Country Report: Angola


By Dan Keeler

Ravaged by a 27-year civil war and buffeted by the recent global financial crisis, Angola has suffered more than its fair share of challenges. Undaunted, its leaders are striving to reshape it into a robust and dynamic economy.


Just under nine years after the end of a 27-year civil war that left an estimated 1.5 million people dead and more than four million displaced from their homes, Angola is undergoing a remarkable transformation. Hundreds of miles of highways that were destroyed during years of persistent fighting are being reconstructed under an ambitious infrastructure development plan. Railways are beginning to run again and plans are being formulated for a huge increase in power generation capacity and a massive expansion of the water supply system.

Situated on the Atlantic coast of Southern Africa, Angola has a wealth of natural resources. Its temperate climate and large tracts of fertile land make it an extremely attractive agricultural area with the potential not only to amply feed its own population but also to become one of the most significant food exporters in the region, and perhaps even the continent. Its oil production capacity rivals that of its northern near-neighbor Nigeria, and by some accounts it has now overtaken Saudi Arabia to become China’s principal oil supplier. It also has substantial reserves of diamonds, gold and other minerals as well as a long, underused coastline and some stunningly beautiful interior landscapes that could help it develop a lucrative tourism industry.

On the face of it, the picture is rosy. In a recent speech to the National Assembly in Angola’s capital, Luanda, president José Eduardo dos Santos noted that the country’s economy grew at an average rate of over 14% between 2002 and 2008, with non-oil-related economic growth proving slightly stronger than oil-based growth. In its most recent global economic forecast, the World Bank’s says it expects Angola’s economy to grow this year at a robust 6.7%, accelerating next year to 7.5%. Estimates for Angola’s 2010 GDP growth range from 3% to 5%.

Other indicators are encouraging, too. Britain’s Overseas Development Institute says the number of people living in abject poverty in Angola has been halved since the end of the civil war. The World Bank says more than one in three Angolans had a mobile phone by 2008, up from one in 10 in 2005. With a number of major new communications cables under construction along the length of Africa’s west coast and a recently announced plan to lay a submarine fiber-optic cable network that will directly connect Africa with South America—and have Angola as its landing point—the country has the potential to become a key communications hub for the whole continent.

Hard Times
By no means, though, has Angola’s experience since the end of the war been clear sailing. Having been one of the world’s fastest-growing economies between 2005 and 2008—albeit from a very low base—Angola suffered a painfully hard landing in 2009. Tumbling oil prices slashed its GDP growth—by some estimates to barely over 0.2%—and tax revenues slumped accordingly. The government found itself with an ugly hole in its budget and no option but to go cap-in-hand to the IMF. In November 2009 the IMF stumped up $1.4 billion to help Angola get its finances back in order.

Over the past year, on the back of rising oil prices, the country’s economic fortunes have bounced back robustly, and the ambitious infrastructure and social development plans are back on track. For companies considering investing in Angola, this is reassuring news. However, it is not the whole story. “Angola’s economy has absolutely vast potential,” says Tara O’Connor, head of Africa Risk Consulting, a UK-based firm that offers pre-investment advisory and research services for corporate clients. “It’s producing two million barrels of oil a day and has reasonable growth expectations in both the non-oil and the oil sector. But,” she adds, “it has political and regulatory restraints preventing it from unleashing that potential.”

The British government’s trade promotion arm, UK Trade & Investment (UKTI), shares O’Connor’s view, commenting that Angola presents “significant opportunities.” But it adds, with characteristic understatement, “Doing business in Angola is not straightforward.”

The Brits aren’t the only ones to have noticed that setting up or running a business in Angola is an uncommonly challenging prospect. On the World Bank’s ease-of-doing-business scale, Angola ranks 163rd out of 183 countries. It also consistently scores exceedingly poorly on Transparency International’s annual corruption perceptions survey, lurking at the bottom of the global league alongside such other famously challenging countries as Burma, Sudan and Somalia. The decades of strife and their accompanying destruction of infrastructure have also taken a severe toll on Angola’s competitiveness. According to the World Economic Forum, Angola is one of the least competitive countries in Africa based on its technological readiness for business, its general education levels and the state of the country’s public institutions.

Given the level of damage the country suffered during the decades of conflict, its lack of technological readiness is hardly a surprise. By the time the civil war ended in 2002, more than two thirds of Angola’s road network had been partially or wholly destroyed. The country’s main railways were inoperative and its primary water treatment and distribution systems as well as its key hydroelectric power facilities were in ruins. Much of the country was riddled with land mines.

As with so many aspects of Angola, though, the raw data don’t tell the whole story. Although it agrees that Angola is one of the world’s least-business-friendly countries, the World Bank also notes that the situation is changing and that the country has shown a marked improvement over the past five years. Angola’s investment promotion agency, for example, is working to streamline the process of investing in the country. The central bank is also ramping up its efforts to create a transparent and legitimate financial system and has created a “financial intelligence unit,” whose role is to improve banking supervision and combat money-laundering. And despite the fact the president and his henchmen are often accused of presenting the biggest obstacles to the creation of a fair and opaque business environment (see box), Dos Santos has launched a personal campaign to stamp out corruption.

Slow and Steady Wins
Building a 21st-century economy and creating the stable and credible institutions that can support and nurture it will take time, however—a fact that those considering investing in Angola are strongly urged to bear in mind. “You have to remember, this is a new country,” says Nicolaas Alberts, director of Investec Capital Partners, Angola. “Changes aren’t going to happen as quickly as Western companies might want, but they are moving in the right direction, and things will speed up.”

Alberts says there are some notable underlying trends that illustrate the sea change under way in Angola. “The big four accounting firms are here, for example, and they are growing rapidly—that means the local companies are using them, which is a tremendously good sign.”

At the heart of the government’s plan to bolster the economy is its massive program to rebuild and expand Angola’s infrastructure. Funded by a potent mix of oil revenues and giant loans from foreign governments—particularly the Chinese—the plan involves rebuilding and extending the country’s road and rail network, its electricity generating and distribution infrastructure and its water supply systems. By 2016 the government hopes to boost electricity-generating capacity to 7,000 MW, as well as to provide access to clean water for 100% of the population in urban areas and 80% of people in rural areas.

To pay for its plans, the government has earmarked the revenue from 100,000 barrels of oil per day. As part of its standby agreement with the IMF, the government has also committed to raise the level of spending on social projects such as housing and school construction—something that is desperately needed in a country where, according to the UK government’s trade department, as much as 80% of the population is illiterate.

As well as alleviating poverty and hardship within its own borders, Angola’s infrastructure spending binge will change the regional balance of power. Rehabilitating and expanding the ports, highways and railways, says Dos Santos, will “make it possible in the next few years for the country to be transformed into a logistical hub of considerable importance in Southern Africa.”

Diamond in the Rough

Angola may present tremendous opportunities, but for all but the most intrepid and determined companies, those opportunities may remain out of reach. Setting up and maintaining a business in Angola requires tenacity and determination, local experts say. There is almost universal agreement that the key is to find the right local firm with which to partner. Alberts explains: “Working with a local partner is not the only way to operate here, but it certainly is the easiest way. The challenge is finding the right person—one who will respect your company’s policies, your governance structure and your corporate attitudes. You can’t do that by just flying in—you have to be prepared to spend time on the ground here.”

Stephen Bailey-Smith, head of Africa research at Standard Bank, says the challenges of investing in Angola can be immense, but so are the potential rewards: “Angola’s economy is set to grow quickly,” he says. “If it gets it right, the money that it gets from oil production should provide huge fiscal room to spend on roads, rail, ports and energy, which should facilitate the rebound of an economy that was decimated by decades of civil war,” he adds.

O’Connor agrees that setting up there is difficult: “You have to put the time in. The critical thing about doing business in Angola is to know that opacity is your starting point and that to be successful you have to take a long-term strategic view. You also must have clear objectives, equally clear governance policies and the authority to walk away from a deal at the 11th hour if anything comes to light about which you are uncomfortable.”

Having deep pockets also helps, as does having explicit or implicit government backing. China is the most visible example of a country that is spending freely in order to help its companies establish a toehold in Angola, but it is far from alone. Russia’s president, Dmitry Medvedev, swung by in July 2009 to encourage a deeper economic relationship between Russia and Angola—and to build on goodwill established during the Cold War when the Soviet Union supported the ruling MPLA party in the civil war against the rival UNITA party, itself supported by the United States and South Africa. After a brief stay, Medvedev left with a fistful of contracts for infrastructure projects such as rail links and hydropower developments. Angola’s former colonial ruler, Portugal, is also eyeing opportunities there, and its president, Aníbal Cavaco Silva, visited in July last year—bringing with him an 80-strong delegation of Portuguese businesspeople. In early November, Nick Baird, director general of Britain’s Foreign and Commonwealth Office, paid a flying visit to Angola, followed shortly afterwards by the UK’s Africa minister, Henry Bellingham, who spent four days in Angola with a sizable entourage of British businesspeople in tow.

After decades of animosity, South Africa is also working hard to establish closer ties with Angola. South African president Jacob Zuma’s first state visit was to Angola, and in December last year Dos Santos returned the favor with a state visit to South Africa that Zuma described as “the final cementing of relations between the two countries.” The deepening relationship with South Africa, which during Angola’s civil war sided with UNITA against the MPLA—Angola’s current ruling party—is perhaps the clearest sign that Angola’s leaders are trying to leave behind the country’s turbulent past. As one Western observer put it, “It’s remarkable that they’re sitting across the table from each other. The last time many of these Angolans and South Africans looked at each other, it was over the barrel of a gun.”

A Burgeoning Regional Power
Although Angola is still in the early stages of its reconstruction program, the country’s potential is already becoming clear. “Politically, it’s challenging South Africa as a dominant force in the region,” says O’Connor. Dos Santos, perhaps with an eye on his legacy, is keen for Angola to raise its international profile in the region and beyond. “Angola will continue to maintain its inescapable calling of being a factor for peace, stability and development,” he said recently.

Some observers believe that Dos Santos’ efforts to create a more open, transparent system partly reflect his desire to be remembered as a champion of reform, having instituted changes that benefit all levels of Angolan society. The president and his government certainly have the financial clout to lift Angola’s masses out of the grinding poverty they’ve endured for decades. “The potential wealth from oil is so huge you can’t ignore it,” says Bailey-Smith. “Angola produces almost as much oil as Nigeria, but it has a tenth of the population, so potentially it should be much more wealthy,” he adds.

The key question for companies considering investing, though, is whether it would be best to wait until the country becomes more business-friendly. Alberts is unequivocal: “The growth rate is so rapid here and the opportunities are so huge that you need to get a foot on the ground as soon as possible,” he argues.

O’Connor agrees that multinationals should already be considering venturing into Angola: “There is an enormous opportunity there. Everything is pointing in the right direction. With the end of war, the government … opening up for business—they’re little steps, but all of those steps are heading in a good direction for the long term.”

Perhaps most telling of all is the fact that Angola is falling out of favor with investors who specialize in distressed debt. Robert P. Smith, founder and managing director of the Boston-based Turan Corporation, which specializes in trading emerging market sovereign debt, made a substantial return on Angolan government debt he bought for five cents on the dollar two decades ago. “Now we’re not interested,” he says. “My general perception is that it’s doing very well, and that means it’s not a place where we’re going to make a lot of upside.”


Much progress has been made in Angola since the end of the civil war, but at least one characteristic of doing business there has barely changed. As one Western businessperson, who asked not to be named, told Global Finance: “You can’t make anything happen in Angola unless you know the right people—it’s essentially a very tight-knit oligarchy.”

Another put it more bluntly: “Angola has an avaricious and controlling political elite. Pretty much every major business in every sector has got some member of the [president’s inner circle] as either a hidden or publicly recognized shareholder, so there is a great deal of opacity amongst that elite.”

While few people doing business in Angola will openly talk about it, the whiff of corruption pervades every discussion about the country. It is no secret, however, that literally billions of dollars of oil revenues are unaccounted for and that many of the country’s political and business leaders are extraordinarily wealthy. According to the Johns Hopkins University’s Journal of Democracy, for example, by 2003, just a year after the civil war ended, president Dos Santos was the richest man in Angola, and his key political allies had amassed tens—or perhaps hundreds—of millions of dollars.

Unlike in many other resource-rich, newly emerging countries, though, corruption is not rife at all levels of society. “The petty corruption you see in other countries in Africa is less prevalent in Angola,” says one commentator, “but at the senior level, I suspect there is very little independent tendering.” Another Luanda-based businessperson described the situation as “nothing to write home about” and added: “You have to see it in context. They’ve had civil war for 27 years, and all of a sudden the war ended, and they have this tremendous amount of oil.”

There is also a consensus that Angola’s top leaders have recently developed a determination to crack down on corruption and to establish a more open, transparent business environment. Investec’s Alberts notes: “They’re definitely going in the right direction, establishing laws that deal with corruption. The fact that they are doing this shows they are serious about improving the business environment.”

O’Connor highlights the importance of a new financial investigation unit that the central bank is setting up early this year. “It’s a small step toward establishing the necessary framework that will enable international companies to be comfortable coming into the country, either to participate in local companies or to set up on their own,” she says.

As more multinationals establish operations there—as they surely will—they will bring with them Western standards of transparency and governance. If Angola is to have any chance of achieving its dream of becoming a regional economic leader, it will have little choice but to create an open—and honest—business environment.