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07LUANDA11 2007-01-05 10:17:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Luanda
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DE RUEHLU #0011/01 0051017
R 051017Z JAN 07
					UNCLAS LUANDA 000011 




E.O. 12958: N/A

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

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

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.