Angola has come through a long civil war, enjoyed a relatively brief boom period, and is now encountering a long-term slump in oil prices. This has led the government to instigate economic reform and support infrastructure improvements to draw investors to the country’s other abundant resources. James King reports.

Angola Luanda embedded

Only a handful of the world’s top oil producers can lay claim to a diverse non-oil economic potential, and of these lucky few Angola stands apart. From timber to agriculture to tourism, the scope of the country’s long-term investment prospects is staggering. Based on its mining potential alone, Angola’s rich subsoil holds 35 of the world’s 45 most traded minerals, including copper, gold, uranium and manganese.

Blessed with fertile land, a favourable geostrategic location and access to the markets of the Southern African Development Community (SADC), Angola’s long-term non-oil investment prospects are sizeable. The end of the country’s decades-long civil war in 2002 opened up new opportunities for investors to capitalise on this bounty.

But government indifference, a challenging regulatory environment and a dearth of skilled workers has meant that much of the country is virgin territory when it comes to private investment. “Angola is a huge country with plenty of natural resources that are yet to be fully exploited. The government is now playing catch up by reforming the economy,” says Sanjay Bhasin, chief executive of Luanda-based Banco Económico.

Need to diversify

Plummeting oil prices are now motivating the Angolan government to pursue economic diversification, and the parlous state of public finances has put private investment at centre stage in driving this growth agenda forward. Together, these trends are opening up new investment opportunities across the country.

“The next two years will undoubtedly be difficult but the government’s ambitions shouldn’t be dismissed,” says Pedro Ferreira Neto, chief executive and founding partner of Eaglestone, an investment firm with interests across sub-Saharan Africa.

These ambitions have been broadly detailed in the government’s priority development plans – such as the rationalisation of imported goods and services – to lessen the blow of cheap oil prices and elevate economic growth. Indeed, the authorities are hoping to encourage investors to develop local production capacity in the country while looking to the wider region as an export market. By following this value chain of securing external finance, producing goods within the country and exporting across the region and beyond, it is believed some of Angola’s current problems can be answered.

“Angola is keen to attract foreign investors to help support the pace of development. These large-scale projects are a critical component in the country's drive towards economic diversification,” says Jean-Claude Bastos de Morais, founder and chairman of the advisory board at Quantum Global, an African investment firm with interests in Angola.

And despite the current difficulties, a number of investors are making headway in the Angolan market. K2L Capital, an Angolan holding company with interests across Africa, recently invested in a $300m steel manufacturing plant through its in-country unit, ADA Steel. Officially opened in December 2015, the facility is expected to produce about 200,000 tonnes of steel this year before increasing to 350,000 tonnes in 2017. Total capacity is 500,000 tonnes per year.

The plant is producing hot-rolled, wire rod, billet and wire mesh products and boasts certifications of quality from Portugal that meet international best standards. “This project has come at the right time for Angola. The country is dealing with an oil price crisis, dollar liquidity challenges and difficulties in securing imports. Unless you can produce locally in this environment, doing business will be a challenge,” says Georges Choucair, chairman of K2L Capital.  

Reusing post-war scrap

For now, the steel mill is making use of Angola’s abundant scrap metal sources, mostly relics of the 27-year civil war. This reduces ADA Steel’s production costs, helped by relatively lower energy costs compared with other centres of production, according to Mr Choucair.

He says: “We believe in this project. We are producing high-quality steel, which allows us to export our products to other markets. The SADC has a population of about 277 million and the consumption of steel is still low. This represents a massive longer term growth opportunity.” 

To this end, ADA Steel is aiming to produce 50% of its steel for the domestic market with the other half of production destined for export markets. For its part, the government of Angola has played an important role in supporting the project’s development. Though initial approval took over a year, the authorities have since recognised the value of the project, particularly by supporting associated infrastructure development.

Similar examples are emerging in other sectors. In 2016, investment group Quantum Global leased more than 80,000 hectares of plantation land from the government of Angola to develop large-scale wood-fibre plantations in the Planalto region of the country. The group plans to invest about $50m of unleveraged equity, rising to $200m when fully leveraged, to support the development of the project and the associated infrastructure for the growth of the wood-processing industry.

“The government is offering incentives to foreign firms looking to do business in the country as part of its wider efforts to diversify the economy. Hence, investment companies such as Quantum Global are looking favourably at Angola as a market for investment,” says the company’s Mr Bastos de Morais.

New opportunities

If there is a silver lining to Angola’s current crisis, it is that projects such as these are leading to a greater emphasis on local production. Encouragingly, momentum is gathering and in Luanda even the country’s banks are beginning to notice the shift among local players, including small and medium-sized enterprises. “In recent months, Angola’s private sector has turned its attention to the production of basic goods. The focus is now on produce such as bananas, poultry, eggs and potatoes in a way that it hasn’t been in previous years. The need for import substitutes is now apparent,” says Banco Económico’s Mr Bhasin.

These trends are providing the country’s banks with new lending opportunities and the chance to diversify their loan books. After years of hydrocarbon and real estate-related lending, some lenders see the current situation as the right time to promote a more balanced growth model.

Moreover, there is a growing, if embryonic, confidence within Angola’s private sector. On the ground, local producers are enjoying strong demand for their goods. “Demand for locally produced goods is high; in the case of ADA Steel, we have found that our clients have a preference for locally produced steel. Our plans to develop our production capacity are in place because we are confident – there is huge potential in this market and we can play an important role in diversifying the economy,” says Mr Choucair.

Cutting red tape

In a sign of the authorities’ intentions to foster greater private investment, the Angolan government introduced the New Private Investment Law in August 2015. This aims to make the regulatory regime for both domestic and international investors more attractive by cutting red tape and linking various tax and customs incentives to the immediate economic requirements of the country, according to analysis by UK law firm Clifford Chance.

Looking ahead, such improvements to the business environment will be important if Angola is to maintain its momentum in diversifying its economy. Given the scale of the investment opportunity, the government needs to work hard to attract a wide range of investors. “Angola naturally has a different challenge to its neighbours. Since peace was achieved in 2002, the country has been charged with rebuilding an entire nation from the ground up. That means it has provided investment opportunities in a particularly broad range of sectors,” says Mr Bastos de Morais.

Angola’s brush with an enduringly lower oil price environment has left the country with little option but to pursue economic diversification. And while positive steps are being taken to encourage greater private sector investment from both domestic and international players, serious challenges do remain. A shortage of well-trained and qualified labour is perhaps the most serious impediment to doing business in the country. In addition, intermittent power access, particularly outside of the capital, continues to stunt the country’s investment potential

But many of these issues are common across sub-Saharan Africa, and as the government slowly works to improve the regulatory environment, many investors feel that, despite all the hurdles, there has never been a better time to invest in Angola.

As Mr Choucair says: “As an investor in Africa, you have to be proactive. You can’t wait for the government to do the work for you.”


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