Country outlook. Angola

Transcription

1 Country outlook

2 Closing date of this issue: 31/1/219 Form of Government: Semi-presidential republic Capital: Luanda Official language: Portuguese Population: 3 million inhabitants (217) Currency: Kwanza (AOA) Exchange rate: 1 EUR = AOA (31/1/219) 1 USD = AOA (31/1/219) GDP: $127 billion (.2% of world GDP) GDP per capita: $4,466 ($6,835 purchasing power parity) Ease of doing business: 173 rd in the world out of 19 according to the World Bank (Doing Business) Religion: Christian: 93.5% Country Outlook is a publication that is produced jointly by CaixaBank Research and BPI Research (UEEF) and it contains information and opinions from sources that we consider to be reliable. This document is for information purposes only, so CaixaBank and BPI are not liable in any way for any use that may be made of it. The opinions and estimates are provided by CaixaBank Research and BPI and may be changed without prior notice. 2

3 Economic forecast GDP. Year-on-year change (%) After a GDP contraction in 218 (estimated -2.8%), we expect a gradual economic recovery in 219 (around 1%) thanks to: (i) the recovery in oil prices and the increase in local oil production after the launching of Kaombo oil field in July 218; (ii) the implementation of several measures to stabilize the economy, promote investment and a more friendly business environment; and (iii) external support from the IMF aid program (3-year Extended Fund Facility of US$3.7bn) and from China (credit line of US$2bn) CPI. Year-on-year change (%) Despite the devaluation of the currency (around 46% against USD since Dec-17), the inflation rate followed a downward trend in 218, reflecting weak domestic demand. For 219 and 22, inflation will remain at significantly high levels, due to the devaluation of the currency, the introduction of a VAT tax that will be phased in gradually starting from mid-219, further (albeit moderate) monetary easing expected from the BNA and the increase of tariffs in some utilities. Economic policy Benchmark interest rate (%) and exchange rate (AOA/USD) Fiscal balance (% GDP) Benchmark interest rate (left scale) Exchange rate (right scale) Current account (% GDP) Public debt (% GDP) At the beginning of 218, the BNA abandoned the exchange rate peg with the dollar, depreciating significantly the currency during the year (the kwanza dropped more than 46% against the dollar and euro since then). We expect the currency to adjust gradually in the near term, reducing the gap with the informal market exchange rate to levels closer to BNA s targeted gap, 2% (currently around 3%). The devaluation of the currency should have constrained imports of goods in 218, which, along with the increase in oil exports, may have contributed to achieve the first current account surplus since The drop in oil prices contributed for lower revenue collection during period, resulting in significant fiscal deficits and high public debt ratio as a percentage of GDP. These were also driven by the devaluation impact on Fx denominated/linked debt. However, the Government assumed the need to consolidate public accounts and correct debt s upward trend, asking for an IMF agreement, with technical and financial support. In this context, it is expected some reforms to diversify the tax base (VAT, for example), prioritize public expenditure, eliminate fuel subsidies and clean domestic payments arrears. 3

4 Financial conditions Political situation Private credit (% GDP) In the banking sector, the non-performing loans ratio has risen sharply to 28.3% at the end of 218 (13.1% at the end of 216), reflecting negative economic growth, foreign currency shortages and huge depreciation of the kwanza. Several banks do not meet the minimum capital requirements set by BNA, including the BPC public bank, which is undergoing restructuring. In line with the IMF agreement, badly capitalized banks should present plans to increase their capital until the end of 219, and the recapitalization process should be completed until June 22. The MPLA won the elections in August of 217. Following the victory, João Lourenço was chosen to be the new president. Despite Lourenço being the ruling party s candidate and a certain degree of continuity was expected, the new president has taken measures to distance himself from the previous President, José Eduardo dos Santos. Although for the moment this strategy appears to be receiving internal support, the risk of a possible political regression cannot be ruled out. Gross external debt (% GDP) The recovery of oil prices should help to contain the deterioration of the current account balance (it is expected a surplus in 218), which will nonetheless record a negative balance in 219 (pickup in imports, in line with the slight recovery of consumption and investment). The decline seen in international reserves has been substantial and left the economy more vulnerable, thought to increase expected in oil exports should relieve some pressure on that matter. In particular, after reaching USD$31.5bn in 213, international reserves stood at USD$11.1 in December 218, the minimum since 27, and only covering 3.8 imports month, below the 6 month threshold of BNA. The new Government is decisively addressing the country s economic challenges. The agreement with the IMF and the World Bank is a good example of this. It includes a more flexible exchange rate policy, major fiscal consolidation measures (elimination of fuel subsidies, VAT implementation,...) and measures to improve the health of the banking sector. Long-term outlook GDP growth (%) Population (milion of inhabitants) The outlook for long-term economic growth is slightly more favourable than in the shortterm, and is supported by a young and growing population and by the dynamism of some sectors of the economy, which have proved their resilience in recent years. The 3-year IMF s intervention should be more effective than the previous, considering the apparent commitment of current Government with structural changes and the willingness to change the current economic structure and promote economic diversification away from oil However, the downside risks of this scenario are significant, and are essentially related to the strong dependence of oil sector, resistance to implementing reforms and low skills of population. To counteract them, the government will have to invest heavily in education, health and infrastructure. 4

5 Country risk Rating Last changed Outlook B- 11/8/17 Negative B3 27/4/18 Stable B 28/12/18 Stable OECD credit risk rating (from to 7, with being the best) 6 7 Indicates that the country has an investment grade. Indicates that the country does not have an investment grade. Risks SHORT-TERM LONG-TERM Inflation - + Price and capacity of production of oil lower than expected - + Financial sector - + Resistance to implementing reforms - + Strong dependence on the energy sector - + Supply bottlenecks - + Poverty and social discontent - + Political risk - + Business environment STRENGTHS Young population. Natural resources. Positive reform momentum. WEAKNESSES Low educational level. Infrastructure deficit. Institutional quality. High concentration of SOEs in some sectors. Main sectors EXPORTERS Oil and by-products, diamonds and agriculture. IMPORTERS Machinery, Raw material, Steel and aluminum articles, Electronics and Vehicles. Main trading partners Exports % of total exports Imports % of total imports China 55.8 Portugal 16.8 India 8.1 China 12.9 Taiwan 4. Brazil 5.8 South Africa 3. USA 5.3 USA 3.1 Belgium Source: BPI Research, based on data from Bloomberg, IMF, OECD, Oxford Economics and Thomson Reuters Datastream. 5

6 Taxation s taxation system is similar to that of countries in southern Africa with a state-level structure except for some municipal taxes. Its main taxes are: Corporate tax: levied on all income from economic activities in the country. There is a standard rate of 3% (industrial sector and services) and 15% (agriculture, livestock, forestry). All n and foreign companies established in the country (offices) are required to pay it. Earnings distributed among company shareholders are also subject to 15% tax. Income tax: levied on both employee or selfemployed earnings, with the exception of compensation for dismissal, holidays, bonuses and sick leave. The tax rate varies from 17% to 52%, according to the income earned. Tax on consumption: varies according to the product or service. The following are taxed at 5%: telecommunication services, consumption of water or energy, consultancy services (fiscal, financial, accounting, etc.), port, airport and dispatch services, private security, real estate management, cultural events, sports events and acts related to rail, air or road transport. The following are taxed at 1%: all services related to the tourism industry, including hotels, restaurants etc and the distribution of machinery and equipment, irrespective of the economic sector in which it will be used. Investment In 218, the Government established a Support Plan for Production, Diversification of Exports and Import Replacement (PRODESI), which contains seven key initiatives aimed at reducing imports, increasing self-sufficiency and diversifying n exports in order to reduce historical oil dependence. One of the most interesting initiatives is one that aims to improve the business environment and, among other things, expand international trade by facilitating economic conditions that attract foreign investment and encouraging the connection of local businesses with global consumers. In, foreign direct investment for 217 was 8.6 billion dollars. In recent years, has been the fourth largest recipient of foreign investment in the African continent (representing 6.9% of its total FDI), behind South Africa, Nigeria and Kenya. It is also ranked fourth in terms of investor perception as the most attractive place on the continent. The main investors in the n market are Portugal, the Netherlands, South Africa and China. Spain is the seventh largest investor and each year increases its volume of investments as a result of the potential of and the excellent political, economic and commercial relations that exist between the two countries. Establishment LOCAL COMPANY There are five types of company in : Quota company (similar to Spain s limited liability company): It must have at least two shareholders, a minimum capital stock of 752 Euros and 75.2 Euros for each quota. Public Limited Company: the capital stock must be at least 15,54 Euros and must be divided into shares of equal value, the minimum amount being 3.7 Euros. The minimum number of shareholders is five. BRANCH Foreign investors are allowed to set up companies with 1% foreign capital except in the oil and diamond industries. A branch is the most widespread and dynamic form of representation in for a company incorporated under foreign law and allows the investor to carry out commercial activities under the same conditions as a company General partnership. Limited partnership. Branch. ns can set up a company without any kind of restriction. The most common forms are public limited and quota companies, as well as branches for foreign firms. The process for setting up a company is long and very bureaucratic. incorporated under n law, in spite of not having a legal personality, since branches are classed as local entities dependent on the parent company. The parent company is responsible for the activities carried out by the branch. Setting up a branch requires authorisation from the n Export and Investment Development Agency (ANIP). REPRESENTATIVE OFFICE This can be used only during the preparation and proposal of the project that a foreign firm is going to carry out in the country, and must be approved by the National Bank of (BNA). The following is also prohibited: receiving income, either in the national or foreign currency, carrying out mercantile acts on its own account with the exception of buying or renting premises to carry out its activity, and it must have a maximum of six workers of which at least 5% must be n. 6

7 Strategic alliances FREE TRADE ZONE There is no free trade zone in the country. JOINT VENTURE The law does not require a local partner in order to carry out economic activity in the country. Activities of the hydrocarbon sector and the mining and marketing of diamonds is prohibited. Customs conditions FREE TRADE AGREEMENTS Currently belonging to: The Economic Community of Central African States (ECCAS). The Southern African Development Community (SADC). The Tripartite Free Trade Area COMESA - EAC - SADC. The Common Market for Eastern and Southern Africa (COMESA). The Generalised System of Preferences (GSP). The African Growth and Opportunity Act (AGOA). Commercial relations between the EU and are carried out via the Economic Partnership Agreements (EPA), which started to be negotiated in 22. The EU grants full freedom of access to its market with the aim of liberalising 8% of the commercial transactions with over the next five years. The country is preparing all the requirements and conditions so that in 219 it can join the Free Trade Zone of the Southern African Development Community (SADC), the main customs union in the south of Africa made up of South Africa, Botswana, Namibia, Lesotho and Swaziland. FREE TRADE ZONE Despite not having a free-trade zone, has substantially liberalised its foreign trade regime in recent years. Customs duties, for example, are relatively low (5%-1%). GENERALISED SYSTEM OF PREFERENCES (GSP) As a developing country, since February 21 it has been part of the EU initiative Everything But Arms (EBA), within the framework of the Generalised System of Preferences, allowing some of its products to access EU markets free from quotas and tariffs. Negotiations and protocol BUSINESS CULTURE It is important to make the initial approach through official channels when doing business in. ns tend to be formal in business although the huge amount of corruption in the country must also be taken into account. They appreciate trust, visual contact and respect. 7

8 Top fairs Expo TIC. Proyekta. Expo Trans. Agro. Expo Uige. Flida. Websites of interest Investing in : n Chamber of Commerce: Business Support Centre: National Customs Service: n Export and Investment Development Agency: Payment and charging methods MEANS OF COLLECTION Given the National Bank of s reduction in foreign reserves after the fall in the price of oil, which is causing delays in payments to foreign countries, an irrevocable letter of credit is recommended as well as buyer s credit for long-term operations. MEANS OF PAYMENT The most widespread and secure payment method between n and foreign firms is documentary credit. EXCHANGE RATE INSURANCE The kwanza is a currency for domestic use. There are restrictions for currency outflows from the country. All currency outflows have to be previously approved by the central bank. International transactions are affected by market fluctuations and it is therefore advisable secure this kind of transaction against exchange rate risk. also has high inflation and some instability in the fluctuation of its currency due to its dependence both on oil prices and its neighbouring countries. BPI in the country BPI is present in through a financial participation of 48.1% in the BFA s capital (Banco de Fomento ). BFA is one of the largest banks in the n financial system, holding (in December 218) market share of 7.1% in Credit and 13.5% in Deposits. At the end of 218, BFA s total assets reached 4,826 million euros. The bank, which has 1.9 million customers, has an extensive and specialized distribution network consisting of 166 branches, 1 investment centers and 16 business centers. 8