Angola is starting an initiative for opening state-owned enterprises to private capital. But privatisations remain difficult in Africa. However, they can give capital markets an important push if they are done carefully.
Capital News Africa: From the Trading Floor – Week 31-2022
Privatisations of state-owned enterprises are not popular in the world. The French government even plans to nationalise privatised companies such as the energy group EDF. In Africa, privatisations are just as unpopular. The Angolan government's plan to launch a privatisation programme was therefore all the more astonishing. In 2019, the Angolan president João Lourenço earmarked 195 assets for disposal. 32 of them are considered as major national companies.
Implementation of the programme began this year with some delay. The government sold 10% of the shares in Banco BAI or Banco Angolano de Investimentos, a bank founded in 1996. BAI shall be listed on the Angolan stock exchange. The government also prepares opening the capital of at least three other companies to private investors.
Lourenço’s ambitious privatisation programme should also the starting point for the stock exchange in the country. The government founded eight years ago the Angola Debt and Stock Exchange or Bodiva in the country’s capital city Luanda. But up to now it never started trading as the country did not realise any IPO.
This could change as the government plans that 175 state-owned enterprises will go private by public tender, 11 by an auction on the stock exchange and 9 by an IPO. The financial institutions Banco Comércio e Indústria, ENSA Seguros and the stock exchange itself are foreseen for a listing, according to an official document. The natural resources companies Sonangol, Sonangol Cabo Verde, Sonan Galp, Sonamet Industrial and Endiama will probably attract international interest as well as an IPO of the telecom operator TV Cabo Angola.
The South African government too seems to consider a new series of privatisations as the state-owned railway companies are currently being rocked by mismanagement. The privatisation of Transnet, Prasa and Metrorail should bring an improvement in service quality and reliability. A privatisation of the national power producer Eskom is also in the air. This should make the energy supply in South Africa more reliable.
Done right, privatisations can unlock a lot of potential. However, as the example of Russia in the 1990s shows, they can also be a source of corruption and cronyism. And yet privatisation of badly managed state-owned enterprises could improve the supply of Africans – if the separation of state and business is properly addressed:
1° The concerns of consumers should be taken seriously. The state must clearly define which tasks the privatised company has to fulfil in its sector. A clear specification must be established and a minimum standard for service and products.
2° We prefer an IPO to a sale to a foreign company or investment fund. An IPO offers the advantage that a large part of domestic investors can participate.
3° The IPO should be realised on the local stock exchange and can include a secondary listing on an international equities market. Privatisations are a good opportunity to strengthen the domestic capital market.
4° Sometimes it is advantageous if the government keeps a stake. But the majority of the shares should be in free float so that the separation between state and company is clear.
5° The privatised companies should be clearly geared towards making profits. This way, the companies can invest and the state will benefit from much-needed tax revenue.
An IPO makes good companies better. They attract the better managers, and they get a boost from the stock market – towards better management quality. We would therefore welcome it if the African capital markets were enriched by one or the other former state company.