Angola: New Legislation Forces Oil Companies to use Local Banks

[èđđeůx]

New Oil and Banking Legislation
allAfrica

Foreign oil companies operating in Sub Saharan Africa's second largest oil producer, Angola, will have the next two years to get to grips with new legislation governing their financial transactions.

The new law obliges oil companies operating in Angola - the bulk of which are foreign - to use Angolan banks rather than foreign banks to complete their financial transactions.

What this new law means is that oil firms will now be required to open accounts with domestic banking institutions, from which all payments related to their oil operations must be made. Payments to third parties, from tax authorities to suppliers, whether based in Angola or abroad, will all have to be processed from local banks. The objective is to strengthen the Angolan economy - to insulate it against the type of volatility seen in 2009 on the back of the global financial crisis (though there are concerns that an influx of foreign currency could lead to an appreciation of the Kwanza). Additionally, the Angolan government argues that the current exemptions provided to oil companies regarding the use of foreign financial institutions are no longer necessary since Angolan banks have matured and are able to deal with such transactions themselves.

Insulation

Arguably, obliging oil companies to conduct financial transactions through Angolan banks could contribute to the development of the domestic banking sector and create something of a buffer against the type of volatility seen in 2009.

As noted in IMF Country Report 11346, Angola already maintains a number of restrictions on foreign exchange transactions:

1. Limiting the availability of foreign exchange for invisible transactions, such as travel, medical, or educational allowances

2. Limiting unrequited transfers to foreign-based individuals and institutions.

3. Limiting remittances on dividends and profits from foreign investments not exceeding US$100,000

4. Allowing discriminatory application of a 0.015% stamp tax on foreign exchange transactions

Thus far, it does not appear as if oil companies are overly concerned about the changes. VP for Maersk Oil, Jon Ferrier,told Dow Jones in reference to the new law: "we want more transparency in the banking system. So that's going in the right direction".

The Central Bank is keen to implement the new law in two phases to allow the adjustment of its monetary policy and for oil companies and local banks to implement the necessary changes. In the first phase, oil companies will use local banks to pay taxes and bills owed to local providers. The second phase would require oil companies to use local banks to make payments to foreign suppliers.

Who's Who? Oil and Gas

More than 40 companies are involved in Angolan oil and gas exploration joint ventures including many of the oil majors (BP, Chevron, Eni. ExxonMobil and Total). They are joined by other international oil services companies such as Wood Group and Halliburton. Sonangol, the state-owned oil company, acts as an exploration and production company and the concessionaire for offshore production sharing agreements in the country.

Who's Who? Banking

There are twenty licenced banks in Angola, the largest of which are the Banco Africano de Investimentos (BAI), Banco Espirito Santo Angola (BESA), Banco de Fomento Angola (BFA), Banco de Poupanca e Credito (BPC) and Banco BIC, together accounting for around 80% of sector assets according to PwC.

[popa1980]

Good.

[abesha]

Very good initiative. They just need to make sure their currency doesn't strengthen too much and hurt non-oil exports.

[èđđeůx]

good point. I wonder now with Angolan banks being required to pay for oil operations how the Kwanza will be affected. I don't know much about currency appreciation now, but I am assuming that to offset the Kwanza from rapidly appreciating the Angola government could start further building up its foreign-exchange reserves.

[yosef]

Yeah they could do that and they could also print more money or adjust interest rates to promote inflation...I think

Good move on Angola's part.

[èđđeůx]

Originally Posted by yosef

Yeah they could do that and they could also print more money or adjust interest rates to promote inflation...I think

Good move on Angola's part.

Hmm, if Angola's inflation was in the low single-digits then perhaps, but I imagine such a move with double digit inflation (over 11% as of Nov') would just worsen the quality of life for the people. But I could be wrong.....

and yep it's a very good move that other oil producing nations should emulate. Heck, as African banks mature then perhaps some nations should follow that route and require payment using their nation's banks.