Luanda: A stern test and a golden opportunity, Angola’s new foreign exchange law for the oil sector will flood billions of dollars into the country’s banking system and pose tough questions about transparency and technical readiness. Riding on the coattails of an oil boom – the country is Africa’s second largest crude producer after Nigeria – Angola’s banks have posted strong growth in the last decade, attracted foreign players and become the subject of takeover talk.
Until now, foreign oil companies were allowed to hold revenues from Angolan operations in overseas banks, transferring foreign currency to the central bank to pay taxes and making only some, limited payments via Angolan banks. The first phase of the new law will come into effect today and will force oil firms to pay taxes in foreign currency, most likely US dollars, through accounts in Angolan banks. Later, they will also have to pay service providers through those banks.
“This will have considerable impact on the banking system, bringing substantial values,” said Rui Amendoeira, Managing Partner at international firm Miranda Law and an expert on oil and gas legislation.
Analysts declined to provide estimates on how much foreign currency may flow through the system, but say tax figures can signal the scale of the first phase. According to government data, last year Angola collected US$12,8 billion in taxes from foreign oil companies.
“This type of value will go through Angolan banks in the first year from the start,” said Joao Fonseca, Executive Director at Banco Angolano de Investimentos (BAI), the country’s largest bank by assets. Total deposits in the system stood at around US$37 billion at the end of 2011, according to central bank data.
“As oil companies manage balances tightly, the funds will be parked in accounts for short periods, but commissions and gains on overnight loans will be substantial,” Fonseca added.
Angola’s economy is heavily dominated by oil though a decade after the end of a brutal civil war, petro-dollars have brought little benefit to most of its 19 million people who live in abject poverty.
Angola’s drive to raise output to two million barrels per day in 2014 and the promise of discoveries in new ultra-deep offshore concessions by global players including BP, Total and Chevron, make the prospects even brighter. “It’s a great opportunity for the banks, but a test that demands re-organisation,” said Miranda Law’s Amendoeira. “They’ll have to ensure their systems are fast as oil firms cannot afford delays in making payments.”
BAI’s Fonseca said the banks will have to upgrade their personnel, possibly create dedicated teams, but added that a balance of payments of crisis in 2009 already forced them to create strong systems, with tight links with the central bank.
Analysts say the key test is about transparency. Angola ranks 168th out of 183 countries in Transparency International’s Corruption Perceptions Index and questions remain about the probity of its financial system. The central bank is currently the target of an embezzlement probe by Angola’s attorney general that has led to dozens of arrests of employees.
“There are steps to take on transparency,” said Fonseca. “But the central bank is preparing new rules on corporate governance and internal bank controls, which should help.” He added that the banks which are units of overseas groups are set to gain most from the new law, as their stock market listings and credit ratings offer oil firms confidence.
Portuguese banks BPI and BES have large units in Angola, while South Africa’s Standard Bank has plans for rapid expansion in the country.
“Those who gain competitive advantage on this law will grow, others will have to decide on their futures,” Fonseca said, hinting at consolidation in a sector with 22 players.
The role of Angola’s central bank in the new regime has also attracted attention. “This is a major step and the central bank will have to take very precautionary steps to beef up supervisory capacity,” said Nicholas Staines, the IMF’s representative in Luanda.
Central bank governor Jose de Lima Massano, praised for implementing prudent policies, has warned of the risk of the flow of foreign currency into the economy and an appreciation of the kwanza as obstacles to stimulating growth. His main line of defence against those risks is a multi-phase implementation, earning time to adjust monetary policies.
After October 1, stakeholders in concessions must pay local providers in foreign or local currency through Angolan banks, and only from July 2013 solely in Angola kwanzas. Companies that operate blocks will have to pay overseas suppliers through Angolan banks, but only after October 2013.