2005 Business Symposium in Angola

HOTEL TROPICO, LUANDA

MAY 4-5, 2005

                 DAY1 SYMPOSIUM AGENDA                                                DAY 2 SYMPOSIUM AGENDA

Introduction:

The US-Angola Chamber of Commerce and the Angola Chamber of Commerce and Industry organized their first Business Symposium in Luanda, May 4-5. This was a major initiative for both organizations. The symposium’s agenda and list of companies and organizations that attended are attached.

Sponsors:

The Business Symposium could not have taken place without the generous support of our sponsors. The three major sponsors were BP, ChevronTexaco, and ExxonMobil (Esso). Event sponsors included Banco Africano de Investimentos (BAI), MITC, Devon Energy, Banco de Comércio e Indústria (BCI), and S&N Pump. Each of the major sponsors made remarks at the opening session.

Opening ADDRESS:

The Minister, Deputy to the Prime Minister, Aguinaldo Jaime, opened the symposium on behalf of the Government of Angola. In his remarks, the Minister commented on the political process to achieve national reconciliation, which will lead to elections in 2006. The National Assembly had recently passed a number of laws to regulate the elections in a fair and transparent way. In his capacity as the head of Angola’s economic team, Jaime also described the initiatives that had been taken to promote macro-economic stability in the country. Excellent results had been achieved in a number of areas, including controlling inflation and achieving currency stability. Despite the many challenges facing the government, the Minister concluded Angola was moving on the right path.

Panel Discussion on the Regulatory Environment:

Dr. Dealdino Balombo of the Angola Private Investment Agency (ANIP) presented a comprehensive review of the Private Investment Code and the results that have been achieved since the law was enacted. Particularly noteworthy was the increased investments in the provinces. (Presentation 1)

Luzolo Carvalho (KPMG) reviewed some of the salient features affecting the investment climate. A particular problem for many foreign investors was to obtain a visa to enter the country. (Note: Two foreign companies that had intended to participate in the Business Symposium failed to receive the necessary visas.) Foreign investors are also required to invest a minimum of $100,000 if their application is to be approved. The incorporation of companies can be time consuming, taking at least eight weeks under the best of circumstances, oftentimes more, in addition to the legal and other costs associated with the process. Labor laws must also be complied with, including annual leave of 22 banking days and a holiday bonus of 50% of one-month salary. The corporate profit tax is set at 35%. Carvalho concluded with three observations: Angola is open for business and investment; it is important to get good advice and to do things right the first time; and the time to invest is now. (Presentation 2)

Joe Brand (Patton & Boggs) said that Angola was a fabulous place in which to invest. The overall trends affecting the investment climate were positive. However, certain deficiencies existed. In comparison with Nigeria, South Africa, Brazil, Portugal, and the United States, Angola fared poorly in three areas: starting a business, registering property, and enforcing contracts. The United States Trade Representative (USTR) had also identified two weaknesses in Angola, -- the vagueness of provisions for the repatriation of profits and the lack of enforcement procedures. Angola has not adhered to three major multilateral treaties relating to arbitration procedures and the resolution of disputes (New York Convention, ICSID, and CISG) or bilateral treaties with the United States (TIFA, BIT, and the Double Taxation Treaty). In the absence of a strong Angolan judiciary, these international safeguards assumed even greater importance. Brand concluded that steps should be taken to strengthen the judicial system and to adhere to above-mentioned international conventions. Consideration should be given to lowering the 35% tax on corporate profits, which was among the highest in the world and dampened investment interest in Angola.

Lunch Speaker:

Aguinaldo Jaime was the guest of honor at lunch, during which he responded to questions from the audience. In response to a comment of “excessive red tape” that had been raised in the panel discussion on the regulatory environment, Jaime took note of the concern and said he would investigate and report back to the US-Angola Chamber of Commerce and the Angola Chamber of Commerce and Industry. On the issue of adhering to arbitration treaties, Jaime said he believed the government would sign the relevant treaties. Asked about the possibility of lowering the corporate profit tax, Jaime replied that the tax regime was under review, but he could not signal in advance if the corporate tax would be lowered. Another question concerned relations with the IMF and whether a Staff Monitoring Program would be reached between the government and the IMF. Jaime said the talks with the IMF team, which had recently visited Angola, were cordial and constructive. There were still pending questions but there were no fundamental differences. Differences concerned tactics rather than substance, citing as examples the functions of Sonangol and inflationary measures.

Panel Discussion on Banking and Finance:

The Vice Minister of Finance, Job Graca, presented a comprehensive overview of the steps the government had taken to promote macro-economic stability. Asked what the government was doing with the windfall profits resulting from high oil prices, the Vice Minister replied they were putting put into the general account and disbursed according to government priorities. On the issue of privatizing BCI, he replied that the bank was being restructured before privatization.

Jose Massano (BPC) reviewed the historical growth of the Angolan banking system, which now numbered 11 commercial banks. The commercial banking system was becoming increasingly sophisticated in its technology, in its competitiveness, and the services that were offered to its clients. He argued that the existence of two currencies (dollars and Kwansas) hampered the development of the banking system. A further impediment was that oil revenues did not flow through the Angolan banking system. One participant noted that the big oil companies did not want to work with the Angolan banks, since they lacked the capacity to handle these sums of money. (Presentation 3)

Lima Cruz described the steps that were being taken to establish a stock exchange in Angola. He said it would be modeled on similar exchanges in other countries to ensure proper controls. Cruz anticipated that the stock exchange would be established in 2006.

Panel Discussion on Case Studies:

One panel member, Filipe Tate (S&N Pump), was unable to participate in this panel discussion because of illness. (S&N Pump participated in the 2001 US-Angola Chamber of Commerce trade mission to Angola and subsequently established operations in Cabinda Province.)

Manuel Caninhas (Amer-Con) reviewed the history the company’s involvement in trading and construction since the late 1970s. Despite difficulties that the company experienced in the early 1990s, Amer-Con remains fully engaged in the country.

Hap Palmer (Pegasus Energy) said his company was small and concentrated on downstream operations of petroleum products and services. Their initial exposure to Angola resulted from participation in the 2003 US-Angola Chamber of Commerce trade mission and since then, considerable time was required to assess the market and obtain reliable and accurate information. Palmer pointed to the costs involved in trying to establish operations in Angola, including management time, travel expenses, legal fees, and setting up an office and recruiting staff. The incorporation of the company has still not been completed. A further problem is obtaining licenses. He wondered why “local fuel companies”, estimated to number 62 of which only about 10% actually are in business, can obtain licenses while a legitimate company has difficulty in getting a permit. Work permits were also difficult to get. Other issues involved competitors who do not want new entrants in the market; lack of adequate infrastructure and the costs of putting what is required into place; language barriers; and the difficulty of finding reliable and trustworthy local partners. Despite these obstacles, Pegasus wants to find a niche in the Angolan market. This is driven by personal desire and a larger regional strategy. Palmer concluded that the return of profits in Angola has to be higher than in some other parts of the world, primarily because of the risk and time factors involved.

Panel Discussion on the New Petroleum Law:

Chindalena Lourenco (Fatima Freitas Advogados) presented an overview of the new Petroleum Law (Law 10/04 of 12 November 2004). She indicated that the regulatory powers and responsibilities of the Ministry of Petroleum had been significantly expanded under the legislation. The rights acquired under previous petroleum concessions were to remain fully valid to protect contractual stability, though existing contracts may be renegotiated to adjust to the new requirements. Major changes included: more restricted access by oil companies to the Ministry of Petroleum; lack of defined criteria to calculate compensation in case of nationalization/expropriation; promotion of indigenous companies in petroleum activities; requirement to hire Angolan citizens for all positions, unless skills are unavailable locally; and no discrimination between Angolan employees and expatriate employees, including salary. (Presentation 4)

Dr. Carlos Feijo (Associados Advogados R.C.J.E.) said he had played a role in drafting the new petroleum law and outlined the basic legal and political principles underlying the legislation. These were: (1) oil reserves are a property of the state; (2) Sonangol is the sole and exclusive concessionary of this property; and (3) oil constituted the main source of revenues to the government. The operations of the oil sector did not involve simply economic considerations, but were of major political importance to the government. He refuted allegations that outside actors, such as the World Bank and IMF or new oil partners, had influenced the drafting and passage of the legislation. Feijo noted that the oil companies were consulted during the drafting of the legislation. The fruit of their efforts could be seen in the final wording of the article, which protected the rights acquired under existing contracts (Article 92.1). But other issues involving the oil companies were considered as well. His associate, Lourdes Fernandes, described 17 articles, which fell into this category (Presentation 5)

During the question and answer period, Feijo was asked for his views about the feasibility of channeling oil revenues through Angolan banks. He said that the principle was correct but needed careful reflection. He had advised the President to examine this issue within a macro-economic and institutional context. Did the Angolan banks, for example, have the capacity to manage these funds? He also thought it was important to consult the oil companies about this possibility given its larger implications for the petroleum sector.

Panel Discussion on Local Content:

Susana Ramos (Fatima Freitas Advogados) analyzed the Ministry of Petroleum’s Order No. 127/03, November 25, 2003, which established the guidelines to promote the involvement of Angolan companies in support of petroleum operations. The order stipulates three regimes for the tendering of contracts to the oil sector: exclusive regime where foreign companies may only act as subcontractors of Angolan companies; semi-competitive regime in which foreign companies are only permitted to be involved through joint ventures; and competitive regime where foreign companies can submit tenders either in association with Angolan companies or independently. The governing criteria are the level of specialized expertise and capital investment required under each category. Ramos noted that Angolan companies are given preferential treatment under this order. (Presentation 6).

Graham Evans (BP) presented the perspective of an oil company on local content. He said BP recognized the importance of maximizing local content expenditures because it stimulates employment and wealth generation and benefits the oil sector by reducing delivery times and costs. Initiatives had been taken to promote the process. In a collaborative effort of Sonangol, Ministry of Petroleum and other members of the oil sector, the Projecto de Desenvolvimento da Participacaso Nacional (PDPN) was established. Under this umbrella, the Supplier Training Initiative will provide support and training to local companies. A key component of this initiative is to establish a Business Support Center in Luanda. With respect to the development and employment of an Angolan workforce, Evans pointed out that, according to a recent study, the demand for qualified technical and professional recruits for the industrial/oil sector alone is likely to exceed 1,300 people per year over the next six to seven years. This creates enormous challenges for individual companies and the country as a whole to meet the expanding manpower demand; and, he concluded it is unclear at this point how this demand can be met from existing resources. (Presentation 7)

Gabriel Kuiatse (Schlumberger) described the efforts of his company worldwide to train and employ local nationals, and especially the emphasis the company placed on the training and employment of women. Another tenet was to employ staff outside of their native countries; normally, about half of the company’s workforce is of local origin and the others are expatriates. English is the universal language within the company. Schlumberger was also dedicated to forging partnerships with local companies, but required local companies to bring real value and contribution to joint ventures. From the previous panel discussion, the question was raised about the feasibility of the policy mandating equal pay between Angolan and expatriate employees. Kuiatse replied this issue posed difficulties for Schlumberger because of the company’s policy to diversify its workforce. Financial incentives had to be offered to employees to accept positions outside of their native country. (Presentation 8)

Lunch Speaker:

The Vice Minister of Petroleum, Anibal Silva, was the guest speaker on May 5. He provided a perspective of Angola’s oil priorities at this stage. Beyond the development of existing off shore oil blocs now producing over one million barrels per day, the government placed high importance on the establishment of the LNG facility in order to reduce flaring and to turn this precious resource into productive purposes. The plant capacity will be five million tons per year and is expected to be operational in 2009. Another priority was to build a new refinery in Lobito with a processing capacity of 200,000 barrels per day. This project is at an initial phase of pre-detailed engineering and may come on-stream by 2009/2010. . A third focus was to assess and develop on-shore oil production. The Kwanza onshore areas have been divided into 23 blocks and the licensing of concessions for these blocks should occur in the course of this year. The interior basins of Kassanje, Okavango and Etosha are presently in the reconnaissance phase. The Vice Minister urged the national companies to be more pro-active and to take advantage of the opportunities under local content regulations, especially in the development of the onshore areas. During the question and answer period, the Vice Minister was asked how the government intended to preserve Angola’s environment if oil concessions are given to interior areas of the country, particularly since the concessions might be located in some of Angola’s national parks. The Vice Minister acknowledged this concern and said the government would ensure environmental issues were taken into account in developing onshore oil resources. (Presentation 9)

Panel Discussion on Priority Areas of Investment:

Rui Santos (Sistec) gave an overview of the existing and potential telecommunications market in Angola. In the short term, he believed the growth potential would be limited by various factors, including the poor state of education and the limited buying power of most Angolan citizens. Food and clothing were priorities, not phones and commuters for most Angolans. He projected the market potential in ten years would reach 3 million computers, 3 million internet users, 8 million cellular phones, and 3 million fixed phones. He did not believe a third cellular operator was justified at this time because of the difficult conditions under which the existing operators are working. Santos argued that Angola was a safe place in which to invest, provided the investor paid attention to certain ground rules. Because of the history of non-recognition of the Angolan government by the United States, American companies had lost ground to other countries, such as Brazil, Korea, Japan, and Europe. (Presentation 10)

Alberto Fischbein (MITC) said the agricultural sector could be divided into bad and good news stories. Angola faces three socio-economic challenges: (1) poverty; (2) food insecurity; and (3) soil nutrient depletion. In order to generate growth and change, Angolan agriculture would have to be transformed from a subsistence-oriented farming system toward a more market-oriented production system. Although Angola had large arable land areas, of which only about 8-14% was being cultivated, soil fertility suffered from heavy depletion of nutrients during cropping. The poor state of the transportation infrastructure hampered the movement of agriculture goods within the country. The good news is that the government has shown it is committed to revitalize the agricultural sector through a number of programs. In Capanda, for example, the Ministry of Agriculture is launching a major agricultural project to cultivate 300,000 hectares of land, of which 25,000 hectares will be irrigated. Fischbein noted that the growth and development of agriculture would require a substantial increase in the use of mineral fertilizers, among other measures. For those interested in investing in agriculture, clear opportunities existed in processing vegetables and fruits, vegetable oils and fats, in particular groundnuts and shea nuts, and cereal production. (Presentation 11)

Jose Silva (Soapro) provided an overview of developments in the construction sector. He focused particularly on measures to ensure that investments in this sector would meet technical, budgetary, and safety standards.

The U.S. Ambassador, Cynthia Efird, spoke about the Africa Growth and Opportunity Act (AGOA). Angola became eligible to receive AGOA benefits for preferential treatment of imports into the United States in 2004. Initially, both governments may have looked at Angola’s eligibility as a political symbol but the ambassador thought much more could be accomplished under the legislation. Although textiles had been the focus of most investments under AGOA, this was no longer appropriate or feasible. She encouraged the private sector to think out of the box to take advantage of the benefits under AGOA, as well as to examine investments in other areas. Agriculture was high on the list of priorities, along with hotels and tourism among other areas. Efird said budgetary resources were available from a number of US agencies to promote AGOA. For example, one participant said his company was interested in exporting fruit concentrates to the United States, but the standards for importing such products were very high and difficult to meet. The ambassador replied US resources were available to help entrepreneurs to meet US requirements and contingencies such as the one that had been cited.

Joan Edwards (Overseas Private Investment Corporation – OPIC) described the facilities that her agency offers to promote private investment, including loans and guarantees. She said that OPIC can support proposals from joint ventures, as long as the American partner had sufficient equity in the project. Her presentation stimulated a number of questions from the audience, most of which she had to respond to following the close of the symposium.