VZCZCXRO7675
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLU #0300/01 1060730
ZNR UUUUU ZZH
P 150730Z APR 08 ZDS
FM AMEMBASSY LUANDA
TO RUEHC/SECSTATE WASHDC PRIORITY 4728
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

UNCLAS SECTION 01 OF 03 LUANDA 000300 
 
SIPDIS 
 
C O R R E C T E D  C O P Y (SUBJECT LINE) 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EINV ECON AO
SUBJECT: ANGOLA - OPIC FUND NEEDED, BUT INVESTMENT CLIMATE IS DIFFICULT 
 
REF: STATE 27714 
 
LUANDA 00000300  001.3 OF 003 
 
 
¶1. (SBU) Summary: Although awash in cash from its extractive 
industries, Angola's private sector is severely stunted by a 
lack of human capacity and a business climate that ranks 
among the worst in the world due to bureaucratic and legal 
inefficiencies.  Nevertheless, a high rate of return is 
attracting interest in investment here, albeit with 
politically connected and well-funded Angolan partners. 
There is a need in Angola for investment from OPIC's proposed 
Africa Consumer Fund, especially in the areas of agriculture 
and fisheries. Most foreign companies invest in Angola 
through sovereign lines of credit extended by their home 
countries. OPIC's proposed Africa Consumer Fund would help 
create a more equal investment field.  The capacity to 
succeed in these sectors exists, but is currently 
underdeveloped.  END SUMMARY 
 
Economics 
--------- 
¶2. (U) Angola's economy is one of the fastest growing in the 
world, driven by booming oil production and high oil prices. 
Production, although officially capped by OPEC at 1.9 million 
barrels per day (bpd), is projected to reach over 2.2 million 
bpd by the end of 2008.  Angola's economy grew by 19.5 
percent in 2006 and 23.4 percent in 2007, and is expected to 
match or beat that pace in 2008.  Inflation was reduced from 
triple digits near the end of the war to just under 12 
percent last year.  Thanks again to petroleum revenues, 
foreign exchange reserves are growing.  Angola is our seventh 
largest source of foreign oil.  With increasing oil revenues 
and extensive lines of credit supplied by the Chinese, 
Portuguese, Brazilian, and other governments, Angola is now 
in the midst of major infrastructure rebuilding. 
 
¶3. (U) Angola's tremendous oil wealth has allowed it to come out 
from under a severe debt burden generated during the civil 
war years.  The government deficit is under control and 
foreign reserve accounts are flush with capital from 
extractive industries, namely oil and diamonds.  Outside 
these industries, however, the Angolan economy continues to 
sputter.  Agriculture is slowly returning to the countryside, 
while manufacturing and service industries are scarce and 
generate few jobs to address the nation's burgeoning 
unemployment problem. 
 
¶4. (U) According to the World Bank's 2007 "Doing Business" index, 
Angola ranks 167 out of 178 countries in promoting an open 
and efficient business climate.  Angola's rankings in the 
categories of "starting a business" (173 out of 178) and 
"enforcing contracts" (176 out of 178) are of particular 
concern. 
 
¶5. (U) Most foreign companies invest in Angola through 
sovereign lines of credit extended by their home countries 
(China, Brazil, and Germany are examples). OPIC's proposed 
Africa Consumer Fund would help create a more equal 
investment field. 
 
Transparency 
------------ 
¶6. (SBU) Under pressure from the international community, the 
Angolan government has made strides towards greater 
transparency by publishing financial information and working 
to limit extra-budgetary expenditures.  Published budget 
documents have grown more detailed from year to year, but the 
2006, 2007 and 2008 budgets still place a substantial portion 
of expenditures under vague headings like "administrative 
costs."  The government has been implementing a 
government-wide accounting system, but the poor execution 
rate of budgeted expenditures remains a problem.  The 
accountability of budgeted yet unspent funds and oil revenue 
beyond the published reference price (USD 56 per barrel) 
remain areas of concern.  The Court of Accounts (Tribunal de 
Contas) reviews cases of official financial misconduct, but 
the published case load shows few convictions.  Angola is a 
signatory to the UN Convention Against Corruption. 
 
¶7. (SBU) Angola lacks a conflict of interest restriction that 
would limit the participation of government officials in 
private sector opportunities related to their public 
responsibilities.  Petty corruption is a problem worsened by 
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 2007 Corruption Perception Index (CPI) placed 
Angola at 147 out of 163 countries. 
 
¶8. (SBU) Although Angola's public and private companies 
historically did not use transparent accounting systems 
 
LUANDA 00000300  002.3 OF 003 
 
 
consistent with international norms, IMF enagement has 
spurred audits of Angola's largest public companies by major 
international accounting firms.  In 2007, the Government of 
Angola announced that it would not enter into a formal 
program with the IMF, but did agree to continue Article IV 
consultations with the IMF.  The Angolan Government does not 
participate in the Extractive Industries Transparency 
Initiative, although it has taken some of the steps necessary 
to qualify for the program.  The government approved an audit 
law in 2002 that requires 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.  The 
National Bank of Angola hopes to foster a professional body 
of accountants to enforce standards and certify qualified 
accountants.  US firms operating in Angola are required to 
adhere to the Foreign Corrupt Practices Act. 
 
Agriculture a Key Sector 
------------------------ 
 
¶9. (U) Outside of the extractive industries sector, the 
agriculture sector provides the greatest opportunities for 
investment and growth.  Angola is experiencing an economic 
boom with extensive infrastructure development. Agricultural 
outputs have not been able to keep up with demand.  Recent 
examples of investment in Angolan agriculture include the 
Portuguese financing of the Buaco agriculture and livestock 
complex, that created 250 direct hire jobs in the Ganda 
municipality; and the funding of a $20 million agri-business 
projects financed by Chevron-Texaco, Agip and Totalfina Elf. 
Agro-processing has growth potential as the government 
continues its efforts to revitalize the agriculture sector. 
The result has been higher prices and an increasing demand 
for imports to supply what domestic producers cannot provide. 
 The central planalto (including the provinces of Huambo, 
Bie, parts of Benguela, Kwanza Sul and Huila) are the 
documented "bread basket" of Angola.  The staple crops in the 
central planalto are potatoes, cattle, and coffee to a 
degree.  Agricultural output has increased since the 2002 
peace accord, but yields, except for cassava production, are 
still remarkably low.  In the government's view, large 
investments to improve the quality of the soil will be 
required before large scale agricultural production can in a 
significant way contribute to the country's economic output. 
Investors in Angola's agriculture sector can take advantage 
of investment incentives including a three year customs duty 
exemption, a five year capital gains tax exemption, and an 
eight year industrial tax exemption. Post supports 
programming in this sector.  In March 2008, Chiquita Banana 
announced it had reached a USD 60 million agreement with an 
investor group to purchase bananas for export to Europe. 
 
¶10. (U) Angola's fisheries sector will need significant 
investment in the coming years to take full advantage of the 
country's cold water coast line. Angola's fishery sector is 
an important part of Angola's domestic food production and is 
the fourth most important economic sector after the oil, 
diamond and agriculture sectors, contributing about 3.5% to 
GDP in 2005. Roughly 70% of marine landings are distributed 
in fresh or frozen form in the domestic market. Fish is part 
of the traditional diet in Angola and production is consumed 
mainly domestically. There is a strong demand for fish and 
the demand is not fully satisfied. Angola seafood and fish 
captured reached 600,000 tons in 2007. The government in the 
last several years has taken steps to revitalize its 
fisheries sector by creating new laws that allows for more 
investment. Law No.8/A/04 stipulates that foreign firms can 
fish in Angolan waters only when they are part of a joint 
venture with an Angolan company. Roughly 5% of the national 
production is exported, mainly to EU and US markets. 
 
¶11. (U) Angola declares that it welcomes investment and has 
created the National Private Investment Agency (ANIP) to help 
investors and facilitate new investment under the 2003 Basic 
Law for Private Investment (Law 11/03).  Law 11/03 lays out 
the general parameters, benefits, and obligations for foreign 
investors, and provides for equal treatment, offers fiscal 
and custom incentives, simplifies the investment process and 
sets capital requirements.  Decrees and regulations issued by 
other government ministries may take precedence over the 2003 
Law.  Present and future rules may erode or negate investment 
protections offered by the 2003 Investment Law. ANIP must 
approve foreign investments of USD$100,000 to $5 million. The 
Council of Ministers must approve investments of over USD$5 
million, as well as any investments that requires a 
concession or involves the participation of a parastatal. 
After obtaining contract approval from ANIP or the Council of 
Ministers, the investor must register the company, publish 
the company's statutes in the official gazette (Diario da 
Republica), obtain a business license, and register with the 
fiscal authorities.  Foreign investment under USD$ 100,000 do 
not require ANIP approval.  Obtaining the proper permits and 
 
LUANDA 00000300  003.3 OF 003 
 
 
business licenses to operate in Angola can be time-consuming. 
 The World Bank Doing Business in 2008 report documented that 
it took 166 days to register a business in Angola.  Since 
2003, the "Guiche Unico", or one-stop shop, led by the 
Ministry of Justice has brought various ministries together 
in one place in an effort to simplify and speed up 
registration. ANIP projects that the Guiche Unico will 
increase annual number of registered companies in the country 
and with greater efficiency. 
 
Comment 
------- 
 
¶12. (SBU) Comment: Although foreign investors can set up 
fully-owned subsidiaries in many sectors, the investment 
climate strongly encourages them to take on local partners 
who are both financially and politically connected. However, 
even with a well connected partner it still can take a long 
time to start a business. Foreign investors may find it even 
more difficult to function in Angola without a local partner, 
but examples do exist of foreign investors dropping their 
local partners and becoming profitable.  The biggest obstacle 
that investors face is the government itself.  Although the 
government is trying to create a more investor-friendly 
climate, existing laws governing the economy have vague 
provisions that permit wide interpretation and are applied 
inconsistently across all sectors. The government has made 
clear its intentions to improve the investment climate, but 
their actions have not caught up with their rhetoric. 
MOZENA