Angola and Mozambique are ready for global trade, but are their governments?

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With a strong oil and gas industry, Angola and Mozambique look set to raise their profiles internationally. But, as our panel of lawyers from African law firms argue, they will need to diversify their resources, find lawyers capable of creating a dialogue with local communities and obtain serious commitment from governments.

What are the main industries for foreign direct investment in Angola and Mozambique, and why?

Rita Correia, partner, Miranda Alliance, Angola, interviewed for Angola Mozambique investment feature
Correia: New opportunities in electricity, water, non-oil energy and construction are expected

Rita Correia and Jayr Fernandes, partners, Miranda Alliance, Angola: As Africa’s second largest oil producer, the oil and gas industry remains the main destination of the FDI inflows in Angola. In fact, World Bank data shows that more than 70 per cent of government revenue and 90 per cent of Angola’s exports still come from oil activities, representing about 50 per cent of the GDP.

Given the vast natural resources available in the country, the production of diamonds (Angola is Africa’s third-largest producer) and other minerals such as gold, granite, gypsum, marble, and salt also plays a leading role in the economy. Also, the government’s national development plan for 2018-22 aims to relaunch the economy, improve the population’s living conditions and foster key areas with high potential that have somehow been overshadowed by oil and gas investments.

As such, new opportunities and foreign investments in electricity and water, non-oil energy and construction are expected to increase significantly over the next few years. There is now also a new push towards developing the country’s agricultural sector, tourism, port-related infrastructures and telecommunications and IT.

Law in Africa: “We’ve got a second chance and we had better take it”

Miguel Spínola, partner, PMJ Advogados, interviewed for Angola Mozambique investment feature
Spínola: One of the world’s biggest gas finds has the potential to transform Mozambique into a major African economic player

Miguel Spínola, partner and head of the Mozambique desk, PMJ Advogados: Mozambique benefits from a strategic location as a gateway to the Southern African Development Community, which brings together around 250 million consumers. It is a country with abundant natural resources and its hydro-electric potential, natural gas reserves and coal stand out.

Mozambique made one of the world’s biggest gas finds in the Rovuma Basin, in the north of the country, with the potential to emerge as a new giant in the natural gas market, but also to spark investments with the potential to transform one of the world’s poorest countries into a major African economic player.

It is unquestionable that the discoveries in the Rovuma Basin areas, combined with a project to construct one of the largest liquefied natural gas plants after Qatar, represent a major movement in the energy sector in Mozambique and what has definitely attracted the real perspectives for major investments either on energy or any other sectors. The government’s negotiations with gas and coal operators still make breakthroughs that will allow final investment decisions on liquefied natural gas projects to start during this year and 2019, and a boost in coal exports. It is expected this will unlock investments in major projects and infrastructure that will drive growth in the energy sector for the upcoming years.

What are the most significant legal challenges faced by foreign investors when investing in these industries and how can they be overcome?

Diogo Xavier da Cunha, partner, Miranda Alliance Mozambique, interviewed for Angola Mozambique investment feature
Cunha: Mozambique’s legal landscape has changed significantly

Diogo Xavier da Cunha and Paulo Pimenta, partners, Miranda Alliance, Mozambique: The legal landscape in Mozambique has undergone significant changes in recent years. The government struggled to enact and implement legislation aimed at regulating key economic sectors to attract, promote and accelerate foreign investment.

The key concerns investors often face include foreign exchange constraints, reliability of the judicial system, labour-related local content requirements, land access and potential conflicts with local communities. There is also a lack of local experience in dealing with sophisticated legal and technical matters, a shortage of suitably qualified local talent, a lack of adequate capacity of local governmental institutions and difficulties in how government departments co-ordinate among themselves.

Defining an entry strategy in advance and seeking comprehensive and quality legal advice on prospective or ongoing investments is of utmost importance to prevent and overcome any potential hiccups. Understanding local culture and developing the ability to communicate in the local language (Portuguese) are rather important advantages for foreign investors.

Correia and Fernandes, Angola: Foreign investment faces three major hurdles when it comes to investing in Angola: foreign exchange limitations are a key concern and its importance has increased in recent years. There is still a long way to go in terms of the application of the rule of law and the reliability of the judicial system; and there are still some limitations in terms of FDI arising from the so-called local content requirements applicable to certain sectors of the economy.

In particular, local partnerships are no longer mandatory for investing in power and water, hospitality and tourism, transports and logistics, civil construction, telecommunications and IT and mass media. However, some local content requirements still apply in certain sectors such as oil and gas, mining, banking, insurance etc, which can be discouraging for investors.

Mafalda Seabra Pereira, partner, AVM Advogados, interviewed for Angola Mozambique investment feature
Pereira: Return on their investments can be long-term but investors can expect high-profitability ratios

Mafalda Seabra Pereira, partner, AVM Advogados, Angola: As in most developing countries, doing business in Angola still involves unnecessary red tape, excessive set-up costs and uncertainty as to realistic time frames to achieve business milestones. Local content requirements (regarding business ownership and workforce) can also be a challenge for foreign investors inclined not to elect local partners for joint investment projects and/or typically motivated to count on expats essentially to drive the business in-country.

Reliable legal assistance combining local knowledge and international experience helps with streamlining activities, working more effectively and managing expectations and investment plans.

Beyond that and more importantly, investors can face long-term prospects of return on their investment but expected high-profitability ratios in the future are usually a promising reward.

What factors will be instrumental to the success of the Angolan and Mozambican markets over the next few years?

Spínola, Mozambique: African markets, like the world in general, have to change their growth paradigm and development model. Development countries like Mozambique will certainly have to adjust to the new reality. Hopefully the international markets will stabilise and create better conditions for the ongoing growth of countries like Angola or Mozambique.

Regarding Mozambique, if the conjuncture evolves in a positive manner, it is expected that the major projects in the energy and infrastructure sectors will finally happen somewhere this year or during next year. Nevertheless, it is important that in the coming years these countries benefit from the lessons learned recently. This includes the confirmation that African markets do not control the international commodities markets and thus are subject to its fluctuations, and should not depend on one single economic sector. Therefore, there is a need to diversify their economies. Then they should optimise other plentiful natural resources swiftly, such as agriculture, water and renewables.

Correia and Fernandes, Angola: We would highlight two factors: diversify the economy and regain access to hard currency in order to inject the necessary liquidity into the financial system. Angola maintains its dependency on oil and it urgently needs to look into alternative and consistent sources of revenue. In the same way, the government needs to remain focused on restoring economic stability. That will involve investing in infrastructure, making best use of natural resources, fighting corruption, implementing structural reforms, improving governance and downsizing public debt (around 6 per cent in 2017 and 65 per cent overall) to increase confidence among investors. Foreign exchange market issues should also be addressed, as the variations on crude price, dramatic evaporation of foreign currency and incapacity of commercial banks to inject money and play a role in the local economy will have a tremendous impact in Angola’s recovery.

What trends in the Mozambican and Angolan market do you expect to affect future strategies and business focus for your firm?

Spínola, Mozambique: The country is taking huge strides towards becoming one of the world’s principal energy suppliers. Agriculture, fishery, construction and public works, transport, communication and tourism will also continue to grow. This means that law firms have to be ready to provide high-level legal services in several industries and areas of legal expertise.

The biggest challenge for international firms is to assure their clients effective support on the ground and an in-depth local knowledge of the legal framework and local practices and customs. Through their input, training and collaboration with local lawyers they should ensure high-quality services which match the international standards.

Paulo Pimenta, partner, Miranda Alliance, interviewed for Angola Mozambique investment feature
Pimenta: The legal framework governing the power sector is under major review

Da Cunha and Pimenta, Mozambique: A significant business increase is expected in the near future, mainly driven by the foreseen mega projects and the challenges associated with local content. In addition, the government is keen to fast-forward rural electrification. A comprehensive review of the legal framework governing the power sector is also ongoing. Renewables and mini-grids are deemed key to promote access to energy to peripheral and remote communities. Significant efforts are being made to attract investment on wind and solar farms.

Other than that, interesting and disrupting trends seem to be emerging in-country. As in other sub-Saharan African countries, innovative products and services are being developed by local entrepreneurs. Tech startups and incubators are being implemented which will certainly contribute to fostering development and increasing economic performance. Local firms shall be required to secure resources and sophisticated know-how to address new demands.

Partnerships with foreign firms are likely to grow and even expand beyond the traditional alliances between Portuguese and Mozambican firms. More formal ties with South African and international firms are expected. All the main market players will have to invest, train talent and be able to retain it.

Retaining talent is a real challenge in a scenario where large multinationals arrive in the country and seek to develop their in-house legal departments.

Jayr Fernandes, partner, Miranda Alliance, interviewed for Angola Mozambique investment feature
Fernandes: Angolan government is expected to work with strategic allies such as the US, UK, Germany, China and Portugal on new bilateral investment treaties

Correia and Fernandes, Angola: We expect a significant increase of investments in agriculture (only around 15 per cent of the 35 million hectares suitable for agriculture are being used), food production, infrastructure-related construction and non-oil energy. At the same time, we expect the government to build in-depth relations with strategic allies such as the US, UK, Germany, China and Portugal by bringing back to the table the negotiation of new bilateral investment treaties. In this regard, it should be stressed that on 18 September 2018, Angola executed with Portugal its second double taxation treaty (DTT, still pending internal ratification).

Seabra Pereira, Angola: As plainly assumed by the government, improvement of public management and sustainability of public finances will lead to the privatisation of a significant number of non-strategic companies in the public business sector. Privatisation transactions do naturally fall within our area of practice and business focus for the coming years.

The discrete rise of the oil exportation price plays a role to support economic growth and the oil and gas sector remains one of the key business areas to be explored by foreign investors.

Recently enacted regulatory statutes will encourage the exploitation of natural gas and bring up new procurement rules aimed at facilitating requirements and procedure in tenders.

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The post Angola and Mozambique are ready for global trade, but are their governments? appeared first on The Lawyer | Legal insight, benchmarking data and jobs.



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