Everything seems to conspire to prevent all but the most adventurous and patient of investors from entering Angola. A room at the ‘four star’ Tropico hotel, a 1970s’ block in downtown Luanda, will set you back $500 a night. Once checked in expect to pay $10 for a two-litre bottle of drinking water, $6 for a beer and $20 for a sandwich. It’s not surprising that the capital Luanda is now one of the most expensive cities in the world. Working in Angola requires not only deep pockets but also patience and preferably a bit of Portuguese. Yet investors and their lawyers remain unperturbed, lured into oil-rich Angola by double-digit growth rates and growing investment opportunities.
Angola is a country of paradoxes, a stark contrast of boom town and abject poverty. Executives at the country’s national oil company Sonangol will travel to Lisbon to meet its lawyers because working in and travelling to Angola is so difficult. Despite the difficulties, with real GDP growth rates of 21% and 13% in 2007 and 2008 respectively, and major mandates on offer, international law firms are finding there is work to do in the country. Oil is at the heart of this growth, with revenues from the sector accounting for a massive 85% of the country’s GDP. Having overtaken Saudi Arabia and Iran to become China’s biggest oil supplier, Angola is also benefiting from a stream of multi-billion-dollar Chinese investments. Among them money from China has been paved into the reconstruction of the Benguela railway, much of which was destroyed in the recent civil war.
Despite the growing influence of Chinese money, it is Portuguese law firms that have the obvious advantage when it comes to doing business in the country. The relationship with Portugal is long-standing; Angolan colonisation by the Portuguese happened more than 500 years ago and only came to an end in 1975. As a result ties between the two countries run deep and a number of Portuguese practices have set up alliances in the country and a host of leading Lisbon-based firms like Miranda Correia Amendoeira & Associados, Abreu Advogados, Morais Leitão, Galvão Teles, Soares da Silva & Associados and PLMJ are all active in the country.
A number of US and UK firms, including Dewey & LeBoeuf, Shearman & Sterling, Mayer Brown, White & Case, Vinson & Elkins, Herbert Smith and Norton Rose, have picked up mandates in the country in the past few years.
‘Multi-billion-dollar deals are making Angola more attractive,’ says Vinson & Elkins London projects and energy partner Alex Msimang, who has worked on several large Angolan deals. ‘A few years ago, it was just specialist oil and gas companies in Angola doing small exploration deals. Now there are significant discoveries and there are real multi-billion-dollar upstream, deep water offshore projects that need investment. There is high-value finance and assets changing hands. All of a sudden Angola is on people’s maps,’ he adds.
Paying the price
Angola is a strangely pricey place to do business. It is now rated as the second most expensive place in the world for ex-pats to live, lagging just behind Tokyo, according to consultancy ECA International. Indeed oil companies are rumoured to budget around $30,000 a month to keep an ex-pat in Angola.
The cause is simple: supply and demand – Angola is flooded with ex-pats, yet has very little of anything that foreigners want. The country’s infrastructure, from roads to hotels, is in tatters, while consumer goods, from bottled water to generators, are all imported.
Accommodation is in particularly short supply: Luanda is now a city of five million that was built for just 500,000. A room at a ‘four star’ hotel, will set you back $500 a night. But rooms book up months in advance and guests have been known to be turfed out for higher paying (or better connected) newcomers. ‘I’ve been going to Luanda for 20 years,’ says Rui Amendoeira of Miranda. ‘Even for me it’s still hard to find a room in a local hotel, they are always overbooked,’ he adds.
More permanent accommodation is not much better: the monthly rent for a flat can be anything from $6,000 to $10,000 per month. Power and water can be cut off for days without notice so your own generator is a necessity. Keeping a family in the country only adds to the expense – sending a four-year-old child to the English-speaking ESCOLA school costs around $17,000 a term.
Communications are fairly reliable by African standards, but Wi-Fi and blackberry coverage are still patchy. Food is expensive and imported, so you can expect to spend $4 on a loaf of bread and $75 eating at a hotel restaurant buffet.
Getting around is also a struggle. There is little public transport in Luanda, save for a few local minibuses, and roads are frequently gridlocked. A rented car and a driver are considered a must, again costing up to $500 a day. ‘One time I was staying at a conference centre that was 10km south of Luanda. If I left at five in the morning, I’d get there in 20 minutes. If I left an hour later, the same journey would take two and a half hours,’ says Dewey & LeBoeuf partner Thomas Moore.
All of that means that many international investors and even the national oil company, Sonangol, will often meet in Europe, usually Lisbon, to hammer out the details of Angolan projects.
Boom time
It has been an extraordinary transformation. After 27 years of civil war which ended just eight years ago the country was a wreck. High international oil prices have driven growth and economic recovery in the past few years. Even though oil prices fell below $50 a barrel last year from a 2008 high of over $100 a barrel GDP largely remained static in 2009, but growth is expected to bounce back to around 7% this year.
At Miranda, which was one of the first overseas firms to actively target work in Angola, managing partner Rui Amendoeira believes Angola is in the midst of fundamental change. ‘There is no comparison between Angola today and 20 years ago,’ he says. ‘Back then the country was in the middle of a civil war. There were no roads and bridges, you had to fly between cities and there was no foreign investment except for in oil and gas. The Luanda skyline is very different now,’ he adds.
During the decades of strife, the oil kept pumping but most of the revenues were siphoned off to buy weapons for government and rebel troops. Many remnants of the conflict remain: landmines still litter the countryside and large parts of the country’s infrastructure remain crippled. But much of the oil money is now being channelled into rebuilding projects and Angola is in the grip of a post-war reconstruction boom.
‘Frankly fees are one of the reasons that the Brits and Americans haven’t made greater inroads into Angola.’
Thomas Moore, Dewey & LeBoeuf
‘There are people in poverty, slums everywhere. The first impression is what kind of country is this?’ says Assunção Cristas, a consultant with Portuguese firm Morais Leitão, who works mainly on Angolan matters. ‘But stay a little while and you can see things happening. Every three months I go back, I can see the changes to the city,’ she adds.
Building sites litter Luanda – a reflection of the city’s growing prosperity and the growing investment in infrastructure projects with roads, railways, ports, shopping centres and hospitals all under construction. A part of the Benguela railway, which was originally built in the early 20th century and links the Atlantic port of Lobito to the eastern border town of Luau, has recently reopened. For 30 years the line was paralysed by landmines and broken tracks, but Chinese money funded the reconstruction of 48 bridges and miles of war-damaged tracks.
Portugal’s gain
Portuguese firms have made inroads advising on much of this reconstruction work. ‘Most of the work in the initial years was oil and gas but over time we diversified into other areas and today it’s a bit of everything. Banking, finance, shipping, aviation, you name it,’ says Amendoeira.
That’s echoed at other Portuguese firms. ‘Angola now is not only oil orientated,’ says Sónia Teixeira Da Mota, of Lisbon-based PLMJ. ‘There has been a dramatic change in our work in the past three years. We are assisting clients in diverse areas of law – agriculture, projects, banking and finance,’ she adds.
The focus on reconstruction work has meant that many firms now have alliances with local firms. PLMJ, for instance, has eight lawyers working for its local tie-up, Gabinete Legal Angola, while fellow Lisbon-based firm Abreu Advogados has had links to local firm FBL Advogados since 2004 and now has eight fee-earners.
Local Bar rules mean that to practise domestic law, lawyers must be registered with the local Bar and be Angolan nationals. For the firms which choose to form an alliance it can be a real challenge to find well-qualified bilingual lawyers in a country that has had little education system to speak of for much of its history.
‘There is no comparison between Angola today and 20 years ago. The Luanda skyline is very different now.’
Rui Amendoeira, Miranda
‘My experience is that Angola has fewer lawyers than it needs,’ says Octávio Castelo Paulo of SRS Advogados, a Portuguese practice and former ally of Simmons & Simmons, which has a tie-up with a 20-strong Angolan firm, LCF Legal. Many lawyers are part-time, also working for companies or the government. So the challenge is finding full-time local lawyers who are able to speak and write English.
Miranda has a tie-up with Fátima Freitas Advogados which has three offices across the country and 28 local fee-earners. The Portuguese firm started working in the country in the late 1980s, servicing a handful of international oil clients, such as Chevron. It has been one of the most aggressive overseas firms in growing its business across southern and West Africa, establishing offices or alliances with local practices in seven African countries including a total of more than 170 lawyers.
In many ways it’s an obvious move for Portuguese firms to expand in Angola and seek local alliances. The crisis in the Portuguese economy, with firms struggling to grow at home, makes international expansion increasingly attractive and lusophone markets an obvious step. Angola may not hold the same appeal as Brazil’s booming economy but the latter is a difficult, much more competitive market to crack, making Angola a logical move. Couple that with the fact that Angola and Portugal share the same official language, have similar cultures and a virtually identical legal system, and it is little surprise that Portuguese law firms have made the greatest inroads.
Funny business
In Angola they use a Portuguese euphemism for ‘bribe’. They say you pay a little extra so a person can have a ‘gasosa’ or drink, but the scale of bribery could buy more than just a few Coca-Colas.
From 1997 to 2002 a phenomenal $4.2bn ‘disappeared’ from government coffers, skimmed into the pockets of local officials and crooked traders. As a report by Human Rights Watch in April this year said: ‘The scale of corruption and mismanagement in Angola has been immense. While Angola’s development indicators remained among the worst in the world, billions of dollars in oil revenues illegally bypassed Angola’s central bank and disappeared without explanation.’
Things have improved since the civil war ended eight years ago, but Angola is still gripped by bribery, corruption and petty bureaucracy. Investors and lawyers are up-beat that Angola is cleaning up its act but the country still languishes near the bottom of Transparency International’s corruption perceptions index at 162nd out of 180.
Lawyers working in Angola insist that it’s possible to do business without paying bribes, as Sónia Teixeira da Mota of PLMJ explains: ‘I think things have changed in the last two years. The bureaucratic processes are changing and institutions are becoming more efficient. Things are really improving.’
But it’s clear that without gasosas to oil the wheels, work often takes longer, is greeted with greater grumbling or simply gets bogged down in red tape.
Oil and gas contracts are a particularly sensitive area: international companies are often required to farm out a certain amount of work to local contractors. As Thomas Moore of Dewey & LeBoeuf explains, ‘In every major oil contract there are local contract requirements. How do you choose the local contractors? You have to wonder if they are capable of doing the work or if they are just a conduit for the government.’
With pressure from the International Monetary Fund, Angolan president José Eduardo Dos Santos (who is now entering his fourth decade in power) has instituted some rather basic controls to curb corruption. These include publishing accounts of oil revenues; tracking government expenditure; auditing the powerful state-owned oil company, Sonangol; and publicly condemning government corruption.
The government’s reforms may be a step in the right direction, but without greater change to stamp out gasosas, Angola may yet squander its immense natural wealth.
An energised economy
Yet while Portuguese firms may have moved away from just serving oil and gas clients, US and UK firms are still firmly focused on the petrodollar, mainly acting for international oil and gas investors and the secretive state oil company Sonangol.
Sonangol, which last year reported a net profit of $2.4bn, holds a unique position in Angola. It was one of the few institutions that continued to function throughout the civil war, working with international oil companies like Chevron to develop Angola’s oil resources. It is now charged with managing over nine billion barrels of deep water offshore oil reserves. Yet the company is notoriously opaque, part-owned by the state and partly funded by private investors. Some commentators argue that the company is effectively an informal sovereign wealth fund, reinvesting oil money in domestic and overseas projects.
The biggest foreign investment in Angola to date is the $7bn Angola LNG project which is slated for completion in 2012. The project will turn gas from Angola’s deep offshore oil and gas fields into liquefied natural gas (LNG), most of which will be shipped to the US. Sonangol entered into a joint venture for the project with four international oil and gas companies: BP, Total, Chevron and Eni.
Perhaps tellingly, it was a Portuguese speaker, Brazilian Alexandre Chequer, formerly of Dallas-based Thompson & Knight and now a name partner at Mayer Brown’s Brazilian ally, Tauil Chequer & Advogados, who picked up the lead role representing Sonangol. The firm negotiated more than 200 contracts with various investors and partners covering gas exploration, gas sales, construction of the plant and associated pipelines, and shareholder agreements and other corporate documents.
‘Multi-billion-dollar deals are making Angola more attractive. Angola is on people’s maps.’
Alex Msimang, Vinson & Elkins
The project has proved to be a gateway to Angola for many firms. ‘Our work in Angola started with the LNG project,’ says Thomas Moore, an energy specialist at Dewey & LeBoeuf in Houston who now regularly travels to Angola. Moore led the team representing the Angola LNG Project consortium in its negotiations with US operators who will purchase the LNG.
Spin-off mandates continue to trickle out. Norton Rose advised the lenders on the financing of four new LNG carriers to ship the gas to Mississippi. Also Shearman & Sterling is advising a consortium led by Sonangol’s subsidiary, Sonagas, on its natural gas exploration work near the LNG plant.
Moore argues that alongside a shared language, the Portuguese have made greater progress in Angola in part because their fees are lower. ‘Frankly fees are one of the reasons that the Brits and Americans haven’t made greater inroads. If you are dealing with a Miranda-type firm, their fees are about half that of ours,’ he adds.
Sonangol has been attempting to diversify its investments further and tap into Angola’s double-digit economic growth. It now owns a stake in Millenium bcp, Portugal’s largest listed bank which has operations in Angola. It also has an indirect stake in Portuguese oil company Galp Energia through holding company Amorim Energia, interests in Brazilian oil company Petrobras and significant investments in LNG operations off the gulf coast of Mexico.
Chinese interest
Angola’s historic colonial ties may be with Portugal but a large part of the country’s future prosperity is now inextricably linked with China. Since 2002 China Eximbank has lent Angola $4.5bn and the China International Fund has provided another $3bn. Much of this has been spent on reconstruction and infrastructure projects, such as the Benguela railway, with the Chinese government reportedly providing $300m to $500m to rebuild the tracks and bridges.
Angola is repaying all of this money in oil, strengthening its position as China’s biggest supplier, ahead of Saudi Arabia and Iran. As a result US and UK law firms are increasingly picking up mandates through their Chinese offices.
‘The Chinese are very active throughout Africa. We are finding that with our position in Shanghai and Beijing we have been able to build close relationships with the key Chinese financial institutions,’ says Nicholas Buckworth, a London-based project finance specialist at Shearman & Sterling.
‘The first impression is what kind of country is this? But stay a little while and you can see things happening.’
Assunção Cristas, Morais Leitão
The flow of Chinese capital into the country favours the larger international practices with China offices but some Portuguese firms are also positioning themselves to pick up Asian investment.
Morais Leitão, for instance, is in the process of allying with a local firm in Macau. ‘We are assuming there will be more work for us from China in the future,’ says Cristas.
Meanwhile in September PLMJ formalised a tie-up with Chinese firm Dacheng Law Offices in addition to a tie-up with a local firm in Macau. Miranda also has an alliance in Macau while Abreu Advogados, which has just opened an office in Mozambique, has been assisting a subsidiary of China National Oil and Gas Exploration in the bid for the acquisition of Angolan oil interests.
Earlier this year Skadden, Arps, Slate, Meagher & Flom’s Hong Kong office represented Chinese oil company Sinopec as US counsel in its $2.5bn acquisition of a stake in a Sonangol subsidiary based in the Cayman Islands. The deal was Sinopec’s first purchase of overseas upstream assets.
The dark side
Angola is an extraordinarily difficult place to do business. It’s bureaucratic, dirty, chaotic and exorbitantly expensive for ex-pats. Luanda is now one of the most expensive cities for ex-pats to live in the world (see box, ‘Paying the price’, page 54) and Angola’s rough reputation, linked to the brutal civil war, persists. Electricity is patchy and corruption is rife, with the country ranked near the bottom of the corruption perceptions index published by Transparency International. As a result many firms are reticent to publicise their activities in the country. One international firm told LB: ‘All the partners are very reluctant to talk about their work in Angola. It’s very sensitive, they don’t want to be seen to be pushing their way in or rocking the boat.’
But seasoned Angolan specialists say that it’s possible to work in the country and keep a clean reputation. ‘We don’t pay bribes to anyone but we still manage to resolve our clients’ problems,’ says Miranda’s Amendoeira. ‘When I speak to people, if they say they were forced to take a bribe it’s because they don’t know how to behave or get things done, or there is a language barrier. You just have to be organised, know the country and know what you are doing,’ he adds.
‘Angola now is not only oil orientated. There has been a dramatic change in our work in the past three years.’
Sónia Teixeira Da Mota, PLMJ
But despite the headaches and the difficulty of doing business in Angola, for many firms, the opportunities outweigh the risks. With major reconstruction projects happening, international investors pouring into the country and multi-billion-dollar mandates up for grabs, what was once one of the world’s least saturated legal markets is undergoing profound change. LB