Ernst & Young guiding investment in Angola

Considering the recent challenges that are facing the Angolan economy, mainly the decline in oil prices and the devaluation of the kwanza, how would you describe the business climate in Angola at the moment? How has Angola responded to the current drop in the price of oil, which provides 45% of the country´s GDP and nearly 80% of government revenues?

This is a critical moment. I would say that the country is still assessing the real impact of the decrease of the oil price. The country has suffered a similar situation in 2009 where the price of the barrel went down to 39 dollars, so this is not a new situation for the country. The difference is I think the country is more prepared compared to that previous situation it faced in 2009, for instance, the international reserves that Angola has, provide the country with three months of importation. And now we know the reserves could stand for at least 7 months of the level of importation the country needs in order to proceed with its day to day activities. There are also other instruments the country has, like the sovereign fund that was created recently, to which the country has allocated 5 billion US dollars that could be used to a certain extent to decrease the negative impact of the oil crisis for the country. There are also the subsidies the country provides to the population, for fuel; figures indicate the country spends another 5 billion US dollars in subsidies to get the fuel prices to a lower level.

So I think the country has mechanisms that it didn’t have previously. Of course now there is a climate of uncertainty. But still, the last projections made by the government and the IMF indicate the country will still increase its GDP this year. So we are not talking about a crisis because when you have a country that will have a GDP growing around 3 to 5 percent, depending on the source of information, we cannot say we are talking about a real crisis. The issue is that it will not increase 6 or 7 percent as it was expected one year ago. It will still increase; I would say 3 to 4 percent would be a reasonable number, because there has been a big effort in the past to diversify the economy of the country. There is still a long way to go on that road, but nevertheless, the country has opened to other investments. I’m talking about industrial investments, in order to minimize the level of dependence on foreign products. There is also the mining industry, and I don’t mean diamonds, I mean other minerals that the country also has and that will diversify the exports and decrease the level of dependence on oil. So I think the scenario is not so critical compared to what we had. The country is adapting to this new reality, the government has revised the budget because they had originally considered 81 dollars per barrel and now they are adjusting to 40 dollars per barrel, so if they make the budget for 40 dollars per barrel and the oil continues to be in the current position, which is about 50, I would say the country will have a margin in its capacity to make investments. So the scenario is still positive, at least from my personal perspective.

Angola became the fourth largest destination of foreign direct investment in Africa, as a result of its very strong annual growth of the economy. Would you say that Angola can overtake countries like South Africa, Nigeria and Kenya, to become the main destination for foreign investment in Africa in the near future?

That could be a new challenge for Angola. Angola has the desire to become the first oil producer in the whole of Africa. According to the potential of exploration that Angola has in terms of oil, Angola could have a production of about 2 million barrels per day. However, with the prices at this level there are some projects that are now in danger, because they are in deep waters, which requires a big investment and with the oil prices at this level they wouldn’t be commercially viable. So, probably the challenge to become the first oil producer and become the most attractive, overcoming Nigeria could be critical because of the current situation. It will depend on the level of diversification and the level of attractiveness the country can achieve.

There is a negative factor that I would like to point out: the grade that was given to Angola in the Doing Business Report, Angola has declined its position. I think it holds position 180 out of 200 countries, so it is one of the worst rankings Angola has had. The bureaucracy associated to investing in Angola is something the government needs to review, the private investment law and the issue that is currently in discussion, which is the local content, which requires a certain level of Angolans in some critical sectors when every foreign company that wants to come to the country, and the need to partner with a local company. This is something that should be looked at again; I understand the need of putting local content into the companies to put our people in contact with training etc., nevertheless, we need to try to facilitate investment that in fact will add value to the country and bring know-how to the country.

Some of the biggest challenges affecting the Angolan economy are high levels of corruption and weak infrastructure in the country. How do you see Angola overcoming these issues and what other challenges can you identify?

The perception of corruption in this country is still an issue, at least when it comes to a foreigner coming to do business in Angola. Corruption is something that exists everywhere; I come from a country where the former Prime Minister is in jail. So you see the web of corruption in my country goes up to the Prime Minister; I am not saying he was corrupt, he is in jail but he hasn’t been formally accused, but there are some indicators that put him in this position. So my country, considered part of the modern world, has these problems. Angola is no exception. It is in a different stage of evolution, there are some situations that haven’t been addressed correctly in the past and I think there is an effort from the authorities to fight corruption. I am talking about small corruption, that you can find easily here, as well as big corruption at a higher level. I think corruption is not a real handicap to make business in Angola; corruption is something an investor should take into account but from my perspective and it is a manageable risk provided that adequate safeguards are taken.

I heard and afterwards read an interview with the CEO for Africa of General Electric on which he states that the two big bets that GE has for Africa are Nigeria and Angola, which by the way are the countries where the level of corruption are considered to be high. And in that interview what he said was that if you want high returns you need to go to a country with a high risk, because one thing is associated with the other, you cannot have return with zero risk. You should take the necessary measures to be prepared for the risks; as long as you take these measures everything is manageable, because we are not talking about a country where 100 percent of the population is corrupt, this is not the case; you may find it but you can get past it and take the right track.

In terms of the reform of the foreign investment law, there have been a lot of changes in recent years, in particular the increase in minimum capital requirements. How has this affected investments coming the country?

This was a political decision that was taken in 2011, because the government made an assessment of what had happened since 2003, when the first private investment law was approved, and they realized that the level of requirements were not enough, because everybody could come in and put the 100 thousand dollars that was the minimum to invest in Angola and you could set up a company without, in fact, adding value to the country. So what the country decided, it was a political decision, which could be criticized or supported depending on your opinion. In my view you need to establish a minimum. There could be a discussion whether the minimum has to be 1 million US dollars or five hundred thousand US dollars for medium sized operations. We don’t see that, at least from our perspective, as a critical point to make a decision. For me that is not a critical aspect, and in fact we made a survey where we compared the level of attractiveness Angola had in 2013 to 2014 and we saw that it has moved from the seventh position in Africa to the fourth position, so the appetite for investment is still increasing. So the 1 million dollars is not critical in the decision making process, what is critical are other aspects, how the government handles it, how long the decision could take, the level of bureaucracy, do I need to have a local partner? Or can I come on my own? These are the critical points.

And what I mentioned earlier about local content has started to be an issue for some industries, not to all, but for service providers that have to make a partnership with a local entity and it needs to give the majority of the capital to this local partner, so this is a constraint in certain cases. There is a new law that states that all sea operators need to give 100 percent of shared capital to Angolans. So they want to create only Angolan companies, but Angola doesn’t have the necessary know-how in this industry to have such a role. So these are the two things that might not work, from my point of view. But other businesses, industries like communications, education, tourism, etc. which are key sectors that the government has stated are first-priority sectors, can come along with a partner.

Recently you said that there is a lack of skills which remains a big challenge for Angola. E&Y is committed to sponsoring Angolan students to study in Portugal and the UK. Can you tell us a bit more about the company’s training programs in Angola? 

The immigration law in Angola imposed a ratio under which we need to have in our total account 70 percent nationals and 30 percent foreigners. This could be a challenge for us in certain situations. But, for instance, it is more challenging in Mozambique, where there is a ratio of 95 percent to five percent. So that is why I say to most of my colleagues that Angola is not that much of a challenge. So what we are doing is that we are recruiting a lot from college, because in our business it is not easy, if not impossible, to find people with experience in our sectors: auditors, tax advisors, management consultants. So we bring those people in directly from college, we give them training; we send them to South Africa and Portugal for training. But the downside is that after a few years, they leave us. We have launched a program with the Catholic University of Angola. We signed an agreement with them in February 2014, by which we selected 20 students that had joined college that year, five students for each course associated with our business (law, management, accounting and economical), and we are paying the full school fees, we are paying an allowance for school materials and other materials they may need, we pay what we call a housing allowance on a 12 month basis, to give them the opportunity to be 100 percent focused on their studies, not having to work and study at the same time, which is a condition to be chosen. We choose them directly, if they want to come work with us we need to give them that opportunity, we don’t want to impose anything on them. What we can give them is the opportunity to come work here for a few months during their school breaks, like an internship.

On top of that, if they want to do a postgraduate program in Portugal, at the Catholic University in Lisbon, which takes about 18 months to complete, we also pay for the trip and the same allowance and the same school fees. So it is in fact our social responsibility, it is the way we see our contribution to the country and to the development of human resources. Now we have a great relationship with the Catholic University, they give us the list of students that are in their courses in order for them to have access to make them available for interviews and job applications, but it is not an imposition, it is a kind of gentleman’s agreement we have with the University. We choose 20 students out of 60, we do interviews to select the 20 and in the end we have to make a strategic choice, because I think there is a big gap in the level of education they have on a secondary level, as we are interviewing students that are 17 or 18 years old and we see a lack of knowledge. We have some that have studied abroad and it is completely different.

The United States of America is one of the main partners of Angola. Considering the decline in oil prices, and considering the importance of the oil sector for bilateral trade between the two countries, do you think that this could be the right moment to diversify the commercial relations between the two nations?

I have said this since I arrived: the United States is always mentioned as an important partner in Angola, but they are in the oil industry. You don’t see industries created by American companies, and they have extreme know-how. You don’t see construction companies from the US here, you see Chinese, Portuguese, Brazilians, but you don’t see Americans. Technology: we don’t see any investment from the United States there, or in the pharmaceutical industry. There are many industries where the American economy is strong. Of course in terms of the oil sector, Angola needs the expertise of the American industry. We see companies like Chevron and ExonnMobil that are here, but we need to see more diversification. I know there is a big discussion between the two governments, but my perception is that for an American investor the only driver for investing is not only the financial return. I think they need to turn the page and they need to start looking at Angola not only in the downstream-upstream industry, but look at the other possibilities in Angola. The country has a unique position in Africa, the biggest water reserves in all of Africa are here. Angola has a strong agricultural capacity and the United States are very strong in the agriculture sector, they could bring some know-how and farmers here and develop cotton fields like they do over there; there are possibilities for cereal. There is a lot of potential for American companies to look into and I think the government of Angola would welcome this type of investment.