Conjoncture

Taking steps forward

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Conjoncture // February 2019  
economic-research.bnpparibas.com  
The first year in office of the new president Joao Lourenço’s reveals a rather positive shift in economic policies, given his determination  
to clean up politics and the scope of the economic reforms engaged so far. The abandon of the currency peg has eased some pressures  
on the fx market though they still remain important. The financing package recently signed with the IMF will help to implement structural  
reforms aimed at diversifying the economy by fostering the development of the private sector. Nevertheless, the overall near-term  
economic outlook remains embedded in international oil price developments due to the lack of economic diversification. Additionally,  
the still ailing banking system keeps on straining the private sector. Therefore, the recovery is bound to be very gradual at best due to  
the persistence of major macroeconomic imbalances.  
Despite the new government’s positive shift in economic policy and the minimum commitment of USD 230,000 and the obligation to associate  
upturn in oil prices, the country still faces several challenges. The oil with a local partner holding an equity stake of at least 35%. In order to  
sector is deteriorated, foreign currency liquidity is exposed to high govern interactions between government and investors, the Agency for  
tensions, the household purchasing power is being eroded and the Private Investment and Exports (AIPEX) has been created. Moreover,  
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banking system is facing severe difficulties. This is evidenced by the about 74 state-owned companies are on the privatization list.  
sovereign spread on foreign-currency debt, which continues to be  
higher than global emerging market one, thus keeping the borrowing on  
The government also seems to be driving some moderate improvement  
in transparency and the reduction of corruption . An anti-corruption unit  
2
the international capital markets relatively expensive. The IMF financial  
was created in March 2018 and several high-profile officials from the  
support, after almost two years of cooperation, is a very welcome  
previous administration were dismissed and prosecuted. If the  
measure which could reassure economic agents. The Angola  
prosecution for fraud and final arrest of the former president’s son  
government’s economic policy has clearly changed but the recovery will  
suggest that the Dos Santos family’s influence has waned significantly  
take time.  
in the past year, the arrest of a few high profile individuals will not be  
sufficient to resolve the endemic levels of corruption within key Angolan  
institutions.  
However, according to the World Bank 2019 Doing Business ranking,  
Since taking office in September 2017, President Lourenço has made Angola has progressed by only two notches (to 173 from 175 out of 190  
significant reforms to improve financial sector transparency, enhance countries), mainly due to some improvement in obtaining electricity,  
efficiency in SOEs, liberalize the foreign exchange rate regime, and registering property and trading across borders. Likewise, small positive  
pursue a more business-friendly trajectory in order to improve achievements are registered in the Governance Index related to voice  
international investors’ perception of the country’s business climate. In and accountability, government effectiveness, political stability and  
its first year in office, the new government’s agenda that focused on control of corruption. Despite this, the Angola’s business environment  
anti-corruption and free market economic reforms have sent positive remains burdensome.  
signals of political change.  
The new foreign exchange policy has improved fx liquidity. After  
In April 2018 the ruling party, the People's Movement for the Liberation abandoning the dollar peg in January 2018, the central bank has  
of Angola (MPLA), called for an extraordinary congress in September gradually depreciated the kwanza (AOA) in a controlled manner through  
2
018 that marked a political transition of the party’s leadership (the last a series of auctions. Starting from October 2018, the volume of foreign  
vestige of Dos Santos hegemony) to the new president who thereby currency has increased and the central bank stopped direct sales of  
gained uncontested authority with Angola’s political elite and foreign currency, which will be handled by authorized retail banks. At  
businessmen.  
the same time, the approval of legislation to facilitate the repatriation of  
funds held abroad aims to reduce the shortage of hard currency.  
After changing several key political and economic positions to remove  
the Dos Santos legacy, the government undertook several reforms to  
attract new investments and faster potential growth.  
1
Enterprises up for total or partial privatization include the country’s ports, the  
national airline (TAAG), the Bank of Commerce and Industry (BCI) and the Ensa  
Most of them have been made to support private sector development.  
After the simplification of administrative red tape to attract FDI (issuance  
of visas and residency permits), progress has also been made in getting  
electricity, promoting competition and combating monopolies. A new law  
was approved on non-resident investment with the elimination of the  
insurance company.  
2
As evidenced by Angola's low score (167th out of 180 countries) in the  
Transparency International's Corruption Perception's Index.  
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Conjoncture // February 2019  
economic-research.bnpparibas.com  
Lastly, the hydrocarbon sector has also been the subject of deep reform  
The key objectives of the MPS are: i) strengthening of fiscal and debt  
with the passing of a new legislation to define clear and transparent sustainability, (ii) modernizing the monetary policy framework and  
rules for the development of gas reserves as well as some tax cuts for exchange rate policy, iii) reducing financial sector vulnerabilities and iv)  
marginal oil fields (those with smaller reserves or with specific technical fostering private-sector-led growth and economic diversification by  
challenges). In addition, President Lourenço created the new National improving governance and the business environment.  
Oil & Gas Agency. This agency will take over the attribution of oil  
To support the implementation of these reforms, the Angolan  
concessions and the management of production sharing agreements  
government asked for an IMF support program, which was officially  
that were previously managed by Sonangol.  
signed on the 10th of December 2018. The USD 3.7 billion three-year  
extended arrangement under the Extended Fund Facility allows an  
immediate disbursement of USD 990.7 million, while the remaining  
amount will be disbursed over the remainder of the facility period,  
Relationships between Angola and the IMF have been historically tense  
owing to the fund's criticism of Angola's opaque resource management.  
Only in 2009, during the last oil price crash, Angola took on a  
USD 1.4 bn stand-by arrangement (SBA) for the first time to help it  
manage liquidity challenges.  
subject to semi-annual reviews.  
Moving forward, the IMF facility will ease fx liquidity pressures in the  
near term and send a strong signal on policy stability that is likely to  
reassure economic agents.  
Angola authorities seriously started again in 2018 to cooperate with the  
IMF, which considers the current political transition to be an  
extraordinary break in Angola’s recent history, following the ambitious  
reforms launched to address macroeconomic and structural imbalances.  
The sharp decline in oil price from the record high in 2011-2013 has  
derailed Angola’s economic performance from the 4.5% average level  
More precisely, they are implementing: (i) a Macroeconomic recorded between 2011 and 2015. The real GDP growth strongly  
Stabilization Program (MPS) and (ii) the National Development Plan for slowed down at 0.9% in 2015 and finally entered into recession in 2016  
2
01822 to address structural bottlenecks, promote human (-2.6%).  
development, public sector reform, economic diversification, and  
inclusive growth.  
Angola: Overview of the Reform Agenda, 2017-2022  
Authorities’ Macroeconomic  
Extended Fund Facility  
2018-2021  
Authorities’ National  
Development Plan  
2022  
Stabilization Program  
2
017-2018  
Fiscal policy  
Monetary policy and Banking sector  
-
Upfront consolidation to contain  
- Pursue fiscal consolidation by  
increasing the share of non-oil  
revenue and reducing subsidies  
to SOEs.  
the growth of public debt.  
Greater exchange rate  
flexibility.  
Improved profile of public debt  
-
Strengthening non-oil tax revenue - Eliminate the foreign exchange  
including through adoption of a  
VAT.  
backlog, and remove the priority list  
for foreign exchange allocation.  
-
-
Rationalize expenditure including - Strengthen liquidity management by  
safer levels in the medium term.  
- Eliminate domestic arrears.  
Bring the public debt ratio to  
-
-
through a subsidy reform.  
operationalizing the base money  
targeting framework.  
through liability management  
operations.  
-
Enhance debt management by  
fostering the development of the  
primary market for domestic debt.  
- Conduct an asset quality review of  
eight systemic banks.  
-
Start settling domestic  
- Raise non-oil GDP through  
development of agriculture and  
manufacturing  
payments arrears.  
-
Reduce fiscal risks by  
- Submit a new AML/CFT law.  
-
Revise AML/CFT legislation.  
implementing a strategy for  
Sonangol to divest from its non-  
core business.  
-
Improve Angola’s position in  
-
Begin publication of monthly  
the Doing Business ranking.  
program for regular foreign exchange  
auctions.  
-
Adopt and start implementing  
-
Strengthen PFM by enforcing  
an anti-corruption strategy.  
-
Enact an insolvency law.  
internal controls and eliminating  
arrears.  
Table 1  
Source: IMF  
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Conjoncture // February 2019  
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Despite the progress that has been made since the arrival of Joao In 2019 the total production is supposed to improve with the start-up of  
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Lourenço’s new government and the upturn in crude oil prices during the new Kaombo oil field from Total . But the Kaombo ramping up  
the first three quarters of 2018 the Angolan economy is expected to production could take time and its contribution would be visible in oil  
report its third consecutive year of recession. It is confirmed by the data by the end of this year. Additionally, the overall oil production will  
overall economic sentiment, measured by the “Indicador de Clima be lowered by 47,000 barrels per day cut in the first term of 2019 in  
Economico” (ICE), which remains in negative territory. According to the accordance with last year’s OPEC agreement. Both effects would lead  
recently released data form the National Statistics Institute, the to an average estimated oil production almost flat for 2019.  
economy contracted by 2.7% year-on-year in Q1/Q3 2018, posting the  
As per the non-oil sector (65% of GDP), it is affected by import  
third consecutive quarter in recession. This contraction is still attributed  
restrictions (on non-priority products), persistently high inflation and the  
to the decline in extracting and refining activities, which account for 33%  
expiration of certain subsidies that had lifted households’ purchasing  
of GDP, as well as trade and construction (close to 20% of GDP).  
power. Companies continue to battle with commodity shortages,  
insufficient equipment and financial problems arising from heavy fiscal  
pressures. The banking system’s deteriorated financial situation will  
Recession lasts for the third consecutive year  
continue to strain private sector development.  
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2
1
0
0
0
0
Like in many sub-Saharan economies, private consumption in Angola  
remains the most significant contributor to overall GDP, accounting for  
around 53% of GDP in 2018, while government consumption and gross  
fixed capital formation have been less supportive and much more  
volatile. But lower public spending, high inflation levels and the weak  
banking system are progressively having an impact on domestic  
purchasing power, keeping domestic demand subdued.  
170  
70  
-
30  
-130  
230  
-10  
-20  
-30  
-40  
Oil Revenues (USD Mn, RHS)  
Quarterly GDP (yoy,%)  
Looking ahead, financial and policy support from the IMF should bring  
the Angolan economy out of recession in 2019. More precisely we  
expect real GDP growth to come to positive territory because of: i) oil  
GDP expansion coming from stabilisation of oil production and ii)  
resilient nonhydrocarbon sector.  
-
ICE= Indicador Clima Economico  
-330  
Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018  
Chart 1  
Source: INE,EIA, Reuters, BNP Paribas  
Nevertheless, the outlook remains highly uncertain. Despite political  
willingness to continue implementing structural reforms, still-burgeoning  
corruption, the depreciation of the currency and ballooning government  
debt are key downside risks to the outlook. Although recent moves to  
bolster the business environment are encouraging, more  
comprehensive efforts are imperative to tackle high levels of  
bureaucracy, low human capital, poor regulation, high levels of  
corruption and the crowding out of private investment by the public  
sector.  
Still depressed oil & non-oil sectors  
GDP, % points  
Oil  
Non-oil  
GDP  
1
0
8
6
4
2
0
2
4
-
-
Impressive progress was made on reducing the size of the fiscal deficit  
in 2018. The kwanza's depreciation increased the value of US dollar-  
denominated oil earnings (which accounted for around half of fiscal  
revenue last year), and coupled with the rebound in oil prices, allowed a  
significant fiscal consolidation, decreasing the fiscal deficit from -6.3%  
of GDP in 2017 to only 0.5% in 2018. The government used most of its  
higher than anticipated revenues in kwanza to repay some of its  
2011  
2012  
2013  
2014  
2015  
2016  
2017  
2018e  
Chart 2  
Source: INE,BNP Paribas  
The oil sector (accounting for 35% of GDP in 2018) continues to face  
the consequences of both the freeze on most oil exploration projects  
(
considered too expensive) and the massive layoffs to reduce operating  
costs. Oil production has declined continuously, from 1.8 m barrels per  
day (b/d) in 2015 to 1.49 m b/d in December 2018, mainly due lack of  
investments in offshore fields, which are quite costly to maintain, while  
others have reached maturity production peak and production has  
started to decline. The period of near-paralysis was also due to  
deteriorating relationship between Sonangol and the majors’ oil  
companies.  
3
Located 260 km from the Luanda coast, this is the biggest deep-water oil project in  
Angola with two production and storage units. Overall production is estimated to be  
about 230,000 b/d. Today the first FPSO (floating production storage and offloading)  
has been ramping up production since August 2018 while its second FPSO is  
expected to be operational before the summer of 2019.  
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Conjoncture // February 2019  
economic-research.bnpparibas.com  
domestic debt, mostly Treasury bills (whose stock fell by 50% between significantly undermine the government’s ability to service its  
5
January and December) and clear domestic payments arrears in 2018.  
uncollateralized debt and repay the IMF.  
Fiscal boost in 2018 but increasing interest costs (% of GDP)  
Fiscal Financing Needs and Sources, 2018-2021  
%
of GDP  
2018  
17.3  
2019  
13.5  
2020  
13.2  
2021  
11.6  
Public Debt (RHS)  
Interest expenditure  
Total revenues  
Budget Balance  
Total expenditure  
Gross financing needs  
Overall deficit  
Arrears  
4
3
3
2
2
1
1
0
5
0
5
0
5
0
5
0
5
0.5  
1
0.8  
2
0.8  
0.6  
7
5
3
1
8
8
8
8
0.6  
0.4  
Debt amortization  
Other  
15  
11  
11.9  
-0.1  
13.2  
13.4  
7.4  
10.4  
0.2  
0.8  
17.3  
17  
-0.1  
13.5  
13.1  
6.8  
6.3  
0
Gross financing sources  
Debt issuance  
Domestic  
11.6  
11.8  
5.7  
-2  
9.1  
7.9  
-0.1  
-
External  
6
6.1  
-
10  
-22  
Other  
-0.1  
-0.1  
2
013  
2014  
2015  
2016  
2017  
2018e  
Table 2  
Source: IMF, BNP Paribas  
Chart 3  
Source: IMF, BNP Paribas  
According to the draft 2019 Budget document, the government  
forecasts an ambitious plan to generate a surplus of 1.4% of GDP in  
The large gross financing needs in 2018 are estimated by the IMF to  
have amounted to 17.3 percent of GDP. The amount is sizeable and  
challenged by large domestic debt amortization needs with low  
domestic rollover rates (about 50 percent according to the IMF).  
Therefore, Angola remains highly dependent on external funding.  
2
019 based on an oil price of USD 68 per barrel. This optimistic forecast  
seems unlikely to happen in 2019 due to the average oil price forecast  
being much lower than 2018’s level (USD 62 per barrel on average  
against USD 72 in 2018), while the local currency’s depreciation will be  
much less marked. But following a weaker international oil price outlook  
for 2019, the government decided to readjust spending obligations  
mainly in the provincial budgets.  
6
Bilateral loans from China have so far been the government’s favoured  
sources. In 2018, the Treasury depleted its cash buffers and issued  
USD 3.5 billion in Eurobonds in mid-year, and partially rolling over a  
USD 1.5 billion dollar-denominated domestic bond in August. Therefore,  
to close the remaining fiscal financing gap, the authorities requested  
budget support from the IMF.  
The introduction of VAT in July 2019 will provide some support to non-  
oil fiscal revenue, but uncertainty persists about the rate, how it will be  
4
introduced and the risk of further delays. Moreover, government efforts  
As per Angola’s sovereign wealth fund, it is making efforts to regain  
control of its assets. Through international legal actions, it continues to  
recoup more of its mismanaged assets. The new management is  
searching for a new international fund manager and external auditor for  
the assets it has brought back under its control. The authorities are  
preparing legislation to strengthen the fund’s governance and  
transparency and set clearer deposit and withdrawal rules. The  
authorities committed to capitalizing the fund again only when the  
to improve the overall efficiency of expenditure will prove tricky,  
particularly moves to contain public-sector wages, or scale back utility  
prices. As a result, we expect public finances to remain in deficit in 2019  
and slightly deteriorate (-1.5% of GDP).  
The kwanza's major depreciation in the transition to a more flexible budget generates surpluses and government debt is below 60 percent  
exchange rate regime contributed to an increase in the government's of GDP.  
interest payments, from 3.3% of GDP in 2017 to 4.2% in 2018  
(
respectively equivalent to 19.2% and 23.2% expressed as proportion of  
revenue). Additionally, about 80% of total public debt is foreign-currency  
denominated. Therefore, public debt is projected to reach more than 73  
percent of GDP in 2018, up from 67% in 2017, largely due to the strong  
kwanza depreciation occurred in 2018.  
The liabilities of nearly 80 of Angola’s non-financial SOEs are sizable  
and increased in 2017. Their capacity to generate income, hence  
dividends for the Treasury, appears limited. Energy-related Sonangol is  
the largest of them, and it recently reduced its financial debt after  
receiving a USD 10 billion capital injection (roughly 10% of GDP).  
The heavy debt burden also adds to the government's financing  
challenges and total external debt servicing currently consuming 21% of  
export earnings (up from 10.5% at end-2014). Therefore, negative  
shocks to the revenue base (like a sharp fall in oil prices) could  
5
According to IMF, Angola uncollateralized loan agreements with several creditors  
including Credit Agricole, KFW,Commerzbank, UKEF, Afreximbank, and China’s ICBC  
(
and Eximbank) amount at about USD 7 billion, i.e. 16% of total external debt in 2018).  
Angola has succeeded in maintaining good relations with China, securing a new  
4
6
Except that the tax will be applied to the 373 companies described as major  
contributors for a period of two years before rolling out more widely.  
USD 2 bn loan from the state-owned China Development Bank in October 2018.  
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The government has committed to improve SOEs economic efficiency term and the inflation target range of 7-9% will be hard to be reached,  
by launching an ambitious SOE restructuring program to start in 2019 unless the currency re-appreciates.  
over a two-year period. The program would include closing insolvent  
Reaching inflation target will take time  
SOEs and privatizing or restructuring those that are economically viable.  
Moreover, the creation of a new oversight institute under the Ministry of  
Finance is expected to strengthen SOE governance and monitoring.  
y/y, %  
%
45  
20  
18  
CPI  
40  
CB Reference Rate (RHS)  
1
6
4
SOEs' Non-financial Performances  
35  
1
30  
25  
20  
15  
10  
5
0
%
of GDP  
5% Sonangol  
12  
10  
8
2015  
2016  
2017  
1
1
1
1
1
8
6
4
2
0
8
6
4
2
0
2
6
6
6
0% Sonangol  
4
BNA's Inflation target  
2
0
2
014  
2015  
2016  
2017  
2018  
70% Sonangol  
Liabilities  
Chart 5  
Source: BNA, BNP Paribas  
84% Sonangol  
8% Sonangol  
Assets  
Net Worth  
Revenues  
Net Income  
-
Chart 4  
Source: IMF, BNP Paribas  
The current account balance is expected to post a surplus in 2018  
1.9% of GDP). In 2018, the trade surplus generated by the recovery in  
(
The Banco Nacional de Angola (BNA) official priority remains achieving oil prices was enough to offset the deficits in the balances of services  
price stability (with an inflation target range of 7-9%) but also supplying and revenue. But based on our oil forecast in 2019 (average of USD 62  
the foreign exchange market. Given the economy’s structural rigidities, per barrel against USD 72 average in 2017) the CAD is expected to  
low monetary transmission and heavy reliance on imports, the central deteriorate to -1.9% of GDP.  
bank intends to perform a controlled depreciation to prevent the  
escalation of inflationary pressures.  
Traditionally one of the largest recipients of foreign direct investment  
inflows in Africa, Angola experienced years of net divestments (from  
After having peaked at 42% in December 2016 as a consequence of the 2010 to 2014), largely reflecting the impact of the 2008-09 financial  
oil shock, inflation has been slowing despite the marked depreciation of crisis with foreign oil firms divesting from Angola. In 2017 most of the oil  
the official exchange rate. This was possible thanks to both some companies repatriated some of their investments abroad, which led to a  
7
negative net outflow in FDI. Moreover, foreign FDI inflows remain  
constrained by the persistent risk of restrictions on repatriation of  
foreign investors’ fx revenues. Resident FDI outflows have fallen so far  
due to the impact of falling oil prices on Sonangol’s investment capacity.  
coercive measures and the monetary policy tightening through the  
reserve requirement ratio and the policy rate.  
Thanks to a narrowing gap between the kwanza’s dual exchange rates8,  
inflation continued to trend downward in most of 2018, reaching 18.2%  
y-o-y in December 2018 compared with 26% in December 2017 and This trend combined with rising external public-sector liabilities and  
0% in December 2016. This disinflationary trend allowed the Central contracting fx reserves has shifted the net international investment  
4
Bank to begin a cycle of gradual monetary easing in July 2018 by position (NIIP) into negative territory so far.  
cutting its policy interest rate by 150 basis points to 16.50% for the first  
Angola’s external debt only includes the external debts of the central  
time in more than two years. The Central Bank lowered again the key  
policy rate by 75 basis points to 15.75% at its latest meeting on January  
government, state-owned oil company Sonangol, state-owned airline  
TAAG, and public guarantees denominated in foreign currency, as we  
have no information on private sector external debt. It increased to 45%  
2
5, 2019.  
Considering the VAT introduction and the partial recovery in of GDP in 2018 due to GDP contraction and is projected to remain  
commodities prices, CPI inflation will remain elevated in the medium elevated in the medium term (around 50%). Angola’s external debt  
remains vulnerable to unfavorable current account developments and  
large exchange rate depreciations (according to the IMF’s assessment,  
7
In 2017 the government introduced price limits for basic goods, centralised flour  
sales and recently approved a new set of customs tariffs.  
The parallel market was already the norm in many transactions.  
external debt would rise to about 70 percent of GDP in response to the  
0 percent depreciation in the real effective exchange rate).  
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CAD lowering but NIIP deteriorating  
Notwithstanding efforts by the government to repatriate funds held in  
overseas accounts, the currency will continue to come under pressure.  
The spread between the official and parallel exchange rates is still wide  
Current Account balance  
Net FDIs  
%
of GDP  
% of GDP  
20  
(
it narrowed from 150 percent in December 2017 to roughly 20 percent  
Net International Investment position (RHS)  
10  
in November 2018). Moreover, the depreciation in the parallel rate  
market started at end September 2018 indicates that net demand for  
USD is still large. Therefore pressures remain in 2019 and a further  
20% devaluation of kwanza is very likely.  
8
6
4
2
0
2
4
6
8
15  
1
5
0
0
-
-
-
-
-
-
-
5
10  
15  
Despite improvements, pressures on reserves persist  
%, inverted scale  
Fx Reserves (USD bn - RHS)  
Official AOA/USD rate  
Black market rate  
-
10  
-20  
0
00  
00  
00  
00  
00  
00  
00  
35  
30  
25  
20  
15  
10  
5
2013  
2014  
2015  
2016  
2017  
2018e  
1
2
3
4
5
6
7
Chart 6  
Source: IMF, BNP Paribas  
In the last quarter 2018 the kwanza has begun to stabilize, after its  
sharp correction. Indeed, after the abandonment of the peg to the US  
dollar in January, the kwanza depreciated 46% yoy between end of  
2017 and end 2018. The "peg" is not being completely replaced by a  
0
free float, as upper and lower "bands" for transactions keep the  
fluctuation of the kwanza within ±2% points of the rate determined at  
the previous auction.  
2013  
2014  
2015  
2016  
2017  
2018  
Chart 7  
Source: IMF, Kinguila, Bloomberg  
Nevertheless, the gradual floating of the kwanza has entailed an easing  
of dollar shortage and capital controls. Since 3Q 2018 the central bank  
has been addressing the backlog of FX demand from 201417 via  
increased sales of FX and more frequent auctions (from one to three With total assets of 13.6 trillion Angolan kwanzas (USD 43.8 billion) as  
auctions a week). It also eliminated the priority list, allowing private of November 2018, the Angolan banking system is the third-largest in  
exporters and international oil companies to supply foreign currency Sub-Saharan Africa. Thirty commercial banks were authorized to  
(
provided proper documentation is supplied) to importers in order to operate in Angola as of December 2017. They offer basic banking  
increase the availability of foreign currency. Starting from end- services including deposits, corporate and retail lending and foreign  
1
0
September 2018, the central bank holds weekly auctions with exchange services. The six largest banks controlled around 75% of  
commercial banks which determine the kwanza's value.  
the sector’s assets as of December 2017, thus leaving a long tail of  
much smaller banks. As regards ownership, it is mostly spread out  
among a mixture of SOEs, Portuguese parent institutions and Chinese  
investors.  
Despite the upturn in crude oil prices, the central bank’s foreign  
reserves have continued to decrease (expected to be USD 15.4 bn in  
Q4 2018 from USD 17.4 bn in Q4 2017). Consequently, the bulk of  
9
foreign exchange controls is likely to be maintained in the medium term. The sector's growth has slowed over the past four years due to the  
economic downturn coming from oil’s lower prices and declining output.  
In this context, the central bank’s prioritization of price stability and  
9
exchange rate management has hindered bank operations so far. As a  
consequence, the overall banking system remains relatively small, with  
domestic credit accounting for just 30% of GDP, as of November 2018.  
In this context, the reappointment11 of Mr José Massano, as central  
Approved in 2012, the legislation on foreign-exchange controls rules covers the  
trade of goods, services and capital movements arising from the overall crude oil and  
natural gas processes. The exchange operations encompass (i) the purchase and  
sale of foreign currency, (ii) the opening of foreign currency bank accounts in Angola  
by resident or non-resident entities and the transactions carried out through these  
bank accounts, (iii) the opening of national currency bank accounts in Angola by  
non-resident entities and the transactions carried out through these bank accounts  
and (iv) the settlement of all transactions of goods, services and capital movements.  
In general terms, these rules imposed on upstream oil and gas companies provide  
that (i) all foreign-exchange transactions must be carried out through Angolan banks  
and (ii) the bank accounts opened in Angolan banks must be funded sufficiently to  
satisfy tax obligations and the purchase of all goods and services from local and  
foreign companies.  
bank governor was intended to restore credibility in the financial sector.  
10  
Banco Angolano de Investimentos, Banco Econômico, Banco de Fomento Angola,  
Banco BIC Angola and Banco de Poupança e Crédito.  
11 He was already BNA governor between 2010 and 2014.  
1
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Conjoncture // February 2019  
economic-research.bnpparibas.com  
other banks contained the deterioration of their balance sheets through  
provisioning and limited lending. Thanks to the gradual recovery in  
1
3
global oil prices and Recredit’s repurchases of bad loans, asset quality  
has started to improve in 2018, with NPLs reaching 26.7% in November  
According to the Banco Nacional de Angola, the nominal credit growth 2018. However, overall asset quality remains poor and further  
averaged 15% y-o-y in September 2018 against an average of -5% in improvements will be slow because of the still challenging operating  
the same period in 2017. But considering that more than 30% of total environment given the recent decline in oil prices and the overall cut  
loans are FC denominated, a significant portion of this overall credit back in oil production. Poor asset quality is putting pressure on both  
growth has been underpinned by the kwanza’s depreciation which has liquidity and capitalization.  
inflated the nominal growth of foreign denominated loans. Without  
As per liquidity, the banking system is characterized by a high level of  
kwanza depreciation, the fc denominated credit growth would be at  
local currency liquidity since lending to small and medium-sized  
around 2% yoy at end September 2018.  
enterprise (SME) remains limited because of banks' weak appetite for  
Weak economic activity in the past three years has eroded the banking risk and poor credit management capabilities. On the contrary, the tight  
sector’s soundness. Overall, the capital ratio remains healthy (at 21.5% funding although the liberalization of foreign exchange has stemmed  
at November 2018), loan-to-deposit ratio is low (at 53.3%) and most some pressures on foreign currency liquidity, and forex liquidity  
banks are profitable (with an average 3.0% return on assets,). All banks conditions will remain challenging in 2019.  
have migrated to the IFRS accounting system that, inter alia, has more  
With regard to capitalization, in February 2018 the central bank has  
robust provisioning requirements.  
tripled the commercial banks’ minimum capital requirement (from  
Domestic credit's growth back to positive  
AOA 2.5 bn to AOA 7.5 bn by end-2018). As a consequence, the ratio  
of capital to risk-weighted assets increased to 21.5% in November 2018  
from 17.8% in November 2017. As many as one-third of 29 banks  
currently operating in Angola are expected to struggle to meet this new  
limit , a new wave of banking consolidation is very likely in the medium  
term.  
y/y  
0%  
Private Sector  
Public sector  
Total Domestic credit  
8
6
4
2
1
4
0%  
0%  
0%  
0
%
Nevertheless, downside risks remain very high and weigh on the  
Angolan banking sector’s credit soundness. Firstly, in case of  
disappointing oil production, real GDP growth will contract bringing  
down credit growth. Additionally, any faster currency depreciation or  
higher food prices will see inflation accelerate and prompt the BNA to  
tighten its policy stance. Though Angola’s monetary policy transmission  
mechanism between the benchmark interest rate and loan growth is  
weak, pressure should be expected on commercial banks to raise  
lending rates and limit demand for credit.  
-
-
20%  
40%  
2016  
2017  
2018  
Chart 8  
Source: BNA, BNP Paribas  
Financial soundness indicators  
2
015  
2016  
19.2  
13.1  
2.2  
2017  
18.9  
28.8  
2.1  
2018*  
21.5  
26.7  
3.0  
Even if prudential requirements are gradually moving towards  
international standards, compliance-related deficiencies in the banking  
system persist, as is reflected by the loss of dollar- correspondent  
Capital Adequacy ratio  
NPL ratio  
Return on assets (ROA)  
Loan / deposits  
*) = November 2018  
19.8  
11.6  
1.7  
59  
1
5
banking relationships with international banks . Angolan banks have  
51.6  
49.3  
53.5  
(
and January 2019. The BPC has resumed lending but remains weakly capitalized  
and dependent on the BNA for liquidity.  
Set up in 2016 by the government with a market capitalization equivalent to USD 2  
Table 3  
Source: BNA, IMF, Fitch, BNP Paribas  
1
3
billion, Recredit is a state-owned enterprise whose priority is the renegotiation of  
debt with banks and individuals with which it has agreements to purchase non-  
performing loans. Beyond that, however, the authorities have little capacity to  
intervene in the banking sector should it need to support a failing institution.  
In the aftermath of the oil price collapse the level of NPLs rose  
dramatically, reaching 29% of total loans in December 2017 compared  
with an average of 10.6% between 2013 and 2016. Nonperforming loan  
levels varied considerably from bank to bank, with state-owned  
1
4
On June 26 2018, the central bank suspended the board of Banco Angolano de  
1
2
Negócios e Comércio (BANC) and appointed a provisional team of directors due to  
the bank’s inability to meet the capital requirement. On January 2 (2019), the central  
bank announced that Banco Mais and Banco Postal had failed to meet the legal  
requirements to continue banking activity and revoked their licenses.  
institutions hit particularly hard by the oil price crash of 2015/16 , while  
1
2
15  
Four-fifths of the banking system’s NPLs were concentrated in the state-owned  
US banks terminated banking relationships with their Angolan counterparts in  
Banco de Poupança e Crédito (BPC) - a systemically important bank whose rescue  
2015 and deprived them of access to dollars because of the suspicion that they were  
package has cost the government an estimated 1.6% of GDP between March 2018  
controlled by political interests.  
1
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Conjoncture // February 2019  
economic-research.bnpparibas.com  
suffered from a loss of correspondent banking services, such as dollar  
clearing services and the sale of physical dollar notes, as foreign banks  
seek to avoid money laundering and terrorism financing compliance-  
related risks.  
There has been some progress in addressing these risks. In 2016, the  
Financial Action Task Force (FATF) recognized that Angola has made  
significant progress in improving its regime to combat money laundering  
and terrorist financing and therefore will no longer be subject to the  
FATF’s monitoring process. However, opacity remains a source of  
concern (timely data are scarce) and still prominent government  
ownership in the sector also triggers governance issues. Therefore, we  
do not expect dollar-correspondent banking services to resume in the  
short term.  
Additionally, an inadequate legal framework for secured lending that  
includes impediments to enforcing property ownership hinders banks'  
financing activities. High levels of corruption also tend to make the  
operating environment both unpredictable and costly.  
Despite some progress related to regulatory framework supervision and  
improving financial indicators, systemic credit risk in Angola’s banking  
system remains very high in the medium term.  
***  
The election of Joao Laurenço has been followed by a lot of expectation  
for a political transition ending the Dos Santos extensive patronage  
network as well as changing the economic policy.  
The signing of a financing agreement with the IMF would diversify the  
sources of international financing and definitively reassure economic  
agents. But the balance between the need for reform and the social  
acceptance of austerity measures is very fragile.  
The private sector’s supportive measures implemented last year by  
president Lourenço are intended to improve the business environment  
and attract international investors. But, important deficiencies remain  
(
corruption issues, institutional weaknesses, weak human capital and  
still underdeveloped infrastructures) that would constrain the overall  
economic activity.  
The main risk is that Angola's economy continues to be driven by the  
hydrocarbon sector as a source of GDP growth, fiscal income and  
foreign exchange earnings. This leaves the country vulnerable to the  
risks of low oil price and decrease in production levels. Therefore,  
growth recovery would be gradual and the still weak foreign direct  
investment and portfolio investment would oblige the country to rely on  
external debt financing.  
Completed on 26 February 2019  
sara.confalonieri@bnpparibas.com