Economy

For close to three decades all the focus in Angola was on politics. Aside from its diamond and energy reserves, little time was dedicated to the economy - towards business development and the attraction of foreign investment. But since the war that killed one million people and displaced four million ended, following the death of UNITA leader Jonas Savimbi in 2002, Angola�s middle and upper class have been pulling the money out from under the bed and buying houses and cars. On the face of it, Angola gives every indication of an economy booming.

Sure, Angola is starting from a low base and developments in the oil sector will continue to dominate Angola�s economic growth prospects - oil accounts for 47 percent of GDP - but track newspaper reports and you will read of delegations from every continent and industry in the world boarding planes to Angola every other week hoping to cash in on the action. �It�s a country with huge opportunity and the way I see it at the moment, it�s a bit like the Wild West,� says Neuma Grobbelaar, director of studies at the South African Institute of International Affairs and head of the Business in Africa project. Angola is Africa�s second largest oil producer after Nigeria and the fourth largest diamond producer in the world.

This is not to say that doing business in the country is an easy ride. �The decision to do business in Angola requires very careful consideration,� explains Grobbelaar. �It is expensive to get into the Angolan market � everything is dollar-based. One has to have a very deep pocket especially if you want to set up a business that goes beyond trading. You need to take a very long term view � if you plan to be there for the short term to make a quick buck, don�t bother,� observes Grobbelaar.

If one takes the World Bank/International Finance Corporation�s Doing Business in 2006 report�s word for it, business in Angola is no easy feat. Angola is still in the bottom 20 countries of the 155 surveyed in terms of ease of doing business and its one of the ten worst performers in terms of time to start a business, at 146 days. As far as the cost of registering a business is concerned, if you are a local, think again. In Angola an entrepreneur has to spend the equivalent of nearly nine years average personal income � $6�621 � to register a business while in France, by comparison, an entrepreneur pays only $368, equal to 1,1 percent of what the average person earns in a year. For this reason most local business never graduate from the informal sector, resulting in high levels of goods smuggling.

But one cannot always rely on statistics like these. �Conduct research by sending out an email to Angolan businesses and you won�t get very far,� comments Roger Ballard Tremeer, former South African ambassador to Angola (1994-1998) and chief executive of the South Africa Angola Chamber of Commerce. �I am assisting a company setting up in Angola at the moment and registration took an afternoon,� he remarks. Ballard Tremeer explains that getting the right paperwork together is what takes most of the time.

In the case of South African retail company Shoprite Checkers, it took five years of negotiations before the company opened its premises in Angola. Then, once they had set up shop, the first rains came and they discovered that the land they had built on was surrounded by a lake and none of their customers could get in. But aside from these initial teething problems, the retailer is operating a successful business in Luanda today.

�For the oil companies, doing business in Angola is easy � the oil companies actually control their assets, Cabinda (where the majority of the reserves are located) is an enclave offshore economy, meaning that the oil companies don�t encounter the same problems a company working on land would and the raw material is pumped straight into a tanker and out of Angola,� observes Grobbelaar. The Angolan government is, however, trying to enforce upstream and downstream beneficiation of its energy resources with China.

Angola first moved away from a Soviet-style centrally planned economy to a free market economy when it introduced its first investment law following the elections in 1992. Foreign companies, especially small diamond prospecting companies, went in their droves, but most of them suffered severe losses as the war broke out again, making it extremely difficult to do business in the country. Some large companies such as equipment supplier Barloworld and the Coca-Cola Company that went into the country in the 1990s, did survive, and are running very successful businesses in Angola today. �Because Barloworld took the chance when other equipment suppliers would not go near the region it has had the opportunity to adapt to Angolan conditions and needs, which puts us ahead of the competition today. We have twelve years of developing strong customer relationships and supporting customers in this environment under our belts,� remarks Gavin Knight, GM and director of Barloworld Angola.

Last year Barloworld demonstrated its continued business confidence in Angola by opening a new R35mn facility in Luanda designed to meet the expanding equipment support needs of the mining, construction, materials handling petroleum and power generation sectors. The company also launched the Barloworld Equipment Cat Rental Store last year with the largest start-up fleet of all Barloworld Equipment�s Southern African rental ventures.

Since the war ended in 2002 the general consensus has been it is over for good this time. �UNITA believes that the way to power is through the ballot box, although they don�t harbour expectations to win the upcoming elections,� explains Grobbelaar. Elections were supposed to take place in September this year. However, government is cagey about committing to the elections and it now seems that they will be delayed until 2007. There are some very real logistical problems with holding the elections this year � many people still don�t have identity documents and there is a genuine lack of infrastructure. It is high time elections happened though � the current president, Jose Eduardo Dos Santos has been in office since 1979.

In the last four years government has really woken up to the outside world � an investment law and separate incentives law were drafted in 2002. To drive long term investment the state promotions agency, ANIP, was set up as a one-stop office for investors � not an easy task for a country emerging from a civil war and totally out of the loop as far as addressing potential investors� needs are concerned. �Despite the challenges the agency is now performing quite well. Investment applications are coming in at a higher level than before,� says Ballard Tremeer. The legislation that has been developed offers very generous incentives for investors, especially in former UNITA controlled areas, which were ravaged by the war.

Ballard Tremeer explains how Luanda has almost transformed overnight from a city with a handful of vehicles during the war to a permanent traffic jam, ironically, with a shortage of petrol stations. Car manufacturers from all over the world are in Angola fighting for market share � viewing the country as one of the fastest growing and most lucrative vehicle markets on the continent over the next few decades. According to one leading manufacturer, it is building up Angola to be its flagship operation on the continent in the not too distant future.

Oil and mining multinationals aside, the greatest investors in Angola to date have been the South Africans and the Portuguese. But the Chinese are changing that. Eager to secure supply lines for its burgeoning economy, China has pushed its original credit line agreement (based on future oil flows) with Angola up to a massive $8,5bn. This win-win agreement gives China a guaranteed source of energy and in return the Chinese are overhauling Angola�s war-ravaged infrastructure and freeing the government of having to comply with the stringent calls for transparency from the International Monetary Fund (IMF). However, while Angola supposedly calls for seven locals for every ten people employed in Angola, it�s Chinese labourers that are rebuilding Angola�s roads and rail.

While Angola�s traditional trading partners have been shaken by the onslaught of the Chinese, there are some companies that have turned the situation to their advantage. For example, one South African property developer that is undertaking a large middle-upper class housing project in Angola has decided to get a Chinese contractor to build the properties as it came in at a far lower price than the South African companies originally competing for the work. The developer is still selling the properties at the price it planned to sell them and therefore making a bigger profit.

The provision of housing to Angola�s elite is a sector that is seeing large-scale investment as there is an unbelievable housing deficit in the country. The largest such project, �Ondjwo Yetu� (Our House), is a massive $500mn project that will see the development of four upmarket urban townships which will comprise between 2889 houses (the smallest township) and 10�246 houses (the largest township). The townships will comprise middle-upper class accommodation as well as corporate and social facilities and the necessary infrastructure. Two of the sites, one near the Malongo Chevron base near Cabinda and the other at Soyo town in the Zaire province, 10km from the future location of the LNG factory, will target oil and mining companies and their subsidiaries, while the other two, one in south-east Luanda and the other, south-east of Lubango, the capital of the Huila Province, will target members of the public and private sector who could afford this level of accommodation.

Security is another big business in Angola. That is, security to protect the elite�s houses and security to protect resources and companies. It is estimated that there are more than 100 security companies in Luanda alone. This sector, which has a rather dubious track-record, has provided employment for hundreds of demobilised soldiers.

On the infrastructure front, there are definite improvements. Until yesterday telecommunications in the country was a nightmare. This has changed with the introduction of cellular phones. For businessmen visiting Angola, Internet is freely available in most leading Luanda hotels, and it�s not snail paced either.

The virtually non-existent retail banking sector is obviously a problem for businesses, but this is now beginning to improve. On the corporate side, Investec has run a successful operation out of Angola since 1996. Ten years later, other South African banks, including ABSA, Standard Bank, Nedbank and FNB are following.

One of the main factors hampering successful business by foreign companies in Angola is the cultural fit. Portuguese-speaking South Africans are suddenly finding themselves in high demand as trying to do business, and not knowing the language in a country like Angola is suicide. Another is corruption. According to a corruption perception index, undertaken by Transparency International which surveyed 158 countries, Angola faired terribly, ranked as the 151st least corrupt country. It is estimated that some 10 percent of the country�s oil revenue is unaccounted for. The IMF and civil society are trying to put pressure on Angola to improve its transparency, but thanks to its credit line agreement with the Chinese, this isn�t putting as much pressure on Angola as it should. Congestion and bureaucracy on imports is cited by many companies as a challenge.

However, while security estates and flashy four-wheel drives give the impression of a country booming, Angola�s rich mineral wealth hasn�t made the average Angolan any better off. �There is an incredibly well-off elite that is closely associated with the ruling party and the president. And then you have the vast majority of people who are incredibly poor and basically left to their own devices,� remarks Grobbelaar. During the war, probably to the detriment of the vast majority of Angolans, the international donor NGO community stepped in and relieved the government from any pressure to actually deliver to their own people. �Since the end of the war the donors have said, and rightly so, that Angola is not a poor country and doesn�t need their support. Given its resources and diverse climate, Angola is without a doubt a country with huge opportunity.

The question is, can the Angolan government harness its wealth and transform the country into an African powerhouse or will it simply become another statistic of a country that has turned its resource wealth into a resource curse?

Fast Facts

Land area: 1,246,700 sq.km

Population: 14 million (Est. 2002); 16 million (Est. 2010)

Population Key Cities: Luanda (capital): 3�000�000; Benguela: 1�600�000; Huambo: 1�500�000; Huila: 1�200�000; Bie: 1�000�000

Life expectancy: 46.5 years

National currency: Kwanza (Kz)

Unemployment rate: Extensive unemployment affecting more than half the population (2001)

GDP Growth Rate:15% (2005); 12.2% (2004); 3.4% (2003)

Inflation: 23.2% (2005); 45.3% (2004); 100.1% (2003);

Interest rate: 95% (2004; Interest rates remain largely inflexible)

Total exports: (2005 estimate): US$17.3billion (2002: US$8.3billion)

Total imports: (2005 estimate): US$8.6billion (2002: US$3.8billion)

Major exports: Petroleum (90%), Diamonds (7.6%), Refined Petroleum Products (1%), Fishing and Derivatives, Timber, Coffee

Major imports: Machinery, Electrical Equipment, Vehicles and Spare Parts, Medicines, Food, Textiles

Export Partners: US (40%); China (30%); France (7%); Chile (3%); South Korea (3%)

Import Partners: Portugal (15%); US (13%); South Africa (11%); Japan (7%); France (6%)

People living with HiV/Aids: Adults (age 15-49) 3.9%

This article was first published in Business in Africa Magazine, April 2006. To subscribe click here