Market Formalization: Angola

In order to increase productivity and attract more investment, Angola is working to help local companies in the informal sector transition to the formal sector.

Image credit: Unsplash / Jorge Sá Pinheiro

The majority of Angolan citizens move in the black economy. According to the most recent data from the statistics institute INE, 80.8% of the country’s residents earn their income through informal employment. These types of jobs exist throughout the economy, but are especially common in sectors such as retail, agriculture, transportation, and service provision.

The extent of informality in Angola poses a major challenge to the country’s economy, as there are many non-oil resources that are not taxed and workers are deprived of a quality social security system to provide them with a safety net.

In an effort to reverse this situation, the government and the Angolan Chamber of Commerce and Industry (CCIA) are working to promote economic growth that will help the transition from informality to formality. This strategy involves approving regulations that allow the development of competitive businesses as well as fostering relationships between companies to create an environment that allows small businesses to migrate to formality. One of the keys to achieve this is to increase the number of members of the CCIA, since in order to be part of this organization it is necessary to be regulated as a business that complies with its tax obligations and government regulations.

Specifically, the CCIA has a seven-point action plan with which it hopes to achieve its objectives. Some of these include the creation of an incubator to support businesses in their migration to formality, the establishment of contacts with representatives of informal organizations to raise awareness of the advantages of formalizing businesses, and collaboration with government authorities to develop common policies to achieve an increase in the formal economy. Other actions include offering discounts to employers’ associations that wish to join the CCIA, offering administrative support during the formalization process or providing training in accounting and business management.

Much of the action to expand formal labor comes from large companies. “We are recruiting many Angolans. Typically, the company starts with expats, but then locals must come onboard. We invest heavily in Angolan human capital and recruiting. We also have the biggest scholarship university support. We are delivering a scholarship not just for studies but one that also provides living expenses,” said Carlos Basto, managing partner of EY Angola, during an interview with TBY.

With the intention of getting more businesses to operate professionally in the country, He explained that the firm has agreements with a civil association that helps young people prepare for informal jobs. “Our executives deliver free training in subjects such as tax, accounting, or economics, and every month we go to provinces to deliver this training,” Basto said of this initiative. “Every year, around 10-20 of our people leave to work in other companies, so we are building up human capital. The challenge here is human capital,” he added.

The existence of an informal sector exerts negative pressure on the country’s productivity, limiting economic growth.

Precisely, the inability of some companies to formalize has a negative impact on their performance, as they do not have adequate control over their finances and day-to-day administrative operations. This also has a negative impact on attracting FDI, as many foreign companies may find it difficult to work with local companies that do not have compliance policies that conform to global quality standards. “Angola needs to be more attractive to attract FDI and be more competitive in terms of tax and legal matters,” said Basto.

One of the keys to progress in increasing the number of companies operating in the formal sector is that the country manages to sustain its economic growth. Supported by mining and its vast oil reserves, the country has achieved rapid economic growth rates, in addition to collecting large amounts of taxes that have been used to drive development programs. One of the government’s current objectives is to diversify the economy and develop companies in non-extractive sectors that must hire employees in a regulated manner in order to operate.

“We need to make an energy transition. That must be one of the main objectives for the next years. Angola has hydro-based energy resources, namely rich natural rivers and water resources, and there is a lot that can be done,” said José Antonio Barata, country manager partner of Deloitte Angola. In this regard, the construction of works to carry out this energy transition, which the country must also deepen to reduce its CO2 emissions into the atmosphere, is an opportunity to create formal jobs and establish companies in a renewable energy sector that is still underdeveloped in Angola.

An interesting initiative to advance the diversification and formalization of the country is the one carried out by Câmera de Comércio e Indústria Hispano-Americana Angolana (CCHIA), formed in 2016 by Angolan and Pan American entrepreneurs. “The objective is to establish partnerships and attract investments in the agro-industrial and mining sector,” said Reinaldo Trindade, president of the CCHIA. If these objectives are achieved, Angola will be one step closer to formalizing agriculture, one of the most informal sectors.