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A ngola has maintained its position as Africa’s  second largest oil-producer after Nigeria, with its oil sector contributing roughly 50% of national GDP, more than 70% of revenue as well as about 90% of the country’s exports. However, the OPEC member country’s depreciating currency and slow growth in non-oil related sectors has constrained economic development. Major reforms such as the 2000 Fiscal Responsibility Law, which aims to reduce debt levels to 60 percent of GDP in the medium-term; simplification of the Value-Added Tax system; a more flexible exchange rate regime; introduction of the 2019 Privatisation Law and 2021 amendments to the Private Investment Law indicate a step-change in the government’s approach to promoting macroeconomic stability and economic diversification.

President João Lourenço has focused on privatisation and fighting corruption since coming into office in 2017.  As African countries now seek to manage, not merely react to the impact of Covid-19, we are checking in on the progress of Angola’s Partial Privatisation Program for Public Companies (PROPRIV), which is set to conclude this year.

PROPRIV’s origins

The benefits of privatising state owned entities (SOEs) – debt consolidation, boosting efficiency, reduced political interference in commercial decisions, and promoting innovation – are widely touted. The reality, particularly in African countries, is often more multifaceted. Arguments for privatisation are countered by concerns that profit should not be used as the primary metric against which public entities providing essential services are measured.

SOEs play a significant role in Angola’s economy, with their assets making up 78% of the country’s GDP, and PROPRIV is not the country’s first attempt at privatisation; several waves of privatisation since the 1990s only minimally improved SOEs’ performance and Angola’s economic structure gradually ossified in the successive years due to its over-reliance on the oil sector and the government’s decision to prop up under-performing SOEs by providing operational subsidies. In his first term in office, Lourenço sought to change this.

One of his key goals since coming to power has been to diversify the economy, increase international and domestic investment and promote private sector development. Privatisation is an important component of the 2018-2022 National Development Plan, which aims to restructure the public sector, of which SEOs constitute a significant proportion.

Picking the winners

In August 2019, Lourenço signed a presidential degree that formally created and approved the Privatisation Programme, to be called PROPRIV. In principle, all companies in which the government had a direct and/or indirect majority or minority stake in the company’s share capital were eligible for privatisation, however, not all companies made the cut; some were excluded from the programme because their sector or activity was considered strategic by the state.

The government implemented a two-pronged approach to selecting companies for consideration. An assessment process was already underway by the Instituto de Gestão de Activos e Participações do Estado (IGAPE), the state holding and government asset manager, and this was complemented with input from relevant ministries. SOEs were subsequently ranked according to a pre-determined criteria that included the nature of the asset, size (turnover and GDP contribution) and the number of years with audited financial reports.

Per the presidential decree, these sales can be completed through either public tender, initial public offer (IPO) or by auction at the stock exchange. Targeted sectors include agro-industrial, construction, finance (banks and insurance), health, mineral resources such as oil and gas, telecommunications, and transportation. Sector experts, members of the Angola World Bank Group country team, and Angolan public and private stakeholders are in agreement that implementing PROPVIV across the aforementioned sectors has the potential to drive Angola’s economic growth and diversification.

Sub-sectoral considerations included the potential impact of its output growth on Angola’s development objectives, its current performance, profitability and transformative capability, as well as its potential to improve the overall performance of the country’s private sector over a 3-5-year horizon. For example, Sonangol’s outsized economic impact, coupled with recent oil and gas sectoral reforms, made its non-core subsidiaries (those not focused on exploration and production) an attractive prospect for privatisation. Once sectoral and individual SOE considerations were taken into account, the final shortlist consisted of 195 companies, including 32 major national companies, and ultimately 140 made the short list.

Win some, lose some

PROPRIV has developed slower than expected partly due to widespread economic pressures and the foreign direct investment slowdown caused by the pandemic. For example, Sonangol’s airline Sonair, eventually removed from the privatisation list at the start of 2021 because it was considered no longer economically viable. 41 companies have been privatised while 99 are either in the process of privatising or about to start. USD 772 million out of USD 1.34 billion has been received to date from contractualised deals.

The government plans to launch the privatisation process for the remaining 99 companies including 30 Sonangol subsidiaries, diamond miner Endiama and national airline TAAG by July 2022. Although the privatisation of large SOEs will dominate headlines this year, the government also plans to raise an estimated USD 500 million through the sale of SMEs as well as small and medium sized factories. Local analysts argue, however, that the government’s plan to sell a 51% majority stake in Empresa Nacional de Seguros de Angola (ENSA) valued at USD 334.7 million, will not be sufficient to revive PROPRIV without improved transparency and governance.

Trusting the process

The government is frank in its assessment of PROPRIV’s progress. It notes several challenges including navigating an economic recession, managing the fallout of the Covid-19 pandemic, a downgrade in credit risk rating and the need to consolidate sectoral strategies. No easy feat under the best circumstances but even more challenging during an election year; the presidential and legislative election is scheduled for August.

The government is not the only interested stakeholder taking a clear-eyed view of the process. Potential foreign investors – institutional investors and multinationals – require assurances from the government that PROPRIV will not favour Angola’s elite. Lourenço has made some strides in building market confidence by marking a clear break from the past by going after his predecessor’s most high-profile allies (and family members) accused of corrupt practices. The president has also committed to expand the use of tenders to prevent conflicts of interests and corruption, however, a few recent non-competitive tender awards have raised some eyebrows.

PROPRIV will come under increasing scrutiny in the run-up to the August elections as the ruling party looks to shore up support and demonstrate that despite trying times it has a plan with a capital “P” and has been able to execute it for the benefit of the many, and not the few as was the case in the past.

As election campaigning begins and decision-makers’ focus shifts to more immediate concerns in the run-up to the poll, we expect PROPRIV to be extended past the 2022 deadline but not by more than a year. A number of enticing assets are still on the table including Banco Angolano de Investimentos and Multitel. The government is clear about the type of investor it’s looking for: one with a “long-term and structural vision for the national economy.” PROPRIV is an opportunity but only for investors who are comfortable with a long time horizon – for the realisation (and externalisation) of profits and a partnership with the Movimento Popular de Libertação de Angola-led government.