Tapping into the boom
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Emerging Markets

Tapping into the boom

Angola’s economy is soaring. But without urgent capital market development, it could yet feel the pinch

By Kevin Godier and Jon Marks

Angola’s economy is soaring. But without urgent capital market development, it could yet feel the pinch


The growth of Angola’s oil economy – and soon its natural gas exports – has excited strategic planners, looking to diversify energy supplies. Although critics of its secretive regime worry still about who pockets the fruits of post-conflict reconstruction, Angola’s economic upturn continues apace. 

The economy grew at 21% in 2007 – head and shoulders above its African peers – according to a report issued this April by the United Nations Economic Commission for Africa. But tapping into this growth story has not been easy.

Fund managers canvassed by Emerging Markets said that increasingly bullish overseas views of Angolan credits were proving difficult to translate into tradable assets, save for ad hoc issues of dollar-denominated debt issued by national oil company Sonangol or by the sovereign, Angola.

The fixed income market is a case in point. “Foreign investors can buy old debt, but it’s very hard to find, and is snapped up in minutes,” says Peter Bartlett, managing director of Exotix, a London-based frontier-market investment banking boutique and sub-Saharan stockbroker. 

“There is also a tightly priced selection of syndicated loans and internationally available dollar-denominated notes, but at around Libor plus 300bp, the risk outweighs the reward,” he says. “Overall, opportunities in Angola for direct portfolio investment and for fund managers are very limited.”

Angola has yet to appear on the radar screens of London-based Charlemagne Capital, which launched its Africa Magna Fund in March 2007. “The macroeconomic numbers are improving, thanks to oil,” says John Dawe, head of investment communications. “But the economy is coming up from a very low base, and it will probably take a little bit longer before the country becomes investible, from our point of view. It’s a bit like an early-stage Nigeria, perhaps.”

A key question, says Jonathan Berman, principal adviser at Johannesburg-based Fieldstone Capital, “is whether Luanda can go beyond the established debt model, where oil revenues are used to raise money”. To take Angola to the next level, says Berman, “people need to put far more debt and equity into the domestic economy, and the financial sector requires a better regulatory and legal system.”

The private equity route is under scrutiny at Exotix, which is considering the launch of a highly specialized investment vehicle by year-end. “This would be tightly managed on the ground in Angola, and would be dedicated to very long-term private equity projects,” Bartlett says, “providing opportunities for foreign investors in, for example, the agricultural, infrastructure and resource sectors as well as real estate, which is already on fire locally.”

BVDA opening

One key move awaited in the second quarter is the already delayed opening of the Angolan stock exchange and derivatives market — the Bolsa de Valores e Derivativos de Angola (BVDA) — whose subscribers will include Sonangol, the Endiama diamond company and a cluster of financial sector companies.

The BVDA launch should boost what Jan Dehn, head of Africa at Ashmore Investments, terms as a “very weak, almost non-existent” capital market infrastructure. “There is no stock market or well developed primary dealer system, just a very basic government bond market.” 

Luanda’s late 2007 five-year, $1 billion issue was mainly absorbed by local investors. A repeat is expected with a seven-year, $1.5 billion bond planned for mid-2008, as “there is so much money in the local system which needs to be soaked up,” says a Geneva-based fund manager.

He recommends several steps to entice foreign investors. “Issuance in Eurobonds, to put them on the map; commitment to de-dollarizing the economy and developing a local yield curve in bonds; letting foreign banks set up as custodians, to remove fiduciary risk; and introducing minimum capital requirements for local banks, like the successful models in Nigeria and Ghana.” 

Real estate bubble

Real estate has provided one route open to outside investors but has brought a bubble-style property boom in Luanda in its wake. Despite an overheating market, “construction and housing are still major attractions for foreign investors, despite all the activity by Chinese contractors,” says Keith Gubbin, director at London-based Africa Asset Management.

“A good indication of what’s happening is that it is now so difficult to get into the country, flights are fully booked, so is hotel accommodation. One needs to plan at least six months in advance,” says Steve Meintjes, Nedbank’s general manager, customized trade solutions. 

“Angola is on the up,” he says – citing increasing flows from South Africa to Angola of consumer goods, edibles, and lots of infrastructure equipment as well. “This will very definitely provide more business opportunities for us in the next couple of years.”

“The serious investment potential in Angola is enormous, especially in areas like forestry, agriculture, mining and fisheries – these are major attractions,” says Gubbin. But to become even more attractive, Angola needs to improve transportation and port infrastructure, as well as visa and business licensing procedures,” he says. “And to treat overseas investors as partners for the medium to long term, rather than the opportunistic approach that prevails.”

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