Angola’s banking sector is said to have posted a rapid growth in the past decade.
The evolution of the number of banks operating in Angola over the last few years is largely tied to the diamond and oil business and the positive economic development of the country.
Oil accounts for 50 percent of Angola’s gross domestic product (GDP) and 90 percent of its exports, while diamonds accounted for between 3 and 5 percent of the country’s GDP in 2013.
Thanks to diamonds and oil, Angola experienced a double digit growth in gross domestic product (GDP) annually in the period 2002-2008, which helped the country acquire the unique status of Africa’s third biggest economy after South Africa and Nigeria.
Since 2009, the country’s economic growth has been averaging 9 percent down from the 17 percent that was witnessed between 2003 and 2008.
However, the growth, albeit at a decelerated pace, has promoted the creation of better conditions and opportunities in the banking sector.
This has led to an increase in the number of institutions operating in the market, which grew from 13 banks in 2005 to 29 in 2013.
The expansion, according to Instituto Angolano de Sistemas Eleitoraise e Democracia (IASED), has helped the country answer questions about transparency.
“Big diamond and oil business is boosting the banking sector. Now, these reforms will help reduce questions about transparency in the banking sector and strengthen the central bank’s supervisory capacity,” it quoted Banco Angolano de Investimentos executive director Joao Fonseca as saying in a report published recently.
IASED said deposits, thanks to diamonds and oil business, are increasing by a third and assets by a fifth since 2011.
Angola has also introduced stricter rules on auditing, risk management, compliance and stress testing, which is expected to enhance the central bank’s ability to supervise the financial system.
Fonseca said the rules will also help diamond and oil companies in Angola as they switch to making payments through local banks and demand transparency.
Oil firms operating in Angola were asked in 2012 to open bank accounts in kwanza, the local currency, under a new law to control exchange rates.
The law requires the companies to carry out capital transactions in kwanza in a bid to route more oil money through the central bank and keep exchange rates under control.
"The new law is perfectly natural. It will permit a practice that takes place in every country that has oil activities," central bank governor Jose Massano said at the time.
"During an initial period, this will allow us to manage oil-related financial flows thanks to the capital that will now pass through the Angolan central bank, and that will also boost the national economy and balance the foreign exchange market."
Companies were given one year to comply.
Foreign oil companies operating in Angola include Britain's BP, US-based Chevron and ExxonMobil, and France's Total.
The Economist Intelligence Unit noted that the law may increase domestic banks’ liquidity and strengthen the local currency.
A total $10 billion a year will likely be funneled through Angola’s economy and support the value of the kwanza while risking higher prices if lending increases.
Fonseca was also quoted by Bloomberg as saying that the total liquidity will be “a huge number” because the law requires taxes on oil revenue to be paid through local banks, a figure that amounted to $12.6 billion in 2011.
If diamond mining companies are forced to open bank accounts in kwanza then the same effect as noted above will also be witness.
Diamonds are the second largest foreign currency earner in Angola after oil.
The diamond industry, which began a century ago under Portuguese colonial rule, has remained relatively stable with an output of just above 8 million carats per year since 2006.
After a new mining code intended to attract foreign investment and boost exploration for diamonds and other minerals was introduced in late 2011, there has been an increased interest in the country’s industry.
Catoca, which produces over 80 percent of the country’s diamonds, is looking at developing new mining projects.
The largest of the new projects was Tchuizo and a feasibility study was recently completed at the project.
Shareholders are expected to decide whether the project should proceed or not.
The mine, if developed will have a life of about 15 years.
Catoca is also prospecting seven new but smaller projects in Angola and these were Vulege and Tciafua in Lunda Norte; Quitubia and Gango in Kwanza Sul, Gambo, Luaxe and Luemba in Luna Sul.
Endiama also signed a joint venture with Alrosa to prospect and explore diamondiferous areas in the country.
Endiama had previously carried out geological studies in Angola and concluded that just 10 percent of the alluvial diamonds examined were from known kimberlites.
The second phase of the geological study will see the whole country being covered to locate the majority of the kimberlite pipes that have not yet been discovered.
So as the diamond and oil industries continue to lead Angola’s economic growth, coupled with the directive for firms to bank in local currency, there is every reason for banks operating in the country to smile as this will certainly boost their liquidity.
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished
