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ANGOLA: 2006 INVESTMENT CLIMATE STATEMENT
1. Angola's 2006 Investment Climate Statement
- Openness to Foreign Investment
- Conversion and Transfer Policies
- Expropriation and Compensation
- Dispute Settlement
- Performance Requirements and Incentives
- Right to Private Ownership and Establishment
- Protection of Property Rights
- Transparency of Regulatory System
- Efficient Capital Markets and Portfolio Investment
- Political Violence
- Corruption
- Bilateral Investment Agreements
- OPIC and Other Investment Insurance Programs
- Labor
- Foreign-Trade Zones/Free Ports
- Foreign Direct Investment Statistics
- Web Resources
Openness to Foreign Investment
Angola officially welcomes investment and designated the National Private Investment Agency (ANIP) to assist investors and facilitate new investment. In 2003, the government of Angola replaced the 1994 Foreign Investment Law with the Basic Law for Private Investment (Law 11/03). Law 11/03 lays out the general parameters, benefits, and obligations for foreign investment in Angola, and recognizes that investment plays a vital role in the country's economic development. It encourages domestic and foreign investment by providing equal treatment, offering fiscal and custom incentives, simplifying the investment application process and lowering the required investment capital. However, investments in the energy, diamond, telecommunication and financial sectors continue to be governed by legislation specific to each sector. The 2003 Foreign Investment Law is also subordinate to decrees and regulations issued by other government ministries, thus allowing a risk of creeping expropriation by new sectoral legislation that restricts or negates investment protections offered by the 2003 Investment Law.
The 2003 investment law is part of an overall effort by the GRA to create a more investor-friendly environment. Other legislative measures include the new Company Law that came into effect in April 2004 and a Voluntary Arbitration Law that has been approved but not yet implemented. The Company Law consolidates the rules applying to the incorporation of commercial companies in Angola, formerly spread amongst several laws, and the Voluntary Arbitration Law will provide the legal framework for nonjudicial resolution of disputes.
ANIP must approve foreign investment between $100,000 and $5 million. Foreign investments less than $100,000 do not require ANIP approval. The Council of Ministers must approve investments over $5 million, and any investment that requires a concession (such as oil or mining) or involves the participation of a parastatal. After obtaining contract approval from ANIP or the Council of Ministers, the investor must register the company, publish company statutes in the official gazette (Diário da República), obtain a business license, and register with fiscal authorities. Obtaining the proper permits and business licenses to operate in Angola can be time consuming. The World Bank Doing Business in 2005 report identified Angola as the most time-consuming country out of 155 countries surveyed to establish a business, requiring 146 days to register a business as compared to a regional average of 63 days.
In August 2003, the government established the “Guichet Único,” or one-stop shop, to simplify the process and reduce the time required to register a company by unifying procedures required by various government ministries under one roof. However, the Guichet Único lacks authority over the other government ministries which must approve licenses, permits, and other requirements, and thus has encountered great difficulty in expediting company registration. Nonetheless, the Guichet Único succeeding in issuing 320 new business licenses in 2005, more than double the 151 issued in 2004. In 2006, the Guichet Único plans to establish a website that will permit online registration.
There is no formal discrimination against foreign investment, but Angolan companies or other companies familiar with the bureaucratic and legal complexities of the business environment often hold an advantage. The Promotion of Angolan Private Entrepreneurs Law adopted in July 2003 gives Angolan-owned companies preferential treatment in tendering for goods, services and public works contracts. In December 2005, the government assembled a commission to oversee the creation of a stock exchange, the “Bolsa de Valores.” When operational, foreign and domestic investors should have equal access to buy shares in listed companies.
Conversion and Transfer Policies
Economic and financial reform measures in recent years have improved local access to foreign exchange and facilitated remittance and transfer of funds, but Central Bank Order 4/2003 imposes firm controls over transfer of funds abroad. While Investment Law 11/03 guarantees the repatriation of profits for officially approved foreign investment, and investors can remit funds through local commercial banks, under Order 4/2003 the Central Bank must authorize the repatriation of profits and dividends exceeding $100,000. In addition, the Central Bank can temporarily suspend repatriation of dividends or impose repatriation in installments if immediate repatriation will have an adverse effect on the country's balance of payments. Companies have complained in the past about waiting several months to remit funds abroad, but the Central Bank has loosened controls and bank service time now has been reduced to a matter of hours.
Expropriation and Compensation
The government of Angola is highly unlikely to expropriate the assets of foreign investors. That said, the government, in the past, used the failure to fulfill contractual or other obligations as justification for expelling foreign investors and expropriating their facilities. Changes in legislation and enforcement of existing laws pose some risk of reducing company profits. This is especially true in the petroleum sector, which has been subjected to local content regulations and three new petroleum laws promulgated in 2004. The legislative process can be secretive and closed to public review.
Additionally, vague provisions in some laws permit wide interpretation and application. Dispute Settlement Angola's legal and judicial system suffers from lack of capacity and is not efficient in handling commercial disputes. Legal fees are high, and most businesses avoid taking disputes to court. The World Bank’s Doing Business in 2005 survey estimates that commercial contract enforcement, measured by the amount of time elapsed between filing of a complaint and receipt of restitution, takes 1011 days in Angola. In July 2003, the National Assembly approved the Voluntary Arbitration Law (VAL) to provide a general legal framework for faster, non-judicial arbitration of disputes, except for cases expressly excluded by the law. The VAL awaits official promulgation and is not yet in effect. The US Department of Commerce’s Commercial Law Development Program has improved case management in Angola by instituting random selection of judges and a case tracking system.
Angola is not a signatory to the United Nations’ New York Convention, the World Bank’s International Center for Settlement of Investment Disputes (ICSID), or the United Nations’ Convention on for the International Sale of Goods (CISG). Angola is a member of the Multilateral Investment Guarantee Agency (MIGA), which provides dispute settlement assistance. Past MIGA efforts to resolve foreign investment disputes have proven successful.
Performance Requirements and Incentives
Angola's new investment law provides for equal access to incentives to both foreign and domestic investors. Investors benefit from a more standardized set of incentives based on Law 17/03. Incentives apply to high priority sectors such as agriculture, manufacturing, energy, water and housing. The incentives may include exemption from industrial and capital gains taxes for up to 15 years and from customs duties for up to 6 years. Many foreign companies already operating in Angola enjoy some form of tax or duty waiver. Companies should apply for such incentives when submitting their investment application to ANIP. ANIP and other government ministries are willing to work closely to help accommodate large foreign investments.
Angola imposes or enforces few specific performance requirements on foreign investments. The government encourages "Angolanization" of companies operating in the country and greater use of Angolan suppliers of goods and services. Decrees 5/95 2/16/2006 and 6/01 limit expatriate staffing of local companies set up in Angola by national or foreign investors to no more than 30 percent of the workforce, and require Angolan and expatriate staff with the same jobs and responsibilities to receive the same salaries.
International oil companies are working with the government on a new local content initiative that will establish more explicit sourcing requirements for the petroleum sector. Oil service companies may seek to meet these requirements by partnering with local Angolan firms, hiring more Angolan employees, or purchasing locally produced inputs rather than importing. Foreign investors can set up fully-owned subsidiaries in many sectors, and frequently are encouraged, but not required, to take on local partners.
For the oil and diamond sectors, companies are expected to invest in infrastructure and social services to benefit local communities, such as constructing schools, equipping hospitals, and funding microcredit programs. Oil companies pay a “social bonus,” to be dedicated to spending on social projects, when signing a contract for a new concession. In the diamond industry, foreign investors and the government share an informal understanding that the foreign investor should invest in social projects for the local population. The government also encourages downstream investments in facilities such as refineries and diamond processing plants.
In July 2004, the Angolan government approved a rule that requires an Environmental Impact Study for investments in areas such as petroleum, mining, and construction of roads or power stations. Prior to licensing any project that could impact the environment, companies must submit the Environmental Impact Study to the Ministry of Urbanism and Environment for approval.
Right to Private Ownership and Establishment
Foreign and domestic private entities have the right to establish, acquire, and dispose of interests in business enterprises. Public enterprises hold some practical advantages in access to markets and credit. All non-urban and some urban land is ultimately under state ownership, but can be leased to private entities. Regulations to implement the land tenure law, passed in 2004, will set out clearer guidelines governing land use and ownership, but these regulations have not yet been promulgated.
Rights to explore and produce oil and diamonds are granted for limited periods of time and only as partnerships between private companies and the state concessionaires, Sonangol and Endiama. Diamond exploration concessions normally last three to five years, with the possibility of extension. Diamond production contracts are negotiated following a viable discovery. Oil exploration concessions normally last for ten years. The government allows and encourages public-private partnerships and participation of private investors in public utilities like electricity and water. Private companies have gained operator rights, as concessionaires, to hydroelectric dams and docks in the Port of Luanda.
Protection of Property Rights
Angola has basic intellectual property rights protection and is working to strengthen existing legislation and enforcement. Angola’s National Assembly adopted the Paris Convention for the Protection of Industrial Intellectual Property in August 2005, including the 1979 text and the patent cooperation treaty concluded in 1970 and amended in 1979 and 1984.
The attribution of intellectual property rights is regulated by the Ministry of Industry (trademarks, patents, and designs) and the Ministry of Culture (authorship, literary, and artistic rights).
Intellectual property is protected through Law 3/92 for industrial property and Law 4/90 for the attribution and protection of copyrights. No court cases testing the strength of these laws involving U.S. intellectual property have been filed. Angola is a member of the World International Property Organization (WIPO) and makes use of its international classification of patents and international classification of products and services to identify and codify requests for patents and trademark registration. Each petition for a patent is subject to a fee that varies by type of request.
The Angolan parliament passed a new Law on Land and Urban Planning which came into effect in September, 2004. In principle, it affirms that all land ultimately belongs to the state, but in practice, most urban and some non-urban land will effectively become privately owned through long-term renewable leases. The regulations, when written, will set out guidelines regarding different forms of land occupation (including commercial occupation and communal occupation through traditional land claims), leasing, and use of land for private purposes. This law addresses past ambiguities about land tenure and should encourage more property investment.
Transparency of Regulatory System
The government is making progress in establishing regulatory standards and reducing bureaucratic complexity. Traditionally, the regulatory system has been complex, vague, and inconsistently enforced. In many sectors, no effective regulatory system exists due to lack of capacity.
The Angolan Communications Institute (INACOM) sets prices for telecommunications services and is the regulatory authority for the telecommunications sector. To attract more private investment in electrical infrastructure, including dams, power plants and distribution grids, the government approved new licensing regulations for the energy sector in July 2004 that provide a more solid legal basis for investors.
The Central Bank drafted a new finance sector law to establish clearer rules for banking supervision. Initially scheduled for approval in early 2005, promulgation continues to await approval by the Angolan parliament.
Efficient Capital Markets and Portfolio Investment
Angola’s financial sector, though still underdeveloped, has grown rapidly. As of June 2005, total assets of the banking sector reached $4.6 billion ($3 billion in deposits), up from $3.5 billion in 2004. Most banks focus their operations on short-term commissionrelated activities such as currency trading and trade finance.
Foreign investors do not normally access credit locally, and local investors either self-finance or seek financing from non-Angolan banks and investment funds. Subsidized government loan programs to promote economic development are available only to majority-owned Angolan companies and on a very selective basis. Local businesses must take loans in kwanzas, the Angolan currency, though exceptions are granted. Kwanza-based loans have interest rates ranging from 60-70 percent to compensate for inflation, whereas interest rates for dollar-indexed loans are generally below 10 percent.
Banks have avoided lending due to a lack of collateral, a weak judicial system, and poor tracking of credit histories and other necessary financial information. In addition, banks prefer to make their profits from transactions, short-term trade financing, and investing in high-interest government bonds. In the past, state and state-affiliated companies enjoyed privileged access to loans, often at concessionary rates, leading to a high rate of bankruptcy. Currently, the non-performing loan rate is relatively low, reflecting conservative lending practices throughout the sector. Legislative changes and development in the banking sector are expected to produce improvements.
The new land law should reduce confusion over property rights and help identify sources of collateral. The Central Bank is working to improve its credit database and is urging promulgation of a new financial sector law and the nation’s first money laundering legislation. As a testament to improving conditions, the percentage of banking sector assets lent out as credit has grown from 30 to 50 percent over the past three years and several Portuguese and South African banks are opening new branches in Angola.
Past triple-digit inflation resulted in a high level of dollarization in the banking system, with 70 percent of banking assets held in dollars, and in Angola’s economy overall. Since the end of civil war, the Central Bank has devoted considerable effort to rebuilding trust in the kwanza and controlling inflation, which fell to 17.7 percent for 2005. The mandatory reserve requirement for non-government deposits, whether in kwanzas or foreign currency, is 15 percent. Reserve requirements for government deposits is 100 percent, a measure that seriously limits the ability of state banks to expand lending.
Private banks, particularly those from Portugal, have been rapidly entering a sector that was traditionally dominated by state banks. Two of the three major banks in Angola are privately owned. Under the provisions of the 2000-2001 IMF Staff-Monitored Program, the government began assessing its two remaining state-owned commercial banks with a view towards eventual privatization. Initial steps to privatize the Bank of Commerce and Industry (BCI) were taken, while the government decided not to privatize the Bank of Savings and Credit (BPC). BPC has an extensive branch network (accounting for nearly half of all branches) throughout the country and manages government payments.
Banks are seeking to offer a more diverse array of financial products and instruments. Auto loans and mortgages are increasingly available, with the average 15-year mortgage featuring interest rates of 8 percent. Confusion over land tenure and property rights may, in some instances, complicate and lengthen the process of applying for a mortgage. In other financial services, Angola’s third insurance company, Nova Sociedade de Seguros, will begin operations in early 2006.
The Central Bank has succeeded in developing a market for short-term bonds called "Títulos do Banco Central" and long-term bonds called “Obrigacões do Tesouro.” Most of these bonds are bought and held by local Angolan banks, precluding the development of a secondary bond market. The Obrigacões have maturities ranging from 1 to 7.5 years, whereas the Títulos have maturities of 91 to 182 days. For up-to-date information on current rates, see www.bna.ao. The government will issue more than $300 million worth of bonds in 2006. In addition, the government has also issued $200 million worth of bonds that are traded privately by local Angolan companies as well as major international banks.
The government announced plans to develop a stock market and, in December 2005, assembled a commission to oversee its creation. The government may privatize some state-owned companies by listing them on the stock exchange.
Political Violence
Political violence is not a substantial risk in Angola. A separatist element in the oil-rich enclave of Cabinda continues to agitate for greater autonomy, but poses little threat to foreign investors.
Corruption
More progress toward good governance, the rule of law, and against corruption is still required to lower the investment risks in Angola and provide greater assurance to investors. Under pressure from the international community, the government made significant strides towards greater transparency by publishing financial information and preventing extra-budgetary expenditures. Angola is not a signatory to the OECD Convention on Combating Bribery and only has observer status in the UK’s Extractive Industries Transparency Initiative (EITI), but Angola is a participant in the New Partnership for Africa’s Development (NEPAD), which includes a Peer Review Mechanism on good governance and transparency. Angola’s government approved an Audit Court in 2000 to investigate misuse of public funds by public institutions.
In the beginning of 2005, the Audit Court handed down its fourth embezzlement sentence and ordered government officials to return misappropriated funds.
Petty corruption is a problem due to low civil service salaries and a proliferation of bureaucracy and regulations that present opportunities for rent-seeking. Complicated procedures and long bureaucratic delays sometimes tempt investors to seek quicker service and approval by paying gratuities and facilitation fees.
Transparency International's 2005 Corruption Perception Index (CPI) placed Angola at 151 out of 158 countries. The Heritage Foundation ranked Angola 139 out of 161 countries surveyed on its Index of Economic Freedom, and described Angola as “mostly unfree.” Though Angola's public and private companies traditionally did not use transparent accounting systems consistent with international norms, IMF demands have spurred regular audits of Angola’s largest public companies by major international accounting firms. The government approved an audit law in 2002 that sought to require audits for all “large” companies, but it has not yet been possible to enforce this rule due to the lack of a professional accounting oversight body. US firms are required to adhere to the Foreign Corrupt Practices Act.
Bilateral Investment Agreements
Angola does not have a bilateral investment treaty or bilateral tax treaty with the United States. Angola has signed bilateral investment agreements with Portugal, South Africa, the United Kingdom, Italy and Germany, but has not ratified or implemented these agreements. Angola ratified a bilateral investment agreement with Cape Verde in 2004.
A list of current bilateral investment treaties and their status can be found at the United Nations Conference on Trade and Development (UNCTAD) website.
OPIC and Other Investment Insurance Programs
The Overseas Private Investment Corporation (OPIC) has provided investment insurance to projects in Angola in recent years, and U.S. investors can apply for OPIC insurance, including coverage under its Quick Cover program for projects less than $50 million in certain sectors.
Angola is a member of the Multilateral Investment Guarantee Agency (MIGA), which provides insurance to foreign investors against certain risks such as expropriation, nonconvertibility, and war or civil disturbance. MIGA will also be available for investment dispute resolution on a case-by-case basis.
Labor
Angola’s General Labor Law went into effect in 2000 and provides significant protection and benefits to workers. The law expands maternity and other leave and provides the right to strike and bargain collectively. The law spells out proper procedures for hiring workers. For work contracts of indefinite duration, the law provides for a basic probationary period of up to six months, during which the worker or employer can terminate the contract without notice or justification. After the probationary period ends, dismissed workers have the right to appeal to a Labor Court. Many employers prefer to reach a monetary settlement with workers when a dispute arises rather than bring cases before the Court. The World Bank Group’s 2005 Doing Business report placed average cost of firing a worker in Angola at 61.8 weeks worth of wages versus a regional average of 53.4 weeks of wages.
The local labor force has a limited technical skills base and English language ability and there is a shortage of workers with managerial or technical skills. Many employers invest heavily in education and training of Angolan staff.
The government has announced, but not yet implemented, a rule requiring oil companies to hire Angolan nationals if qualified applicants are available. If there are no qualified nationals for the position, companies may request permission from the government to hire expatriates. The rule will also require equal pay and benefits between nationals and expatriates for equal work. No date for implementation has been established.
The constitution provides for the right to engage in union activities and labor strikes, but the government may intervene in labor disputes that affect national security, particularly strikes in the oil sector.
Foreign-Trade Zones/Free Ports
In March 2003, Angola agreed to adhere to the SADC Free Trade Protocol that seeks to harmonize and reduce tariffs and by establishing regional policies on trade, customs, and methodology. However, Angola is delaying implementation of this protocol, fearing a flood of imports from other SADC countries, particularly South Africa.
The government aims to relaunch internal production before lowering its tariff barriers. In September 2004, the government announced reduced customs duties on imported goods and in December exempted businesses and individuals in the enclave of Cabinda from all customs duties. These reductions and exemptions do not apply to the oil industry.
Angola has signed customs cooperation agreements with Portugal and São Tomé and Principe, and is expected to sign others with South Africa and members of the Community of Portuguese Speaking States (CPLP). Angola is also currently negotiating customs agreements with Namibia, Zambia and the Democratic Republic of Congo, all fellow SADC members.
Foreign Direct Investment Statistics
According to the UN Conference on Trade and Development’s (UNCTAD) 2005 World Investment Report, Angola was the second largest recipient of FDI in Sub-Saharan Africa in 2004 at over $2 billion, down from $3.5 billion in 2003, and the largest overall recipient in Sub-Saharan Africa between 1999 and 2004. 93 percent of 2004 FDI went to the petroleum sector. From 1998 to 2002, average annual inflows of FDI were $1.6 billion and FDI stock in 2002 stood at $11.4 billion, or 98 percent of GDP. The main geographical origin of FDI flows to Angola is the United States, followed by France and the Netherlands.
FDI outflow and stock has been negligible. In 2002, FDI outflow from Angola was less than $10 million.
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Produced by US Embassy, Angola
Cynthia G. Efird
US Ambassador to Angola
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