Getting a visa to travel to Angola used to be a major operation. Numerous invitation letters, proof of sufficient funds and other ‘evidence’ had to be provided before waiting many hours in line at the embassy to be allowed entry into the country. Fast forward to 2018: South African and Chinese nationals no longer require a visa. Just a few weeks later, after companies faced years of difficulty in accessing US dollars to pay for imports, the currency is devalued dramatically, making it easier to get access to forex. And there is more: Isabel dos Santos, Africa’s wealthiest woman and daughter of the country’s long-serving former president, loses her job as head of the state-owned oil company Sonangol.
Something is happening in Angola. In September 2017 Mr. João Lourenço was elected as the country’s president, the first change of head of state in 38 years. The new leader is pushing ahead with an ambitious economic reform plan, which the country is in dire need of. Following the oil price crash of 2014 it has endured a recession, skyrocketing inflation, and empty supermarket shelves caused by the severe foreign currency shortages.
The Economic and Social Improvement Plan was launched in October last year, just weeks after Lourenço came into office. The plan outlines the liberalization of the telecoms sector, and it seeks to attract more foreign direct investment, particularly into the agro-processing, fisheries, and mining industries; it also offers new incentives for firms that manufacture locally, and aims to expand Public Private Partnerships for infrastructure projects. Further, the plan outlines stronger supervision of the banking sector by implementing stricter anti-money laundering rules. These reforms will be crucial if the government wants to lower borrowing costs for Angolan businesses.
However, the devaluation of the currency on January 10, 2018, is arguably the clearest signal that Mr. Lourenço is serious about making Angola a more attractive country in which to do business once again. The devaluation of the kwanza was long overdue, and suggests Mr. Lourenço urgently wants to tackle the severe foreign currency shortages that have been a major problem for multinationals. Nevertheless, this initial devaluation of just 10% will be insufficient to deal with the scale of the dollar shortages, which means further, small scale devaluations are expected to occur over the course of 2018.
Not all his enthusiasm for change is aimed at improving the business environment, and instead could be part of a plan to consolidate his rule. In particular, he has been swift in sidelining the influential Dos Santos family from their positions of power. After firing the former president’s daughter in January this year, he then dismissed her brother, José Filomeno, from his position as head of the country’s sovereign wealth fund.
As a result, multinationals should not view Mr. Lourenço’s reforms as a silver bullet to solving Angola’s many challenges. Vested interests still shape many aspects of doing business in Angola. Thus, a full-blown free float of the currency is very unlikely in the coming year given interests of senior politicians involved in the parallel currency market, aside from the threat of higher inflation.
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. Foreign currency shortages, high borrowing costs, corruption, and infrastructure constraints won’t disappear overnight, and instead will present enduring challenges for businesses in the country.
Living conditions for consumers are also tough. Inflation is expected to remain in double digits through 2020. There are also plans to rein in public debt by curtailing subsidies and raising taxes. Notably, the proposed introduction of a VAT and new taxes on luxury goods and alcoholic drinks will erode demand growth. Furthermore, 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, Mr. 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. Many companies will find it difficult to ignore the potential that the economy holds: although the market is only slowly growing, it remains the third largest in Sub-Saharan Africa, and the government is the second-largest public spender in the region. Multinationals willing to take a long-term view of the market can exploit the window of opportunity that is currently opening.