Policies towards Foreign Direct Investment
Angola’s business environment remains one of the most difficult in the world. Investors must factor in pervasive corruption, an underdeveloped financial system, loss of last U.S. corresponding banking relationship in November 2016, poor infrastructure, abundant but unskilled labor, and extremely high operating costs. Surface transportation inside the country is slow and expensive, while bureaucracy and port inefficiencies complicate trade and raise costs.
The GRA actively seeks FDI although it also sets barriers to protect domestic businesses. In August 2015, the government revamped its private investment law. The two year old law, which is still being implemented, significantly changed how the government treats foreign investors versus domestic investors. The biggest change is a new 35 percent local participation requirement for foreign investment in the following strategic sectors: 1) electricity and water, 2) tourism and hospitality, 3) transportation and logistics, 4) telecommunications and information technology, 5) construction, and 6) media. Investments in the other key sectors of mining, finance, and oil are governed under different laws. The previous law did not require local partnerships with the exception of the energy, banking, and insurance sectors, though to increase chances of success, the majority of foreign operators had local associates of some kind. The 35 percent minimum local participation requirement is likely to challenge foreign investors pursuing large investments projects in qualifying local partners especially due to local capital constraints as well as the lack of technical capacity in certain industries.
As per the private investment law, the Ministry with sectoral responsibility for the subject business area is responsible for assessing the foreign investment application. For example, an agriculture project would be reviewed by the Ministry of Agriculture. With completion of this review, the investment proposal if valued under $10 million is overseen and approved by the Economic Commission of the Council of Ministers. For investments over $10 million, the Office of the President must approve and provide oversight.
The private investment law also provides number of new fiscal incentives to spur investments. However, in order to benefit from fiscal incentives, the government requires a minimum investment of $1 million for international investors while local investors only require $500,000. As a result of Angola’s costly business environment, these minimum investment requirements pose an additional hurdle for FDI and put out of reach for many the fiscal incentives offered by the government.
The private investment law also requires foreign investors to pay higher taxes on dividends and profits they repatriate, particularly within the first several years of the initial investment. This is complicated by the fact that most foreign companies based in Angola can no longer readily access foreign exchange from Angolan banks due to the severe rationing of forex by Angola’s Central Bank. The new tax on dividends starts at 15 percent, and can rise to as high as 50 percent depending on how much and how soon after the initial investment the repatriation takes place to encourage in country reinvestments. This new tax scheme has not been a welcome signal to prospective investors. In an attempt to incorporate foreign companies into Angolan banking and taxation systems, the law requires financial operations through Angolan banks.
The government later provided additional clarifications to the investment law by issuing several presidential decrees. Decrees No. 181/15 and No. 184/15 issued September 2015 provided further clarifications on operational details and roles of ministries in the decision making process of approving investments. They also enabled the creation of technical support units within each ministry to assess investments and increase each ministry’s capacity to assess investments.
The investment law divides Angola into investment regions Zone A and Zone B. Fiscal incentives for investing in Angola’s less developed regions (Zone B) are twice the level of incentives compared to those given for investing near Luanda and other major city centers (Zone A). Additional tax breaks/reductions are available for investors who create more local jobs, generate higher export receipts, and source more local content in their operations.
The law expressly prohibits private investment in the areas of: defense, internal public order, state security, banking activities relating to the operations of the Central Bank and the Ministry of Finance, administration of ports and airports, and other areas where the law gives the GRA exclusive responsibility for its operations. However, it is common for Angolan companies operating in these restricted sectors to subcontract parts of, or the entire project to foreign companies. Investment in the petroleum, diamond, and financial sectors are governed by sector-specific legislation. Details on the petroleum investment guidelines are outlined in the Country Commercial Guide Best Prospect Summary of the Oil and Gas industry.
Angola’s foreign exchange laws require all companies operating in Angola to make payments through local (Angola-domiciled) banks using Angolan currency (kwanza). This law aims to strengthen demand for the kwanza, and build the capacity of Angola’s underdeveloped financial sector. The law was implemented in two phases. First in 2012, oil companies were required to pay taxes owed to the Angolan Ministry of Finance through a local bank. Then in July 2013, the regulation expanded to all companies operating in Angola, requiring them to use local banks (and local currency) for all payments, including payments to suppliers and contractors domiciled abroad.
Foreign exchange availability in the market during 2016 averaged $890.5 million per month, a substantial decrease, (almost half of the 2015 monthly average of $1.46 billion per month average and 2013/2014 $1.6 billion monthly averages. Per the February 24, 2016, Presidential Decree No. 40/16, foreign exchange availability in 2016 was expected to meet only 63 percent of demand. Angolan companies report waits of 3-8 months to access foreign exchange for imports. The government prioritized the following areas for forex: 1) employment retention (raw materials and inputs, equipment, technician salaries, and oil sector operations); 2) inflationary control (food, consumer necessities, fuel); 3) health and education; and 4) priority government expenses for necessary operations.
When preparing and entering into contracts with Angolan entities, foreign investors generally ensure that contracts are not governed by Angolan law, so as to avoid the accompanying GRA mandate that contracts be denominated and paid in kwanzas, a currency which has little commercial or practical use outside of Angola. Companies often find it advisable to seek appropriate legal advice prior to negotiating binding law, arbitration and payment clauses, and to seek to ensure that contract payments are denominated in and made in U.S. dollars. As a result of the continued drop in global oil prices, the mainstay of the Angolan economy, foreign companies with kwanza based contracts have found it extremely difficult to repatriate profits due to the Central Bank’s severe restrictions on forex.
Beyond different applications of the Angolan Investment Law between Angolan and foreign companies, Angolan or other companies familiar with the bureaucratic and arcane legal complexities of the Angolan business environment hold an advantage over newcomers. In addition, the Promotion of Angolan Private Entrepreneurs law grants Angolan-owned companies preferential treatment in tendering for government contracts for goods, services, and public works. Only firms with a majority Angolan stake can benefit from Angolan Government’s loan guarantees, generous terms, and subsidized interest rates of the newly implemented $1.6 billion fund to support micro, small, and medium-sized businesses from Angola Ministry of Economy’s Angola Invest Program.
While the crisis has been difficult for the Angolan economy, there is hope that the acute economic stress will lead the GRA to implement much needed reforms and commit to an economic diversification program. FDI in Angola has steadily increased since the end of the civil war in 2002, but peaked in 2014 just before the oil led economic crisis. The Banco Nacional de Angola (BNA) reported $16.5 billion of FDI in Angola in 2014, up from $14.3 billion in 2013, predominantly in the oil industry FDI data is unavailable for 2015 and 2016, but the oil crisis has very likely reversed this growth trend. The latest figure indicates that U.S. Direct Investment in Angola plummeted to $24 million in 2015 down from $1.8 billion in 2014, according to the U.S. Department of Commerce’s Bureau of Economic Analysis (www.bea.gov/international/factsheet/factsheet.cfm ).
Limits on Foreign Control and Right to Private Ownership and Establishment
Angola limits foreign equity participation more than most countries in Sub-Saharan Africa. Foreign ownership is limited to 49 percent in the oil and gas sectors, 50 percent in insurance, and 10 percent in the banking sectors. Foreign capital participation in excess of these limits is possible with the approval of the Council of Ministers or the central bank. Private (domestic or foreign) capital participation in fixed-line telecommunications infrastructure is prohibited. In the publishing, TV broadcasting, publishing and newspaper media sectors, foreign ownership is limited to 30 percent. (http://iab.worldbank.org/data/exploreeconomies/angola ) The private investment law requires at least a 35 percent domestic stake in FDI across six strategic sectors: 1) electricity and water, 2) tourism and hospitality, 3) transportation and logistics, 4) telecommunications and information technology, 5) construction, and 6) media. The private investment law expressly prohibits private investment in the areas of: defense, internal public order, state security, banking activities relating to the operations of the Central Bank and the Ministry of Finance, administration of ports and airports, and other areas where the law gives the state exclusive responsibility.
Other Investment Policy Reviews
Angola has been a member of the World Trade Organization (WTO) since 1996. There have been no investment policy reviews for Angola from either the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD) in the last three years. The World Trade Organization (WTO) performed a trade policy review of Angola in September 2015. Excerpts of the Trade Policy Review concluding remarks by the WTO Chairperson are as follows:
“Members noted that Angola had implemented a number of measures aimed at import substitution. Its applied tariff rates have been significantly increased and range from 2 percent to 50 percent, with a simple average of 10.9 percent (up from 7.4 percent in 2005). Members urged Angola to rectify the instances where applied tariff rates and other duties and charges exceed the corresponding bound levels. In lieu of import substitution, Members suggested that Angola reduce production costs through lower import tariffs on inputs and further trade facilitation measures with a view to enhancing competitiveness and promoting local production.”
Members welcomed Angola’s new mining code and sought information about opportunities for foreign operators. They sought clarifications about Angola’s agricultural policy aiming at food security and on the sustainability of its fisheries sector. Some participants inquired about Angola’s plans to broaden its General Agreements on Trade in Services (GATS) commitments beyond its three existing sectors. Members were also interested in the Government’s priorities regarding, inter alia, competition policy, Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT) regimes, and state-trading and state-owned enterprises. Noting that Angola’s intellectual property regime had not been substantially updated since 1992, Members urged the country to effectively implement the TRIPS Agreement and to broaden its participation in international conventions on intellectual property. The Government of Angola plans to introduce a new tariff schedule in 2018.
Obtaining the proper permits and business licenses to operate in Angola can be time-consuming. The World Bank Doing Business 2017report identified Angola’s permit and licensing process as one of the most time-consuming of all countries surveyed (ranked 182 out of 190 in the survey). Launching a business typically requires 36 days, compared with a regional average of 27 days. In 2012, the government opened approximately twenty “Balcoes Unicos do Empreendedor” (Single “One stop” Shop for Entrepreneurs). In addition to the Balcoes Unicos process, new business owners must also complete processes at the Ministry of Commerce, the tax office, and a provincial court in the location where the business is headquartered.
In 2016, Angola made paying taxes easier and less costly by reducing the frequency of advance payments of corporate income tax and increasing the allowable deductions for bad debt provisions. At the same time, Angola interest charges related to shareholder loans are not tax deductible for corporate income tax purposes. Angola adopted a new labor law that decreased the wage premium for overtime and night work and increased the wage premium for work on weekly holidays. The law also extended the maximum duration of fixed-term contracts and made fixed-term contracts able to be used for permanent tasks, reduced severance pay for redundancy dismissals of employees with five and ten years of continuous employment and increased severance pay for employees with one continuous year.
The Angolan Investment and Export Promotion Agency (APIEX), housed within the Ministry of Commerce, is Angola’s investment and export promotion entity, tasked with promoting Angola’s export potential, legal framework, environment, and investment opportunities in the country and abroad. APIEX, established on September 30, 2015, by Presidential Decree No. 184/15 after the promulgation of Angola’s 2015 investment law, has gotten a slow start. Nearly two years after its launch, APIEX remains underfunded and lacking focus, not having been instrumental in bringing any significant new investments to or in generating new exports from Angola. (www.apiexangola.co.ao ). On January 25, 2017, the Angolan Minister of Commerce, dissolved APIEX Board and dismissed all its senior administrators, appointing their replacements on February 24, 2017.
Under the Angola 2015 Investment Law, the FDI review and approval is now the responsibility of the government ministry overseeing the sector where the main investment will occur. Final approval for investments under $10 million is given by the Economic Commission of the Council of Ministers. For investments over $10 million, the Office of the President oversees the process and provides final approval. The process can be time consuming and difficult to navigate, thus it is strongly recommended to retain legal counsel to assist in the investment application process.
The following documents are needed for investments under $10 million:
- Letter of Investment Proposal addressed to the Minister of Commerce (MINCO);
- A Power of Attorney or Delegation of Authority to represent the investment proposal (in case you are not principal);
- Presentation Template Model of the Project, Dully Completed;
- Note: To obtain the template model of the project you will have to make a deposit of 35,000 kwanza at the Account of UTAIP of MINCO
- Copy of the legal documentation of the company (company status), commercial registry duly authenticated by the consular services of Angola at the country of company domicile in case of legal entities;
- Copy of the legal documentation of the natural persons (identity card/passport and criminal record dully authenticated by the consular services of the republic of Angola at the country of residency in case of natural persons.
- Technical economic and financial feasibility study of the proposed investment project
- Environmental Impact Study (When is it applicable in Angola); and
- Presentation of Documents in Duplicate
There are several objectives that the GRA seeks to accomplish through its FDI screening process: 1) create jobs for Angolans or transfer know-how to Angolan companies, 2) protect sensitive industries such as defense and finance, 3) prevent capital flight or other behavior which could threaten the stability of the Angolan economy, and 4) economic diversification.
Contact Information: Departamento de Promocao e Captacao do Investimento; Agencia para Promocao de Investimentos e Exportacoes (APIEX) de Angola. Rua Kwamme Nkrumah No.8, Maianga, Luanda, Angola Tel: (+244) 995 28 95 92| 222 33 12 52 Fax: (+244) 222 39 33 81 www.apiexangola.co.ao . For investments under $10 million, Ministry of Commerce in support of private investment Tel: + (244) 923 592 626; Amarildo.email@example.com
For investments above $10 million: (+244) 926 876 914 / 938 941 035, firstname.lastname@example.org; www.utip.gov.ao
The Angolan Government does not promote or incentivize outward investment. However, according to well-respected local newspaper, Expansao, based on data from the Angolan central bank, Banco Nacional de Angola (BNA), outward investments by Angolans exceeded $1 billion in 2015, for an aggregate total outward investment of more than $29 billion at the end of 2015. (Expansao Journal, March 3, 2017 edition).