Investing in Angola
Angola is very familiar with foreign investment. Oil companies have long poured cash into Africa’s 3rd largest oil producer. The wells continue to spill returns and results. But anyone considering investing in Angola should not think that opportunities begins and ends with oil and gas. Here’s a look at some top sectors to broaden your view on investment opportunities in Angola.
Many investors are unaware of Angola’s rich agricultural history. Prior to the civil war, Angola was a key exporter of numerous agricultural products, including coffee, maize, tobacco and rice. In the early 70s, Angola became the world’s fourth-largest coffee exporter. Underpinning the country’s research capabilities were good agricultural credit and rural trading as well as favorable climatic conditions, vast water sources – including plentiful rainfall and surface water – and fertile soil.
However after a brutal civil war decimated the country, the agriculture sector took a knock. Today, the climate, rainfall and soil remain, yet irrigation is lacking, little credit is available, and trading and information networks are all but nonexistent. The government is upgrading irrigation systems through dams to grapple with consistent floods and drought. Through partnerships with China and Brazil, credit has increased. Still the sector could benefit greatly from increased foreign capital and knowledge sharing. A lack of information in the system is a major challenge, says Jordao Jose, a local Angolan farmer, adding that it further undermines productivity Where foreign investors can create the greatest impact is in strengthening collectives and developing downstream agro-processing facilities in order to address the high price of local production has To illustrate: Shoprite and the newly opened Kero grocery stores in Lunda Sul source processed goods from South Africa because costs are lower. Imported chicken costs $5.80 per kilo in the capital Luanda after custom duties, while a domestic chicken costs $7.80. A dozen domestic eggs can sell for as high as $5.00, double the cost of an imported dozen. Maize, rice, and wheat production also barely meet the country’s demand. Market potential is high, adds Mr. Jose, but convincing farmers to work collectively is hard since locals prefer to battle it out for small pieces of the market. Hopefully, he continues, greater capital and cooperation with the help of foreign investors can help realize larger returns and success.
Downtown Luanda resembles a construction site. Newly laid roads and related transport infrastructure are one of the city’s, and country’s, greatest needs. Construction operators say though that the boom will be slow. “The city needs everything”, says Janio, an owner of a family construction business, “and we do everything. When transport construction slows,” he continues, [that’s why] we will just look [to] real estate building [there we’ll] probably make more money.
Angolan real estate requires the least explanation. Booming oil prices continue to drive real estate prices. A hotel room costs $450 per night, while office space costs $100 per square meter. Prices are so high that most foreign workers will insist on paid housing before accepting any work assignment in Angola. Though the high towers and condominiums will bring big returns, the greatest opportunity exists in lower-cost housing. About a third of the country’s population lives in the capital. As this number grows, the low cost housing need in Luanda will become even more obvious, especially considering the more economical pockets of locals.
The Angolan banking sector has seen astronomical growth. Total assets skyrocketed from $2.9 billion in 2003 to an estimated $62.5 billion in 2012. Such figures make the sector the third largest in Sub-Saharan Africa after Nigeria and South Africa. Yet only 40 percent of the county is banked, similar to Mozambique and Zimbabwe, but far less than South Africa and Mauritius. Five banks control nearly 80 percent of the sector’s assets. But the government is adamant that the industry has become more diversified, creating greater opportunities for investors.
Regulations in the sector can be a deterrent to foreign investors, such as the new regulation requiring companies, including state-backed Sonangol, to pay taxes and facilitate other transactions through the country’s banking. But the country’s current implementation of the International Financial Reporting System (IFRS) and Basel III will change this. Banks direly need assistance in understanding and implementing new rules, says a Standard Chartered insider, and foreign investors can bring a greater insight to the process in addition to capital for service expansion.
Experts estimate that the banked sector could surpass up to 70 percent, provided regulatory changes and the expansion of service capabilities are implemented. Angola is one of Sub-Saharan Africa’s larger mortgage and credit card networks too, yet such services are still insufficient to meet demands. Upgrading mobile banking services and network access (i.e. ATMs and branches) outside of Luanda could bring a greater number of Angolans into the system. It is estimated that the Angolan banking sector could see mortgage penetration rates double from the current 15 percent in the next five to seven years. Similar growth is expected for asset financing as industry and manufacturing in the country grow.