future business relation between angola and the us

8/12/2019 Future Business Relation Between Angola and The US

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AOPIPAPERS

Future Business Relation

Between Angola

And The United States

Occasional Development

Paper

April 2013

Since the end of civil war in 2002

much has been achieved in

Angola in terms of GDP growth,

infrastructure development and in

the macro-economic sphere such

as inflation. However, there is a

tremendous number of challenges

waiting to be addressed and much

work remains to be done if Angola

is to become a democratic state

with an inclusive and prosperous

society.


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AOPI PAPER: ANGOLA & UNITED STATES OF AMERICA

Future Business Relationship 7

2013 Angola Open Policy Initiative All rights reserved.

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Limited print copies are also available. To request a copy, send an e-

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[email protected]

About AOPI Angola Open Policy Initiative

AOPIAngola Open Policy Initiative is a non-profit, nongovernmental and

organization with the objective of heightening the level of awarenessand discussion about policy and implementation in Angola, promoting

citizen participation, openness and accountability in government

by bringing together individuals and groups to develop research and

share ideas, knowledge, experiences and expertise.

AOPI seeks and promotes the best international practices on democratic

and economic development to share and discuss in the context of the

Angola reality, its culture and people. It embraces the notion

that Angola should find its own distinct development and democratic

model but taking always in consideration that certain core and basicprinciples are shared by all democracies.


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ABSTRACT

Since the end ofcivil war in 2002much has been achieved in Angola

in termsof GDP growth, infrastructure development and in the macro-economic sphere

such as inflation. However, there is a tremendous number of challengeswaiting to be addressed and much work remains to be done if Angola is tobecome a democratic state with an inclusive and prosperous society.

Angola's oil resources have been a key driver of GDP growth so far, and have

been foundation of international relations with the USA, that holds energy

security as a principle objective of foreign policy.

Oil provides limited direct opportunities for employment and wealth distributionthrough employment. Angola is looking beyond oil for a diversified economy

with improved employment and wealth distribution and avoid the damaging

effects of transfer payments. It is also in the tradition and interests of the USA

to support Angola in achieving a socio-economic structure that is more

inclusive and stable: this is especially true in the light of the Arab Spring.

In this respect there is much that private business can do, many profitable

opportunities that can be seized. Furthermore, it can be argued that private

business, operating at a micro level can do much more to engender positive

relationships that politics and oil that come into contact with the a small and

select group of Angolan society. Private business can do much to disseminate

the positive values of American society.

In the non-oil and gas sector, the USA lags behind other countries in business

and investment. Given the above arguments, both countries need to work to

change this situation. Even a cynical oil centred approach by the USA would

demand this in order to achieve a more stable social and political climate in a

supply relationship. However, Angola, as a rising star, is also important as a

centre of influence in the African continent. Furthermore, America has a

tradition of sharing its values of economic liberalisation and wealth distribution

as being good for all peoples.


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Given that Angola has set a course of economic and industrial diversification

and distribution, that opens many business opportunities in the non-oil and gas

sector; the questions that face us are:

Why is the US level of investment and involvement in the non oil and

gas sector so low How to make US businesses aware of the opportunities

What can be done to reduce the perceived barriers to doing business

in Angola

How can the current business and political linkages be dynamited to

foster greater levels of US business activity in Angola?


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CONTENTS

1. OVERVIEW

2. ECONOMIC POLICY MAKING IN ANGOLA

3. POLITICAL INTERESTS OF THE USA IN ANGOLA

4. THE CONTEXT, OBJECTIVES AND PRIORITIES FOR ENERGY

POLICY

5. POLICY FRAMEWORK - ENERGY

6. ANGOLA ECONOMIC AND INDUSTRIAL POLICY

7. PRIVATE SECTOR VIEW OF A WAY TO FORGE NEW BUSINESS

RELATIONSHIPS

8. CONCLUSION


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1. OVERVIEW

Ever since the Industrial Revolution, energy and the need to secure its supplyhave been fundamental to any position of power in the world. Oil will continue

to be the principal energy resource for the foreseeable future. Realistically

other alternatives like wind, solar, and nuclear power plant remain limited. In

what is known as the Hydrocarbon era, second only to national defence,

energy plays a crucial role in the survival and well-being of the US and virtually

all other countries, both developing and developed. This has been a key factor

informing US policy with Angola.

The key questions arise from the assessment in this paper. The first is how

best to conduct the strategic relationship between Angola and the US, toensure economic development for Angola beyond the petroleum sector and

obtain strategic support for Angola's economic and industrial diversification.

The second is how to provide a sustainable degree of stability and security of

energy supply to the US.

Also, we wish to explore how a well thought foreign policy can best advance

both countrys energy interests, by focusing on Sub-Saharan Africa potential

for the development and supply, and by constructing an energy security

strategy that takes in to account the role of strategic reserves, technology, the

environment, and sustainable development. Angola should be considered inthe context of Sub-Saharan Africa, as a rising star and a key to influence in the

region.

Far too long Angola has used an ad hoc approach to Energy policy with the

US, it has not used it to proactively promote the political stability in Angola,

Joining the OPEC only delay the path of development of the country.

Angola has a worryingly high level of unemployment: whilst the USA is

concerned with regional unemployment levels of 5% to 20%, Angola, a country

that belies the statistical interpretation, has levels of unemployment between

25% and 40%, that could threaten social cohesion.

In this paper we will demonstrate that recent events in the last few years

should be the catalyst for aligned policies for energy and business

development between economies. Such policies should target economic

policy objectives that drive economic development, generate employment and

improve the living standards of the population.

A crucial and internationally important element of economic policy relates to

the area of oil, gas and energy. Policy in this area should optimize the social,

economic and environmental benefits of these resources. Furthermore, we

believe that aligned policies will drive the private sector to realize


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complementary advantages in this sector enabling both countries to benefit

from Angolas strong resources economy

Beyond the energy sector we can see many advantages and great potential of

strong bi-lateral trade links between Angola and the USA. Here again

complementary resources technical skills, stages of development provide

opportunities for the US world-class businesses in sectors such as

infrastructure development and management (ports airports, transport),

industrialization and capital asset projects, social housing developments

where, agriculture and agri-business with $2bn allocated, in addition to other

reconstruction and public works projects.

At AOPI, whilst, as opinion leaders with a significant degree of business

connection we have a micro-economic focus, we recognize the social, political

and macro-economic context in which we work and operate. The businesses

we lead generate wealth: however this is only possible when the context, the

national infrastructure and the socio-economic conditions support us and

support private enterprise.

In addition to the precepts of the market economy, we also subscribe to the

social, economic precepts that relationships, exchange and openness develop

understanding, develop a community of values and foster a climate between

sovereign states that leads to benefits for all.

In a World of increasing interdependency such relationships, that enable

coordination, are of strategic value. The financial and economic crisis hasdemonstrated both the unprecedented level of interdependence and the need

for coordination.

Whilst at a political and diplomatic level much is done to establish

relationships, policies and create possibilities for economic relationships, it is at

the business and social level that transactions and exchanges take place that

generate value and wealth, and enable a sharing of values at the level of

individuals. The Arab spring suggests that the values and power of individuals

is coming to the foreground: a recent example is the riots in Croatia that will

follow by the referendum in Crimea. In Angola there is a huge potential forbusiness activities with the right partners to deliver tangible benefits to the

Angola public, in particular the poorer classes.

As businessmen we believe in the market economy to provide the best but not

always ideal conditions in which to operate. The USA's interest is in the

development of the market economy in Angola to:

Create a stable political and social context in the countries with which it

shares increasing interdependence;

Create a context to share values at the individual level, now so

important given the rise of the individual referred to earlier;


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Promotes wealth creation in trading partners that has a symbiotic effect

on the USA and also promotes the market economy model;

Provides freedom for trade and access to markets and resources.

The USA's principle interest in Angola has been informed by it's energy policy.

In a multi-polar World where emerging nations such as Brazil, China and India

are asserting their economic, resource and population based power, a strategic

view should look beyond energy: it should also encompass development in

social, economic, business and personal security matters. The USA has lead

the World in its internal development in these matters and it is this that can be

its contribution to the developing World. To paraphrase L. Col. Shannon

Beebe, development and security in the developing World provide a more

peaceful context for the USA.

The USA's energy based focus is born out by the fact that whilst the USA is

one of the leading investors in the Angolan oil and gas sector, it lags behind

many other countries in the non-oil and gas sector, it lags behind most

individual European Union countries.

In terms of development, of sharing values, of a common understanding at an

individual level we believe that the investment and level of business contact of

the USA should be diversified. The oil and gas sector is capital intensive,

geographically focussed, is very closed for skills, technological and security

reasons, has a high proportion of foreign workers bounded by compound

fences and miles of ocean - it does not interact with the majority of the

population. There needs to be a new focus of policy and action leading to

business that results in the trickled down of wealth, the dissemination of

values, understanding and contacts for a better and more secure World.


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2. ECONOMIC POLICY MAKING IN ANGOLA

Exposure to neo-liberal dogma increased and intensified as both parties

moved into government and began to deploy their cadres in the various

ministries like Trade and Industry, Finance and at the Reserve Bank. The

market - or rather its proxies, international stock and currency traders -

delivered some swift and salutary lessons about how little policy slack would

be afforded in both countries, despite their status as the worlds political

darlings. Similarly, attempts to implement a Reconstruction and Development

Programme (RDP) taught government some hard lessons about the difficulties

of effecting structural changes to poverty and inequality. All of this served to

disarm those on the left who favored a more redistributionist and interventionist

approach.

And still, while both parties had not yet, to businesss view, done anythingseriously wrong, it did not appear that they would be unequivocally committed

to a market-driven approach. The slow recovery of direct foreign investment

was seen as evidence for this. South Africa and Angola are endowed with

abundant energy resources. Fossil fuels, such as coal, uranium, liquid fuels,

and gas, play a central role in the socio-economic development of our

countries, while simultaneously providing the necessary infrastructural

economic base for the countries to become attractive hosts for foreign

investment in the energy sector. Biomass forms the main energy source in the

rural domestic sector, while other renewable energy development opportunities

are already being explored in the fields of solar power, wind power, pumpedstorage and in hydropower schemes.

Angola has undergone a remarkable transformation since their democratic

transition in the last decade and is considered to be one of Africa's rising stars.

However, economic development has not been accompanied by employment

generation, where results have been disappointing. Most worryingly,

unemployment is currently among the highest in the world. Angola is an

emerging economy with low wages, but has not managed to harness this a

starting point for economic development like many other countries. The

weakness in particular of primary industries and manufacturing has deprivedAngola of growth opportunities as well as from job creation at the relatively low

end of the skill distribution.

Such policies should target economic policy objectives that drive economic

development, generate employment and improve the living standards of the

population.

A crucial and internationally important element of economic policy relates to

the area of oil, gas and energy. Policy in this area should optimize the social,

economic and environmental benefits of these resources. Furthermore, we

believe that aligned policies will drive the private sector to realize


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complementary advantages in this sector enabling both countries to benefit

from Angolas strong upstream resources and development, and South Africas

downstream capabilities in refining and distribution assets and development, to

generate wealth and employment whilst also enhancing regional energy

security. Beyond the energy sector we can see many advantages and great

potential of strong bi-lateral trade links between neighbors. Here againcomplementary resources technical skills, stages of development provide

opportunities for South Africas world-class businesses in sectors such as

infrastructure development and management (ports airports, transport),

industrialization and capital asset projects with $8bn of finance planned, social

housing developments where $50bn has been earmarked, agriculture and agri-

business with $2bn allocated, in additional other reconstruction and public

works projects.


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3. POLITICAL INTERESTS OF THE USA IN ANGOLA

The policyobjectives of the United States in Angola could be considered to liein the following areas:

Security of energy supply

Influence and relationship with an emerging power and rise star on the

African continent

Promote democracy,liberal economic policies, peace and security Regional influence

As one of the leading oil producing countries in Africa, strategically positioned

in relation to the United States and not burdened by the social complexities

that one sees in Nigeria, Angola is an important target ofUnited States' foreignpolicy. However, even if the interest of the United Stateswas energy supplyfocused, it would be necessary for the United States develop a broad andsustainable relationship withAngola that transcends oil and energy; one thatpromotes peace and prosperity. Since the 1970's, and evidenced very recently

in the Arab Spring, the World has witnessed the resurgence of the individual

against injustice, poverty, unemployment, limited development, insecurity and a

lack of democracy: bethe result, social strife, revolutions, tumultuous change,the result for trading relationships and oil supply can be unlimited.

However it is the tradition of the United States to nurture democracy, economic

liberalization, peace and security for all peoples. Between the United Statesand Angola there are several shared policy objectives and potential avenues of

agreement on implementation in the areas of:

Reduction of poverty

Health and welfare

Economic liberalization

Increasing security

Education

Whilst several of these areas are typically channeled through governmentalagencies, cooperation, NGOs and so on, there is also a role for private

business in both pursuing its growth and profit objectives that enhanceseconomic liberalization , transfers skills and value that creates a foundation for

relationships at political levels.

One with the potential to realize long-term stability and prosperity. Sensitivethat any proposals must not exceed the reach of American power and

influenceand recognizing that stamping out corruption or producing respect

for democracy in a manner Americans would recognize, especially after

centuries of Portuguese colonial rule in the country and decades of civil war, is

a long-term goalthe commission aimed to be realistic in its


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recommendations. The commission believes that the United States should

firmly and clearly statesthat nurturing U.S.-Angola relations is important to theUnited States. In addition to increased diplomatic attention and sustained

assistance, the United States can take steps to advance shared objectives

through more regular bilateral discussions, cooperation with multilateral

organizations, and innovative partnerships with private enterprises.


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4. THE CONTEXT, OBJECTIVES AND PRIORITIES FOR ENERGY

POLICY

As the Angola government pursues its macro-economic policy on growth,

employment and redistribution, as well as policy of reconstruction and

development, changes are taking place within the energy sector that continue

to present interesting challenges.

These challenges include the transformation of state-owned entities, the

reshaping of governance principles, the enhancement of socio-economic

welfare within communities, and even peoples changing attitudes towards the

use and importance of national energy resources, encouraging greater local

participation in the petroleum value chain and using the oil and gas sector to

achieve growth a cascading down of wealth whilst avoiding the oil sector fromcrowding out development and employment in other industries.

Government is committed to the promotion of access to affordable and

sustainable energy services for small businesses, disadvantaged households,

small farms, schools, clinics, in our rural areas and a wide range of other

community establishments. As provided for in the Angolan Constitution, the

state must establish a national energy policy, which will ensure that the

national energy resources shall be adequately tapped and developed to cater

for the needs of the nation. Energy should therefore be available to all citizensat an affordable cost.

The restructuring of the energy sector is to be informed, inter alia, by the need

to redress economic and social power imbalances.

Global financial markets have melted down. Private finance is in increasingly

scarce supply. Government needs to create policy that attracts investment,

whilst ensuring the achievement of national policy objectives and being able toreinvest oil revenues in other sector of the Angolan economy.

The energy sector has larger environmental impacts than most other economic

sectors. Energy policies are reducing emissions as energy investments are

subjected to greater environmental scrutiny. There is a greater focus on energy

end-use. The research and development of alternative and renewable energy

sources is also being promoted.


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5. ANGOLAN POLICY FRAMEWORK - ENERGY

Government policy in the critical oil, gas and energy sector will ensure the

optimal and environmentally sustainable exploration and development of thecountrys natural oil and gas resources to the benefit of all in order to achieve

the aforementioned balanced policy objectives. Therefore Government

undertakes to:

Maintain an appropriate capability to perform regulatory and

promotional functions in respect of oil and gas exploration on behalf of

the state;

Promote the development of both countries oil and gas resources by

ensuring that the tax regime and contractual arrangements as well asthe regulatory and operating environment will be consistent, stable and

internationally competitive;

Ensure private sector investment and expertise in the exploitation and

development of the countrys oil and gas resources;

Identify and promote the realization of mutual benefits from the

complementary natures of Angolas strong natural resources;

Promote research, technology development and technology transfer to

stimulate the optimal development of the countrys oil and gasresources;

Promote oil and gas development by applying the "use it and keep it"

principle in contracts according to standard international practice;

Retain the rights to natural oil and gas offshore working towards

governments long term objective of all onshore mineral rights vesting in

the state;

Ensure a safe and healthy working environment in accordance the rule

of law, and good international oil and gas field practice;

Ensure that an integrated and holistic environmental management on

all onshore and offshore oil and gas exploration and production

operations is achieved in accordance with international oil and gas field

practice;

Ensure that the "polluter pays" principle is applied in the regulation and

enforcement of environmental impact management measures and

standards.


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Not only is good data required for the energy policy process but it is

fundamental to the implementation of integrated energy planning. To facilitate

integrated energy planning a database needs to be maintained covering at

least the following areas:

Energy resources;

Energy production from indigenous resources (mining, renewables, oil

and gas);

International energy trade (imports and exports);

Energy transformation (production of liquid fuels and electricity from

other sources);

Storage, transport and distribution of energy;

National energy trade (wholesale and retail);

Investment in plant and infrastructure associated with the above areas;

Disaggregated energy usage, expressed in energy and cost terms;

Energy efficiency;

Energy related environmental emissions;

Average sectoral energy prices and taxes;

Institutions linked to all the above areas; and

Similar data from regional and international sources.


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7. ANGOLA ECONOMIC AND INDUSTRIAL POLICY

Angola incorporation into the world economy narrowly rested on three pillars:

1. Exporter of raw materials

2. Imported of both capital and labour-intensive goods

3. Recipient of portfolio and Foreign Direct Investment

Evidence shows that Angolan export-led growth, while beneficial to the balance

of payments, is unlikely to immediately affect levels of unemployment, given

the capital-intensity of the export sector, unless labour-intensive and

downstream industries can be developed.

Angolas industrial focus seems caught in a paradox. It is geared towards

swelling trade flows that are based on largely capital-intensive exports and an

influx of labour-intensive imports against a background of population growth,

rising unemployment and poverty. Given the emphasis on high-value added

products, export production tends to by-bass low skilled labour. This is

underscored by the high rate of job losses in the export-oriented sectors that

have shifted resolutely to capital-intensive production.

The challenges of poverty and unemployment should be framed and prioritised

in economic policy and not relegated to separate welfare-based interventions

for the so-called second economy. Surely the acid test of the success of an

economy is the degree to which it is able to generate employment and improve

the living standards of the population.

Relegating these issues to a second economy is hardly an appropriate way to

integrate unemployment and poverty into mainstream economic policy.

Incidentally, the analogy of two economies is itself misleading for it assumes

the existence of a Chinese wall between the two. This then enables the state

elites to suggest that the formal economy is doing well and should be left

untouched for it is modern, efficient, and internationally competitive.

At the same time the second economy is seen to be deficient and requires

both policy reform and social assistance for its inhabitants. There are a number

of factual inaccuracies and conceptual problems with this idea. Firstly,

evidence shows that the informal economy contributes up to 60 per cent of

GDP. Secondly, there are a number of forward and backward linkages

between formal and informal economic activities. Hence, informal economic

activities should not be seen as a separate sector or economy, but as part of

the entire economy. The extent to which Angolas macro-economic policies


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support sustainable development has to be a central component of any

worthwhile evaluation of the countrys economic policies.

Angola's oil resources have provided significant flows of funds into to the

government. The oil industry has created wealth in the petroleum andassociated sectors but it it also tends to crowd out other industries and sectors.

Economists say the Angolan government has achieved relative stability in the

economy, reducing inflation and repayment of external debt. However, efforts

to promote economic diversification and implement a pragmatic development

strategy have been less successful. Such references to "Diversification",

depending on the commentator, can refer to distribution of wealth, geographic

diversification, and industrial sector diversification.

Initially, in the post conflict period, the Angolan government targeted large

infrastructure projects, to recreate the necessary infrastructure and assets on

which business activity depends. Whist the many objectives and areas of

reconstruction continue to be work-in-progress. Recently the focus has shifted

to:

Poverty reduction though economic diversification to create business in

the non-oil sectors,

Reduction of unemployment

Substitution of imports

Development in the less advantaged areas

Development of small businesses,

Trades skills, Pump priming measures

Tax, customs and similar incentives

Micro finance

Specific policies for poverty reduction

Targeting of specific trades for development of those trades as the

human infrastructure for business.

To create the basis for economic development it is necessary to provide

tangible improvements to the lives of and prospects for poor Angolans. Giving

them a start in terms of training and finance is key. Technical capacity has

limited businesses' and government's ability to achieve development goals:

skills and trades development are undisputed objectives. Areas that would

create employment and diversification include:

Agriculture and agri-businesses

Mining and processing

Food processing

Manufacturing

Hospitality and tourism

Services and trades

Services, financial services Logistic and Light, Medium and Heavy machineries


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This in addition to the reconstruction needs in terms of both infrastructure and

human capital: civil projects, training and education.

8. PRIVATE SECTOR VIEW OF DIRECTIONS IN WHICH TO FORGE

NEW BUSINESS RELATIONSHIPS

Looking beyond energy policy and clear relationship that this brings, the

complementary stages of development of the Angolan and the US economies

that point to gains in economic output, development, security and employment

if policies were aligned to facilitate private business:

Different stages of infrastructure development and management where

the US has technical strength, Know How and sophistication while

Angola offers development opportunities in distribution, port operations,

transport, telecommunications, airports, education,

tourism etc.

Agriculture and agri-business: an activity receiving great attention as a

result of global population growth, where Angola has earmarked $2bn

to invest in vast tracks of underutilized fertile agricultural land where the

US business and people have considerable technical expertise.

Social housing projects: The US has technical and business

management and trade skills in construction and social housing; Angola

offers many opportunities with $50bn of housing development planned

for the next few years.

Education and Training where US has substantial experience in

developing public, private and joint training institutes, universities,

Reconstruction and public works projects offer similar opportunities for

business development and skills transfer.

Industrialization: $8bn has been earmarked for investment in the

coming four years for industrial construction and capital plant.

One rapidly comes to the realisation that the Angolan market is one in which

the seller and producer holds significant opportunities and advantages in the

market. There are clearly a series of obstacles, perceived or real, for US

businesses that leads to other countries developing activities beyond the oil

and gas sector more rapidly than the US: the most significant and general of

which are:

Lack of knowledge

Complexity and delays in starting businesses

Barriers to entry

High cost of operation - directly a result of inflation and crowding out

caused by the petroleum sector

Language


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Lack of skilled staff

The System, the importance of contacts and difficulties in obtaining

information

Concerns about property and similar rights

Fear of the unknown

FCPA concerns

Communications and transport links to Angola

Addressing these matters and others would be the approach of a paper on how

to do business in Angola, of which there are many ranging from the National

Private Investment Authority to the leading networks of law firms and

accountants.

The concern of this document is with the opening of a business dialog todevelop understanding. From experience of businesses operating in Angola, it

is clear that the real barriers are effective barriers to entry in the Porter market

analysis model, thus affording the market power and opportunities for higher

profits. The higher perceived risk and higher operating costs determine higher

margins and pricing. This is a basic understanding to be conveyed to US

businesses.

From the perspective of communications and dialog: the flow of

communications needs to be structured at a state or city level. The USA is an

economic unit, but business culture exists at a state or city level: hence the

existence, for example of the Brazil-Texas or Texas-Mexico Chambers of

Commerce. A selective, prioritised and focussed state or city based

programme of business missions should be instituted as clearly visiting the fifty

states in a short period of years is impossible.


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9. CONCLUSION

It is the nature of an initial short document that the conclusion is to point to

additional questions to be answered or areas of action to be investigated.

What is the true level of US non-oil and gas involvement and

investment in Angola compared to other countries?

Why does the US lag behind other countries? How does the US compare on these measures in other African

countries?

What are the perceived and real obstacles to business and investment

in Angola?

How deep and broad is the reach of chambers of commerce,

government agencies?

How can the reach be deepened or extended?

Authors:

Mario de Carvalho

Anthony Childers

AOPI & IEA

http://www.aopi.org

Twitter:Follow us on@AngolaOpenPolic

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