Tuesday 26 September 2017

Angola has some of the ingredients needed for an economic miracle

Angola has some of the ingredients needed for an economic miracle
(Business Day 08/30/17)
Angola has some of the ingredients needed for an economic miracle

President-elect Lourenço has endorsed an ambitious plan to build on stability achieved since the civil war.

Angola’s fourth democratic elections resulted in the governing party, the MPLA, emerging victorious with 61% of the vote and the historic transfer of power to 63-year-old João Lourenço, the former defence minister, who will become the third president of Angola.

Opposition parties Unita and Casa-SE won 26.7% and 9.5%, respectively, thus increasing their representation in the soon-to-be reconstituted National Assembly.

The 2017 elections marked the end of an era and set a precedent in Angola — a sterling example that many other countries in sub-Saharan Africa can learn from, particularly considering Angola’s own painful past.

President Jose Eduardo dos Santos will be remembered for being Angola’s architect of peace and social reintegration after three decades of political instability and strife.

His legacy will be encrusted with yet another jewel, having willingly bequeathed his presidency to Lourenço, a trusted compatriot during almost four decades of Dos Santos rule.

The significance of this event is underscored by the dearth of parallels on a continent in which there is a preponderant obsession with the retention of absolute power at all costs.

While his critics are quick to scorn the dominance of his inner circle in all matters political and economic, they would be hardpressed to proffer alternative leadership models that would have restored peace, stability and growth to a nation scarred by prolonged war. It would be foolhardy to think that peace and prosperity could have been restored without concentrated power.

However, the result has been an imbalance of economic capital, with a closed circle of family, friends and party loyalists controlling virtually every facet of economic life in the country. They have disproportionately benefited from the fruits of the postwar oil-fuelled economic boom, to the exclusion of the opposition and the majority of the population.

While it is the nature of the beast that the victor enjoys the spoils of war, Angola’s economic emergence in the past 15 years since the end of the war in 2002 has been undeniable and has had trickle-down effects to those at the bottom of the food chain. Over that period, GDP has grown by a compound rate of 12.8%, and — at $122bn at present — Angola is the third-largest economy in sub-Saharan Africa.

To his credit, Dos Santos rebuilt and expanded a decimated and fragmented country and created a solid foundation on which its future growth can be delivered. The focus historically has been on becoming the largest oil exporter in the region, a position it has vied for with Nigeria. Novel shale-oil technologies have tilted the scales globally, resulting in a glut of oil inventories, compounded by weak global demand fundamentals.

Perpetually improving internal combustion engine efficiencies and the advent of hybrid and fully electric vehicles have exacerbated the long-term outlook for the oil price. The new normal has forced oil-exporting countries to rethink their economic models. Most have been confronted by twin deficits, weakened local currencies, sovereign debt downgrades and more expensive fiscal lifelines.

Saudi Aramco has already embarked on its initial public offer journey, setting its sights on raising $1-trillion in international capital markets and paving the way for other oil-exporting countries. Infamous for their opacity and thin detail, it is likely that other national oil companies will follow suit and raise capital via listings and quasi-privatisations.

President-elect Lourenço is a party faithful whose war credentials and unquestionable allegiance to the MPLA reinforce him as the best candidate to fill the shoes of his predecessor. He inherits a country battered by the vicissitudes of the volatile oil markets, a situation that has prompted multibillion-dollar cuts in fiscal expenditure and retarded growth that has brought the economy to a virtual standstill. Nevertheless, he has publicly endorsed his mandate as that of ushering in the era of Angola’s economic miracle, reminiscent of the decade-long Brazilian Miracle, which took hold in the 1970s.

The parallels are clear, and, while ambitious, Angola does possess some of the right ingredients. Apart from the oil sector, in which virtually all the international oil majors have already invested, vast segments of the economy have been deliberately closed to foreign direct investment. Compared with their potential, agriculture, mining, financial services and telecommunications are still primarily Angolan-owned and the country has long been criticised for its unfriendly foreign investment laws and burdensome red tape.

With Angola having created a local bond and stock exchange in 2015, privatisation and listings would be the easiest route to attract the type of long-term capital that is required to stimulate the economy in the appropriate quantum.

Full and partial privatisations would unleash billions in capital tied up in fixed assets, with positive ramifications for the kwanza.

Should Angola go the way of Saudi Arabia, Sonangol’s listing would automatically create one of the largest companies in Africa by market capitalisation and the experience of its CEO, Isabel dos Santos, and her stewardship of multiple listed entities the world over, would be an asset on that journey.

The second avenue available to Lourenço would entail the revision of private investment laws and the relaxation of the overprotective bureaucratic layers that were designed to retain rather than release control.

Cognisant of Angola’s size and potential, the country has long been in the cross hairs, particularly for the many South African behemoths looking to expand north of the Limpopo. Nedbank, Nampak, SABMiller, Standard Bank, Shoprite and Sanlam have been some of the more successful brands to position themselves and there are many others, including Atlasmara, Massmart, Tiger Brands and Woolworths, that have been waiting for the right opportunity.

Mining houses are conspicuous by their absence on this list, but the change at the top is an undeniable step in the right direction that will, in the short term, garner support from the IMF and World Bank.

New bilateral support — in the form of lines of export credit — has already been provided by the UK and this is seen as the harbinger of a deeper fundamental change in attitude from a protectionist stance to one more embracing of foreign investment.

Lourenço chooses to view the current oil crisis as an opportunity to diversify, import substitute and diversify the country’s tax base. These will be the principal foundations of his mission as he takes the first steps towards the genesis of the Angolan Miracle.

ANTHONY LOPES PINTO

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