Oil lubricates pockets of Angola's rich

Summary - In Angola today the war is yesterday’s news. Spanking new 4x4s negotiate the filthy potholed streets; greed hangs in the air and conspicuous wealth abounds, juxtaposed with wretched, widespread poverty. It’s the paradox of plenty. Economies that are heavily reliant on natural resources offer huge opportunities for corruption and self-enrichment, and Angola is a textbook example. Though the country is the second-largest oil producer in sub-Saharan Africa and the world’s fourth-largest diamond producer, the gap between rich and poor is striking and growing ever larger. Half of Angola’s GDP is owned by just 59 individuals; six of the richest of these were long-serving government officials. In a scathing report released in January, Human Rights Watch accused the Angolan government of a “staggering” misuse of oil revenues. Between 1997 and 2002 over $4 billion in oil funds went missing – the equivalent of over 9 per cent of annual GDP. The government, it stated, has consistently refused to allow full access to its books (an accusation the minister of finance denies). Attempts to trace the missing funds have been frustrated by the oil companies, which cite confidentiality agreements with the Angolan government for keeping silent. The report argues that the end of the civil war has created a unique opportunity for reform, and it calls on the IMF, World Bank and donor nations to pressure the Angolan government for full transparency and accountability. The government’s response in the past has been to argue that it should be compensated for the damage inflicted during the war by the US and South Africa, and that the main obstacle to reform is lack of capacity and the destruction of infrastructure caused by the war. Indeed, the war absorbed around 19 per cent of GDP between 1997 and 2002, and destroyed 85 per cent of the country’s infrastructure. But the war does not account for the lack of transparency, or for the missing funds. The gross mismanagement has had a devastating impact on the welfare of Angola’s populace. An estimated 7,4 million children suffer from malnutrition and are reliant on food aid. Donor fatigue is setting in. The international community is increasingly reluctant to provide assistance to a government that is not making a meaningful attempt to rebuild the country.

Sitting in the glitzy, marbled modern lobby of the Hotel Alvalade in Luanda can give you as good an insight as any into the changing fortunes of today's Angola.

With a good eye and a good ear, you can easily spot the outsiders that really matter. They fall into three categories and they are as distinct from each other as the clothes they wear. The petroleum people, often American - Texaco, Exxon Mobil - but also a fair smattering of Europeans - Stat Oil, Elf, TotalFina - walk around as if they own the place - which they more or less do. Their relaxed air of confidence that comes from being the masters of the oil universe sets them apart. It's golf shirts, loafers, and chinos after hours. Then there are the NGO-types; fresh faced well-meaning, khaki-clad, little style. Shady diamond dealers constitute the third group of expatriates. Often shifty, always chic, they can be in silky West African boubous or sharply cut suits. All are willing, for lack of choice, to pay Zurich-style prices - $5 (R38) for coffee, $100 (R720) for lunch. Someone else picks up the tab and the vinho branco and prawns keep coming.

It's a far cry from the days, not long ago, when the only people in Luanda's hotel lobbies were soldiers in camouflage and a motley mixture of journalists. Though there are still more landmines than people, the government's bete noire, Unita's Jonas Savimbi, is dead and the war is yesterday's news. The thousands of returnees, and the country's rehabilitation or corruption stories, have attracted only a trickle of media interest.

There have long been glimmers of extreme wealth in Angola. A fair number of more fortunate Angolans have always been well turned out, even in the war. Now, however, there is conspicuous wealth around. Whatever they were like before the Portuguese colonised the place, the Latin Luciphone culture becomes the few Angolans who can afford it, with thick gold chains nestling unsubtly under open designer shirts, crocodile skin shoes, matching briefcases and fashionable labels.

A huge variety of spanking new 4x4s meander through the madness of Luanda's pot-holed streets. Greed hangs in the air, heavy and pungent as its filthy streets. Juxtaposed with widespread poverty and degradation, this new money - on display in the new hotels, like Alvalade - is something of a curse for Angola.

It's what has been called "the Paradox of Plenty". The country's vast mineral riches have been at the heart of the prolonged civil war, dragging it out for nearly three decades with the aid of the Cold War superpowers, the United States and the Soviet Union, and their surrogates - South Africa and Cuba. 'Blood diamonds' kept Unita's guns blazing, and the MPLA, the ruling party, kept its war effort literally well-oiled by offshore petroleum revenues.

Towards the end of the war Unita was being squeezed by United Nations sanctions. Unita leader Jonas Savimbi became a liability to the West, particularly the United States. It is widely believed that the West contributed decisively to his death in a shoot-out. It was reportedly with the help of CIA surveillance equipment and French intelligence that Savimbi was caught unawares and killed by MPLA soldiers. For its part the MPLA was so eager to earn international respect for its battle against Unita, that it promised all kinds of political and economic reforms. At best there were only ever half-hearted attempts at fiscal transparency between 1997 and 2000 in order to curry favour with international bankers and borrow against future lucrative oil revenues to purchase arms.

In peace, little has changed. Indeed paradoxically, Angola's wealth now hinders real growth and encourages corruption. It is the second largest oil producer in sub-Saharan Africa and the fourth largest diamond producing country in the world. But the growing gap between rich and poor is striking. The Economist Intelligence Unit reported recently that there were 39 individuals worth at least $50 million and another 20 worth at least $100 million. The combined billions of these 59 people make up nearly half of the total gross domestic product of Angola with a population of around 12 million. Six of the wealthiest were long-serving government officials. To know this and to see the wretched, handicapped and desperate drinking infested water out of open gutters and living like rats, is truly disturbing.

It has been found that where an economy is so heavily reliant on natural resources, the temptation for corruption and self-enrichment is far greater. Angola is a perfect example of just that.

Human Rights Watch released a scathing 93-page report on the Angolan government in mid-January 2004, accusing it of a "staggering" misuse of oil revenues. From 1997 to 2002 some US $4,22 billion in oil funds went "missing" - or, the equivalent, of 9,25 per cent of its annual GDP. It is particularly problematic, the report states, when the government is the "direct beneficiary" of economic activity. "Because when achieving political power becomes the primary avenue for achieving wealth, the incentive to seize power and hold on to it, is great."

The Human Rights Watch report, entitled "Some Transparency, No Accountability", draws and expands on previous reports from Global Witness, the International Monetary Fund (IMF) and KPMG, an international firm of auditors. Under pressure from the IMF to do a full audit, the Angolan government appointed KPMG in November 2000 to conduct a study into the use of its oil revenues.

Quoting from IMF and KPMG documents, the Human Rights Watch report pointed to government's consistent refusal to allow full access to its books, and its habit of not providing accurate or adequate information timeously to the IMF and KPMG, as it was mandated to do in order to access loans. It also highlights problems of poor governance and corruption and blames new laws for restricting and criminalising access to information. It described a "secretive government that sent large sums to offshore accounts free from public scrutiny".

The Angolan government vigorously denied the "untruths" made in the report and the minister of finance, Jose Pedro de Morais, pledged that Human Rights Watch could have access to government data at any time.

There is no clarity in the report as to what happened to the missing funds. Private oil companies have cited confidentiality agreements with the Angolan government. In a recently syndicated article on corporate responsibility, Joseph Stiglitz, a Nobel economics laureate and a former World Bank chief economist, quoted the example of "one brave firm, BP". When it "wanted to do the right thing by trying to make sure that oil royalties actually go to the government, rather than to corrupt officials, other oil companies refused to go along". Sonangol, the state-owned oil company, frightened off other oil companies from disclosure, when it sent a harsh letter to BP in February 2001, threatening to cancel its multibillion-dollar contracts.

Top Angolan dignitaries including the president, Jose Eduardo dos Santos, have also been implicated in corruption trials in Switzerland and France. In what became known in France as 'Angolagate', 37 former officials of Elf Aquitaine (now part of Total) were put on trial for "personal enrichment and political kickbacks during the late 1980s and early 1990s". The Angolan government was swift to denounce these allegations and threatened to take legal action against a Swiss judge for "defaming the president".

The Human Rights Watch report says the end of the civil war has created a unique opportunity for reform. "How Angola manages its oil revenues will be an important barometer of progress toward transparency, accountability, good governance and respect for human rights." The report calls on the IMF, the World Bank and donor countries to pressurise the government of Angola for full transparency and accountability. It also calls on the Angolan government to provide full audits of the Bank of Angola and Sonangol.

The Angolan government's line in the past has been to push international donors to pay back for the damage inflicted during the war by the United States and South Africa. It has claimed that the main obstacles to reform and mismanagement have been a lack of capacity and the war, which has led to funds allocated for social upliftment being diverted to rebuilding infrastructure. Ironically the former central bank governor and current deputy prime minister, Aguinaldo Jaime, even blamed "global warming" for the massive destruction of infrastructure that required substantial funds to rebuild, according to the report.

Indeed the war did soak up a huge amount of money - around 19 per cent of GDP between 1997 and 2002 went on security and military expenditures and 85 per cent of the country's infrastructure was destroyed during the war.

The war, though, does not account for the lack of transparency, nor for the fact that, according to the Human Rights Watch report, the missing funds are roughly equal to what was spent in the same period, 1997 to 2002, on social programmes - $4,27bn - which includes both government expenditure and initiatives funded through the United Nations Consolidated Inter-Agency Appeal.

The IMF and the Human Rights Watch point instead to a lack of political will.

At the MPLA party congress in December 2003, Dos Santos - who has been in power since 1979 - was elected for another term. Not, insiders say, because he is simply hungry for power (which isn't out the question, though). It is, the insiders aver, because he wants to leave a legacy of peace and prosperity, albeit embryonic, behind him when he goes. So far the MPLA has made no commitment to naming a date for the election date, expected to be some time next year. Even though Unita's new leader, Isaias Samkuva, is highly respected in diplomatic circles, it's unlikely that Unita will be able to pierce through MPLA's virulent hold on power. A return to war is at least out of the question - some 5 000 Unita soldiers have been incorporated into the Angolan Army, FAA and 105 000 Unita's soldiers have been demobilized. W the exception of Cabinda province, there have been no violations to the ceasefire agreement of April 2002.

But gross mismanagement of funds has had a dramatic impact on the welfare of the Angolan population. It is the one refrain that is repeated by NGOs, UN officials, and donor countries and has led to donor fatigue setting in. While according to UN figures 7,4 million Angolan children suffer from malnutrition and are still reliant on food aid, international donors complain that they don't get a sense that the government of Angola is meeting them half way.

"Why should the international community be throwing millions at Angola to put it right when the Angolan government is not doing it themselves," donors lament.

If this situation does not change very soon, and the Angolan government does not make a more meaningful attempt to rebuild the country, international donors are going to become increasingly reluctant to provide further assistance, with fatal consequences to Angola's potential to become a real powerhouse in the region.

And the view in the lobby of Luanda's hotels will become a lot more drab and boring.