A Sad Sad Sonangol

7/27/2019 A Sad Sad Sonangol

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The Queensway syndicate and the Africa trade

The Economist

Chinas oil trade with Africa is dominated by an opaque syndicate. Ordinary

Africans appear to do badly out of its hugely lucrative deals.

When the man likely to become Chinas next president meets an African oil

executive, you would expect the dauphin to dominate the dealmaker. Not,

though, with Manuel Vicente. On April 15th this year the chairman and chief

executive of Sonangol, Angolas state oil firm, strode into a room decorated with

extravagant flowers in central Beijing and shook hands with Xi Jinping, the

Chinese vice-president and probable next general secretary of the Communist

Party. Mr Vicente holds no official rank in the Angolan government and yet, as if

he were conferring with a head of state, Mr Xi reassured his guest that China

wants to strengthen mutual political trust.

Angolaalong with Saudi Arabiais Chinas largest oil supplier and that alone

makes Mr Vicente an important man in Beijing. But he is also a partner in a

syndicate founded by well-connected Cantonese entrepreneurs who, with their

African partners, have taken control of one of Chinas most important trade

channels. Operating out of offices in Hong Kongs Queensway, the syndicate

calls itself China International Fund or China Sonangol.

Over the past seven years it has signed contracts worth billions of dollars for oil,

minerals and diamonds from Africa.

These deals are shrouded in secrecy. However, they appear to grant the

Queensway syndicate remarkably profitable terms. If that is right, then they

would be depriving some of the worlds poorest people of desperately needed

wealth. Because the syndicate has done deals with the regimes in strife-torn

places, such as Zimbabwe and Guinea, it may also have indirectly helped

sustain violent conflicts.


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The Economist repeatedly put these accusations to the people who feature in

this article, asking for their side of the story. Butwith one exception, noted

belowwe heard nothing. In short, it looks as if the fortunes of entire African

countries depend to a significant degree on the actions of a little-known, opaque

and unaccountable business syndicate. Buccaneers are cutting themselves a

large slice of Africas resource cake, says Gavin Hayman of Global Witness, a

watchdog that mapped the syndicates deals.

The Queensway rules

The syndicate is built on links forged during the cold war. It is largely the

creation of a man known as Sam Pa. Though he uses several names, he was

born Xu Jinghua. After attending a Soviet academy in Baku four decades ago,

say people who have looked into his career, he traded with Angola during its

civil war, which lasted from 1975 to 2002 and over the years was a proxy

battleground for several outside powers, including China, America, Cuba, the

Soviet Union and South Africa. Mr Pa is a private and rarely photographed

person. His name appears in few syndicate documents. He is believed to exert

control through Veronica Fung, who may be a member of his family. She

controls 70% of a core company, Newbright International. The two frequently

travel in Africa, using the syndicates fleet of Airbus jets. They are said

sometimes to bypass customs.

Mr Pa has several Chinese partners, according to a 2009 American

congressional report. The daughter of a Chinese general, Lo Fong Hung,

married to Wang Xiangfei, a well-connected banker, controls 30% of Newbright.

Mrs Lo is the public face of China International Fund and China Sonangol. She

is listed as a director of dozens of interconnected companies. The businesss

operations were initially entrusted to the head of a privatised engineering firm

from the mainland, Wu Yang. Later, African partners took over.

Although the Queensway syndicate has sometimes been suspected of being an

arm of the Chinese government, there is little evidence of that. Indeed, it has


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often been the butt of criticism from Chinese officials. More likely it was set up

to take advantage of a new strategy by the Chinese government, known as the

going out policy. In 2002, after decades ofcommercial isolation, China started

encouraging entrepreneurs to venture abroad. Short of contacts, Mr Pa teamed

up with Hlder Bataglia, a Portuguese trader who had grown up in Angola and

had links to Latin America. Together in 2004 they visited Nstor Kirchner, the

president of Argentina, and Hugo Chvez, the president of Venezuela. Mr

Chvez welcomed them on his weekly television show Al Presidente, where

Mr Pa grandiloquently declared: This is an historic day because we are taking

part in your programme.

The syndicate initialled several deals in Latin America but none of them came to

much. The idea was to trade minerals for infrastructurein return for

commodities, Chinese contractors would build housing and highways. But

Argentina and Venezuela already had a fair amount of both, so the syndicate

turned to new markets.

In late 2004 Mr Pa travelled to Angola. He knew President Jos Eduardo dos

Santos, having first met him as a student in Baku and later traded with his

guerrilla army. Mr Pas new partner, Mr Bataglia, also knew the guerrillas from

having supplied them with food during the civil war. They were joined by a third

trader, Pierre Falcone, a French Algerian who has long enjoyed close links with

the Angolan elite and particularly the president.

Together the men persuaded the Angolan elite to channel their fast-expanding

oil exports to China through a new joint venture, called China Sonangol. Mr

Vicente, boss of Angolas Sonangol, became its chairman. Contracts, signed in

2005, gave the company the right to export Angolan oil and act as middleman

between Sonangol and Sinopec, one of Chinas oil majors.

China Sonangol threw itself into the business, according to Angolan oil ministry

records and applications for bank loans backed by oil shipments. The official

statistics are incomplete, but good sources have concluded that almost all of


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Chinas imports of oil from Angolaworth more than $20 billion last year

come from China Sonangol. By contrast, Chinas state-owned oil companies

have no direct interest in Angolan oilfields, one of their two biggest sources of

crude. Their names do not show up on the map of concessions.

To Guinea and Zimbabwe

By 2009 the syndicate was trading a lot of Angolan oil and decided to expand to

other African countries. Mr Vicente, both head of the Angolan state oil company

and of China Sonangol, flew to Guinea in 2009 to arrange a deal for the

syndicate. One of the people he met was Mahmoud Thiam, Guineas minister of

mines, whose government had come to power the same year in a coup. Mr

Thiam is an American citizen who studied at Cornell University and had

previously worked as a Wall Street banker at Merrill Lynch and UBS.

With Mr Thiams support, the syndicate won the chance to become a partner in

a new national mining company. This would control the states share of existing

projects and, much more important, gain control of future projects in what is a

relatively undeveloped mineral territory. Guinea contains the worlds largest

reserves of bauxite and its largest untapped reserves of high-grade iron ore.

Under a contract signed by Mr Vicente, the syndicate got an 85% share in a

venture called the African Development Corporation. The government received

the other 15%. The venture won exclusive rights to new mineral concessions in

Guinea, including the right to negotiate oil-production contracts in the Gulf of

Guinea. In return, the syndicate promised to invest up to $7 billion in housing,

transport and public utilities, according to the government of Guinea (GDP $4.5

billion).

Ultimately this deal foundered on a Guinean election, but at the time the

Queensway syndicate was so pleased that it reportedly gave Guineas military

ruler a helicopter as a present. Mr Thiam began to travel with representatives

for the syndicatethough in a response to our questions (and as the only

person to reply to us) he says he was representing the Guinean governments


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shareholding in the joint venture and he denies ever having become one of its

employees. Mr Thiam went to Madagascar for the negotiation of a deal

modelled on the one he made on Guineas behalf. Simultaneously, he carried

on as mines minister for another year.

Around the same time, Zimbabwe also caught the syndicates eye. Mr Pa met

Happyton Bonyongwe, the head of the Central Intelligence Organisation (CIO),

the countrys notorious secret police, which helps to keep Robert Mugabe in

power. Mr Pas plane frequently showed up at the Harare airport and he bought

properties in the capital, including the 20-storey Livingstone House. His two

original partners, Mrs Fong and Mrs Lo, became directors in a new company,

called Sino-Zimbabwe Development Limited, which received rights to extract oil

and gas, and to mine gold, platinum and chromium. In return, the company

publicly promised to build railways, airports and public housing. These pledges

were valued at $8 billion by Mr Mugabes government.

By 2009 the Queensway syndicate spanned the globe from Tanzania and Cte

dIvoire to Russia and North Korea and on to Indonesia, Malaysia and America.

It had bought the JPMorgan Chase building at 23 Wall Street in New York.

A sad, sad Songangol

Nobody should begrudge an entrepreneur commercial success. And China

needs the raw materials that the Queensway syndicate can supply. However,

there are three worries about the syndicates conduct.

The first is personal gain. The terms under which China Sonangol buys oil from

Angola have never been made public. However, several informed observers

say that the syndicate gets the oil from the Angolan state at a low price that was

fixed in 2005 and sells it on to China at todays market prices. The price at

which the contract was fixed is confidential, but Brent crude stood at just under

$55 a barrel in 2005; today it is trading above $100. In other words, the

syndicates mark up could be substantial. Over the years, considering the


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volume of oil that is being sold to China, its profit could amount to tens of

billions of dollars. The Economist s requests for comment have gone

unanswered. No public statement suggests the terms have been renegotiated

since 2005.

In return for Angolan oil, the syndicate promised to build infrastructure, including

low-cost housing, public water-mains, hydroelectric plants, cross-country roads

and railways, according to the government. The country desperately needs

such things, to be sure. But their value is unlikely to exceed several billion

dollars. That looks like a poor deal for the Angolan people.

In Angola accusations of personal enrichment percolate up towards the top of

the state structure. In 2006 the head of the external intelligence service,

General Fernando Miala, alleged that $2 billion of Chinese money intended for

infrastructure projects had disappeared. He claimed that the funds had been

transferred to private accounts in Hong Kong by senior officials, though without

naming people mentioned in this article. The general was swiftly sacked, tried

and imprisoned (he may, however, now be about to make a comeback to

government).

Parts of the Angola-China oil trade appear to be contaminated by conflicts of

interest. The Angolan presidents son is said to be a director of China Sonangol,

the main trading partner of the state oil company. The Economists requests for

comment to the companies went unanswered. As well as running both the state

oil company and its main customer, Mr Vicente is a director of private shell

companies linked to the syndicate. Although these may exist for tax purposes, a

report on foreign corruption, prepared last year by the American Senate, reveals

that Sonangol was deemed so corrupt in 2003 that Citibank closed all its

accounts. The report also says that Mr Vicente personally owns 5% of

Sonangols house bank which has assets worth $8.2 billion. According to the

IMF and the World Bank, billions of dollars have disappeared from Sonangols

accounts. At one point, Sonangol awarded Mr Vicente a 1% ownership stake in

the company he chairs. He was forced to give it back after a public outcry in


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Angola.

In Guinea criticism is focused on the former mines minister. An unpublished

2009 WikiLeaks cable quotes an American mining executive, whose company

stood to lose business in Guinea because of the syndicate, complaining that Mr

Thiam has personally benefited from promoting [the] China International Fund.

Mr Thiam denies this. As a former Wall Street banker, he already had money

before he returned to the country of his birth.

The deserted railway

The second complaint about the Queensway syndicate is that in Africa it has

failed to meet many of the obligations it took on to win mining licences.

Zimbabwe is still awaiting even a fraction of its promised infrastructure. Guinea

never received the 100 public buses that were meant to arrive within 45 days of

the 2009 deal.

The situation in Angola is more complicated, though also disappointing.

Chinese contractors have built some housing and railway lines and the projects

were at first financed by the syndicate. Signs saying China International Fund

appeared on construction sites. But in recent years they have been replaced by

those of other Chinese companies. According to Western diplomats and

Chinese businessmen, the syndicate stopped paying bills for more than eight

months in 2007. All work stopped, 2,000 Angolan day labourers were fired on

the Benguela railway project and only a Chinese cook remained on duty.

Western diplomats suspected the syndicate was banking on being bailed out by

the Angolan government, which had staked its legitimacy on infrastructure

development. Soon enough, the government issued treasury bonds worth $3.5

billion to finance the projects.

Subcontractors are now paid directly by the Angolan state.


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Six years after the syndicate arrived more than 90% of the residents of the

capital, Luanda, remain without running water. Meanwhile, the syndicate has

continued to prosper.

The third complaint against the Queensway syndicate is that its cash props up

certain political leaders and thereby fuels violent conflicts. For instance, in

Guinea the syndicate came to the rescue of the junta. In September 2009

government men went on the rampage, raping women by the score and

massacring more than 150 protesters in a sports stadium, which triggered EU

and African Union sanctions. A month later, the syndicate signed its minerals

deal, transferring $100m to the cash-strapped junta. Bashir Bah, a member of

the opposition, condemned the deal. First of all it is immoral, and second of all

it is illegal, he said.

The deal caused outrage even inside the government. The prime minister,

Kabine Komara, a relatively powerless figure, protested about ministers

conduct to other officials. A memo from the prime ministers office, dated

November 26th and leaked to Global Witness, declared: The council of

ministers did not discuss or bring up the question of creating a national mining

company. Whats more it is not acceptable that a foreign company could

become a shareholder in such a company, as it would grant the company, ipso

facto, the ownership of all the current and future wealth of the country. Mr

Thiam denies any knowledge of Mr Komaras complaint.

According to international institutions, the military leaders, who backed Mr

Thiam, needed the syndicates money if they were to hold on to power. A World

Bank official told Western diplomats the junta would sell the country short on

mining revenues and tell the international donors to get lost. The junta

eventually fell and, following elections last year, the minerals deal is now in

limbo.

In Zimbabwe the situation is even more egregious. The finance minister, an

opposition member of the governing coalition, has blocked extra funding for the


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CIO, presumably because it backs Mr Mugabe. And yet, it is suddenly flush with

cash. In recent months it has reportedly doubled the salaries of agents,

acquired hundreds of new off-road vehicles and trained thousands of militiamen

who are now in a position to intimidate voters during next years elections.

Several sources who have looked at the deal concluded that the money came

from Mr Pa. They say he struck a side deal with the CIO that gives him access

to Zimbabwes vast diamond wealthcontrolled in part by the CIO. The

diamonds were for some years banned from reaching international markets

because of global industry prohibitions over violence routinely inflicted on

Zimbabwean miners. Yet, Mr Pa is said to buy them and apparently makes

payments directly to the CIO, bypassing government coffers.

Little is certain about China Sonangol and China International Fund. Our

repeated questions to the companies and their representatives went

unanswered. The documents and witnesses we tracked down around the world

paint an incomplete picture. But they raise questions of immense public interest.

Who benefits?

Oversight of the Queensway syndicates businesses is almost non-existent. A

decade ago Mr Vicente forbade foreign oil companies in Angola to publish even

routine data, on threat of ejection. Since then Sonangol has published some

information on its operations. But oil contracts are treated as state secrets.

Revenues from deals with the syndicate go to an opaque agency controlled by

the president whose accounts are off-limits even to government ministers.

Although Sonangol scores reasonably for some criteria, such as revenue, in

rankings by Transparency International and Revenue Watch, two lobbies for

corporate openness, it still receives bottom rankings for safeguards against

corruption.

The syndicate itself is even more opaque. Who ultimately benefits by how much

from the lucrative deals is not clear from public records. The syndicates

corporate structure is fiendishly complex. Individual companies are not vertically


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integratedit is not a group in the usual sense. There is no holding company,

though the same people keep cropping up as directors in the records of

affiliated companies, which are often owned by shell companies registered in

lightly regulated tax shelters. Final beneficial ownership is impossible for an

outsider to establish.

All this means that the syndicate taints Chinas going out policy, a cornerstone

of the countrys rise in recent years. When the policy works, African resources

are swapped for aid, commercial financing and payments in kind such as public

infrastructure. But with the syndicate, billions of dollars meant for schools, roads

and hospitals have apparently ended up in private accounts. Rather than fixing

Africas lack of infrastructure, Chinese entrepreneurs and Africas governing

elites look as if they are conspiring to use the development model as a pretext

for plunder.

Angola awakens2011 / 04 / 25

Angola now boasts the third-biggest economy in sub-Saharan Africa after South

Africa and Nigeria, yet much of its potential remains untapped. Further growth in

the oil and diamond sectors is possible but it is important that other sectors of

the economy are encouraged to flourish in order to create employment and

strengthen national cohesion.

The oil industry accounts for 43.5% of GDP, the lowest level for many years, but

more diversification is needed.

With oil production capacity of about 2m barrels a day (b/d), Angola is the

second-biggest oil producer in Africa and therefore enjoys substantial revenues

that could help to finance national reconstruction. This potential has not always

been tapped, as the government appeared to lack the will to use its oil windfall

on development and infra-structural projects.
http://www.angolahub.com/index.php/en/angola-monitor/573-angola-awakens?tmpl=component&print=1&layout=default&page=http://www.angolahub.com/index.php/en/component/mailto/?tmpl=component&link=aHR0cDovL3d3dy5hbmdvbGFodWIuY29tL2luZGV4LnBocC9lbi9hbmdvbGEtbW9uaXRvci81NzMtYW5nb2xhLWF3YWtlbnM=http://www.angolahub.com/index.php/en/angola-monitor/573-angola-awakens?tmpl=component&print=1&layout=default&page=http://www.angolahub.com/index.php/en/component/mailto/?tmpl=component&link=aHR0cDovL3d3dy5hbmdvbGFodWIuY29tL2luZGV4LnBocC9lbi9hbmdvbGEtbW9uaXRvci81NzMtYW5nb2xhLWF3YWtlbnM=


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However, real signs of development have emerged over the past few years, as

Luanda has sought to reduce its dependence on oil revenues, partly through

refining and gas projects but also by investing in the kind of transport, water and

power infrastructure that can allow the private sector to redevelop other sectors

of the economy, including mining and agriculture.

For many years, Luanda opted to use its oil revenues to fund its operations and

to ignore pleas from financial multilaterals for greater transparency in its

financial dealings. Allegations of corruption were widely publicised and relations

with the IMF deteriorated. However, the MPLA government has now begun to

re-engage with the international financial community and a $1.3bn loan was

agreed with the IMF in 2009, of which $1.07bn had been paid by the end of

January.

Naoyuki Shinohara, the deputy managing director and acting chairman of the

IMF, says that the IMF-driven reforms are designed to promote transparency in

the public sector and the auditing and publication of the accounts of state-

owned organisations.

This change of heart apparently stems from Luanda's recognition that it needs

to widen its economic base if it is to develop the country economically.

However, in return for the loan, the government is required to introduce new

anti-corruption legislation and create a new government watchdog to reduce the

opacity surrounding the award of state contracts.

Angolan production capacity of oil and gas now stands at about 2m b/d,

although the country's membership of Opec means that about 200,000 b/d of

this capacity is not currently in use. Although Angola has only been a member

of the oil producers' cartel since 2007, Luanda has already applied for an

increase in its quota. Most production is located either in Cabinda or in

deepwater blocks that have been developed over the past 10 years.

ExxonMobil operates Block 15 alongside partners BP, Eni and StatoilHydro,


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where production is forecast to reach 800,000 b/d within two years. Elsewhere,

BP expects to bring 550,000 b/d on line on blocks 18 and 31 in the next three

years, suggesting that production capacity will rise sharply in the near future.

Spreading the benefits

The government is keen to see the construction of a large, modern oil refinery

that could produce a wide range of refined petroleum products, such as diesel

and petrol, for the domestic and export markets. At present, the Fina Petroleos

de Angola plant, which is owned by a joint venture of Total and Sonangol,

produces about 35,000b/d, far below domestic demand of 68,000b/d.

Sonangol has already begun construction of the new Sonaref refinery at Lobito,

with production capacity of 115,000b/d planned in the first phase, later ramping

up to

200,000b/d.The government increased fuel prices by up to 50% during the

course of 2010, apparently in an attempt to introduce a more commercial pricing

structure in preparation for the completion of the refinery.

Chinese firm Sinopec was due to take a stake in the project but pulled out

following a dispute over where the fuel products should be marketed. Sonangol

is now reported to be seeking a new partner to help finance the venture, which it

hopes to bring on stream in 2014. The most likely partner at present appears to

be South Africa's state oil and gas company PetroSA, as a result of talks

between Angola's President Jose Eduardo dos Santos and his South African

counterpart Jacob Zuma.

Official sources in Angola revealed that Sonangol and PetroSA are discussing

oint development of both the Lobito plant and a second refinery to be built in

South Africa. Developing two large refineries could give the opportunity to

produce a wider range ol refined petroleum products, such as aviation and

shipping fuel.


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Angola's other big hydrocarbon processing project is also already under

construction. The Angola LNG consortium of Sonangol (22.8%), Chevron

(36.4%), BP (13.6%), Total (13.6%) and Eni (13.6%) is developing an LNG

plant at Soyo in Zaire Province. In common with many other African oil

producers, Angola paid little attention to its gas reserves for many years, relying

on crude oil to generate export revenues and large hydro schemes to produce

electricity.

However, a combination of rising global demand for gas and the successful

development of gas projects elsewhere in Africa seem to have shaken the

Angolan government into action.

Gas reserves totalling 10.5 trillion cu ft on offshore blocks have been ringfenced

for use by Angola LNG. A single liquefaction train with production capacity of

5.2m tonnes a year will be developed in the first instance, although it is hoped

that other production trains can be added at a later date, while liquefied

petroleum gas (LPG) and condensate will also be produced.

Angola LNG announced in January that it expects to ship its first LNG in the first

quarter of 2012. The dedicated reserves certainly seem large enough to supply

two trains, while further oil discoveries are likely to uncover yet more associated

gas. Some non-associated fields have also been discovered.

Banking on hydro

According to the most recent figures, just 15% of the Angolan population has

access to on-grid electricity in their homes. This is a result of underinvestment

in generation, transmission and distribution infrastructure over many years, but

also stems from attacks on power sector installations during the civil war.

Most electricity is produced by ageing hydroelectric schemes, some of which

have been rehabilitated over the past five years, taking national generating

capacity up to 1.2GW.


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However, this is still a very low level for the third-biggest economy in sub-

Saharan Africa and the government has set a target of boosting generating

capacity to 7GW by 2017, almost entirely through the development of new

hydro schemes.

Securing investment for this rapid expansion and ensuring that the required

transmission and distribution infrastructure required to supply this power to

homes and businesses will be far more difficult tasks. While some African

governments have opted for private

sector management of new power plants, Luanda expects the state owned

Electricity Company (ENE) to operate new hydro schemes. However, much of

the construction and engineering work will be carried out by foreign contractors.

A consortium of Odebrecht and Engevix, both of Brazil, plus Alstom and Voith,

is upgrading the existing Cambambe Dam in Kwanza Norte Province. The

existing 180MW capacity has been modernised and now 700MW of new

capacity is being developed, with the first electricity due to come on stream

during the course of this year.

In the longer term, the height of the Cambambe Dam will be increased from 102

to 132 metres to greatly increase water storage capacity.

Similarly large projects have been planned on the River Kunene, which divides

Angola and Namibia. Private sector contractors are working on a number of

smaller schemes elsewhere in the country, including SCN Lavalin, which is

upgrading the capacity of the Matala Dam from 26MW to 40MW, while Angolan

firm Kamzuro-Electrice is working on the 60MW Lomaum Dam in Benguela

Province.

The aim of such projects is to ensure that some of the socio-economic benefits

of the boom that has swept over Luanda are passed on to the rest of the

country. Some of the new power production will be dedicated to specific


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industrial projects. For instance, Portuguese firm Escom, which is now owned

by Angola's Sonangol, is developing three dam projects in the east of the

country at an estimated cost of $400m to supply energy intensive cement plants

among other commercial customers.

Rehabilitation and resettlement

Angola was an important agricultural exporter for much of the colonial era but

the war and the destruction of railways connecting the interior with the coastal

ports quickly ended this trade.

The government and a variety of external agencies are seeking to re-ignite

enthusiasm for cash cropping, although this will not be a question of re-

establishing colonial era agricultural structures. Given the brutality of some

colonial era employment practices, new patterns of land ownership,

organisation and employment must be devised.

In the first instance, Luanda must find and allocate land for the millions of

displaced Angolans and former Unita fighters, many of who are still living in

resettlement camps.

In some cases, it will be impossible to return people to their former homes,

because one or even two generations of people have grown up on land that

they occupied when the original inhabitants had fled. Wherever they are settled,

such people must be given sufficient land and support to grow subsistence

crops for their own use, before attention switches to encouraging them to grow

export crops.

The redevelopment of the agricultural sector is also vital in terms of job creation.

While the oil sector generates 90% of total export revenues, it provides

relatively little employment.

Marketing boards along the lines of those developed in Ghana, Kenya and


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Tanzania can be set up to enable small-scale producers in remote areas to

target global markets. At the same time, the government can support ancillary

sectors, such as seed distributors or fertiliser producers. Fertiliser prices are

currently an average of 280% higher in Angola than in Zambia. Finally, Luanda

can support international NGOs in landmine clearance in order to encourage

people to return to the land.

The agricultural sector should certainly benefit from large-scale investment in

rail, road and port projects. Rail links to the country's three main ports, Luanda,

Lobito and Namibe, are being reopened to enable agricultural produce and

other goods to be transported around the country and also exported.

The Angolan government is to offer public/private partnerships to manage the

country's railways. Solely public operations and private sector concessions had

been considered but Luanda has now opted for a middle way.

At present, three state-owned companies operate the three railways to the three

ports: CFL manages the Luanda Railway; CFB, the Benguela Railway; and

CFM the Mocamedes Railway. At the same time, efficiency improvements have

been recorded at all three ports as a result of the commissioning of new cargo

handling equipment.

Speaking at the meeting of Ports of the Community of Portuguese-speaking

Countries (CPLP) in December, Angolan deputy transport minister, Jose Joao

Kuvingua, said that Lobito would soon begin to handle mining exports from DR

Congo. The existing container terminal at Luanda is being up-graded, while a

second container terminal is to be constructed in the north of the city.

Work on rehabilitating the 900km Mocamedes railway, which connects the

provinces of Namibe and Kuanda Kubango, is due to be completed by the end

of this year, almost six years after it began.

Trains can already travel at up to 100km an hour on the Matala-Menongue


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stretch. Such rail links are very important but it is vital that sufficient investment

is also put into developing a genuinely national road network that will allow

farmers in all provinces to transport crops from their farms to the closest railway

station.

Restarting mining projects

Such investment in transport infrastructure could also benefit the mining sector.

Angola possesses a wide range of mineral resources but diamond mining in

Lunda Norte and Lunda Sul provinces is by far the most import source of export

revenue after oil in the country.

Luis Antonio, the director of the office for international exchange in the ministry

for geology and mining, revealed in January that the country produced about

10m carats last year.

State-owned firm Empresa Nacional de Diamantes de Angola (Endiama) is a

major player in the sector, alongside industry giants such as South Africa's De

Beers and Alrosa of Russia. Revenues have fallen over the past three years

because the global financial crisis affected both jewellery and industrial

demand.

However, Antonio says that mining projects that were suspended at the height

of the global crisis are now being restarted. For instance, Endiama is

developing a new mine at Nzagi in Lunda Norte that is expected to produce

36,000 carats a year.

In addition, new mining legislation will be introduced into parliament this year.

Endiama spokesperson Sebastiao Panzo revealed: "The goal is to make the

mining sector more attractive for investors and also contribute to the

development of local communities."

Whatever the international price of diamonds, the sector remains profitable.


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Socie-dade Mineira de Catoca (SMC), which operates the world's fourth-biggest

diamond mine in Lunda Sul, generated revenues of $438m in 2009 and profits

of $70m. With such revenues on offer, investors will always be prepared to

commit themselves to Angola but the real test will be whether the government is

able to entice investment in frontier sectors in one of Africa's fastest-growing

economies.(FROM AFRICAN BUSINESS MARCH 2001)

Angola is latest investment magnet, by Sarah

Rundell from African Business2010 / 06 / 22

Luanda, Angola, 22 Jun -Business is booming again in the Angolan capital of

Luanda. The slump in oil prices in 2008 and 2009 took the shine off one of

Africa's biggest oil producers' double-digit economic growth but now Angola,

which ended a 27-year war in 2002, is firmly back on track as one of the world's

fastest-growing economies.

The World Bank says it expects the Angolan economy will expand by between

6.5% and 7.5% in 2010 due to higher oil prices and diamond exports. New

loans from China and the IMF,which granted Angola $1.4bn to shore up its

finances last November, are helping bolster the economic recovery further.

"We anticipate solid economic growth this year of around 7.5% and up to 8.5%

in 2011 on oil exports and the growth of the non-oil economy like agriculture,

manufacturing and construction,"says Ricardo Gazel, a senior economist at the

World Bank in Luanda. "Investment will continue to come from domestic capitalas well as foreign investors, particularly Brazil and Portugal."

In a country where oil accounts for over half of gross domestic product, 80% of

government revenues, and 90% of export revenues, it's no surprise that the

bounce in global oil prices and the promise of massive new oil production

coming on stream has boosted Angola's economy.

Angola now rivals Nigeria, Africa's biggest oil producer, for top spot, planning to
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pump 1.9m barrels per day in 2010, up from 1.82m in 2009, according to its

2010 budget.

Furthermore, industry officials predict Angolan production jumping by as much

as two thirds in the next five years and estimate reserves of between 13-19bn

barrels, behind Libya with 40-45bn barrels and Nigeria with reserves of 35-40bn

barrels.

The stable political environment and improved security is hastening major in-

vestment from companies including Italian energy giant ENI, present in Angola

since 1980, ExxonMobil, Total and BP, which all have projects due on stream

between 2011 and 2015.

The government says a new round of bids for oil exploration should take place

at the end of 2010. It's likely to spark wide interest, including from companies

like Norwegian state-controlled oil company Statoil, which despite owning a

share in a number of fields in Angola, doesn't yet control the production of oil.

The ensuing new investment will likely lead to a raft of fresh discoveries too.

Buoyed by growth at home, Angola's na-tional oil company Sonangol is also

expanding overseas. It has won deals to develop two oilfields in one of Iraq's

provinces and plans to invest $1bn in Brazil in the next two years.

Heavy investors

It's not just the oil sector that is attracting foreign investment. Former colonial

power Portugal has channelled more than $1 bn into Angola since 2007 in a

wave of investment. The most recent includes Portuguese drinks group

Unicer investing 100m in a brewery, and state-owned Caixa Geral de

Depositos planning to set up a new investment bank which it will jointly own with

state-owned oil group Sonangol.

Portuguese companies face competition from Brazil and China, which regards

Angola as one of its most important African partners. Angola signed three new

credit lines with China at the end of 2009 worth $10bn, according to the World

Bank. It values Chinese loans to Angola since the end of the civil war in 2002 at


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around $14.5bn, most of which will be repaid in oil.

Angola has overtaken Saudi Arabia and Iran to become China's biggest

supplier of oil. Chinese loans and construction companies have been essential

in rebuilding Angola's shattered infrastructure which was wrecked by the civil

war. China's Sinohydro which helped build the Three Gorges Dam, is the latest

Chinese company to eye infrastructure opportunities in the country.

Cultural and linguistic ties also give Brazilian companies like Odebrecht an

edge. The construction group is the largest private sector employer in Angola,

with activities including food and ethanol production, offices, factories and

supermarkets. Petrobras, Brazil's state-controlled oil company, is also active in

Angola, deploying its expertise in deep-water drilling.

In a sign of Russia's growing influence in Angola, Alrosa, one of the world's

biggest mining companies which already operates two mines in the country,

announced plans to venture into the construction sector with a $500m

investment to build schools, homes and dams.

South Africa's Standard Bank hopes to start operating as a full-service bank in

Angola by mid 2010, having been granted a banking licence in Angola last year.

"Angola is an extremely important market for Standard Bank. It offers a great

many exciting op-portunities in a number of crucial industries, including oil and

gas, mining, agriculture and general commerce," says Clive Tasker, Chief

Executive, Standard Bank Africa.

Other diversification efforts under way include the Angolan parliament's recent

approval of a new law to regulate the production of biofuels that could heraldmulti-billion dollar investments in the sector. "We need to diversify our sources

of energy and this new law will help us attract foreign investment. This is a

historic step for Angola," said Oil Minister Botelho de Vasconcelos.

Indicative of Angola's burgeoning corporates, the government says it wants to

open an Angolan stock exchange, possibly later in the year. "With the financial

crisis now firmly behind us, we anticipate the opening of the Angolan bourse

this year," says Anthony Lopes Pinto, Angola chief executive for the pan-African


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financial services group Imara, which has set up a Luanda- based subsidiary,

Imara Angola. "This will augment the national savings rate and create

alternatives for Angolan companies in need of growth capital. Such a move will

also attract foreign portfolio inflows, which globally have recovered strongly."

In the long term, Lopes believes the Bolsa de Valores e Derivativos de Angola,

or BVDA, has the potential to become the third - largest stock exchange in sub-

Saharan South Africa and Nigeria.

Subsidiaries of Angola's state-diamond firms are likely to be among the first

firms to list; others include leading telecoms companies like Angola's biggest

private company Unitel, which has 60% of market and has 4m subscribers. The

country biggest commercial bank, Banco Angola, which is owned by Portugals

BPI, is also likely to list.

Lopes believes the total market capitalisation of the Angolan exchange could

reach $1bn in the future, in a snapshot wich includes 10 banks with

a projected market cap of $3.99bn, two brewers with a projected market cap of

$2.9bn and two telecoms companies worth an estimated $4.39bn. "We believe

this to be the tip of the iceberg. We understand up to 50 companies have beenidentified as IPO candidates," says Lopes.

Critics, however, caution that Angolas flagship companies may not be ready to

list this year. Audit reports of Sonangol, for example, still have to be published.

" I doubt the stock exchange will be set up this year. Nothing is being done to

prepare companies to list. I think they will start with government bonds first,"

says the World Bank's Ricardo Gazel.

Unpaid bills could mar credit ratings

Confident that more foreign investors will want exposure to Angola's fast

economic growth, the government recently announced plans to sell $4bn in

bonds later this year. It is now seeking its first ever sovereign credit rating in a

bid to improve its credibility abroad.

Countries with ratings from Moody's Investors Service, Fitch Ratings and


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Standard and & Poors usually get better deals on their bond sales than nations

without a rating - the higher the credit rating, the lower the interest rate paid on

the bonds.

"Efforts to obtain a sovereign credit rating in order to access international debt

markets are well under way. This should reinforce long-term stability and result

in a deepening of the market," says Imara's Lopes.

However, commentators warn that Angola's credit rating will be affected by the

government's ongoing failure to pay off massive arrears to building companies,

which have reached around $2bn.

Portuguese companies Mota-Engil and Teixeira Duarte and Brazil's Odebrecht

have all been hired by the Angolan government to rebuild roads, bridges and

other infrastructure destroyed by a civil war that ended in 2002. "These arrears

with suppliers remain a big problem for Angola," says Gazel.

Food production takes priority

Angola is also trying to build its non-oil economy in sectors such as

manufacturing, construction and, crucially, farming, destroyed by the three-

decade-long civil war. "Diversification of the economy away from oil continues

apace and commendably," says Lopes.

Angola was once a top coffee, banana and sugar-cane exporter before the civil

war led to a mass exodus of farmers to the cities. The country now imports

more than half its food and it's one reason for Angola's runaway inflation at

around 14%.

It's also a contributory factor to making Luanda one of the most expensive cities

in the world for foreigners. Only 10% of productive land is cultivated and

although two thirds of Angolans derive their living from the land, agriculture

accounts for only 9% of gross domestic product.

Government efforts include an initiative launched in 2008 to attract up to $6bn in

agricultural investment to help rebuild food production. The government has led

the way with a $1.2bn investment financed by a line of credit by the


23/24

China Development Bank.

Private investors like London-listed Lonrho have started to dip their toes. Lonrho

has secured leasehold rights to 2,000 hectares of rice paddies in Angola. The

company plans to redevelop the land with state agencies and pay royalties on

food produced. The company says it is also planning to develop new agri-

processing facilities in Angola.

Last year Sonangol, Brazilian construction firm Odebrecht and private Angolan

group Darner began planting sugar cane in a 30,000 hectare site in Malange in

the country's first ever biofuel project. Under the new law, foreign companies

which invest in biofuels must sell part of their biofuel production to state-owned

oil firm Sonangol to satisfy Angola's internal consumption needs.

The government is also making efforts to attract more investment into the

diamond sector. Newly appointed head of the state-owned diamond company

Endiama, Carlos Sumbula, has promised to slash costs at the company and its

subsidiaries following a sharp drop in diamond prices triggered by last year's

global financial crisis.

He is also trying to attract new investors into the sector where diamond

companies like De Beers, BHP Billiton and AngloAmerican have partnered

with Endiama, but many reserves remain untapped. There are currently 61

mining concessions in Angola but only 14 are producing diamonds and the

government says it has 100 mines open for exploration to private investors

spread across 14 of the country's 18 provinces.

Angola is the world's fifth-biggest diamond producer and analysts estimatereserves at over 200m carats. Endiama controls all diamond concessions in the

country and according to Angolan law, all companies interested in exploring for

diamonds have to partner with the state.

Poor business environment

Despite progress, Angola's bureaucracy, the lack of skilled labour and endemic

corruption continues to put off many would-be foreign investors and blight


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projects. The International Finance Corporation's annual Doing Business survey

found Angola still has one of the least-friendly business environments in the

world. It cited hurdles ranging from labour laws and contracts to

getting visas and even finding affordable accommodation in Luanda, where

monthly rent on apartments can cost as much as $15,000.

Transparency International ranks Angola 158th on its 180-nation corruption list.

A recent report by Human Rights Watch found that while the government's

decisions to publish oil revenue figures, and calls last year by President Jose

Eduardo dos Santos for "zero tolerance" of corruption both showed a

willingness to improve transparency, there is still a long way to go.

Despite Angola's vast oil and mineral resources, wealth remains in the hands of

the few with an estimated two thirds of Angolans still living on less than $2 a

day.

"Given that the president and ruling party have been in power for more than

three decades, including the entire period in which oil-fuelled corruption has

been rampant, sceptics will wait to see whether meaningful action will

accompany these statements. The government needs to take strong action to

combat the corruption and secrecy that undermine Angolans' rights," said the

report.

But despite the challenges Angola faces converting its wealth into long term

economic development, it is still perceived as one of Africa's most exciting

economies. For many investors, it's an opportunity simply too valuable to

miss.(Angolahub/ African Business)

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