Capital Markets and Portfolio Investment
Angola’s capital markets remain nascent. To respond to the need for increased sources of financing for the economy, in 2013, the Angolan government created the Capital Markets Commission (CMC). Angola’s banks are likely the most established businesses that could potentially list on an exchange. However, many Angolan banks have a high rate of non-performing loans, reported to be as high as 37 percent. Angola’s banks have struggled in recent years due to the country’s deteriorating economic environment and increasingly high rate of delinquent loans. The Governor of the BNA has stated that Angola’s banks must go through a consolidation phase and ordered an asset quality review of the banks in early 2019. So far, the BNA has revoked the licenses of three banks based on their failure to meet the mandatory new share-capital minimum requirement, will recapitalize the largest state-owned bank, and has ordered another bank’s shareholders to increase the bank’s operating capital or face potential revocation. The process may limit banks’ ability in the near-term to list on the country’s fledgling stock exchange.
The Angolan government raised USD 3 billion in its third Eurobond issue in international markets with investor demand reportedly reaching USD 8.44 billion, exceeding the government’s expectations. For its second Eurobond issue in May 2018, Angola sold a USD 1.75bn, ten year bond at a coupon interest rate of 8.25 percent and a 30 year bond worth USD 1.25bn with a yield of 9.375 percent. According to Angola’s finance ministry, the second Eurobond issuance received more than 500 investor submissions totaling USD 9 billion, three times the final sale value. In November 2015, Angola raised a USD 1.5 billion, 10-year Eurobond with a 9.5 percent yield. Plans to return to the internal bond market in 2020 have been put on hold due to the ongoing coronavirus pandemic and the ensuing downturn in global oil prices.
The BNA has developed a market for short-term bonds, called Titulos do Banco Central, and long-term bonds, called Obrigaçoes do Tesouro. Most of these bonds are bought and held by local Angolan banks. The Obrigaçoes have maturities ranging from one to 7.5 years, whereas the Titulos have maturities of 91 to 182 days. For information on current rates, see: http://www.bna.ao/ .
Foreign investors do not normally access credit locally. For Angolan investors, credit access is very limited, and if available, comes with a collateral requirement of 125 percent, so they either self-finance, or seek financing from non-Angolan banks and investment funds. The termination of the “Angola Invest” government-subsidized funding program for micro, small and medium private enterprises (SMEs) on September 25, 2018, has further reduced funding opportunities for many SMEs. Since its inception in 2012, Angola Invest financed approximately 515 projects worth USD 377 million.
The Angolan National Development Plan provides for the liquidation of unviable state-owned enterprises, the privatization of non-strategic state enterprises and the sale of shareholding by 2022. In January 2018, the president created a commission – the State Asset Management Institute (IGAPE), to prepare and implement the privatization program (PROPRIV), with assistance from the Stock Exchange BODIVA. By April 2020, the Government had reportedly sold an estimated seven entities under its privatization initiative.
Money and Banking System
The BNA, Angola’s central bank and currency regulator has remained under considerable pressure to stabilize Angola’s economy as a high rate, currently 37 percent, of non-performing loans has crippled the banks’ ability and willingness to foster private sector lending. The BNA implemented a contractionary monetary policy, reducing local currency in circulation over fears of escalating inflation and foreign currency arbitrage. To further address these concerns, in early 2018, the government also scrapped the Angolan currency’s fixed peg to the U.S. dollar in favor of greater rate flexibility, and began regular foreign exchange auctions to banks, preventing the allocation of dollars to preferred clients. From January 2018 to December 2019, the Angolan currency lost 178 percent of its purchasing capacity against the Dollar. The Net International Reserves, despite a loss of purchasing power of more than 100 percent taking into account the price of the currency, suffered a reduction of 40 percent from 2017 to June 2019. The 178 percent devaluation from 2018 has translated into an increase in Angola’s debt, now close to 111 percent of GDP.
Angola’s agreement with the IMF for USD 3.7 billion in financial support for which it has requested an additional USD 800 million, suggests the government’s intent to reassure investors, and to diversify Angola’s source of borrowing. As a key condition of the IMF loan, Angola cannot have any new oil collateralized debt. The government also resorted to international capital markets and raised USD 3 billion in its third Eurobond issue with investor demand reportedly reaching nearly USD 8.44 billion.
There are currently 27 banks in Angola. Five banks, Banco Angolano de Investimentos (BAI), Banco Economico, Banco de Fomento Angola (BFA), Banco BIC Angola (BIC), and Banco de Poupança e Credito S.A.R.L. (BPC), control over 80 percent of total banking assets, deposits, and loans. Angolan banks focus on profit generating activities including transactional banking, short-term trade financing, foreign exchange, and investments in high-interest government bonds. Banks had until the end of 2018 to comply with the newly BNA-set USD 50 million mandatory capital start-up requirement, up from the previous USD 25 million requirement. In early 2019, the BNA revoked the operating licenses of two banks, Banco Mais and Banco Postal, for failing to increase their capital to meet the new minimum requirements. Another bank, Banco Angolano de Negocios e Comercio, is currently under BNA administration.
Angola is scheduled for its next Financial Action Task Force (FATF) mutual evaluation review in 2020/2021 which may also be postponed due to the COVID-19 pandemic. In 2016, the FATF adjudged that Angola had made significant progress in improving its AML/CFT regime and established the requisite legal and regulatory framework to meet its commitments in its action plan regarding strategic deficiencies the identified by the FATF during reviews in 2010 and 2013. Angola has continued to work with the regional FATF body, the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), to address its remaining strategic deficiencies in anticipation of the 2020/2021 review.
Angola has been affected by the broader global de-risking trends wherein banks decide to stop lending to businesses in markets deemed too risky from an anti-money laundering and terrorist financing compliance standpoint. In December 2016, Deutsche Bank, the last international bank providing dollar-clearing services, closed its dollar clearing services in Angola. A limited number of international banks still operate in Angola and provide limited trade finance such as Germany’s Commerzbank and South Africa’s Standard Bank. In 2018, there were no further correspondent bank losses. International banks previously refrained from entering the Angolan market because of the risk of fines and other penalties, but in 2018 there was more interest, with several banks conducting independent assessments of the business climate.
Foreign Exchange and Remittances
Angola continues trading mostly in two currencies, the U.S. dollar and the Euro, with the Renminbi gaining greater prominence given the degree of trade with China. In a bid to deal with the foreign currency shortage and substantial foreign currency arbitrage in the parallel market, the government has opted for a managed float for its currency exchange rate. The Angolan Kwanza was pegged at a rate of 166.00 per U.S. dollar from April 2016 to January 2018 following a steep devaluation due to the slump in oil prices. On January 10, 2018, the BNA began conducting foreign currency auctions allowing the kwanza to fluctuate within an undisclosed but controlled band. Since dropping the peg to the U.S. dollar in January 2018, the Kwanza has depreciated by approximately 178 percent as at the end of December 2019 where a USD was equivalent to 462 Kwanzas.
As of November 29, 2019, the BNA’s Monetary Policy Committee (MPC) authorized direct sales of foreign currency between oil companies and commercial banks, and reduced banks’ foreign exchange position limit from 5.0 percent of its own funds to 2.5 percent. The controlling exchange rate is determined by the transaction rate applied on the sale. Occasionally, the BNA may also sell forex through auctions to commercial banks. Banks may charge a margin of up to 2 percent on the reference exchange rate published on the institutional website of the BNA, considered high for investors. Currently, the BNA also publishes daily for public consumption the rates at which each individual commercial bank is selling and purchasing forex.
The informal activity in the supply of foreign currency, products, and services is still winning the daily battle against the formal market, even when taking into account availability, quantity, speed, and stability. In 2019, the BNA took steps to eliminate remaining imbalances in the foreign exchange market. Commercial banks may assign foreign currency to their clients based on a schedule submitted and approved by the BNA. On the sale by banks to exchange offices and remittance companies, banks may only make foreign currency available in physical notes on a collateral basis, as they must, and at the time of sale debit the national currency account of those institutions against delivery of physical notes. Payment of remittances in any form and non-strategic imports face a lengthy wait between 90-180 days for foreign exchange. Priority is given to strategic importers of food, raw materials for construction, agriculture, medicine and the oil sector. According to the IMF, the government accumulated USD 51 million in new arrears between end-December 2018 and end-June 2019, due to constraints associated with correspondent banks transacting in U.S. dollars. The government further accumulated about USD 30 million in new arrears between end-June and end-September 2019 and was expected to accumulate an additional USD 30 million by year-end, due to the same correspondent banking constraints.
Investors cannot freely convert their earnings in kwanza to any foreign exchange rate due to limited available foreign exchange. Credit cards and other options for payment are extremely limited and money-servicing businesses (Western Union & MoneyGram) have ceased foreign outward transactions in foreign currency. From June 9, 2019, Letters of credit have been designated as the preferential payment instrument for imports.
The National Bank of Angola (BNA) Notice no. 15/19, published 30 December 2019, defines new procedures for foreign exchange operations carried out by non-residents.
According to the notice, the new procedures apply to foreign exchange transactions related to foreign direct investment – that is, foreign exchange non-resident operations carried out, alone or cumulatively, including divestment operations – in the following ways:
- Transfer of personal funds from abroad;
- Application of cash and cash equivalents in national and foreign currency, in bank accounts opened in financial institutions domiciled in Angola, held by foreign exchange residents, susceptible to repatriation;
- Imports of machinery, equipment, accessories and other tangible fixed assets;
- Incorporation of technologies and knowledge, provided that they represent an added value to the investment and are susceptible to financial evaluation;
- Provision of supplementary capital payments or supplies to partners or shareholders;
- Application, in the national territory, of funds in the scope of reinvestment;
- Conversion of credits resulting from the execution of contracts for the supply of machinery, equipment and goods, as long as they are proven to be liable to payments abroad; and,
- Foreign investment in securities or divestment of such assets, covering: i) shares; ii) obligations; iii) units of participation in collective investment undertakings and other documents representing homogeneous legal situations.
These procedures also apply to foreign exchange transactions related to foreign investment projects that have been registered with the BNA prior to 30 December 2019. However, they do not apply to investments made by non-foreign exchange residents in the oil sector, which will continue to be governed by proper legislation.
The following obligations are applicable to non-resident foreign exchange entities that intend to invest in Angola, within the scope of the new procedures:
- They must be holders of foreign exchange non-resident accounts, opened with a banking financial institution domiciled in Angola,
- For the purpose of receiving payments, including for the purchase of shares listed on the stock exchange, foreign currency must be sold to the investment banking intermediary financial institution, except in the case of purchase of securities denominated in foreign currency traded on a regulated market in Angola;
- Transfer income related to a foreign direct investment is only allowed after the project has been completed and after payment of the taxes due.
The non-resident foreign exchange investor is allowed to maintain in national currency values relating to income, reimbursement of supplies or proceeds from the sale of investments to make new investments or convert to foreign currency at a future date.
Finally, the following obligations are now imposed on financial institutions that carry out transactions with non-resident foreign exchange entities:
- Report to BNA the transfer of securities to and from abroad related to the import and export of capital and associated income, at the time of registration in the accounts of its clients who are not foreign exchange residents;
- Require full identification and knowledge of its customers, as well as confirmation of their status as non-resident foreign exchange;
- Transfer the financial resources designated for making investments to a specific sub-account created, that should be used only for that purpose;
- Ensure that movements in bank accounts held by foreign exchange non-residents, in national and foreign currency, are supported by documents that allow a clear identification of the origin or destination of the funds;
- For the purpose of assessing the legitimacy of transfers abroad of income from foreign direct investments not quoted on a stock exchange, make sure that the investment was made, through the copy of the Private Investment Registration Certificate (CRIP), among other requirements.
- For the purpose of validating the export proceeds from the sale of securities and related income, validate the source of the credit in the bank accounts of non-resident customers.
Breach of the obligations summarized above is punishable by fines of up to AOA 150 million (USD 305,000) for individuals or up to AOA 500 million (USD 1.02 million) for legal persons.
In 2019, the Angolan government amended its anti-money laundering previously established in January 2014. The new law, Law no. 5/20, applies particularly to financial and non-financial entities, accountants, lawyers, law firm partners and auditors acting (including intermediation) in representation of clients in transactions that involve real estate’s acquisition/sale, incorporation of companies and bank accounts’ opening, management or movement, in attempts to better combat illicit remittance flows. Importantly, the new law expressly prohibits the incorporation of shell banks — banks with no physical presence in Angola nor connection to any financial group, requires reporting on capital movement in any commercial bank exceeding USD 1000, and requires enhanced scrutiny of local politically exposed persons. The subsequent drop in foreign exchange availability in Angola, beginning in 2015 due to declining petroleum revenues, has severely impeded personal and legitimate business remittances.
International and domestic companies operating in Angola face delays securing foreign exchange approval for remittances to cover key operational expenses, including imported goods and expatriate salaries. The government has improved profit and dividend remittances for most companies, including foreign airlines with withheld remittances for the sector currently valued by the International Air Transport Association (IATA) at USD 4 million, down from 137 million in early 2019.
The BNA has facilitated remittances of international supplies by introducing payment by letters of credit. Also, the 2018 NPIL grants foreign investors “the right and guarantee to transfer abroad” dividends or distributed profits, the proceeds of the liquidation of their investments, capital gains, the proceeds of indemnities and royalties, or other income from remuneration of indirect investments related to technology transfer after proof of implementation of the project and payment of all taxes due. The government continues to prioritize foreign exchange for essential goods and services including the food, health, defense, and petroleum industries.
Sovereign Wealth Funds
In October 2012, former President Eduardo dos Santos established a petroleum-funded USD 5 billion sovereign wealth fund called the Fundo Soberano de Angola (FSDEA). The FSDEA was established in accordance with international governance standards and best practices as outlined in the Santiago Principles. In February 2015, the FSDEA was recognized as transparent by the Sovereign Wealth Fund Institute (SWFI), receiving a score of 8 out of 10. The FSDEA has the express purpose of profit maximization with a special emphasis on investing in domestic projects that have a social component (http://www.fundosoberano.ao/investments/ ). Jose Filomeno dos Santos (Zenu), son of former President Jose Eduardo dos Santos, was appointed chairman of FSDEA in June 2013, but was removed by President Lourenco, based reportedly on poor results at the FSDEA and conspiracy with the Fund’s wealth manager, Quantum Global (QG), to embezzle FSDEA funds. Former Minister Carlos Alberto Lopes was named new head of the FSDEA. Zenu remains under investigation for money laundering, embezzlement, and fraud related to his management of the FSDEA, and is currently on trial for fraud in connection with the transfer of USD 500 million from the Angolan Central Bank to a bank in the UK. On March 22, 2019, the government freed Jean-Claude Bastos de Morais, QG’s CEO, in preventive detention since September 2018, based on the insufficiency of evidence to support the collection of malfeasance charges, while it continues to build its case against him.
Half of the initial endowment of FSDEA was invested in agriculture, mining, infrastructure, and real estate in Angola and other African markets, and the other half was supposedly allocated to cash and fixed-income instruments, global and emerging-market equities, and other alternative investments. The FSDEA is in possession of approximately USD 3.35 billion of its private equity assets previously under the control of QG, and announced that the government will use USD 1.5 billion of the fund’s assets to support social programs on condition of future repayment through increased tax on the BNA’s rolling debts.