Tracking Angola's Economic Reforms π¦π΄
Future-proofing an economy: Angola's Innovation Mission
Why we should keep an eye on Angolaβs reform: innovation and diversification
Angola has never been able to capitalise on its vast potential: the country is rich in natural resources, arable land and has a rapidly growing youthful population. The governmentβs overreliance on oil and rampant corruption have resulted in chronic cycles of boom and bust depending on global oil prices resulting in a spiralling national debt, devaluation of the Kwanza and exhaustion of foreign reserves. As Angolaβs proven oil reserves dwindle over the next decade there is a desperate need for diversification.
From 2017 onwards the Lourenco government has embarked on a wave of mass macro-economic reforms focusing on privatisation and economic diversification. An interesting element of these reforms is a push toward the innovation economy as a means of improving social and financial inclusion in addition to increased economic production. The innovation economy is vast and in todayβs article, we are only going to focus on Fintech and Agritech as examples of the innovation trajectory in Angola. Fintech has been selected because continentally it has received the lionβs share of funding, investment and commentary allowing for easy comparison. Agritech, on the other hand, has greater longevity in Angola and as the sector has been earmarked for development deserves discussion.
Acrosights Previous Articles:
Part 1: A starterβs guide to the African Fintech Landscape
What is the current situation in Angola?
Home to around 33,000,000 the Lusophone giant has extensive potential due to large deposits of minerals, agricultural land, renewable energies and a young workforce. However, anyone familiar with Angola recognises that the country is overwhelmingly reliant on its oil sector: 50% ofΒ Angolan GDP, 70% of government revenues and 90% of exports are based on petroleum products. Despite Angola possessing 0.5% of global and 6% of continental oil reserves, the industry days are numbered with the country expected to run dry by the mid-2030s. Despite oil prices having ridden high at $140, the highest in ten years, offering some respite there is a need to divest and diversify.Β
The reliance on oil has made the country acutely vulnerable to commodity prices and the decline in prices between 2013 and 2020 saw Angolaβs foreign reserves decline from $43bn to under $10bn. These reserves are crucial to maintaining the stability of the Angolan Kwanza in the face of export declines to stabilise foreign currency-denominated debt repayments and prevent further deepening of public debt. The Angolan Kwanzaβs decline can be described as a βfreefallβ dropping from 135.2 USD in 2015 to 479.00 in 2019. The government has frantically attempted to increase its exports helping to push inflation from 17.08% in 2019 to 22.28% in 2020.
Angola has been able to restructure its external debt both with the IMF and Chinese creditors who have lent Angola some $3.7bn and $20.1bn ($14.7bn belonging to Chinaβs development bank) respectively. The credit lines over the last 2 years are strongly conditional and are linked to agreements on further economic reforms and restructuring.Β
Economic diversity on paper looks easy for Angola: it possesses a large supply of alluvial diamonds, large swathes of arable land and the existence of commercial quantities of copper, manganese, gold, phosphates, uranium, platinum, and feldspar to name a few. Additional, the country has immense hydroelectric potential from damming the Cuanza, Cunene, Catumbela and Dande rivers.Β
Another sector highlighted for its immense potential is the vast swathes of arable land. The exact figure of arable land in Angola with estimated to range wildly with the highest estimation being 57.800,000 hectares, to a low estimation of 35,000,000 hectares of arable land of which just 10% is being cultivated. Moreover, of this 10% around 95% is currently used by small scale often family farming with only 2% being equipped for irrigation. In an interview with Euronews, Antonio Henriques da Silva, the head of the Investment and Export Promotion Agency of Angola, stated:
βWe have 53 million hectares of arable land. Out of it, only 4 or 5 million have been used. So that is huge potential. Itβs not only there for business people that are already in Angola, but itβs also an investment opportunityβ
So what steps have Angola taken?
Joao Lourenco assumed the presidency in 2017 through an internal party, the MPLA, taking over. His presidency was marked by a stiff change in rhetoric from his predecessor Jose Eduardo Dos Santos as he pushed the country toward liberal reforms.
PROPIV Programme- plans to transfer more than 190 state companies and assets in sectors including mineral resources, transportation, telecommunications, health, agriculture and construction to the private sector.Β
National Development Plan, 2018-22- An initial 4-year development plan that seeks to promote human development, public sector reform and economic diversification and growth. The NDP has set objectives for increased yields in the mining and agricultural sectors.
What does this mean for the wider economy?
Every government plan should be taken with a pinch of salt and ambitious targets may never be met. However, there is also room for cautious optimism. The large resource endowment, agricultural potential and young workforce mean that potentially Angola could become the third-largest economy in Sub-Saharan Africa. The macro-economic and pro-business reforms, however, are crucial to realising this developmental objective. An increase in foreign private-sector investment will help Luanda overcome its vast infrastructural issues: for example, just 18% of roads are paved making it a logistical nightmare and adding cost to products.
Angola, similar to other African countries, is plagued by a heavy bureaucracy, a lack of credit and a restrictive business environment that is prone to rent-seeking behaviour proliferated by state capture. As covered in previous articles, innovative technology is helping to democratise and expand the African business sector. Angola is no exception and its young digitally savvy population is an investment opportunity.
What does this mean for innovation in Angola?
Angolaβs economy has long been dominated by firms with close ties to the Movimento Popular de Libertação de Angola (MPLA) ruling party with government contracts and rents from the nationβs oil revenues being divided amongst them. The privatisation scheme and a βcreative destructionβ unleashed by the innovation economy may be a catalyst for change.Β
We have identified three areas to look at as part of fintech:
Regulatory sandbox
Mobile payment platforms
Money lending
Angolan financial sector and fintech, a slow mover
A 2019 report The Banking Sector in Angola 2019, by ResearchAndMarkets.Com, stated that the banking sector is dominated by 6 major players, including Banco Sol and Banco Formento Angolano. These banks are heavily interlinked with MPLA and have historically been reliant on the state for operations making the creation of micro-lenders as seen in Kenya and Nigeria scarce. Angolan legislation also dictates that any foreign banks can only operate via joint ventures with state-owned companies making it an unattractive destination for foreign investment.
According to the Ecofin Agency, financial inclusion in Angola was estimated at below 30 per cent in 2019 and is still not growing fast enough, despite the granting of a mobile money licence to operator Unitel. It is estimated that up to 80 per cent of the Angolan economy is informal and informal workers often lack a path to regulated financial inclusion, mobile money as seen in other parts of Africa, could offer banking services to the large informal area of the economy. The National Bank of Angola, as part of the National Plan for Financial Inclusion, aims to increase the number of citizens with access to basic financial services to 50 per cent of the population by the end of 2022.
Regulatory Sandbox
In 2020, Angola launched a regulatory sandbox following a project by theΒ LaboratΓ³rio de Inovação do Sistema de Pagamentos Angolano (Lispa). The sandbox will be managed by The National Bank of Angola (BNA) and Beta-i, an innovation consultancy, and select 10 firms to join its ranks via 4 annual βbatchesβ. Once inside the sandbox, the start-ups enter the βfintech incubatorβ and receive access to Beta-iβs team and mentors as part of the 10 months of incubation. The project will allow fintech start-ups to test their products and services in a market environment. It will also guide regulations, and help form new laws. The sandbox, has two declared main goals in line with the wider state developmental objectives: βguidance on regulation and acquisition of licences, and mentorship to build and refine a defined market growth strategy that boosts financial and social inclusion.β So far the sandbox has selected 280 Angolan firms for incubation.
Mobile Payments
In previous articles, we have covered how the growth of mobile payments has played a key role in the expansion of financial inclusion across the continent and the development of the sector as a whole. Angola follows such a trend, albeit with significantly heavier state interference and cooperation with foreign firms and specialists primarily from Brazil and Angola. This involvement from Brazil and Portugal, though fascinating, is worthy of its article and wonβt be covered today.Β
UNITEL, one of the largest Angola mobile operators, has created a mobile money service that allows transfers, payments, deposits and withdrawals to be made via its mobile app with no fixed bank account required. The service, called UNITEL Money,Β is currently being rolled across Angola and its 18 provinces and launched in August 2021.Β
This is a highly interesting development and hardly surprising that telecoms giants like Oi and Alticide have invested. As mentioned only around 30% of Angolans are banked whilst at least 14,000,000 have access to a mobile phone and 7,000,000 have access to the internet, figures that are only going to increase. This represents a huge growing untapped market with proven growth potential.Β
The rollout itself is extraordinarily vast with the company stating that it has 6,000 contracted agents and 20,000 sub-contracted agents to guarantee the UNITEL Money. Customers can also use the UNITEL network of branches across the country to make instant transfers and withdrawals linked to the service.Β
Overall, UNITEL Money may potentially serve as a useful tool for those experiencing financial barriers in Angola, particularly unbanked people without access to traditional banking services and financial resources. Mobile money services in Angola will bring about financial inclusivity for marginalised and impoverished Angolans while igniting economic activity through ease of access.
Another example of a digital bank that was launched in 2020, this time by the Angolan National Bank, is DUBank. The service itself will only be accessible via a smartphone and can be utilised by anyone in the country providing there is access to a 2G signal and above.
Microfinance platforms
Angolan micro-entrepreneurs and consumers have often struggled to ascertain credit in no small part due to the historically under-diverse and underperforming banking sector. There are, however, signs that a transformation could be underway. Two Angolan firms that have emerged in the last 5 years and offering solutions to Angolaβs chronic micro-credit issues are Kixi Credito and Paga 3.
Kixi Credito offers loans of up to KZ3,000,000 refundable over 18 months to small businesses and offers a similar programme for agricultural ventures. The loans offered are flexible with the consumer choosing the fixed amount they wish to pay back monthly. Kixi is the oldest microfinancing firm in Angola had been operating since the 1990s. However, it remains small in size in comparison to other dedicated microfinancing firms on the continent.
Angolaβs capital, Luanda, is one of the most expensive cities on earth. TheΒ Mercer Annuals Cost of Living Report ranked it the highest in 2017 with the $6,800 per month to rent a two-bedroom apartment metric. Yet, most Angolaβs earn less than $2 a day which leaves them in a precarious situation when falling consumer prices. Paga 3, was launched in 2019 to help these Angolan consumers manage their purchases by supplying a quota payment system. Consumers and vendors can access the service entirely online with the consumer being required to pay a downpayment with the remaining figure to be paid over 3-6 months.
However, optimism for the sector may be premature with the central bank clamping down on micro-lenders from 2019 onwards. Given the lack of competitiveness within the Angolan economy, this may represent an inherent threat to sectoral growth as it will stifle innovation. Yet, this is not uncommon, regulators often play catch up with new technological advances and similar trends can be seen across Africa, as covered in our previous piece Part 2: Regulating Fintech in Africa
Agritech
Agricultural technology known as agritech βis the application of technology to produce more with less, to make the farming process more efficient, from field monitoring to the food supply chain itself.β This can come in many forms from the basic application of βNo-Tillβ farming, already widely implicated across Angola, to the mass use of drones in crop monitoring, to dedicated financing mechanisms.Β
Angola is a very interesting case study for agritech given its vast amount of arable land which is yet to be cultivated. This has made it an attractive destination for Brazilian agricultural parastatals and private companies.Β
I have divided the Logitech case studies and analysis into two sections the practical and the financial. The practical look will look at on-site developments implemented by farmers and the financial will describe financial services available to farmers and investors.
The parastatal research firm, Brazilian Agricultural Research Corporation (EMBRAPA), has embarked on numerous technical cooperation projects within Angola. Francisco Carvalho de Santana, in Agricultural technological transfers from Brazil to Angola: challenges and opportunities, 2021, notes the variety of practical techniques which can seem almost primitive in their ingenuity and simplicity yet yield high results:
Maize- BRS1403: a genetically modified maize that results in high yields and therefore reduces seed acquisition costs*
Β No-till farming system: A sustainable technique that requires crops to be harvested high on the stalk. This low-cost technique controls soil erosion and conserves humidity, therefore, reducing the reliance on increasingly expensive fertiliser and machinery.*
Β Remineralization: This process is centred around the crushing of rocks which act as soil conditions for the fertility and productivity of the land improving the chemical, physical and biological aspects of the soil and reducing the need for fertiliser.*
Dihedral sensor: This technology reads the soil moisture level electronically and informs the farmer of the most efficient time to irrigate reducing water wastage.*
Soil bioanalysis technology: This technology can analyse the enzymes arylsulfatase and beta-glucoside which in turn allows them to monitor the sulfur and carbon levels and cycles of the soil. These bioindicators inform the farmer of the fertility and productivity of the land.*
Agricultural risk zoning: This technology provides crucial information to farmers about the most efficient planting period depending on four variables: location, soil type, crop and plant cycle. The farmer enters this information on the βZARC-Planito Certoβ application and receives indications about the best date to plant.*
Currently, around 46% of the Angolan workforce is employed in agriculture which is often smallholder, family-run and subsistence in nature. Such technology can help increase cultivation and yield which will increase employment and decrease food insecurity. Moreover, these imported technological developments help reduce the need to displace small-hold farmers to make way for large agricultural corporations capable of producing higher yields and increasing sustainable practices.
Lastly, we are going to look at the financial element of agritech in Angola. Across Africa, agritech investment platforms have developed to bridge the credit gap for farmers. One example is Farmcrowdy, a Nigerian Logitech firm that allows investors to provide funding for farmers to purchase seeds, machinery, farm inputs and modern training. The funding is supplied to the farmer at the start of the farming cycle with investors receiving a share of the profit at the end of the cycle.
There majority of agricultural funding in Angola is drawn from already established financial institutions. Major banks like Banco Nacional de Angola, Banco Commercial Angolano and Chartered Bank are the major sources of micro-lending. The aforementioned Kwazi is one Start-Up attempting to penetrate the market.Β
However, such penetration is happening at a significantly lower rate than in other African countries like Kenya, South Africa or Nigeria. The Angolan Central Bank remains an inhibiting factor following a clamp-down in the summer of 2021. This clampdown follows a pattern seen in other followedSub-Saharan African countries whilst the limited growth of the sector does not. There is the possibility of growth within the sector though it is not unlikely that agricultural firms and individual farmers will continue to seek credit from large institutions be they the Brazilian EMBRAPA or consolidated Angolan banks.
Final comments
Angola is currently continuing with wide-ranging macro-economic reforms in the hope of divesting itself from oil and kick-starting stable, diverse and long-term economic growth. Rich in minerals, abundant in arable land with a young workforce Angolaβs economy can rival the likes of Kenya and South Africa in the future. For such a shift to occur, Angola will have to push forward with reforms and embrace innovative trends like agritech and fintech if it truly wishes to see high-quality economic growth.
*Francisco Carvalho de Santana, Agricultural technological transfers from Brazil to Angola: challenges and opportunities, 2021, IBRAF Final Research Papers 2021, pages 153-60