Good Opportunities for Business in Angola
Angola entered a new era in 2007 when it became the 12th member of the Organisation of Petroleum Exporting Countries (OPEC). It is now the third largest oil producer in Africa behind Nigeria and Libya and is expected to have significant increases in oil production in the short-term as new offshore projects come online. The country’s production quota, determined by OPEC, was expected to reach 2 million barrels per day by the end of 2007.
Angola is experiencing high levels of foreign direct investment (FDI), particularly in the oil sector. While oil production has driven strong economic growth for the period 2004 to 2007, forecasts range from 21% for 2008, 13% for 2009 before declining to 5%, 7.7% and 11.5% in 2010, 2011 and 2012 as oil output declines. The government has announced plans to reform the state oil company Sonangol, by transferring its quasi-fiscal operations to the finance ministry and the central bank and its regulatory functions to the petroleum ministry. Meanwhile, the Japanese Government has commenced discussions with Angola to get involved in the $3.5 billion Sonaref refinery project at Lobito, in return for crude oil supplies.
The Angolan government has severed negotiation talks with the International Monetary Fund (IMF) on an economic programme, as it believes its own programme is sufficient to maintain macroeconomic stability, stimulate private-sector growth and reduce poverty. But the IMF will continue to monitor the country’s economic progress. In the absence of an IMF programme, the government will contract expensive oil-backed loans and further extend credit lines with China, Brazil, Portugal and other partners in order to invest heavily in the rehabilitation of infrastructure.
Angola is still rebuilding infrastructure destroyed during the country’s 27-year civil war that came to an end in 2002 and this is fuelling growth in the civil engineering sector in the short term, due to the ongoing rehabilitation of roads, bridges, schools, hospitals etc. This sector has been recording the highest growth rate in the country’s history, due to the many projects which have been implemented in the 18 provinces. The sector will grow very rapidly in the future, as infrastructure enables products to reach consumers and facilitates the mobility of people, goods and services throughout the country.
In recent years, China has agreed to provide multi-billion dollar oil-backed loans to fund infrastructure development. These loans are costly and repayment depends heavily on international oil prices. But at the same time, Chinese support has placed Angola in a position where it could break ties with the International Monetary Fund (IMF) over economic support programmes that require, among other things, governance and transparency.
The non-oil sectors that have been contributing to the country’s growth include commerce, banking, insurance, and telecommunications. Angola's Institute of Development (IDIA) is considering setting up new industrial zones in the provinces in view of the significant level of growth the sector is recording. Contacts have been established with the governments of the provinces of Bengo, Malange, Uige, Zaire, Huambo, Kwanza Norte, and some districts of Bié, as well as the Lucala industrial growth point. There is a need for industries in sectors such as petrochemical, metallomechanics, automobiles, timber, siderurgy, construction materials, pharmaceutical products and fisheries. These industrial zones are expected to facilitate the emergence of new economic growth points capable of providing more direct and indirect jobs for thousands of people, thereby having an impact in the fight against poverty (around 70% of the population of 12.3 million people live on less than US$1 per day).
Cotton production is set to resume on a large scale in the Kwanza Sul Province, Serafim do Prado, this year. The necessary production facilities will be established at a cost of approximately $40 million, to be financed by China’s Eximbank. The last cotton production in the area occurred between 1999 and 2000 during which about 500 tonnes of cotton was produced. The project will employ 1,914 families and will include the construction of irrigation infrastructure.
The new Angola Nocal brewery will begin operations in June with a sum of $200 million being invested by the group Brewery International Holding. This new plant will provide jobs for 300 locals and produce about 120 hectolitres of beer per month for supply to the local market.
Angola has rich natural resources: gold, diamonds, extensive forests, Atlantic fisheries, and large oil deposits. For the country to benefit from these resources, it will need to implement government reforms, increase transparency, and reduce corruption. Corruption, especially in the extractive sectors, and the negative effects of "Dutch disease" (when a natural resource raises the value of the country’s currency, making manufactured goods less competitive with other nations, increasing imports and decreasing exports) produced by large inflows of foreign exchange, are major challenges facing the country.
Owing to its relatively loose monetary policy, strong economic expansion and continuing growth in money supply, the central bank will find it difficult to reduce inflation to single-digit figures during 2008-2012. The Consumer Price Index (CPI) is forecast by The Economist to average 13.2% in 2008, 14.7% in 2009, 11.9% in 2010, 11.2% in 2011 and 12.2% in 2012 from 12.5% in 2007.
The Angolan government has confirmed that it is open to cooperation with the world’s top industrialised countries and emerging nations such as Brazil, China, India and fellow African states. It recently approved accords with Israel concentrating on health and medicines, while Zambia is interested in the rehabilitation of the Benguela Railway, as the speedy and cheap access to the sea will assist its mineral exports to Europe.
Angola’s major exports are: crude oil, diamonds, refined petroleum products, gas, coffee, sisal, fish and fish products, timber and cotton, while its major imports are: machinery and electrical equipment, vehicles and spare parts, medicines, food, textiles and military goods. Its main trading partners are: the United States, China, Taiwan, France, Chile, South Africa, South Korea, Portugal and Brazil.
“The exposure of South African exporters has grown significantly over the past 18 months,” says Ismail Dadabhay, General Manager Exports, at Credit Guarantee.
“South African exports to Angola totalled R4.7 billion in 2006, R5.5 billion in 2007 and R600 million in January 2008, while South Africa’s imports from Angola totalled R2.5 billion in 2006, R11.6 billion in 2007 and R2.1 billion in January 2008. Credit Guarantee’s underwriting experience has been good but we would caution South African companies that it is essential for them to know who they are dealing with and the risks must be carefully monitored,” concludes Dadabhay.
