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DE RUEHLU #0574/01 2101827
ZNR UUUUU ZZH
P 281827Z JUL 08
FM AMEMBASSY LUANDA
TO RUEHC/SECSTATE WASHDC PRIORITY 4926
INFO RHEHNSC/NSC WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
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RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

UNCLAS SECTION 01 OF 04 LUANDA 000574 
 
SENSITIVE 
SIPDIS 
 
E FOR U/S JEFFERY 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECIN ECON EFIN EINV EPET ETRD EAID
OVIP (JEFFERY REUBEN), AO 
SUBJECT: U/S JEFFERY VISIT SETS THE STAGE FOR DEEPER 
BILATERAL RELATIONS 
 
REF: LUANDA 00532 
 
¶1. (SBU)   SUMMARY:  Angola rolled out the red carpet to 
receive Under Secretary of State for Economic, Energy and 
Agriculture Affairs Reuben Jeffery III during his July 21-22 
visit to Luanda.  In meetings with key players in Angola's 
economic equation (government, international oil companies, 
banks, and other private sector entities), Jeffery received a 
strong, consistent message: 
          -- Angola is booming as it uses massive oil and 
diamond revenues to rebuild an infrastructure (physical and 
human) devastated by a 27 year civil war that ended just six 
years ago; 
          -- At the same time, Angola is beset by enormous 
challenges, including corruption fueled by the huge inflow of 
revenues and abetted by poor accountability structures, acute 
shortages of skilled personnel, woefully inadequate financial 
institutions, deficient investment in the non-oil/gas sectors 
that are best suited to creating millions of badly-needed 
jobs, and social indicators that rank among the world's 
worst; and, 
          -- Angola needs and wants both USG assistance in 
modernizing and strengthening its financial institutions and 
U.S. private sector investment to kick start the non-oil/gas 
sectors, especially agriculture, agriculture processing, 
mining (iron, copper, gold), forestry, among others. 
 
¶2. (SBU) SUMMARY continued.  High level engagement, such as 
U/S Jeffery's visit, is key to deepening our relationship 
with Angola, a country of strategic importance to the United 
States for numerous reasons, including its role in promoting 
peace and stability in central and southern Africa, the 
potential for its relatively large and effective military to 
support peacekeeping operations, as a major non-Middle 
Eastern source of oil, and as an investment and trading 
partner.  U/S Jeffery's message of recognizing Angola's 
strategic importance and the progress it has made during six 
years of peace, acknowledging the many problems and 
challenges that remain, and exploring the possible role the 
U.S. might play in addressing those challenges was right on 
target. The challenge now is to build on the success of the 
Under Secretary's visit. END SUMMARY. 
 
THE VIEW FROM THE TOP 
---------------------- 
 
¶3.  (SBU) Meeting with U/S Jeffery at the behest of President 
Dos Santos (who was engaged in funeral arrangements for his 
sister) Prime Minister Dos Santos (Nando) underscored the 
progress Angola has made in consolidating peace during the 
six years following the February 2002 end of the nation's 27 
year civil war.  Nando gave high marks to the opposition 
UNITA as a "good partner" in consolidating peace.  He said 
the September legislative elections, the nation's first since 
the 1992 elections precipitated another decade of war, would 
be peaceful.  He declared that both the ruling MPLA and UNITA 
want peace, stability and development more than either wants 
to win an election.  Jeffery replied that high-quality 
elections would send a powerful message to the international 
community that Angola is a strong, emerging democratic state. 
 
¶4. (SBU) Turning to the nation's economic revival, Nando said 
the government's priorities were first to rebuild the road 
and railway networks and the water and electrical systems, 
all of which were devastated during the civil war.  The 
nation now is working to strengthen the health, education, 
and agriculture sectors, he added.  Recognizing that the oil 
sector cannot boom forever, the Prime Minister was especially 
proud that the non-oil sector had experienced double-digit 
growth last year.  Declaring that Americans are famous for 
their pragmatism and efficiency, Nando called on American 
business to invest in the non-oil sector, just as it has in 
the oil sector.  He acknowledged that some American business 
is "afraid" of investing in the non-oil sector, but appealed 
to them to come, telling U/S Jeffery to "be our spokesman, 
let American business know about Angola, tell them that we 
are ready to receive them." 
 
¶5. (SBU) In a separate meeting with U/S Jeffery, Manuel 
Vicente, President of Sonangol, Angola's national oil company 
and, perhaps, President Dos Santos's top economic advisor, 
acknowledged Angola's many challenges (congested ports, lack 
of economic diversification beyond oil, deficient electrical 
supply, lack of skilled manpower) and detailed how Sonangol 
was working to address each of these challenges.  Vicente 
 
LUANDA 00000574  002 OF 004 
 
 
saved his most powerful message until the conclusion of the 
meeting, when he faced Jeffery directly and declared that his 
"last message is that America must be more present in Angola, 
America must not be absent from Angola, America must not let 
the Chinese be alone in Angola." 
 
...AND FROM ANGOLA'S ECONOMIC TEAM 
------------------------------------ 
 
¶6. (U) In separate meetings with Deputy Prime Minister 
Aguinaldo Jaime, head of the GRA economic team, Finance 
Minister Jose Pedro de Morais, Central Bank Governor Amadeu 
Mauricio, and Deputy Central Bank Governor Rui Miguens de 
Oliveira, U/S Jeffery received consistent messages about 
Angola's considerable progress during the past six years, the 
many problems that the nation continues to face today, and 
ways that the U.S. could help Angola overcome these problems. 
 
 
¶7.  (SBU) The various members of Angola's economic team 
described to U/S Jeffery the significant progress Angola has 
made since the February 2002 end of the civil war, including: 
-- Budget reform.  Angola now has a fully operational on-line 
system to track the budget at both national and provincial 
levels.  This system enables the Finance Ministry to rein in 
extra-budgetary expenditures.  The system will be expanded 
soon to include Angola's overseas missions and to record the 
government's assets throughout the nation. 
-- Debt restructuring.  Angola is fulfilling its agreement 
with Paris Club creditors, thus enabling them to open new 
lines of credit, as appropriate to Angola's new, post-war 
circumstances. 
-- GDP growth.  According to the Finance Minister, the GDP is 
doubling every 3 years (other interlocutors posited 5 years), 
which, while positive, creates problems of sustainability 
over the medium to long term. 
-- Infrastructure development.  As attested by the 
construction that U/S Jeffery witnessed during his visit, 
Angola is investing hugely in rebuilding its cities, roads, 
railroads and other physical infrastructure. 
-- Macro-economics.  Effective macro-economic policies have 
resulted in a stable currency, lower inflation, better fiscal 
policies, and budget surpluses. 
-- Consolidating peace.  All interlocutors expressed 
confidence in the country's emerging democratic structures, 
and believed that the September elections would be peaceful. 
 
¶8.  (SBU) U/S Jeffery's wide-ranging discussions with the key 
players of Angola's economic team revealed a multitude of 
challenges facing the nation's economy, including: 
-- Managing expectations.  After six years of peace, Angolans 
want to start reaping a peace dividend now, not tomorrow, as 
Jaime put it. 
-- Lack of human capacity.  The government has the financial 
resources to support a wide range of initiatives so more 
Angolans can benefit from the nation's oil wealth, but lacks 
the human infrastructure to implement such programs.  The 
National Director of Energy noted that efforts to add 4000 MW 
to the power grid are constrained by the need to hire 1000 
additional electrical engineers.  Angola's tight immigration 
policies make hiring overseas expertise difficult. 
-- Constraining fiscal regime.  Angola's current fiscal 
structure, a legacy from the Portuguese colonial bureaucracy, 
is extremely cumbersome and unresponsive.  Among other 
things, the GRA has launched a complete review of the tax 
system in order to modernize the system and reduce 
bureaucracy. 
-- Corruption.  The Deputy Governor of the Bank declared that 
the government controls too much of the economy and, 
therefore, corruption will continue as a problem as long as 
private enterprise needs government signatures to go about 
business.  For example, the Cabinet (Council of Ministers) 
must approve any investment over USD 5 million, which would 
include building a moderately large house.  "The GRA has to 
make more space for the private sector; as it is now, the 
private sector is dependent upon the government," the DepGov 
added. 
-- Lack of transparency.  The Central Bank Governor 
acknowledged that transparency is essential for a modern 
financial system, and that Angola still needs to do more to 
improve transparency by providing more financial information 
publicly.  He said the GRA is working on developing 
benchmarks toward this end. 
-- Sustaining macro-economic stability.  The government is 
challenged to sustain macro stability without increasing 
 
LUANDA 00000574  003 OF 004 
 
 
inflation in an economy in which the government is spending 
heavily ( a situation made more challenging by the GRA's 
inefficient monetary tools. 
-- Lack of jobs.  The capital-intensive oil sector does not 
generate desperately needed jobs for Angola's young 
population.  Agriculture and related agro-processing 
industries are seen as essential to creating these jobs. 
-- Lack of housing.  The government is not keeping up with 
ever increasing demand for housing.  The disparity between 
supply and demand is creating a real estate bubble, which the 
Central Bank Governor asserted needs to be controlled. 
-- High cost of living.  Angola's high costs discourage new 
investment and divert much of the economy into the non-tax 
paying informal sector.  Interlocutors hoped that revival of 
the agriculture sector would expand food supplies and start 
to bring down the exorbitant cost of living in Angola. 
-- Difficulty in starting a business.  Despite efforts to 
create a one-stop shop for investors, the reality is that it 
is still costly and time consuming to launch new investments. 
-- Deficient property rights.  Lack of clear title to 
property undercuts access to credit. 
 
¶9. (SBU) A common theme throughout U/S Jeffery's discussions 
with members of the GRA economic team was the key role that 
the USG and the U.S. private sector could play in helping 
Angola address these challenges, including: 
-- Technical assistance.  Both the Finance Minister and the 
Bank Governor expressed appreciation for ongoing technical 
assistance from USAID and requested that such assistance be 
greatly expanded, including areas such as long-term financial 
forecasting, studies of monetary indicators, refining 
monetary policy, improving inflation control, effectively 
managing growing financial reserves, and improving the 
banking system. 
-- US banking presence.  The Central Bank Governor invited 
U.S. banks to explore opportunities to be a part of Angola's 
growing financial sector. 
-- Early signing of a bilateral Trade and Investment 
Framework Agreement (TIFA).  A representative of the Angolan 
Foreign Ministry told U/S Jeffery that the TIFA is undergoing 
final legal review and Angola's comments would be forwarded 
to the U.S. soon.  (Note:  Shortly after U/S Jeffery's 
departure, the Embassy received GRA comments on the TIFA 
text.) 
-- Angola's bad image in the U.S.  Acknowledging that Angola 
needs to improve its public image, interlocutors urged trade 
missions and conferences/symposia to help American businesses 
understand better the realities of the new Angola. 
 
INTERNATIONAL OIL COMPANY EXECUTIVES 
------------------------------------- 
 
¶10. (SBU) During a breakfast meeting with the Under 
Secretary, American and French oil company executives said 
operating profitably in Angola is becoming increasingly 
challenging as the government becomes more aggressive in 
maximizing it share of oil revenues.  According to the execs, 
the companies' most serious problem is the government's 
toughening interpretation of the tax code and unilateral 
decisions by the tax authorities to change production 
contract agreements.  The executives thought that the 
international companies might be victims in a struggle 
between the Finance Ministry and Sonangol over which entity 
can generate the most revenues from the IOC's. 
 
¶11. (SBU) The IOC executives called for more U.S. engagement 
with Angola, pointing out that Angolans are proud and that it 
is important to show them due respect.  The execs added that 
deepened U.S. engagement would help keep the Angolans "out of 
the arms of the Chinese and Russians."  The executives 
expressed appreciation to U/S Jeffery for his visit, noting 
that this was exactly the kind of respect that the Angolans 
seek. 
 
COMMENT 
-------- 
 
¶12.  (SBU) Aside from the President, who was dealing with the 
recent death of his sister, the Under Secretary met the key 
actors in Angola's economic equation --- good evidence that 
the Angolans valued his 24 hour visit and meant what they 
have told us about their desires for deeper U.S.-Angolan 
relations.  The challenge now is to build on the success of 
the Under Secretary's visit.  On the diplomatic front, an 
early opportunity for senior level discussions with the GRA 
 
LUANDA 00000574  004 OF 004 
 
 
might be on the margins of UNGA during the September opening 
sessions.  On the technical assistance front, a possibility 
for expanding engagement would be posting in Luanda one or 
more Resident Advisors from the Office to Technical 
Assistance, Dept of the Treasury (reftel).  On the commercial 
front, an early trade mission to Angola is a possibility, one 
we are currently exploring with the U.S.-Angola Chamber of 
Commerce.  Such a mission could be combined with a USA Day 
workshop/symposium to explore avenues for expanding trade and 
investment.  In addition, we are also exploring with the Dept 
of Commerce the possibility of creating a Commerce 
Locally-Engaged Staff position here. 
 
¶13. (U) Under Secretary Jeffery did not have an opportunity 
to clear this reporting message. 
MOZENA