Angola: Sow where you reap

Angola oil
Angola is now Africa's seond largest exporter of oil

The Angolan government can encourage the oil industry to create positive spillovers for local industry, but not all local ownership leads 
to employment growth.

For all the money the oil industry brings in, it employs less than 1 per cent of the Angolan population. Angola’s economy is driven by oil, which accounts for 95 per cent of its exports and 50 per cent of gross domestic product. Oil revenue has also enabled the country to enjoy some of the world’s fastest growth rates in the past decade, since the end of its 27-year civil war. As more projects develop, as is the case this year with the exploration of pre-salt and on-shore blocks, more jobs are created, but still only a handful.

Under pressure to reduce inequality and share the country’s income among its 20 million inhabitants, the Angolan government has been pushing through a series of new laws. 
One such bill, passed late last year, will oblige international oil companies to use Angolan banks to pay their taxes and contractor bills, with a view to injecting more hard currency into the banking network and boosting the lending power of national banks.

There are also new regulations about contracting local companies for support services. It is already an unwritten rule that bidders are more likely to win contracts if they can show strong local content by using national suppliers or supporting education and health projects in the communities where they work.

A March 2011 study by Open University’s Zeferino Teka argues that a mismatch in the government’s industrialisation and local content policies means that there are few positive spillovers from the oil industry into the manufacturing sector. Teka finds that the localisation policy creates forward linkages, which lead to revenue sharing, but the lack of backward linkages means that Angolan manufacturers are not producing goods for consumption by the oil industry.

Teka’s paper identified three joint ventures formed by Acergy, Saipem and Technip, local manufacturers of control and flow lines for offshore oil platforms, representing the only Angolan manufacturing contribution to this sector of the economy.

According to oil minister José Botelho de Vasconcelos, of the 77,000 people working directly in the oil industry, some 60,000 are Angolans. This is because national policy obliges international oil companies to have a minimum of 70 per cent national staff.

For an expatriate in the oil industry to get a work visa he must provide documentation to explain how an Angolan national will be trained to replace him when his term is up – a process know an Angolisation. Foreigners working in the sector are usually able to stay for three or four years, after which they will be refused new work visas.

This is can be a headache for companies that struggle to find skilled national staff due to the war’s impact on education. As the government and companies spend more on training Angolans in the medium to long term, this situation is likely to improve.

With the sector being the main driving force of the economy, more people are employed indirectly (in areas such as cleaning, driving and building houses) than formally by the operators and service companies.

Angola’s private sector remains weak, dominated by a small clique of elite businessmen, and most of the support companies hired by oil firms will choose from that small pool of service providers. With security and other companies, their unclear ownership structures make it difficult to determine if the growth of local companies is creating a class of Angolan businessman outside the ranks of the government and security services.

For the actual worker being contracted, wages can be low. An agency driver with an oil firm will earn around $500 per month, depending on experience, for six or seven days driving per week.

The government has launched a new legal framework to promote small and medium-sized businesses and it announced in January that it would extend $1.6bn in credit to help companies get off the ground. Part of the focus on the private sector comes from a bid to increase the tax base, which remains low because an estimated 70 per cent of Angolan companies are working off the books.

Parliament passed a final piece of legislation in recent weeks to give tax breaks to Angolan oil companies to encourage them to bid for oil blocks.

Analysts welcome the move to give Angolans a more direct ownership stake in the oil sector, but some question which Angolans will have access to those types of companies and whether dis-incentivising international companies with strong training records is a good idea for the industry in the long term.