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Investing in Angola

Posted by: AJ Karwa
19/09/2016

Challenges faced by local and expatriate workforces and the solutions available to companies in the oil and gas market.

Despite the global drop in oil and gas prices, Angola’s oil production is forecast to remain strong through the remainder of 2016. In fact, analysts are indicating that Angola’s oil output will continue to rise up until 2018 thanks to the maturation of existing projects and the presence of Angola LNG making itself increasingly felt in both the domestic and international export markets.

The market locally will also gain momentum thanks to the conclusion of defining clear roles and responsibilities within Sonangol senior management as part of the restructuring of the Sonangol Board by President Jose Eduardo dos Santos.

Current market conditions aside, as we are all aware, Angola has a long-term relationship with oil. Traditionally, and for the foreseeable future, the Angolan economy remains largely dependent on oil industry revenues with some estimates indicating that 86% of the country’s GDP is derived in one form or another from oil. Additionally, Angola has a significant reliance on USD.

Angola as a more mature oil market has a clear national content policy but still Angola’s oil industry relies on a mix of national and expatriate workers. Given the market and regulatory fluctuations at present, what challenges do these workers face? What solutions are available to ensure that Angola both retains and attracts the best engineering talent?

Scarcity of USD is the most pressing challenge facing workforces and businesses servicing the oil and gas operators.  So what is the issue? Currently there is significant time uncertainty in regards to Kwanza cash conversions to USD support repatriation of funds to related companies of a Group providing a service to one another. Whilst payment of direct salary payments to expatriate workers outside of Angola have a preferential positioning with the BNA on conversion there is still significant delays.

Can you imagine today if your monthly salary is delayed for 3 to 6 months?

In addition, the Angolan government introduced legislation in accordance with the Special Contribution on Invisible Exchange Transactions (the special contribution), which levies at 10 percent any transfers related to the value of payments for technical assistance and management services.

This levy has impacted the market as a bit of a deterrent for USD conversions and can create a significant working capital dislocation for businesses.  The Angolan Foreign Exchange (FOREX) Law for Oil and Gas, Law 2/12 mandates that oil and gas operators are obliged to pay resident suppliers into a local Angolan Bank Account in Kwanza.

If managing the above two aspects were not enough there is the added factor of foreign exchange risk as the local currency has significantly devalued in the last 12 months and the expectation is that there will be further devaluation as the Angola government creates a foundation for long term stability for the country.

As a result of these changes, there could be a perception that the Angolan market has arguably become less competitive and a less attractive proposition for foreign investment. However I would disagree with this perception and suggest that the key here is genuinely understanding the market and working with businesses that do as well. At Fircroft we have worked hard to develop solutions that will support businesses to compliantly overcome working capital and foreign exchange risks as it relates to their workforce spend all the while maintaining the benefits of an agency model to manage their workforce.

Thanks to our financial strength, scale and local knowledge Fircroft is able to administer preliminary payroll for your workforce that is resident in-country. By doing so Fircroft is able to ensure your workforce continues to receive their employment monies on-time.

It is important to remember these operational aspects as you get the right legal and tax structuring advice in relation to your foreign investment in Angola. You can be confident that with the right support that you can be bullish in considering how the Angola market can support your global growth ambitions and create shareholder value.

Speak to Fircroft to find out more about how we can help you operate effectively, efficiently and above all compliantly, in what is a complex geo-market.

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