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ANGOLA: An Introduction to General Business Law: International Firms

1. INTRODUCTION 

Although Angola is one of the richest countries in Africa in terms of natural resources (oil & gas, minerals, diamonds, water and agricultural potential) the country still needs to improve its social (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 is therefore vulnerable to the fluctuations of the 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 petroleum dependency, while also reforming the petroleum sector both from legal and regulatory perspectives. This generated enormous investment opportunities for local and foreign investors in various fields of activity.

Despite the economic setback with the oil price drop in late 2014, Angola continues to be a vast market, with huge potential in terms of commodities, an increasing demand of diversification of the economy and a need to improve infrastructures, quality services and interconnections between the rural countryside and the major cities.

Angola has recently enacted legislation to streamline foreign exchange procedures and facilitate private investment through the approval of a new free trade zone law. The law comes with a number of incentives and benefits, the single investment window, and amendments to the private investment law to facilitate the process of approving private investment projects and negotiate investments. A new tax incentives code is also under discussion at Parliament level and is expected to be enacted very shortly.

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 significantly with the oil price drop and internal budgetary issues but prospects for the coming years are optimistic.

2. SHORT DESCRIPTION OF THE LEGAL SYSTEM 

Angola’s legal system follows the civil law tradition and is heavily influenced by Portuguese law (Portuguese law applied in the country until independence in 1975). Legislation is the primary source of law. Precedent is accepted but not binding as in common-law countries. The Angolan Constitution is the top of the legislative hierarchy 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 in that hierarchical order.

3. LEGAL PROTECTION FOR INVESTMENTS 

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 land rights;
• Guarantee of non-intervention by the State;
• 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; (ix) sanitation.

The main tax incentives and benefits, which are expected to be further enhanced by the new Tax Incentives Code, 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 several Bilateral Investment Treaties (Italy, Cabo Verde, Germany, Portugal, Russia, and Brazil) that grant protection against expropriation or inequitable treatment of foreign investors.

4. 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 over the following years a huge problem with the lack of foreign currency in the market. Bureaucracy, restrictive local content measures and unclear investment regulations 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 improvements are real and many changes have already taken place. A new spike on oil prices due to the current global energy deficit is also expected to help the Government reach budget stability while also contributing to the stabilization of the local currency, putting an end to the kwanza’s depreciation trend.

Angola has also made considerable improvements in terms of business transparency following the efforts of the new President João Lourenço to fight corruption and approve/amend relevant legislation such as the New Criminal Code, the Competition Law and the Public Contracts legal regime.

5. 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 resolutions in Angolan Courts should, unfortunately, be expected. 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 & gas sector, exist and their application is strict. Legislation has been recently amended and applies to a wider supply chain of oil & 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 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 conduct business. Upon implementation of the investment projects the investors are guaranteed the right to transfer abroad:

(a) Dividends or profits distributed;

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

(c) Proceeds of indemnities;

(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.

6. OPPORTUNITIES 

Energy Projects 

The Angolan Government enacted a “National Strategy for 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 by 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 3 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, credit lines to stimulate the private sector initiative in rural areas).

Privatizations 

Angola has approved an ambitious privatization program to open its economy to private investors. The program is called PROPRIV and foresees the privatization of 195 directly or indirectly state owned participations. The privatizations will be conducted by public tender, limited bidding by pre-qualification 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 the necessary infrastructures and further increase private sector participation, the country has created a public-private partnership program. This program contains the development of several projects across the country, including major infrastructures, energy, railway and logistic projects that will definitely enhance the inland potential and increase the quality of life of the general population.