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India: a new strategic bet for Angola?

The centrality of trade relations between India and Angola

Angola has become the epicenter of many international relations. There is talk of the rapprochement with the United States, the recalibration with China, the history with Russia, the role in the Great Lakes. However, one of the relationships that is discreetly becoming more important, but seems to have been forgotten, or needs to be discovered, is the relationship with India.

India is currently Angola’s third largest trading partner, sharing around 10% of Angola’s foreign trade, mainly due to the purchase of crude oil in bulk. The trade balance is in Angola’s favor, with India being Angola’s 2nd largest oil importer, accounting for 90% of bilateral trade. The trade relationship is clearly driven by the oil partnership.

Clearly, since 2021-22, India-Angola bilateral trade has been on the rise, reaching 3.2 billion dollars in 2021-22, with a large increase in Indian exports to Angola of 452 million dollars (45 % increase year-on-year). Bilateral trade in 2022-23 reached 3.9 billion dollars (by February 2023), with Indian exports to Angola registering a new high of 575 million dollars[1] .

Figure 1: Angola – India: Imports/Exports

(in millions of dollars)

Source: Embassy of India in Luanda (April 2023)[2]

As a comparison, the value of trade in tradable goods (excluding services) between Portugal and Angola totals €1,149.3 million (M€) in exports and €488.1 M€ in imports, on average for the 2019-2023 period.[3]

It’s easy to see that the value of trade relations between India and Angola is three times greater than that between Angola and Portugal. India is already a giant in its relationship with Angola.

Figures in millions of USD. For Portugal average 2019-2023, for India values 2023.

The Indian community in Angola is made up of around 4,000 people, mainly based in offshore oil fields or working in establishments owned by Indian owners, mostly involved in restaurants, supermarkets, commerce and other services; in industries dealing with plastics, metal, steel, clothing. In the non-oil sector, several projects are being carried out by Indian companies in the retail, hotel, agricultural plastics, scrap metal, steel, trade and other services sectors[4] .

India’s potential in relation to Angola

Having established the strong economic ties between India and Angola, it is worth highlighting India’s potential and the possibilities it opens up for Angola.

India is one of the world’s fastest growing large countries, expanding at an annual rate of 6-7%. New data shows that private sector confidence is at its highest level since 2010. Already the fifth largest economy, it could take third place by 2027, after America and China. India’s influence is manifesting itself in new ways. American companies have 1.5 million employees in India, more than in any other foreign country. Its stock market is the fourth most valuable in the world, while the aviation market ranks third. India’s purchases of Russian oil drive global prices. Increased wealth means more geopolitical clout. India has sent ten warships to the Middle East to contain the Houthis in Yemen.[5]

India’s strong presence in the Gulf should also be noted. Since Modi (the Indian prime minister) took office in 2014, India has transformed its relationship with the Gulf states, moving from one centered on energy, trade and Indian expatriates, to a new framework that encompasses political relations, investment and cooperation in defense and security. In addition, India has a keen interest in the stability of the Gulf, given that approximately 8.8 million Indian citizens live in the region[6] .

These are the essential facts, which pose a strategic challenge for Angolan presidential diplomacy.

As we all know and have mentioned in previous reports, João Lourenço’s new foreign policy, launched after 2017, is based on several vectors: a rapprochement with the United States and Europe in general, a new relationship with the Gulf States, a friendly recalibration with China and a repositioning with Russia. All this has been done. Now it will be India’s time.

India as a strategic priority for Angola

Given India’s economic growth and potential, its relationship with the Gulf States, as well as its global position as a country that is friendly to the United States but maintains its own external sovereignty, which leads it to buy oil from Russia, among other things, it is important to include India in Angola’s strategic priorities.

The point is not only that India is a market with clear potential for Angolan oil, as well as for other future exports, such as those linked to the agri-food sector, but also that it is a source of technological innovation for Angola. However, India’s economic aptitude is also important and relevant in discovering new robust markets for Angola.

Equally important is that India can be a support for Angola in its relations with the Gulf, where many Indians occupy prominent positions in the financial sector, and at the same time serve as a support for the difficult negotiations with China over the debt and, finally, serve as an example to the United States of a friendly country, but one that follows its own foreign policy.

These elements, both economic and in terms of international relations, are strong enough to attract the attention of Angolan presidential diplomacy to create a common framework for intense political and commercial cooperation. It is easy to understand that India can be an excellent expansion market for Angola, as well as a technological partner, and can also be complementary to Angola in many political aspects, both in establishing bridges with the Gulf countries and in knowing how to draw the boundaries of balance in relations with the major powers. This experience should be assimilated by Angola.

It should be remembered that the history of relations between heads of government (presidents of the republic and prime ministers) is not very intense. The first visit by an Indian prime minister to Angola took place in May 1986, by Prime Minister Rajiv Gandhi, which was reciprocated by Angolan President José Eduardo dos Santos in April 1987. PM Dr. Manmohan Singh met President José Santos on the sidelines of the G-8 meeting in L’Aquila, Italy, on July 10, 2009. In October 2015, Angola’s Vice-President Manuel Vicente visited India to take part in the Third India-Africa Summit. Finally, during his visit to Johannesburg to attend the BRICS Summit, Angolan President João Lourenço met Prime Minister Narendra Modi on July 26, 2018 and discussed ways to improve trade and investment between the two countries and also to deepen cooperation in sectors such as Energy, agriculture, food processing and pharmaceuticals[7] .

There really is no proximity between diplomacies at the highest level. Now, it is this pattern that would indicate that we need to move to a new level. This is possibly the time to create a strong bridge between India and Angola, based on political and economic aspects.


[1] Embassy of India Luanda (2023) Bilateral Brief on India-Angola Relations: https://www.mea.gov.in/Portal/ForeignRelation/Public_Bilateral_Brief_as_on_April_2023.pdf

[2] idem

[3] GPP (2024) ANGOLA Trade with Portugal (PT) 2019-2023: www.gpp.pt/images/gam/2/de/Angola.pdf

[4] Ditto note 1

[5] The Economist (2024), How strong is India’s economy? https://www.economist.com/leaders/2024/04/25/how-strong-is-indias-economy

[6] Viraj Solanki (2024) The Gulf region’s growing importance for India: https://www.iiss.org/online-analysis/online-analysis/2024/02/the-gulf-regions-growing-importance-for-india/

[7] See note 1.

Angola 2050 Strategy – an analysis (I)

Angola 2050

Angola 2050[1] is the name of the strategic plan recently presented by the Angolan government containing the country’s long-term vision.

In general, surprisingly, the reception to the document was lukewarm, it did not arouse particular enthusiasm or was quickly dismissed as lacking in rigour, not having an adequate methodology, or being nothing more than the work of academic consultants.[2]

In our opinion, this document is too important for the future of Angola to be hurriedly put aside, especially given the fact that it has been put out for public consultation, which we applaud.

To that extent, we went to read and analyse the document. It is a work of 432 pages and 11 chapters, elaborated in a professional and systematic way. We understand that even when criticising, the first correct attitude is to study and reflect on the document, besides making it known. Only by knowing the document can one criticise or present alternatives.

The role of civil society, academics and public opinion in general must cease to be mere deconstruction and become one of demand and attentive criticism. Only if we know what we are talking about can we call on the leaders to comply or to present other solutions.

It is our aim to present two papers on the document, the first of which is this one on the methodology, diagnoses and reference scenarios (p.7 to p.19). The second will be on the programmatic content of the plan.

Methodology and principles

The strategy presented by the government claims to be a “bifocal plan, with a clear vision of what is intended for the Country in the future, but articulating in a clear and decisive manner the short-term initiatives that ensure the right direction” (p.7).

It seems to be the best methodology, since there is no point in creating expectations for 30 years from now, without concretizing the steps to get there, and to that extent, the insertion of short-term measures is positive, having the advantage of being able to syndicate the evolution of the path outlined by the plan. It will be easy to conclude whether there is a need for correction or not, by looking at the short term and the plan’s recommendations.

In fact, there is no point in making long-term plans without constant evaluation and correction, there has to be sliding planning.

This was one of the main methodological failures of the previous plan, Angola 2025[3] . It did not materialize, and now (as we shall see below) it is said to have essentially failed.

Also to avoid the shortcomings of the previous plan, the government claims to propose a realistic plan, based on facts. It also informs us that the plan is aspirational, having resulted from extensive consultations that included civil society, academia and the private sector. As a principle, it is clear that this inclusiveness is desirable and conducive to the construction of an adequate plan.

However, taking into account the reaction of Heitor Carvalho, economist and coordinator of the Centre for Studies and Research of the Universidade Lusíada de Angola, or the lack of knowledge of the debate on the subject in the Economic and Social Council created by the President of the Republic, and also the public ignorance of the collaboration of prominent economists such as Yuri Quixina or Carlos Rosado de Carvalho, or even the fact that we, who have been publishing a volume on the Economy and Politics of Angola since 2020, which always sells out, were not called upon to give an opinion, all these facts raise questions about the non-state sectors that were heard. The consultation should have been more comprehensive.

As we will see, one of the main criticisms that this plan makes to the previous one is the excessive nationalization. Now, de-statisation should start at the genesis of these works, seeking the largest number of contributions, even to create consensus from the largest number of actors in civil society and academia.

Finally, the document ensures that it sought sustainability, following a holistic approach, which “integrates solutions for the various sectors, and recognises the interdependence of economic development, social inclusion and environmental sustainability” (p. 8), focusing on feasibility so that the proposed initiatives are achieved.

The failure of Angola 2025

One of the most interesting aspects of the initial part of the document is the courageous assumption of the failure of the previous Angola 2025 plan, all the more courageous because some of those responsible then are the same as now.

The government states that in relation to the Long Term Strategy 2025 (“Angola 2025”) “an important part of the economic and social goals fell short of what was expected, with the previous strategy inadvertently promoting policies that had negative impacts on our development”. (p.9).

Therefore, the current government, besides admitting the flaws of the previous plan, additionally recognises that some of the policies implemented were harmful to the country.

This assumption of responsibility and guilt is important because it should allow the same mistakes not to be repeated.

Essentially, the government points out that one of the main mistakes of the past was the promotion of the state “as the main economic agent, dominating most sectors of the economy and leaving a minor role for the private sector.” (p.9).

Moreover, the ‘state has unintentionally discouraged long-term, high-quality investment at times’ (p.9).  Those familiar with the difficulties of investing in Angola in the past, from the need for local partners to the difficulties of expatriating capital, understand these statements. Indeed, it seemed that Angola did not want foreign investment. Indeed the document itself acknowledges this, when it writes “[the] Foreign Direct Investment, which outside the oil sector was mostly incipient, was sometimes seen as a threat to national investors rather than as a boost to the economic fabric.” (p.9).

Obviously, the risk of corruption also kept many investors away. While there is no doubt about the new presidential discourse on combating corruption, the doubt that remains is about the effectiveness of the mechanisms adopted. It is a fundamental point for the future.

Another aspect raised was that in most sectors of the economy, “competition was harmed, with higher prices and lower quality goods or services often being provided to our citizens, making the country too dependent on the oil sector for exports and for access to foreign currency.

This is another point to which particular attention must now be paid. Many observers speak of new economic actors taking the place of old actors, but only replacing them, and not fostering real competition. What is crucial is to abolish market barriers and promote real internal competition (on free external competition we have a position reserved for another work).

The summary of the previous plan is that more than 60% of the indicators set for 2015 were not achieved. This says it all.

Human development, capital and productivity

The initial part focuses on some themes that we consider important. The first of which is human development. Although it highlights some progress, it recognises that “Human Development is very dependent on the income dimension and penalised by the degree of economic and social inequality, reflected in one of the lowest Human Capital Indices in the world (Angola is in the 4th quartile, below Sub-Saharan Africa and SADC)” (p.10). As we have been saying, and it is important to emphasize, the diagnosis made by the authorities is courageous and objective, not “sugarcoating” reality. It may be that the acknowledgement of failure is the first step towards a successful policy.

At the same time, labour productivity is also found to have declined, largely due to the reduced contribution of ‘capital accumulation’. In turn this lack of capital was “largely related to the fact that Private Capital was allocated to, on average, unproductive purposes and Public Capital was responsible for a very considerable level of investment in infrastructure, but which did not have the expected economic return.” (p. 14).

Once again we have objectivity in our analysis. José Eduardo dos Santos’ policy of ‘primitive accumulation of capital’ was a fiasco, because those who accumulated capital did not invest it in Angola. As we know, capital flight to Europe and assorted offshores was the rule, thus sabotaging what might have been the best intentions. That is why the fight against corruption has a strong economic impact. It is necessary to repatriate capital and guarantee its investment in Angola, whether capital obtained in the past or in the present.

In turn, public investment must stop obeying obscure interests and be seen from a cost-benefit perspective.

Challenges

In light of the above, the government identifies three key issues to be taken into account (p.15):

“Firstly, a set of implicit and explicit disincentives to private investment (e.g., the over-dimensioning of the State’s presence in the economy; difficult access to credit; poor infrastructure quality; lack of human capital quality) that justify the reduced contribution of this item to the country’s economy (excluding the oil sector) and explain the fact that the weight of foreign direct investment in Angola is among the lowest among peers.” We could not agree more.

“Secondly, a two-speed model of economic development, where there is an urban cluster of productive and developed and / or limited competition service sectors employing about 20% of the population, contrasted with informal and / poorly productive sectors employing 80% of the population.”

We have many doubts about this assertion, especially about the so-called “formalisation” policies of the economy. And, also, we do not see ourselves in a model of balanced growth of the economy. It seems more appropriate to follow a path of unbalanced development, since development manifests itself in specific points or poles of growth and then spreads throughout the economy (cf. for example Albert Hirschman )[4]

“Third, an under-investment in human capital, with the ‘quality factor’ (representing productivity potential) comparing particularly negatively with countries of similar income, placing Angola as one of the worst performers on the World Bank’s Human Capital Index.”

It is true that human capital is fundamental, but above all it is necessary to obtain capital. It is a mistake to think that qualifications are enough for a country to grow. A direct link between education and the economy has not been established. “The direct and simple relationship that delights commentators and politicians – expenditure between education and economic growth – simply does not exist”[5] .  The question arises more at the level of practical training. The population must have adequate levels of practical and vocational training, and educational attainment should not be confused with the quality of human capital.

Education

The report states that “the biggest social gap – which could significantly constrain future productivity – is in education, especially in the quality component (where Angola has some of the worst performances in the world, below the average for SADC or sub-Saharan Africa)” (p.12). In this regard, it points the focus to the “profound improvement in the quality of the education system, which today is one of the most serious constraints on the country’s growth (Angola is currently in the 4th quartile in this dimension – World Bank classification, having one of the lowest results in the world)” (p.16).

This is a truth, which, however, should not lead to wrong policies. Wrong policies can be exemplified by believing that it is enough to graduate people en masse from university to achieve economic growth. There is no relationship between one fact and the other. The issue is deeper and implies a complete review of the current Angolan education system, from teaching methods to degrees and preference for social and human areas, in addition to the lack of rigour and commitment in many universities. It is a whole programme.

Conclusions

This is a courageous report in its diagnosis of past economic policy mistakes and Angola’s lack of significant progress in many areas essential to human development and capital accumulation.

Once the diagnosis is made, the question is whether the right policies are being chosen and, above all, whether there is the political will to implement them.


[1] MEP, (2023), Angola 2050, https://www.mep.gov.ao/angola-2050

[2] Cfr. VOA, (2023) Estratégia “Angola 2050” ante dúvidas sobre sua elaboração e resultados expectativas, https://www.voaportugues.com/a/estrat%C3%A9gia-angola-2050-ante-d%C3%BAvidas-sobre-sua-elabora%C3%A7%C3%A3o-e-resultados-esperados/7103882.html

[3] MP (2007), ANGOLA 2025. Angola – a country with a future. S u s t e n t a b i l i t y, e q u i d a t y, m o d e r n i- t y. http://www.ucm.minfin.gov.ao/cs/groups/public/documents/document/zmlu/mdmz/~edisp/minfin033818.pdf

[4] HIRSCHMAN, A. O. The strategy of economic development. New Haven: Yale University Press, 1958 and also PERROUX, F. Note sur la notion de Pôle de Croissance. Economie Appliquée, v. 7, pp. 307-320, 1955.

[5] WOLF, A. (2002) Does Education Matter?: Myths About Education and Economic Growth. London, Penguin.

Boosting tourism in Angola

1- Framework: the requirements and agents of tourism promotion in Angola

Angola is gradually seeking to diversify its economy, choosing tourism as one of the main priorities for structuring economic policy. As is well known, the reconstruction started from 2002 did not focus on tourism, but on the oil, mining and construction industry. Once this model was exhausted, diversification became the keyword for development.

Since it is conspicuous that Angola has an enormous tourist potential, the truth is its implementation implies the removal of sveral obstacles and the creation of adequate conditions. We refer to two essential axes to create these conditions: the first is the creation of favorable conditions for investment in the tourism sector, this implies the review of the investment law that has already taken place, the removal of barriers to market entry and the facilitation of bank credit for new projects.

The second axis is of an infrastructural nature and requires the creation of an adequate transport network, roads, planes and boats, as well as a climate of criminal security, in addition to the facilitation of tourist visas.

Figure 1: The 2 axes for the development of tourism potential

Furthermore, the growth of tourism cannot be solely dependent on the State, it is naturally responsible for the regulation, supervision and creation of infrastructure and conditions. However, the fundamental role belongs to the private business community, which must advance and establish partnerships to enter the international circuits. And, finally, it is also up to the provincial, municipal and communal leaders to encourage and leverage their resources.

State, businessmen and local leaders form the tripartite partnership that must come together to launch tourism in Angola.

In 2019, at the opening of the World Tourism Forum that took place in Luanda, the President of the Republic made it very clear what the executive wanted for the sector: within the framework of the diversification of the economy, tourism should play a role in promoting development and generating income and employment. For this to materialize, the government should invest in the short and medium term, in the expansion of hotel infrastructures and in the infrastructure of the tourist centers of Cabo Ledo, Calandula and the Transfrontier Project of Okavango Zambeze, with the purpose of increasing the offer and the options diversity of tourists and customers in general[1].

Recently, a possible crisis in tourism in Europe has been discussed, admitting that Greece, Italy, France, Spain and Portugal are affected by the sanctions on Russia resulting from the war in Ukraine (which, in relation, at least to Portugal, is doubtful, as the country was not dependent on Russian tourism), Egypt has not yet fully recovered from fear of  bomb attacks, Indonesia struggles to contain Muslim fundamentalism, India struggles with rising pollution levels, Kenya and Senegal could be invaded by Islamic agitation, favorite destinations like Turkey, Israel, Thailand and Dubai are somewhat saturated. This scenario is described in a somewhat emphatic way, however, it opens up opportunities for tourism in Angola, as it represents a certain verifiable trend.

The country has potential in tourism to attract tourists, as Cape Verde and Botswana did; it has paradisiacal beaches, desert and forests, rivers of great flow, mountains, exuberant fauna and flora, and, above all, a welcoming people and a rich and varied gastronomy.

2-Scenario of Angolan tourism

There is no developed tourism industry in Angola. The few areas that are developed took advantage of the country’s natural beauties, rivers, waterfalls and the 1,650 km of Atlantic coast. As the official brochures describe: “The humid tropical climate [of Angola] has created an exuberant flora and rich fauna spread over regions with forests, savannas, impressive mountains, rivers, beaches that seem to stretch without limits, waterfalls, oases and beautiful landscapes which seem to go on to infinity and are all immaculate and intact. An endless summer of warm afternoons bathed in warm breezes to contemplate adventure and discovery.”

Angola has an extreme natural beauty that reveals itself as a promising tourist destination. Mussulo Island and Cabo Ledo are examples of places with an immense capacity to attract tourists, as well as several areas of the provinces such as Namibe, Benguela, Malanje and Cuanza-Sul. The Calandula Waterfalls in Malanje are particularly impressive.

However, currently, most foreign travelers arriving in Angola are not tourists, but entrepreneurs, workers and consultants. This means that hotels are geared towards business and not tourism or leisure. As businesses have been through a serious crisis since 2015, that only now (2022) is truly emerging, that is to say that in recent years there has been a markedly low occupancy rate in hotels, which went from 84% in 2014 to 35% in 2017 and 25% in 2018. This drop in occupancy reflected the crisis that overshadowed the country, not the lack of interest in tourism. The drop in oil prices that has occurred since 2014 and until last year led to a decrease in economic activity in Angola, which resulted in fewer business travelers occupying hotels.

Those responsible recognize that there are currently major weaknesses in the tourism sector, namely “lack of concrete support and incentive measures, difficult access to places, potential resources and tourist attractions, lack of appreciation of tourist resources, lack of flexibility of the banking system to finance tourist projects, deficit in terms of hotel and tourist training establishments, excessive dependence on imports, due to the deficit in domestic production, lack of tourist culture, lack of greater openness in granting entry visas to the main tourist-issuing markets of the world and reduced purchasing power of Angolans[2]”.

However, these unsatisfactory numbers and facts do not represent any structural trend. Between 2009-2014 Angola registered strong growth in the hotel sector with revenues exceeding 45 billion kwanzas (100 million euros at the time exchange rate), creating around 223 thousand jobs. Thus, there is clear potential for the tourism business.

3-Touristic locations and potential markets

Angola has numerous tourist attractions, among which we can highlight the national parks of Kissama and Iona, Quedas de Calandula, Ruacaná, Mussulo, Miradouro da Lua or the Zambezi River.

It is possible to promote the development of hotels and tourist resorts aimed at vacationers in some of the areas specifically intended for sun, sea and sand tourism, such as Cabo Ledo, 120km from Luanda in the municipality of Quiçama, which has 2,000 hectares of enormous beauty and is a potential location for world surfing, once visa processes are facilitated.

Another alternative for nature tourism is Calandula, Malange, which has the most impressive waterfalls in Angola and is the second largest in Africa at 150 meters high and 401 meters wide. An area of ​​1,978 hectares of endless vegetation and waterfalls as far as the eye can see and which has an enormous potential for tourist investment: tourist accommodation, restaurants, entertainment, golf and casinos.

The idea of ​​a museum route also emerged. The initiative of this route is to awaken and increase the culture of visiting museums, in order to create a heritage identity. This route includes the Iron Palace, the National Museum of Military History (Fortaleza São Miguel), the National Museum of Natural History and the National Museum of Slavery, passing through several hotel units. This route should serve as a model for implementation in all provinces of the country.

The target markets for Angolan tourism should be Russia (after the peaceful resolution of the war) and China, which are now the countries from which more than 50% of international tourists come, Angola has everything it takes to absorb a substantial share of these markets. Furthermore, as mentioned above, it could absorb some European demand, especially in the area of ​​adventure and new ecological experiences.

4-Strategic axes and special tourism areas (STA)

As mentioned above, the strategy for tourism must be based on two axes: the promotion of investment and the creation of infrastructure.

We recognize that there is a new favorable climate for investment and also an effort, especially within the scope of the CPLP, to make the bureaucratic process of issuing tourist visas more flexible, that is, conditions are being developed for a new strategy for attracting tourists.

According to an Angolan official, the documents required for the licensing of tourist developments were reduced, from 11 documents previously required to three. The validity of permits was changed from three to five years, the process of decentralizing the permit issuance system is in progress. All these actions aim to improve the business environment in the tourism sector. Regarding visas, the same official points out that the process was already more difficult. He made it known that there have been significant advances, which need to be improved, to attract more tourists[3].

The same officials argue that in terms of infrastructure there are gaps that are easy to solve; Catumbela Airport (Benguela) may be equipped with mechanisms to receive direct international flights, transport is part of the investment that is up to the private sector, the Benguela Railway line passes hundreds of meters from the airport, connects to Zambia and to the Democratic Republic of Congo and goes to Tanzania on the Indian Ocean, Lobito has a large-capacity port, and the expansion itself is providing parallel investments in health, training, services, and the capacity to produce skilled and competitive labor.

At the government level, tourism is recognized as a strategic sector in the National Development Plan 2018-2022, as a guarantee of intensive labour, alongside agriculture, various industries and fisheries. The National Development Plan includes some specific actions, such as the improvement of communication with the Tourist Development Poles, the elaboration of projects for the construction and rehabilitation of hotel and tourist infrastructures, state and mixed infrastructures, the identification of priority development areas, with the aim of recovering and developing the entire heritage of the hotel and tourist network.

Another government official, who has since ceased his duties, underlined that in addition to Angola starting to reduce restrictions and bureaucracy, as part of the strategy to relaunch tourism and promote the attraction of investment to the sector, he wanted to draw attention for the country, with the collaboration of the international supermodel Maria Borges, who would help to promote the potential. The strategy would involve calling an international name, Maria Borges, to help promote the country’s culture, history and main tourist destinations[4].

With the new strategy for the promotion of tourism, Angola hopes to integrate the list of the main tourist destinations in Africa by 2025[5] .

***

However, it is not possible in the short term to create a complete national infrastructure for tourism. There must be pragmatism and realism in political approaches to promoting tourism in a country where tourism has been almost non-existent. It is in this sense that the best solution must be dual and with different deadlines.

In the medium term, a national tourism strategy should be developed. However, in the short term, there must be a focus on what we will call Special Tourism Areas (STA). The STAs would be five areas of the country in which the State in partnership with the private sector and local authorities would focus to create infrastructure and specific conditions for tourism. Areas with easy access, hotels, restaurants, guaranteed security and maybe free transit visas to visit these areas. Preferred areas chosen to test the STAs could be Malanje, a beach area with urban animation, a paradisiacal-style beach area, and a city with a lot of history or an area with ecological interest aimed at European tourists.

Figure 2: Special Tourism Areas

These areas would have privileged tax treatment and the elimination of visas should be considered for those who went there for up to 15 days. This proposal would imply the elimination of visas for foreign tourists from the target markets who travel to the STAs for a maximum period of 15 days in tourism. All they need to do is present a return flight ticket and proof of booking in tourist accommodation.

There would thus be the creation of pilot districts dedicated to tourism, small capsules of what could be global tourism in Angola in the future.

Conclusions

Tourism can be one of the areas of excellence in the ongoing diversification of the Angolan economy, as it is a sector where the country has enormous potential. The investment in tourism must be a tripartite work of the State, private business and local communities. Target markets will be Asia and Russia (after the Ukrainian War settlement), as well as eco-tourists or European adventurers.

For tourism to exist in Angola, investment conditions must be provided (which is ongoing) as well as adequate infrastructure in physical terms and easy to move around.

It is advisable to proceed in the short term with the creation of Special Tourism Areas that work as pilot experiences for tourism promotion. Areas that will bring together hotels, restaurants, local entertainment, security and easy access, and elimination of visas for tourism in the STAs. And then with the results of these STAs extend to the entire country.


[1] https://e-global.pt/noticias/lusofonia/angola/angola-joao-lourenco-aposta-em-turismo-para-diversificar-economia-do-pais/

[2] https://www.jornaldeangola.ao/ao/noticias/os-resultados-da-estrategia-para-o-turismo-ainda-sao-incipientes/ – interview with ANGOP by the general director of Infotur – 31-08-2021

[3] https://www.jornaldeangola.ao/ao/noticias/o-futuro-de-angola-repousa-no-turismo-e-nao-no-petroleo/

[4] https://pt.euronews.com/2021/06/28/as-apostas-de-angola-para-relancar-o-turismo

[5] https://www.jornaldeangola.ao/ao/noticias/o-futuro-de-angola-repousa-no-turismo-e-nao-no-petroleo/

Sonangol. Oil or energy company?

1- Introduction. Sonangol’s privatization and the oil market

On June 15, 2021, at 16.00, the sale price of Brent oil (which serves as a reference for Angola) was USD 73, 45[1] . A month and a half ago, the price was around USD 66.00, and in recent times there has been a sustained rise in the price, as we had predicted in a previous report[2]. If we notice, when we made this forecast (June 2020), the price of oil was situated at USD 36.6. In practice, in one year the price doubled.

However, the government has put forward more details on Sonangol’s partial privatization. The Minister of Mineral Resources, Oil and Gas, Diamantino Azevedo, repeated[3] his promise to approve the schedule for the sale of 30% of Sonangol’s capital on the stock exchange during the current presidential term, explaining that it will be a staggered process, and that there will be several available tranches: “stocks for Sonangol workers, stocks for Angolans who are interested and for strategic partners who later want to become partners”, a model that we defend in due course[4].

A third element to consider when analyzing Sonangol’s is the energy transition. In the United States and Western Europe, at least, this has become something of a recurring mantra forcing oil companies to modify their strategies so that they are less dependent on oil and contribute to a “green” economy. Sonangol finds itself at this crossroads between the need to recover its old aura, to be privatized, but not just relying on oil.

This report will analyze the possible solutions that the Angolan oil company has and point out some strategic paths.

2-The two determining forces in Sonangol’s strategy

There are two somewhat opposing forces regarding the strategy Sonangol may adopt in the future.

The first force “glues” the company to the oil price and aims to keep it as an oil company. In this view, what Sonangol must do is focus on its “core business” – oil – and then become efficient. Therefore, in this context, Sonangol’s restructuring is focused on achieving profits in the oil business, making profitable investments in the area and increasing as much as possible, at the lowest cost, in oil production. The essential measures taken by the current government with a view to reorganizing the company are in this direction. As Minister Azevedo said: “The first measure we took was to free (Sonangol) from the concessionary function, which could create conflicts of interest. We could not take a company with a concessionary, regulatory and business function to the stock exchange”, and another measure was create an “attractive” company that “encourages investment”, which involved reducing the number of subsidiaries and selling non-nuclear oil companies[5].

The other, somewhat opposite force is the energy transition (the green economy). Here it is argued that Sonangol should not be overly dependent on oil, and that Sonangol should become, as happens with other companies, for example, BP, Aramco or Galp, a global energy company and not an oil company. To this is added the potential of non-oil natural energy resources that the country has, such as sun, water, etc.

3-China, India and the OPEC gap

Contrary to what one might think in a Eurocentric analysis, the answer to Sonangol’s future characterization is not obvious. Much depends on the markets to which Sonangol wanted to allocate its production and on the country’s development needs. If you look at it, the recent rise in the price of oil was essentially “pulled” by China’s renewed oil appetite. According to the Bloomberg[6] financial agency, it was the strong demand for gasoline in China that boosted the need for crude oil. The truth is that China is among the biggest drivers of fluctuations in oil prices and China has been buying oil like there is no tomorrow, as a result, prices have gone up. The question is whether China will continue to drive this rise in the medium term in a way that allows for a sustainable oil strategy in relation to Sonangol.

There are two broad lines to consider in trying to anticipate China’s future behavior. The first is its economic level, while the second is its commitment to the energy transition.

China is not yet at an economic level that corresponds to a rich and developed country. According to data from the World Bank, in 2019, the Chinese GDP per capita is in the order of USD 10,000. For comparison, Portugal, one of the poorest of the rich countries, has a GDP per capita on the same date of USD 23,000 and the United States is at USD 65,000[7]. Countries with GDP per capita identical to the Chinese are Argentina, Lebanon, Bulgaria, Kazakhstan, Turkey or Equatorial Guinea. It is easy to see that China still has a long way to go and will need a lot of energy, especially oil.

China’s oil demand has nearly tripled over the past two decades, accounting on average for a third of global oil demand growth each year. From what we have just exposed, China will continue to lead the demand for oil in the coming decades. However, the pace of the country’s oil consumption will not grow as fast, although it will continue to grow. Over the past two decades, China’s oil consumption has grown by more than 9 million barrels per day (mb / d) from 4.7 mb / d in 2000 to 14.1 mb / d in 2019. China’s oil use should continue to grow, albeit at a slower pace, as China is also investing heavily in renewable energy.

China is the world leader in electricity production from renewable energy sources, with more than twice the generation of the second country, the United States. At the end of 2019, the country had a total capacity of 790 GW of renewable energy, mainly hydroelectric, solar and wind power. China’s renewable energy sector is growing faster than that of fossil fuels, as is its nuclear power capacity. China has pledged to achieve carbon neutrality before 2060 and peak emissions before 2030. By 2030, China aims to reduce carbon dioxide emissions per unit of GDP by more than 65% from the level of 2005, increase the share of non-fossil energy in primary energy use to about 25 percent, and bring the total installed capacity of wind and solar electricity to over 1200 GW. Furthermore, China sees renewable energies as a source of energy security and not just a means of reducing carbon emissions[8][9].

In India, another of the world’s great countries in a process of growth, the situation is as follows: trade relations between Angola and India amount to US$4 billion, of which US$3.7 million correspond to exports from Angola to the Asian country, being 90% related to oil. Angola is currently the third most important African exporter to India, when in 2005 it was not relevant. In 2017, the Ambassador of India issued a statement in which he highlighted: “Trade between Angola and India increased by 100% in 2017.” The thing to remember is that India is becoming a significant partner of Angola through its oil needs.

In terms of GDP per capita, India in 2019 was around USD 2000.00. It is easy to see that the growth that India expects is enormous, even if it does not have China’s ambitions of world leadership, just to reach its current level, it has to multiply its GDP by five. Obviously, this implies a growing need for oil. India was the world’s third largest crude oil importer in 2018, and has an estimated oil import dependency of 82%. India’s economic growth is closely related to its demand for energy, so the need for oil and gas is expected to grow even further, making the sector very investment-friendly. At the same time, India is one of the countries with a large production of energy from renewable sources. As of November 27, 2020, 38% of India’s installed electricity generation capacity came from renewable sources. In the Paris Agreement, India committed to a target of achieving 40% of its total electricity generation from non-fossil fuel sources by 2030. The country is aiming for an even more ambitious target of 57% of total electricity capacity from renewable sources by 2027.

Official data indicate that Angola’s oil production reached, in May 2021, only 34 million 887 thousand 890 barrels, less about one million compared to April. In that month, a daily average of one million 125 thousand 416 barrels of oil was obtained, when the forecast was one million 184 thousand 813. This means that Angola is below the target set by the Organization of Petroleum Exporting Countries (OPEC). ), which was 1 million 283 thousand barrels per day, in May, with subsequent increases.

4- Conclusion: Sonangol’s challenges

Considering all of the above, it is evident, first of all, that there is a large margin for Sonangol to continue to focus on oil, either because not even the quotas defined by OPEC for Angola are met, ie, Angola is producing less than it should in a tight market situation, either because the large potential oil futures markets such as China and India will need plentiful oil shipments.

To that extent, Sonangol should not make the mistake – as some oil companies are doing – of underestimating the potential for growth in the oil market. In the Western world with mature economies, the demand for oil may not feel as strong as in the past, but in fast-growing economies, more oil will be needed, albeit often not as exponentially as before.

There is space and market for Sonangol, as an oil company, to grow. Therefore, Sonangol’s ongoing strategic structuring should focus on producing more oil more efficiently, both in terms of costs and in terms of the environment.

However, this model focused on oil efficiency has to be matched with the enormous potential that is opening up in renewable energies and the company has to take advantage of energy synergies, as many of its counterparts are doing and also China and India.

At the present time, when the intention is to privatize Sonangol from a global perspective, it seems sensible to commit Sonangol to tasks in the area of ​​renewable energies. In fact, to be an attractive company for the international stock market, Sonangol must present itself as adopting the latest trends in oil companies, i.e., also following the needs of the energy transition.

Not abandoning or belittling oil, Sonangol must boldly explore the combined possibilities brought by renewable energies.

This exploration of renewable energies by Sonangol should not start from scratch, but rather seek some sustainability and economies of scale. One hypothesis, which we have already touched upon in a previous report[10], would be a strategic partnership with Galp for this purpose. As is known, Galp accelerated its energy transition process.

As this hypothesis was not adopted, Sonangol should review the rationality of its permanence at Galp. In fact, at this moment, the Angolan position in Galp is “sandwiched” between Isabel dos Santos and the Amorim family, corresponding to a mere financial investment. This doesn’t make much sense anymore. Either Galp becomes a strategic partner for Sonangol’s energy transition, or a position review becomes required.

The alternative would be for Sonangol to acquire a company that is minimally established in the field and develop its activities based on this new platform. At this time, partnerships have already been announced with ENI and TOTAL to develop projects in renewable energy that will be operational in 2022. Perhaps a strategic focus in this area is more interesting, which would translate into an internal commitment by Sonangol and, as mentioned above, it would go through the purchase or merger with a company operating in the renewable energy sector, to provide initial support for Sonangol.

In short, Sonangol must become a bi-focused company: on oil and renewable energies.


[1] https://www.ifcmarkets.com/pt/market-data/commodities-prices/brent

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

[3] https://www.dw.com/pt-002/governo-angolano-admite-privatiza%C3%A7%C3%A3o-gradual-de-30-da-sonangol/a-57879593

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

[5] Idem note 3

[6] https://oilprice.com/Latest-Energy-News/World-News/Chinese-Gasoline-Demand-Is-Driving-Oil-Prices-Higher.html

[7] https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=US

8 Cfr. https://www.oxfordenergy.org/publications/chinas-oil-demand-in-the-wake-of-covid-19/ and

[9] Deng, Haifeng and Farah, Paolo Davide and Wang, Anna, China’s Role and Contribution in the Global Governance of Climate Change: Institutional Adjustments for Carbon Tax Introduction, Collection and Management in China (24 November 2015). Journal of World Energy Law and Business, Oxford University Press, Volume 8, Issue 6, December 2015.

[10] https://www.cedesa.pt/2021/02/10/sonangol-galp-que-futuro-conjunto/

Sonangol & Galp: what future together?

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