For decades, the Angolan economy has been completely dominated by the country’s hydrocarbons sector. The Organisation of Petroleum Exporting Countries reports that oil accounts for 50% of the south-west African country’s gross domestic product (GDP) and 90% of its exports. Angola’s first oilfield (Benfica, in the Kwanza basin) started producing in 1955. (The Central Intelligence Agency’s ‘World Factbook 2013’ estimated Angolan GDP last year as $130.4-billion in purchasing power parity terms and $118.7-billion in official exchange rate terms.)

This dominance of oil is in large part a legacy of decades of war – independence war, civil war and border war. Between them, these conflicts devastated or severely curtailed all other major sectors of the Angolan economy. Oil was the exception because it was largely offshore and isolated from, and so immune to, the wars, which involved very little maritime activity.

With the end of conflict in 2002, national reconstruction was started and has made good progress. For example, the Benguela railway is now operational again to its last station in Angola before the border with the Democratic Republic of Congo (DRC). The first train to that station, Luau, in 29 years, reached it in the middle of last month. Now, all that remains to be done is to re-establish the cross-border link with the DRC railways. The reconstruction of the 1 300-km-long Benguela railway has so far cost some $2-billion.

Now the government wants to rebalance the Angolan economy – diversify it away from its overwhelming dependence on hydrocarbons. In part, this is to end the situation in which the country’s economy is highly vulnerable to the price fluctuations of a single commodity. “The price of oil is a big threat so we need to diversify the economy to mitigate this,” observed National Bank of Angola vice- governor Antonio Andre Lopes last month.

But it is also to accelerate and broaden the country’s socioeconomic development. In a presentation in May, Angolan Geology and Mines Minister Francisco Queiróz informed the Japan Sustainable Mining, Investment and Technology Business Forum in Tokyo that his government’s vision was to “[t]ransform the mining sector into a major contri- butor to the State national budget and a major source of employment, with a direct impact on improving the living conditions of the Angolan people.” He summarised his country’s strategic objectives as being to diversify mineral production, increase State revenues, reduce poverty and improve the living con-ditions of the people through the creation of jobs as well as through social investments in the mining districts.

Mineral riches

Currently, by far the most important non- hydrocarbon minerals produced by Angola are diamonds. Diamonds account for 5% of Angola’s gross domestic product (GDP), and the country is Africa’s number two diamond producer in quantity, after Botswana, and is, in value terms, the world’s number five producer. The US Geological Survey (USGS) reports that some 90% of Angolan diamonds are of gem quality and only about 10% are of industrial quality. In 2009, Angolan diamond production amounted to 11% of global production by volume and 13% by value.

The State-owned diamond miner, Empresa Nacional de Diamantes de Angola (Endiama), has reported that Angolan diamond output last year came to 8.3-million carats, the same as in 2011. The company expects national production this year to be at the same level as in 2011 and 2012, although it could be higher. The Kimberley Process group estimated the country’s 2012 diamond production as being worth $1.16-billion.

Currently, the country’s biggest diamond producer is Catoca Mining, whose share- holders are Endiama, which holds 32.8%, and Russian diamond group Alrosa, which also has 32.8%, while China-domiciled LLI Holdings owns 18% and Brazilian conglomerate Odebrecht has 16.4%. Catoca accounts for 87% of Angola’s diamond output and its production in 2012 was 4% higher than expected and 29% greater than in 2011. It has been investing in increasing the availability of equipment used for both prospecting and production. It is also improving the productivity of its workforce. Catoca has also made progress in developing its Luemba project and its new concessions at Gango, Gambo, Luangue, Luexe, Quitubia, Tchiafua and Vulege. Russian bank VTB Africa is reported to be willing to finance the Phase II expansion of Catoca to the tune of $207-million.

In June, at the international conference in Luanda marking the 100th anniversary of the first discovery of diamonds in Angola, Queiróz affirmed that the country had enormous diamondiferous potential that had still to be located and quantified. He reported that, of more than a thousand kimberlite pipes that had been identified, currently only three were being explored.

Endiama recently signed a joint development agreement with Russian diamond miner Alrosa. This covers prospecting for, and exploration in, diamoniferous areas in the African country. “In the past two years, we carried out geological studies in Angola and concluded that just 10% of the alluvial diamonds we examined were from known kimberlites,” said Endiama president Carlos Sumbula. Because of this, the Angolan company decided to start a second phase of studies and undertake prospecting across the national territory in order to locate the majority of the kimberlite pipes that have not yet been discovered.

Also speaking at the joint development agreement signing ceremony, Alrosa president Fedor Andeev again referred to the geological studies that had been carried out and highlighted that they indicated that Angola’s diamond potential could be around a billion carats. The two companies will each have a 50% share in the joint programme, which will be developed over the next two years.

The Angolan government wants to see the country’s diamond production increase by up to 5% a year, as well as local polishing of the stones increasing and the creation of a jewellery industry. This growth target is seen as achievable – indeed, there are indications that it will be reached this year – and as increasing the national income and boosting development, but not being sufficiently large to undermine diamond prices. Luanda is also seeking, over the medium term, to reorganise current artisanal output into semi-industrial production.

A number of other diamond miners are active in Angola, usually in partnership with Endiama, which does not insist on majority ownership nor on management and operational control of the joint venture. Apart from Catoca, another example is the Lulo project, a partnership between Australian junior Lucapa Diamond Company and Endiama, which is managed and operated by the Australian enterprise.

All diamonds mined in Angola must be sold through Endiama subsidiary company Sociedade de Comercialização de Angola (Sodiam). The government continues to see Endiama and Sodiam as having fundamental roles in the sustainable development of the diamond sector – not least in terms of collecting and processing company and commercial information.

Apart from diamonds, the only other minerals currently produced in Angola are cement, granite, gypsum, marble and salt. The USGS estimated the country’s 2011 production figures at 50 000 m3 for granite, 100 m3 for marble and 40 000 t for salt.

Cement is produced by a number of companies but not in sufficient quantities to meet national needs – the USGS estimated Angolan hydraulic cement production in 2011 at 1.5-million tons, with clinker cement production amounting to 500 000 t. Production is expanding and new plants are being built, and the government hopes that the country will achieve self-sufficiency by 2017.

Gypsum production in Angola started in 2009, by Fábrica de Gesso do Sumbe. Other companies are interested in the mineral. For example, Aurum Exploration Services, of Ireland, has been exploring for high-quality gypsum deposits in Angola since 2010. This activity is being carried out on behalf of a consortium of two Angolan companies and one German company.
The USGS has estimated Angola’s gypsum output in 2011 at 200 000 t.

There is also huge potential beyond this limited array of minerals. The USGS states that Angola’s undeveloped mineral resources include beryllium, clay, copper, gold, iron ore, lead, lignite, manganese, mica, nickel, peat, phosphates, quartz, silver, tungsten, uranium, vanadium, wolfram and zinc.

In his presentation at the Business Forum in Tokyo, Queiróz noted that there were 72 mineral projects in his country that were looking for investors. These comprised 18 gold projects, 18 base metal projects, eight copper projects, six barite projects, six semiprecious stones projects, six iron projects, two sodalite projects, two platinum projects, one nickel project, one magnesium project, one molybdenum project, one mica project, one apatite/fluorite project and one rock salt project.

Legislation and Facilitation

The first major step that the government took to encourage the development of the mining sector in Angola was the passing of a new mining code (Law No 31/11) in September 2011, which came into force at the end of that year and which covers all mining (but not hydrocarbons) activities. The new code reaffirms State ownership of all mineral resources, and divides these resources into strategic and ordinary minerals. The strategic minerals are diamonds, gold and radioactive materials (although the Council of Ministers – the country’s Cabinet – can redefine other minerals as strategic).

Under previous legislation, the State had majority ownership of mining projects; this is no longer the case. Now, instead, State-owned companies will have a minimum 10% participation in a project or will have a share of the mineral production from the mining operation.

Mining companies must adhere to all applicable environmental legislation. They are also required to consult with the local communities in the mining area regarding the development of the mine and its impact on those communities. Miners must furthermore prioritise the employment of Angolans living in the mining concession area and ensure they are properly trained. Goods and services should be obtained from local suppliers, unless their prices are 10% or more above alternative sources and/or they cannot deliver within eight working days, provided they meet the necessary quality requirements.

Previously, a prospective miner had to obtain two separate titles for prospecting and exploration; these activities are now covered by one concession, known simply as the prospecting title. This is valid for seven years, but, at the end of five years, the concession- holder must relinquish 50% of the concession area, or pay a surface tax of $105/km2. Actual mining requires a production title, which will be automatically granted to a holder of a prospecting title provided that no law or contract has been broken and that a business and technical plan, environmental impact assessment and a production plan have been submitted. Production titles are valid for 35 years, including the prospecting period, but, with Ministerial approval, ten-year extensions can be granted. There are also mining licences for the mining and quarrying of minerals used by the construction industry, and mining passes for artisanal mining activities.

Mining corporate income tax is 25% (previously, it was 35%), investment income tax is 10% on distributed dividends and 15% on interest payments, and royalties are set at 5%.
Designated equipment, imported exclusively for use in mining operations, is exempt from customs duties.

“The new law is very clear with lots of security for investors, which gives them certainty, transparency and guaranteed mining rights,” affirmed Queiróz in early April. “It has flexibility for companies to join with partners, based on negotiation with government, not imposition, which is a break from the past.”

The new mining code is complemented by a new private investment law (Law No 20/11), also passed in 2011. This applies to investments (local or foreign) worth more than $1-million. (However, it does not apply to the hydro- carbons or diamond sectors.) Among other things, it allows, with regard to foreign investments, the repatriation of dividends and other forms of profit distribution, liquidation proceeds, debts, indemnities resulting from any expropriation and royalties (after taxes and in accordance with Angolan foreign exchange laws). Investors can also apply for benefits and incentives such as tax deductions, tax exemptions, extension of tax deadlines, accelerated amortisation and depreciation and tax credits.

In Tokyo, in May, he also noted that govern- ment was improving the transparency of the licensing and registration process as well as reorganising and improving licensing and improving the georeferencing of exploration and mining activities. Further, government was creating a financing and development agency to support the creation of local mining enterprises.

Another key element in Luanda’s programme to stimulate mining is the development of the National Geology Plan by the Geological Institute of Angola. This plan incorporates policies regarding the identi- fication, evaluation and quantification of minerals discovered in the country. An inter-national open tender will be issued for the implementation of the plan, which will allow the institute to develop a basic geological map of the country, making it easier to identify prospective areas and to award concessions.

This plan is being accompanied by initiatives to strengthen the capacity of the Institute. The Japan International Cooperation Agency is providing training for personnel of the institute in a two-year (2012/13) programme. Separately, Algeria has agreed to provide training in geology and mining to Angolans. In addition, a new head office and laboratory complex for the Geological Institute is being built in Kilamba, Luanda, by Chinese company Citic Construction.

“Why invest in Angola?” queried Queiróz rhetorically in his presentation at the Tokyo forum in May. “Angola remains one of the least explored countries in Africa in terms of mining; the territory of Angola represents attractive geological and mining resources; the government of Angola has been develop- ing actions to increase knowledge of the geological potential of the country and mobilise the flow of investments to the national mining industry; the country offers political, economic and social stability; the country has both an attractive mining code and a law of private investment.”