ANGOLA: ON THE ROAD TO RECOVERY
By Dan Keeler
Ravaged by a 27-year civil war and buffeted by the recent
global financial crisis, Angola has suffered more than its fair
share of challenges. Undaunted, its leaders are striving to
reshape it into a robust and dynamic economy.
Just under nine years after the end of a 27-year civil war that
left an estimated 1.5 million people dead and more than four
million displaced from their homes, Angola is undergoing a
remarkable transformation. Hundreds of miles of highways that were
destroyed during years of persistent fighting are being
reconstructed under an ambitious infrastructure development plan.
Railways are beginning to run again and plans are being formulated
for a huge increase in power generation capacity and a massive
expansion of the water supply system.
Situated on the Atlantic coast of Southern Africa, Angola has a
wealth of natural resources. Its temperate climate and large tracts
of fertile land make it an extremely attractive agricultural area
with the potential not only to amply feed its own population but
also to become one of the most significant food exporters in the
region, and perhaps even the continent. Its oil production capacity
rivals that of its northern near-neighbor Nigeria, and by some
accounts it has now overtaken Saudi Arabia to become China's
principal oil supplier. It also has substantial reserves of
diamonds, gold and other minerals as well as a long, underused
coastline and some stunningly beautiful interior landscapes that
could help it develop a lucrative tourism industry.
On the face of it, the picture is rosy. In a recent speech to the
National Assembly in Angola's capital, Luanda, president José
Eduardo dos Santos noted that the country's economy grew at an
average rate of over 14% between 2002 and 2008, with
non-oil-related economic growth proving slightly stronger than
oil-based growth. In its most recent global economic forecast, the
World Bank's says it expects Angola's economy to grow this year at
a robust 6.7%, accelerating next year to 7.5%. Estimates for
Angola's 2010 GDP growth range from 3% to 5%.
Other indicators are encouraging, too. Britain's Overseas
Development Institute says the number of people living in abject
poverty in Angola has been halved since the end of the civil war.
The World Bank says more than one in three Angolans had a mobile
phone by 2008, up from one in 10 in 2005. With a number of major
new communications cables under construction along the length of
Africa's west coast and a recently announced plan to lay a
submarine fiber-optic cable network that will directly connect
Africa with South America-and have Angola as its landing point-the
country has the potential to become a key communications hub for
the whole continent.
By no means, though, has Angola's experience since the end of the
war been clear sailing. Having been one of the world's
fastest-growing economies between 2005 and 2008-albeit from a very
low base-Angola suffered a painfully hard landing in 2009. Tumbling
oil prices slashed its GDP growth-by some estimates to barely over
0.2%-and tax revenues slumped accordingly. The government found
itself with an ugly hole in its budget and no option but to go
cap-in-hand to the IMF. In November 2009 the IMF stumped up $1.4
billion to help Angola get its finances back in order.
Over the past year, on the back of rising oil prices, the country's
economic fortunes have bounced back robustly, and the ambitious
infrastructure and social development plans are back on track. For
companies considering investing in Angola, this is reassuring news.
However, it is not the whole story. "Angola's economy has
absolutely vast potential," says Tara O'Connor, head of Africa Risk
Consulting, a UK-based firm that offers pre-investment advisory and
research services for corporate clients. "It's producing two
million barrels of oil a day and has reasonable growth expectations
in both the non-oil and the oil sector. But," she adds, "it has
political and regulatory restraints preventing it from unleashing
The British government's trade promotion arm, UK Trade &
Investment (UKTI), shares O'Connor's view, commenting that Angola
presents "significant opportunities." But it adds, with
characteristic understatement, "Doing business in Angola is not
The Brits aren't the only ones to have noticed that setting up or
running a business in Angola is an uncommonly challenging prospect.
On the World Bank's ease-of-doing-business scale, Angola ranks
163rd out of 183 countries. It also consistently scores exceedingly
poorly on Transparency International's annual corruption
perceptions survey, lurking at the bottom of the global league
alongside such other famously challenging countries as Burma, Sudan
and Somalia. The decades of strife and their accompanying
destruction of infrastructure have also taken a severe toll on
Angola's competitiveness. According to the World Economic Forum,
Angola is one of the least competitive countries in Africa based on
its technological readiness for business, its general education
levels and the state of the country's public institutions.
Given the level of damage the country suffered during the decades
of conflict, its lack of technological readiness is hardly a
surprise. By the time the civil war ended in 2002, more than two
thirds of Angola's road network had been partially or wholly
destroyed. The country's main railways were inoperative and its
primary water treatment and distribution systems as well as its key
hydroelectric power facilities were in ruins. Much of the country
was riddled with land mines.
As with so many aspects of Angola, though, the raw data don't tell
the whole story. Although it agrees that Angola is one of the
world's least-business-friendly countries, the World Bank also
notes that the situation is changing and that the country has shown
a marked improvement over the past five years. Angola's investment
promotion agency, for example, is working to streamline the process
of investing in the country. The central bank is also ramping up
its efforts to create a transparent and legitimate financial system
and has created a "financial intelligence unit," whose role is to
improve banking supervision and combat money-laundering. And
despite the fact the president and his henchmen are often accused
of presenting the biggest obstacles to the creation of a fair and
opaque business environment (see box), Dos Santos has launched a
personal campaign to stamp out corruption.
Slow and Steady Wins
Building a 21st-century economy and creating the stable and
credible institutions that can support and nurture it will take
time, however-a fact that those considering investing in Angola are
strongly urged to bear in mind. "You have to remember, this is a
new country," says Nicolaas Alberts, director of Investec Capital
Partners, Angola. "Changes aren't going to happen as quickly as
Western companies might want, but they are moving in the right
direction, and things will speed up."
Alberts says there are some notable underlying trends that
illustrate the sea change under way in Angola. "The big four
accounting firms are here, for example, and they are growing
rapidly-that means the local companies are using them, which is a
tremendously good sign."
At the heart of the government's plan to bolster the economy is its
massive program to rebuild and expand Angola's infrastructure.
Funded by a potent mix of oil revenues and giant loans from foreign
governments-particularly the Chinese-the plan involves rebuilding
and extending the country's road and rail network, its electricity
generating and distribution infrastructure and its water supply
systems. By 2016 the government hopes to boost
electricity-generating capacity to 7,000 MW, as well as to provide
access to clean water for 100% of the population in urban areas and
80% of people in rural areas.
To pay for its plans, the government has earmarked the revenue from
100,000 barrels of oil per day. As part of its standby agreement
with the IMF, the government has also committed to raise the level
of spending on social projects such as housing and school
construction-something that is desperately needed in a country
where, according to the UK government's trade department, as much
as 80% of the population is illiterate.
As well as alleviating poverty and hardship within its own borders,
Angola's infrastructure spending binge will change the regional
balance of power. Rehabilitating and expanding the ports, highways
and railways, says Dos Santos, will "make it possible in the next
few years for the country to be transformed into a logistical hub
of considerable importance in Southern Africa."
Diamond in the Rough
Angola may present tremendous opportunities, but for all but the
most intrepid and determined companies, those opportunities may
remain out of reach. Setting up and maintaining a business in
Angola requires tenacity and determination, local experts say.
There is almost universal agreement that the key is to find the
right local firm with which to partner. Alberts explains: "Working
with a local partner is not the only way to operate here, but it
certainly is the easiest way. The challenge is finding the right
person-one who will respect your company's policies, your
governance structure and your corporate attitudes. You can't do
that by just flying in-you have to be prepared to spend time on the
Stephen Bailey-Smith, head of Africa research at Standard Bank,
says the challenges of investing in Angola can be immense, but so
are the potential rewards: "Angola's economy is set to grow
quickly," he says. "If it gets it right, the money that it gets
from oil production should provide huge fiscal room to spend on
roads, rail, ports and energy, which should facilitate the rebound
of an economy that was decimated by decades of civil war," he
O'Connor agrees that setting up there is difficult: "You have to
put the time in. The critical thing about doing business in Angola
is to know that opacity is your starting point and that to be
successful you have to take a long-term strategic view. You also
must have clear objectives, equally clear governance policies and
the authority to walk away from a deal at the 11th hour if anything
comes to light about which you are uncomfortable."
Having deep pockets also helps, as does having explicit or implicit
government backing. China is the most visible example of a country
that is spending freely in order to help its companies establish a
toehold in Angola, but it is far from alone. Russia's president,
Dmitry Medvedev, swung by in July 2009 to encourage a deeper
economic relationship between Russia and Angola-and to build on
goodwill established during the Cold War when the Soviet Union
supported the ruling MPLA party in the civil war against the rival
UNITA party, itself supported by the United States and South
Africa. After a brief stay, Medvedev left with a fistful of
contracts for infrastructure projects such as rail links and
hydropower developments. Angola's former colonial ruler, Portugal,
is also eyeing opportunities there, and its president, Aníbal
Cavaco Silva, visited in July last year-bringing with him an
80-strong delegation of Portuguese businesspeople. In early
November, Nick Baird, director general of Britain's Foreign and
Commonwealth Office, paid a flying visit to Angola, followed
shortly afterwards by the UK's Africa minister, Henry Bellingham,
who spent four days in Angola with a sizable entourage of British
businesspeople in tow.
After decades of animosity, South Africa is also working hard to
establish closer ties with Angola. South African president Jacob
Zuma's first state visit was to Angola, and in December last year
Dos Santos returned the favor with a state visit to South Africa
that Zuma described as "the final cementing of relations between
the two countries." The deepening relationship with South Africa,
which during Angola's civil war sided with UNITA against the
MPLA-Angola's current ruling party-is perhaps the clearest sign
that Angola's leaders are trying to leave behind the country's
turbulent past. As one Western observer put it, "It's remarkable
that they're sitting across the table from each other. The last
time many of these Angolans and South Africans looked at each
other, it was over the barrel of a gun."
A Burgeoning Regional Power
Although Angola is still in the early stages of its reconstruction
program, the country's potential is already becoming clear.
"Politically, it's challenging South Africa as a dominant force in
the region," says O'Connor. Dos Santos, perhaps with an eye on his
legacy, is keen for Angola to raise its international profile in
the region and beyond. "Angola will continue to maintain its
inescapable calling of being a factor for peace, stability and
development," he said recently.
Some observers believe that Dos Santos' efforts to create a more
open, transparent system partly reflect his desire to be remembered
as a champion of reform, having instituted changes that benefit all
levels of Angolan society. The president and his government
certainly have the financial clout to lift Angola's masses out of
the grinding poverty they've endured for decades. "The potential
wealth from oil is so huge you can't ignore it," says Bailey-Smith.
"Angola produces almost as much oil as Nigeria, but it has a tenth
of the population, so potentially it should be much more wealthy,"
The key question for companies considering investing, though, is
whether it would be best to wait until the country becomes more
business-friendly. Alberts is unequivocal: "The growth rate is so
rapid here and the opportunities are so huge that you need to get a
foot on the ground as soon as possible," he argues.
O'Connor agrees that multinationals should already be considering
venturing into Angola: "There is an enormous opportunity there.
Everything is pointing in the right direction. With the end of war,
the government ... opening up for business-they're little steps,
but all of those steps are heading in a good direction for the long
Perhaps most telling of all is the fact that Angola is falling out
of favor with investors who specialize in distressed debt. Robert
P. Smith, founder and managing director of the Boston-based Turan
Corporation, which specializes in trading emerging market sovereign
debt, made a substantial return on Angolan government debt he
bought for five cents on the dollar two decades ago. "Now we're not
interested," he says. "My general perception is that it's doing
very well, and that means it's not a place where we're going to
make a lot of upside."
CORRUPTION: THE ELEPHANT IN THE ROOM
Much progress has been made in Angola since the end of the civil
war, but at least one characteristic of doing business there has
barely changed. As one Western businessperson, who asked not to be
named, told Global Finance: "You can't make anything happen in
Angola unless you know the right people-it's essentially a very
Another put it more bluntly: "Angola has an avaricious and
controlling political elite. Pretty much every major business in
every sector has got some member of the [president's inner circle]
as either a hidden or publicly recognized shareholder, so there is
a great deal of opacity amongst that elite."
While few people doing business in Angola will openly talk about
it, the whiff of corruption pervades every discussion about the
country. It is no secret, however, that literally billions of
dollars of oil revenues are unaccounted for and that many of the
country's political and business leaders are extraordinarily
wealthy. According to the Johns Hopkins University's Journal of
Democracy, for example, by 2003, just a year after the civil war
ended, president Dos Santos was the richest man in Angola, and his
key political allies had amassed tens-or perhaps hundreds-of
millions of dollars.
Unlike in many other resource-rich, newly emerging countries,
though, corruption is not rife at all levels of society. "The petty
corruption you see in other countries in Africa is less prevalent
in Angola," says one commentator, "but at the senior level, I
suspect there is very little independent tendering." Another
Luanda-based businessperson described the situation as "nothing to
write home about" and added: "You have to see it in context.
They've had civil war for 27 years, and all of a sudden the war
ended, and they have this tremendous amount of oil."
There is also a consensus that Angola's top leaders have recently
developed a determination to crack down on corruption and to
establish a more open, transparent business environment. Investec's
Alberts notes: "They're definitely going in the right direction,
establishing laws that deal with corruption. The fact that they are
doing this shows they are serious about improving the business
O'Connor highlights the importance of a new financial investigation
unit that the central bank is setting up early this year. "It's a
small step toward establishing the necessary framework that will
enable international companies to be comfortable coming into the
country, either to participate in local companies or to set up on
their own," she says.
As more multinationals establish operations there-as they surely
will-they will bring with them Western standards of transparency
and governance. If Angola is to have any chance of achieving its
dream of becoming a regional economic leader, it will have little
choice but to create an open-and honest-business environment.