João Robles (Partner at FCB Sociedade de Advogados) co-authored this publication.¹

One key facet of the Angolan government's recent reforms is the Privatization Framework Law (Law No. 10/19, enacted in May 2019 and approved by Presidential Decree no. 250/19 in August 2019). This Decree will govern Angola's impending IMF-backed privatization program (PROPRIV). PROPRIV forms part of the country's broader economic reforms, which include a Macroeconomic Stabilization Program focused on strengthening fiscal sustainability, reducing inflation and improving financial sector stability, and a National Development Plan (2018 – 2022) that seeks to promote human development, public sector reform and economic diversification and growth.

As part of PROPRIV, 195 Angolan companies were shortlisted for privatization over the three years 2019 - 2022. The stated aim prior to the COVID-19 pandemic was for most of Angola's fully and partially state-owned companies to be divested by the end of 2020 and for large state-owned companies to have sold their key assets by the end of 2022. While the impact of COVID-19 on the overall timing of PROPRIV remains to be seen, it is clear that its implementation remains a key priority for the Angolan government. This is highlighted by the government's recent announcement confirming the commencement of the privatization process for ENSA, the state-owned insurance company, and the government's indirect holdings in Banco BAI.

Numerous high-profile Angolan companies will participate in PROPRIV, including state-owned oil company Sonangol, the national diamond company ENDIAMA and the national airline TAAG.

This article highlights the key macroeconomic and political drivers behind PROPRIV, introduces the companies subject to privatization and explains the proposed framework for PROPRIV's implementation.

POLITICAL AND MACROECONOMIC CONTEXT

Political background and anti-corruption headway

Since taking office, President João Lourenço has overseen swift political change in Angola. The previous regime, headed by José Eduardo dos Santos, attempted to institute privatization programs during 1989 – 1994 and during 2001 – 2005. These attempts were largely unsuccessful due to the previous government's failure to implement the regulatory frameworks for each, as well as allegations of corruption and the country's civil war.

Soon after President João Lourenço assumed governmental control in 2017, the Angolan government reinvigorated the privatization process by establishing the IGAPE in February 2018 to oversee and manage privatization policy and by enacting the Privatization Framework Law a year later.

In addition, the Angolan government's renewed efforts on anti-corruption issues are reflected in the Privatization Framework Law, which includes a comprehensive list of individuals and entities—including certain public officials and persons directly connected to them—that are prohibited from participating in PROPRIV. Furthermore, the government enacted the 2018 Law on the Repatriationof Financial Resources (Law No. 9/18), a progressive piece of legislation facilitating the repatriation of funds illegally held outside the country by Angolan individuals and corporations.

Diversifying an oil-dependent economy

Angola's economy relies heavily on the oil sector. Consequently, its economy has suffered from declining oil prices since 2014—which was then exacerbated by the COVID-19 pandemic pushing Brent oil prices to their lowest levels since the late 1990s and causing US oil futures to turn negative for the first time on record. Although some had predicted that Angola would emerge from its recession during 2020, the country's continued reliance on oil is an inherent risk to its economic outlook.

PROPRIV seeks to pivot Angola away from its dependency on the oil sector and to increase the number of industries and sectors that can materially contribute to the country's economic recovery and growth throughout the 2020s. PROPRIV is bolstered by certain IMF-mandated reforms and improved transparency and accountability measures, as detailed below.

Debt reduction, economic recovery and IMF support

The ratio of Angola's gross public debt to GDP increased by 243 percent during 2014 – 2019, primarily due to falling foreign currency oil revenues, resulting in a depreciation of the kwanza and a rise in inflation. This ratio is expected to continue to increase during 2020. The country has requested G20 debt relief, and is in advanced talks with certain countries that import its oil to adjust its financing facilities. PROPRIV will likely remain at the frontline of the country's efforts to reduce its debt.

Angola's State Secretary for Budget and Public Investment recently announced that the government, in conjunction with the IMF, is seeking to limit its gross public debt to GDP ratio to 90 percent in the short- to medium-term. Before the COVID-19 pandemic, Standard & Poor's published credit analysis had noted that Angola's gross debt increased in 2019 to 103 percent of the country's GDP, principally driven by a reduced kwanza value. Standard & Poor's had expected the country's debt burden to decline toward 92 percent of GDP in 2023, if the government delivered on its fiscal consolidation targets (Figure 1). The anticipated economic impact of COVID-19 now makes this unlikely. Therefore, PROPRIV remains essential to diversify Angola's economy and reduce its public debt, while will also play a pivotal role in the country's economic recovery following COVID-19.

View full image: Angola's general government gross debt (PDF)

In December 2018, the IMF approved granting Angola a US$3.7 billion three-year extended fund facility (EFF) to support the country's economic reforms. The IMF's key aims are to restore Angola's fiscal sustainability and provide the foundations for economic diversification, including through the implementation of PROPRIV. The IMF has highlighted that the fundamental pillars of its program include:

• Reducing Angola's gross debt through fiscal consolidation
• Increasing exchange rate flexibility through exchange rate depreciation and a commitment to a market-determined exchange rate
• Introducing a supportive monetary policy to reduce inflation and allow the accumulation of international reserves
• Strengthening Angola's banking system through improved governance, credit-risk management and undertaking an extensive asset quality review
• Updating and bolstering the anti-money laundering and counter-terrorist financing frameworks

So far, the IMF has disbursed a total of US$1.48 billion under the EFF. Subject to any concessions that might be made due to the impact of the COVID-19 pandemic, the IMF will only release the remaining tranches if the Angolan government continues to reach fiscal milestones set by the IMF and ensures that the tender processes (detailed below) conducted in connection with PROPRIV are sufficiently transparent and maintain accountability.

HOW PROPRIV WILL BE IMPLEMENTED

Angola's original intention was to implement PROPRIV gradually between 2019 and 2022. Although the COVID-19 pandemic may delay matters, a new timeframe for the program's implementation has not yet been published. In addition, the recent announcements regarding the privatization of ENSA and Banco BAI highlight the government's intent to meet its original timetable of completing 88 percent of the program by the end of 2020 and 100 percent by the end of 2022.

The Angolan government, in conjunction with IGAPE, has selected 195 companies to participate in PROPRIV from various sectors—including natural resources, agriculture, industrial, telecommunications and information technology, finance, transport and tourism—by taking into account the following key factors:

• Nature of the assets
• Number of years for which the entity has audited financial statements that do not include reservations
• Size, based on turnover and importance to the country's GDP
• Attractiveness, in terms of financial results and cash flow
• Nature and size of activities

Using these criteria, the selected companies and assets were sorted into categories with potentially different target investor bases:

1. Companies of national importance (32)
2. Companies and assets in which Sonangol has an interest (50)
3. Other companies and assets (62)
4. Industrial units located in Special Economic Zones (51)

See the Appendix for the list of companies selected to participate in PROPRIV, including the year in which each company or asset's privatization is due to commence and the chosen method of privatization. 

PROPRIV stipulates that all privatizations will be implemented either through stock exchange offerings or via a tender process. The government, with IGAPE, has consulted sector experts to determine which method is most appropriate for each company or asset in light of its strategic and operational objectives.

Stock exchange offerings

PROPRIV facilitates taking companies and assets private via sales on the Angola Stock Exchange and Derivatives (BODIVA), by way of an initial public offering (IPO) or an auction on BODIVA. PROPRIV provides indicative roadmaps for each of these processes (Figure 2: Roadmaps #1 and #2).

In general, going private through a stock exchange process offers greater transparency, given the initial disclosures involved in connection with any listing on BODIVA and the ongoing disclosures thereafter.

PROPRIV envisages that companies undergoing privatization through the IPO process will each undertake an initial offering of their shares, followed by several subsequent offers, until control of the relevant company is effectively transferred to private investors.

In addition, although only 17 companies have initially been identified as suitable candidates for the IPO process (primarily due to the required audited three-year financial track-record), PROPRIV is clear that companies privatized through the public tender route may become eligible for the IPO process in the future.

Tender processes

Companies that are not eligible to use the stock exchange process must seek privatization by either:

1. Public tender—An open procedure in which all interested entities that meet the requirements of the tender's terms of reference may participate through submitting bids (Figure 2: Roadmap #3).
2. Restricted tender by prior qualification—A more limited tender process in which only previously qualified candidates are invited to submit a bid (Figure 2: Roadmap #4).

To ensure maximum efficiency and transparency, PROPRIV stipulates that each tender process should encourage broad participation and, unlike the stock exchange privatizations, will involve a single sale or offer, rather than multiple tranches. All public tender procedures conducted in connection with PROPRIV are subject to the Public Contract Act of 14 September 2016 (Law 9/16).

According to the government, transparency in the tender process will be a crucial factor in PROPRIV's implementation, with the World Bank, Angola's financial sector and its chambers of commerce closely monitoring PROPRIV's progress and execution.

MANAGING PROPRIV

A simple and specialized organizational structure has been proposed to efficiently implement and manage PROPRIV. A National Commission, comprising all key government ministries involved in PROPRIV, has been constituted and will be responsible for overseeing its implementation and ensuring smooth inter-ministerial coordination. The Minister of State for Economic Coordination will manage the National Commission, and IGAPE will continue to manage, monitor and assist with PROPRIV's implementation.

The National Commission has appointed a technical group, comprising representatives of each stakeholder and is coordinated by the Secretary State for Finance and Treasury. The technical group is responsible for interacting with the focal points of each ministry and company and coordinating with them to prepare for and monitor the execution of each company's privatization.

In addition, the Angolan government has partnered with the World Bank for support and will engage consultants to advise on the subsequent stages of each transaction, including for financial, legal and technical advice.

 Four roadmaps for going private in Angola

View full image: #1 Through an initial public offering (PDF)

View full image: #2 Through an auction on Angola’s stock exchange and derivatives (BODIVA) (PDF)

View full image: #3 Through a public tender (PDF)

View full image: #4 Through restricted tender by prior qualification (PDF)

INTERNATIONAL PARTICIPATION IN PROPRIV

As Angola seeks to transform into a more diverse national economy, international investors and advisers may be presented with a further range of opportunities to benefit from and support Angola's economic development.

In order to increase the appeal of PROPRIV to international participants, the government enacted the Private Investment Law (Law No. 10/18) in 2018. The Private Investment Law simplified the process of foreign investment into Angolan companies by dispensing with requirements for foreign investors to obtain regulatory approval and/or a license to acquire an interest in an Angolan company or asset.

In addition, the Angolan Central Bank recently enacted Notice No. 15/2019 which, among other things, simplified the legal regime surrounding foreign exchange transactions, including in relation to the acquisition and sale of shares of Angolan companies listed on the BODIVA in the context of PROPRIV.

To the extent foreign investors seek to repatriate dividends or certain other economic rights attaching to shares in Angolan companies, they will require approval from the Angolan Private Investment Agency. However, obtaining this approval is a straightforward process, and it is not required if the stake in the relevant company carries voting rights not exceeding 10 percent.

Appendix: Companies and assets selected for PROPRIV

See full Appendix: Companies and assets selected for PROPRIV

_{1 The authors would like to thank Ibrahim Soumrany and Kelly Trueman for their contributions to this article}.

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