Angola’s economic diversification and new efforts to draw FDI

Angola

Paulo Alves, an administrator at Banco de Fomento Angola (BFA), talks to The Energy Year about Angola’s plan to use oil price yields to support economic diversification, efforts to normalise foreign currency regulations to facilitate FDI and BFA’s plans for working with oil and gas companies. BFA is a universal credit bank providing services in Angola to both corporate and individual clients.

How have key indicators for the Angolan economy been evolving, and what is the outlook for 2022?
The improvement in fiscal management was an answer to the pandemic crisis, as the government needed to have extra ways of financing itself. Meanwhile, the production of national goods, mainly food, improved a lot through financing under BNA [National Bank of Angola] Notice 10/2020 aimed at promoting the diversification of the economy by reducing dependence on import of goods and to contribute to the sustainability of the external country accounts, which motivate banks to use at least 2.5% of their total assets to finance the real economy in the production of essential goods with short-range supply of goods at a 7.5% interest rate (including a rate of nominal interest and all commissions) which compares with over than 20% interest rate for the other economic activities.

How could this economic diversification impact Angola’s financial stability?
We believe that it will help balance payments between Angola’s imports and exports. In the past, oil was the only commodity we exported. We had two bad experiences. The first was in 2008-2009, when the oil price decreased and there were difficulties importing goods, but it was a short period of time. The second started at the end of 2014, when we faced this situation again, but this time it was longer and deeper. We believe that we have gained some knowledge from these experiences.
The oil price has increased again, and we are happy about this. Nevertheless, the government is putting in place a new diversification strategy, and so far, it’s working. The idea is to use this good price to help develop other economic sectors.
The government must create barriers for imported products entering Angola to help local companies be protected for a period that promotes their growth and competitiveness. We should at least be producing our food. But our production process is not strong enough to compete with that of international companies. If we have a lot of foreign currency, we’re able to import everything again, which can be dangerous for the companies that invest in local productions of essential goods.

What are the challenges affecting domestic banks’ relationship with oil and gas companies?
We can finance operators and gas companies in US dollars or euros with competitive rates because our law allows for companies that have billing in foreign currency to receive credits in foreign currency. But there is a challenge for vendors: the international ones can get better financing terms abroad. The local ones don’t have foreign currency billing, so they must be financed in local currency and the rate will be above 20% for working capital and investments; this rate is equal to or above their profit margin.
We would like to do more, but with inflation rising to nearly 27% in 2021, it’s even harder. For 2022, BNA has the objective of achieving an 18% inflation rate, which is not ideal but is better. An inflation rate below 10% would be ideal for banks to participate dynamically with credit with the oil and gas companies.

What role does BFA want to play for oil and gas companies in Angola?
BFA has been building experience with oil and gas companies since 2011. We have a relationship based on services such as salaries, taxes and payments local or abroad. We would like to be more active with this segment.
We are trying our best to be a part of the new downstream developments, such as the different refinery projects. We believe that we can be more involved by partnering with international banks investing part of the capital of the syndicated facilities. We’ve had some conversations with international banks already, and we can use their experience to help this sector. Local banks in Angola don’t have experience in financing oil and gas, especially large-scale projects, so we must be helped by international banks.

How is Angola working to improve its relationship with international banking institutions?
The new financial regulations are helping us to be on the same page as international banks so that we can have good assessments by international banks. It’s a challenge for Angolan banks to reach these international standards, but we are doing it. For Angola this is the key: since we need the presence of international banks in every sector, this is the way to build more trust in our financial market. We are committed to this effort for the next two to three years. We must adapt to the new regulation, and this is the way to do things correctly.

How did foreign currency restrictions affect investors’ confidence in the market?
There are investors who have enough money to invest in Angola but if they don’t trust the market, they will not invest. In the recent past, international companies working in Angola had many challenges caused by impediments to sending foreign currency abroad – problems with honouring payments or even paying dividends to stakeholders.
We cannot invite foreign investors to participate in our economy and then have them face these challenges. This issue has several impacts, including in Angola’s oil production at this moment. Actually, the oil price is good, but our production is low because during the last five to seven years there was no investment, production costs were so high and these blocks on foreign currency made them even higher.

How is Angola normalising its foreign currency regulations to facilitate FDI inflows?
In 2020 and the years before, there was a big delay in processing the requests for payments abroad with local currency funds. Even the banks didn’t know when we could execute it. At this moment foreign currency payments are predictable and faster. We believe that several adjustments made in the last few years to the foreign transfers process were necessary and have made everything clear and predictable, and now we can surely invite investors to come with greater tranquillity.
Currently the rules are clear and there is some stability between foreign currency and local currency, the demand is below the supply and local currency is appreciating because of that, which is very important for local families. In 2021, the EUR/AOA exchange rate went down more than 15%. 2022 will be similar, despite recent wages increases and the consequent stimulus to the consumption of goods and services

What are the bank’s latest updates in terms of digitalisation?
We have been doing a lot of investments since last year. We recognise this has been delayed, but during 2021 we were able to catch up. We have a new mobile service platform, new informatics infrastructures and many digitalised processes in the pipeline, and also we’ll have news on our corporate internet banking. We would like to do it quickly and easily. It has been a big challenge to invest in technology at this time, as we depend almost 100% on foreign suppliers of these services and this equipment. With Covid-19, all companies are investing in digitalisation. The whole market is getting new technology.

What is BFA’s strategy for increasing its customer base?
Growth in our client base can help us increase business volume, and volume is key in our business. Our customer base is growing steadily, with 15,000 customers added monthly. We have 2.3 million customers. If we can double this in the next five years, for example, we will definitely be the largest bank in Angola. We are doing everything to reach that position, but it’s a long road.
This will be facilitated by our digitalised process for self-opened accounts, which is under development and should be working by Q2 2022. We are doing this to provide a better service. This is our main objective this year.

How does the bank measure up against the competition?
We believe that we are still the biggest when we compare profits. In 2021, we had great growth in credit for the local production. Our vision is to help the private sector and families with more credit. With this strategy, the bank can reduce its main exposure to government bonds.
Regarding assets, due to the sharp devaluation of the local currency, since 2014 they have been decreasing throughout the financial system when measured in foreign currency. We are the second-largest bank in terms of total assets, but we remain quite robust as we have had strict management over our 28 years of presence in this market.

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