C O N F I D E N T I A L SECTION 01 OF 02 LUANDA 000249

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/28/2013
TAGS: ECON PGOV EFIN AO
SUBJECT: VIGNETTES FROM STAFFDEL PHELAN'S MEETINGS IN LUANDA

REF: LUANDA 231

Classified By: Ambassador Dan Mozena for Reasons 1.5 (b&d).


1. (C) Summary: StaffDel Phelan's March 18-22 visit to Angola
provided an opportunity to engage with a wide range of
Angolan leaders on issues of importance to our bilateral
relationship. Although the overall theme of the visit focused
on investment climate, transparency, and Angola's request for
high-level engagement with the USG reftel). Post hopes the
following gleanings from some of the more memorable meetings
will add to a broader understanding of Angola. End Summary.

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(C) ANIP - World Bank Index Not Important
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2. (C) StaffDel Phelan met with Ari Carvalho, Director of the
National Private Investment Agency (ANIP) to discuss Angola's
investment climate. Carvalho said ANIP reports directly to
President Dos Santos, who charged the organization with a
mandate to diversify the economy. Carvalho said ANIP manages
incentive packages for priority sectors, including
construction, industry, agriculture, ports, transportation,
water, and energy. While early projects have had problems
with quality (Note: likely a reference to widely publicized
issues related to Chinese infrastructure projects), Carvalho
said the overall effect of the work has significantly
improved the country's economic infrastructure.


3. (C) Responding to a question on bureaucratic red tape,
Carvalho told the StaffDel ANIP is not concerned with
Angola's poor showing in the World Bank's 2008 Doing Business
Index (ranked 167 out of 178 countries in the ease of
starting a business). He said the companies Angola is
currently attracting are less concerned with government
efficiency than with return on investment (ROI). He said it
would take too long to address Angola's complicated
investment climate, and that ANIP in the short to medium term
is looking to attract those investors who are able to compete
in the current environment and in pursuit of large returns.
Carvalho said Chinese companies are performing well in Angola
because they are patient and understand tha

t some business is
conducted "under the table." Carvalho added that, "as the
country grows, bribes will go away."

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Minister of Industry Talks About Corruption
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4. (C) When asked about corruption in Angola, Joaquim David,
the Minister of Industry, leaned forward and told the
StaffDel he would talk about the issue, but that he wouldn't
be able to tell them all that he knew about such a sensitive
topic. As a former senior executive at SonAngol, David said
he learned how crude oil was traded by government workers who
became rich as a result. When the Central Bank defaulted on
its loans, David (who was also a former finance minister)
said the international community asked that debt service be
paid by oil deliveries. David said the Portuguese colonial
legacy did not transfer capacity in financial accounting
practices, and as a result he said a perception was created
that there were "leaks" in the financial transfer system and
that SonAngol "did things it shouldn't do." David said now
the Ministry of Finance and the Central Bank don't need the
oil sector to pay debt service directly. He added that the
transparency of debt is now clearer and that auditing is
stronger, as demanded by international investors. He told
the StaffDel that he couldn't say that the problem is over,
"it's not," he added for emphasis, but Angola is heading in
the right direction. When asked about the Extractive
Industries Transparency Initiative (EITI), Minister David
said he was unfamiliar with the program.

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National Treasury Director Very Impressive
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5. (C) Dr. Armando Manuel, the National Treasury Director in
the Ministry of Finance give the StaffDel an impressive
presentation of his department's continuing efforts to
promote transparency in off budget transactions. According
to Manuel, beginning in 2003, Angola began searching for a
system to improve the transparent interchange between fiscal
and monetary policy. Helped by SonAngol, the Ministry
created an information system to administer adjustments to
the national budget. Manuel explained that unexecuted budget
lines and oil receipts in excess of the declared reference
price (56 dollars per barrel in 2008) are held for the
government in the Central Bank. As requests come in from the
Council of Ministers or the Parliament to spend the money on

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items outside the annual budget process, continued Manuel,
strict controls are maintained to ensure proper disbursement
of the funds and appropriate accountability. Manuel, a 1995
graduate of Agostinho Neto University, spoke English well and
appeared sincere in his desire to open the flow of receipts
from Angola's energy sector to a more transparent review. He
regretted, for example, that the Ministry of Finance's
information system was not yet integrated with its
corresponding module from SonAngol.

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Minister of Finance Addresses a Wide Range of Topics
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6. (C) Dr. Pedro De Morais, Minister of Finance spoke frankly
on a wide range of issues raised by the StaffDel. He
acknowledged Angola has not been successful with the
privatization of state-run assets, adding that the business
climate was not conducive and the time not right. De Morais
said economic diversification is a priority for the
government, as the non-traditional sectors offer more jobs,
thus enabling more Angolans to benefit from the nation's
wealth. He applauded Angola's relationship with U.S.
companies for their contribution to the Angolanization of
workers and management. He said that although there are
still too many expatriates working four or five years on new
projects in Angola, the country's economy depends on the
transfer of skills and technologies to local partners.


7. (C) Turning to economic diversification, De Morais said no
one will come to invest if the business climate is not
welcoming. He said Angola is taking important steps to
improve transparency and open its economy to trade relations,
and that the market will sanction its actions with increased
investor confidence. Responding to a question from the
StaffDel, De Morais said the GRA is allocating USD 500
million per year into a "rainy day" National Development
Fund, to promote economic diversification.


8. (C) On the margins of the meeting with the StaffDel, De
Morais commented that serious discussions are underway
between the Ministry of Finance and the Central Bank
regarding a revaluation of the Kwanza against the dollar.
DeMorais said he is fighting the move, but that the Central
Bank is arguing for a further appreciation of the currency
due to the world-wide weakness of the dollar and to sop up
excess foreign exchange inflows.


9. (U) StaffDel Phelan did not have the opportunity to clear
this message.
MOZENA