ANGOLA: OIL BOOM FUELING ECONOMIC GROWTH AND

C O N F I D E N T I A L SECTION 01 OF 02 LUANDA 000621

SIPDIS

SIPDIS

STATE FOR AF AND EB;
JOHANNESBURG AND CAPE TOWN FOR FCS
STATE PASS TO USAID - AFR/SA ELOKEN, IMCNAIRN; AFR/AA WNORTH

E.O. 12958: DECL: 06/21/2016
TAGS: ECON EFIN EPET PGOV OVIP CH AO
SUBJECT: ANGOLA: OIL BOOM FUELING ECONOMIC GROWTH AND
ATTRACTING US INVESTORS

REF: A. LUANDA 250


B. LUANDA 326

C. LUANDA 358

Classified By: Amb. Cynthia Efird for reasons 1.4 (b) and (d)


1. (C) Summary: Deputy Prime Minister Aguinaldo Jaime
described Angola,s efforts to manage its exceptionally high
economic growth to A/S Jendayi Frazer, noting the creation of
a stabilization fund to manage oil price fluctuations on the
budgetary process; programs to increase Central Bank and
Finance Ministry capacity, and the creation of a development
bank to jump start the non-petroleum sector. Frazer and
Jaime discussed the Chinese-Angolan commercial relationship
and potential for trilateral US-Angolan-Chinese cooperation
on a future project. A/S Frazer, in an address to the US
business community in Luanda, stressed the deepening of the
US-Angolan commercial relationship and USG efforts to help
Angola develop its non-petroleum related industries; she
announced a USTDA grant to study hydropower generation and
distribution. End Summary.


2. (C) This cable covers bilateral meetings held in Luanda on
May 31, 2007, between Assistant Secretary Frazer and Deputy
Prime Minister Aguinaldo Jaime, and a business lunch
sponsored by the US-Angola Chamber of Commerce. Political
and defense issues; election-related meetings and visits, and
bilateral assistance, including public-private partnerships,
are reported in septels. Ambassador Frazer was accompanied
by Ambassador Efird and a notetaker for each meeting/event.
Angolan Ambassador to the United States Josefina Pitra
Diakite also attended the meetings, as well as GRA staff.

Using Oil Revenues to Benefit All Angolans
--------------

3. (C) Deputy Prime Minister Aguinaldo Jaime was visibly
upbeat about the strength of the Angolan economy (in 2006, 19
percent real growth overall, 15 percent in the non-petroleum
sector). He described GRA efforts to use its oil wealth
wisely to tackle infrastructure problems and to develop
further the non-mineral economy effectively. For example,
Angola has created a stabilization fund financed by oil
revenues and managed by the National Bank of Angola (BNA) to
provide a cushion should the price of oil fall below USD 50
per barrel. He added that the BNA also has received
technical capacity building assistance from the World Bank
and other institutions, including USAID. Jaime noted the
World Bank recently approved new loans to Angola with terms
of 4 percent interest and 25 years grace period on
repayments. While not soft terms, he noted the terms remain
easier than those of commercial credit. Although Angola
decided this year not to enter into a formal agreement with
the IMF, IMF Article IV consultations and expert help
continue (ref A).


4. (C) To spur non-mineral sector development, the GRA has
established the Angolan Development Bank (BDA) to finance
integrated projects embracing the entire production chain
from the farmer,s field to the store shelves. Jaime
conceded the IMF and the World Bank were concerned about the
terms and inflationary impact of a BDA, fearing the choice of
sectors targeted for development would be influenced by
non-economic considerations. However, he felt that the GRA
was countering the concerns by hiring financial experts in
key management roles of the bank.

The Challenges of Managing the Economy
--------------

5. (C) Jaime also commented that the GRA has improved its
budget process by more accurately forecasting its revenues.
He said the GRA currently faces a challenge in downsizing the
number of people on the government,s payroll, noting that 40
percent of the GRA budget goes for salaries. However, he
expected civil service reform to be slow, with the GRA
reducing the public sector only as more jobs were created in
the private sector, so as not to increase unemployment. The
GRA is also hoping to bring the informal economy into the
mainstream economy. Jaime noted that street vendors, who
form a large part of the non-mineral economy, pay no taxes
and receive almost no government services. The GRA wants to
offer more stability, government services, and reliable basic
services ) water, electricity, drains, roads -- so that
paying taxes and doing business out of a fixed address will
become more appealing to small entrepreneurs.


6. (C) Jaime said that the GRA is trying to regularize its

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complicated accounting for oil revenues. For example,
Sonangol, the national oil company, sells imported fuel to
the GRA below cost and the GRA subsidizes the cost of
gasoline at the pump. He said the GRA is trying to pay
Sonangol directly for the money it loses on fuel sales to the
government and collect the taxes Sonangol owes for oil
production. In response to A/S Frazer,s urging that Angola
join the Extractive Industries Transparency Initiative
(EITI),Jaime said that Angola had already taken all required
steps except for establishing the required joint
governmental-civil society monitoring group. A commission
had been formed and was now studying how such a body would be
constituted under Angolan law.

Expanding Chinese-Angolan Cooperation to include the U.S.
-------------- --------------

7. (C) A/S Frazer told Jaime that she and her Chinese
counterpart agreed to explore cooperation between China and
the United States on an agricultural development project in
Angola (Ref B). Ambassador Efird related her meeting with
China,s Ambassador to Angola Beisan Zhang, in which she
suggested working out concepts for joint projects. She said
that Ambassador Zhang had interest in the prospect of
cooperation and referred the matter to Beijing, where it
remains under consideration. Jaime explained that China
provides the largest single foreign source of financing for
development work and the GRA directs most of that money to
infrastructure projects, especially roads, railroads and
government buildings. While the conditions of the Chinese
line of credit obligate Angola to rely largely on Chinese
contractors, up to thirty percent of the value of each
project must go to Angolan businesses.


8. (C) Assistant Secretary Frazer closed by emphasizing the
U.S. interest in working with the GRA to improve its ability
to manage resources and expenditures. She expressed
disappointment that an agreement with the IMF had not been
reached but encouraged continued IMF and World Bank technical
cooperation. Jaime noted his appreciation for USG
(especially USAID) assistance to the Finance Ministry and the
National Bank of Angola and indicated an interest in
continued cooperation, including the signing of a Trade &
Investment Framework Agreement (TIFA).

Expanding U.S.-Angola Commercial Ties
--------------

9. (C) During a well-attended lunch sponsored by the
U.S.-Angola Chamber of Commerce, Frazer delivered formal
remarks on the deepening US-Angola bilateral relationship,
which encompasses activities such as capacity building on
financial sector reforms, military cooperation and health
programs. A/S Frazer described the continuing American
investment in the petroleum sector and the need to encourage
more U.S. investment in the non-oil sectors of the economy.
She highlighted that Angola could encourage more US
investment by lowering the number of days it takes to
register a company and signing a TIFA. As part of
non-petroleum sector development, A/S Frazer announced a
grant from the United States Trade and Development Agency to
study hydropower generation for two Angolan provincial
municipalities, which could serve as a model for future
energy generation throughout the country. She expressed USG
willingness to continue to work with the GRA to make Angola
more attractive to investors, especially by initialing a TIFA
with Angola. She urged the U.S.-Angola Chamber of Commerce
to continue its work, noting the recent success of Angola
week in the U.S.


10. (C) Comment: Deputy Prime Minister Jaime, as always,
presented the government of Angola,s economic reform efforts
comprehensively and with polish. Even he, however, admits
the great challenges the high economic growth rate poses to
an economic team with little competent backup and weak
follow-through. In this meeting with the Assistant Secretary
and in other meetings GRA officials were uniformly positive
about signing a TIFA. Concrete movement, however, has yet to
catch up with the good will.


11. A/S Frazer has approved this cable
EFIRD