A peace dividend is elusive as Angola embraces ‘petro-diamond capitalism’

JOHN REED – The Financial Times

Copyright The Financial Times
AFRICA: With oil companies jostling for concessions, there are concerns that a country regarded as one of the most corrupt is under little pressure to improve governance, writes John Reed
Sonair, the airline of Sonangol, Angola’s state-owned oil company, operates direct flights between Houston and Luanda. Foreign oilmen are whisked from the airport to pink villas in fenced compounds or via helicopter directly to the rigs floating in the country’s prolific deep-water fields. Angola, already sub-Saharan Africa’s second-largest oil producer after Nigeria, is also one of the world’s fastest-growing, pumping 1.3m barrels a day. Riggers compareit in significance to the North Sea atits peak.
While “offshore Angola” is prized for its isolation from the onshore conflict afflicting Nigeria or the Middle East, conditions in much of the country are dire. A large portion of Luanda’s population inhabit hovels pieced together from cement and tin, red earthen bricks or cast-off materials such as car panels. Apartment blocks in the jammed city centre have seen few renovations since independence in 1975. One high-rise denuded of its facade is nicknamed “Chechnya”.
“Angola is very rich – we have oil, we have diamonds,” says Manuel Andre Muhongo, who lives with his family of five in a tent in Luanda’s poor Kilamba Kiaxi quarter. Echoing a view often heard in the city, he adds: “But everything is for the people who govern.”
Angola on Friday marked the 30th anniversary of its independence. The milestone evokes mixed feelings among Angolans, whose country began slipping into a brutal and long war just as they broke free of Portuguese colonial rule. At various times, the warring sides were supported by the US and the Soviet Union and their proxies, South Africa and Cuba. By the time the conflict ended in 2002 with the assassination of Jonas Savimbi, leader of the Unita rebel movement, at least half a million people had died, 4m were displaced and much of Angola’s infrastructure was destroyed.
The country is now the site of a global struggle of a different kind. The oil majors are jostling for lucrative concessions as they seek new sources of oil outside the Middle East. Sonangol is due to launch a fresh round of bidding for deep-water blocks next month.
The US looms large in Angola, with an imposing new embassy in Luanda’s exclusive Miramar district and multibillion-dollar investments by Chevron and ExxonMobil. The US imports more than half Angola’s oil production, which last year accounted for 7 per cent of its non-Opec oil and 4 per cent of total imports. China’s Sinopec is also prospecting for oil offshore and Beijing is underwriting and supervising the reconstruction of two railway lines ruined during the war (see below).
As Angola’s oil wealth burgeons, human-rights campaigners are focusing increased attention on the country. Extrapolating from International Monetary Fund data, Global Witness, aLondon-based non-governmental group whose sponsors include George Soros, the billionaire investor and philanthropist, estimate that between 1997 and 2001 Dollars 8.45bn (Euros 7.21bn) of public money, an average of 23 per cent of Angola’s gross domestic product, was unaccounted for. Transparency International recently listed the country as one the world’s ten most corrupt, alongside Tajikistan and Cote d’Ivoire, on its Corruption Perceptions Index.
Cabinda, the northern oil-producing enclave, has been plagued by alleged human-rights abuses against civilians believed to support a long-running independence movement. The US State Department, in its report on Angola last year, pointed to “serious problems” in the country’s human-rights record, including unlawful killings, torture and arbitrary arrest and detention.
President Jose Eduardo dos Santos, whose party, the Popular Movement for the Liberation of Angola (MPLA), held Luanda and controlled the oil industry during the war, has not stood for election since 1992. A list of Angola’s richest men compiled by Semanario Angolense, an independent newspaper, in 2003 named him as the country’s richest man. His daughter Isabel also has extensive business interests, including in diamonds.
Support from the US and other oil-consuming countries helped the MPLA make a smooth transition, in the words of Tony Hodges, a British expert on Angola, “from Afro-Stalinism to petro-diamond capitalism”. With the war now more than three years over, some Angolans want their leaders to move on to a footing of good democratic governance. “Peace is more than the absence of war,” says Carlos Leitao of Padepa, an opposition party that hopes to challenge the MPLA if it makes good on a promise to hold parliamentary elections in 2006. “We are in a situation of oppression.”
Accusations of corruption have dogged other oil producers around the Gulf of Guinea, including Nigeria, Equatorial Guinea, Gabon, and Congo Brazzaville. Yet Angola is seen, almost uniquely among African countries, as a potentially rich and viable economy with prospects beyond oil. With a population of 13m inhabiting a territory bigger than South Africa’s, the country has vast tracts of fertile farmland in addition to its large oil and diamond deposits. Its wartime isolation means that it has southern Africa’s lowest prevalence rate for HIV/Aids, a drag on development across the continent.
“The reason there’s so much focus on Angola is that there’s so much money they don’t need to have this poverty,” says Robert Bulten, Angolan country director for Care, the charity. A senior western diplomat says: “This is a country that could really make it, and there are not a lot of countries in Africa that could say that.”
Diplomats and aid agencies point to some signs that Angola’s situation is stabilising. Since 2002, most of the country’s refugees have returned. Unita has transformed itself into a political party represented alongside the MPLA in a government of national unity. The government has undertaken some reconstruction of war-damaged infrastructure. State spending on education, health and other public services – low even by African standards during the war – has increased markedly since 2000, according to official figures.
Yet the majority of Angola’s population remains desperately poor, living on less than Dollars 2 a day. The UN’s Human Development Index, which measures such indicators as life expectancy and infant mortality, ranks the country 160th out of 177 worldwide. A recent UN-led survey of the Planalto, the richest agricultural region before the war, found that about 60 per cent of people were chronically malnourished.
In several years of talks, Angola has failed to secure an agreement with the International Monetary Fund, normally the first step for a developing country seeking international financial respectability. The body’s misgivings about the country’s management of and accounting for its resource wealth remain a big obstacle. In July, after its latest talks with the Angolan government, the IMF praised “important improvements” made over the last two years in Angola’s fiscal accounts and the transparency of oil transactions.
However, the fund criticised “continuing conflicts of interest” at Sonangol and Endiama, the state diamond company, which act as both regulators and participants in their respective sectors. Sonangol, which some analysts describe as a parallel government, does not publish its accounts. Nor does the government produce accounts to justify its own expenditure, Global Witness points out. Similar accusations are made about Endiama.
It is precisely Angola’s oil wealth that makes the country a special case for foreign actors seeking to influence government’s behaviour. Like oil-rich Nigeria, Angola’s GDP per head has risen to the point where it no longer qualifies for concessional lending from the IMF. Where the Fund has hesitated to sign agreements with Angola, foreign banks and countries have been happy to lend it billions of dollars. According to the IMF, in 2003-4 the government raised Dollars 3.4bn from commercial banks in oil-backed loans and over Dollars 500m drawn from bilateral oil-backed credit lines. Last month Sonangol raised a syndicated Dollars 2bn loan led by France’s Calyon and collateralised by a long-term agreement to supply oil to the trading arm of China’s Sinopec.
Because of the limitations of traditional IMF and World Bank conditionality in Angola, anti-corruption campaigners have trained much of their attention on the oil companies. Chevron alone plans to invest Dollars 5bn in the country over the next five years, according to a company spokesman. This is separate from the company’s portion of a Dollars 5bn shared investment by the oil majors in a new liquefied natural gas project.
Global Witness has been a leading supporter of a campaign aimed at prodding oil companies and governments to divulge the massive “signing bonuses” paid when deals are concluded. The effort bore some fruit last year when Chevron extended its concession on Cabinda’s Block Zero by 30 years at a Washington ceremony attended by Mr dos Santos. His government made public a Dollars 280m signing bonus, which included a Dollars 80m “social bonus” spent on development programmes in Cabinda and elsewhere.
Global Witness remains unimpressed: “It’s good that Chevron published their bonus last year, but there is no consistent practice by oil companies in doing that,” says Ms Wykes. Others criticise the companies for being too timid in their community involvement for fear of antagonising Angola’s leaders. “The government has played a very tough game with the oil companies,” says Care’s Mr Bulten. “They have them in their pocket.”
Luanda has shown itself to be an unforgiving partner for foreigners it perceives as unfairly critical. Sonangol, for example, declined to extend Total’s concession for offshore block 3/80 last year. Although reasons for the link were not made public, and Total will not comment, Angolan analysts linked it to French authorities’ ongoing prosecution of a scandal involving the alleged purchase of arms for oil by the dos Santos government in the 1990s.
When the Fund earlier this year published a document by a US academic on its website entitled “The Main Institution in the Country is Corruption”, Luanda extracted a rare apology from Rodrigo de Rato, the IMF president, and the removal of the offending document.
However, Angola’s government does appear to be sensitive to growing criticism on governance issues. In an interview with the Financial Times last month, Jose Pedro de Morais, finance minister, said that he hoped to secure an IMF agreement by early next year, while adding: “The conditions are on the Fund’s side, not our side.” Angola did not qualify for or need IMF financing, but Mr Morais noted that a deal was an important precondition for a rescheduling of debt arrears to the Paris Club, which he estimated at Dollars 1.5 bn to Dollars 1.8 bn.
The minister added that Angola was “doing a lot of things on the transparency side, and has set some priorities.” Once the country had an IMF agreement, it would be willing to sign on to the UK’s Extractive Industries Transparency Initiative. Angola is currently the only country to claim “observer status” in the initiative, an effort led by Tony Blair’s government to improve management of revenues in resource-rich nations.
Human-resource constraints appear to be a major factor in Angola’s failure to produce fully transparent oil and diamond accounts. Ad hoc practices that took hold during the war have been continued in peacetime by underpaid civil servants, only a small minority of whom have higher education. “Part of the problem with the IMF getting the data is that the people just aren’t there,” says the foreign diplomat. Officials also point to a split between the pragmatism of government technocrats such as Mr de Morais and the camp of the president, who takes little public interest in economic issues. His office did not reply to several requests from the FT seeking an interview.
Some Angolans remain sceptical that their government faces any real pressure to improve governance, especially at a time when both oil and diamond revenues are rising. Upcoming elections will also demand resources for the patronage networks said to permeate Angola’s elite. “This government has always been supported,” says Rafael Marques, a human-rights activist and researcher. “The only way it has been able to maintain itself is through international forces.”
“It’s all about oil – it’s about resources,” he continues. “The west legitimises this mockery of a democracy because of its own interests.”
Angolans hold some modest hope for elections, although registering voters will prove a daunting task after the mass dislocations of the war. The opposition’s weakness and MPLA’s control of the levers of the state mean that few expect a poll upset. However, opposition parties such as Mr Leitao’s Padepa and the PRS, a regional party centred in the diamond-producing east, hope to increase their representation.
Reflecting on this week’s anniversary of independence, Mr Leitao calls the end of colonial rule a “good thing.” But he goes on to voice a dispiriting sentiment often heard in Africa’s toughest cases, from Eritrea to Zimbabwe. “The people governing Angola are worse than the colonists,” he says. “The people who lived in colonial times do not have the difficulties we have now.”

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