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Executive Report on Strategies in Angola
ICON Group International, June 2007, Pages: 383
How to Strategically Evaluate Angola
Perhaps the most efficient way of evaluating Angola is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”).
Framework for Prioritizing Countries
Demand/Market Potential Driven Firm
Relative Accessibility
Accessibility/Supply Averse Firm
Relative Accessibility
In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market - neither a market-driven nor a cost-driven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities (e.g. a Canadian firm may have higher accessibility in Canada than a German firm).
Latent Demand and Accessibility in Angola
This report provides an extremely detailed overview of factors driving latent demand and accessibility in Angola. Latent demand is largely driven by economic fundamentals. But, latent demand only represents half of the picture. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks.
Chapter 2 deals with macro-accessibility. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in Angola:
Openness to Trade in Angola
Openness to Direct Investment in Angola
Local Marketing and Entry Strategy Alternatives
Local Human Resources
Local Risks
Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are also covered in Chapter 2, which is presented from the perspective of an American firm, though it is equally applicable to most firms entering Angola. This chapter has been authored by local offices of the U.S. Government. I have included a number of edits to clarify the provided information as it relates to the general strategic framework.
In Chapter 3, I summarize the economic potential for Angola over the next five years for hundreds of industries, categories, and products. The goal of this chapter is to report my findings on the real economic potential, or latent demand, represented by Angola when defined as an area of dominant influence. The data presented are the result of various spatial econometric and time-series forecasting models which, for each category presented, are applied to forecast and allocate latent demand across all countries of the world and major distribution centers or centers of dominant influence within each country. This is accomplished knowing that economic fundamentals (e.g. income) generally vary from one country to another within a given country over time. In this chapter, I report the allocation for each category for Angola as an area of dominant influence in Africa and, potentially, the world.
As a whole, this report presents a strategic assessment of Angola by considering an extremely broad set of factors affecting both latent demand and accessibility, as outlined in the following chapters.
MACRO-ACCESSIBILITY IN ANGOLA
Economic Fundamentals and Dynamics
The Government of Angola (GRA) is slowly implementing a sound macro-economic policy. The government’s economic strategy focuses on promoting growth in non-petroleum sectors, including agriculture and livestock, transportation (road, port and railroad), energy (generation, transmission and distribution), water supply and sanitation, housing and public services (schools and health clinics).
Government Intervention Risks
Angola is slowly integrating into regional and global markets and in reforming domestic policies. Angola adopted the Southern Africa Development Community (SADC) Free Trade Protocol in March 2003 and has enacted a new investment law that provides investment incentives, identifies targeted investment sectors, and seeks to reduce the bureaucratic process for investing. The government is reforming and modernizing customs procedures and working on updating the commercial and intellectual property laws. Additionally, the government is an active player in the economy through parastatals such as oil giant Sonangol and individually as owners of private firms, creating conflict of interest and transparency concerns. The IMF estimates that approximately 15% of revenues cannot be adequately unaccounted for annually.
Infrastructure Development
War and neglect destroyed most of Angola’s infrastructure. Intensive reconstruction in the transportation, telecommunications, energy, and water sectors are necessities for sustained economic growth. The social infrastructure, particularly schools and health facilities, also suffered extensive damage during the civil war. Angola has approximately 2,700 kilometers of railways, however, much of the track is unusable because of land mines still in place from the civil war as well as extensive destruction of the track and bridges. Additionally, only a small portion of Angola’s 70,000 kilometers of road is usable due to the threat of land mines, poor conditions and downed bridges. Angola’s telecommunications sector is also in need of significant investment to increase telephone and Internet connectivity with the rest of the world. Few have access to electricity or potable water, even in Luanda.
Regional Integration
Angola is a member of the World Trade Organization (WTO) and Southern Africa Development Community (SADC). Angola has few transportation links with its SADC neighbors although borders are extremely porous, particularly with the Democratic Republic of the Congo.
Political Risks
The Political System
The Constitutional Law of 1992 establishes the broad outlines of government structure and delineated the rights and responsibilities of citizens. Under it, the executive branch of the Government of Angola (GRA) is composed of the President, the Prime Minister, and the Council of Ministers. The Council of Ministers, composed of key government ministers and vice ministers, meets periodically to discuss policy issues. The National Assembly has 223 members elected in 1992 (three seats for Angolans living abroad have never been filled). The legal system is based on Portuguese and customary law but is weak and fragmented. Courts operate in only a limited number of municipalities outside of Luanda. The Supreme Court serves as the appellate tribunal; a Constitutional Court with powers of judicial review has never been constituted despite statutory authorization.
Economic Relationship with the United States
The United States established formal diplomatic relations with the Government of Angola in 1993. Before 1989, U.S. - Angolan relations were defined by the Cold War. Since 1992, the bilateral relationship has steadily improved. U.S. aid to Angola focuses on emergency food support and humanitarian assistance such as food assistance, health/nutrition preparedness, and resettlement of internally dislocated people.
At the same time, the energy-based U.S. trading relationship continues to expand and spark other ties. Sister City relationships between Lafayette, Louisiana and Cabinda and between Houston, Texas and Luanda have been established. The Catholic University of Luanda has close links with a number of American institutions and has received financial support from Citizens’ Energy of Boston. Sonangol has a longstanding program of educating its professionals in U.S. universities, complimenting ChevronTexaco’s policy of U.S. training for its own growing pool of Angolan professionals. Long before oil was discovered, American missionary efforts from the early 19th century established several Protestant churches in the interior, which also provided much of the schooling that was available in rural colonial Angola. Those historical links now are being revived with increasing church-based exchange programs.
Politics and the Business Environment
The 27-year long civil war ravaged the country’s political, economic and social institutions. The government estimates that more than four million people were internally displaced by the civil war. Resettlement of these internally displaced persons plus the return of approximately 450,000 refugees from neighboring countries and the reintegration of over 300,000 former UNITA soldiers and their family members continue to pose significant challenges to the government. Daily living conditions throughout the country, and specifically Luanda (population approximately 4 million), are impacted by weak administrative infrastructure, limited public services, and a lack of social institutions. As the country transitions out of its post-war emergency phase, the willingness and ability of the GRA to assume greater responsibilities for these needs will be critical to meeting the needs of its citizens.
Relations between Federal Executive and Provincial Leaders
Governors of the 18 provinces are appointed directly by and serve at the discretion of the president. Provincial governments receive their funding from the central government. Governors are given considerable personal authority in the day-to-day management of their provinces. Provincial leaders, civil society, and communities, particularly in Cabinda, have consistently asked for more money to go to the provinces. Responsibility for providing and administering assistance for the return and resettlement of over four million Angolans to their areas of origin is another major issue between the national and provincial governments.
Marketing Strategies
Joint Ventures and Licensing Options
The Government of Angola allows joint ventures under the private investment law, which also regulates the amount and form of capital invested.
Agents and Distributors
Subsidiary or affiliate companies of U.S. organizations operate in several areas including computer/office equipment, petroleum products, and agro-industry. Finding partners or agents and distributors for U.S. products is possible. Clarifying product selection, shipping responsibilities, and financing will limit potential misunderstandings.
Hiring Local Counsel and Performing Due Diligence
The U.S. Embassy strongly recommends the use of a lawyer and the preparation of a binding contract prior to any business dealing, including rental or lease of property. Oral agreements in Angola are not legally enforceable. The lawyer should also conduct due diligence investigations prior to the conclusion of any purchase or other contractual agreement. The U.S. Embassy can provide a list of lawyers.
Distribution Channel Options
Product distribution in Angola can be problematic because of poor transportation infrastructure and security concerns. Some local companies have a network of rural distributors, but many firms opt to reach rural markets through wholesale arrangements with local entrepreneurs. The Angolan mail system does not function at international standards. Packages and correspondence are generally sent through courier services. DHL is the most widely used international courier service in Angola with offices in five provincial cities, in addition to Luanda.
Franchising Activities and Direct Marketing
There are no restrictions on franchising in Angola. The Angolan business community is aware of only a limited selection of the large range of U.S. products. U.S. companies may market directly through an established importer in Angola, by winning a tender, through investment, or by opening an office in Angola. Over half of all consumer goods are imported from Portugal; other important suppliers include France and South Africa. Competitive pricing, financing and reliability of supply are essential to enter and stay in the Angolan market.
Selling Strategies, Advertising, and Trade Promotion
Angola has one government-owned television network and several A.M. and F.M. radio stations, as well as one government-run daily newspaper. A small but vocal alternative press is present in Luanda and accepts advertising. Billboard advertising is also common. Building and maintaining a good reputation for the company and/or product is key due to substantial reliance on customer referrals.
Supplying Customer Service
Customer service in Angola is generally considered less responsive than in the U.S. However, more Angolans are demanding better service. Firms that have reliable post-purchase customer support will have an advantage over other firms, particularly for complex or delicate equipment.
Government Procurement
The Government of Angola solicits bids for supplies and services in local and international publications 15 to 90 days before the bids are due. Bid documents are normally obtained from a specific government ministry, department or agency at a non-refundable fee. Completed bids, accompanied by a specified security deposit, are usually submitted directly to the ministry in question. Bids are often opened in the presence of bidders or their representatives. The bidding process often does not meet international standards of objectivity and transparency. Many U.S. firms engaged in selling goods or services to the government have experienced delays ranging from months to years in receiving payment or have received reduced payments due to new government regulations.
Import and Export Regulation Risks
Adherence to Free Trade Agreements
The Government of Angola is a member of the World Trade Organization and the Southern Africa Development Community (SADC). It has agreed to adhere to the SADC Free Trade protocol that seeks to facilitate trade by harmonizing and reducing tariffs and establish regional policies on trade, customs, and metrology. It is reviewing the need for tariff and non-tariff barrier reduction, but is proceeding slowly.
Trade Barrier Risks
Angola uses the Harmonized System Customs Code. Tariffs fall into one of six categories ranging from 2 - 35 percent depending on the good, with most products charged 10 percent tariff. Some additional fees are clearing costs (2 percent), VAT (2 - 30 percent depending on the good), revenue stamp (0.5 percent), port charges ($500/20 foot container or $850/40 foot container), and port storage fees (free for first 15 days but rarely do goods clear port within the grace period).
Customs Regulations
Customs regulations are opaque after decades of incremental changes and updates without an overarching strategy. Required paperwork includes the “Documento Unico” (single document), proof of ownership of the good, bill of lading, commercial invoice, packaging list and specific shipment documents verifying the right to import/export the product such as letters, certificates, and additional documentation. The “Documento Unico”, introduced by Crown Agents in 2002, has reduced the number of forms that Angolan customs requires and has decreased the amount of time paperwork spends clearing customs from an average of 25 days to 5 days. However, the time spent by “despachantes” providing the above information can vary greatly and have a substantial impact on the time it takes for goods to clear customs.
For imports under $100, shipments are processed immediately, although Customs has the right to inspect the contents against the invoice if the value declared is felt to be insufficient. For imports over $100, Customs analyzes the paperwork and inspects approximately up to 30 percent of all imports based on risk profiling.
Additional Trade Issues
Pre-shipment inspection (PSI) by BIVAC International is required for import of goods valued at more than $5,000. Art/antiques, precious metals/stones, cinematographic films, newspapers and periodic publications, and other items defined by law are generally exempted from PSI evaluation and imports that do not have proper PSI documentation may be charged up to 100% of the value of the goods.
The following goods require specific authorization from the GRA: pharmaceutical substances and saccharine and derived products (Ministry of Health); radio, transmitters, receivers, and other devices (Ministry of Post and Telecommunications); weapons, ammunitions, fireworks, and explosives (Ministry of Interior); plants, roots, tubercle, bulbs, germs, buds, fruits seeds and crates/other packages containing these product (Ministry of Agriculture); fiscal or postal stamps (GRA); poisonous and toxic substances and drugs (Ministries of Agriculture, Industry, and Health); and samples or other goods imported to be given away (Customs). Companies operating in the oil and mining industries are exempt from duty payments with a letter from the Minister of Petroleum or Mines when importing equipment to be used exclusively on oil and mine exploration. The Embassy of Angola in Washington D.C., the Angola Chamber of Commerce and Industry (CCIA) and the U.S.-Angola Chamber of Commerce can provide additional assistance.
With few exceptions, there are no controls on exports but goods must be registered for statistical purposes. Antiquities and collectibles, diamonds, petroleum products, and other goods specified by law may require an export certificate. Costs for export certificates range from 1 to 10 percent of the value of the good.
Restrictions on Imports and Controls on Export
The GRA prohibits the import of animals and by-products from areas affected by epizootic diseases, plants coming from areas affected by epiphytic disease, distilled beverages containing essences or recognized harmful products, counterfeit goods, pornography, roulette and other gambling machines, and other goods specified by law. The U.S. Department of Treasury’s Office of Foreign Asset Control ended sanctions against UNITA in May 2003.
Entering Temporary Imports
A deposit of 100 percent of the duties and taxes to be paid on the declared value of the good or equipment temporarily entering Angola must be provided to Customs at the time of entry. If importing for a trade show, the importer should provide a letter from the organizer verifying participation in the event in addition to the documents required for regular importation. Pre-shipment inspection may be required. The deposit can be waived for official trade shows with a letter from the Ministry of Foreign Relations.
Labeling Issues
The GRA does not enforce any labeling law at this time. In addition to Portuguese, products labeled in English and French are commonly found throughout Angola.
Free Trade Zone Options
There are currently no foreign trade zones or free ports in Angola. However, in 2002 the GRA established a bonded warehouse, Customs Warehouse of Angola (CWA), for basic foodstuffs where selected foreign exporters can deposit their products to sell directly to the Angolan market.
Investment Climate
Openness to Foreign Investment
Angola officially welcomes investment and has designated the National Private Investment Agency (ANIP) to assist investors and facilitate new investment. The GRA replaced the 1994 Foreign Investment Law with the Law on the Bases for Private Investment (Law 11/03). Law 11/03 lays out the general parameters, benefits and obligations for foreign investment in Angola, and recognizes that investment plays a vital role in the country’s economic development. It encourages domestic and foreign investment by providing equal treatment, offering fiscal and custom incentives, simplifying the investment application process and lowering the required investment capital. Investments in the petroleum, diamond and financial sectors, however, will continue to be governed by legislation specific to each sector.
The new investment law is part of an overall effort by the GRA to create a more investor-friendly environment. Other recently approved measures, though not yet enacted or publicly available, include a new Company Law that consolidates the rules governing the incorporation of companies and a Voluntary Arbitration Law that provides the legal framework for non-judicial resolution of disputes. The process by which all laws are arrived at are often shrouded in secrecy and generally not open to general review until already approved into law. Additionally, many laws include vague provisions that permit wide interpretation and application. Crucial areas such as good governance, corruption and rule of law predictability still need to be addressed to lower the investment risks in Angola and provide greater assurances to investors.
Investments are treated differently according to the amount invested. Investments of less than $50,000 for domestic investors and $100,000 for foreign investors are not subject to the investment law, do not qualify for incentives (including remitting profits abroad), and do not require ANIP approval. Investment greater than these amounts will be reviewed by the GRA to confirm that the investment does not contravene: economic and social development strategies set out by the government, strategic guidelines and objectives established in economic policy programs, and legislation in force. The old Foreign Investment Law also expressly prohibited foreign investment in the areas of defense, internal public order and state security; banking activities in respect to the function of the Central Bank and the Mint; administration of ports and airports; and 4) and other areas considered by law to be the State’s exclusive responsibility. Although Law 11/03 does not explicitly state this, it remains assumed that the above areas remained off-limits to investors.
Foreign investment of between $100,000 and $5 million (minimum of $50,000 for domestic investors) is subject to a “Prior Declaration” regime in which the investor submits an investment proposal with supporting documentation to ANIP that has 15 days after receipt of the proposal to reach a decision. If ANIP does not respond or reject the proposal in 15 days, it will be deemed “accepted” and the investor will be entitled to carry out the investment on the terms set out in the proposal. Investments greater than $5 million and those, irrespective of value, that may only be carried out under a concession basis or with the participation of state-owned companies are subject to the “Contractual” regime. Under such circumstances, the investor and ANIP negotiate the specific obligations of the investment contract between the investor and the GRA. The investor submits the contract with all of the legal, economic, financial and technical documents that describe the investment to ANIP. ANIP has 30 days to review the contract, within which it will consult relevant public entities and negotiate with the investor. ANIP will then provide a recommendation to the Council of Ministers, which will have 30 days to reach a decision. There is no recourse to the investor if approval is delayed.
Intellectual Property Risks
Angola has basic intellectual property rights protection, and is working to strengthen existing legislation and enforcement, which currently is weak due to lack of capacity. The attribution of intellectual property rights is regulated by: the Ministry of Industry (trademarks, patents, and designs), and the Ministry of Culture (authorship, literary and artistic rights). Intellectual property is protected via Law 3/92 for industrial property and Law 4/90 for the attribution and protection of copyrights. Angola has adopted the Paris Convention for the Protection of Industrial Intellectual Property. To the Embassy’s knowledge, no court cases testing the strength of these laws involving U.S. intellectual property have been filed. Angola is a member of the World International Property Organization (WIPO) and makes use of its international classification of patents and of the international classification of products and services to identify and codify requests for invention patents and for the registration of trademarks. Each petition for patent that is accepted is subject to a fee that varies by type of request.
Corruption
Angola is not a signatory to the OECD Convention on Combating Bribery nor is it an active participant in any regional anti-corruption initiative. Angola does not have laws that specifically address corruption, bribery or conflict of interest. The government approved an Accounts Tribunal, or Anti-Corruption Court, in 2000 to investigate misuse of public funds by public institutions. After a slow start, the Accounts Tribunal now has a chief justice, five judges and a staff. However, it remains unclear how much political independence and practical authority the court has to investigate corruption.
Petty corruption is a prevalent problem due to extremely low civil service salaries, dependence on centralized bureaucracy and antiquated regulations dating back to the Portuguese colonial era. Procedures to register a company are complicated and, if rules are followed to the letter and no gratuities or facilitation fees paid, can take two years. This long timeframe sometimes lead investors seeking quicker service and approval to pay gratuities and other processing fees.
Angola’s public and private companies have not traditionally used transparent accounting systems consistent with international norms. Few companies in Angola employ international audit standards. The Government requires “large” companies to undergo audits, but still lacks the capacity to enforce this new legal requirement. U.S. firms are required to adhere to the Foreign Corrupt Practices Act.
Labor
The General Labor Law went into effect in 2000 that provides significant protections and benefits to workers. The law expands maternity and other leave and provides the rights to strike, collectively bargain, and organize trade unions. The law spells out under what conditions contracts can be entered into for a fixed period. For work contracts of indefinite duration, the law provides for a basic probationary period of up to six months, during which the worker or employer can terminate the contract without notice or justification. After the probationary period ends, dismissing workers becomes much more difficult and the worker has the right to appeal to a Labor Court, which normally decides in favor of the worker. Many employers prefer to reach a monetary settlement with workers when a dispute arises rather than take the time to bring cases before the Court. The skills base of the local labor force is extremely limited, and there is a severe shortage of workers with good managerial or technical skills. Many employers invest a great deal in education and training of Angolan staff. The English language capability of most workers is also very limited.
Capital Market Risks
Angola’s financial sector is not well developed, and most banks focus their operations in short-term commission-related activities such as currency trading, trade finance and dollar-denominated lending to well-established commercial businesses. Due to persistent high inflation there is a high level of dollarization in the banking system, with commercial banks holding about 80 percent of their deposits in foreign currency (mostly USD).
Portfolio investment is nonexistent in Angola. Angola does not yet have a stock market and is trying to develop a secondary market for Central Bank-issued bonds called “titulos do Banco Central.” The GRA has began to issue up to $275 million in bonds to pay its debt to private local companies, some of which have been able to sell the bonds directly to local banks or use them for collateral for credit.
Conversion and Transfer Policies
Although economic and financial reform measures in recent years have improved local access to foreign exchange and facilitated remitting and transferring funds, Central Bank (BNA) Order 4/2003 imposes stricter controls over transfer of funds abroad. While Investment Law 11/03 does guarantee the repatriation of profits for officially approved foreign investment and investors can remit funds through local commercial banks, under Order 4/2003, the BNA must now first authorize the repatriation of profits and dividends. In addition, the BNA can temporarily suspend repatriation of dividends or impose a regime of repatriation in installments if immediate repatriation will have an adverse effect on the country’s balance of payments. Obtaining Central Bank permission has improved to requiring approximately three months.
Expropriation and Compensation
The Government of Angola has in the past used the failure to fulfill contractual or other obligations as a justification for expelling foreign investors from Angola and expropriating their company and facilities. Angola is not a signatory to the International Convention on the Settlement of Investment Disputes (ICSID). Angola has agreed to host the Multilateral Investment Guarantee Agency (MIGA), which provides dispute settlement assistance. However, recent MIGA efforts to resolve foreign investment disputes have not resulted in settlement.
Angola’s legal and judicial system is not considered effective in handling commercial disputes. Legal fees are extremely high, and most businesses avoid taking dispute settlement cases to the courts. Recently, however, the National Assembly approved the Voluntary Arbitration Law (VAL) which, when made official, will provide a general legal framework for non-judicial arbitration of disputes, except for those areas expressly excluded by the law.
Performance Requirements and Incentives
Angola’s investment law provides for equal access to incentives to both foreign and domestic investors. Incentives apply to high priority sectors such as agriculture, manufacturing, energy, water, and housing. Many foreign companies already operating in Angola enjoy some form of tax or duty reduction or waiver.
Angola imposes or enforces few specific performance requirements on foreign investments. The GRA presses for “Angolanization” of companies operating in the country and for greater use of Angolan suppliers of goods and services. Decrees 5/95 and 6/01 limit expatriate staffing of local companies set up in Angola by national or foreign investors to no more than 30 percent of the workforce and requires Angolan and expatriate staff with the same job and responsibility to receive the same salary. International oil companies are working with the government on a new local content initiative that may create more explicit sourcing requirements for the petroleum sector. Foreign investors can set up fully owned (100%) subsidiaries in many sectors, and frequently are strongly encouraged, though not formally required, to take on local partners.
Bilateral Investment Agreements
Angola does not have a bilateral investment treaty or bilateral tax treaty with the United States. Angola has signed bilateral investment agreements with Portugal, South Africa, the United Kingdom, Italy and Cape Verde, but it has not ratified or implemented the agreements.
OPIC and Other Insurance Programs
The Overseas Private Investment Corporation (OPIC) has provided investment insurance to projects in Angola in recent years, and U.S. investors can apply for OPIC insurance, including coverage under its Quick Cover program (for projects less than $50 million in select countries and for certain sectors).
Angola is a member of the Multilateral Investment Guarantee Agency (MIGA), which provides insurance to foreign investors against certain risks such as expropriation, non-convertibility, and war or civil disturbance. MIGA is also available for investment dispute resolution on a cas
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