farmers, with lines now running through agricultural heartlands such as Huambo and Malange to coastal cities such as the capital Luanda and Lobito.
There are some positive signs in the mining industry too. Angola is already a major diamond exporter, but it has proven reserves of gold, iron ore, copper and potassium that are largely untapped. Through a new mining code introduced in 2011, the government is working hard to woo companies to both prospect and develop sites.
Source link : https://www.thebanker.com/Angola-makes-its-business-case-1398931360
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Publish date : 2023-10-19 19:27:52
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