Angola’s Future Prospects
Prevalent themes of 2019 continued to characterize the Angolan mining industry in 2020, namely: transparency, diversification and attempts at altering the fiscal and regulatory frameworks to appeal to international investors. Angola is particularly determined to elevate the status of its mining sector, currently contributing approximately 5% to its export revenues. “Angola confronts the double shock of the Covid-19 outbreak and the plunging oil price, as the oil sector is the backbone of the Angolan economy accounting for the largest contribution of GDP and more than 90% of exports,” explained Daniel De Faria, operations manager for mining at Barloworld Equipamentos, an industrial brand management company operating in Angola since 1994. “In addition, diamond sales experienced reduced demand having a further negative impact on the business cycle.”
"The pandemic had a significant impact on the Angolan economy that resonated to most industries. The national budget was set based on an oil price of US$50-60, therefore, when the price per barrel fell to US$20 the budget had to be re-evaluated,” said José Manuel Ganga Junior, chairman and CEO of Endiama, the Angolan national diamond company. “As for diamonds, there was no demand at all from the major markets such as India, the US and China. Our on-going projects therefore reduced their volume of production and reduced operating costs to levels compatible with the forecast reduction in revenues in order to preserve our projects’ economic breakeven point while complying with health and safety procedures.”
" There was no demand for diamonds at all from the major markets such as India, the US and China. Our on-going projects therefore reduced their volume of production, reducing operating costs to be compatible with the forecasted reduction in revenues in order to preserve our projects’ economic breakeven point while complying with health and safety procedures.”
José Manuel Ganga Junior, Chairman and CEO, Endiama
The Angolan government faced a challenging year as the oil price continued to oscillate at around US$32 throughout the year. Consequently, according to the Minister of Finance, Vera Daves de Sousa, macroeconomic forecasts confirm a recession for 2020 as the Angolan economy is expected to contract by 4.1%. As the government continues to stabilise the economy by controlling inflation and maintain the reform momentum, the path to recovery is expected to lead the country to an estimated 1.2% GDP growth in 2021.
The global crisis comes at an unfortunate time, following prevailing optimism in the last few years due to the current administration’s economic reforms. President João Lourenço moved decisively after his election in 2017 to introduce nation-wide reforms aiming to move beyond oil, increase FDI and elevate the ease of doing business. The underlying theme of his National Development Plan (NDP) of 2018 – 2022 is diversification, facilitated by the privatization of state-owned enterprises. The privatization program aims to privatise more than 190 companies and assets in mining, transport, telecommunications, health and agriculture. Taking into consideration the energy-intensive nature of the mining industry, the NDP is also prioritising the power sector, with an ambitious plan to achieve 9.9 GW of installed generation capacity by 2025 and increase electrification by 17%. The mining sector is expected to account for 25% of total electricity consumption by 2025.
In addition to the partial privatization of its three main railways, the government is planning to incorporate the Benguela railway line into the Lobito Corridor project, aiming to connect Angola, the DRC and Zambia. The project will significantly increase the efficiency of the transport of minerals from the Copperbelt to the Angolan Atlantic Ocean port at Lobito. Other transport and infrastructure projects include a new international airport as well as the construction of four new bridges. To finance these developments, Angola is relying on loans from international financial institutions such as the African Development Bank, the World Bank, as well as China, the largest foreign financier of infrastructure projects in Angola.
Under the NDP’s roadmap towards a more diversified and inclusive growth model, the mining industry is at the helm. The country hopes to increase diamond production to 13.8 million carats by 2022 and create more than 4,000 jobs as a result. The government has identified five primary diamond deposits and 33 alluvial concessions that are available for investment. Angola is an attractive diamond investment destination not only because it is underexplored but also due to its fiscal framework that offers tax relief to diamond companies in 2021 according to Pedro Marques, special taxation director of the country’s General Tax Administration. "The cornerstone of the Angolan mineral regime governing exploration, evaluation, mining and trading, the Angolan Mining Code of 2011, is investor friendly,” highlighted Canga Xiaquivuila, Director General of the Geological Institute of Angola. “The main reason behind this is that the Mineral Investment Contract (MIC) is ‘three-in-one’; signing one contract gives exploration, mining and trading rights. The Angolan tax framework is also competitive, as the industrial tax was reduced from 35% to 25%. In addition, tax deductions after costs of exploration, evaluation and reconnaissance are also taken into account.”
Sodiam, the National Diamond Trading Company, introduced a new diamond trading policy in 2018 to enhance transparency in the sector. The policy implements a new competitive model for the sale of diamonds that does not rely on preferential customers as it did previously. It now relies on a system of sale by contracts and tenders/auctions. Clients must now use an application process through an online platform to register, undergoing financial and security checks before participating. According to a media statement made by Sodiam, the new trading policy yielded positive results by generating an increase in annual gross revenue of about 8.5% from 2018 – 2020, as well as an increase in tax revenues from the sale of diamonds.
“The cornerstone of the Angolan mineral regime governing exploration, evaluation, mining and trading, the Angolan mining code of 2011 is investor friendly. The main reason behind this is that the Mineral Investment Contract (MIC) is ‘three-in-one’; signing one contract gives exploration, mining and trading rights. The Angolan tax framework is also competitive as the industrial tax was reduced from 35% to 25%.”
Canga Xiaquivuila, Director General, Geological Institute of Angola
Another transparency initiative that will bolster production and revenue is Endiama’s plan to list its shares on the stock exchange. “The country has intentionally shifted to a climate of privatization in the last few years. By 2022, 30% of Endiama’s shares will be listed on the stock exchange, but let me emphasize that this is a journey,” highlighted Ganga Junior. “A larger set of documents and information related to the company's internal life would have to be released to the public. Therefore, the company’s financial records are being kept up to date to provide future shareholders with a transparent and clear framework of Endiama’s operations.”
Meanwhile, the Geological Institute of Angola, launched in 2014, has seen increasing investment from the government under the NDP, with the recent establishment of the Luanda laboratory to conduct mineral analysis in the region supporting diamond exploration and mining projects. “Angola’s true mineral potential has yet to be unlocked as 60% of the country’s diamond resources, for example, are not yet utilised. Therefore, the government is dedicating time and money to promote the nation’s resources,” explained Xiaquivuila, CEO of the Geological Institute of Angola. “The data provided by the institute under the National Geology Plan (PLANAGEO) will reduce the time it takes to get to the discovery phase of mining operations by attempting to reduce the risk of exploration as we indicate to investors the areas with a large geological-mineral potential.”
Image courtesy of Jorge Sá Pinheiro