Angola’s privatisation drive an example for others

Although there are bumps as the state sells off its stakes in the private sector, the ground is being prepared for smoother and bigger privatisations in future.

Not many people in South Africa will be familiar with the significant changes that are occurring in the Angolan economy. However, those with an interest in Angola will have noted the developments to strengthen and expand the private sector during recent years as part of Angola’s policy continues to be focused on the reduction of its dependence on the oil and gas sector and the diversification of its economy.

There are numerous examples of these developments. For example, measures have been adopted to strengthen the rights of investors, to offer attractive investment incentives (those related to tax) and to liberalise the regime for cross-border payments, as reflected in the new private investment law and the amended foreign exchange regulations. The construction of infrastructure necessary for the country’s development is supported by a new public-private partnership law. The increasing role of the private sector is further stimulated by the adoption of a new competition law and a new public contracts code.

In addition to the changes in the regulatory field, Angola has taken other important steps to increase private sector participation in its economy, such as an ambitious programme for the creation of public-private partnerships. The devaluation of the local currency (kwanza) managed to improve the country’s macro-economic stability and increase its foreign exchange reserves. Another notable development is Angola’s improved ranking in the 2020 Corruption Index of Transparency International: during the past three years its score has risen by 25 places.

Probably the most significant action to attract private investment (and foreign investment) was the launch in 2019 of an ambitious privatisation programme, called PROPIV. PROPIV involves the privatisation by 2022 of 195 shareholdings directly or indirectly held by the Angolan state. The assets to be privatised are of various types and sizes and cover many sectors. They vary from interests in industrial units established in special economic zones, to participations in banks, insurance, telecommunication, construction and textile companies, breweries, as well as the jewels in the crown, Sonangol (oil and gas) and Endiama (diamonds).

It was recognised that the success of privatisations is largely dependent on the efficiency, clarity, and transparency of the various processes. The framework law on privatisations established the legal basis for PROPIV and provides that the privatisations are to be conducted by way of public tender (with or without prequalification) or by selling the participations through the local stock exchange (auction or initial public offering). BODIVA, the Angolan Debt and Equity Exchange, therefore, plays an important role in the privatisation programme.

To date 36 privatisations have been concluded, all by way of public tender. It is expected that soon the privatisation of shareholdings of greater importance will commence, including (and still in 2021) those in BIC (bank), ENSA (insurance company), MS Telecom and TAAG (airline), followed in 2022 by Sonangol and Endiama. The sale of shareholdings in these companies is expected to be done through an auction process or an initial public offering.

The Angolan government deserves praise for all it has done to create the confidence that is necessary for its policy to strengthen the public sector and to diversify the economy. However, there are still several challenges and problems on the road ahead.

The issues surrounding the foreign exchange reserves, although significantly improved, continue to be a cause for concern for investors who want to be able to repatriate the proceeds of their investments.

Another hurdle is that BODIVA currently has no companies with listed shares and that most of the larger Angolan companies are not able to comply with the information and transparency requirements that follow from a listing. Private investors must therefore ensure that their investments are properly structured and identify and mitigate potential risks that they may run.

Despite these challenges, the right conditions are being created for an increased participation of the private sector in the Angolan economy and that there is a clear political will to support this development. PROPIV provides interesting opportunities for foreign investors. There is a great variety of sectors in which the companies that are to be privatised operate. In some cases, the participation of the state may have impacted on the companies’ growth potential or the scope and nature of their activities.

The Angolan privatisation programme is therefore not only of interest to potential investors, but also to services providers that support the privatisation process, the companies to be privatised as well as the potential investors. Given the experience of South Africa based investors and service providers in the region and South Africa’s and Angola’s membership of SADC, they could play an important role in the development of Angola’s private sector.

Pieter van Welzen is a senior consultant for financial markets in Africa at CMS South Africa.

Alberto Galhardo Simoes is a partner at CMS Portugal.