Nigeria & Angola: Political Risk Caveats in the Region s Oil Giants

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1 ECONOMIC OUTLOOK CONFERENCE 18 JUNE 2009 HILTON SANDTON, JOHANNESBURG Nigeria & Angola: Political Risk Caveats in the Region s Oil Giants Kissy Agyeman-Togobo Country Analyst- Sub Saharan Africa 18 June 2009

2 Political Risk Appetite for Risk?

3 Political Risk Caveats POLITICAL STABILITY Strength of institutions Transparency & corruption Balance of power Policies & social contract External relations OPERATIONAL ENVIRONMENT Regulatory & tax environment Infrastructure Nationalisations Expropriations Local content stipulations CSR Political Risk Caveats SECURITY Socio-economic grievances Politicised movements Terrorism Organised crime

4 Political Stability in Nigeria YAR ADUA LEADERSHIP: BABA GO-SLOW

5 Political Stability in Nigeria GOVERNMENT PRIORITIES

6 Political Stability in Nigeria THE RULING PARTY RULES PPA AC APGA LP ANPP Peoples Democratic Party (PDP)

7 Political Stability in Nigeria Overview Leadership challenges Parliamentary inactivity Weak stance vis a vis Niger Delta crisis Electoral reform promises Dubious anti-corruption drive? Power outages Federalism & patronage Rule of law Reversal of dubious Obasanjo contracts EFCC Creation of N-D Ministry Improved TI ranking

8 Political Stability in Angola Our future is greater than our past Ben Okri

9 Political Stability in Angola The Eduardo Dos Santos Machine PRESIDENT ADVISORS MPLA MINISTRIES

10 Political Stability in Angola Hegemony of Ruling Party UNITA PRS FNLA NDC MPLA

11 Political Stability in Angola OVERVIEW - Continuity of status quo - Hegemony of MPLA -Fractured opposition -Presidential elections- Dos Santos likely victor -Centralisation of power - Succession challenges

12 Oil & The Spill-Over Effect

13 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Oil Output Month Angola CRUDE Nigeria CRUDE Barrels per day

14 Security Challenges: Nigeria Nigeria: Niger Delta Crisis: The Achilles Heel of the Oil Industry

15 Security Challenges: Nigeria MILITANTS & CRIMINALS SABOTAGE ILLEGAL BUNKERING DESTRUCTION OF OIL INSTALLATIONS KIDNAPPING OIL COMPS REDUCTION OF PRODUCTIVITY FORCES MAJEURES INSECURITY OF PERSONNEL COMMUNITY DAMAGE MASS DISPLACEMENTS GAS FLARING OIL SPILLS CSR LOCAL COMMUNITIES LACK OF INVESTMENT ENVIRONMENTAL DAMAGE DERIVATION FORUMULA THREAT TO REGIONAL SECURITY GOVT JTF LOCAL OFFICIALS

16 Security Challenges: Nigeria Nigeria: Niger Delta Crisis: The Achilles Heel of the Oil Industry Niger Delta Technical Committee Recommendations: - Amnesty for militants within a DDR programme -Increased revenue allocation to Niger Delta -Infrastructural development -Strong institutions for longer-term development -Free healthcare for under 5 s and over 65 s -Youth employment scheme

17 Security Challenges: Angola Socio-economic Grievances Large inflows of foreign exchange Crowding out of manufacturing sector Growth of non-tradeable sector Oil dependency PATRONAGE HIGH PRICES Gyrating commodity prices problematic for budgets WEALTHY ELITES HIGHS: INCREASED BUDGET; MORE INFRASTRUCTURAL SPENDING? LOWS: LESS PUBLIC EXPENDITURE? PARALLEL ECONOMY CRIME Political volatility Socio-economic discontent

18 Operational Environment Ease of Doing Business R a n k in g ( ) Nigeria Country Angola

19 Operational Environment Nigerian Investment Promotion Commission Act (NIPC) Category Type of Investment Incentives: Pioneer Status Investment in Infrastructure For new businesses To encourage comps to make reasonable profits in early years. A list of 69 industries with pioneer status Facilities which ordinarily should have been provided by the government eg roads, electricity if invested in areas where they do not already exist Tax holiday If in disadvantageous area up to 7 yrs 20% off the cost of providing facilities Labour Intensive High labour industries. Generally with minimal automation Tax concessions

20 Operational Environment ANIP: Invest in the Future Zone REGION Incentives: Exemption from tax and duties Incentives: Industrial tax exemptions Incentives: Capital Gains Tax Exemptions A Province of Luanda, certain municipalities of the Provinces of Benguela, Huíla, Cabinda and the Municipality of Lobito 3YRS 8 YRS 5 YRS B Certain municipalities of the provinces of Benguela, Cabinda and Huíla and the Provinces of Kwanza Norte, Bengo, Uíge, Kwanza Sul, Lunda Norte and Lunda Sul 4 YRS 12 YRS 10 YRS C Provinces of Huambo, Bié, Moxico, Cuando Cubango, Cunene, Namibe, Malanje and Zaire 6 YRS 15 YRS 15YRS

21 Taxation ANGOLA: Onus on taxpayer Significant penalties for non-compliance Taxation guidelines can be vague Loopholes BUT- Multiple tax incentives Tax reforms? NIGERIA: Tax reforms National Tax Policy (NTP) Taxation system that fosters economic growth Fewer taxes, broad-based, higher revenue yielding Only National Assembly authorised to vary tax rates Increase VAT Tough on tax evaders: Project Eagle Eye

22 Outlook NIGERIA Short term: -Slow pace of reforms -Seven-Point Agenda- falling short? -Anti-corruption drive: rhetoric v practice -Niger Delta crisis- JTF heavy handed strategy & escalation of violence -Implementation of Technical Committee Recommendations? -Encouragement of FDI but local content stipulations -Tax reforms

23 Outlook Medium- Long term Elections 2011 & electoral reform expectations Strengthening civil society Federalism- building capacity in the states Niger Delta- regional & international response - resource allocation - CSR

24 Outlook ANGOLA Short-term: -Political sphere: little change to Dos Santos status quo -MPLA continue to dominate -Opposition prospects constrained -Encouragement of FDI -CAN 2010 & infrastructural development -Government responsiveness to housing shortage

25 Outlook Medium - Long term -Regime continuity challenged by opposition to democratic distortions, socio-economic imbalance; emergence of critical civil society -Tenuous post-dos Santos era? -Taxation of non-oil economy & greater reciprocity with population?

26 Green Shoots? Is this a positive straw in the wind, or should we say one swallow does not make a summer?

27 ECONOMIC OUTLOOK CONFERENCE 18 JUNE 2009 HILTON SANDTON, JOHANNESBURG Thank You Kissy Agyeman-Togobo Country Analyst- Sub-Saharan Africa 18 June 2009

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