Backed by the Government of Angola, the Fundo Activo de Capital de Risco Angolano (FACRA) is a Venture Capital firm in Africa that offers long-term financial investments to enable Micro, Small and Medium Enterprises and entrepreneurs in Angola to realize their business development potential.
I recently had a chat with Teodoro de Jesus Xavier Poulson, a Member of the Investment Committee of FACRA. Poulson leads FACRA’s overall investment strategy and helps to source investment opportunities in Angola and across the Sub-Saharan African region. He spoke to me about Angola’s economic potential, the business opportunities available in the country, and why investors from all over the world should take notice.
Tell me about the current investment climate in Angola and the wider region. What industries are attracting the most foreign investments?
The Government of Angola is focused on economic diversification and the innovation of new technologies – across the country. Primary non-oil growth sectors in Angola are infrastructure, technology, agriculture, fisheries, hospitality, forestry & timber, mining and minerals. Of these, infrastructure is perhaps the most significant in terms of size and socio-economic impact. Infrastructure requirements surpass those of most countries. At the present time, infrastructure is attracting the lion’s share of FDI. This ranges from business-critical infrastructure such as railways, ports, bridges, roads and buildings (factories, manufacturing plants) to new technologies in utilities and energy.
The government is also making significant investments in schools, universities, hospitals and healthcare clinics right across the country. The hospitality market is also attracting sizeable investments from the public and private sectors and the government is providing tax exemptions and incentives for companies setting up hotels and other hospitality facilities in the country.
Innovation in technology is also a major focus for investors. Angolan’s are young (around 50% are below the age of 20) and they have a huge appetite for technology. Foreign firms that can invest in growing technology businesses in Angola can do well in the consumer technology sector.
Also, technology in business – from engineering to farming or energy (particularly off-the-grid and renewables) is witnessing interest from foreign companies. Organizations that are pioneering new technologies in areas of sustainable energy are of particular interest to many African nations.
What measures has the Angolan government taken to boost FDI?
The government has embarked on a mission to create a more efficient and transparent business environment by introducing various incentives to encourage foreign businesses to set up and invest in the country. To boost investor sentiment, financial sector policies are being modernised that include, amongst others, the introduction of a new foreign exchange currency law for the oil sector and a mining law. This also includes the introduction of the Industrial Profit Tax for a period of between five and ten years for foreign companies producing goods that the local industries do not produce, or are introducing new technologies of importance to the national economy.
These incentives are also available to new industries and to commercial activities that establish themselves in regions considered to be of specific interest for the national economy. Tax exemption is also granted for the acquisition of land and buildings for the installations of new industries or for the improvement of existing industries. A customs tax exemption also exists for imported equipment, goods and raw materials used by an industrial company.
The specific incentives awarded to companies is made on a case-by-case basis. The National Agency for Private Investment (ANIP) considers the social and economic benefits of each foreign company’s investment according to the economic development strategy set by the Government of Angola.
Companies operating in the following industry sectors may be entitled to tax exemptions:
- Agriculture and livestock
- Industry, notably the production of construction materials, manufacture of package equipment, tools and accessories, recycling of iron and non-materials, production of textiles, clothing and footwear, manufacture of wood and wood by-products, production of foodstuff, information technologies and communications
- Telecommunications
- Fishing industry and by-products, including the construction of boats and fishing nets
- Energy and water
- Social housing
- Health and education
- Hospitality and tourism
Do you think the current Angolan investment laws are investor friendly?
At the moment there are certain requirements for investors, such as a minimum investment of $1 million and the need to hire a quota of local workforce. Such requirements are fairly standard for emerging economies, particularly those that have a specific need to build their own knowledge-based workforce. Such policies also exist in fast-growing economies in the Middle East and Asia. In this respect, Angola is certainly competitive in comparison to other emerging markets.
Also government associated financial entities, such as the venture capital fund FACRA, are assisting international companies by helping them to find innovative and growing Angolan businesses to partner with. This means that foreign companies can use FACRA as a gateway to the Angolan market. FACRA will offer long term financial investments to enable these businesses and entrepreneurs to realize their business development potential and spur economic activity in the country.
Additionally, FACRA not only invests in potential businesses but its highly experienced team understands the Angolan marketplace extremely well and advises companies bynavigating them through regulatory requirements and showing them how to move around industry and the supply chain.
What advice would you give to foreign companies looking to set up shop in Angola?
Any international company considering entering Angola or the wider Sub-Saharan Africashould take in to account that the region still has its challenges.
Angola’s language is Portuguese and English is still not widely used. People educated to University level are more likely to speak English but companies should not make an assumption that they can operate in English all the time.
Foreign companies need to bear in mind that whilst Angola has its own sovereign wealth fund and other investment vehicles such as FACRA; it is a proud country that wishes to retain the nation’s wealth for future generations. Companies need to understand that they are there to not only make profits for themselves but to add value to the Angolan economy. Institutions like FACRA wish to work with foreign companies that are keen to remain in the country for the long-term; to create jobs, raise the standard of goods and services and spread wealth through tax returns and paid employees.
What kind of projects does FACRA invest in?
FACRA is keen to explore investment opportunities across all the sectors of the economy, except mining and mineral resource exploration/exploitation. As per the investment guidelines, FACRA will focus on the production of goods and services in Angola, in particular those companies in sectors where imports can be substituted by local joint-ventures with Angolan entrepreneurs for the production of goods and services in Angola.
The Fund invests in early stage MSME companies with high growth potential and existing businesses that are doing well but need capital in order to expand. It shall not invest in seed capital nor in mature companies (considered ‘large companies’). It shall focus on the area of economic development diversification of the economy and support entrepreneurs.
FACRA is especially interested in investing in companies that have the capacity to create qualified employment within an innovative project.
What advice would you offer today to MSMEs and entrepreneurs who are looking to raise capital for a new venture?
Do not be afraid of talking to venture capital companies. Banks can offer loans but they are still fairly reluctant to loan to small and medium sized businesses if they do not have a strong credit history.
A government supported VC Fund like FACRA has much more than profit in mind – its primary motivation is the stimulation of innovation and enterprise; to invest in companies that are able to create employment and help to diversify the economy. FACRA, specifically, provides strategic advice on how to grow a business. The Fund’s consultants are deeply connected to the local market and can provide invaluable assistance, particularly in supply chain management, financial planning or capacity building. FACRA does this without taking a controlling share of the company – FACRA will always take a minority stake. FACRA’s exit strategy will also be flexible and decided on a case-by-case basis.
Broadly speaking, we would advise any young company to bear in mind that their business plan should demonstrate that the company’s leaders know how to turn an idea in to money. That means identifying a real need in the market, developing a product or service that is genuinely new or innovative and showing an ability to make margins.
There is a significant lending gap to young companies. Why do you think banks are reluctant to lend capital to these organizations?
There is a historic reluctance to lend to small or medium sized businesses, particularly those without any credit history or with few assets. This is because the banking industry is incredibly disparate and the region also has a variety of regulatory systems, which change from country to country. Some countries have yet to liberalise their banking sector, with many banks owned by the State. Some countries are however seeing their banking industries mature but for now, it is still difficult for SME’s to attract funding through traditional sources.
How can organizations like yourself fill in this gap?
FACRA is able to provide capital to businesses through a venture capital model, taking a minority share of the business. FACRA is also committed to providing business skills development that can help entrepreneursto achieve success in growing their businesses. These areas of support will range from financial planning to capacity building, talent attraction & retention and growth strategy.
FACRA’s investment will also strengthen an Angolan company’s debt-to-equity ratio – this will allow them to leverage further financing through commercial credits with a lower risk profile – and lower interest rate charges.
FACRA is also able to work with foreign companies, assisting them in entering the Angolan market. Foreign firms can expect to be introduced to the local supply chain and gain an insider’s perspective on how to do business in the country. Most importantly, FACRA can create strategic partnerships between growing Angolan businesses and foreign firms that wish to invest in Angola.
And lastly, what is the outlook for the VC market in the region?
At the present time there are very few VC’s operating in the region and most are international firms with satellite operations. Capital markets are maturing – currencies are more stable, interest rates are increasingly low and stable (particularly in Angola) and inflation in Angola is in single digits and stable. These factors mean that capital markets will undoubtedly improve over the coming years. What we need to see are VCs and investors taking time to invest in projects that are right for Africa, providing capital to African companies that add breadth and depth to the regional marketplace – so that all African’s can participate in the continent’s economic success.
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