Global Policy Forum

BY Michael Dynes

A year has passed since Jonas Savimbi, the Unita guerrilla leader, was killed in a gunfight with Angolan government troops, ending three decades of civil war. Yet while Western oil companies swoop on Angola's vast deep-water reserves, the Angolan people continue to rely on handouts from the United Nations World Food Programme. Almost a year has passed since the end of three decades of bloody civil war in Angola, yet not even a whiff of the much-vaunted peace dividend has materialised.

Oil production has increased to more than 900,000 barrels a day, providing the Government in Luanda, the capital, with an income of between $3 billion (£1.86 billion)and $5 billion a year. As more and more of the new deep- water offshore fields come on stream, oil production is expected to top 1.8 million bpd by 2008, transforming Angola into sub-Saharan Africa's single largest oil exporter. Sonangol, the Angolan state oil company, estimates that proven reserves are now in excess of 11 billion barrels. Western oil companies, including ExxonMobil, ChevronTexaco, TotalFinaElf, BP Amoco, and Royal Dutch/Shell are expected to invest a further $18 billion in developing Angola's oil and gas reserves over the next three years.However, Angola is already fabulously wealthy, and over the next decade, Angola's income is set to dwarf that of oil-rich Kuwait. Jose Maria Botelho, Angola's Oil Minister, told the Fourth Angolan Oil and Gas Conference in Luanda in December that this investment boom represented "the transfer of the oil market's attention from the Middle East to Africa". However, the three quarters of the country's 12 million people who live on less than a dollar a day have yet to see a cent from the new oil bonanza.

Some critics fear that without concerted Western pressure for reform, they never will. Almost uniquely in Africa, Angola should be in a position to finance its own postwar reconstruction without foreign assistance. Yet the Government is planning to hold an international donor conference later this year to help to raise billions of dollars for reconstruction because it is "broke".

The explanation for this paradox of "penury amidst plenty" lies with the dubious methods used to finance the protracted conflict between the ruling People's Movement for the Liberation of Angola (MPLA) and the Unita rebels, along with the political elite who benefited from Angola's war economy, and who now stand to garner further billions of dollars from the reconstruction effort.

"Angola funded the civil war by raising loans largely from French and Swiss banks using oil as collateral," says one international financier. "They have borrowed cash against future exports. There is no money in the national coffers. It's all gone. Angola has hawked itself up to its eyeballs, and there is not going to be any money until all those debts are paid off."

Angola's foreign debt is thought to be about $12 billion, almost half of which is owed to Russia for arms purchases. But not even the International Monetary Fund knows how accurate this figure is. Many financial analysts suspect that the country's total foreign debt could be substantially higher.

Under an agreement between President Jose Eduardo dos Santos's Government and the International Monetary Fund in April 2000, Luanda agreed to restrict any new borrowing to $269 million a year until state finances had been overhauled. But Global Witness, the international anti-corruption watchdog, estimates that Luanda borrowed more than $3.5 billion between September 2000 and October 2001 alone by mortgaging future oil production. Global Witness has bluntly pointed out: "It is not known to what extent Angola's future oil wealth, and therefore its developmental capacity, has already been mortgaged." However, all attempts to establish the balance of Angola's receipts and liabilities have so far run into the sand.

The April 2000 agreement between Luanda and the IMF was designed to improve transparency in the public sector's accounts and reduce inflation. It was intended to initiate the structural reforms regarded as a first step by the IMF and the World Bank towards obtaining their support for an economic recovery programme. The programme pivoted on an accounting exercise to establish whether the revenues received from the oil companies for 2001 were the same as the amount of receipts deposited in the National Bank of Angola.

The results have never been published. However, leaked reports suggest that the IMF calculated that, between 1997 and 2001, about $1 billion a year disappeared from Angola's balance of payments, and that, because of the lack of data from the Government on earnings and receipts, the amount of missing funds could be substantially higher.

The Angolan Government has attributed the disparity between earnings and receipts to "lax accounting methods". The suspicion is that the missing billions have been siphoned off by the Angolan political elite through corrupt contracting methods, with huge commissions and kickbacks for key government officials. Angolense, a privately owned Luandan weekly, is currently facing legal action by the Government after it accused 59 senior government figures, including President dos Santos, of making vast personal fortunes through embezzlement. "All the recent information coming from the IMF confirms our worst fears," Gavin Hayman, a spokesman for Global Witness, said. "Our central concern for Angola now is that the methods of state looting perfected during the civil war years will simply be adapted to profiteering from the civil reconstruction effort."

Global Witness is demanding that the oil companies publicly declare how much they pay Sonangol for exploration rights and extraction agreements, and for the commercial banks to publish their exposure to the Angolan Government. It is also calling on Western Governments, and their financial regulators, such as the US Securities and Exchange Commission, and the UK's Financial Services Authority, to make such disclosures mandatory.

However, with the growing premium on non-Middle Eastern sources of oil, there is little indication that Washington or London is prepared to throw its weight behind the increasing demands for internal reform. On the contrary, during his visit to Washington in November, President dos Santos is reported to have secured President Bush's commitment to persuade the IMF to ease the pressure on Luanda. "The Angolan Government does not like the IMF," says one banking source. "There is too much conditionality. They have to cut costs, increase prices, and the next thing you know there are riots in the streets. They don't want any of it. But that does not mean that there is no prospect for change.

"Now the civil war is over, Angola has an historical opportunity to break with the past. The key is to sever the Government's dependency on short-term, high-interest loans from the commercial banks, and the only way to do that is to provide alternative sources of financing, and that means bonds. But to get access to the bond market, there has to be transparency. You have to have a credit rating from one of the international rating agencies like Moody's or Standard & Poor's. This is a very public process. A team of auditors has to come in and look at the books, and provide an independent assessment of the country's ability to service its debts. But the process gives a country credibility."

IMF discipline is not the only way of helping to get the war-shattered country back on its feet. The merchant banks can offer an alternative means of financing reconstruction. But it will require a degree of transparency unprecedented in Angola's history.

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