Oil-rich Angola set for economic recovery after major reforms

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Angola’s economy is set for recovery in 2019, in large part due to a series of regulatory reforms opening the country to new investments.

Angola was one of Africa’s most watched casualties of the sudden drop in oil prices — with a GDP growth rate going from 5 percent in 2013 to a contraction of 2.6 percent in 2016. New drilling was delayed or cancelled, jobs were lost and inflation hit record highs.

But the country did not sit idle as the economy tumbled, with Angola’s first new president in nearly four decades, President João Lourenço, focusing instead on implementing aggressive reforms to transform the oil and gas sector and the economy, with an aim to attract international investments, diversify the economy and boost the Angolan private sector.

And the reforms, which span from deep changes in tax law to changes in concessionary contracts and the opening of marginal fields to African independents, have hit the books just as the oil price is stabilizing for the years ahead, and Angola is already attracting new interest from investors and closing deals on new projects.

Cleaning House

President João Lourenço assumed office in 2017 and wasted no time cleaning house — ending the long-time careers of government officials and corporate leaders.

In one of his most publicized moves, Lourenço fired Isabel dos Santos, the then-CEO of the state-owned oil company Sonangol.

The quick removal of dos Santos, the daughter of former president José Eduardo dos Santos, came just two months after Lourenço took office and marked a keen shift in how the oil and gas industry would operate in Angola, which for decades had maintained a reputation for corruption and kickbacks.

High profile corruption cases are now moving forward the Angolan courts, including the arrest and prosecution of Jose Filomeno dos Santos, the son of the former president, for an illegal transfer of $500 million from the state’s coffers to a Swiss bank account.

Lourenço also imposed a strict deadline for repatriation of illegally obtained and transferred funds to other countries without “questions asked.”

Citizens who return funds to Angola within the grace period “will not be hassled, will not be questioned as to the reasons why this money was held abroad, will not be prosecuted,” he told reporters at the time.

Reforms Roll Out

Lourenço made key appointments to shift the trajectory of the oil and gas sector, notably naming Diamantino Azevedo the new Minister of Mineral Resources and Petroleum. Azevedo had previously served in regional and international roles, including being the Director General of the Center for the Development of Mineral Resources of Eastern and Southern Africa from 2002 to 2006.

Azevedo has pushed through several reforms specific to the oil and gas sector, even as Angola’s overall economy and political makeup was being turned upside down at the presidential level.

The Ministry of Mineral Resources and Petroleum quickly put together a task force comprised of both international and domestic stakeholders, including the Ministry of Finance, the Office of the President, Sonangol, BP, Chevron, ENI, Esso, Equinor, and Total.

The task force worked in teams and proposed improvements in several areas, including: simplifying the oil concessions management process; implementing incentives for investment in marginal fields and creating a natural gas regulatory framework.

By December 2018, several new laws have been enacted, including:

The Natural Gas Regulatory Framework, which establishes policies for the monetization of natural gas (both associated and non-associated gas) in existing and new concessions;

Incentives for investments, which vary from tax reforms to contract reforms, to encourage economic exploration and development of natural resources;

Improved terms to better allow for exploration within development areas in existing blocks.

Considered one of the most important changes to Angola’s oil and gas sector, an independent regulator has been created to manage the country’s oil and gas concessions, which were previously handled by the state-owned Sonangol.

The National Oil and Gas Agency is the new granter and manager of concessions in a complete restructuring of the management of Angola’s oil and gas industry. The move is designed to improve transparency, attract new investment and increase output.

Downstream reforms on the drawing board

The reforms have also addressed the downstream sector, which has seen little development in decades, despite Angola consistently ranking as a top oil producer in Africa. The government has created a task force to focus on downstream issues, similar to the upstream task force.

The teams will focus on what is needed to build a high conversion refinery in the Lobito municipality and a refinery in Cabinda. Eight companies have already been pre-selected for the Lobito refinery and seven selected for the Cabinda refinery.

Angola currently imports about 80 percent of its refined petroleum products.

Economic Outlook Improving

The reforms appear to be working — the World Bank’s economic outlook for Angola released in December 2018 predicts GDP will grow by 1.7 percent in 2018 and 2.2 percent in 2019 — the first time the country will have seen positive growth since 2014. An improved investor environment is listed as a cause for the improvement.

Mega oil and gas projects have achieved final investment decision since 2018, and several more are headed for FID in 2019 and 2020. A new licensing round is expected to attract new international explorers to the country, as well as promote the participation of Angola’s domestic sector by offering incentives for marginal fields.

And world leaders are also taking note, with H.E. Mohammad Sanusi Barkindo, Secretary General of OPEC, offering high praise for Angola’s reforms in a recent visit to Luanda.

“At OPEC, we follow with great interest and admiration the very commendable reform agenda of President João Manuel Gonçalves Lourenço, particularly as he seeks to modernize the oil industry, improve transparency and good governance,” said Barkindo.

“Undoubtedly, President Lourenço has achieved a series of notable successes, which have improved the industry’s efficiency and effectiveness. We commend the President’s decision to create a new Agency and separation of conflicting roles of policy, regulation, and commercial operation, in line with the best international practices. OPEC also welcomes Angola’s efforts to upgrade, and expand its refinery sector and we stand ready to provide whatever technical advice and expertise that we can, in this regard.”

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