State assets selloffs could expand Angola’s exports beyond oil and stimulate new industries and more inclusive economic growth. The IMF-backed privatisation programme creates exceptional opportunities for investors across diverse sectors. The government has highlighted that transparency in tender processes will be a crucial tenet of the privatisations.
Africa’s number two oil exporter, under new leadership since 2017, President João Lourenço moved decisively with wide-ranging legal reforms and other measures that aimed to reduce Angola’s monolithic dependence on oil, increase foreign and domestic investment and ease of doing business, enhance governance controls, and promote development of the private sector.
The initiative was to be funded by expanding oil exploration and then production, combined with the proceeds of the sale of roughly 200 state-owned enterprises (SOEs) across a wide range of industries to the private sector.Several tenders have already been launched or implemented.
This includes transferring the low-performance State assets to the private sector, with the latter to exploit the investment projects more efficiently.
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At the launch of the Angola’s privatisation programme’s technical group, the so-called ProPriv Programme, the government guaranteed that the process will contribute to increasing employment levels and “gradually reduce production costs.” IMF approval for the release of another tranche of the USD 3.7 billion Extended Credit Facility will also hinge on transparency in the tender process. Angola has already received a total of USD 1.24 billion in less than a year from the Fund. The IMF programme has anchored Angola’s policy framework and shored up confidence in the country’s economy.
A presidential decree issued on August 5, 2019 states that 195 state-owned firms, among which 175 will be sold through public tender, 11 by public auction and nine by initial public offering. The assets, account for over 10 percent of the wealth generated by the country (GDP). The project, which is expected to be completed by 2022.
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Angola has so far sold 30 companies through a program, 14 assets have been sold to private individuals, mainly situated in the Luanda-Bengo Special Economic Zone, allowing the state to collect 31 billion Kwanzas, primarily from the Special Economic Zone.
Targeted companies vary across a range of sectors including mineral resources, transportation, telecommunications, health, agriculture and construction, among others.By December of this year, according to official figures, Angola’s Privatization Program is expected to generate over $160 million (100 billion Angolan Kwanzas) in revenue through the divestment of 51 state assets this year.
Among the assets to be privatised are Sonangol, Endiama and TAAG, the commercial and industrial banks, Angolan Investment Bank, Economic and Caixa Geral de Angola, as well as ENSA Seguros and the Angolan Debt and Securities Exchange (Bodiva). Meanwhile, the process to list 30% of oil company Sonangol is expected to begin in 2022.
Also included are sales of stakes in Aldeia Nova and Biocom, the Textang II, Satec and África Têxtil factories, the Nova Cimangola and Secil do Lobito cement plants, the Cuca, Eka and Ngola breweries, and the Mota Engil Angola construction company.
The first phase of the privatisation process, held in 2019, was completed with the sale of five manufacturing units that exist in that SEZ, with the State raising US$16 million from those sales.
For this second phase the companies include Indupackage, focused on production of metal packaging, Betonar (pre-stressed concrete), Inducarpin (carpentry), Induplas (plastic bags), and Indutive (paints and varnishes).
The list also includes Mangotal (metal towers), Pipelaine (PVC pipes), Talhafal (metallic tiles), Transplas (PVC accessories), Vedatela (fencing), Absor (absorbents) and Saciango (cement bags).
Foreign currency shortages generally pose challenges to the tradable (mainly nonoil) sector. Manufacturing contracted 6.5% in the first quarter of 2019. In contrast, construction, electricity, and agriculture posted positive growth, on balance increasing the nonoil sector’s growth. Unemployment is currently 28%, and real GDP per capita growth is expected to stay negative given the low productivity and fast population growth, according to the African Development Bank Economic Outlook.
Strategic investments in infrastructure, human capital, and credit markets should diversify Angola’s economy, improve its current account balance, and generate international reserves (about 98% of exports are oil and diamonds).
Government support for export diversification and import substitution is identifying priority sectors to benefit from such initiatives as the credit support program announced in May 2019. Enhanced investments in energy will stimulate growth. Despite significant progress on macroeconomic stability and structural reforms, Angola is still suffering the effects of lower oil prices and production levels, with an estimated gross domestic product (GDP) contraction around 1.2% in 2018, the World Bank report noted..
Investments in activities and value chains based on comparative advantages in agriculture, fisheries, and petrochemicals need to be aligned with skill upgrading and human capital development.
Angola’s own forecasts show oil production within current projects drying up by around 2040, and the country has drawn up a roadmap for an investment and exploration push to discover up to 57 billion barrels of crude oil and 27 trillion cubic feet of gas within the next five years.
Angola is expected to remain in recession in 2020 due to the onset of COVID-19 halted oil exploration for months earlier this year and hollowed out demand for Angolan oil. Non-oil sector growth is also projected to decline due to spillover effects from lower oil prices, reduced imports capital goods, tighter financing conditions, currency depreciation, and restrictions on the movements of goods and people.
As the coronavirus pandemic delayed Angola’s efforts to privatise parts of its oil-dependent economy. The government has further sought to boost the business environment, by removing rules that required foreign entities to partner with a local firm.
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