The conventional view of Angola’s banking sector, until recently, has been that it is for those with a stomach for high risk-taking and not for the faint-hearted. While the ruling Movimiento Popular de Libertacao de Angola (MPLA) government fought a civil war against the Uniăo Nacional para a Independęncia Total de Angola (Unita) rebel movement, banking became almost a law unto itself, as billions of dollars from the country’s oil exports were concealed in a maze of channels and accounts.
Allegations of corruption and political interference diminished the reputation of the country’s banking system in the eyes of the International Monetary Fund (IMF) and the global banking industry, leaving bankers to pursue brighter prospects elsewhere in Africa.
But a renewed commitment by the government to clamp down on corruption, together with sky-high crude prices and signs of improved relations with the IMF, may convince bankers that Angola’s darkest days have ended.
Angola’s trump card is oil. It pumps 950,000 barrels a day from offshore fields operated by US corporate giants ChevronTexaco and ExxonMobil. Surging oil prices are expected to catapult Angola into double-digit GDP growth every year to 2008,according to the IMF. This will make Luanda one of Africa’s fastest-growing cities and one of the biggest state and corporate lending opportunities in the region.
South African inroads
South African banks Standard Bank and Absa are both close to opening operations in the country – traditionally the preserve of Portuguese banks because of Angola’s colonial history – to follow the growing number of South African companies doing business with Luanda. It is one of the clearest signs of cautious optimism for Angola’s banking system.
Their return may also signal the beginning of the end for the “suitcase bankers” who were happy to do business – cherry-picking lucrative government, corporate and trade finance deals without having to open formal operations in the country.
“We’ve concluded a due diligence on a bank in Angola and are finalising an agreement,” Dana Botha, general manager of Absa’s Africa Desk, told The Banker. “We will look at opportunities to roll out our commercial banking activities. The Angolan market is opening up and the opportunities are presenting themselves.”
Absa is expected to conclude the deal with the unnamed bank in the next few months.The deal would give Absa access to the Angolan retail banking sector, an area traditionally shunned by most banks because of poverty and high costs of operating retail branches in the country. Absa is aiming to build on the experience it has gained in Mozambique, where, like Angola, Portuguese is the main business language. Absa has majority control of Mozambican banking firm Austral.
But Absa has its eyes wide open. “Africa is a volatile environment. You just have to look at Nigeria and Tanzania, which have increased the capital [adequacy] requirements, so you don’t throw all your eggs into one basket,” says Mr Botha.
Another South African bank interested in Angola is Standard Bank (trading as Stanbic north of South Africa), which is expected to open an Angolan division. “Angola is an attractive country because of its proximity to South Africa, plus there are a lot of South African companies investing there in addition to non-African multinationals,” says Sim Tshabalala, managing director of Stanbic Africa. “We’re on the look-out for opportunities, [to see] if it makes sense to open a physical operation there.”
One of the largest South African corporates set to return to Angola is diamond giant De Beers, which left in 2001 after falling out with state miner Endiama. It has been preceded by a host of other South African companies, as Angola restores its war-battered infrastructure and economy.
“Angola, like many non-Anglophone countries, gives rise to accounting and legal risks. There’s a different kind of legal and regulatory regime but there is definitely a political will [to improve], such as giving the central bank more independence,” says Mr Tshabalala.
New banking blood is important for Angola, whose banking sector has been mired by the secrecy surrounding state finances dating back to the civil war. The IMF has consistently pressured the authorities to shed light on the workings of the central bank, Banco Nacional de Angola (BNA), and how it interacted with the Treasury, state oil firm Sonangol and the MPLA’s political leadership.
The maze of the BNA
Controversy surrounding the BNA in recent years stems largely because of the billions of petrodollars that were apparently pushed through the bank either off-book or in a way that was not open to independent outside scrutiny. This can be traced back to the Angolan government’s secretive financing during the war, which is only now being remedied. The IMF last year concluded that the BNA’s activities and accounting practices had reduced confidence in the bank’s financial position
Human Rights Watch, which has urged Luanda to clean up its act, estimates that $4.2bn in oil revenues were simply unaccounted for between 1997 and 2002.
Accountancy firm KPMG, which has had more access to Luanda’s financial books than anyone outside government has continued to press for the adoption of international accountancy standards and improved transparency. It also discovered that many of the country’s key oil export metering facilities were faulty, casting doubt on how much oil (and its exact value) was exported from the country for decades.
In addition to financing the government’s fiscal deficits and growing debt obligations, the BNA also found itself engaged in quasi-fiscal activities, which ranged from bailing out failed state banks to paying food subsidies and salaries of public sector workers. As a result, BNA has laboured under persistent operational deficits and has been accused of using unrealised profits from exchange rate fluctuations to boost its own financial results.
The spotlight has also been cast on a maze of overseas correspondent accounts, which the BNA has created, on instruction from the government. “The plethora of overseas correspondent accounts [has] added to the uncertainty over the management and size of the country’s international reserves,” observes the IMF, adding that management of the budget and of exchange and interest rate risks was deficient.
Problems still surround the BNA but the IMF’s latest Article IV meeting with the Angolan authorities in July 2004 noted an improvement in the BNA’s openness and management procedures.
The BNA’s prime responsibilities now are the implementation of monetary policy and defending the value of the kwanza, the local currency, through foreign exchange rate intervention. Commercially, the BNA has responsibility for banking supervision. In trade matters, it authorises foreign repatriation of profits and dividends and can temporarily suspend these if it believes they would harm the country’s balance of payments. As banker to the government, it manages the country’s foreign exchange reserves and also extends credit to the government to meet the fiscal deficit.
The BNA can claim kudos for restoring a semblance of order to the country’s distorted economy. Hyper-inflation is at last being tamed and the kwanza is starting to look a little more stable.
Though the government is still pressing ahead with additional oil-backed loans despite protests from the IMF, relations with the institution may blossom next year into a full agreement that could pave the wave for debt relief, conservatively estimated at least $10bn.
With oil prices hitting record highs, Luanda is set for a windfall bonanza from its share of offshore fields. Billions of dollars of foreign investment led by oil giants ExxonMobil, ChevronTexaco, Total and BP in the country’s deep offshore waters is ensuring that Angola emerges as a key supplier of crude to the US outside of the volatile Middle East. During Angolan President Jose Eduardo dos Santos’ meeting with US President George W Bush at the White House in May this year, Mr dos Santos signed a $300m deal with the country’s biggest producer, ChevronTexaco, to extend its operations, and pledged more openness regarding the state’s finances.
Sanity is also being restored to the chaos in the diamond industry, with the government attracting foreign companies and working to stop the widespread smuggling of gems, which financed both sides in the country’s civil war. Diamond output is set to hit 15 million carats next year from five million in 2003.
But challenges remain. Politically, achieving an agreement between the government and opposition parties on an election date remains unresolved. Opposition parties are pressing for a 2005 poll, though the government is expected to delay it until 2006.
Rebuilding essential
Poverty remains widespread, with millions dependent on food aid and four million people still displaced following the war. Government fiscal policy will be dominated by the need to rebuild the country’s battered infrastructure.
The privatisation of state bank Banco de Comercio e Industria (BCI) has stalled, while the signing of a performance contract by another state owned bank – Banco de Poupanca e Credito (BPC) – has been delayed. However, there are signs of fresh impetus.
Portuguese banks have been the main foreign operators in Angola, before and after independence in 1975. Portuguese-owned Banco Espírito Santo Angola (BESA), in its third year of operations, saw net profits up 273% last year to E2.6m.
Banco de Fomento Angola generates owners Banco Portugues do Investimento some E21m or 12% of group profits. Other foreign-owned banks include Banco Comercial Portuguęs and Banco Totta de Angola, operated by Spain’s Santander Central Hispano.
