ANGOLA is a land of promise and plenty. Richly endowed with minerals, water and arable land, its citizens laid down their weapons little more than a decade ago, after 27 years of mostly unremitting civil conflict that followed a long struggle against Portuguese colonialism.
Now the more than $100bn economy is showing the effects of peace – and the curse of the country’s oil wealth. Since the death of National Union for the Total Independence of Angola (Unita) guerrilla leader Jonas Savimbi in 2002, the nation of about 20-million has gone from boom to bust. Between 2009 and 2010, frenetic building activity in the capital, Luanda, ground to a halt. Foreign civil engineering contractors were not paid in sums amounting to billions of US dollars, while emerging cityscapes turned into white elephants.
Still, it is hard not to be impressed with the renewed energy of the sprawling capital. There are no obvious beggars, only hawkers of airtime, cold beverages and household bric-a-brac. The slums and spaza shops press up against small fashion stores and cellphone outlets, new high-rises and old Portuguese colonial buildings.
Luanda was built for about 750,000 people. During the war at least another 5-million arrived. But many of the city’s shantytowns are now being demolished, making way for commercial and residential developments. These include swathes of upmarket businesses, hotels and houses in suburbs such as Talatona, and many square kilometres of reclaimed bush being turned into gigantic industrial estates.
The pace of the activity, despite the uncertainty in the wake of the brutal civil war, is extraordinary. Outside China, few places in the world have seen such growth in such a short time, and South African companies are stepping into the breach to tap Angola’s peace dividend.
While setting up and operating a business in the country is not easy, increased per capita wealth — much of it from oil production — has led to soaring demand for consumer products. Nampak Bevcan, the only beverage can maker in sub-Saharan Africa providing steel cans with easy-open aluminium ends, began exporting empty tinplate cans to Angola from its plants in South Africa in 2005. However, demand for Angola’s Cuca beer and Coca-Cola soft drinks was so high that it decided in 2006 to build a R1bn factory in Luanda.
Since April 2011, the plant in the new Viana industrial area, about 30km from the centre of the capital, has produced 700-million beverage cans a year. It generates about R850m of revenue annually and employs nearly 200 people. The plant is funded from cash resources and borrowings in South Africa, and within about 18 months a new production line will be installed, enabling it to make 1.5-billion cans each year.
Looking beyond resources
Angola’s Secretary of State for Industry, Kiala Ngone Gabriel, says the country’s vision is to add value to its resources, which include marble and timber. “We don’t want to just depend on oil and diamonds,” he says. “We want to transfer some capital to the manufacturing sector and education. Our mainstay is oil. The oil sector is not a good employer. We want to produce, train people, add value and create jobs.”
He says Angola offers business incentives for restoring capacity lost to war, and for developing rural areas. This includes new mining activities, deriving industrial chemicals and fertiliser products from oil, and expanding the country’s agricultural potential. Along with road and railway rehabilitation, and improved energy and water use, Mr Gabriel says the government is keen to support the private sector.
“We are trying to make life easier for the private sector,” he says. “It is not our desire to complicate life for investors. We want to take development to the rural areas. No one (economic) sector is more important than another. Each has it own role (to play).”
The main aim is to reduce the country’s reliance on imports. “We have to look first at our domestic market and satisfy local demand. But we also need to export (to bring in foreign exchange).”
Angola needs factories. It already has some steel plants using scrap metal inputs; cement plants, mainly near Luanda; and one glass plant, which was privatised in 2007. Mr Gabriel says he hopes the country will be self-sufficient in cement production by 2017. However, he also wants companies that export into Angola from South Africa, Brazil and the European Union, including Portugal, to locate their plants here. To encourage such development, the government is introducing steep duties for imported alcoholic drinks.
Privatisation differs between sectors, Mr Gabriel says. For most state-owned assets, especially strategic ones, the government wants to retain 51%. “But in the private sector, foreigners can have 100% ownership, though we urge them to create joint ventures (with Angolans).”
Investment incentives include the repatriation of profits and dividends; exemption from or lower duties on imports of specific raw materials, equipment and spare parts; and tax breaks on activities where the state wants to focus development. There is also a process to bring down corporate tax from 35% to 30%, and then 25%, Mr Gabriel says. “Corporate tax could be zero to 10% or 15% for some arranged period of three, five or 10 years, depending on the distance from Luanda.”
Mechanisms are being put in place to encourage economic input that supports domestic production. “The main role of the state is to define strategies and long-term plans. The private sector is expected to be the main engine of economic growth in the country — but, of course, there are rules. We are coming from a war situation and need to stabilise our normal life.”
Establishing a business
From 2006, Nampak Bevcan bought land and started building its factory. But because of statutory approvals, commercial production did not start until April 2011, trading under the name of Angolata. At the time, Nampak Bevcan was exporting almost 500-millions cans each year to Angola. It estimates the existing market for beverage cans in Angola to be about 1.2-billion annually. The cans are made from tinplate imported from Europe, and the aluminium ends are manufactured at Nampak Bevcan’s factory in Springs, South Africa.
The company says the biggest benefit to customers is that the Angolan factory, which is a 70/30 joint venture with highly placed Angolans, simplifies the supply chain, reduces foreign-exchange requirements and improves working capital.
Tim Leaf-Wright, commercial general manager at Angolata, says maintaining top-tier relationships in Angola is “vitally important”, adding: “Here, a phone call can almost sort things out for you.”
But he says investors must have (official) “buy-in” and not expect things to happen overnight. “Be prepared for the long haul. There will be frustration and a lot of red tape.” Also, partnering with Angolans is not a legal requirement but a “given”.
A new Chinese brewery is soon to come to market, and Mr Leaf-Wright says exporters to Angola — including some from Portugal — are “scrambling to set up local manufacturing”, which will benefit Angolata.
Some South African companies have, however, arrived in the country with an “arrogant approach” and failed. In a country that produces about 1.8-million barrels of oil a day, officials think in telephone numbers, he says, adding: “The cost of doing business here is high — but the returns are high.”
South African construction firm Group Five and regional logistics company Super Group, for example, lost sums of money in Angola, blaming “irregularities”.
Nampak CEO Andrew Marshall agrees on the “mad costs” of doing business. Nampak spent $165m to set up Angolata. A similar factory in South Africa would have cost about $120m, or about $100m in the US or Canada. “So as a base for exports, the costs are too high,” he says.
That is not the case for import substitution, however. Mr Marshall says Nampak has committed a further $40m to make various packaging products on what is now vacant land next to the Angolata plant. But significant dollar-based investment needs approval from a council of Angolan ministers.
Post-war recovery
Barloworld Equipamentos Angola, the South Africa-based multinational’s Angolan subsidiary, is the designated dealer in the country for Caterpillar earthmoving equipment for mining and construction. It also provides power systems for the marine, electricity, oil and gas, and rail and industrial sectors. In about 1991, Caterpillar allowed the then Barlows company to deal with Odebrecht, a Brazilian contractor that had been awarded a contract to mine alluvial diamonds on the Cuango River in Angola’s Lunda Norte province. Odebrecht remains hugely involved in building the country’s infrastructure.
But that project came to a halt shortly after the first Angolan elections in 1992 when Unita went back to the bush, restarting and intensifying the war. At the time, all supplies, including earthmoving and mining equipment, spare parts, food, fuel and cement, were flown in to diamond mines controlled by the People’s Movement for the Liberation of Angola (MPLA) — but these flights were vulnerable to Unita anti-aircraft missiles.
Then, in 1994, Barlows became the Caterpillar dealer in Zambia, Angola (including São Tomé and Príncipe), Malawi and Mozambique. Odebrecht facilitated its entry into the country, as companies had to be invited and could not “just arrive”. The Brazilians provided transport, housing and introductions to influential people. In due course Barlows was allowed to rent a house complete with armed guards and its own water and power supply, where it began its dealership.
Considering Angola’s main links at the time, to Portugal and, to some extent, Brazil — and South Africa’s apartheid past, it was at first problematic to convince customers to do business directly with a South African company, so it dealt through its Caterpillar dealership in Portugal.
The group recognised Angola’s potential. Infrastructure development had largely stalled since 1975. The war had prevented the construction of roads, dams and bridges, and many were destroyed. Ports and railways also needed attention. The demand for diesel generator sets was enormous.
What became Barloworld Equipamentos Angola started with only three employees. It now has more than 500. Its Luanda facility has a workshop, a parts warehouse and a training centre. In 2008, it opened a 10,800m² facility in the town of Lobito to manage sales and service support for clients in southern Angola. Its total investment in Angola since 1994 has been about $100m, with another $60m earmarked for 2011-16.
Barloworld also has a representative outlet in the oil-rich enclave of Cabinda and is establishing a depot at the mouth of the Congo River to support its oil and gas customer base, along with other small offices. Growing demand from construction customers saw it open an outlet in Luanda’s Viana industrial area last year, which is served by a new ring road and is easily accessible from a planned new international airport.
Mark Liquorish, GM of Barloworld Equipamentos Angola, echoes Mr Leaf-Wright of Angolata when he points out that doing business is still not easy, and red tape, a legacy of Portuguese rule, is “a killer”.
“There have been some very good times and very tough times,” he says, adding that numerous South African companies “have come here and failed”.
Mr Liqourish says risk mitigation is the most important factor in doing business in Angola. Companies need to understand their partners and customers, and their creditworthiness.
He sees Angola as a natural conduit for exporting minerals from Zambia and the Democratic Republic of Congo to western markets. But he adds that without Chinese companies, which mainly sub-contract to other Chinese and Angolan companies, things would collapse.
However, China imports everything and provides nearly all of its own labour. One of Angola’s greatest challenges is to build the skills needed for long-term development, so the government has introduced initiatives that encourage foreign companies to take this into consideration when setting up in the country.
Gaining a foothold
Angola’s per capita income is five times that of the rest of Africa. Imports make up 85% of the economy, with oil-related activities accounting for about 60% of gross domestic product. Financing of oil companies is done offshore, but there is plenty of scope for funding the development of dams, roads, ports and airports, including power and associated trading infrastructure.
Among the latest South African newcomers is Standard Bank, which arrived about two-and-a-half years ago. It is the 51% shareholder alongside an Angolan insurance and pensions manager. It has 22 branches in the country, employing about 500 people, and will add another five branches this year.
The bank, named “Best Bank Angola 2012” by the Global Banking and Finance Review, offers corporate, investment, personal and business banking. “The same as everywhere,” CEO Pedro Pinto Coelho says, though the client focus is on large companies and corporate suppliers to small-and medium-sized enterprises and distributors.
Market statistics are hard to come by. This makes finding good projects, companies and management harder. “It is sometimes difficult to find this credit profile,” he says.
While he agrees that understanding Angola’s business peculiarities can take time, Mr Coelho says it is ultimately no more difficult doing business here than anywhere else in Africa. “But the potential for growth (fuelled by oil) is much higher than in other parts of Africa,” he says.
Rapid growth
One Angolan working in Luanda says the Viana industrial zone, where the Nampak Bevcan facility is located, was bush just five years ago, a killing field for bandits. Now it is also home to the massive and largely empty Chinese-built Kilamba New City project, built to house tens of thousands of people in 750 high-rise buildings.
These people are controversially being moved from the slums around central Luanda to provide labour for the factories and businesses that are springing up all around. These include a new but rarely visited deluxe hotel, the country’s newly built national football stadium and a roller-hockey skating rink that is under construction.
But, despite some government subsidies, for those living here it is hard to find jobs, qualify for mortgages or earn money. The Angolan says “everything in Angola is money” and that many government ministers are millionaires many times over. He claims the capital’s Talatona district is full of buildings owned by generals in the military and police, and he reckons much of the country’s oil money is stolen.
In Talatona, expatriate rentals for houses range from $15,000 to $45,000 a month. Prices for what look like average Johannesburg cluster houses can be up to R15m. Shoprite has a large supermarket here. Along with South African sparkling wine maker JC le Roux, it advertises on hoardings and along the Viana highway.
Meanwhile, Angolata still ships in 20,000 litres of diesel a day to power its Viana plant. It is now connecting to the main electricity grid, but growth in the region is so rapid that services often cannot keep up. “Development in Angola is visible — which I never saw in Nigeria,” Mr Leaf-Wright says. “There is corruption, but things are happening. Fiscal policy in this country is far better than in Nigeria.”
Peter Mashangu, general manager of Angolata, agrees. “Things are starting to work in this country — it has come a very long way,” he says. “Officials want you to appreciate what they have done: from zero (during the war years) to now.”
• Allix was a guest of Angolata for part of his stay in Luanda.
Source Article from http://www.bdlive.co.za/africa/africanbusiness/2013/07/31/the-good-times-and-tough-times-of-doing-business-in-angola
