Published On: Mon, Jul 8th, 2019

Angola saving face after OPEC cuts extension

Angola oil & gas exploration

Angola oil & gas exploration

from PEDRO AGOSTO in Luanda, Angola
LUANDA – TO the uninitiated, Angola is in support of the extension of the deadline for oil production cuts set by Organisation of Petroleum Exporting Countries (OPEC) and non-member countries by another nine months.

However, the prevailing headwinds in the sector indicates the “welcome”, coming at a time the Southern African country has already seen output tumble, suggest the support for the OPEC scheme, is merely a papering over the cracks around the new administration’s struggles to revitalise the industry.

In December, major oil producers reached a deal to cut oil production and boost the market amid an oversupply of the commodity knocking down prices. The December deal has been extended to regain profitability in the volatile sector.

The aim of the cuts, whose extension is effective immediately until March 2020, is to take off 1,2 million barrels per day (bpd) off the market for the just-ended half of the year.

“Nine months (extension) is better,” Minister of Mineral Resources and Oil, Diamantino de Azevedo, told media at the 15th Meeting of the Joint Ministerial Monitoring Committee (JMMC) of OPEC in Vienna, Austria.

The extension of the cuts is some face-saver for Angola.

It is projected the sector will contract 2,6 percent this year, which adds to the 9,2 percent falls last year and 5,2 percent in 2016 and 2017.

The Economist Intelligence Unit (EIU) projected reviving the Angolan oil economy would be a difficult task following a mix of declining wells producing less oil, maintenance stoppages and a lack of new exploration opportunities.

“Lower prices since mid-2014 have made expensive exploration in the country’s ultra-deep waters less attractive, leading international companies to reduce their operations and seek easier deals elsewhere,” the forecasting and advisory services stated.

Eight years have passed since Angola opened bids for new oil exploration, and it takes eight to ten years for new wells to go into production, EIU further stated.

Among other ramifications have been the Kwanza currency losing its worth in record levels and inflation, projected at 15 percent, peaking.

The Kwanza has been trading at 341,9 to the Dollar and 389,5 to the Euro, representing declines of over 50 percent since early 2018.

The introduction of a discordant value added tax (VAT) by President Joao Lourenco’s government represents a desperate attempt to rid the country from an economic nightmare it has endured since his pledge of an economic miracle upon assuming power in 2017.

Initially set to kick-in at the beginning of July, the scheme has been shelved to October following outcry by businesses and economic experts wary of the system exacerbating the economy and piling on to the misery of the impoverished majority.

VAT provides for a single rate of 14 percent for all imports all large taxpayers with income over Kz15 million (US$44 000).

Revoking the current Consumption Tax which exempts some services are exempt, VAT is a frantic plan to expand government’s coffers base following the weakening oil industry.

Oil is the economy’s mainstay. Oil production and supporting activities contribute about 50 percent of gross domestic product (GDP) and over 70 percent of government revenue. It contributed 90 percent of Angola exports.

There in unprecedented concern meanwhile within government on VAT, with Finance Minister, Archer Mangueira, saying taxes on the health and education sectors might lead to a higher tax burden for the final consumer.

Mangueira pointed out to studies conducted by the International Monetary Fund (IMF) mission on the exemption schemes in the education and medical services.

According to the studies, the risk of an increase in VAT could end up benefiting more group of taxpayers who least resort to the public services more.

Ahead of the VAT coming into force, companies are already counting the financial impact following a series of requirements by the request General Tax Administration to suppliers to have their software certified and validated.

To comply with the new tax regime, companies must own or represent the marketed software.

While businesses with a turnover of less than €20,500 will be able to acquire the software for free, firms whose billing volumes must spend up to €472 and over €128,500 to acquire the compatible software.

The number of clients, licences and modules requested per company determines the cost per company.

Industry experts, such as António Candeias, Chairman of the Board of Directors of Systems, Technologies and Industry (SISTEC), have urged companies whose software the General Tax Administration validated to promptly replace old systems with newer versions ahead of the October introduction of VAT.

Divisions between government and the business community have seen plans to introduce VAT fail earlier this month.

José Leiria, Administrator of the General Tax Administration, said the agency had taken into consideration the concerns presented by business.

Local commentator, Almiro Marcelino, said VAT was a result of the failure by government to diversify the economy from oil.

“There is no Angola economy to talk about outside oil,” said Marcelino.

Upon replacing the long-serving Eduardo dos Santos as president, Lourenco announced his government would prioritise on expanding the economy from an overreliance on oil and establishing new revenue streams.

“Thus, prioritizing the introduction of VAT as a new revenue channel instead of diversifying the economy is illogical on the part of government,” Marcelino said.

– CAJ News

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