The market needs to open itself up to more competition, meaning that reducing the size of Sonangol has become fundamental.

José SEVERINO President INDUSTRIAL ASSOCIATION OF ANGOLA

Time to ease investment

January 31, 2017

TOGY talks to José Severino, the president of the Industrial Association of Angola (AIA), about the state of the local business environment, investment and the new private investment law as well as the debate over the construction of the Lobito Refinery.

Associação Industrial de Angola was established in 1930, but suspended operations between 1976 and 1992 during the first republic. AIA was re-established in 1992 by the Ministry of Justice. AIA is involved in the private and multi-sector activities of all Angolan companies in around 60 economic areas such as manufacturing industry, transformative industry, agriculture and livestock, civil construction, fisheries, transport, new technologies, informatics, construction materials, chemistry and various services.

On the legal framework: “Angola needs to improve its business environment, and that requires reforms in the executive and judicial branches.”

On facilitating investment: “At a moment when Angola needs to attract more foreign investment – because there is little capital available internally and strict requirements – the investment law should reduce barriers to investment, rather than create them.”

On the Lobito refinery: “We do support its construction, but further south. Lobito would benefit from that decision, as would the refinery, which would face far fewer logistical complications.”

On the downstream sector: “Building up Angola’s refining capacity is very important. However, in my opinion the construction of the new refinery in Lobito is a mistake mainly because of environment and logistical problems.”

 

TOGY goes in depth about efforts to increase Angola’s competitiveness by liberalising the labour market, reforms needed to attract foreign investment and Sonangol’s ongoing restructuring. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with José Severino below.

How should Angola respond to the current conjuncture of low oil prices?
In 2014, when the crisis started, we stated as always, that Angola should adopt a proactive position to offset the impact of falling oil prices on the economy. In order to do that, Angola had to diversify the economy, adopt an import-substitution strategy of industrialisation to boost national production, build up the economy and generate new employment opportunities outside the oil and gas industry.
To progress with the necessary reforms that would pave the way for the diversification of the economy, we insisted that it was crucial to increase the transparency and efficiency of the Angolan government at every level: national, provincial and municipal. In this context we have been looking into the law that governs public hiring and into the role of the Constitutional Court.
Angola needs to improve its business environment, and that requires reforms in the executive and judicial branches. Since petroleum prices are not going to reach the same levels of the years before the crisis, we suggest that public expenditure should be managed wisely, in a way that promotes economic development and boosts growth.

You support the government and different national authorities in a number of areas. Which ones have you been focusing on recently?
Over the past years we have been working closely with the Ministry of Public Administration and Social Security on the reform of labour legislation, which was too rigid from our point of view. Companies had several obstacles to hiring and firing their employees and faced many difficulties dealing with existing labour laws at the time. The new legislation brings more flexibility to the labour market by transferring some powers to private companies, while also guaranteeing workers’ rights. A good sign was the positive feedback that the new legislation got from the International Labour Organisation.
We have also been working together with Angola’s General Tax Authority (Administração Geral Tributária) on the reform of the Customs tariffs expected to enter into force in 2017. The reforms aim at improving the conditions for the development of Angola’s national production, as well as fostering better conditions for companies to import to and export from the country.
Regarding Angola’s tax regime, we have always been very supportive of the introduction of the VAT system, which will replace the current consumption tax, because it is more modern and efficient. We have also been defending the need to remove consumption tax on intermediate goods in order to reduce internal production costs and increase competitiveness.

What should Angola do to attract more foreign investment and improve its business environment?
AIA has been paying particular attention to the new private investment law, as on the old one, which reduced the responsibilities of the National Agency for Private Investments. In a simplified way the new law did not completely satisfy us, mainly because some of the least-developed regions in Angola remained neglected, without receiving adequate government support.
But there are issues that could be improved or even be rectified. One of them is the need to create more incentives to attract foreign investment to improve Angola’s infrastructure; that is to say electricity, roads, railways, ports, telecommunication, tourism and the national power grid.
By the same token it becomes more difficult to attract foreign investment when an investor or a multinational company is forced to work with a national partner, because the law requires 35% national participation in all these foreign investments. At a moment when Angola needs to attract more foreign investment – because there is little capital available internally and strict requirements – the investment law should reduce barriers to investment, rather than create them. The law should be dynamic and adjust swiftly to the country’s needs.

What are your thoughts on Sonangol’s restructuring?
We support and welcome the current efforts regarding Sonangol’s restructuring. Its financial reorganisation is crucial to reviving the Angolan economy, particularly at a moment when Sonangol is doing more harm than good to Angola’s energy industry and broader economy.
As the AIA has been lobbying for years, the market needs to open itself up to more competition, meaning that reducing the size of Sonangol has become fundamental. The concessionaire has huge costs, and that is a problem that needs to be addressed. In this context we have fought for the reduction of fuel subsidies because they have been affecting the quality of Sonangol’s management and generating higher levels of waste.
Looking inside, it is the appropriate time to go deep to manage and change the company regarding transparency, efficiency and modesty.
We worked closely with the IMF and the World Bank on this matter, as well as on the creation of incentives to diversify the economy into other areas, such as agriculture and fisheries. One of the issues discussed was the need to organise these sectors in co-operatives, through which producers distribute and sell their goods to the market.

The construction of the new oil refinery in Lobito has been suspended recently. How negative will that be for the development of the national oil market and economy?

Building up Angola’s refining capacity is very important. However, in my opinion the construction of the new refinery in Lobito is a mistake mainly because of environment and logistical problems, and because it will have a negative impact on the future development of Lobito.
It will be very difficult to transport the refined oil by pipeline. This means that most of the transport will have to be done by trucks and train, which should not be allowed in urban areas. Without a pipeline, this refinery will be less competitive and, on a practical level, require state subsidies.
Moreover, the location of the new refinery will pose unnecessary environmental risks and significantly interfere with the natural beauty of Lobito’s bay. I believe that it would be more beneficial to invest in a real estate project to help develop the tourism industry instead. The idea would be to revive Lobito’s historical role as the tourist area it had been during the colonial period, and tourism is one of the national targets.
As for the refinery, we do support its construction, but further south. Lobito would benefit from that decision, as would the refinery, which would face far fewer logistical complications, also because in the downstream we need to develop the petrochemical industry, which is very pollutant and has risks.

For more information on the Industrial Association of Angola and its activities, as well as the topics covered here, see our business intelligence platform TOGYiN. TOGYiN features profiles on companies and institutions active in Angola’s oil and gas industry, and provides access to all our coverage and content, including our interviews with key players and industry leaders.
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