HUILA PROVINCE - GREAT POTENTIAL AND HUGE PROBLEMS

UNCLAS SECTION 01 OF 02 LUANDA 001127

SIPDIS

SIPDIS

FOR AF/S

E.O. 12958: N/A
TAGS: ECON EFIN AO
SUBJECT: HUILA PROVINCE - GREAT POTENTIAL AND HUGE PROBLEMS

REF: A. LUANDA 1082


B. LUANDA 164


1. (SBU) Summary. An energy deficit and dilapidated
infrastructure diminish Huila Province's economic potential.
Investors have to provide their own electricity, water,
transportation and security. The GRA's railroad
rehabilitation, critical to reopening Huila's iron mines, is
at a standstill. MPLA Secretary Joao Marcelino Tyipinge and
Huila Province's Director for planning, Fernando Pontes
Ferreira, both argue that Huila is free of internal strife,
rich in economic potential and deserves more attention from
the national government. Businessmen like Carlos Lemus of
the Huila Industrial Association and Carlos Gomes, Operations
Manager of Coca Cola and the N'Gola brewery, see a lack of
policy support from the government made worse by active
interference from officials. End Summary.

A Benign Environment?
--------------


2. (SBU) Most of Huila's advantages are potential, its
disadvantages, present realities. The advantages include
abundant water, hydropower potential and fertile soil. Bad
roads, lack of skilled labor, lack of electricity and delayed
railway reconstruction (Reftel A) lead the list of negatives.
MPLA First Secretary Tyipinge said the number of voters
registered during the 2006-2007 pre-election registration
process shows Huila has overtaken Huambo to become Angola's
third most populous province. Migrants arriving from Huambo
and Bie Provinces during the war brought along their talents,
Tyipinge asserted, permitting the Huila MPLA and provincial
government to promote able individuals regardless of their
birthplace or tribe, such as Governor Ramos da Cruz, a native
of Kwanza Sul Province. Tyipinge also credits the Party's
uneducated, "ignorant" veterans with having the foresight to
send the party's future leaders to universities, enabling
them to meet the country's needs. However, Carlos Gomes,
Operations Manager of the N'Gola brewery and Lubango's
Coca-Cola bottling plant, says that, while Angola's middle
class has grown somewhat over the last ten years, GRA
policies do not sustain its growth. Furthermore, Angola has
more lawyers than mechanics -- Angolans are not learning the
skills their country needs, he lamented.

Investment and Regional Integration
--------------


3. (SBU) Carlos Lemus, Director of the Huila Industrial
Association, said recent investments included a Coca-Cola
bottling plant serving southern Angola, a brewery invested by
South Africa's SAB-Miller, and a Zambian cigarette factory.
The Planning Office's Pontes, an eager Huila booster who
created a handsome book describing Huila to potential
investors, divulged that he distrusts South African partners,
much preferring Huila do business with Portuguese, Spanish or
Americans investors. (Pontes said most American and Canadian
investment in Huila has been in the form of hospitals and
schools built by NGOs.) Pontes also said he wants more
mining interests to invest, but admitted Huila has no
contemporary geological surveys to offer.

Entrepreneurs Meeting Officials
--------------


4. (SBU) Angola has emerged slowly from its 15-year
experiment with socialism, according to Lemus, and few small
businesses started since 1991 have grown into large ones.
Domestic investments in Huila have revived a drinking water
bottler, an abbatoir, and several flour mills. Newly
established factories produce such items as bricks, ceramics
or stonework for the construction industry. Recent
construction projects include the Chinese-built gymnasium
used for the Afrobasket tournament, refurbished government
buildings and motels to serve the Afrobasket fans, along with
a casino. Huila's industry produces exclusively for the
provincial market, except for ornamental granite, which is
exported through the port of Namibe. Banks cannot count on
the justice system, so they lend only to enterprises that
already have both income and assets, said Lemus. Angola's
informal economy, operating with powerful protectors,
undersells and thereby undercuts the growth of legitimate
businesses, he continued.


5. (SBU) Carlos Gomes, operations director of both N'Gola
Brewery and the Coca Cola bottling plant in Lubango, Huila's
provincial capital, said he can manage Huila's physical
challenges: his plant purifies its own water, generates its
own electricity (1 MW, according to Pontes of the Planning
Office),imports all its ingredients, builds in longer lead

LUANDA 00001127 002 OF 002


times to allow for port delays, and buys extra delivery
trucks to cope with bad roads. N'Gola trains its workers but
then loses them to other companies offering higher salaries.
Despite these difficulties, this year N'Gola invested USD 23
million and doubled beer production to 180,000 liters (48,000
gallons) per day. While the physical limitations are
manageable, Angolan officials are not, he complained. His
company's rules absolutely forbid paying bribes, he
explained. He once waited 14 months for a work visa so a
South African maintenance technician could visit for two
weeks. Worse, he knows Angolan officials are not arbitrary
when they enforce reasonable regulations. For example, he
has never had problems with Angolan Customs, perhaps because
of recent reforms to the Customs Code (Reftel B).


6. (SBU) Gomes says the GRA's public investment projects
have not helped Huila economy. However, Planning Director
Pontes looks to a new 60-MW oil-fired power plant, planned
for neighboring Namibe Province, to give Huila the 40 MW it
needs (Matala Dam only produces 23 MW). Angola's agreement
with China for a line of credit reserves 30 percent of
project cost for Angolan companies. Pontes declared that
Huila companies will be ready to perform the work when these
projects are let out for bids. Although wealthy Angolans own
these companies, he argued they deserve the chance to grow
and improve their capabilities.

Projects and Budgets and Bottlenecks
--------------


7. (SBU) Pontes said Huila needs more public investment
projects (PIP) than the GRA can afford. (Note: The GRA's
2007 budget provides USD 94 million for Huila's public
investment projects plus USD 8.1 million for the provincial
hospital. The provincial operating budget is USD 197
million. End note.) The province itself controls only USD
20 million for public works with a USD 500,000 per project
limit, but a new road between Lubango and its airport alone
would cost USD 15 million, Pontes sighed.

Comment
--------------

8.(SBU) Self-congratulation from provincial officials
implies that success is inevitable for Huila's economy. The
darker private sector view, in contrast, describes a business
environment where officials are usually a hindrance and
success elusive. The province is only now restoring
businesses that closed down during Angola's civil war. At
worst, Huila may discover that a long civil war, high
operating costs and over-priced labor have put success out of
reach. While there has been progress on important projects,
Lubango got its gymnasium on a rush basis, while the
railroad, lynchpin of economic regeneration, languishes.
Huila needs to implement -- not just plan -- physical and
governmental improvements that will attract the broader range
of new businesses it needs for economic growth.
FERNANDEZ