Frontier Markets – Angola

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Among sophisticated investors the word is out about great returns on investment in Angola.

Almost two decades ago the  U.S. Angola Chamber of Commerce was established by 90 U.S. corporations that do business in the country. Some, like Boeing, KPMG and Pioneer, were present at a recent meeting on investing in Angola, at British Petroleum’s’ Washington headquarters.  

Behind the polished exterior of self-described technocrat, Maria Abrantes, lay a palpable impatience with the policies of the U.S Export-Import Bank (Ex-Im).

Abrantes, Trade Representative for the Angola Private Investment Agency, pressed for change: “I’ve asked before and I’m asking again, when is Ex-Im going to engage in long-term investment in Angola?” 

Angola is one of several countries on the continent that is poised to turn into an economic power house. It made news, becoming the first member in 30 years to join OPEC.

The Angolan leadership then declined IMF credit assistance and instead devised its own plan for macro economic development, injecting over $1.5 billion (U.S.) in infrastructure projects like roads, telecommunications and housing.

Until recently, Chinese contractors are among the select few seizing opportunities. That's why Abrantes urged Ex-Im to revise its policies.

Ex-Im, and similarly some private investors, have remained cautious, citing the relatively recent restoration of peace and lack of diversification of the economy; important considerations in determining long term projects. 

Once the text book example of a cold war proxy battle field, Angola attained peace in 2002 and has since put reconstruction and democracy on the fast track.

The inflation rate is 12.5 % which is comparable with U.S. stagflation during the early years of the Reagan Administration. However in stark contrast to the then slowing U.S. economy, Angola's output reached $58.4 billion (US) in 2007, with a  GDP growth rate of 13.2 % in 2008.

Parliamentary elections held last year were lauded as peaceful and fair by foreign observers. The sitting government MPLA ( Movimento Popular da Libertacao de Angola) won controlling majority of the seats in Parliament. A Presidential election is scheduled for this year. 

Angola's key players want the momentum to continue; hence Abrantes insistence for an answer from Ex-Im at the recent meeting.

"Previously  I [ just] called one of our economists that determines the country rating," Michael Forgione, Vice President Industry Sector Development at Ex-Im Bank responded regarding the bank's involvement in longer-term projects. "Her opinion is that Angola is still an oil-driven economy. Last year they became a member of OPEC."  

Given the fluctuating nature of the revenues in a specialized economy Ex-Im bank economists are wary about committing to more projects longer than seven years. 

“I give [Angola] credit for, unlike other members of OPEC, pegging the projected price per barrel of oil at $55, instead of at a higher price," Forgione conceded, in a nod to capable economic management by Angolans. This meant the government budget planners weren't caught off guard when oil prices plunged.

Still, Ex-Im economists don't think the economy is sufficiently diversified with stable future revenues for the infrastructure projects the Angolan government has prioritized. 

Forgione does hold out a carrot though. “A lot is going on in the world today and we are going through a transition with a new President....things may change drastically,” he said, referring to President Obama's Administration, which has the power to change policy.

Ex-Im, a lender of last resort, was created to facilitate trade of U.S. goods in foreign markets. As investors operating overseas  often need insurance coverage Forgione noted, "We have seen a very large increase in short term insurance because AIG is under a bit of a cloud.”

Ex-Im is congressionally mandated to lend in Sub-Saharan Africa. Its  loans offer investor attractive features;  like providing insurance against unforeseen circumstances. "We want to let U.S. investors know that we mitigate country risk,” Forgione said.

Forgione felt it necessary to stress, “We are not supposed to compete with the private sector but my personal opinion is that the private sector is not lending," he added, "so there is no competition.” 


Deals range from $10,000 in parts of Africa to a $64 billion deal in Benin. In Angola, Ex-Im finaced a $300 million deal, where Boeing outfitted the profitable national airline TAAG, with new 747 airbuses, said Benjamin Todd, Business Development Officer at Ex-Im.

Ed Barber, of Goodworks International, wanted information about the countries active in the Angolan market. Ex-Im’s Todd responded by first outlining that certain countries do not have the same trade restrictions as the U.S.,"The country rating process is decided at the OECD level so that the different countries agree to not unfairly subsidize their industries," Todd said. "The Chinese are not a party to these regulations; neither are the Indians or Brazilians.”

Which means that those players have been able fully access the opportunities on the continent.

The Chinese have been quick to seize opportunities in Angola; they secured a $5 billion oil-for-credit line with the government and construction is at a hot pace.

“I was in Luanda and I counted 23 cranes on the horizon.  There is a lot happening in Angola,” Ex-Im's Todd said.

Still, U.S. business is not conceding ground.  U.S. exports to Angola have increased 69% and comparably exports to Nigeria have grown 55%,  Todd said.  

Abrantes, the trade representative, whose work is to facilitate investment in Angola provides more tangible numbers by showing the rising levels of U.S. private non-oil investment in Angola. In 2007, she notes, the  numbers had reached $227.9 million.

Abrantes dispelled a common fear among investors and said, “Private assets are protected. The government will not nationalize your assets.” She told the gathering if extraordinary circumstances occurred, such as the current instability in the world’s financial institutions, causing governments to step in, Abrantes assured investors that they would get fair value compensation for their investment. 

The Angolan government has put in place several incentives to attract foreign capital. Those incentives include a suspension of certain taxes like the 15% deducted for capital gains or the 35% corporate tax rate. 

There are some projects, like local infrastructure and the Postal Office, where the Angolan government has to be part of the venture. 

"I think overall the meeting was very well attended, thanks to Maria da Cruz [ Executive Director of  the Chamber] the organizers and to our members," Filippo Nardin, President of U.S. Angola Chamber of Commerce, observed after several investors had their concerns addressed. "The main objective was to give an overview for our member companies for investment in Angola, the mechanisms that are in place and the legislation."

"Ex-Im is just one of the vehicles that provide financing," he continued. He cautioned that Ex-Im may not always be the vehicle for engaging in long term construction like housing which is a pressing issue.

Nardin also does not have an alarmist view of China's role.
"They  are not necessarily taking away work from American companies," he said. "I really don’t see that as direct competition with American companies that can offer different services--that Chinese companies cannot."

Financial Statistics From:

The World Bank

Economist Intelligence Unit

and The Woodrow Wilson International Center for Scholars Series

Angola Progress and Prospects May 9, 2007

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