Angola’s energy financing evolutionOctober 21, 2022
Angola’s economy is once again growing after six years of recession, with the oil and gas sector as a main driver. However, the country faces major challenges in financing its latest ventures. To overcome these hurdles, Angola’s domestic financiers are working to facilitate projects in hydrocarbons and renewable energies in order to change the face of the country's energy industry.
Angola’s economy is staging an impressive comeback, with 2.4% expected growth of its GDP in 2022 and 5% growth in 2026. This comeback coincides with the Angolan government’s request for extended funding from the IMF and other international sources.
In 2018, the government requested a three-year extended arrangement under the IMF’s extended fund facility for USD 3.7 billion, with a total of USD 3 billion funelled towards economic development by the end of 2021. Additionally, Angola raised USD 1.75 billion with the issue of Eurobonds early in 2022, becoming the second nation in Africa after Nigeria to do so following the Russian occupation of Ukraine.
In September 2021, Moody’s Investors Service raised the country’s credit rating to B3, citing improved governance and debt metrics. The credit rating entity expects the country’s debt-to-GDP ratio to fall even further to 300% in 2025 from 586% in 2020. Additionally, in January 2022, Fitch Ratings upgraded Angola’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B-’ from ‘CCC’.
At the most recent IMF review of the Angolan programme in December 2021, Antoinette Sayeh, deputy managing director and acting chair of the IMF, praised Angolan policies in supporting stability and sustainability of the economy under its programme, despite the country’s multi-year recession and global challenges.
Another milestone in Angola’s economic resurgence was the listing of Angola’s first private bank, Banco Angolano de Investimento, on the BODIVA stock exchange in June 2022. The IPO marked a turning point for the Angolan economy’s modernisation efforts and demonstrates the success of reforms undertaken by President João Lourenço.
A CLIMBING KWANZA: Local executives have stated that the free floating of the currency – a measure of the IMF programme – has been one of the major economic stabilising factors. The kwanza has consistently appreciated against the US dollar since reaching an all-time high of around AOA 662 per 1 USD in November 2020. The kwanza strengthened by 20% from January 2022 to March 2022, making it the world’s strongest performing currency against the US dollar in this time period.
However, not everyone is optimistic about the local currency’s performance. Finance leaders warned that the latest appreciation of the kwanza was perhaps artificial.
LAST CALL FOR HYDROCARBONS: High oil prices are also a major reason for Angola’s recent economic success, given that almost 75% of the country’s revenue comes from its petroleum sector. The bullish oil market is supporting the appreciation of the kwanza and improving Angola’s fiscal and external outlooks. With a positive economic outlook, Angola is racing to monetise its hydrocarbon reserves. However, one of the greatest challenges in doing so is securing financing as Western countries begin to blacklist overseas funding for fossil fuels.
“There are still funds available for investments in oil and gas, even internationally. The key is to have strong projects for which you can clearly lay out a robust plan over different price ranges. That’s something we’ve found to be very important. No one will be willing to finance a project that only works at USD 100 per barrel,” Edson Rodrigues Dos Santos, CEO of Somoil, told The Energy Year.
Nevertheless, domestic financial institutions must begin playing a more important role in the oil and gas sector. Investors and business leaders have called for more co-operation between the finance sector and energy industry in Angola as the sparse relationship is seen as the major reason for the lack of investment in the sector and a key aspect in preventing the growth of local companies.
FINANCE AND OIL: Angolan banks and insurance companies have a secondary role in the domestic oil and gas industry. They mostly participate with salary accounts and work accident premiums. A lack of financial strength coupled with a lack of know-how are seen as the domestic financial sector’s main setbacks.
As global investment in fossil fuels declines, businesses increasingly require that domestic institutions cultivate innovative national financial products to support the development of key projects. To that end, the Angolan financial sector is currently working to establish transparent and reassuring legal frameworks to protect all types of investment, finance local players and attract FDI.
Although Angolan financiers do not have the required financial strength to cover the high costs of oil and gas investments, they are key in assembling the necessary funds both locally and abroad and matching them with the proper companies and projects. Most local banks and insurance companies have expressed their intentions to bridge local companies and international financial institutions.
“We are trying our best to be a part of the new downstream developments, such as the different refinery projects,” Paulo Alves, an administrator for Banco de Fomento Angola, told The Energy Year. “We believe that we can be more involved by partnering with international banks investing part of the capital of the syndicated facilities. 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.”
Partnering with international institutions and offering syndicated services is now possible thanks to the latest reforms imposed by the National Bank of Angola (BNA), which put Angolan institutions closer to Basel II and III pillars. To ensure an adequate level of solvency and liquidity, Angolan banks are required to have a minimum share capital of USD 17.3 million in all joint ventures. The BNA further obliges banking institutions to establish a 10% minimum reserve of net profits for each year.
Since October 2017, the BNA has also made monetary and foreign exchange reforms to be in line with internationally acceptable regulation and supervision banking practices. Angola adopted Bloomberg’s foreign exchange electronic trading system and its electronic auction system in June 2020 to achieve better transaction efficiency and have more transparency in its foreign currency exchange market.
ENSURANCE OF INSURANCE: The Angolan local content regime for the oil and gas sector also incorporates the financial sector. Implemented in October 2020, the new law requires IOCs to contract local companies for services in the oil and gas industry. For a company to be considered local, it must be 100% Angolan owned.
In January 2022, the ANPG, under the new Local Content law, presented a list of five exclusive services for the oil industry, opening the door for national insurance companies to more business in the sector. The following services are now under the exclusive regime for companies in the oil sector: insurance for oil operations, insurance mediation, property insurance service, motor insurance and life insurance.
To ensure that E&P activities can be adequately insured, the Angolan Agency for Insurance Regulation and Supervision, or ARSEG, established an insurance pool consisting of 11 insurers to cover risks in the petrochemicals sector. The group is currently headed by ENSA, the national Angolan insurer. However, this scheme requires further development as ENSA holds most of the E&P risk, limiting the ability of local insurers to develop their technical capacities.
“We believe that if all local insurers were able to retain a larger portion of the risk […] this would open up opportunities for increased competition in the market to the benefit of the operators and allow for significant technical development of the local insurance market,” Tim Folland, general manager of Allied Insurance Brokers Angola, told The Energy Year.
NEW STEPS IN RENEWABLES: Angolan banks are also working to facilitate renewable energy projects, in part due to the energy transition. “The energy transition is a knife that cuts both ways,” Alfredo Fortunato, managing director of Certex Angola, told The Energy Year. “Most financial institutions are looking at the energy matrix of the company when financing oil and gas. Companies that have more renewables within their portfolio have a better chance of getting financing more quickly.”
Angolan banks are also seeking European Union funds for renewable projects. “The key aspect to getting the EU European Community funds (sovereign and private funds) for green projects is to find feasible public or private renewable energy projects to finance,” Bruno Grilo, CEO of Banco Keve, told The Energy Year.
“Right now, the challenge with the greenest power generation projects lies in the transformation, transmission and monetisation of this electricity. Taking electricity to the surrounding communities and then getting paid for it requires electrification and other infrastructure and a strong legal framework with purchase agreements with the public sector,” he added.
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