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ANGOLA: An Introduction to General Business Law: International Firms

INTRODUCTION  

Although Angola is one of the richest countries in Africa in terms of natural resources (oil and gas, minerals, water and agricultural potential) the country still needs to improve its social structure (education and healthcare), logistics, transport, energy network and infrastructure.

Angola’s economy is still highly dependent on petroleum exports (accounting for roughly 92% of its exports and 20% of its GDP) and therefore subject to the fluctuations of oil prices in the international markets.

Over the last few years the country’s policy has been to try to diversify the economy and reduce the petroleum dependency, while also reforming the petroleum sector both from a legal and a regulatory perspective. This generated enormous investment opportunities for local and foreign investors in various fields of activity.

Despite the economic setback due to the oil price drop in late 2014, Angola is a vast market with huge potential in terms of commodities, with a need to improve infrastructure and quality services and interconnections between the inland potential and the major cities, as well as an increasing demand for the diversification of the economy.

Angola has recently enacted legislation to streamline foreign exchange procedures and facilitate private investment. This includes the approval of a new free trade zones law along with a number of incentives and benefits, as well as the single investment window and amendments to the private investment law to facilitate the process to approve private investment projects and negotiate investments.

The country has also benefited from political stability for the last 20 years and governments have made major efforts to align with international standards of transparency in doing business. The country suffered from oil price drops and internal budgetary issues, but prospects for the coming years are optimistic.

SHORT DESCRIPTION OF THE LEGAL SYSTEM 

Angola’s legal system follows civil law tradition and is heavily influenced by Portuguese law (Portuguese law applied in the country until its independence in 1975).

Legislation is the primary source of law. Precedent is accepted but not binding as it is in common-law countries.

The Angolan Constitution is at the top of the hierarchy of legislation and establishes the general principle of separation of powers between the judicial, executive and legislative power.

All judicial authority in Angola is vested in its courts, which are independent and subject to the Constitution and the rule of law.

The main courts are the Constitutional Court, the Supreme Courts and the Provincial Courts.

INVESTMENT’S LEGAL PROTECTION 

Law No. 10/18, of 26 August 2018, enacted the Private Investment Law (“PIL”), having been recently amended (22 April 2021) by Law 10/21. The PIL sets out the rules applicable to investments made in Angola, including tax benefits and incentives, investor protections and special rules on repatriation of funds by foreign investors.

Under the PIL private investors are granted, notably, the following rights and guarantees:

• access to the judicial system;
• right to compensation in case of expropriation;
• industrial property and intellectual creation rights;
• ownership, use and lawful exploitation of the land rights;
• guarantee of non-intervention by the State;
• and importation and exportation rights.

The granting of tax incentives and benefits is available to priority sectors defined in the PIL, such as:

(i) education,
(ii) agriculture;
(iii) health services;
(iv) forestry;
(v) textiles;
(vi) tourism and leisure;
(vii) construction, public works, telecommunications, airway and railway infrastructures;
(viii) electricity production and distribution; and
(ix) sanitation.

The main tax incentives and benefits are:
(i) tax deductions;
(ii) accelerated depreciation;
(iii) tax credits;
(iv) exemption and reduction of tax rates and customs duties; and
(v) tax deferrals.

Furthermore, Angola is party to some Bilateral Investment Treaties (Italy, Cabo Verde, Germany, Portugal, Russia, and Brazil) that grant protection against expropriation or inequitable treatment of foreign investors.

MAJOR NON-LEGAL COUNTRY-SPECIFIC RISKS 

The revenue shortfall arising from the oil price drop in late 2014 created a systemic problem in Angola and the country faced a huge problem over the following years with the lack of foreign currency in the market.

Bureaucracy, restrictive local content measures and unclear investment regulations have created some constraints over the years for foreign investors.

The Government has made a huge effort over the last few years to improve the level of response of public institutions, judicial system included. The prospects of improvement are real and many changes have already taken place.

Angola has also made considerable improvements in terms of business transparency with new President João Lourenço and his effective efforts to fight corruption with the approval and amendment of relevant legislation, such as the New Criminal Code, the Competition Law and the Public Contracts legal regime

KEY RISK FACTORS AND MITIGATION OPTIONS 

Risk Factors 

Although less restrictive than in recent years, the Angolan foreign exchange regime is still highly regulated, with permanent intervention of the Angolan National Bank through the issuance of orders and guidelines. Private investors should seek local legal advice when structuring operations to avoid unexpected complications.

Delays in dispute resolution in Angolan courts unfortunately do happen. Contractual arrangements should preferably establish arbitration clauses. Some specific sector regulations may require that the seat of arbitration is in Angola.

Local content regulations, notably in the oil and gas sector, exist and application is strict. Legislation has been recently amended and applies to a wider supply chain of oil and gas service providers.

Local labour law contains limitations on the hiring of expatriate employees. Companies need to comply with several mandatory administrative and reporting obligations as regards the training, recruitment and hiring of employees.

Mitigating Options 

To address the legal and regulatory risks, it is suggested that investors:

(a) undertake legal due diligence to reduce unexpected outcomes; and

(b) implement adequate anti-bribery and corruption measures.

As mentioned above, the PIL contains several rights and guarantees that help foreign investors to do business. Upon implementation of the investment projects, the investors are guaranteed the right to transfer abroad:

(a) the dividends or profits distributed;

(b) the proceeds resulting from the liquidation of their investments, including capital gains, upon payment of the taxes due;

(c) the proceeds of indemnities; and

(d) royalties or other earnings resulting from indirect investments, associated with the transfer of technology.

As a signatory to the New York Convention, Angola is required to recognise (“exequatur”) arbitration awards. Angola made a reciprocity reservation on the application of the New York Convention, which means that it will apply the New York Convention if the relevant award has been rendered in the territory of another state that is also a party to the New York Convention.

OPPORTUNITIES  

Energy Projects 

The Angolan Government enacted a 'National Strategy for the New Renewable Energies', which provides an in-depth look at the goals that the Angolan State wishes to meet until 2025. This strategy seeks to contribute to the National Energy Security Policy and Strategy (enacted in 2011), and to promote diversification of energy sources, growth and employment.

The target set by the Angolan Government is that in 2025 at least 7.5% of the electricity generated in the country (equivalent to an installation of 800 MW) will be generated from renewable sources (major hydroelectric projects are not included). In order to reach this goal Angolan authorities identified the following three objectives:

(a) Improve access to energy services in rural areas based on renewable energy (e.g. “Solar Villages” program, creation of distribution networks and service providers throughout the territory);

(b) Develop the use of new grid-connected renewable technologies (targets and guidelines for each type of renewable energy and the promotion of investment are provided);

(c) Promote and accelerate public and private investment (e.g. the creation of specific legislation for renewables, a system of tariffs such as “feed-in” for projects up to 10 MW and credit lines to stimulate the private sector initiative in rural areas).

Privatisations 

Angola has approved an ambitious privatisation program to open its economy to private investors. The program is called PROPRIV and foresees the privatisation of 195 directly or indirectly state owned participations. The privatisations will be conducted by public tender or through BODIVA (the Angolan Stock Exchange). This program includes companies like TAAG, SONANGOL and ENDIAMA together with smaller sized companies in various industries (construction, textile, banks, insurance companies, etc.).

PPPs 

In order to build up the necessary infrastructure and further increase private sector participation, the country has created a public-private partnerships program. This program contains the development of several projects across the country, including major infrastructure, energy, railway and logistics projects that will enhance the inland potential and increase the quality of life of the general population.