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Angola: Oil and Accountability
AfricaFocus Bulletin
Jan 16, 2004 (040116)
(Reposted from sources cited below)
Editor's Note
A new report by Human Rights Watch on Angola is the most
detailed public examination to date of discrepancies in
accounting for revenue from oil, the product
that accounts for the lion's share of the country's exports
and government budget. Although Angolan government officials
complained about the unfair focus on their country, attributing
the problems primarily to insufficiencies
in financial systems, the issues raised go to
the heart of questions about political accountability not only
in Angola, but also around the world.
A French judge is currently investigating $160 million of
unexplained commissions paid for a mid-1990s contract in Nigeria by
the U.S. company Halliburton, then headed by the present US Vice
President Dick Cheney. This is only one case of many that point to
the Africa-wide and indeed worldwide relevance of further opening
up the murky nexus of oil and cash for public examination. Another
issue of AfricaFocus Bulletin sent out today contains links to that
story and other recent information on the global campaign for
transparency and accountability in the oil sector.
This issue of AfricaFocus Bulletin contains the summary and
selected other excerpts from the Human Rights Watch report on
Angola.
The 42-page summary report of the first oil diagostic report from
July 2002, previously the most detailed document made public on the
topic, is available on the website of the Angolan Embassy in
Washington [in Portuguese at
http://www.angola.org/referenc/reports/oil_diagnostic.pdf
and in English at
http://www.angola.org/referenc/reports/oil_diagnostic_eng.pdf]
Additional news coverage on this and related issues (in Portuguese)
is available at the Angolan web portal Ebonet:
http://www.ebonet.net
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Visit http://www.africafocus.org for news, analysis, advocacy
Find recent book recommendations at Powell's, a unionized
on-line bookstore: http://www.solidarityresearch.org/powells
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Human Rights Watch January 2004
Some Transparency, No Accountability:
The Use of Oil Revenue in Angola and Its Impact on Human Rights
[brief excerpts only - the full report, and a press release
accompanying its release on , are available at
http://www.hrw.org/doc?t=africa&c=angola]
I. Summary
The Angolan government has consistently mismanaged its substantial
oil revenues and, despite rhetorical commitments, has yet to
demonstrate a meaningful commitment to reform. In recent years,
literally billions of dollars in oil revenues have illegally
bypassed the central bank and remain unaccounted for. Such missing
revenues reflect a failure of government accountability more
generally and are directly linked to the Angolan government's
continuing failure to foster institutions that uphold the rule of
law and human rights.
The sums involved are staggering. From 1997 to 2002, unaccounted
for funds amounted to some U.S.$4.22 billion. In those same years,
total social spending in the country including Angolan government
spending as well as public and private initiatives funded through
the United Nations' Consolidated Inter-Agency Appeal came to $4.27
billion. In effect, the Angolan government has not accounted for an
amount roughly equal to the total amount spent on the humanitarian,
social, health, and education needs of a population in severe
distress.
Due at least in part to such mismanagement and corruption, the
government also has impeded Angolans' ability to enjoy their
economic, social, and cultural rights. It has not provided
sufficient funding for essential social services, including
healthcare and education. As a result, millions of Angolans
continue to live without access to hospitals and schools, in
violation of the government's own commitments and human rights
treaties to which it is a party.
In recent years, as oil revenues surged, the Angolan government has
refused to provide information about the use of public funds to its
population, undermining their right to information. It has failed
to establish hundreds of courts and allowed the judiciary to become
dysfunctional, undermining Angolan's ability to hold government
officials and others accountable. And it has not fully committed to
free and fair elections, thus removing another avenue of
accountability.
Had the government properly accounted for and managed the
disappeared funds it is likely that more funds would have been
allocated to the fulfillment of economic, social, and cultural
rights, such as increased spending on education, health, and other
social services. The government of Angola has not complied with its
obligations under international human rights law because it has
misallocated resources at the expense of the enjoyment of rights.
When a government is the direct beneficiary of a centrally
controlled major revenue stream and is therefore not reliant on
domestic taxation or a diversified economy to function, those who
rule the state have unique opportunities for self-enrichment and
corruption, particularly if there is no transparency in the
management of revenues. Because achieving political power often
becomes the primary avenue for achieving wealth, the incentive to
seize power and hold onto it indefinitely is great. This dynamic
has a corrosive effect on governance and ultimately, respect for
human rights. Instead of bringing prosperity, rule of law, and
respect for rights, the existence of a centrally controlled revenue
stream such as oil revenue can serve to reinforce or exacerbate an
undemocratic or otherwise unaccountable ruler's or governing
elite's worst tendencies by providing the financial wherewithal to
entrench and enrich itself without any corresponding
accountability. Human rights typically are among the first
casualties. This has happened in Angola.
Despite repeated efforts by diverse actors to promote greater
transparency including multilateral financial institutions,
nongovernmental organizations (NGOs), corporations, and even other
governments the Angolan government has sought to maintain the
status quo. The Angolan people, who have endured decades of war
while seeing their country's resources mismanaged and its social
development stunted, continue to be the primary victims of
government recalcitrance.
The International Monetary Fund (IMF), interested in transparency
for economic reasons, has been an important force pushing for
greater fiscal transparency in Angola. Human Rights Watch does not
take a position on the work of the international financial
institutions per se, but can and does examine the positive or
negative impact IMF activities can have on human rights. Whatever
one thinks of the IMF's economic prescriptions, its efforts to
promote transparency in the oil sector in Angola have been an
important source of leverage for those interested in human rights
improvements in the country. This report focuses on two aspects of
IMF-led pressure for reform: the socalled "Oil Diagnostic"
monitoring system set up by joint agreement of the IMF and the
Angolan government starting in 2000; and the IMF's findings
regarding the government's consistent lack of transparency and
gross mismanagement of public funds.
The Oil Diagnostic showed that billions of dollars from the
Sociedade Nacional de Combustiveis de Angola (Sonangol), the
state-owned oil company, illegally bypassed the Angolan central
bank and that the government did not have any procedures in place
to reconcile hundreds of millions of dollars of discrepancies in
its accounting of oil revenue. The overall picture from the Oil
Diagnostic is one of gross mismanagement of a country's public
funds, largely derived from oil production and sales. The IMF went
further and detailed billions of dollars in unexplained
expenditures, consistent government unwillingness to disclose the
use of those funds, and other troubling examples of government
opaqueness.
Recent changes in Angola, however, including an end to the civil
war, renewed government interest in better political and economic
integration with the rest of the world, and rising popular demands
for change, have created an unprecedented opportunity for reform.
How Angola manages its oil revenues will be an important barometer
of progress toward transparency, accountability, good governance,
and increased respect for human rights. Whether meaningful reforms
are implemented depends ultimately on the Angolan government, but
the international community can play an important role by using its
influence to press forcefully for change. Otherwise, the promise of
Angola's wealth will be squandered once more at the expense of good
governance and human rights.
This report analyzes the IMF's overall relationship with the
government and successes and failures of the Oil Diagnostic to
date. It examines what the Oil Diagnostic and failed efforts at
reform can tell us about Angolan government oil revenue
mismanagement, and what continuing difficulties in obtaining basic
information from the government and major gaps in the data tell us
about the ground still to be covered before the Angolan government
can meaningfully be said to embrace transparency and
accountability. It also analyzes how much money is missing in
comparison to how much has been spent on activities and
institutions that could facilitate Angolans' enjoyment of their
civil, political, economic, social, and cultural rights.
Based on research conducted in Angola, the United States, and
United Kingdom between 1999 and 2003, the report begins with a
brief overview of IMF efforts to promote fiscal transparency in
Angola. It then looks in detail at oil revenue mismanagement
revealed by the Oil Diagnostic, the massive scope of fiscal
discrepancies and unexplained Angolan government expenditures in
recent years, and systemic government attempts to limit access to
information. The report concludes with a survey of existing
international initiatives aimed at promoting greater transparency,
with analysis of how each might be used to promote change in
Angola.
II. Recommendations
To the Government of Angola
- Publish all of the Oil Diagnostic reports and make them publicly
available in Portuguese;
- Publish all details of incoming revenues and outgoing
expenditures;
- Publish the audits of the Banco Nacional de Angola (BNA);
- Conduct and publish an audit of Sonangol, beginning with the year
2000;
- Publicly disclose the amount and uses of Sonangol's and the
government's oilbacked debt;
- Revise the State Secrets Law so that disclosure of information by
third-parties is not a criminal offense when it relates to the use
of public funds;
- Authorize the publication of all IMF Article IV Staff Reports;
including those from previous years;
- Join the Extractive Industries Transparency Initiative as a
formal participant and implement its principles;
- Publish a National Plan of Action for the realization of
universal primary compulsory education. Such a plan should include
a detailed accounting of the funds required, funds allocated, and
accounting mechanisms to ensure their appropriate use;
- Publish a National Health Strategy in order to ensure the
progressive realization of the right to health. Such a plan should
include a detailed accounting of the funds required, funds
allocated, and accounting mechanisms to ensure their appropriate
use;
To the International Monetary Fund
- Ensure that any new Staff Monitored Program includes requirements
to publish the Oil Diagnostic reports; that audits of Sonangol and
the BNA are made public; and that a full account of revenues,
expenditures, and debt is made public as part of a new Staff
Monitored Program and before any formal lending program with the
IMF is finalized.
To the World Bank
- Insist upon full compliance and implementation of the
transparency measures contained in the Transitional Support
Strategy before considering new lending;
- Make future cooperation with the government of Angola contingent
on publication of all of the Oil Diagnostic reports; publication of
audits of Sonangol and the BNA; and publication of a full account
of revenues, expenditures and debt.
To Donor governments, the G-8 and Member Governments of the
Extractive Industries Transparency Initiative
- Press the government of Angola to join the EITI and ensure that
companies also participate in the initiative with respect to
Angola;
- Require that Angola publish the Oil Diagnostic reports; that
audits of Sonangol and the BNA are made public; and that a full
account of revenues, expenditures, and debt is made public prior to
an agreement to hold a donors conference;
- Develop mechanisms mandating that companies disclose their
payments to governments.
To Oil Companies Operating in Angola
- Encourage the government to publish the Oil Diagnostic reports;
that audits of Sonangol and the BNA are made public; and that a
full account of revenues, expenditures, and debt is made public;
- Disclose any signature bonus payments to the government publicly
at the time that they are paid;
- Join the EITI and comply with its principles.
...
The Soros Announcement
At this writing in mid-December 2003, the Angolan Government and
George Soros's Open Society Institute (OSI) appeared poised to
announce a new transparency initiative. The initiative is intended
to bring Angola into compliance with the EITI in exchange for
technical assistance, OSI programmatic support, and possible
investment from George Soros. Assistance and investment are
contingent on the government's compliance with the agreement.
Secret negotiations for the agreement began in March 2003 and
details of the agreement were made public in November 2003.
Originally scheduled for a public signing on November 13, the
initiative was delayed by the Angolan government. The official
signing and start date remain unclear at this writing.
The draft agreement would require the government to take a number
of steps to improve transparency within specified periods of time.
The government is supposed to publish the "results of the oil
diagnostic study" within sixty days after the signing of the
agreement and participate in the EITI. It is to state its intention
to publicly disclose all payments of "taxes, royalties, dividends,
VAT [Value Added Tax], customs duties, bonuses and other similar
revenues" that are paid by extractive industry companies to the
government. The government and Sonangol are to waive any
confidentiality clauses they have with companies so that the
companies can disclose their payments to the government. ...
The draft agreement calls for Sonangol to publicly disclose on its
website production levels, taxes, and transfers semi-annually
beginning in 2003. It also is to disclose proceeds of oil-backed
loans that are "transferred to the government or used to support
projects or purposes that are customarily the responsibility of
Government." Sonangol is to provide its financial results beginning
in 2003 and provide those results in a format compatible with
international accounting standards (IAS) from 2004. Future
contracts with Sonangol are not to have confidentiality agreements
restricting the publication of revenues.
Soros and OSI are to provide assistance to the government as long
as the previous requirements are met. They may provide consultants
to assist the government with macroeconomic issues who can aid them
in acquiring a debt rating or issuing debt. ... Overall, the
agreement would be an important step forward since it provides
meaningful incentives for the government to increase transparency.
Soros and OSI are only required to provide assistance or organize
investment if the government sufficiently complies with the
agreement. ...
If the agreement is signed, remains in its current form, and the
[limitations spelled out in the full HRW report] are clarified, the
key to success of the initiative will be the government's
willingness to implement its provisions. Historically, the
government has made commitments to improve transparency, but then
delayed or refused to implement measures necessary to fulfill those
commitments.
IX. Conclusion
In addition to decades of war and humanitarian crisis, the Angolan
public has had to bear the brunt of government mismanagement of
billions of dollars in public funds. Such mismanagement has
contributed to woefully inadequate social spending and underfunding
of institutions necessary to protect human rights. It also has been
accompanied by government unwillingness to hold free and fair
elections, possibly because officials fear that the government has
not sufficiently provided for the population and would not be able
to retain power if Angolans were able to express their preferences
freely.
From a human rights standpoint, the current situation is untenable.
It is difficult to imagine that government programs or institutions
essential to protecting human rights will be able to function
properly until the revenues of the state and its expenditures are
fully and accurately disclosed. Only then will the Angolan public
begin to have the tools required to exercise meaningful oversight
over their government. Without such steps, the dire humanitarian
situation may worsen and Angolans' rights to health and education
will not be fulfilled. Historically, every effort to increase
transparency and accountability has been met with government
intransigence. The limited steps the government has taken, such as
releasing the executive summary of the first Oil Diagnostic report
and authorizing the publication of the 2003 IMF Article IV Staff
Report are positive. But they are small steps and much more remains
to be done to make the government genuinely accountable.
However, a small window of opportunity for reform may have opened.
The government has mismanaged the economy to the point where it can
no longer rely on past practices, lurching forward from crisis to
crisis and still avoiding accountability. But if Angolans are going
to finally have the opportunity to exercise adequate oversight over
their collective wealth and its use, it will require a concerted
effort by the government and consistent pressure from the
international community.
The proposed Soros initiative is a positive step that could
facilitate greater transparency. Given Angola's record of failing
to implement promised reforms, however, additional efforts are
necessary. One important tool would be another IMF SMP with
detailed requirements of public disclosure and accountability.
Regardless of what one may think of the overall economic
proscriptions of the IMF, it is clear that the Fund has been one of
the most consistent and forceful proponents for government
transparency in Angola. However, the government has not expressed
much interest in a new IMF program. If negotiations between the IMF
and government continue, it is crucial that the international
community generally, and the IMF in particular, insist upon full
audits of Angola's oil revenues and expenditures; publication of
data; revision of laws that prevent government oversight; and full
disclosure of debt. Otherwise Angola will remain an example of how
not to govern and how mass impoverishment can coexist with
substantial natural resource wealth.
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