Mr. Pedro Calixto, Country Senior Partner in PriceWaterhouseCoopers (PwC) Angola discussed with The Worldfolio the business climate in Angola, the changes in the Angolan tax system and its effects on foreign multinationals, as well as the strong African footprint of the company.
In the context of the decline in the oil prices and the recent devaluation of the Kwanza, how would you describe the business climate in Angola at the moment? And how do you think Angola is responding to the drop in the oil prices?
As you know Angola is almost completely dependent on the oil industry and oil revenues, and the decline in the price of oil produces a significant impact in the country. The national budget was prepared previously, estimating the price of oil at USD 81; and now it was adjusted to a medium price of USD 40. In my opinion, it is a very conservative approach from the Government, and I believe that the average price throughout the year will be above that. It is a very conservative approach but it means that the authorities are really concerned and are taking measures and acting to overcome these challenges. The correction in the budget will produce a great impact because a lot of expenses and a lot of investments will be suspended. We know that there are some companies that are slowing their activities or even closing and leaving the country. This will produce an impact in several ways: in the employment of personnel and the growth of the GDP. It will represent a slowing of the economic growth; however, I am not one of those who are very pessimistic on this. A lot of people panicked, thinking this crisis will be a catastrophe. However, in my view, it will be a stage when the economic growth slows down for a while, in order to be able to go up again. This happened in the past, especially in 2008 and 2009. The difference is that at that time the country was not as prepared as it is now. The government itself is much better prepared right now, acting, as we said, very conservatively, which is totally different from 2008. Now they know that the problem exists and they are acting by taking certain measures; some of which I agree with, some of which I believe are too tough for the national economy. I have some concerns about the inflation and the devaluation of the kwanza. I understand the intention of the recently enacted importation quotas is to protect the national industry and somehow avoid exportation of foreign currency, but I fear that it may have, and as far as I know it already has had, a heavy impact on the rise of prices. We are talking about food prices and materials for construction. All this limitation on importations is leading the national manufacturers/distributors to raise their prices, because the demand is higher than what the country can produce and, now, import. That will have an impact on the overall inflation, which is my biggest concern.
Regarding the diminishing of investments from the state, it will mean that, specially, the construction industry will slow down and increase unemployment. That will make lots of experts leave the country, which is already happening. Probably it will also mean that the real estate prices will go down a little bit, because we’ve got a lot of houses and apartments that are not occupied. My expectation, however, is that this situation will not last for a long time, just eight or ten months and then things will get back to normal.
On the other hand, PwC keeps receiving lots of requests for work. Normally when there is a crisis, the consulting business goes down. We are still facing the same challenge: to find skilled people to do the work. What still happens in Angola is that there is not enough investment in education, especially at the lowest levels, because in these days you can find nice universities with good teachers here but at the lower level, primary and secondary schools, there is no great investment and it is there where the focus should exist.
Considering the significant reform of the tax system, in October last year, I would like to hear more about how those changes that came at the beginning of 2015 affected the activities of multinationals, in particular from the United States?
It is difficult to find a special link to the United States, but it affects the general companies. Angola has not signed any double tax treaty with any country. So what this means in relation to foreign countries is completely indifferent if we are talking about the United States or other countries. What is changing, and one of the biggest effects of the tax reform is that, on the one hand, it will enlarge the basis for income to be taxed, and it will diminish what we call the "informal economy". The biggest effect is to bring to the tax revenues a larger portion of the economy not only by adjusting the corporate income and individual income taxes, but also by ruling the forms of documentation that have to be issued by entities to be accepted as tax costs. And this will oblige several companies to demand from their suppliers to be registered with the authorities, to issue proper invoices that have to be registered with proper accounting programs and so on. That it will convert a lot of informal suppliers into the formal economy. This will enlarge the number of taxpayers and the amount of tax collected. Of course, it was not only this that was done, but, in my opinion, this has the biggest impact. Moreover, there are changes also related to guarantees and obligations from taxpayers or from the authorities. This will clarify a lot of doubts and a lot of uncertainties that exist and are now regulated. So, it is a good tool to start improving the quality of the relationship between taxpayers and authorities, and courts. Of course, this does not change from one day to another, because the law comes into force and it needs time for taxpayers and tax authorities get prepared. But the tool is now in force and it will allow developments in the tax area, like we see in other parts of the world.
Can you tell us a bit more about the corporate tax reform, considering the drop from 35% to 30%?
There are new rules on provisions; there are new rules on the depreciation of assets. The main intention is to make things easier for taxpayers. The depreciation rates were very old, from the 60s or 70s, and are not valid in the new economic context. There is a significant change that will impact investments and foreign companies and it is that the tax rate on services which used to be 3.5%/5.25% will now be 6.5%. Therefore, any American company providing services to Angola will suffer an increase on taxes. Also, for local companies there is a new advanced tax payment that will have a significant impact on companies that are already placed here. In my view, the rule is very aggressive because it says that every company that sells goods will have to pay in July or August, depending on the type of company, 2% as an advanced payment of tax, computed on the amount of all the sales from January to July. So you take all the sales that you have done and multiply it by 2%. This will bring a lot of challenges in terms of treasury for companies because they will have to pay a huge amount of money. The corporate tax rate was decreased from 35% to 30%.
There are several other changes in tax laws, as it is the case of consumption tax where the number of services now subject to this tax was increased, the stamp tax and Individual Income tax, that were clarified on several points, the investment income tax where new income is now subject to taxation, the general tax code that was completely reformulated, and the new large taxpayers regime that along with other measures has introduced transfer pricing regulation.
There are many challenges that are facing the Angolan economy, such as corruption, a poor infrastructure and the dependence on the oil sector. How do you see Angola overtaking these issues? What measures have to be put in place to face these issues?
Starting with corruption - if we see all the international indicators of transparency and so on, Angola is not well positioned in that regard. My feeling is that the level of corruption is decreasing. A few years ago when I arrived, I would face corruption every day and now I don`t, I just face it once in a while. For instance, it would be common to be driving and a policeman stops you and asks for money. Another example is in public institutions. Angola has implemented anti-corruption legislation, but this is also a cultural issue, as corruption is a perception and not everybody perceives the same things as corruption. It may need a change of mentality, which will take years. We cannot just come to Angola, which is an African country, with an African culture and mentality and say: “in the United States this is corruption so it must also be corruption here”. That is not how it is felt here, so we have to take things into perspective. There are some improvements, and a long way to go yet, but I think it is getting better.
The poor infrastructure is the result of a long period of war. The country was completely damaged. I can tell you that when I arrived, the road from Luanda to Benguela, for instance, was terrible, and the first time I went there the trip lasted eleven hours (to make around 500 km). There is a huge investment on roads now and they are much better. There is still a lot to do but you cannot imagine how it was.
Can you tell us a bit more about the investment PwC has made in training programs for staff to reach executive levels, and about the process of “Angolanization”?
Since we arrived, training was a concern not only for our internal staff but also for our clients. Training is the easiest service to sell in this country because all companies need training for their staff, so we have been providing training for a lot of time.
We offer training in competency areas like taxation and audit, but also soft skills like leadership and time management. As we have in other parts of the world, we have already set-up the "PwC Academy". It is a training institution that provides training in several areas, such as international accounting, soft skills, taxation, finance, etc. It will cater to the Angolan training panorama.
How has the reform of the foreign investment law affected business coming in the country?
The Government has been doing a strong effort to invite investors to come to Angola, but as we were saying, once we get down to doing things here new challenges arise. One of these challenges is that the private investment law is making investment difficult for a foreign investor, because it demands a minimum investment of 1 million dollars by shareholder. So it seems that the priority is to receive structured investment, big companies coming to the country, huge and large investments. But this law is difficult in small and medium companies to invest, and it is a fact that for a big company to operate in Angola, good small and medium companies to support them are required. The intention, linked with the concept of Angolanization, seems to be the medium and small companies to be owned by Angolans, but we don't find enough business and entrepreneurs from Angola from one day to another. They have to be trained and they have to acquire know how and an entrepreneurial mentality, and this takes years. If we are talking about, for instance, an engineering office that wants to invest in Angola and to contribute with their know-how and with their work to several projects, most of them will not come because they will not invest the 1 million dollars.
The other challenges are related with the time and bureaucracy it takes to open a business in Angola. As you may know Angola ranks 179th in the World Bank Doing Business Guide.
All of this is not beneficial for an economy that needs to become more diversified and not so dependent on oil revenues.
Realistically speaking, when do you think that they will revisit the idea of changing the foreign investment law?
I know that there are discussions on this because there are several people in Angola who have criticized this regulation. What happens is that Angola has received a huge number of investments in the previous years and ANIP (National Agency for Private Investment) was not totally prepared, in my view, in terms of structure and staff, to respond to all the requests. I think it would be preferable to expand their capabilities and change the law, and that would contribute to this country grow much faster. The natural resources are so huge and the country is so big. New investors coming in would train Angolans as well. Everybody would benefit.
Another policy that slows the economic growth is the immigration policy. To come to Angola is a challenge and the visa process takes a lot of time. We have a law that limits the number of expatriates to 30% of the entire workforce. For each foreigner coming to Angola at least two Angolans will get a job, because companies have to comply with the quota. Therefore, it would be preferable to supervise the quota, while granting the work visas more easily.
As a final question, can you tell our audience in the United States what is the secret to surviving in Angola?
First of all, you need to have a strong capacity to adapt to a different environment. This is a very different environment from the occidental countries. The notion of time is different. That is when patience comes in, because sometimes things take time and you have to be patient. Moreover, you need to have good relationship skills because you may understand the environment but not be able to deal with it. These are the three most important things: patience, adapting capacity and good relationships skills. I have seen a lot of fantastic technicians that have come to Angola and have stayed one month and left, because they lacked that capacity of adaptation. They were used to things ticking like the clock and here it is not like that. But it is easy to make new friends here, expatriates and Angolans, and there are fantastic places to visit, natural views and cities, beaches, nice restaurants, etc. I like to say that living in Angola is like being on holidays; the only difference is that you have to work during the week, because here it is summer all year around.