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Viewing cable 07LUANDA13, ANGOLA FOUNDS ITS OWN DEVELOPMENT BANK

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Reference ID Created Released Classification Origin
07LUANDA13 2007-01-05 11:45 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Luanda
VZCZCXYZ0005
RR RUEHWEB

DE RUEHLU #0013/01 0051145
ZNR UUUUU ZZH
R 051145Z JAN 07
FM AMEMBASSY LUANDA
TO RUEHC/SECSTATE WASHDC 3578
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS LUANDA 000013 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EB/IFA/OMA AND AF/S 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EAID ECIN AO
SUBJECT:  ANGOLA FOUNDS ITS OWN DEVELOPMENT BANK 
 
REF:  A)  LUANDA 1261, B) 06 LUANDA 975 
 
1.  (SBU)  Summary.  In December 2006, the GRA established the 
Angolan Development Bank (BDA) in order to lend funds from petroleum 
and diamond revenues to economic sectors neglected by Angola's 
commercial banks.  During 2007, the BDA intends to start lending to 
agriculture cooperatives and construction projects.  Although the 
BDA is not supposed to compete with the commercial banking sector 
because it serves different clients, loans to the construction 
sector may encroach on an area where commercial banks have made 
substantial loans.  End Summary. 
 
The Angolan Development Bank 
---------------------------- 
 
2.  In December, the State-Owned Angolan Development Bank (BDA) 
opened with USD 50 million in capital and the mission of providing 
credit to agriculture and to small and medium enterprises, economic 
sectors the commercial banks have not served.  The BDA will receive 
funds from the National Development Fund (FND), established in 2006 
as the recipient of 5 percent of tax revenues from oil and 2 percent 
of its diamond tax revenues.  Press reports predict that the BDA 
will receive USD 150 million per year. 
 
3.  (SBU)  BDA President Paixao Franco Junior speaks with commitment 
about the BDA's mission to extend the benefits of oil wealth to the 
bulk of Angola's people in order to make Angola a competitive and 
prosperous country.  The BDA will start with programs focused on 
agriculture (corn, beans and cotton) and also on construction.  The 
future direction of the bank will depend on the results of its first 
efforts.  Projects involving crops  harvested three months after 
planting, will allow BDA to conduct an early evaluation of the 
effectiveness of its programs.  (Comment:  Paixao Franco Junior also 
headed the BDA's immediate, and smaller, predecessor, the Social 
Development Fund.) 
 
Brazilian Connection 
-------------------- 
 
4.  (SBU)  Experts from Brazil's Banco Nordeste are providing 
advisers to the BDA as it identifies the cooperatives in its first 
group of loan recipients.  The BDA also hopes existing commercial 
banks will work with it in rural areas, identifying good risks for 
loans and providing teller services, said Dr. Junior.  (Note:  The 
two commercial banks with the largest network of branches are the 
Banco de Fomento Angola and the government-owned Banco de Poupanca e 
Credito.  End note.)  The BDA will seek technical support with its 
projects from NGOs and other organizations that can advise co-ops on 
best practices in planting and raising crops or producing 
construction materials, he added. 
 
Staffing the Development Bank 
----------------------------- 
 
5.  (SBU)  Dr. Junior described his staff of 50 as mostly young, 
often recent graduates and new to banking.  Dr. Junior hopes to 
limit staff growth to a total of 200 people over the next two years. 
 As it builds its staff, he said, the BDA will stress the quality 
and training of the staff.  Pay is good by Angolan standards ("I 
would rather pay $900 for two good employees than $1,000 for three 
indifferent workers," quipped Junior.) 
 
Lending to Agricultural Cooperatives 
------------------------------------ 
 
6.  (SBU)  To guide its lending, BDA has mapped out "production 
chains" for construction projects and its chosen three crops.  These 
illustrate every phase of production from planting to marketing for 
agricultural products.  The BDA is still in the initial phase of 
identifying its borrowers.  Dr. Junior says that BDA is effectively 
in the process of conducting an economic survey of the agricultural 
sector. 
 
Operating Like a Real Bank 
-------------------------- 
 
7.  (SBU)  BDA will extend loans at below-market rates, but 
otherwise operate exactly like a commercial bank, insisted Dr. 
Junior.  He said he is aware of the concerns among some observers 
that the bank will not lend to profitable projects or will be used 
as a window to funnel credit to political favorties.  He affirmed 
that the BDA will lend only to bankable projects and will expect 
borrowers to repay their loans.  BDA Director Antonio Lima Campos 
noted that while development banks have a bad reputation, some have 
been successful, citing Germany's Kreditanstalt fuer Wiederaufbau as 
an example.  (Note:  The World Bank's October 2006 country economic 
memorandum warns against national development banks:  "The 
international evidence suggest that such institutions promote 
inefficiency and moral hazard and that they are prone to governance 
problems, including elite capture of subsidized capital and the 
emergence of non-performing loans."  End note.) 
 
Becoming a Self-Sustaining Bank 
------------------------------- 
 
8.  (SBU)  The BDA will receive funds from the National Development 
Fund (FDN) for 10 years and must become self-sustaining during that 
period, said Dr. Junior.  The FDN was to convey 5 percent of 
petroleum tax revenues and 2 percent of diamond tax revenues to the 
BDA, he explained.  By the time FDN funding ends, Junior claimed, 
the bank will have become self-sustaining through repayments of 
loans it grants.  In the future, Dr. Junior suggested, the BDA may 
also solicit from both commercial banks and international sources. 
Besides making its own loans, the BDA will encourage lending to 
neglected economic sectors by guaranteeing loans made by other 
banks, he added.  The BDA will work closely with commercial banks, 
not compete with them, he assured Econoff.  Although Angola's 
commercial banks have ample resources, they do not have the 
confidence to lead, and that is where the BDA has a unique role, he 
continued. 
 
Management Controls 
------------------- 
 
9.  (SBU)  The BDA, promised Dr. Junior, will closely monitor use of 
its funds.  For example, he said, the bank would not even permit a 
cooperative to buy a piece of major agricultural equipment on its 
own.  Instead the bank will buy the equipment on behalf of the 
co-op.  (Comment:  A knowledgeable Angolan observer noted that this 
provision still permits collusion among the equipment seller, the 
coop and bank employees to produce false receipts and defraud the 
BDA.  End comment.) 
 
 
11.  (SBU)  Comment.  The BDA can have a huge effect on lending, 
especially if it receives infusions of USD 150 million per year and 
carries out its promise to monitor loan quality.  It is too early to 
know how the BDA will carry out its mandate, and whether it will 
draw customers away from commercial banks with concessionary 
interest rates and permissive repayment schedules.  End comment. 
FERNANDEZ