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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.

AOPI PAPER: ANGOLA & UNITED STATES OF AMERICA

2013 Angola Open Policy Initiative All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from AOPI. Please direct inquiries to: Angola Open Policy Initiative Development Papers 29 Less Lane, Southoe, London, PE 19 5YG England Phone: +44 (0)208 144 9409 www.aopi.org Limited print copies are also available. To request a copy, send an email to contact@aopi.org

About AOPI Angola Open Policy Initiative AOPI Angola Open Policy Initiative is a non-profit, nongovernmental and organization with the objective of heightening the level of awareness and 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 basic principles are shared by all democracies.
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ABSTRACT 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. 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 distribution through 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.

AOPI PAPER: ANGOLA & UNITED STATES OF AMERICA

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 supply have 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, to ensure 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 in the 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 has demonstrated 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 for business 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 anything seriously 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, pumped storage 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 deprived Angola 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 again complementary 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 agribusiness with $2bn allocated, in additional other reconstruction and public works projects.

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3.

POLITICAL INTERESTS OF THE USA IN ANGOLA

The policy objectives of the United States in Angola could be considered to lie in 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 of United States' foreign policy. However, even if the interest of the United States was energy supply focused, it would be necessary for the United States develop a broad and sustainable relationship with Angola that transcends oil and energy; one that promotes 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: be the 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 States and 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 governmental agencies, cooperation, NGOs and so on, there is also a role for private business in both pursuing its growth and profit objectives that enhances economic 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. Sensitive that 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 states that nurturing U.S.-Angola relations is important to the United 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 from crowding 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 citizens at 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 to reinvest 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 the countrys 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 as the 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 gas resources; 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 and associated 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 to develop 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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