Sonangol & Galp: what future together?

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0-Introduction. Failure to take advantage of synergies between Sonangol and Galp

It was a recent article in the Jornal de Negócios, by its director Celso Filipe, which drew attention to the lack of synergies between Sonangol and Galp[1] and which serves as a starting point for this note on the topic.

Sonangol is the Angolan oil company and for many years it has been the real core of the country’s economy. In fact, it still is, despite the government’s diversification policy. In technical terms, the group consists of Sonangol E.P. (a public company) and a myriad of subsidiaries[2]. Galp is a Portuguese group also linked to oil, which includes several companies such as Petrogal, Galp Energia etc[3]. Obviously, Sonangol is the giant of the Angolan economy, while Galp is one of the largest companies in Portugal, alongside EDP.

The interesting thing is that since 2005, Sonangol has been a shareholder of Galp, although such participation is not assumed directly, but through a company of the Amorim family. It is known that, in an initial phase, this participation was publicly attributed to Sonangol, but then the daughter of President José Eduardo dos Santos, Isabel dos Santos, emerged as the holder of interests in the same participation, and there was sometimes factual confusion between what belonged to Isabel dos Santos and Sonangol. Today there is a dispute between the position of Sonangol and that of Isabel dos Santos, which led to the investigation of the latter in the Netherlands, where the vehicle company that it uses to control its position is headquartered[4].

Therefore, we have more than 15 years of indirect participation by Sonangol in Galp. The curious thing is that during that time, Sonangol and Galp never really sought to create synergies between the two companies. Sonangol’s participation was limited to being seen as a financial participation. Sonangol invested money and received dividends from that money. Nothing else. As Celso Filipe points out, in the aforementioned article: “Sonangol never sought to create industrial synergies with Galp, which could benefit the activity downstream and upstream of production and even improve its profitability.”

• The approach of Sonangol’s partial privatization requires that its holdings be valued to the maximum and the exploitation of synergies is done in the most efficient way so that the company obtains the best price for the sale of part of its shares.

• In addition, the current Angolan economic crisis requires an additional effort by its largest company to increase profitability.

These two reasons make it imperative to revisit the topic of Sonangol’s participation in Galp in order to see what is the best way to maximize its usefulness.

With this objective in mind, we will start by defining Sonangol’s current position at Galp, and understand its formal justification, suggesting a change, then we will try to find explanations for the purely financial strategic position that the Angolan company adopted in its Portuguese counterpart and finally, we will explore the various options for the future.

1- Sonangol’s position at Galp

What results from Galp’s public corporate documents is that Sonangol does not hold any direct stake in the Portuguese oil company. Galp’s largest shareholder is Amorim Energia, BV with 33.34% of the capital, followed by Parpublica (which holds the Portuguese State’s shareholdings) with 7.48% of the capital and several investment management companies such as Massachusetts Financial Services Company, T. Rowe Price Group, Inc. and BlackRock, Inc. with about 5% each. Then there is Banco New York Mellon and Canada’s Black Creek Investment Management with around 2%[5]. This list of reference shareholders includes a company based in the Netherlands with the name Amorim, the Portuguese State and several American financial institutions. Sonangol does not appear.

In fact, Sonangol’s position is associated with the Dutch company Amorim. Sonangol holds the majority of the capital of a company called Esperaza Holding BV (also based in the Netherlands). In turn, Esperaza participates with 45% of Amorim.

This means that Sonangol has a minority position in Galp’s majority company. If Sonangol represents 45% of Amorim’s capital, it is clear that the Amorim family owns the other 55%. In turn, it seems that even in Esperaza Sonangol’s position is not total, since it shares it with Isabel dos Santos, with a dispute between them that it will not be cured here, since it does not affect the assumption that Sonangol controls Esperaza.

Fig. No. 1- Sonangol’s indirect participation in Galp

In a way, Sonangol’s position appears “sandwiched” between the Amorim and Isabel dos Santos, effectively lacking strategic room for maneuver and not having a decisive role at Galp, since it is always mediated by the Amorim.

Is the doubt that persists one see the reason why Sonangol accepted to participate in Galp in a dependent and submissive position to the Amorim? Was it a political demand from the Socrates government at the time, to avoid an overpowering onslaught by Angola? Was there shyness or ineptitude in negotiations on the part of Angola? Or was it a strategic formulation of Isabel dos Santos to appear unseen? We have no elements to justify this indirect choice.

• What can be said today is that Sonangol’s indirect position is detrimental to the appreciation of its shares as it is always dependent on a third party, in this case the Amorim, and does not have direct access to the company. This does not give value to the position or give it room for strategic maneuver.

What can be seen is that Sonangol’s stance enhances the Amorim’s leading role as they, with a mere 18.33% of the company, control 33,34%. We do not know whether Sonangol receives (or has received) any “prize” from the Amorim for this contribution or if there is any shareholder pact.

If there is no “prize” or shareholder agreement that benefits Sonangol, the truth is that, from Sonangol’s point of view, what will make the most sense is to split its position from Amorim and make its participation in Galp independent. This, as mentioned above, will give financial value to the participation as it becomes direct, and will give the Angolan company more strategic room for maneuver. This element is even more relevant at a time when it seems that strategic differences between the Amorim and the Galp’s CEO, Carlos Gomes da Silva, led to his hasty departure from the helm of the company. We don’t acknowledge the role Sonangol played in this divergence and its resolution, if any.

2- Possible reasons for the “passivity” of Sonangol’s position in Galp

As we have been saying, Sonangol’s role in Galp has been passive, essentially limiting itself to receiving dividends and not looking for any strategic synergy. The question that arises is why such a large and important participation, which  several Sonangol CEOs  consider in their public speeches as strategic, ended up being nothing more than a financial investment?

The first reason to justify such behavior is of a formal nature. Since Sonangol is not a direct Galp shareholder, it did not have the necessary means of influence to propose and create any synergy. This justification seems to us too formalistic and does not necessarily correspond to reality. However, it should be noted that in 2020, regarding several controversies involving Isabel dos Santos, Galp’s CEO, Carlos Gomes da Silva, was not afraid to affirm that “Isabel dos Santos is not a direct or reference shareholder [ of Galp] ”, adding“ The long-term reference shareholder is Amorim Energia, which is controlled by the Amorim family [6]”. Although the context of these statements is perceived, they still represent an effective disregard for the Angolan position, but that basically corresponds to the truth.

A second reason for Sonangol’s passivity is linked to the preponderant role that Isabel dos Santos played in Galp’s Angolan participation. The businesswoman only worked for a short time in Sonangol (2016-2017), in the remaining time, that is, between 2005 and at least until the emergence of several controversies in 2019/2020, her position was that of a private entrepreneur. in constant investment process. Isabel dos Santos did not stop in the extension of her “economic empire”, making purchase after purchase, investment after investment. In Angola, in addition to the initial investment in Unitel (a leading telecommunications company), Isabel dos Santos, as of 2008, enters several sectors such as distribution, banking, and hospitality. In banking, in addition to participation in BFA, the foundation of Banco BIC, in the distribution sector, launched Candando. In Portugal, she participated in BPI, bought BPN, took a stake in what is today NOS, in addition to Galp. She also bought vast real estate.

There is a pattern in Isabel dos Santos’ business activity, that of the investment cascade, using loans or dividends from one company to acquire others, not worrying, at this stage, in strategically integrating her business conglomerate. Now, the behavior observed in the construction of Isabel dos Santos’ “empire” and the possible political control that she assumed for some years over the Angolan participation in Galp, may have implied an option for receiving dividends as a priority. In fact, Isabel dos Santos would need Galp’s dividends to cover her expenses and, without having other relevant oil interests, there would be no focus on building synergies.

This is a working hypothesis that, of course, needs to be confirmed as the documentation on the involvement of Isabel dos Santos in the control of the Angolan position at Galp, between 2006 and 2016, is made public.

• However, what appears to be that the determining interest in this Angolan participation in Galp in the referred period was that of Isabel dos Santos and her main concern was to obtain funds for investment in its expansion and maintenance of its business conglomerate.

Obviously, this hypothesis does not explain the apathy observed after Isabel dos Santos left. Since 2018, there have been no special moves by Sonangol vis-à-vis Galp. At this stage, this inertia can be justified by the strategic uncertainty that has plagued Sonangol and also its participation in Galp.

In one way or another, this is the imperative time to take a rational stand on this participation.

3- Sonangol’s several options vis-à-vis Galp

When the Angolan oil company is in the process of restructuring and intends to privatize part of the capital, it is essential to consider what it will do in relation to its participation in Galp.

There are several hypotheses for action. To better analyze them and discover the most appropriate course, it is pertinent to approach the strategies that each of the companies is following, since both are in a moment of reconfiguration.

Sonangol’s strategy

As for Sonangol, the strategy followed is based on several vectors, of which we highlight[7]:

-Like several of its counterparts, ARAMCO or BP, the oil company wants to become greener. It is also intended to permanently move away from the image of corruption. The plan for the next seven years, focuses on renewable energies and the relaunch of exploration and production in several oil blocks. In particular, Sonangol intends to:

– Increase the capacity of operated production of crude oil, with a target of not less than 10% of national production, instead of the current 2%.

– Invest in several oil blocks in order to increase net rights, with the relaunch of exploration and production in several oil blocks expected this year (blocks 3/05, 3 / 05A, block 5/06, Kon 4, as well as the cooperation, together with Total, of blocks 20 and 21, three years after the first oil).

– Optimize and modernize the Luanda refinery and ensure an increase in refining capacity, with investment in new refineries, in order to reverse the fuel import situation.

– Increase the capacity to distribute LPG [liquefied petroleum gas], monetize LNG [liquefied natural gas] and invest in renewable energy projects.

– Consolidate the company’s position as a reference player in the shipping segment in the region.

– Reinforce the position of trading crude oil and refined products in the international market, thus leveraging additional sources of revenue collection in foreign currencies.

– Increase onshore storage capacity, replacing floating storage.

-Optimize the retail network, aiming to consolidate the position of largest distributor of liquid hydrocarbons in the national market, in an environment that is increasingly liberalized, as well as relaunching the distribution and commercialization activity in other countries in the region, of which we have already the re-entry process is underway in the Democratic Republic of Congo.

Galp’s strategy

Galp is also in a strategic transition phase[8]. Decarbonisation has now become a priority, already manifested in the decision to close the Matosinhos refinery and the Sines Thermoelectric Power Plant. In fact Joana Petiz at Dinheiro Vivo[9], says that it was the Amorim’s commitment to accelerating the energy transition that led to the shortening of Carlos Gomes da Silva’s mandate and the appointment of Andrew Brown. Brown will have a mandate to bring about an intense change in Galp’s business, which is already advanced in its energy transition. In reality, Galp is the largest producer of solar energy in the Iberian Peninsula and invests in lithium, having acquired 10% in the company to which the lithium exploration in Portugal, Savannah Resources, was handed over.

However, despite these movements, oil is the company’s main source of revenue, with a special emphasis on holdings in Brazil, which make a substantial contribution to the company’s sustainability. Apparently, this will be where the financing for new projects “like gas in Mozambique – an intermediate step in the transition to cleaner energy – will come from, as well as the new bets from the oil company, including the exploration of lithium in Portugal[10]”.

Brief comparison between Sonangol and Galp

In 2019, according to the Reports and Accounts, Sonangol obtained total revenues in the order of US $ 10 billion, and an EBITDA of 5 billion. In turn, Galp achieved revenues of more than 19 billion dollars and an EBITDA of just over 2.5 billion dollars. Both companies affirm they are committed to an energy transition, this bet being more visible in Galp, but in terms of revenues both are dependent on oil.

Fig.2- Galp / Sonangol comparative table (source Annual Reports 2019, quot. € / $ to 5-2-2012)

 Billing (2019) (M.USD)EBITDA (2019) (M.USD)Main Source RevenueStrategic Alternative
Sonangol10.2315.550OilGreen/Renewable
Galp20.0662.852OilGreen/Renewable

The various options

Sonangol can choose one of the following options or a combination of several in relation to Galp:

1-Sale of participation;

2-Reinforcement of participation;

3-Maintenance of the strategy as a financial investor;

4-Synergy in the energy transition;

5-Industrial and commercial synergies.

Let’s look at each hypothesis.

Sale of participation

It is clear that lately the price of Galp’s shares has been discouraging. If you notice, throughout 2020 the bonds were losing value, even in October they were below € 7.00. It should be noted that this happened after the start of Covid-19, as in February 2020, the securities were being traded at around € 14.00. At this point, stock trading is slightly above € 8.00. The reality is that it is only after the fight against the Covid-19 pandemic is over that it will be possible to assess Galp’s trend market value.

Fig.nº 3. Recent evolution of Galp’s prices (source: https://www.galp.com/corp/pt/investidores/informacao-ao-acionista/acao-da-galp/desemecimento-da-acao)

Consequently, there is nothing to advise a low sale at this time.

Strengthening participation

Alternatively, Sonangol, given the low price of Galp shares, could consider strengthening its position in Galp. This would be justified as long as Sonangol had funds available for such an acquisition and saw an additional strategic interest that would lead it to have a more influential position in the company.

Maintaining the strategy as a financial investor

This has been Sonangol’s position for the past 15 years and, of course, it has borne fruit, being able to choose to maintain its posture. If we analyze Galp’s ROE (return on equity) since 2011, we see different numbers. In 2011, we had a robust number in the order of 14, 73%. In 2013, the number was around 2.86%. 2015, presented 1.91%, 2016, 2.86%. ROE in 2019 was at 6.75%, and recently in September it was negative, -8.19%[11]. This instability is important for Sonangol to evaluate its participation in Galp as it allows the Portuguese company to be qualified in terms of risk and consequent expected profitability.

This means that Sonangol will be able to convince itself that there are other more satisfactory alternatives for investing its capital and that they do not bring such large fluctuations, preferring to disinvest. We believe that if this is Sonangol’s option, this will mean that sooner than later, when the price is good, it will eventually sell the position.

Synergy in the energy transition

This is the option that seems most promising to us. With Galp already embarking on an advanced energy transition program and Sonangol wanting to take more firm steps in this direction, as indeed a good part of the large oil companies is already doing, the alliance or cooperation between Sonangol and Galp in this area, namely in solar energy, where Galp, as mentioned, has a prominent position in the Iberian Peninsula, and Sonangol comes from a country with great potential, there is a great possibility for joint action. In this sense, the possibility of creating and implementing common and ambitious projects in the area of energy transition is envisaged, providing Sonangol with the Know-How it does not have yet, and giving Galp a broad market for the development of its already designed strategy.

Industrial and commercial synergies

Obviously, the possibility of industrial and commercial synergies is immense. From oil refining at Galp’s refineries, to derivatives and shipping, in addition to using Galp’s accumulated experience in pre-salt prospecting in Brazil to open up new horizons in Angola, there are a myriad of possibilities that could be explored[12].

4. Conclusions

• The first conclusion reached through this short analysis is the need to legally reformulate the participation of Galp’s Sonangol. This should appear independently and directly in the shareholder body of the Portuguese company.

• The second conclusion is that there is a wide map of possible synergies between Sonangol and Galp, and it is strongly advised to develop them in the areas of energy transition, namely in solar energy.

[1] https://www.jornaldenegocios.pt/economia/detalhe/a-oportunidade-perdida-da-sonangol-na-galp

[2] https://www.sonangol.co.ao/Portugu%C3%AAs/GrupoSonangol/Paginas/Grupo-Sonangol.aspx

[3] https://www.galp.com/corp/pt/sobre-nos/a-galp/organizacao

[4] https://www.dw.com/pt-002/empresa-de-isabel-dos-santos-investigada-na-holanda/a-54948244

[5] https://www.galp.com/corp/pt/investidores/informacao-ao-acionista/estrutura-acionista

[6] https://www.publico.pt/2020/02/18/economia/noticia/galp-isabel-santos-nao-accionista-direta-referencia-1904644

[7] See CEO interview Sebastião  Gaspar Martins in https://www.dn.pt/dinheiro/sebastiao-gaspar-martins-a-sonangol-reitera-o-seu-interesse-estrategico-em-estar-na-galp-13266123.html

[8] https://www.dinheirovivo.pt/empresas/galp-muda-ceo-com-plano-verde-e-litio-em-cima-da-mesa-13224149.html

[9] idem

[10] idem

[11] Study from https://www.macrotrends.net/stocks/charts/GLPEY/galp-energia-sgps-sa/roe

[12] We followed Celso Filipe’s suggestions closely at https://www.jornaldenegocios.pt/economia/detalhe/a-oportunidade-perdida-da-sonangol-na-galp

A radiography of the fight against corruption

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1- Introduction. The discussion on fighting corruption in Angola

The fight against corruption was established as a main goal in the beginning of João Lourenço’s presidential term. What we want to know in this analysis is whether this fight has gone from rhetoric to practice, and, above all, what elements can identify a clear response to a theme that has become the subject of political dispute in Angola. To reach provisional conclusions – since the process against corruption has not ended yet – we will analyse some structural elements of the fight against corruption, such as the discourse of political power, the legislation adopted, the bodies created, international cooperation, the cases under investigation, the asset recovery and the universe of legal charges. Balancing all these elements together we will draw a picture of the current fight against corruption.

This text seeks to ascertain whether there is a fight against corruption in Angola, using the mentioned index elements. It does not take a general assessment of this fight, this will only be done at the end of the presidential term, nor does it investigate the failures and improvements necessary for that fight, which has been done in other studies. Here we want to gather elements and conclude about the praxis of fighting corruption in Angola.

2- Structuring elements of the fight against corruption

2.1- The political discourse

The fight against corruption began with a strong appeal from the political power that started with the inauguration of the President of the Republic. At that time, in September 2017, João Lourenço elected the fight against corruption as one of his priorities, stating that he will confront the corruption that “rages in state institutions.” The President emphasized the “direct negative impact on the State” of corruption, saying that it threatens “the foundations of the country” and concluding that this will be “one of the most important fronts of struggle in the coming years”[1]. Later, in February 2020, after several speeches of the same content, when the possibility of an agreement between the State and Isabel dos Santos was publicly raised, the President went out on a rally to vigorously reaffirm the priority of fighting corruption and denying any agreement with Isabel dos Santos[2]. Recently, on the anniversary of the Attorney General’s Office (AGO), he reaffirmed his commitment to this fight and praised the role of the AGO[3].

Three different moments, and three clear and solemn speeches on the fight against corruption by the President of the Republic and the holder of the executive power. The same rhetoric has been followed by other policy makers over the past few years. There have been no hesitations or setbacks in grammatical constructions. Therefore, from the point of view of political discourse, there is no doubt that there has been a strong and permanent commitment since 2017 in the fight against corruption, with the first analytical element being fulfilled. It is necessary to comply the following elements.

2.2.- Anti-corruption legislation

The political discourse was accompanied by legislation with a focus on combating corruption. The government passed two laws on the repatriation of capital, which it considered to be the cornerstone of its anti-corruption policy. These laws are the Law on the Repatriation of Financial Resources, alias the Law on Voluntary Repatriation (LVR), Law No. 9/18, of June 26, and the Law on Coercive Repatriation and Extended Loss of Assets, alias the Repatriation Corercive Law. (RCL), Law No. 15/18, of 26 December. These laws will represent the executive’s commitment to ensure that funds diverted by corruption, return to their rightful owner, the State. We will see further below which are the effects of applying these laws in terms of values. Later, in 2020, the National Assembly passed a new Penal Code and a new Penal Procedure Code. Although these laws are structuring for the entire State and the legal system, it should be noted that the new Penal Code has a specific chapter on Crimes Committed in the Exercise of Public Functions and in Prejudice to Public Functions (articles 357 to 375) which includes corruption (art. 358 to 361), undue receipt of advantages (art. 357), influence peddling (art. 366) and embezzlement (art. 362), among others. The entire sanctioning typology of criminal law has been revised and systematized to make it easier to understand and adapt.

Also, in the area of ​​public contracts, there were several changes aimed at strengthening transparency and the fight against corruption. Public contracting legislation was amended by Law No. 41/20, of 23 December. In 2018, the government approved the Primer on Ethics and Conduct in Public Contracts, the Practical Guide for the Prevention and Management of Risks of Corruption and Related Infractions in Public Contracts and the Guide for Reporting Corruption and Related Infractions in Public Contracts. In the area of ​​financial information, mechanisms to control illicit flows and to prevent money laundering were clearly reinforced. Note should be taken about Law No. 5/2020 of 27 January on the prevention and fight against money laundering, the financing of terrorism and the proliferation of weapons of mass destruction, resulting from the ratifications of the United Nations Conventions against Illicit Traffic in Narcotics and Psychotropic Substances, against Transnational Organized Crime and on the Suppression of the Financing of Terrorism. Important, too, was Presidential Decree No. 2/18 of 9 January, which approved the Organic Statute of the Financial Information Unit, hereinafter referred to as the FIU and the Supervisory Committee, as a public service specialized in the coordination at national level of reinforcements for the prevention and repression of money laundering, financing of terrorism and the proliferation of weapons of mass destruction.

We see, therefore, there is a massive update of legislation against corruption and money laundering. The rhetoric was lumped by the legislative act, the words to the norms. The next element of analysis concerns the organic.

2.3- Anti-corruption agencies

The government chose not to create new bodies, and to base the execution of the anti-corruption policy on the already existing institutions: Attorney General’s Office (AGO), Banco Nacional de Angola, Financial Information Unit, Criminal Investigation Service (CIS), etc.

However, at the level of the AGO, it created a sub-body with specific functions in the fight against corruption: the National Asset Recovery Service. This service was created by Law 15/18, of December 26, Law on Coercive Repatriation and Extended Loss of Assets. According to article 13 of that Law, the main task of this National Service is to proceed with the location, identification and seizure of assets, financial and non-financial assets or products related to crime, whether those assets are in Angola or abroad. In addition, the Service has the expertise to ensure international cooperation among its counterparts, as well as to exercise the other attributions conferred by law, in which it is worth mentioning the initiation of any civil, administrative or fiscal action in order to recover the assets taken out illegally from the State.

The practical functioning of the Service has been based on the opening of patrimonial investigations attached to the criminal proceedings that are under terms in the judicial authorities, to investigate and identify the location of assets that may be the subject of a confiscation order and the adoption of measures necessary for its recovery. Within this scope, the Service carries out all necessary measures (sending rogatory letters to its counterparts, ordering seizures and requesting foreclosures) to ensure that the assets do not dissipate. It should be noted that this body does not act alone, but in cooperation with the bodies that have the main processes. However, the truth is that it has stood out for the amount of seizures and measures taken.

There are several examples of the Asset Recovery Service’s activity. In July 2020, it ordered the seizure of three buildings, office and residential, called Três Torres, in Luanda. The buildings, known as Três Torres and recently built, include Torre A Offices, and Torre B and C Residencial, are located in the urban district of Ingombota, in Luanda, the country’s capital. At the time, Deutsche Welle said that: “The name of Manuel Vicente, ex-president of Sonangol and ex-vice president of the country, is pointed out, on the grapevine, as being connected to the buildings[4].” In September 2020, the Service determined the seizure of the minority shareholding of 49% of AAA Ativos in the SBA, as well as buildings of the AAA group, belonging to Carlos São Vicente, within the scope of the patrimonial investigation process linked to the criminal process that it concerns. In 2021, five housing projects were seized, namely Tambarino Project (Lobito, Benguela), Palanca Negra (Malanje), Mifongo Project (Malanje) and the Ex-Petro projects, in Golf II and Nova Vida III, both in Luanda. At the same time, as part of a lawsuit against the former chairman of the board of the Banco de Poupança e Crédito (BPC), Paixão Júnior, the Service also seized containers of material for the erection of a yoghurt factory in Benguela that was delivered to the Smart Solution company.

These are mere examples of a broad work that is being developed by this service dynamically directed by Public Prosecutor Eduarda Rodrigues. This Service could possibly be the embryo of a more global and comprehensive anti-corruption body, as we have argued.

2.4.- International judicial cooperation

Along with the asset recovery work carried in the sub-organ described above, there has been a wide appeal to international judicial cooperation. First, it is important to highlight the requests addressed and fulfilled to Portugal. The activity with Portugal has been immense, since the rogatory letters referring to Isabel dos Santos and her associates that have already led to multiple “freezes” of social participation in Portuguese lands. It was recently reported that the Central Court of Criminal Investigation (TCCI) arrested the bank accounts in Portugal of three Isabel dos Santos’ friends, at the request of the judicial authorities of Angola. The seizure of the accounts of Mário Leite da Silva, Paula Oliveira and Sarju Raikundalia was carried out in the context of a rogatory letter sent from Angola to Portugal in January 2020. In that letter, the Angolan authorities requested the preventive seizure in Portugal of assets by Isabel dos Santos and his three friends up to a total value of 1.15 billion euros, as a guarantee of possible future compensation to Angola[5].” Carlos São Vicente and others were also the subject of rogatory letters and requests to Portugal.

The Angolan AGO reported days ago that requests for cooperation have already been made to Switzerland, the Netherlands, Luxembourg, the United Kingdom, Singapore, Bermuda, the United Arab Emirates, Mauritius, the Kingdom of Monaco, Malta, the Isles of Man and others. Within the scope of international cooperation, the Attorney General’s Office has already requested the seizure of assets worth approximately US $ 5 billion.

3- Benchmarks

3.1.- Quantitative indices

All the activity that has been described has shown quantifiable results that are reproduced here:

• Since the beginning of the fight against corruption, the Angolan State has definitively recovered in cash and assets a total of around 5.3 billion dollars.

• In addition, it asked to seize US $ 5.4 billion in foreign jurisdictions.

• In Angola, assets worth around US $ 4 billion have already been arrested and seized. Such assets are still subject to the respective lawsuits still pending, awaiting a final decision at first instance or on appeal.

• 1522 criminal cases were opened regarding corruption-related crime and alike.

3.2. Qualitative indices

In terms of criminal charges, the prosecutor’s office has handed down charges against a variety of senior dignitaries. Noteworthy are the accusatory orders against: General Sachipengo Nunda, former Chief of Staff of the Armed Forces, Norberto Garcia, former director of the External Investment Agency, Valter Filipe, former Governor of the central bank, José Filomeno dos Santos, former CEO from the Sovereign Fund, Augusto Tomás, former Minister of Transport, Manuel Rabelais, former Minister of Social Communication, Carlos São Vicente, former President of the AAA Group.

In addition to these public figures, there are a myriad of cases at the provincial level that are replicated in each one. Recently, it was noted that the former director of the Regional Office Planning, Urbanism and Environment in the province of Bengo was sentenced to two years in prison for the crimes of active and passive corruption and undue receipt of 125 million kwanzas. In the same process, the former director of the legal office of the Provincial Government of Bengo, and the ex-director of the office of the former governor were also sentenced to one year in prison for the crimes of passive corruption and degree of influence and having benefited from monetary values in the business.

In what concerns the “freezing” of assets, the assets of Manuel Vicente and generals Dino and Kopelipa, among others, were seized or handed over. Regarding the latter two, it should be noted that as representatives of the companies China International Fund Angola – CIF and Cochan, SA, the generals handed over the shares they held in the company Biocom-Companhia de Bionergia de Angoala, Lda., in the Kero Supermarket chain and in the company Damer Gráficas-Sociedade Industrial de Artes Gráficas SA. Still in relation to Manuel Vicente, the President of the Republic determined the nationalization of 60% of the shareholdings of the commercial company Miramar Empreendimentos, SA “, which covers” 43% of the shares belonging to the Suninvest — Investimentos, Participações e Empreendimentos, SA “and” 17% of the shares belonging to Sommis, SGPS. These shares belong to Manuel Vicente.

Obviously, it is also necessary to mention the seizures of assets referring to Isabel dos Santos and her associates.

4-Conclusions

In this study we tried to assess, with precise elements, the reality of the fight against corruption in Angola at this moment. Take an “x-ray”. We conclude that there is a powerful rhetoric to support the fight against corruption, that appropriate legislation has been passed, a specific sub-body has been created with a view to recovering assets, an entity that has shown itself to be quite committed. International judicial cooperation is quite broad. From the asset recovery point of view, between seizures and definitive deliveries, perhaps US $ 10 billion have already been obtained. Various accusations have already been made against several senior individuals.

What is to be concluded from this list is the scope of those who have already been the target of an accusation or action to recover assets. It cannot be said that there is selectivity, because in fact we have a representative sample of the former senior officials, nor can it be said that there is no action. There were many and diverse. It does not mean that the scope of the fight cannot and should not be extended. In sum, there is a wide-ranging fight against corruption in Angola, which translates into the elements that we have identified here.

However, this does not mean that this fight does not need several improvements and has several flaws, which we have already identified in previous studies, namely, the lack of specialization and of its own extensive investigation and justice bodies, the need for promptness, and the creation of modern mechanisms to prevent the continuation of corrupt practices.

Fig. nº 1-  Table of Contents to Combat Corruption

Supporting political SpeechYES
Adequate new legislationYES
New OrganicYES/Partial
International Judicial CooperationYES
Asset RecoveryYES
Criminal chargesYES/Need for specialization and promptness

[1] https://www.publico.pt/2017/09/26/mundo/noticia/joao-lourenco-promete-combater-a-corrupcao-que-grassa-o-estado-1786811

[2] https://www.dw.com/pt-002/jo%C3%A3o-louren%C3%A7o-quebra-o-sil%C3%AAncio-e-fala-%C3%A0-dw-sobre-isabel-dos-santos/av-52240806

[3] https://novojornal.co.ao/politica/interior/joao-lourenco-elogia-pgr-no-combate-a-corrupcao-uma-das-suas-prioridades-anunciadas-quando-tomou-posse-101998.html

[4]  https://www.dw.com/pt-002/angola-pgr-apreende-tr%C3%AAs-pr%C3%A9dios-em-luanda/a-54272442

[5] https://angola24horas.com/component/k2/item/20926-justica-portuguesa-arresta-contas-bancarias-de-amigos-de-isabel-dos-santos

Flashes of optimism in the Angolan economy at the beginning of 2021

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0-Introduction. A different focus for Angolan economic analysis

The consulting companies that are dedicated to the study of the Angolan economy follow a conjunctural methodology in which the predominant narrative is based on the negative numbers about the macroeconomic aggregates and their possible perspectives.

However, a more detailed analysis of the evolution of the Angolan economy suggests that behind the numbers of inflation, unemployment, GDP growth and public debt, which are not very encouraging[1], a series of public political reforms are taking place together with the reinforcement of certain economic trends that will indicate the construction of a new, more positive economic reality for Angola.

This study deals with the positive elements that point to the correction of the direction of the Angolan economy in a sense more consistent with the necessary prosperity.

A-Positive trends in the Angolan economy

1-The International Monetary Fund (IMF) and public policy reform

A first element that allows to shed a different light on the perspectives of the Angolan economy lies in the recent assessment carried out by the IMF. In fact, on January 11, the IMF Executive Board concluded the fourth review of the Extended Fund Mechanism Agreement for Angola and approved the disbursement of an additional USD 487.5 million[2].

The important thing in this decision is the IMF’s positive assessment of the reform of Angolan public policies. The IMF states that: “The [Angolan] authorities achieved a prudent budgetary adjustment in 2020, which included gains in non-oil revenues and containment of non-essential expenses, while preserving essential spending on health and social security networks. The approval of the 2021 budget in December consolidates these gains. The authorities have also allowed the exchange rate to act as a shock absorber and have begun to implement a gradual shift towards monetary restraint to face increasing price pressures [3]”.

According to what the IMF explains, the economic policy followed by the Angolan government is developed in the following vectors:

-The stabilization of public finances, which is the cornerstone of the authorities’ strategy. In this regard, the government achieved a strong fiscal adjustment in 2020. In addition, its budget for 2021 consolidates non-oil revenue gains and the containment of budget expenditures for 2020, while protecting priority social and health expenditures.

These advances help to reduce the budget’s dependence on oil revenues.

– Reformulation and management of public debt. The government has implemented debt profile reform agreements, in addition to benefiting from the extension of the Debt Service Suspension Initiative until the end of June 2021, which will provide significant debt service relief and help reduce risks related to debt sustainability. We will elaborate below on the reformulation and management of public debt.

-Restrictive monetary policy and exchange rate easing. After easing the monetary constraint to mitigate the shock of COVID-19, the National Bank of Angola (BNA) began, once again, to face the increase in inflationary pressures through the tightening of monetary policy. A more gradual tightening of monetary policy is needed to reduce inflation. Exchange rate flexibility served as a valuable buffer during the crisis. Efforts are underway to develop a liberalized foreign exchange market.

-Reform of the financial sector. Continued progress in financial sector reforms was critical, especially the completion of the restructuring of the two struggling public banks. The timely adoption of the revision of the BNA Law and the revision of the Financial Institutions Law is the key to continuing this progress.

Finally, the IMF highlights the fundamental aspect that underlies all political reform, which is the maintenance of the fight against corruption.

What can be seen clearly from this IMF assessment is that the government is pursuing a reformist policy based on the assumptions made by this international organization, and is implementing difficult reforms.

It is known that many of these IMF policies have an initial recessive effect, especially fiscal consolidation when it involves raising taxes and cutting wages and subsidies, as well as restrictive monetary policy to fight inflation. It is therefore no wonder that the first result of adopting IMF policies is recession and not growth.

What is expected is that this “housekeeping” creates the conditions for a sustained and virtuous growth of the Angolan economy.

Fig. Nº. 1 – Economic policies of the Angolan government celebrated by the IMF

2-Management and careful reformulation of public debt

The executive followed an appropriate strategy when initially negotiating with China the issue of public debt. As we described in previous reports, the Chinese debt is key to Angola, as it represents about 50% of external commitments[4]. Consequently, it was important, first of all to ensure the appropriate terms with China, although they are not public knowledge, apparently imply a three-year suspension of payments agreement. The adherence already mentioned to the IMF’s debt suspension program allowed the government room for maneuver. It should be noted that the Eurobonds on which a lot has been written and pointed out various dangers, has a smaller weight in the total Angolan debt, around USD 8 billion, thus not having, on the contrary, what one could think of exaggerated pressure on Angolan finances in this area.

So, for now, the issue of public debt pressure seems to be eased and within the government’s management capacities.

3-Meridian oil price recovery

As we had also anticipated, after an abrupt drop in the price of oil at the beginning of the pandemic (March 2020) there would be a rise[5], which is gradually happening.

The reality is that following a trend that was already very clear at the end of the year, the barrel of brent finally reached a price above $ 55, a value that had not been reached since the end of February 2020, the month before the start of the pandemic.  Still being the most relevant indicator for the Angolan economy, and considering that the budget for 2021 was calculated based on USD 33 per barrel, we have a financial margin of more than USD 20. This is an additional “cushion” in the management of Angolan public finances.

It is clear that it is not known for how long this rise in the price of oil will continue. The commitment of the new Biden administration to the Paris Agreement, the evolution of the Chinese economy, the decision to cut or increase production by Saudi Arabia and the maintenance of the restrictions resulting from the Covid-19 pandemic are factors that may imply a further decline in the oil price.

Therefore, movements in the oil price are always unknown and these moments of increase must be used by the government to reinforce its reserves for future reproductive and social investments.

Fig. No. 2- Evolution of the Brent price since February 2020

4-Decrease in imports of food basket and agricultural production with continental relevance

The diversification policy combined with the promotion of the national industry through the substitution of exports has been another “motto” of this government. This policy allows in one fel swoop to reduce external dependency and create a thriving national industry.

While it is still untimely to draw any definitive conclusions about the results of this policy, some figures emerge that can be encouraging, at least in relation to the dependence on imports and foreign exchange spending on foreign trade.

According to data provided by the Ministry of Industry and Trade, Angola managed to record a reduction of almost US $ 100 million in the import of products from the basic basket and other essential goods in the last month of 2020, compared to the same period in December 2019. In December 2019, the Government disbursed US $ 250 million for imports, while in the same period of 2020, it only spent US $ 152 million[6].

In particular, it is worth noting the reduction in sugar imports, which went from 2.1 million tons in 2019, at the cost of 17.6 million dollars, to 1,472 tons, at the cost of 831,121 dollars. Regarding the importation of current rice, in 2019 Angola imported 136,985 tons in the amount of US $ 37.2 million and in 2020, only 59,505 tons, in the amount of US $ 10.5 million. In what concerns chicken (the most consumed meat in Angola), it is also worth mentioning a considerable reduction, compared to 2019. In that year, 46,385 tons were imported, for US $ 51.5 million, whereas last year, only 32,447 tonnes were acquired, for a value of just over US $ 25 million.

Fig. Nº. 3- Comparison of annual imports of basic basket products (Dec.2019 / 2020 in USD million)

These are just some of the products highlighted in the considerable reduction in imports, however this trend has proved to be general in the remaining products that make up the basic basket.

For these numbers to be considered a success, it is necessary to compare them with the internal consumption of the same goods, and understand if the decrease in imports was due to a substitution by domestic products or only reflects a decline in demand as a result of the economic crisis.

In the latter case, although they represent savings in foreign exchange, they do not mean a success in politics, but a decrease in the quality of life of the population. However, even in this situation, national investors should be alert to proceed with investments in these areas in order to correspond to future demand growth.

Statistics published by the Angolan Ministry of Industry and Trade and released by the Portuguese news agency Lusa show the enhanced sustainability of some Angolan agricultural production.

Angola asserts itself as a continental-level agricultural producer. Angola is the largest African banana producer and the seventh in the world with an offer of 4.4 million tons, according to the latest table of the United Nations Food and Agriculture Fund (FAO). It should be noted that the banana continues to be the most produced and consumed fruit in the world. Angola, in particular, has declared itself self-sufficient in banana production for more than six years, with emphasis on the provinces of Bengo and Benguela. In these provinces, private companies already export the fruit to countries such as Portugal, Zambia, Democratic Congo and plan to bring the fruit to the United States, the world’s largest consumer[7].

In relation to cassava, Angola has an annual production estimated at more than 11 million tons of cassava, being today the third largest producer in Africa, after Nigeria and Ghana, and wants to bet on its transformation into starch[8].

5-New investments and exports. Two examples: Rio Tinto and Gold

The finance minister recently told Reuters: “We are building a future (through our reform program) that prioritizes direct investment (not just with China, but with other partners). We want to add value for our economy to create jobs. We want the money to stay. Borrowing is an option, but we are trying to change the way we relate to our partners [9]”.

Thus, it appears that the government is betting on direct investment to revive the economy and also to increase exports.

There are two recent examples that are important to underline in this context. The first is the entry of the powerful multinational Rio Tinto into the Angolan market. Apparently, such a perspective will materialize this year[10].

Also important is the first export of gold mined in Huíla in 2020, in the amount of sixteen hundred and ninety-six ounces sent to Portugal and the United Arab Emirates, which corresponds, at the current price, to more than three million dollars. Obviously, what is relevant is not the amount of gold exported, but the beginning of a trend. As with the entry of Rio Tinto, it is important to mark a trend that brings other big investors like Anglo-American or DeBeers.

None of these investments is very firm yet. Their reference is important because they can represent future axes for the development of the Angolan economy, now in the beginning.

Fig. nº 4 – Signs of optimism in the Angolan economy

B-Necessary policy adjustments

The foregoing demonstrates that the Angolan government pursues an economic reform policy based essentially on the IMF’s revenues: i) budgetary balance and debt control, considering financial solvency as a sine qua non for economic growth; ii) restrictive monetary policy to control inflation; iii) flexible exchange rate policy, allowing for a devaluation of the currency that encourages exports and hinders imports; iv) investing in investment and the private sector as engines of the economy.

Basically, the policy followed corresponds to what was once called the Washington consensus[11]. This is the standard reform package adopted by the IMF, World Bank and the US Treasury Department since the late 1980s and which corresponds to a liberal model of the economy, based on fiscal prudence and the free market.

Naturally, this model has potential for Angola, but it is not enough. There are not  strong enough institutions in Angola yet to guarantee the functioning of a free market in which some do not end up dominating others and creating oligopolistic and inefficient situations, as there is not a private sector strong enough to become the engine of the economy.

Making Angola’s economic reform dependent on reforms inspired by the Washington Consensus is not enough, a broader view is needed.

This broader view should imply structural institutional reform. This means that property rights must be clarified by abandoning the confusion that the collectivization of property has generated and still generates, courts must be put in place, bureaucracy is no longer an obstacle, and obviously great corruption must be eradicated. In addition to structural institutional reform, it should be realized that the State has a role to play in this new phase. There is no robust private sector in Angola, nor can everything be delivered to foreign investors with short-term perspectives. A mix should be found between the state and the private sector. In fact, this is how the most advanced Western countries work, despite rhetoric. It is important to adopt the concept advanced by Mariana Mazzucato of Entrepreneurial State[12].

The point to consider in economic reform in Angola is that the role of the government, in the most successful economies, went far beyond creating the right infrastructure and setting the rules. The State is a fundamental agent to achieve the type of innovation that allows companies and economies to grow, not only by creating the “conditions” that allow innovation. Instead, the state can proactively create a strategy around new areas of high growth before the potential is understood by the business community by financing the most uncertain phase of research in which the private sector is risk-averse, seeking new developments, and often even supervising the marketing process.

In addition, the IMF’s recessionary policies, while necessary, must be offset by other types of policies that alleviate the socially depredating burden of those. In short, there must be a mix of reformist policies that is more comprehensive and adequate to Angola, so that in the end the first flashes of success have sustained results.

C-Conclusions

It is necessary to look beyond the negative conjuncture numbers of the Angolan economy and understand that there is a reformist economy policy that is beginning to bear fruit and to mark some new trends. This policy has been applauded (and possibly advised) by the IMF, and here lies its strength and weakness. Strength because it contains some indispensable measures to clean up the Angolan economy and launch it on the path of growth. It also strengthens because its adoption and implementation brings the praise and support of the IMF and sister organizations. However, this policy also has weaknesses, including the lack of attention to institutional reform, the weakness of the private sector in Angola, the recessive effects of contractionary policies, among others.

Consequently, with signs of optimism in the medium-term perspectives of the Angolan economy, it is necessary to improve the economic policy that is being followed, including the intensification of institutional reforms that ensure that the judiciary works, bureaucracy does not hinder, corruption does not divert resources. In addition, the role of the State as an entrepreneurial partner in the private sector should be reviewed.

[1] See the most recent figures: Unemployment 34% (III quarter 2020), Annual inflation 25.19% (December 2020 / December 2019), GDP growth -5.8% (III quarter 2020) at https: // www. ine.gov.ao/

[2]  https://www.imf.org/en/News/Articles/2021/01/12/pr216-angola-imf-executive-board-completes-4th-review-of-the-eff-arrangement-approves-disbursement

[3] idem

[4] https://www.cedesa.pt/2020/05/05/porque-a-china-deve-reduzir-a-divida-de-angola/

[5] https://www.cedesa.pt/2020/06/03/angola-petroleo-e-divida-oportunidades-renovadas-2/

[6] https://www.noticiasaominuto.com/mundo/1663059/angola-importou-menos-100-milhoes-de-dolares-de-produtos-da-cesta-basica

[7] https://www.plataformamedia.com/2020/12/15/angola-e-o-maior-produtor-de-banana-em-africa-ha-seis-anos/

[8] https://www.noticiasaominuto.com/economia/1663123/angola-e-terceiro-maior-produtor-africano-de-mandioca

[9] https://www.minfin.gov.ao/PortalMinfin/#!/sala-de-imprensa/noticias/8787/angola-prioriza-investimento-directo-nao-apenas-com-a-china

[10] https://mercado.co.ao/negocios/diamantifera-endiama-quer-concretizar-entrada-da-rio-tinto-em-angola-HC1004823

[11] https://piie.com/commentary/speeches-papers/what-washington-means-policy-reform and https://web.archive.org/web/20170715151421/http://www.cid.harvard.edu/cidtrade/issues/washington.html

[12] See  https://www.wook.pt/livro/the-entrepreneurial-state-mariana-mazzucato/19312561

An industrialization project for Angola

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I-Introduction. The revival of interest in industrialization

The industrialization of Angola has become one of the objectives of the current government under the leadership of the President of the Republic João Lourenço. In fact, either at the International Summit on Sustainable Development “The Future of Africa” held in Abu Dhabi in 2019, or at the third edition of the Global Summit on Manufacturing and Industrialization, promoted by the United Nations Industrial Development Organization (UNIDO) in 2020, Lourenço always emphasized that industrialization was a pressing need with a view to creating wealth and well-being for citizens and employment as the main source for all opportunities.

In fact, since Angola does not have staff and skills with sufficient critical mass in terms of services, and having recently seen the strategic weaknesses of economies that are too much based on services, it is normal for any economic start-up in the country to be also based on industry.

The industrialization of Angola must be thought based on three assumptions.

The first is that it will be based on strong agriculture. It is not a question of replacing agriculture with industry, but simultaneously developing agriculture and livestock as the basis for a renewed industrial start-up.

The second assumption is that what is called industrialization today will be different from what was considered at the beginning of the 20th century when such a movement was linked to the so-called heavy industries: steel, cement, etc. Furthermore, industrialization is not just manufacturing, but a set of transformative processes.

Finally, the vectors of industrialization in Angola will have to be linked to specific factors that bring added value to the economy or where it has competitive advantages. Therefore, it is not a matter of making mere copies of industrial models, but of realizing where Angola has benefits in industrializing.

II- Industry in the Angolan economy

As Nuno Valério and Maria Paula Fontoura write “in 1975, [when] Angola became an independent state, (…) the economy was prosperous, whether due to the existence of considerable exports of agricultural products (coffee, cotton, sugar, sisal) and others from plantations; corn from traditional farms) and minerals (diamonds, iron and oil) and even services (particularly through transit to Shaba, formerly Catanga, via the Benguela railway), either due to the beginning of an industrialization process.[1]“

The Angolan industrial start-up began in the 1960s, still under colonial rule. In fact, from that time, framed in the general liberalization and pro-European measures that Portugal took, in the creation of a Portuguese free trade zone and in the expansion of the internal market through the troops and families displaced with the overseas war “between 1960 and 1970, the gross value of manufacturing industry production grew at an average annual rate of 17.8% and GDP 10% in nominal terms.[2] “

In fact, on the eve of independence (1973) the Angolan industry (excluding civil construction) represented 41% of GDP. The important industries were the food industry, with 36% of the gross value of production in the manufacturing sector; followed by the textile industry, with 32%, beverages, with 11%, chemistry, non-metallic mineral products and tobacco, with 5%, petroleum derivatives and metallic products, with 4%, pulp, paper and derivatives, with 3%.[3]

Fig. 1- The main industries in Angola in 1973 (% gross value of production in the manufacturing sector):

Food36%
Textile32%
Beverages11%
Chemistry, non-metallic mineral products and tobacco 5%
Petroleum products and metal products 4%
Pulp, paper and derivatives  3%
Oil30%
Coffee27%
Diamonds10%

Source: Nuno Valério and Maria Paula Fontoura, op.cit.

It should be noted, however, that by this time, the “evil” of the Angolan economy was already present, i.e., the excessive dependence on raw materials for export. In reality, the manufacturing industry only contributed to around 20% of Angolan exports, with the main products exported in 1973 being: oil (30%), coffee (27%), diamonds (10%).

This liberalizing start-up in the Angolan industry was subject to some criticism, and in the 1970s, the government of Lisbon began to impose a protectionist perspective on Angolan industrial development. This did not affect the healthy growth of the industry. In fact, as noted by Nuno Valério and Maria Paula Fontoura: “the manufacturing industry’s VBP grew at an average annual rate of 21% between 1970 and 1973.[4]”

It is known that the situation of prosperity was interrupted by the civil war and it was only after 2002 that there was a strong revival of the economy. However, this restart was based on crude oil exploration and not on any sustained industrialization process. Even when it comes to oil, there was no concern about integrating it into an industrialization process and making Angola a country that bet on the transformation of its raw material instead of exporting it raw. This meant investing in refining, in petrochemicals, in the production of fertilizers, which did not happen[5].

Arriving in the second decade of the 21st century, the situation of the economy becomes worrying when oil exploration is no longer satisfactory due to the drop in its price. In this context, we start talking about the diversification of the economy and looking at the industry, but the scenario is not encouraging in terms of the strength of the industry within the scope of the Angolan Gross Domestic Product (GDP), so it is essential to mix and actively promote a project to launch industrial activity.

The most recent data referring to the weight of the manufacturing industry (except crude oil refining), dated from the second quarter of 2020, point to a 4.8% contribution to GDP. This contribution was 3.69% in 2002, and 4% in 2017 and 2018. On the same date, the year-on-year change in the manufacturing industry had been negative by 4%. The Gross Added Value was also negligible[6].

Fig. 2 – Weight of the manufacturing industry in Angola (2nd quarter of 2020)

Contribution to GDP (%)4,8
Year-on-year change (%)-4

Source:Banco Nacional de Angola. Contas Nacionais (bna.ao)

III. Industry relaunch project in Angola

Any project to relaunch the industry should start by having the right context. This context is a free economy with a social climate conducive to investment. The social climate is based on six necessary assumptions:

i) Absence of massive corruption. Corruption distorts the rules of economic competition and prevents free access to markets, fundamental conditions for industrial development;

ii) No barriers to accessing markets. Entrepreneurs should be free to obtain their production factors and settle in to produce;

iii) Functional Justice System. The justice system should not be seen as corrupt, slow and incompetent, but as applying the rules, punishing those who do not fulfill contracts and having legal and normal forms of debt collection;

iv) Reasonable taxes. Taxes should tend to be moderate and not stifle productive activity;

v) Less red tape. Public administration should be pro-business and not create administrative bureaucratic obstacles to the installation and operation of companies.

vi) Pro-business state. The State should have a fomenting and proactive role in industrialization, pointing and framing paths, building infrastructures, qualifying the workforce and establishing partnerships.

Fig. No. 3- Context for the industrial relaunch

In view of the necessary context, the important thing is to point out the axes through which the efforts of industrial growth should be channeled.

We see four axes of industrialization in Angola. These axes are chosen taking into account the economic history of Angola, its wealth and potential, the experiences of global industrialization and the possible trends of the markets in the coming decades.

Thus, we propose an industrial development according to the following points that can be interconnected or complementary:

1-Agriculture;

2-Basic needs industries;

3-Industries of development of natural wealth;

4-Future: renewable energies and digitalization.

Fig. N. º4 – Axes of the Industrial Relaunch Project

1-Agriculture

The agricultural industry represents the natural development of the Angolan potential already in operation and which was the subject of our previous report[7].

This a small example to gauge the potential. Recently, it was reported that Angola has been the main banana producer in Africa for six consecutive years. According to the Food and Agriculture Organization of the United Nations (FAO) Angola is the largest African banana producer and the seventh in the world with an offer of 4.4 million tons[8].

It will be elementary that it will be easy and possible to create an industrial line based on bananas: fruit juices (beverage industry), medicinal exploitation of banana / potassium (chemical / pharmaceutical industry), etc., are some of the possibilities in the refrigeration or pharmaceutical industry regarding banana.

The same type of reasoning can be applied to products and natural resources that Angola has or exploits in abundance. By internally transforming its natural resources and products, the country adds value to them, ceasing to be dependent on the mere evolution of the world price of raw materials.

2-Basic needs industries

Basic needs are understood as food, clothing and housing. This industrial axis represents an industry in which no specific sophistication is required and it is possible to make an import substitution without special losses of competitiveness, in addition to making it possible to create export markets in similar countries. In addition, Angola has already had a powerful industry in the area of ​​food, beverages and textiles. With a market of 30 million people that can easily be extended to many millions more with the developments of the Southern African Community (SADC) and the African Free Trade Area, Angola has enough potential demand for essential products: clothing , shoes, houses (obviously), basic food products from yoghurts to beers. There is no reason not to create its own industry with its own brands, in many cases imitating what has been done successfully in countries in these areas such as Bangladesh and Vietnam.

3-Natural wealth development industries

Another industrial axis, which basically replicates in a more comprehensive way what was mentioned in the first axis, focuses on national wealth, now not agricultural, but the rest. It has all the logic and economic rationality to use and transform what exists in Angola, adding value to it instead of exporting in gross terms, allowing capital gains to be appropriated by others. Here we have the most obvious example, oil. What makes sense is to develop the industry downstream from oil: refining, petrochemicals, plastics, fertilizers, etc. As the United Nations expert Carlos Lopes said, “The question is clear: it is not turning your back on wealth, such as oil, but integrating it in the transformation and making Angola a country that invests in the transformation of its raw material. instead of exporting it gross. This means investing, in addition to refining, petrochemicals, fertilizer production, etc. [9]“

4-Future: renewable and digital energies

The final axis is connected to renewable energies and the digital transition. Today, it is common ground that there is a demand for the replacement of oil by clean and renewable energies. In the United Kingdom, the goal was announced in 10 years to end the circulation of gasoline or diesel cars. Electricity generated by renewable energies seems to be the future. Large oil companies like BP or Aramco are transforming or embracing these areas. Now Angola has excellent natural conditions for this investment in renewable energies. Solar energy from the start. An industrial niche around solar energy and electricity production would be a bet to consider very seriously.

From the point of view of the digital transition, Angola will be able to make an important qualitative leap using digital techniques for the development of applications for the massification of basic and secondary education, for basic health and in the financial area. Here we have an industry of digital applications for teaching, health and banking that could be developed in Angola by Angolans, immediately combining a synergy between betting on health and education alongside digital industrialization.

IV-Coordination of the industrial relaunch project

On the part of the State, there must be a commitment to this project that will essentially be up to the private sector.

However, the State must create the legal and institutional framework, prepare financial and fiscal incentives, build infrastructure, promote the training of agents capable of change and establish partnerships.

For the task of coordinating the activities of the State with a view to industrial relaunch, there should be a coordinator directly dependent on the President of the Republic: a Czar of the Industrial Project.

Fig. No. 5 –  State’s role in relaunching the industry

[1] Nuno Valério e Maria Paula Fontoura, A evolução económica de Angola durante o segundo período colonial — uma tentativa de síntese, Análise Social, Quarta Série, Vol. 29, No. 129 (1994), pp. 1193-1208, p.1193.

[2] idem, p.1203

[3] Ibidem.

[4] [4] Op.cit. p.1207.

[5] Carlos Lopes, Petróleo deve ser utilizado na industrialização de Angola in https://www.dn.pt/lusa/petroleo-deve-ser-utilizado-na-industrializacao-de-angola—economista-carlos-lopes–10905179.html

[6] Dados do Banco Nacional de Angola in https://www.bna.ao/Conteudos/Temas/lista_temas.aspx?idc=841&idsc=15907&idl=1

[7] https://www.cedesa.pt/2020/06/15/plano-agro-pecuario-de-angola-diversificar-para-o-novo-petroleo-de-angola/

[8] https://www.angonoticias.com/Artigos/item/66803/angola-e-o-maior-produtor-de-banana-em-africa-ha-seis-anos

[9] Carlos Lopes, see note 5

The African Continental Free Trade Area boosts Angola’s economic growth

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1-Introduction: The Free Trade Area and Angola

Angola deposited the ratification of accession to the African Continental Free Trade Area (ACFTA) on the 4th of November 2020, after the National Assembly approved for ratification on the 28th of April of this year, and the President of the Republic signed a Letter of Ratification on 6 October.

The agreement is scheduled to enter into force on 1 January 2021.

The ACFTA has so far been ratified by 30 countries and, in the first phase, will lead to the elimination of tariffs on 90% of products. In addition, the agreement commits countries to progressively liberalize trade in services and to deal with a number of other non-tariff barriers, such as long delays at national borders that hinder trade between African countries. Eventually, in the future, the free movement of people and a single African air transport market may emerge within the newly created free trade area.

The goal of this agreement is to create the largest free trade area of ​​its kind in the world, with a gigantic market from Cairo to Cape Town. The ACFTA brings together 1.3 billion people and a combined gross domestic product (GDP) of more than $ 2 trillion.

Essentially, the agreement’s business goals are:

-Create a single market, deepening the economic integration of the continent;

– Assist the movement of capital and people, facilitating investment;

– Move towards the establishment of a future continental customs union.

As stated, the agreement initially requires members to remove tariffs on 90% of goods, allowing free access to commodities, goods and services across the continent.

Table 1 – ACFTA Goals

2- The impact of the FTA on Angola’s foreign trade

Recent modeling by the United Nations Economic Commission for Africa (UNECA) projects that the value of intra-African trade will be between 15% and 25% higher in 2040 due to the ACFTA. The analysis also shows that least developed countries are expected to experience the greatest growth in intra-African trade in industrial products by up to 35%[1].

There is no doubt that insertion in a free trade area increases foreign trade in a country, this should happen in Angola, aiming, in view of the United Nations data, for a reinforcement of at least 25% of foreign trade with the rest of Africa until 2031.

This percentage arises from the weighting of the UNECA modeling referred to above with specific factors underway in Angola[2] such as the political commitment to liberalization and diversification of the economy, the operationalization of some international transport structures such as the completion of Luanda International Airport, the entry into operation the deep water port of Caio, as well as the operation of the Lobito Corridor; a rail corridor for international goods traffic starting in Porto do Lobito (Benguela) and integrating three countries – Angola, Democratic Republic of Congo and Zambia – the government’s wish being one of the main axes of circulation of raw materials and goods in the territories it crosses.

There is a tripartite combination that enhances Angola’s medium-term growth:

i) the liberalization and diversification of the Angolan economy with the manufacture of new products (some of which Angola had specialized in colonial times and later abandoned) and services,

ii) membership of the African free trade area, and

iii) the construction of transport logistics infrastructures.

This interaction is essential for the membership to a free trade area to be successful. The free trade area will be the driver of growth, which in turn is accelerated by the combination of economic diversification and new logistical structures. Tariff reductions can play a significant role in the development of intra-regional trade, but they must be complemented by policies to reduce non-tariff bottlenecks (eg logistics).

3- Increase in foreign trade and economic growth in Angola

The forecast is that the result of this interaction will be an increase in international trade that will lead to a more accelerated growth of the Gross Domestic Product (GDP).

As a rule, an increase in international trade leads to an increase in GDP[3].

In the past two centuries, the world economy has experienced sustained positive economic growth and, over the same period, this process of economic growth has been accompanied by an even faster growth in global trade. Similarly, we found that there is also a correlation between economic growth and trade: countries with higher rates of GDP growth also tend to have higher rates of growth in trade.

Among the potential growth factors that can result from greater global economic integration are: Competition (companies that do not adopt new technologies and do not cut costs are more likely to fail and be replaced by more dynamic companies); Economies of scale (companies that can export to the world face greater demand and, under the right conditions, can operate on larger scales where the price per unit of product is lower); Learning and innovation (companies gain more experience and exposure to develop and adopt technologies and industry standards from foreign competitors) [4].

Overall, the available evidence suggests that trade liberalization improves economic efficiency. This evidence comes from different political and economic contexts and includes micro and macro measures of efficiency. This result is important, as it shows that there are gains with trade that imply an increase in GDP.

It is difficult to calculate the impact on GDP of a 25% increase by 2031 in trade between Angola and the rest of Africa. In fact, Angola’s trade with other African countries in 2019 represented only 3% of the country’s total foreign trade[5]. We admit that the ACFTA will increase this number by 25%, causing an increase in the total Angolan trade between 0.75% to 1% compared to the relative weight mentioned.

In this sense, a conservative perspective based on historical data on the relationship between increased trade and GDP growth in other countries with many differences between them points to a possible 1: 1 ratio. (See table below that allows establishing this correlation with some security).

Table 2 – GDP and Trade growth in several countries (sources: those mentioned in the Table)

In this case, the increase in foreign trade until 2031 would imply an average increase in annual GDP to GDP growth between 0.75% to 1% between 2021 and 2031 in Angola due to the operation of the ACFTA. If, for example, for 2022 there was a GDP growth forecast of 2% without ACFTA, with ACFTA that forecast could reach 2.75% to 3% and so on.

It should be noted that this result is only possible if the following conditions are met:

-Effective operation of the free trade zone;

-Liberalization and diversification of the Angolan economy;

-Concretization and operationalization of transport logistics projects (airport, deep water port, and international railway).

The political framework that the Angolan government wants to give to the economy of increasing structural reforms and competition is in line with the advantages that may arise from the increase in trade with the rest of Africa.

In addition, public policies must address the costs of adjusting trade integration:

  • Foster agricultural productivity in less diversified economies;
  • In some countries, mobilize domestic tax revenue to offset losses;
  • Use targeted social and training programs to facilitate worker mobility between industries to mitigate adverse effects on income distribution.

3-Conclusions

In conclusion:

It is possible to foresee a 25% growth in Angola’s external trade with Africa by 2031 if the African Free Trade Area is really implemented and the internal policies are adequate.

This growth may result in an average annual growth of the economy in those years, from 0.75% to 1%.

This is good news for Angola.

Table No. 3 – IMF% GDP growth forecasts adapted[6]

1 Vera Songwe,  Mamadou Biteye, African  Trade  Agreement: Catalyst  for Growth, UNECA, https://www.uneca.org/stories/african-trade-agreement-catalyst-growth

2 The modeling we have adopted assigns a weight of 60% to UNECA’s predictions (which act as a driving mechanism) and 40% to the domestically mentioned internal factors in development (accelerator mechanism), believing that it is the virtuous combination of the two that will make it possible to exponentiate the growth of trade.

3 Frankel, J. A., & Romer, D. H. (1999). Does trade cause growth? American economic review, 89(3), 379-399.

4 Esteban Ortiz-Ospina (2018), Does trade cause growth? https://ourworldindata.org/trade-and-econ-growth

5 Cfr. http://www.expansao.co.ao/artigo/134739/trocas-comerciais-de-angola-com-africa-representam-so-3-do-total-do- comercio-com-o-mundo?seccao=exp_merc

6 https://www.imf.org/en/Countries/AGO / October 2020. FTZ projections are our sole responsibility, although based on the IMF forecasts of October 2020 and imply the verification of all conditions prescribed in the text.

Proposal for a pilot job guarantee design in Angola

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Introduction: the magnitude of the unemployment problem and the need for a systematic government response

In Angola, in the third quarter of 2020, the unemployment rate stood at 34%[1]. This number corresponds to a chain increase (i.e., compared to the previous quarter) of 9.9% and homologous (referring to the same period in 2019) in the order of 22%[2]. In view of these data, whatever the perspective adopted, it is easy to see that unemployment is a fundamental and serious problem facing the Angolan economy and societies.

Fig. Nº 1- Recent evolution of the unemployment rate in Angola (2017-2020). Source: INE-Angola

So far, the government recognizes this problem, but is betting on the recovery of the economy at the private sector level, to resolve the issue, believing that the State can do little to face the situation. The solution lies in economic growth and business dynamism, says the executive. The President of the Republic, João Lourenço, was clear in the last speech of the State of the Nation when he stated: “priority of our agenda [is): to work for the resuscitation and diversification of the economy, to increase the national production of goods and basic services, to increase the range of exportable products and increase the supply of jobs. ” João Lourenço makes an indelible link between the diversification of the economy and the increase in national production and the decrease in unemployment.

Basically, the government relies on the traditional postulate stated by the American economist Arthur Okun, according to which there would be a linear relationship between changes in the unemployment rate and the growth of the gross national product: with each real GDP growth in two percent would correspond to a one percent decrease in unemployment[3]. The truth is that several empirical studies do not confirm this empirical relationship at all, and in recent years in several countries around the world, an increase in GDP has not led to a sharp decrease in unemployment, while in other cases it has, therefore, it is difficult establish a permanent relationship between unemployment and GDP. In addition, the magnitude of unemployment in Angola would imply that in order to decrease the rate for the still frightening 24%, GDP would have to grow 15% …

The fundamental issue is that the problem of unemployment in Angola is not cyclical, but structural, this means that it is closely connected to the permanent deficiencies of the Angolan economy and does not have a mere dependence on the economic cycle.

The fact that the problem of unemployment is structural and of an economic recovery for the years 2021 and onwards is only between 2% and 4% of GDP[4], according to the current IMF projections, imply that such economic animation will have little impact on employment.

In this sense, it is essential to understand that the solution to the problem of unemployment does not depend only on the market and the economic recovery, it requires, at least in the short term, the muscular intervention of the State. It is in this context that this proposal for a pilot experience arises.

Fig. No. 2- GDP growth projections Angola (2021-2024). Source: IMF

A pilot job guarantee experiment in Angola

Starting from the first experience of universal employment guarantee in the world, designed by researchers at the University of Oxford and administered by the Austrian Public Employment Service, which takes place in the Austrian city of Marienthal[5], the same methodology would apply to a specific location in Angola, possibly, to a specific municipality in Luanda.

According to this regime to be implemented on an experimental basis in a municipality in Luanda, a universal guarantee of a properly paid job would be offered to all residents who have been unemployed for more than 12 months.

In addition to receiving training and assistance to find work, the participants would have guaranteed paid work, with the State subsidizing 100% of the salary in a private company or employing participants in the public sector or even supporting the creation of a microenterprise. All participants would receive at least one minimum wage set in accordance with the Presidential Decree that regulates the matter appropriate to a life with dignity.

The pilot Design would work as follows:

i) All residents of the chosen Luanda municipality, who have been unemployed for a year or more, will be unconditionally invited to participate in the pilot design.

ii) Participants begin with a two-month preparatory course, which includes individual training and counseling.

iii) Subsequently, participants will be helped to find suitable and subsidized employment in the private sector or supported to create a job based on their skills and knowledge of the needs of their community or will still be employed by the State.

iv) The job guarantee ensures three years of work for all long-term unemployed, although participants may choose to work part-time.

Fig. No. 3- Brief description of the pilot employment design

In addition to eliminating long-term unemployment in the region, the program aims to offer all participants useful work, be it in paving streets, in small community repairs, in a day care center, in the creation of a community cafe, in access to water and energy , basic sanitation, in the reconstruction of a house, or in some other field.

The pilot project is designed to test the policy’s results and effectiveness and then be extended to more areas of the country.

Financing

“As part of the asset recovery process, the State has already recovered real estate and money in the amount of USD 4,904,007,841.82, of which USD 2,709,007,842.82 in cash and USD 2,194,999,999.00 in real estate, factories, port terminals, office buildings, residential buildings, radio and television stations, graphic units, commercial establishments and others. ”

Thus, the President of the Republic spoke in the most recent speech by the State of the Nation mentioned above.

Now, nothing better than to allocate part of these recovered funds to the promotion of employment. Consequently, an amount withdrawn from there would be used to create an Employment Development Fund which we would simply call, because of the origin of the amounts, “Marimbondos Fund”. This Fund would receive part of the recovered assets and would use them to finance initiatives to promote employment such as the one presented here. Money withdrawn in the past from the economy would return to this one to foster work for the new generations.

With this self-financing model, any constraints imposed by the International Monetary Fund or the need for budgetary restraint would be removed. The promotion of employment would have its own funds resulting from the fight against corruption. There doesn’t seem to be a better destination for money than that.

Fig. No. 4- Financing the pilot Design

[1] https://www.ine.gov.ao/

[2] https://www.ine.gov.ao/images/Idndicador_IEA_III_Trimestre_2020.PNG

[3] Arthur M. Okun, The Political Economy of Prosperity (Washington, D.C.: Brookings Institution, 1970)

[4] https://www.imf.org/en/Countries/AGO#countrydata

[5] https://www.ox.ac.uk/news/2020-11-02-world-s-first-universal-jobs-guarantee-experiment-starts-austria

Sonangol and the reinvention of the Angolan economy

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This is a time of reinvention for Angola. Sonangol is no longer the engine of the Angolan economy and it is necessary to find a new driver. There are two reasons for the need to overcome the economic model based on a single product – oil.

The first reason is Sonangol itself. The results for 2019, presented by the Angolan oil company, are structurally discouraging. Although they show a profit, this profit derives from unrepeatable extraordinary results and the essential elements of the oil operation are stagnant: production does not increase, sales do not exceed the level of previous years. The company’s net income was USD 125 million. However, revenues remained stable compared to the previous year. Sonangol produced around 232 thousand barrels of crude oil per day, a number similar to the past and made sales of USD 10,231 million, which represents a 4% reduction compared to the 2018 financial year.

In short, oil exploration no longer adequately supports Sonangol. Not supporting Sonangol means not supporting the country.

In addition to this stagnation at Sonangol, there is the fact that oil is being increasingly viewed with skepticism, seeking to invest in alternative energies and moving away from the use of black gold. This is obviously not a short-term process, but it will have been accelerated with the Covid-19 pandemic. Oil will still have price rises, possibly peaks in higher demand, but everything indicates that the gluttonous years will be over, as other energy sources will emerge that will more or less gradually replace oil. Just note that in the last few months the price of the Brent barrel has fluctuated between USD 53 in October 2019, USD 60 in January 2020, USD 12.78 in April or USD 40.7 recently. However, he never returned to the 2014 figures where he was often above USD 100.

These two reasons mean that the Angolan economy has to reinvent itself, and more quickly than it thinks. It is not just a matter of restructuring Sonangol and focusing it on the oil business. It is not enough, because this business is stagnant. It is the economy itself that needs restructuring, which in the official jargon of the Angolan government is called diversification.

The problem is that diversification implies the creation of a new offer in the Angolan economy, of the production of goods and services that did not exist in the recent past. And for production to exist, investment is necessary. Investment requires, obviously, the contribution of capital.

And here we face another issue that affects the Angolan economy, which is the lack of capital and the recessive policies that intensify this scarcity. Following the parameters chosen by the International Monetary Fund (IMF) and the neoclassical orthodoxy of the economy, a program to contain / reduce public debt and reduce the deficit is being imposed on Angola.

We have many doubts as to whether such a program is justified in the case of the Angolan economy, especially considering the doctrinal contributions in Modern Monetary Theory, but the fact is that such a program to cut spending and increase taxes is being followed. However, the pursuit of such a policy ends up limiting the availability of capital for investment, whether public or private. Therefore, it prevents the so-called diversification that is so necessary to overcome Sonangol’s stagnation.

Thus, the outlook facing the Angolan economy at the moment is difficult. On the one hand, its engine – Sonangol – is stalled, on the other, the creation of capital to mobilize productive investment to diversify the economy is being strangled due to the recessionary policies adopted. This has obvious repercussions on the economy’s figures. GDP growth is negative – 3.6%. Unemployment assumes a staggering number of 32.7% and inflation of 22.8% (similar in August 2020). None of these numbers are encouraging.

The Angolan economy needs political courage to reverse this state of affairs.

Sonangol has to be restructured, but as an energy company and not merely an oil company. In reality, it is not enough to focus on oil, you will have to present yourself with a modern renewable energy company, taking advantage, for example, of the sun. If the United Kingdom recently announced that it wants to become Saudi Arabia by the wind, Angola may be Saudi Arabia by the sun. Therefore, an imaginative restructuring of Sonangol is necessary.

At the same time, recessionary economic policy must be abandoned. Although there should be budgetary discipline and not paying works twice or paying wages to phantom employees, as well as not contracting public debt to feed private pockets, the fact is that the policy of financial rigor must be complemented by a policy of fiscal stimulus that allows building a sufficient capital base to carry out the necessary reproductive investment. A public and private pro-investment tax policy is fundamental in reinventing the Angolan economy.

Sonangol: the need for a new strategic vision

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The Annual Accounts: 2019

On 22 September 2020, Sonangol presented its annual accounts with reference to 31 December 2019[1]. The net result was USD 125 million (one hundred and twenty-five million US dollars), equivalent to AOA 45 854 million (forty-five thousand, eight hundred and fifty-four million kwanzas), with EBITDA (Results before Interest, Taxes, Depreciation and Amortization) of USD 4,779 million, representing an increase of 10% in relation to the previous year.

Revenues were identical to 2018, while operating costs fell 11%.

Oil production was also similar to the previous year while gas production increased by 6% and LNG by 8%. The production of refined products grew 37%, after resuming operations at the Luanda Refinery.

This is the accounts’ summary as announced by the Company’s Board of Directors[2].

Fig. 1 – Summary of Sonangol 2019 Accounts according to the Board of Directors

ITEM  NET RESULTS
Net Profit  125 M USD
EBITDA  4,799M USD
Oil Revenue and Production  Similar 2018
Gas  +6%
LNG  +8%
Refined Products  +37%

The accounts make ample references to the ongoing Regeneration Plan, which has as essential goals to place the company’s focus on the activities of the oil industry value chain, that is: prospecting, research and production of crude oil and natural gas, refining, liquefaction natural gas, transportation, storage, distribution and marketing of derivative products[3].

Combating corruption at Sonangol and strengthening the role of Non-Executive Directors

The key issue of these accounts begins to be formal, as, finally, accounting reserves that lasted for 15 years were eliminated and the financial reporting is endowed with enhanced transparency.

An effort to eliminate Sonangol’s role as an “epicenter of corruption” is visible[4], that is, as the main public financier of the business and private pleasures of the Angolan ruling elite.

This can be seen in the attempt to improve the transparency of financial reporting and in the appointment of non-executive directors such as Marcolino Moco and Lopo do Nascimento, two individuals with recognized integrity. These are moves to ensure that Sonangol’s revenues are not used for these private businesses.

To these measures are added the termination of Sonangol’s functions as a National Concessionaire and the privatization of several expensive units of the group, which in many cases were only vehicles for withdrawing public money for private purposes.

However, within this framework it would be important that the Non-Executive Directors, in addition to publicly signing the report and accounts, issued a declaration of verification that there was no significant and visible appropriation of public funds by private entities. Transparency has to go further.

Fig. No. 2- Measures to combat corruption at Sonangol

Sonangol’s weaknesses:

If the first task of the Government and of the Sonangol’s governing bodies is to eliminate corruption[5] within the company, the second and no less important task is to make the company profitable and with prospects for the future.

And here despite the implementation of the so-called Regeneration Plan, this is not enough. A full qualitative leap is needed at Sonangol.

If we look at the company’s net profits, they dropped in 2019 to 46 billion kwanzas (about $ 125 million) compared to the 80 billion kwanzas ($ 316 million) in 2018. There are several reasons why this happened, from the low price of oil to the cessation of receiving supplies as a National Concessionaire. However, this number represents an additional weakness of the company.

In a study recently issued, Reuters[6] reported that Sonangol’s core activities in 2019 lost 351 billion kwanzas ($ 995 million), compared with a profit in 2018 of 69 billion kwanzas ($ 274 million) ). In 2019, debt payments were spent US $ 1.8 billion, while operating profits from oil production, sale and refining of US $ 1.570 million.

In addition, the total liabilities in 2019 were US $ 36 billion, referring to loans, risk provisions and accounts payable.

It should be noted, moreover, that the final net profit mentioned above is the result of unrepeatable extraordinary results such as cancellation of old debts and sales of some assets. They do not result from the central activity of the company.

KPGM points out that Sonangol’s liabilities or obligations exceed its assets, something that has not happened since 2016.

This means that the company’s core business is not competitive. Therefore, modeling the Regeneration Plan in a mere return to the core business isn’t the best solution.

This means that it is not enough for Sonangol to focus on its core business, as indicated by the Regeneration Plan. It is not enough and it cannot happen.

Fig. No. 3- Sonangol: Compared data between 2018 and 2019 (millions of dollars)

In addition, in 2019 Sonangol had sales of US $ 10 billion, 4% less than in 2018, which is understandable, as mentioned above, since in the middle of the year it stopped receiving earnings as a National Concessionaire. However, in addition to sales being stagnant, the production of barrels of oil is also stalled at 232 thousand barrels per day. In addition, it is feared that in the future oil will lose its importance in the world economy.

If we look at the amount of expenditure in the Angolan State Budget for 2020 in the revised version, it is US $ 23 billion. As only a part of Sonangol’s sales accrues to the State, we have a direct contribution from Sonangol to the national economy much lower than in the past. It should also be noted that the Angolan GDP is around US $ 105 billion. In this sense, Sonangol’s total sales do not reach 10% of GDP.

These elements lead us to two conclusions:

I) Sonangol’s oil activity is stagnant;

II) the company no longer has the magnitude to be the driving force of the Angolan economy.

These two conclusions have repercussions for the national economy and for Sonangol itself.

As far as the national economy is concerned, the solution is clear and is already beginning to be taken: broadening the national productive base, diversifying the sources of public income, promoting the creation of a strong agricultural and livestock support in the country, promoting the opening of companies, investment and competition in the market. It is a painful and difficult process, but a necessary one.

Harmonium Strategy. Going beyond the Regeneration Plan

Regarding Sonangol, it is understood that it is not enough and it is not the best idea to just focus on oil. The company’s reform has to be more ambitious and forward thinking.

On that matter we have already advocated in previous work[7] and it lays on the partial privatization of the company. The privatization of 100% of the company is not advocated, but the privatization of 33% of its capital in order to bring international investment, involvement of Angolan capital and motivation of its workers. These three objectives would be achieved through the following partial privatization model. Of the 33% of share capital to be privatized, 15% would be for foreign investors and would be the subject of an OFS (Public Offer for Sale) on an international reference exchange with abundant liquidity. The other 10% would be for national investors and would be subject to an OFS in Luanda. And finally, the remaining 8% would go to Sonangol workers, who would also become owners of the company for the ownership of their shares.

There would be new money, fresh ideas and people without connections to the past. This would allow a different approach to the problems and a renewed vision of the future.

However, in view of the negative evolution of the world and Angolan situation in recent months, partial privatization alone will not suffice, as the Regeneration Plan is not enough.

A new strategy for the company is vital.

The strategy no longer involves excessive attention to the oil focus. That which is not profitable and in which the company is not competitive must be sold. Free the company from its weaknesses. Decrease. But at the same time, increasing the company’s capacity and scale. Hence this option is designated as the Harmonium Strategy.

The remaining activities are expected to remain at Sonangol, while a renewal strategy is launched, based on developing a stronger downstream business, increased refining capacity, expansion for chemical products, and investing abundant renewable energy in Angola, such as sun and water, at the same time. time creating new technologies through its R&D efforts and developing new lines of business through investments and acquisitions. This means that there must be a transformational effort by Sonangol and not a mere reduction or dismantling.

It is necessary to follow what many large foreign oil companies, whether dominated by the state like Aramco (Saudi Arabia), or private like BP, are doing.

And this is turning the oil company into an integrated energy company driven by the production of resources focused on providing energy solutions to customers. Construction on a scale of investments in renewable energy and bioenergy, initial positions in hydrogen and creation of a global portfolio of gas customers; there are several options that Sonangol faces to become a modern and competitive company.

[1]https://www.sonangol.co.ao/Portugu%C3%AAs/ASonangolEP/Relat%C3%B3rio%20de%20Contas/Paginas/Relat%C3%B3rio-de-Contas.aspx

[2]https://www.sonangol.co.ao/Portugu%C3%AAs/Not%C3%ADcias/Paginas/Not%C3%ADciasHome.aspx?NewsID=472

[3]https://www.sonangol.co.ao/Portugu%C3%AAs/ASonangolEP/Estrat%C3%A9gias%20Corporativas/Paginas/Estrat%C3%A9gias-Corporativas.aspx

[4] See for example on the topic: https://www.makaangola.org/2020/09/sonangol-o-epicentro-da-pilhagem-de-sao-vicente-parte-1/

[5] We use the word corruption not in a technical sense, but in the current common sense in Angola, like all illicit private appropriation of public values, basically corresponding to what is criminally referred to as embezzlement, abuse of trust, economic participation in business, fraud, etc.

[6] https://www.reuters.com/article/angola-oil-sonangol/angolan-energy-giant-made-no-money-from-oil-in-2019-as-debt-bites-idUSL8N2GP4V2

[7] https://www.cedesa.pt/2020/01/29/um-modelo-de-privatizacao-da-sonangol/

The devaluation of Kwanza and inflation

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Some studies by prestigious economic consultants have lately issued some reports on the Angolan economy that only report negative numbers and projections, without taking into account either the theoretical models on which some of the main economic policy decisions in Angola are based, or the actual reality of its economy.

One of the most intriguing cases is the permanent link between the rise in inflation and the devaluation of the Kwanza, presenting the two phenomena as cause and effect or effect and cause, as well as always giving a negative connotation to the term “devaluation”.

This article, which does not aim to make forecasts, which at this time of Covid-19 would be rash, offers alternative explanations behind the Kwanza`s devaluation, looking instead at the opportunity it offers foreign investors.

It is evident that the semi-rigid or controlled exchange rate regime that existed before the adoption of the flexible exchange rate last year, was partly responsible for the crash in the Angolan economy.
In fact, pegging the Angolan currency at a high value in view of market conditions, caused unrestrained consumerism while domestic production was allowed to decline, since international prices were artificially made more competitive.

It was the time when Luanda became the most expensive city in the world with the Angolan elite making flagrant shows of wealth. This situation did not correspond to domestic production or development, but rather excessive spending of foreign currency earned from high oil prices which bolstered the inadequate value of the Kwanza. This was unsustainable.

The prolonged recession since 2014 demanded an end to the artificial appreciation of the Kwanza and the introduction of a flexible exchange rate.

The model underlying the adoption of flexible exchange rates has clear goals. Since Milton Friedman’s seminal text in 1953[1] on flexible exchange rates, two arguments support this policy: first, free movements in exchange rates are an efficient way of adjusting international relative prices in response to macroeconomic shocks; second, with flexible exchange rates, policymakers are free to choose and follow their own inflation target, rather than depending on the inflation rate from abroad. This last factor should be emphasised. Milton Friedman stressed that exchange rates would help to insulate the domestic economy from external shocks and would give national political authorities the ability to meet domestic goals. Flexible exchange rates provide enough insulation to the domestic economy if the sources of the recessionary shock are abroad.

This means that with a flexible exchange rate, it is possible for the government / central bank to pursue an autonomous anti-inflationary policy on the external value of the currency.
In fact, the devaluation of the Kwanza could mean that the prices of international goods become excessively expensive for Angola, and spark that, contrary to what happened previously, being cheaper to produce goods in Angola. That would be the opportunity to invest in Angola`s agriculture and industry, at they will have a market and low production costs due to the devaluation.

With national goods becoming more competitive than corresponding foreign goods, this will boost national production and encourage exports.

And provided that the central bank does not pint excess money, national production should increase and inflation should decrease if internal policies are adequately followed.

This does not mean that the transition from an economy artificially anchored by a high-value Kwanza supported by rising oil prices to a competitive and productive economy is easy. Angola is currently in deep crisis, made worse by the Covid-19 pandemic, and luck, either bad or good, has to be considered.

However, the exchange rate easing policy is right and there is no need to be afraid of devaluation. This is making the economy more competitive overseas and encouraging the manufacture and production of goods to sell both internally and abroad. Success depends more on government policies; policies that are coherent and consistent.

That is why the figures being released on devaluation and inflation are, on the surface, frightening, but they will only have a negative impact if the government implements the wrong policies.

Otherwise, they are not, by themselves, of any relevance. It is known that the Kwanza was overvalued and that this has greatly affected the Angolan economy. It is known that combating inflation, with flexible rates, does not depend on the outside world, but on the right decisions by the government.

There is awareness that Angola is in deep economic crisis, but some real encouraging indicators are beginning to emerge. One of them is that “Angola disbursed, in the first quarter of the year, 495 million dollars (436.5 million euros) on importing food products, a decrease of 31% compared to the 717 million dollars (632.3 million euros) ) for the last quarter of 2019.[2]”

The Angolan government attributed this evolution to a better organisation of its foreign exchange market and to an increase in the demand for national products. Official sources state: “We are verifying these two factors, we can say that we are on the right path, there is a demand for national production, there is a decrease in imports.” These facts seem to confirm the analysis we do. Obviously, in the end everything will depend on the right internal public policies.

[1] Friedman, M. (1953) “The Case for Flexible Exchange Rates.” In Essays in Positive Economics, 157–203. Chicago: University of Chicago Press.

[2] https://www.sapo.pt/noticias/economia/angola-importou-menos-31-de-alimentos-no_5f0f32adb34d505496f5eddd

Angola: The need for a new legal framework to fight corruption

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Abstract:

The fight against corruption initiated by João Lourenço, President of the Republic of Angola, is finding several obstacles.

In order to be successful, a structural change is required that includes the creation of a new judiciary body focused on corruption, a specialized Court section on corruption and money laundering, and new legislation to allow plea-bargain and agreements between the parties.

It was in February 2018, when the then Chairman of the Board of Directors of Sonangol, Carlos Saturnino, presented at a public press conference facts that he considered very serious and related to the management of Isabel dos Santos in that company.

In May 2020, after several reports about these and other facts, for example the Luanda Leaks[1], possibly attributable to Isabel dos Santos, the truth is that, apparently, she has not yet been notified to make statements in the judicial procedure which was opened in Angola.

The reality is that there is a risk of a sharp prolongation in this case, neither condemning nor absolving herself, leaving a trail of injustice over all matter. The comic episode about the passport with Bruce Lee’s signature that would be in one of Isabel dos Santos’s cases is a first tenuous symptom of the hypothesis of failure of this symbolic process of fighting corruption in Angola.

Also, in May 2020, very recent suspicions about acts of corruption were made public in the Interministerial Commission to Combat the Coronavirus Pandemic, namely, the unjustified chartering of Ethiopian Airlines planes and the purchase of goods from private entities, all of them with large tax debts in Angola. Companies that were hastily resuscitated to compete with the government’s biosafety material supply program[2]. In the words of the veteran Angolan journalist Graça Campos, we begin to see that the “PIIM (Integrated Plan for Intervention in Municipalities) has become the official free transit of access to public money[3].”

It is not for us to evaluate or judge the claims made by Carlos Saturnino,  the ICIJ or Graça Campos, but to conclude from the factual point of view that the fight against corruption in Angola, despite the very clear intentions expressed by the President of the Republic, João Lourenço, isn’t having an immediate and permanent effect. Neither the processes move quickly, nor the corrupt practices seem to have been eradicated, lasting as a reality in the life of the country.

It is in this context that it is essential to proceed with a structural change in the organic and fundamental legislation regarding the fight against corruption.

We envision three areas of intervention:

-The creation of a judiciary body focused on combating corruption;

– New judicial judicial with the competence to investigate and judge cases of corruption and money laundering (specialized sections of courts, judges and procedural law).

-The introduction of legislation that provides for plea-bargain and the possibility of procedural agreements ratified by judges between the parties to a criminal case.

Fig. 1- Proposed measures to fight corruption

These three measures are essential to put the fight against corruption on the right path. We will briefly go through each of the proposals.

Judiciary body focused on combating corruption

A body with sweeping legal powers, i.e. to investigate, search, seek, apprehend, listen, detain, demand international cooperation, etc., specialized in combating corruption, should be created. This body would centralize all the investigation regarding major cases of corruption and money laundering, having its own structure and statute equally separate from other bodies. It would be a focused body, capable of investigating a case, accusing, filing or reaching an agreement, proceeding to argue the case in court, and finally appealing to follow cases from beginning to end.

An example that can be followed and properly adapted is the Serious Fraud Office (SFO) in the United Kingdom. Here we have an entity that investigates, prosecutes and follwow several of the proceedings in cases of serious or complex fraud, bribery and corruption[4].

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Fig. 2- The British Serious Fraud Office can be a reference for the body to be created in Angola in order to fight corruption

Specialized sections in the ordinary Courts with the competence to judge cases of corruption and money laundering (Investigation and Judgment) and its own procedural law

Concomitantly, an investigating judge attached to this  kind of criminality would be established, as well as a specific section within the ordinary Courts. The procedure in this section, both in the investigation phase and in the judgment phase, would be the subject of a specific procedural law, albeit guaranteeing the defense will allow an acceleration of the process, avoiding delays. Only the appeal would be made to the usual criminal section of the Supreme Court.

Hence, investigation and prosecution would have bodies specialized in corruption and money laundering.

Fig. 3- New judicial structure for fighting corruption

Legislation that provides for plea-bargain and the possibility of procedural agreements ratified by judges between the parties in a criminal case.

Finally, it is urgent to pass legislation that enables and speeds up the fight against corruption, allowing for the adoption of measures of premium law, as well as the possibility of reaching agreements in the processes between the parties, with such agreements subject to ratification by a judge.

We advocate the existence of the plea-bargain, that is, of negotiations between the Public Prosecutor and the defendants that lead to the return of assets, a lighter or nonexistent penalty and the denunciation of other co-participants.

“Plea-bargain” is a legal benefit granted to a defendant  who agrees to collaborate in a criminal investigation or explain the role of his or her co-participants in a crime. This formula facilitates criminal investigation and, provided certain guarantees are safeguarded, allows for quick convictions within the framework of the rule of law.

It will be  not enough for the defendant to confess a crime and to indicate other culprits. He/She  must provide evidence of what he/she is  saying and cannot be repeating what is already known. Therefore, the plea-bargain has to bring evidence and novelties, and it is subject to a detailed menu of regulations that prevents abuse.

The approval of a law on “negotiations” with defendants, should be an urgent objective, to substantiate the activities of asset recovery through agreements.

Fig.. 4- Advantages of the Plea-Bargain in Angola

[1] International Consortium of Investigative Journalists (ICIJ), Luanda Leaks. Available online at: https://www.icij.org/investigations/luanda-leaks/

[2] Graça Campos, A mamata vai solta, 17 de maio 2020. Available online at:  https://www.correioangolense.info/2020/05/17/a-mamata-vai-solta/

[3] Idem

[4]  https://www.sfo.gov.uk/