Imara African Cement Report Africa, the last cement frontier Angola ...

Executive Summary
Comeback post 2010 slump
Angola has emerged much stronger from its first economic slump since the cessation of civil hostilities in 2002.
August 2012 will mark the country‟s first decade as a post war country, on a defined path towards controlled
capitalism, very similar to that adopted by modern day China. A rebound in oil fortunes has propelled foreign
currency reserves to an all-time high of over US$22.6bn as at the end of July 2011, making Angola one of the
richest developing countries in sub-Saharan Africa. Post the commodities and financial markets crash of
2008/9 Angola is once again the centre of attention, and the scramble for energy assets has intensified, at a
more determined tempo, pumping life into the rest of the economy.
Wiser post the crash, the body politic is strategically positioning the country for regional and international
prominence, looking to boost foreign investment and open up previously closed sectors to external players,
while maintaining a focus on ensuring Angolan control. While the development of the economy during the first
decade has been impressive, the next decade promises to be even greater, with a defined focus on reducing
the correlation of economic activity to the crude oil price. A larger pie should also enhance the trickle-down
effect of wealth to the poverty stricken masses, which remains one of the lingering short comings. Significant
changes have been made to the regulatory, administrative and legal frameworks in 2010, setting the
foundations for further growth in the oil (still), gas, banking, capital markets, insurance, agriculture,
manufacturing and mining sectors. In our opinion, Angola remains one of the surest growth plays in sub-
Saharan Africa, albeit, the most challenging, bar none.
Highlights of the crash
The oil price crash and subsequent capital flight had a dramatic impact on Angola plc. Lower crude prices saw
the fiscal position going into the red in 2009 (US$8.6bn deficit; figure 3) for the first time since 2003 and the
government being unable to pay its creditors. The private construction sector, comprised of mainly
Portuguese and Brazilian firms took the hardest hit, which led to mass layoffs and an outflow of expatriate
workers in this industry. At the height of the crisis arrears to the private sector amounted to some US$6.8bn.
Low liquidity levels exacerbated by capital flight precipitated a devaluation of the kwanza from AKZ75/US$1
to the circa AKZ90/US$1 level (Figure 6) in the last quarter of 2009.
Combined with a tightened fiscal policy and the imposition of foreign exchange controls, relations with the IMF
were hastily rekindled. In November 2009 the fund extended a US$1.4bn stand by facility to curb the impact of
the crisis, improve liquidity and dissolve pressure on the local currency. Two new lines of credit with the
Portuguese and Spanish governments to the tune of US$1.5bn were also signed to lessen the impact of the
crunch. Some of the more important policy changes are highlighted in Table 1 overleaf and have improved
checks and balances, reinforcing macro-economic stability in the years ahead.
Systemic weaknesses addressed post the crash
While firm oil prices in 2011 have refilled the coffers, measures have been taken to circumvent the blatant
structural weaknesses and multiple systemic shortcomings. Significantly, new procedures regarding the
procurement of goods and services by government departments were introduced in April 2010 in order to stem
transfer pricing and expropriations. Following the appointment of a new central bank governor and finance
minister in 2010, a new audit committee was put in place at the Central Bank and Ernst and Young were
appointed as external auditors to enhance reporting and accountability. Systematic reform has been extended
to the financial sector, which for the most part, now publish regular audited financial statements. Sonangol,
Angola Telecom and the Central Bank, among others, are some of the public institutions that now publish their
annual results online, all indicative of a higher commitment towards greater transparency and accountability.
The evolving legislative framework is a precursor to liberalisation
With the agenda to promote the development of the non-energy sector back on the table, the deepening of
the country‟s capital markets is underway, and recently the debate on developing Private, Public partnerships
(PPP‟s) to augment the government‟s efforts in stimulating the non-oil economy has been prioritised. The new
Private Investment law was promulgated into law in May 2011 and the restructuring of the Capital Markets
Commission has now been completed. The new private investment law sets the minimum protected entry
investment at US$1m, with stringent repatriation criteria. This is unlikely to phase the flood of investors
looking for exposure to the Angolan market, as key sectors for foreign investors, viz. cement, banking,
beverages and telecoms, remain firmly shut for the time being.
The country´s sovereign credit rating has recently been edged a notch higher with a positive outlook, from B1
to Ba3 by Moody‟s (Fitch and S&P equivalent of BB-). Angola is now a notch higher than Nigeria (B+) and two
notches ahead of Ghana and Kenya (B-) and on par with Portugal (which was recently downgraded by Moody‟s).
4