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Corporate Governance: Angola

Shantha Bloemen

A large country of 13 million people located on Africa’s Atlantic coast, Angola is the world’s fifth largest producer of non-industrial diamonds and the second-largest oil producer in Sub-Saharan Africa after Nigeria. Angolan wells currently yield 860,000 barrels a day and this is expected to increase to nearly a million by the end of the year. But like other mineral-rich, but poor and conflict-ridden countries, Angola’s mineral wealth makes it ever more vulnerable to the looting of resources, corruption, and the social inequity that can fuel further conflict.

Oil is the mainstay of the Angolan economy. It accounts for 90% of Angola’s total exports and from 1995 to1999 made up between 70% and 89% of government revenues, according to research from the International Monetary Fund (IMF). It has also been key to financing the government’s war machine during the country’s long civil war. With an end to fighting in 2002, a lasting peace finally appears possible and the country’s enormous oil wealth could now be used to rebuild the country.

Unfortunately, corruption may stand in the way of Angola’s reconstruction. Over the past five years, $4.3 billion of oil revenues have been reported missing from the government’s books. Last year alone, $900 million was unaccounted for. At the same time, the UN is barely able to raise the $384 million is says the country needs for emergency relief such as relocating displaced families, funding schools, getting rid of land mines and reintegrating soldiers into civilian life.

For countries like Angola, with one key natural resource controlled by the central government, the best defense against corruption is to make sure the books of the state-run business are completely open to public scrutiny. Achieving that level of transparency means a commitment on the part of the local government to disclose its dealings with foreign trading partners. Foreign governments can also help in the way they regulate trading partners under their jurisdictions. In Congo, for example, the latest UN Panel of Experts on the Illegal Exploitation of Natural Resources has recommended sanctions and shaming companies that engage in illegal mineral exploitation. If multinational corporations fully disclose payments they make to governments like Angola’s, and the profits they make from operating there, it becomes much harder for the Angolan government to keep its people in the dark. The issue of accountability, both government and corporate, pertains to all countries experiencing resource wars.


Angola is finally emerging from thirty years of war. It began as a war for independence from the Portuguese who had colonized Angola more than 500 years. When the Portuguese withdrew from the country in 1975, the conflict quickly degenerated into a prolonged superpower-sponsored civil war that killed hundreds of thousands, left four million people displaced from their homes, and large parts of the country laden with landmines.

There were two main protagonists in this war. The Movement for the Popular Liberation of Angola (MPLA), created a single-party socialist government after the Portuguese left. The MPLA’s dominance was opposed by a rebel group from southern Angola that favored a multi-party system. Called the National Union for the Total Independence of Angola (UNITA) it was led by Jonas Savimbi. The former Soviet Union and Cuba financed the war effort of the MPLA. In what became a cold war battle by proxy, the U.S. and the apartheid government of South Africa supported the rebels.

Oil development started by the Portuguese in 1956 and expanded dramatically in the late 1970’s. Through the state-owned oil company, Sonangol, the Angolan Government, began to develop off-shore drilling and auction the rights to foreign oil companies.

With its economy in shambles in the mid-1980s, facing exploding inflation, and poor credit ratings, the Angolan government had to do something radical to maintain foreign investment. The government created a banking network outside of Angola that was intended to grease the wheels of international trade, according to the International Consortium of Investigative Journalists. The creation of this parallel banking system outside the country facilitated the ease with which oil revenues could be hidden from public scrutiny and elude government budgetary review.

By the mid-1990’s, with the country’s resources drained from financing the war, it seemed as if peace were Angola’s only hope for survival. In 1994 the UN brokered a fragile peace agreement between the MPLA Government and UNITA and set up a power sharing transitional government.

But the peace was short-lived. By 1998, unhappy with this arrangement and with many fighters still not demobilized, Jonas Savimbi, leader of UNITA, returned to the bush to restart the war. This time, though, foreign sources of arms and financial support dried up, supplying neither the rebels nor the MPLA.

Both sides quickly found new ways to fund the war. UNITA relied on the illegal trade of diamonds, while the Angolan government relied on oil. Working through Sonangol, the Angolan Government brokered numerous deals through an intricate network of shady international businessmen to use oil revenues to buy arms. There is suspicion that these networks reached to the highest governmental levels in some European countries and investigations continue into the nature of these relationships.

The MPLA’s war machine depended on bonuses paid by foreign oil companies for the right to operate in Angola. These so-called “signature bonuses” were an attempt to get around the U.S.’s 1977 Foreign Corrupt Practices Act which created strict guidelines on how companies should interact with foreign governments. Facing competition from European counterparts who did not face such stiff regulation, the U.S. companies began making lump sum payments to foreign governments upon signing an agreement to explore or pump oil from a particular region.

In 1999, the Angolan government, through Sonangol, began auctioning off exploration rights to 34 of its deep sea oil blocks. With enormous oil producing potential and far off the coast, to avoid continued conflict within the country, the blocks have proved to be extremely valuable. The bonuses paid for offshore drilling rights skyrocketed, even as the Angolan economy worsened. In May 1999 a record $870 million bonus was paid by BP-Amoco, TotalFinaElf and Exxon for rights to offshore oil exploration, reported Global Witness, a UK-based not for profit advocacy group committed to “exposing the link between natural resource exploitation and human rights abuses. The proceeds of this deal, as well as others, have disappeared in the maze of off-shore bank accounts never reaching official government coffers. At the same time that it was bartering away existing oil revenue to pay for the war, the government mortgaged future income through heavy borrowing at very high short-term interest rates.

With the death of UNITA leader Jonas Savimbi in February 2002, and the weakening of UNITA’s military position because of international diamond sanctions, the war appears to be at an end. Already disarmament and resettlement has begun and negotiations continue on how to make the transition to a democratic electoral process.

In the current era of peace, Angola finally has the opportunity to use its natural resources to rebuild its economy. According to IMF estimates from 1997-1999, the government spent at least 34.6% of its budget on defense. By comparison, combined spending on health and education accounted for less than 11% of the federal budget during the same period. There is a real opportunity to reverse these priorities, especially as the country faces the difficult task of reintegrating former soldiers, resettling and reintegrating communities and families scattered and scared from the long civil war.


1. Without transparency of operations, total government control of natural resources can lead to corruption that cripples the economy, and feeds a vicious cycle of civil unrest.

To date, only a small elite in the capital, Luanda, have benefited from Angola’s oil wealth. Exploration and production has continued unabated, as it did even during the worst of the fighting, in undersea fields that are too far off shore to allow for scrutiny. The majority of the country lives in miserable conditions. According to the World Bank, “income inequity has sharply increased between1 1995 and 1998, with the richest 10% of the population enjoying a 44% increase in wealth while the poorest 10% suffered a 59% decrease.” Described by UNICEF as one of the worst places to be a child, 480 children are estimated to die each day in Angola from preventable diseases.

Since the state oil company, Sonangol, is able to operate in complete secrecy there is nothing to stop the government from continuing to mortgage future oil profits, causing further economic deterioration. There is considerable evidence to show that the Angolan government has not changed such practices one iota since the end of the war. In 2001 it breached an IMF agreement to limit borrowing to $269 million. Global Witness counted seven loans worth $3.5 billion dollars between September and October 2001.

Using oil as collateral, the Angolan government has been able to borrow from other sources offering much less restrictive loan contracts, but at much higher interest rates than the IMF. The IMF estimated that already by 1999, oil-backed loans comprised 33% of the country’s US$8.78 billion debt.

In order to continue exploiting Angola’s natural resources, the Angolan government is accused of confounding attempts to comply with an IMF Oil Diagnostic, set up in 2000 to attempt to regulate the flow of Angola’s oil revenue and set up monitoring mechanisms. It has promised to publish annual oil revenues on the Ministry of Finance website, but it has continued to crack down on press freedoms. Already this year, a number of journalists have been detained for investigating government corruption.

Criticism of the Angolan government and demands for transparency and accountability have been mounting, but so far there has not been much change in the operation and exploitation of the oil industry. Without enacting some seriously enforced anti-corruption measures, there may be no hope that the people of Angola begin to feel the benefits of the wealth created by their natural resources. Eventually, the continued poverty in which most of the country lives may result in further civil unrest.

2. Government reform is not the only answer. Pressure must be brought to bear on Angola’s trading partners.

Working with huge multinationals is a double-edged sword. On the one hand, they are in a better position to collectively set standards and fulfill their corporate responsibilities. They also have the technical resources in terms of both equipment and trained personnel necessary for exploitation of minerals that poor countries don’t have. On the other hand, they are driven by a simple profit motive that can lead them to support corrupt government policies in developing countries. “Oil companies around the world devote millions of dollars influencing international policies, often attempting to block the efforts of first world governments to sanction third world countries where corruption flourishes and bloody conflict rages,” points out a report Greasing the Skids of Corruption published in November 2002 by International Consortium of Investigative Journalists.

As tension in the Middle East increases, now might be the perfect time to increase the pressure on US companies to force corrupt governments’ like Angola’s to clean up their acts. The US is looking for alternative oil producers, and investment in African oil supplies is on the rise. A report by the U.S. government’s National Intelligence Council predicts that by 2015 a quarter of all oil America imports will come from West Africa.

Yet the US oil industry has been cultivating its own double standard where Angola is concerned. When asked to expound on multinational corporations’ responsibilities to the impoverished Angolan people, Andrew Norman, Texaco spokesperson said, “we feel very strongly that it is not our role to influence national economic policy.”

This statement ignores the very healthy oil lobby, which attempts to influence Washington policy. Of the world’s 50 largest oil companies, 23 of them maintain representatives in Washington. The industry at large contributed $33.7 million to federal candidates and political parties in 2000. The African Growth and Opportunity Act, aimed at increasing US trade with African nations, was heavily influenced by the oil industry which lobbied for the bill’s passage in 2000. With the Bush Administration’s well-established links with large oil producers, the relationships between corporate and political interests are likely to be further enmeshed.

Nonetheless, growing recognition of the need for corporate social responsibility and the mechanisms that will foster it has given rise to a number of international initiatives. The UN has created the Global Compact, in which corporations voluntarily commit to uphold certain principles of business operation aimed at eliminating human rights abuses and protecting the environment. The OECD Guidelines for Multinational Enterprises and Principles of Corporate Governance is another multilateral attempt to control corruption from the corporate side. In addition, the World Bank has set up a registry of blacklisted companies, to name and shame companies that engage in illegal activity.

Where Angola’s oil industry is concerned, more direct pressures are being brought to bear. Leading a campaign called “Publish What you Pay”, a consortium of international activist groups including Global Witness and other organizations such as Transparency International are demanding that the large oil companies publish all the payments they make to the Angolan government. The consortium has demanded a detailed breakdown, including the payments made by their subsidiaries to Sonangol as well as directly to the government of Angola.

Even when oil companies agreed to this doctrine, the backlash from Sonangol and the Angolan government has been strong. Willing to make its payments public, BP-Amoco risked punitive action from Sonangol. The state run oil company sent BP a letter warning that public disclosure could be considered a breach of its confidentiality contracts that would result in termination of drilling agreements. Sonangol sent a copy of the letter to all other oil companies drilling in Angolan waters.

The only way to counteract such threats would be to adopt a policy of collective transparency for the group of oil companies operating in Angola, regulated through already existing national regulatory bodies, according to a spokesman at Global Witness. He argues that since many of the companies are based in Europe or the U.S., this transparency should be mandated and regulated by the major financial regulators in these countries. These would be institutions such as the Securities and Exchange Commission in the U.S., that set the disclosure rules concerning companies’ business activities and financial statements.

Ultimately, for Angola to get faster relief from its economic woes it needs to clean up corruption at home and set up a strong public regulatory framework. While multinational corporations respond to pressure from shareholders and regulators, this force that takes a long time to build up. For international financial regulators to come to an agreement on how to combat corruption could be an even more time consuming process, as each has to weigh the impact of international trade on companies in its own country, and placate the special interest groups on the home front. Even so, public pressure from oil consuming countries and the enterprises based there is certainly an important avenue to explore in trying to increase disclosure and accountability inside of Angola.


For the Angolan people, the price tag for the war has been devastatingly high. In funding the conflict, the government mortgaged the country’s key natural resources to the point where they may not be available to pay for the peacetime reconstruction the country so desperately needs. Even if more accountability can be achieved, the legacy of the last decade of plunder has forfeited future income and wealth. Angola’s children will be forced to carry the exorbitant debt load raised during the war.

The hope remains that those involved in the oil industry, including the Angolan government, the oil companies and international banks, will heed the calls for transparency and more disclosure. Increased transparency must go hand in hand with government reforms that stamp out corruption. Only by ensuring that the Angolan people have the information they need to determine how their country’s wealth is used can this and future generations contemplate economic reconstruction. The window of opportunity for reform will remain open only as long as the current fragile peace lasts.

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