Hon. Mario Joao: Leading Angola’s Diversification & Transformation Agenda

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The Angolan economy has recorded impressive macroeconomic progress in the last two years, marked by the government’s commitment towards economic diversification and transformation agenda. In this exclusive interview with the African Leadership Magazine UK, the Minister of Economy & Planning, Hon. Mario Augusto Caetano Joao talks about the government’s effort to place Angola on a sure foot and sustained economic growth. Excerpts:

Some analysts have hailed Angolaʼs macroeconomic improvements, recorded in the last two years. Can you share some of these successes with us?

Our country was coming out of a 5-year recessive cycle of economic activity and a scenario of profound macroeconomic imbalances, whose removal forced the adoption of a Macroeconomic Stabilization Program, supported by the International Monetary Fund:

  • Fiscal sector: Between 2014 and 2017, there was a period of successive deficits in the fiscal accounts that was reversed in 2018, as a result of a comprehensive fiscal consolidation process. However, in 2020, due to the negative effects of COVID-19, the country returned to a deficit of 1.9%. In 2021, fiscal surplus balances resumed, with the global of 3.8% and the primary of 7.7%, in relation to GDP. For 2022, the forecasts point to a fiscal surplus with an overall 6.6% and a primary surplus of 9.7%, in relation to the GDP. For the coming years, the Government will remain committed to controlling the non-oil primary deficit, in line with the Public Finance Sustainability Law.
  • Regarding Government Debt: The stock of public debt denominated in foreign currency decreased from US$ 80.84 billion in 2017 to US$ 70.43 billion in 2021. The stock of domestic debt denominated in foreign currency followed the same trend, falling from US$ 36.09 billion in 2017 to US$ 19.79 billion in 2021. In relative terms, the stock of public debt went from 129% of GDP in 2020 to 77% of GDP in 2021, signaling the downward trajectory of debt ratio.
  • External sector: In 2018, a process of reforms in the foreign exchange market was initiated, including changing the exchange rate regime from fixed to floating exchange rate, in order to provide an effective buffer against shocks, restore balance, ensure efficient allocation of scarce foreign exchange resources, improve the competitiveness of the economy, and support economic diversification.

The exchange rate adjustment had a positive impact on International Reserves, with a smaller contraction between 2018-2021, by approximately 7%, compared to the drop of almost 49% recorded in the period 2014- 2017. Since November 2020, the country's foreign exchange transactions have become more secure and predictable and the foreign exchange market is functioning normally. The national currency has remained stable against major international currencies. In 2021, the national currency appreciated against the US dollar on the primary market by 18.24%, standing at US$/Kz 554.98. At the end of the first Semester of 2022, the national currency settled at US$/Kz 428.20 highlighting the remarkable stability of the foreign exchange rate, with the gap between the official and informal foreign exchange rate had reduced significantly, from 150% at the end of 2017, to less than 10% currently.

  • Additionally, there was a reversal of the deficit trajectory of the current account on the balance of payments from 2014 to 2017 (US$ 4.43 billion on average) to consistent surpluses in the period 2018 to 2021 (US$ 4.78 billion on average), as a result of policy measures aimed at reducing import levels by about 45% in order to stimulate domestic production. In the first quarter of 2022, the current account balance recorded again a surplus of US$ 4.7 billion.
  • The improvement in the terms of trade, as well as the reforms made to the foreign exchange market, allowed the country’s International Reserves to be maintained at adequate levels. In the period 2014 to 2017, International Reserves fell by US$ 14.1 billion, as they fell from US$ 27.7 billion in 2014 to US$ 13.6 billion in 2017. In the period from 2018 to 2021, International Reserves fell by only US$ 1.2 billion, due to the new exchange rate regime adopted. In the first half of 2022, Gross International Reserves stood at around US$ 15.5 billion.
  • Real sector: The macroeconomic stability that the country is experiencing has allowed for a gradual recovery of our economy and, in 2021, the country emerged from the situation of economic recession that it had been in since 2016, with GDP growing by 0.7%, as a result of the macroeconomic reforms initiated in 2018, with non-oil GDP growing by 6.2%, which offset the strong contraction of 11.6% in the oil sector.
  • The first Quarter of 2022 saw year-on-year GDP growth of 2.6%, with the oil sector including gas growing 1.9% and the non-oil sector growing 2.8%.
  • After inflation peaked at around 42% in 2016, there was a downward trend, settling at 17.1% in 2019, as a result of better coordination between monetary and fiscal policy, as well as increased domestic production, especially agricultural production. However, the downward trend was reversed in 2020, with inflation settling at 22.4%, due to the negative effects of COVID- 19, remaining at high levels in 2021 (27.03%), as a result of disruptions in global distribution chains that have caused food commodity prices to rise in international markets. However, since January 2022 a downward trend in inflation has been registered, standing at 21.4% (YoY) in July this year.
  • The increase in domestic production brought more employment. In the period between 2018 and the first half of 2022, there were 490,769 new formal jobs, an average of 108,855 jobs per year, with 2019 recording the most jobs, close to 153,034 jobs. In 2021, due to COVID-19 Pandemic, only 45,689 jobs were created. This job creation trend is a result of the implementation of a set of programs and initiatives of the Government, of which we highlight the Action Plan to Promote Employability (PAPE).
  • During the 2017-2022 period, in order to diversify the economy, the Government is implementing programs such as the PREI (Program for the Requalification of the Informal Economy), the Program for Production Support, Export Diversification and Import Substitution (PRODESI) and the Privatization Program (PROPRIV).

Angolaʼs flagship Programme to Formalize the Informal Economy (PREI), has yielded tremendous results for MSMEs sector. Can you tell us more about this programme?

The Programme to Formalize the Informal Economy (PREI, www.prei.ao) is part of the Government's various initiatives to accelerate the process of diversifying the economy. The program is developed within the framework of a Transition Strategy from the Informal to the Formal Economy and its Action Plan.

On November 16, 2021, the Campaign for the Formalization of Economic Activities was officially launched. It soon became one of the main instruments for a broad approach of proximity services for the formalization of economic activities, including the organization of municipality markets and street vending activities. By June 30, the Campaign had reached all 18 provinces and formalized more than 200,000 economic operators, of which 74% are women.

Additionally, PREI has generated more than 3 thousand new jobs, through the availability of 2 thousand microcredits in the amount of more than US$ 6 million.

Angola has just joined the Africa Finance Corporation as a shareholder and its 35th Member state. How would this partnership help to Advance the countrys development agenda?

The partnership with Africa Finance Corporation (AFC) will help drive the countryʼs growth and development, as this institution’s investment approach is aligned with Governmentʼs priorities through its focus on financing infrastructure projects that promote economic diversification and resource-based industrialization.

As matter of fact, we have recently approved PLANAGRÃO (National Plan to Promote the Production of Grains –Presidential Decree 200/22), to boost the production of grains, namely corn, beans, rice, and wheat with the vision to position Angola as one of the largest grainsʼ producers in Africa. The financial resources needed for the next 5 years to implement PLANAGRÃO is approximately US$ 5 billion and as AFC provides financing to infrastructure and agro-processing projects, it is expected that this partnership would support Angolaʼs transition from a state-led and oil-financed economic model to a private sector-led growth model.

Angola is currently managing a strategic transition from an Oil-led economy to a private-sector-led growth model in the country. While this is a long-term plan, can you share some of the progress thus far?

Yes, we are strongly engaged in an economic transition process to change the current economic model, to a growth model based on the dynamics of the private sector, aiming at the resilience of the economy and the generation of employment.

Since 2018, the Government has implemented various programs in this regard, namely:

  • Program to Support Production, Export Diversification and Import Substitution (PRODESI, prodesi. ao), which has already enabled the creation of more than 60,000 jobs, through the financing of 1,300projects, until the first half of 2022, mainly in the agribusiness sector. Additionally, more than 63,000 producers had been registered in the National Production Portal (PPN, ppn.gov.ao), which has allowed for the signing of more than 2,700 future purchase contracts and the holding of more than 170 fairs promoting national production.
  • The Privatization Program (PROPRIV) is also being implemented and has already allowed for the privatization of 84 assets out of a total of 132 to be privatized and processes are underway for the privatization of other relevant assets in the financial, telecommunications and industry sectors, having already begun the process of initial public offering (IPO)that would allow for the spreading of the capital of these assets, also to small investors.

To accelerate the economic and social development of municipalities, we are implementing the Integrated

Program for Intervention in the Municipalities. With this program, a total of 2,730 projects are being developed, 630 of which are already completed.

To attract more investments, we continue to implement actions aimed at improving the business environment. An Action Plan for the Improvement of the Business Environment has been developed for the 2021-2022 period, in line with the World Bank’s new approach, without, however, refraining from the initiatives in Implementation that are seen as vital for the country’s development.

These reforms have triggered economic activity, led by the non-oil sector, which has proven capable of counterbalancing the systematic decline in the oil sector.

The weight of the non-oil sector in the GDP structure registered a substantial increase, rising from 57% in 2011 to 72% in 2021, signaling a clear trend of the diversification of our economy. Our goal is to reach 85% by 2027, and I have no doubts that it is achievable.

Economic growth of any economy is, to a large extend, dependent on the performances of micro-businesses within the country. Can you share with us your ministryʼs economic policy for SMEs and start-up?

Our Government recognizes the fundamental role that SMEs play in the process of economic diversification. In this regard a set of financial instruments has been designed and are in operation to support small and median enterprises, associations and cooperatives, namely: In order to strengthen the technical capacities of entrepreneurs, 8 training packages have been designed, and more than 5,000 producers and owners had been trained;

For instance, “Envolver” is a project funded by the European Union which has a partnership between INAPEM (Angolan SME Institute), IAPMEI (Portuguese SME Institute) and IPS (Polytechnic Institute of Setúbal in Portugal), with the aim of training officers from commercial banks, courts specialized in commercial, industrial and intellectual property matters, as well as entrepreneurs and INAPEM Officers in matters related to financial literacy and business management;

The project Envolver is based on four fundamental pillars of capacity building, namely (i) strengthening INAPEMʼs capacity to encourage and expand MSME access to banking and financial services; (ii) Increasing financial literacy and capacity to develop projects; (iii) Improving the capacity of banks to diversify financial services, including the use of innovative financial instruments; and (iv) Improving legal capacity in commercial litigation.

In addition to the above-mentioned initiatives, INAPEM has the online platform Nosso Saber (port.: Our Knowledge) which has available online courses for the training of entrepreneurs.

Having financial resources and capacity-building initiatives, we want to support the proliferation of start-up incubators oriented not only from the supply side but also from the demand side of the economy, that is, companies would present their challenges, and we would provide financing they would develop the solutions.

The governmentʼs diversification agenda, anchored in the Privatization Program 2019-22 (PROPRIV), has moved forward, although slowly, due to global disruptions, caused by the COVID-19 pandemic. How is this program performing now?

The Privatization Program (PROPRIV) represents one of the most ambitious initiatives of the Government in terms of liberalizing the economy and promoting the private economic initiatives. In its original formulation, this program contemplated 195 assets and companies, and with the necessary updates, highlighting the exclusion of 33 assets and the subsequent inclusion of 16 assets, giving us a current number of 178 assets/companies, of which it has already been possible to privatize 91. The remaining 87 assets/companies to be privatized are in progress.

The privatization of these 91 assets/companies allowed the signing of contracts whose value amounts to more than US$ 2 billion.

Itʼs been over two years since you came on board as the Minister of Economic Planning of Angola. What are some of the high points of your leadership?

It has been an almost 3 yearsʼ journey at the Ministry of Economy and Planning. First as Secretary of State for the Economy (Jan 2020) and then as Minister of Economy and Planning (Sep 2021). As Secretary of State for the Economy, our focus was to support the Minister to implement and deliver on PRODESI, our economic diversification programme as mentioned above.

As Minister, we managed to fuel this economic diversification trend by restructuring one of our financial instruments operationalized by our National Development Bank specifically for scale-up projects. We visited all crops and animal production small and middle-sized projects in all 164 municipalities in the whole country and provided tailor-made financial resources, looking for quick wins. In 5 months, more than 1,100 projects were financed by our National Development Bank. We also restructured our venture capital state company (FACRA, facra.ao) to support SMEs with risk capital when accessing the financial market. Last, but not least, we restructured our service Feitoem Angola (made in Angola, feitoemangola.gov.ao) to give dignity and identity to our local products. Our seal Feitoem Angola has an innovative feature embodying a QR code to provide the right information to consumers and to track the destiny goods.

On the other hand, our first task as Minister was to design and implement the campaign to formalize the informal economy (PREI). We managed to launch it in all 18 provinces and formalize more than 200,000 economic operators. PREI was supposed to be implemented in 2013 but was never implemented. We are now transforming this programme into a permanent service, focusing on sustainability to broaden the tax base and provide better working conditions.

Besides PRODESI and PREI, our biggest responsibilities under National Development Plan, we managed to improve working conditions at the Ministry, capacitate and promote officers stacked due to lack of vacancies to grow in their professional career.

Can you share with us and the world your leadership journey thus far to the present leadership role as it contributes to the socioeconomic growth and wealth creation of Angola and by extension Africa?

We had to make shock in our market. The way market was structured in the last 30 years in Angola, it was nothing else than a logistical operation. Goods were imported and distributed to industrial units or commercial centers to be consumed.

We needed to change it as most of our foreign exchange reserves were used to import goods whereas Angola had comparative advantages. We needed to bring a new “elephant” in the room, which is the local production, and slowly but surely unlock our economy.

We needed to transform the potential wealth of Angola into real wealth. Our approach was to ease the doing business environment and to create financial instruments and products to develop the agribusiness sector we managed to make this change. In 2019 less than 50 projects were financed in our economy and from 2020 to 2022, more than 1,700 projects mostly in the agribusiness sector were approved in the amount of US$1.7 billion. The agribusiness sector, including fisheries, is now the main engine of our economy and is growing more than 5% a year. Last year we grew 0.7% after 5 years of negative growth and this year (2022) we believe we can grow close to 3%. We can now feel the “train” moving and increasing its pace in the right direction. We are now creating a market where the main engine is local production.

We are focused on helping create a market in Angola and strengthen its institutions to follow the trend. We are even more excited as the Government has decided to invest more than US$ 1 billion a year in the agribusiness sector and be an important player in the free trade areas of regional economic communities, where Angola belongs, including AfCFTA.

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