Land of big opportunities and huge challenges

The hype and excitement around the recent official state visit by President Jacob Zuma to Angola was remarkable but also understandable. President Zuma's spin doctors and the South African Department of International Relations and Co-operation were at pains to explain that the aim of the visit was to thank the Angolans for their support during the liberation struggle and to mend the broken fences that former president Thabo Mbeki left behind as a result of his less than cordial relationship with Angolan President José Eduardo dos Santos.

Angola is not only Africa's largest producer of oil and a vast reservoir of untapped natural gas, but also the world's fifth-largest diamond producer after Botswana, Russia, Canada and South Africa!

If this is not appetising enough, Angola's massive agricultural potential still lies largely untouched as well as its underdeveloped tourist industry. The financial, transport, telecommunications and health sectors are also overflowing with opportunities.

Riding on a high oil price and a steady demand for its quality diamonds, Angola over the last couple of years boasted one of the highest growth figures globally. While Angola's gross domestic product (GDP) doubled from 2004 to 2008, the on-average growth stood at 18% during the last three years.

The Angolan government also embarked upon an impressive multibillion US dollar reconstruction end rehabilitation programme to rebuild the country's infrastructure that was almost completely destroyed during many years of civil war and military conflict. This multifaceted programme and the opportunities it presents contributes to the growing foreign interest in Angola as an investment destination.

It was against this background that the nearly 200 South African business people accompanied President Zuma to Angola with great expectations and enthusiasm.
It would, however, be advisable for them and other business people interested in doing business in Angola to take notice of some of the realities under which business is conducted in that country.

In recent months, major South African business companies including Absa, Trans Hex and Super Group experienced these realities first-hand.
There are promises and indications that bilateral business relations will improve after the South African president's visit. But, South African visitors in follow-up visits may find the situation and atmosphere less accommodating and inviting that is generally experienced during official state visits.
Despite attempts by the MPLA government to improve conditions, Angola remains an extremely difficult country for foreign business operations. A myriad constraints make the Angolan business environment one of the weakest in the world, according to the World Bank's Doing Business 2009 report, which classified Angola 168 out of 181 countries.
Although Angola fairs better in terms of getting credit and protecting investors, it ranks quite poorly in general. In terms of the difficulty of hiring and firing workers, Angola had an index score of 67 and 70, respectively.

The World Bank's report estimates that registering property requires seven different procedures over a period of about 334 days, at costs of approximately 11.6% of the property value. The total tax rate is approximately 53.2% of profit, which includes a profit tax rate of 24.6%, 9% labour tax rate, and 19.5% other taxes.
Angola is notoriously corrupt and bribery exists at all levels. Human Rights Watch reported that billions of dollars in oil revenue have disappeared over the last couple of years, while Transparency International reported the finances of the state oil company, Sonangol, to be extremely opaque.

It is alleged that President dos Santos, his family and inner circle comprising senior politicians and security officers, not only control the Angolan business sector, but are seriously corrupt.

The MPLA government is understandably doing little to fight corruption despite promises to the contrary. Members of the president's family and top government officials have shares in the country's top oil, diamond, banking and telecommunications firms and it is often said that foreign companies experience difficulty in doing business in Angola unless they team up with an influential and well connected local company.

Obsolete and outdated legislation and business practices as well as cumbersome bureaucratic red tape are also major hurdles that complicate normal business activities for most foreigners. The Angolan legal system is based on the Portuguese civil law system and on customary law, and has been under reform for the last few years, but at a very slow pace. It is said that the legal system is inefficient, corrupt and subject to executive influence. Statutes are weak, and the judicial system does not handle commercial disputes efficiently. Legal fees are high, and most businesses avoid taking disputes to court.

While Angola does not impose or enforce many specific performance requirements on foreign investments, the government encourages 'Angolanisation' of companies and 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 30% of the workforce and require Angolan and expatriate staff with the same jobs and responsibilities to receive the same salaries and benefits. Oil companies are now under a decree promulgated on 14 October 2008 to first seek Angolan employees to fill any vacant position prior to seeking expatriate appointment, which must first be authorised by the Ministry of Petroleum.
Although the non-salary cost of employing a worker is low, dismissing a redundant employee is relatively costly. The high cost of laying off workers creates a disincentive for companies that would otherwise hire more people.

Similar to the oil industry, all foreign diamond companies are obliged to operate according to strictly regulated directives overseen by Endiama, Angola's national diamond mining company. One such regulation demands that any concession granted must be a joint venture with a local diamond company.
Local companies, which generally provide neither technical expertise nor capital investment to projects, can receive between 15% and 25% of the shares of alluvial projects and 5% of the shares of kimberlite projects.

The manner in which local companies gain access to diamond projects remains controversial, and there are claims that only those with direct links to the Angolan government, or to the Angolan army, succeed in doing so.

Travelling in Angola is more than a challenge and can sometimes even become a struggle for survival. In Luanda and other major centres, moving around is manageable provided you do not have to use public transport and is accompanied by a knowledgeable and trustworthy local. Foreigners are warned to limit their movements to daytime and avoid any dodgy areas. In a country where a large percentage of the population is armed, crime is a constant danger to the foreigner.

Outside the major centres, travelling is almost impossible, particularly by road. Most roads are in atrocious condition. During the rainy season, most roads become impassable with thousands of undocumented land mines littering the countryside. Transport by air is the best and safest mode to travel, but is expensive and a reliable and reputable private air service is hard to come by.

Angola as a country and Luanda, in particular, is extremely expensive. Luanda is rated the most expensive city in the world. The city depends on imports for 90% of its goods. Over 95% of building materials used in Angola are imported through the port of Luanda where container ships are often forced to lay anchor for long periods waiting to offload their cargo.

Rent for a basic one-bedroom flat in Luanda can fetch R53 000 per month and it is not uncommon for expatriates to pay R152 000 per month for something more luxurious. Modern two-bedroom apartments in downtown Luanda are sold for more than R7.7 million, while a house with a swimming pool in one of the luxurious condominiums in the Luanda Sul neighborhood can fetch more than R23 million.

Demand for office space has tripled over the last three years. A shortage of modern buildings, coupled with growing demand for housing from foreign workers, promises to keep real estate one of the most profitable and expensive sectors of the Angolan economy.
In the rest of the country, suitable accommodation is equally scarce and demand high. Most serviceable hotels are often booked months in advance, but provide only limited amenities.

South African business entrepreneurs eying the Angolan market should take cognisance that they will face stiff opposition from well established and entrenched competitors with language, history and cultural advantages. Chinese companies backed up by massive government loans and a cheap, imported labour force and well established international oil companies with considerable economic muzzle and influence also present challenges.
Overcome these barriers and Angola's questionable telecommunications system, and South African companies and entrepreneurs can look forward to healthy profits in challenging Angola.