President’s economic reforms are making Angola attractive

Getting a visa to Angola used to be a major operation. Fast forward to 2018: South African nationals no longer require a visa.

In a further sign of change, the head of state oil giant Sonangol, Isabel dos Santos — one of Africa’s richest women and daughter of the former long-standing president — was recently fired, sending shockwaves through the international business media.

All of this began in September 2017 when former defence minister João Lourenço was elected as the country’s president, becoming the first new head of state in 38 years. Perhaps the most important changes to be expected from Lourenço will be the implementation of economic reforms laid out in his economic and social improvement plan. This in effect amends the 2013-17 national development plan and leads into a new development blueprint for the period 2018-22.

These reforms are sorely needed. Following the oil price crash of 2014 Angola has endured a recession, skyrocketing inflation and empty supermarket shelves caused by severe shortages of foreign currency. Access to US dollars is needed to import goods manufactured overseas because the country’s manufacturing base is so small.

The new plan seeks to attract more foreign direct investment. It also offers new incentives for firms that manufacture locally and aims to expand infrastructure projects with private sector involvement. Further, the plan outlines stronger banking sector supervision by implementing stricter rules against money laundering, which will be crucial if the government wants to lower borrowing costs for Angolan businesses. The liberalisation of the telecoms sector also appears imminent.

However, the devaluation of the currency on January 10 is arguably the clearest signal that Lourenço is serious about making Angola attractive to investors. It was long overdue and suggests Lourenço urgently wants to tackle the severe foreign currency shortages. Nevertheless, the initial devaluation of 20% will most likely be insufficient and further small-scale devaluations can be expected over the course of 2018.

Not all his enthusiasm for change is aimed at improving the business environment. Instead, it could also form part of a bigger power grab; Lourenço has been swift in sidelining the influential Dos Santos family. After firing Isabel dos Santos, he dismissed her brother, José Filomeno, from his position as head of the country’s sovereign wealth fund.

Multinational companies should therefore not view Lourenço’s reforms as being purely aimed at solving Angola’s economic challenges. Political interests are an important factor that will continue to shape many aspects of doing business in the market.

For example, despite currency-related problems, a full-blown free float of the currency is unlikely in the coming year given interests of senior politicians involved in the parallel currency market.

The operating environment also remains difficult, illustrated by Angola’s slide in the World Bank’s Ease of Doing Business rankings almost every year since 2009. High borrowing costs, corruption and infrastructure constraints will present enduring challenges.

Living conditions for consumers are also tough. Inflation is expected to remain in double digits to 2020, squeezing household incomes. There are also plans to rein in public debt by curtailing subsidies and raising taxes. Notably, the proposed introduction of a value-added tax and new taxes on luxury goods will erode consumers’ disposable income, dampening demand.

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In addition, the failure of the government to exploit the country’s vast agricultural potential, combined with the country’s heavy dependence on oil and relatively moderate oil prices, means businesses in Angola will have to contend with sluggish growth in the coming years.

Despite these challenges, Lourenço is nudging the country in the right direction, and businesses looking to tap into Angola’s largely underserved market will welcome changes that could improve operating conditions.

For some, the opportunity certainly merits the risk. Notably, Shoprite stepped up investment in the market while the economy was in recession and other companies were pulling out. As a result, the retailer’s sales and market share grew significantly.

Many companies will find it difficult to ignore the potential the economy holds. Although the market is growing slowly, it remains the third largest in subSaharan Africa and the government is the secondlargest public spender in the region. Multinationals willing to take a long-term view can exploit the window of opportunity that is opening and get ahead of competitors.