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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

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

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.


AfricaFocus Bulletin is a free independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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