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Oil may be king in Angola, but other sectors lure investors too
The Washington Diplomat / November 2004

By Larry Luxner

In its efforts to diversify the economy, Angola is trying hard to promote investment in non-petroleum sectors such as diamond mining, telecommunications, manufacturing and agriculture. Here's a comprehensive look at how the country is faring in these sectors:

MINING

A diamond producer since 1913, Angola was once the fourth-largest diamond producer in the world. It is now the seventh-largest, with current production coming primarily from alluvial deposts in Lunda Norte and Lunda Sul provinces. Angola also has six kimberlite pipes that mining experts believe are rich in diamond deposits.

Norman Gross, president of Alexandria-based Global Capital Group, a consulting firm, said Angola's diamond industry contributes around $1 billion annually to the country's foreign-exchange earnings — up from $739 million in 2000 and only $10 million in 1998.

"The main issue has been whether diamonds were being used to buy weapons. That was a huge problem in Angola until the middle of 2002, but it's no longer an issue," said Gross.

That's mainly because with the signing of a peace accord, the rebel group UNITA no longer has a grip on mining areas. According to the United Nations, UNITA smuggled about $100 million worth of diamonds out of Angola in 2000 alone; now the government is controlling a resource that had been used principally to fuel rebel activity.

"Diamond mines are extremely valuable, much more so than gold mines," said Gross. "There are 500 to 1,000 gold mines in the world, but only 40 or 50 kimberlite diamond mines, and they're each billion-dollar deals."

Angola has five diamond mines, producing a combined five million carats a year. More importantly, Angola's diamonds are gem-quality, meaning they can fetch upwards of $200 per pound, compared to the world average of around $100 a pound for industrial-grade diamonds, like the kind found in neighboring Congo.

At present, only one kimberlite mine is active — that of Catoca in the province of Lunda Sul. The Catoca mine, which entered its initial phase of production in 1998, is a joint venture between the Angolan government, with a 32.8% stake; the Russian company Alrosa, also with 32.8%; Brazil's Odebrecht Mining Services, with 16.4%, and Russian-born Israeli investor Lev Leviev, with 18%. Leviev was instrumental in setting up Ascorp, whose aim is not only to export rough diamonds, but to start cutting and polishing them in Angola.

Catoca, which has one of the largest kimberlite pipes in the world, accounts for around half of all current diamond production. By the end of this decade, Gross said, Angola expects to triple annual production to 15 million carats, translating into revenues of about $3 billion a year.

The most important player in Angola's secretive diamond industry is Lev Leviav, an Israeli citizen who controls huge investments in both kimberlite and alluvial mines, as well as in diamond trading. At one time, he was instrumental in establishing Ascorp.

According to Paul Hare, executive director of the U.S.-Angola Chamber of Commerce, Ascorp "had a monopoly on buying and selling of all diamonds in Angola, which meant that other groups had to shut down their buying operations. But now, Ascorp's power has been diminished, and other operations are beginning to open up again."

Angola's state-owned diamond entity is Empresa Nacional de Diamantes (Endiam), which in July opened an office in Tel Aviv — a leading world diamond center. Additional offices are planned next year in New York, Brussels and Hong Kong.

Earlier this year, Australia's BHP Billiton signed an agreement with South Africa-based Petra Diamonds Ltd. to recover gem-quality stones in northeastern Angola. The venture calls for BHP to invest up to $60 million for a 75% share of Petra's Alto Cuilo diamond project, in conjunction with Endiama and Angola's Moyoweno.

Under the agreement, BHP — formerly known as Broken Hill Proprietary Co. Ltd. before its takeover of British mining conglomerate Billiton in March 2001 — will prospect for diamonds throughout Petra's concession area. The venture has already recovered 23 diamonds greater than 1 millimeter at a total weight of 18.7 carats from a 40-ton sample including a white gem-quality stone of 9.61 carats.  

Llewellyn Delport is chief executive of local diamond producer Trans Hex, which has one mine and three exploration projects in Angola. he said the company's decision to enter Angola two years ago — only a few months after the end of the civil war — gave Trans Hex the advantage of being one of the first on the ground.

"We managed to get our hands on some good diamonds in the ground," he said, hinting there could be further opportunities in Angola, but that the company would first need to earn the respect of the Angolan authorities in Luanda.

"If they would allow us more properties, we would explore them," he said. "We are partnering with the government, and if we perform we would hope and expect to be offered further opportunities. Our vision is to be a preferred partner."

Delport also said there were challenges in adapting to a business environment where the Angolan partners needed to be consulted. "In Angola, we are joint-venture partners, and the challenge is to get the partnership to work for people who are used to having control."

In addition to diamonds, Angola possesses a wealth of other minerals such as iron ore, manganese, gold, phosphates, platinum, copper, lead, quartz, marble, zinc, gypsum, marble, chromium and black granite.

MANUFACTURING

Back in the 1970s, when Angola was considered one of sub-Saharan Africa's most promising countries, the country had over 4,000 factories employing hundreds of thousands of people. Most of those businesses closed during the civil war, but investments have begun trickling back in since the end of the fighting.

One of Angola's biggest success stories to date is Coca-Cola. In 2000, the Atlanta-based soft-drinks giant opened a 14,000-square-meter bottling facility in Bom Jesus, outside Luanda. Production at the plant reached 14 million cases in the first 12 months of operations.

Before the factory's construction, Angola imported virtually all soft drinks in cans from Portugal and neighboring countries. Following the Bom Jesus inauguration, Coca-Cola opened a second bottling plant at a former fruit-juice factory in Lubango, in southern Angola. The two facilities represent a combined $60 million investment.

South African Breweries International (SAB), a Coca-Cola subsidiary, manages the plant and recently purchased the majority of Coca-Cola's equity stake.

One local company, Angases, recently won an exclusive contract to supply Coca-Cola with gas, ensuring a more stable future for the company.

"There have been some very difficult periods in the life of our company. But Angases has never given up the struggle, and this has paid off," said Angases President Julio Araujo in a recent press statement. "Now that we have Coca-Cola, our future looks very bright."

Other foreign companies have been quick to follow Coca-Cola's example. For example, the Chinese company, Guangdong Overseas Construction Corp., has invested $7.2 million in a motorcycle assembly plant — the first of its kind in Angola.

Another improving sector is the steel industry, which is in the process of being privatized. Two of Angola's biggest steel processors – Fabrica de Tubos de Angola (FATA) and Metalurgica de Angola (Metang) – are now being managed by Indufer, a private Angolan firm. The two factories are currently operating at about 50% capacity, producing 36,000 tons of steel pipes and corrugated iron sheets annually.

"Although the bulk of our work is related to heavy industry, we are now investing in the construction and tourism sectors because this is where the money lies," Indufer CEO Jose Dias dos Santos told reporters in Luanda recently. "We have had a lot of demand from these sectors, and since 2000, we have been quite successful."

In addition, a soap factory with a monthly output capacity of 100 tons is under construction in the port city of Porto Amboim in Kwanza Sul province. The Haier Group, a Chinese company, has announced plans to build an $11 million electrical appliance factory.

TELECOMMUNICATIONS

Fewer than two of every 100 Angolans have telephones, and only one in 10,000 has Internet access. That's why telecom offers such a big investment potential.

With only 100,000 fixed lines and less than 75,000 mobile lines, demand for telecom infrastructure is still far higher than supply.

David Ross, a New Jersey-based consultant familiar with Angola, said that as the country's ports and railroads are developed, the need for fixed and wireless telecom services will grow sharply.

"There's a lot more room for expansion outside of Luanda and into the provinces," he told the Diplomat. "To a certain extent, it's a greenfield opportunity for anybody who is willing to take on that kind of task, including building the backbone infrastrucure to connect remote regions of the country to the capital."

In January 2001, Angola's National Assembly revised the country's Basic Telecommunications Law and formally called for the end of state-owned Angola Telecom's monopoly. But that hasn't gone anywhere, and Angola's ambassador to the United States, Josefina Pitra Diakite, said she has no idea when the company might be privatized.

Meanwhile, a private consortium has launched a second GSM mobile network. The new operator, Unitel, is owned by Portugal Telecom (25%), Mercury Telecom (25%) and other local investors (50%); it will initially cover Luanda and Bengo provinces, but is likely to expand to other areas including Benguela and Cabinda. The $68 million investment immediately doubled Angola's mobile phone capacity from 25,000 lines to 50,000. Unitel's network is expected to serve 150,000 subscribers by year's end.

According to the Washington-based Corporate Council on Africa, "outside observers are optimistic about Unitel's launch for several reasons. First, service has dramatically improved. Second, Unitel's option to purchase prepaid phone cards — not available on Angola Telecom lines — will broaden service to Angolans not able to afford long-term contracts. Finally, many economists see the creation of competition in the mobile phone sector as a possible sign of future economic liberalization measures in other sectors."

AGRICULTURE AND FISHING

In 1960, agriculture contributed 50% of Angola's GDP. Today, it accounts for just over 10% of GDP as oil, gas and other sectors have skyrocketed in importance.

The UN Food and Agricultural Organization eestimated that between March 2000 and April 2001, the country needed a minimum of 1.3 million tons of food. That means opportunities in everything from subsistence crop development to large-scale production.

Priority crops are maize, sorghum, sweet potato, beans and cassava. Angola's Institute of Foreign Investment (IIE) is promoting joint-venture opportunities on small-scale agriprocessing projects, with many more projects in the evaluation and development phases.

In 2000, the United States exported $54.8 million in frozen poultry and other agricultural commodities, well over double the $23.3 million exported in 1999 and the largest amount ever. But there were no American imports of Angolan-produced farm goods.

Yet there's a lot to import, once conditions are right.

Back in the 1970s, Angola was the world's fourth-largest coffee producer after Brazil, Colombia and Cτte d'Ivoire. The country's civil war forced most growers to abandon their coffee plantations, and destroyed virtually all processing facilities. At the moment, efforts are underway to revive the sector.

The International Coffee Organization is supporting an $8 million project to revitalize plantations in Kwanza Sul province, while Delta Cafιs Co., a subsidiary of Portugal's Nabeiro Group, has invested $10 million to revamp a long-dormant instant coffee production and packing plant outside Luanda.

Fishing offers yet another export opportunity, given Angola's 1,600 kilometers of Atlantic coastline. Those waters are teeming with mackerel, sardines and tuna, and in the early 1970s, Angola was hauling in up to 600,000 tons of fish annually. But with the start of the civil war, the catch fell to less than 40,000 tons, finally increasing to 122,000 tons in 1994.

In 2000, Angola's total catch rose 37% from the previous year to 237,000 tons, thanks to a new sea satellite control system that monitors and prevents illegal fishing.

In May 2000, Angola and the European Union extended an existing fisheries protocol that allows 70 vessels from Spain, France, Italy, Greece, Portugal and Ireland to ply Angolan territorial waters. In exchanage, the Angolan government receives $12.5 million, 30% of which is allocated to develop local fishing capacity.

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