Oil-rich Angola bids to secure future with $5bn wealth fund
October 25, 2012 -- Updated 1513 GMT (2313 HKT)
Investment without corruption in Angola
STORY HIGHLIGHTS
- Angola launches $5bn Sovereign Wealth Fund to decrease future reliance on oil revenues
- Angola is Africa's second largest exporter of oil -- more than ninety percent of the country's revenue comes from oil production
- The country ranks poorly on measures of corruption and little of the oil revenue has been spent on improving public services
- In an exclusive interview, President's son tells CNN that fund will be transparent and independently audited
Watch the full version of this exclusive interview on Marketplace Africa at 1845 GMT on Friday 26 October, repeated at 0245, 0515, 1515 on Saturday 27 October and 0015, 1515 on Sunday 28 October.
Luanda, Angola (CNN) -- Angola, Africa's
second-largest oil producer, has launched a $5 billion sovereign wealth
fund in an attempt to diversify its economy -- a move more associated
with wealthy Gulf States like Qatar and the UAE.
The state-owned
investment fund, known as the Fundo Soberano de Angola, will invest
domestically and internationally, focusing on infrastructure development
and the hospitality industry. These are two areas the Government of
Angola believes is "likely to exhibit strong growth".
In an exclusive interview
with CNN, Jose Filomeno de Sousa dos Santos, the son of Angola's
longtime president who is on the board of the fund, said "now is a very
good time."
He added: "The country
has had around five years of steady growth, good growth, mostly based on
oil production increases, and it plans to diversify the economy. The
best way to do that is to do that is to intervene directly in the
economy through investments."
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More than 90% of Angola's
revenue comes from oil production -- reaching around 1.9 million
barrels a day -- and it is second only to Nigeria in its exports. But
despite its oil wealth, the country remains largely impoverished.
Dos Santos says the aim of the fund is to invest profits accrued from oil to promote social development in the country.
"It is very easy to have
oil money and spend it but it is very difficult to have a positive
impact to improve people's lives on a daily basis," he said, "and that
is an area we intend to invest on a lot with the sovereign wealth fund."
Critics of the government
say that Angola's oil wealth has been used to enrich a small section of
society -- dominated by allies of president Dos Santos and his family,
along with generals associated with Angola's lengthy civil war.
"We don't see the money
that is being generated from oil having a direct impact on people's
lives" says Elias Isaac, Angola country director for George Soros' Open Society Initiative for Southern Africa.
"Just look at the
schools, look at the hospitals, look at the issue of water, electricity.
Angola makes a lot of money out of oil, there is no doubt about this,
Angola really is one of the few countries that can pay its national
budget without donor funding, which is great, but where this money goes,
that's the biggest issue".
Isaac's also argues that
a $135 million development project of the capital city's waterfront is a
sign of the government getting its spending priorities wrong.
Luanda's once shabby
waterfront has been transformed after land was reclaimed from the sea.
Portuguese expats, many of whom have sought sanctuary here from the
eurozone crisis, now jog past manicured lawns each morning.
But wedged between the
shiny offices and apartments that line this new waterfront, Angolans
often struggle to survive in a shacks and ramshackle houses.
Beyond the capital lies a large underdeveloped country with a widening income gap.
Only around one in three Angolans are literate and more than half drop out before finishing primary school.
Angola has faced huge
challenges to develop a country decimated by the war for independence
and lengthy civil war. But civil society and human rights groups say
that institutionalized corruption has helped cause the widening gap
between the very rich and the rest of society.
Critics of the fund also
point to the its board being dominated by cabinet members close to
president dos Santos. And the younger dos Santos says he -- despite
being the president's son -- is qualified for the position because his
financial background.
Transparency International recently ranked Angola a lowly 168 out of 182 countries in its "Corruption Perceptions Index" but Dos Santos says that the fund will be beholden to international best practices, and transparent.
"We are familiar with
the fact that this perception exists and we are taking a lot of care to
make sure all of our investments are within an approved investment
policy and our accounts will be audited annually by an independent
renowned auditor."
The pledge of
transparency is a departure from Angola's often opaque oil wealth where
oil receipts are withheld by strict confidentiality agreements with
international oil companies.
"The way the government
manages the oil receipts, we think we still have a lot of corruption"
says Manuel Jose Alves da Rocha, Economics Professor from Angola's
Catholic University. "We think the lack of transparency is also another
situation we have to look at to understand why the oil income does not
go to the majority of the people".
Angola's oil industry is
dominated by Sonangol, the state-owned company that gives concessions
to international oil companies and, over time, takes in the lion's share
of the profits.
Many observers believe
that Sonangol was already acting as a sovereign wealth fund by investing
its profits in many areas outside of the oil industry -- including
buying up key stakes in Portugal's biggest bank by assets, Millennium
BCP.
The formation of a
formalized fund was first announced by Angola's President Jose Eduardo
dos Santos. But the global financial crisis caused the oil price to
plunge, hammering Angola's economy.
The government had to offset the crisis by securing a loan from the International Monetary Fund (IMF) in the form of a Stand By Arrangement of around $1.4 billion.
With new deep water oil
finds announced by the government, Angola hopes to outstrip Nigeria to
become Africa's largest oil producer. But the revenue from Angola's
black gold won't last forever. The government hopes the sovereign wealth
fund will help diversify Angola's profits to secure its future.
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