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AfricaJune 1 2011

Investors overcome Angola's bureaucracy

Angola is increasingly attracting foreign investment, as companies start to look beyond the nation's onerous bureaucracy to its strong investment potential, political stability and increasing transparency.
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Investors overcome Angola's bureaucracyInterContinental Hotels is building a 400 room hotel with casino in Luanda

The creation of Afritaxi, a company with a fleet of 300 taxis, and Fly540 Angola, the country’s first internal airline operating to international standards, show that it is possible for local and international businesses, other than the multinationals in the oil and financial sectors, to establish successful and profitable companies in Angola.

Business leaders in capital city Luanda say that considerable progress has been made in the past two years as government bureaucracy has improved and pressure has grown for greater transparency. However, enormous patience, an understanding of the local market and strong financial backing to cover financial exposure while projects are being approved are still required when doing business in the country. It is also advisable to have a local partner; while there is no formal requirement, there appears little doubt that it puts companies in a more competitive position.

Foreign investment in Angola is dominated by companies with long experience of the country, including oil giants such as BP and Total, and on a country basis, those from Portugal, Brazil, the US and China dominate.

Harsh realities

The reality, though, is that the overwhelming majority of companies who look to invest in Angola still fail to see their deals through, frustrated by delays in getting licences and approvals, difficulties in getting visas, the challenges of Angola’s infrastructure and the sheer cost of living and doing business in a city that is now one of the most expensive in the world.

But there are considerable rewards for those entrepreneurs prepared to stick it out. Afritaxi, which has public and private sector shareholders, made an initial investment of $12m and plans to spend $20m. It has a fleet of 300 KIA Sportage-type taxis operating in Luanda and three other major cities.

One advantage for Afritaxi, whose head office is on a site in the central Marginal district of Luanda, is that it was set up in the months before the Africa Cup of Nations football tournament that Angola hosted in January 2010. Its executives admit that the government’s need for a fleet of modern taxis to transport teams and senior supporters meant that their licence approvals happened very quickly.

With a virtually nonexistent public transport system and very few modern taxis, Afritaxi is well placed to develop a successful business – and has already employed more than 150 staff, including many who have never worked before. But even as an Angolan company it has faced frustrations, not least with hotels that are reluctant to allow it to set up taxi ranks.

Long delay

The airline Fly540, which operates in several African countries, is another success story in Angola, although it too had to hold its nerve while final approvals were received. The company, which is a joint venture between conglomerate Lonhro and local shareholders, had to be fully established before it could be considered for a licence. There was a wait of more than a year before that was granted during which staff, including pilots, and facilities had to be financed.

However, Fly540 Angola started flying as a registered airline in February this year, operating from three destinations to Kabinda, Bengala and Lubango, and there are plans to increase its route network to 15 destinations by the end of 2011.

The benefits to the country should be considerable as it is now possible for the first time to make bookings from an overseas country through to a destination outside Luanda. Until now a new booking for the final part of the journey had to be made on arrival in the capital.

Afritaxi and Fly540 are success stories that are likely to be seen more frequently in Angola as the bureaucracy becomes more open and transparent. This, ministers believe, will mean that international companies will be readier to invest in, rather than just sell to, Angola.

Investment hope

There is confidence that the volume of investment can grow from the current position, which has seen only 176 investment projects involving 100 companies in Angola since independence in 2002.

According to greenfield investment monitor fDi Markets, the leading sector for foreign investment in Angola since 2003 has been financial services, which accounts for 19% of the projects, while the leading business activity is manufacturing, which accounts for 31% of projects. The leading companies investing in Angola in this time have been Finibanco from Portugal, as well as Chevron and Coca-Cola from the US.

Among more recent investors are Serbian company Nelt and the UK's CEVA Group, which are both investing in transport, while the Japanese car manufacturer Nissan is establishing a parts assembly plant in Angola. Chevron, through its subsidiary the Cabinda Gulf Oil Company, is investing $70m in a new office complex in Luanda, which will act as its headquarters and will house 700 staff.

Indeed, construction is one of the major areas of activity by international firms and it is dominated by companies from Brazil, Portugal and China. The first two have historical links with Angola, while Chinese companies have won contracts linked to financing provided by their government.

After a two-year lull in which most projects were put on hold in the economic downturn, there is now a race to build and take advantage of Angola's booming markets. Talatona, the new business suburb of Luanda, already has a five-star hotel, housing complexes that are used by many of the multinationals and a business park that is the base for institutions such as Standard Bank. There is a modern terminal at the airport and efficient passport control.

In addition, work is well advanced on an Intercontinental Hotel, with nearly 400 rooms and a casino, and a tower block of luxury residential flats. There are many half-finished buildings that should, in a couple of years, provide enough offices, residential accommodation and shopping malls to go some way towards meeting demand. Possibly most importantly for those who spend many hours stuck in Luanda’s traffic, new highways are being built and a start has been made on re-establishing the rail network.

Close ties

Inevitably most of the major contracts go to companies from the countries with which Angola has the closest relationships – Portugal, the US, China and Brazil. “In Angola, these countries are regarded as partners. Angola has ‘relationships’ not ‘partnerships’ with other countries, and the government is more wary about those with which it has ‘relationships',” says one diplomat.

Although Angola's strongest partnership in the financial sector is with Portugal, whose banks have a major stake in its banking sector, countries including the UK where there is a strong insurance sector, believe there are many opportunities in developing a business that today is in its infancy. The Lord Mayor of London, Michael Bear, is visiting Luanda later this year and bringing with him a delegation of senior figures from the city. There is some optimism that the UK may be able help in projects such as the creation of a stock exchange.

There is also growing belief that Angola is concerned about the level of its indebtedness to China and will be reluctant to sign any more deals with the country that are so closely linked to contracts.

Meeting challenges

Ultimately there is conviction that the investment challenges facing Angola can be overcome, particularly as president José Eduardo dos Santos has put such emphasis on a zero tolerance of corruption. There is political stability and reconciliation between forces that fought in the civil war.

And there is a growing confidence that sustained high oil prices will ensure that the bureaucratic and infrastructure hurdles will be overcome, as more ports, roads, hotels and offices are built. Ultimately there is now a consensus that Angola has and will continue to have a government that is fully committed to the market economy.

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