Memorandum submitted by Global Witness
THE CASE
OF ANGOLA—WHERE
THE CONFLICT
HAS BEEN
PRIVATISED BY
THE OILIGARCHY
Introduction—background to Global Witness
Global Witness is a not-for-profit London based
NGO, which focuses on the role of natural resources in the funding
of conflict.
Today, Angola provides one of the worst examples
of state plunder anywhere in the world. It is a country with greater
than three million people entirely dependent on emergency food
relief—this at a time when US$ billions have been and continue
to be siphoned off by the country's elite. The situation is made
all the worse, given that this huge level of corruption does not
centre only around Angola's oiligarchy—as Global Witness
have named them; in reality, the rip-off of the Angolan State
is as much an international scandal of complicity (to various
degrees) with enormous private and state vested interest due to
oil playing a key role.
There are always two sides to corruption—the
corrupted and the corrupter, and many of the corrupters in Angola
are the very same individuals and companies which have operated
in a similar fashion in countries such as Gabon, Congo-Brazzaville,
Cameroon, and Nigeria, etc. Angola also provides upwards of 8
per cent of US oil imports (set to rise massively over the next
few years), and so it is of immense strategic value to the United
States, and also to those European countries with significant
oil interests. In addition, it is important that the issues raised
in this document, though of course relating to Angola, are not
considered solely as Angolan problems. This is due to the fact
that the war economy is intimately connected to corrupt deals,
which in turn likely play a significant role in the capacity and
rationale for Angolan military involvement in the Democratic Republic
of Congo (DRC), and in Congo-Brazzaville.
Global Witness has considerable information
relating to the role of certain key individuals and companies
in this situation. Members of the Committee will doubtless be
aware of the recent arrest and detention of Jean-Christoph Mitterand
in Paris. He is but a component (by no means the key player) of
a complicated web of individuals which were involved on the one
hand in the provision of oil backed loans (ie a process of oil
mortgaging against oil not yet extracted—Angola currently
has the next 3-4 years of its share of oil production mortgaged
against such loans), and subsequently the provision of weapons
with the funds raised. At the time of writing, it is not clear
to what extent it will be possible to be fully candid about individuals
involved—this is due to the potential for legal process
and also safety considerations. At the time of the enquiry hearing,
within limits, it would be good to expand this discussion.
CORRUPTION AND
LACK OF
TRANSPARENCY AND
THE DE
FACTO PRIVATISATION
OF THE
WAR IN
ANGOLA
In December 1998, Global Witness published the
report "A Rough Trade", focusing on the role of the
international diamond trade in the financing of UNITA's war in
Angola. As many of you will know, this report with its key finding
that UNITA generated a conservative US$3.7 billion between 1992
and 1998, and subsequent press coverage was a major precipitator
of significant International Community focus on the issue of "conflict
diamonds". International attention and focus on this issue
then received a major boost through the very pro-active involvement
of both the US and UK Governments, which in turn took on a greater
urgency following the events of early 2000 in Sierra Leone itself.
In December 1999, Global Witness published "A
Crude Awakening", which sought to examine the other side
of the Angolan conflict; the role of massive corruption on the
government side, and the effect of a considerable lack of transparency
on behalf of the oil companies operating in Angola, and lastly
the role of the international banking industry which has provided
numerous loans, against future oil extraction. In the latter case,
the resultant monies being subject the same lack of transparency,
and being passed through opaque channels, resulting in funds being
siphoned off through secret arms deals. It is this corruption
aspect of the Angolan tragedy which is not only key to the conduct
and outcome of the war, but also which has been significantly
affected by developed world foreign policy to Angola.
In late 1997, or early 1998 (the exact timing
is not clear), the contract for arms procurement for the Angolan
Armed Forces (FAA) was removed from an Angolan parastatal company
known as Simportex and given to a private company—company
X. At roughly the same time the contract for food supplies to
the FAA was given to another company—Company Y—which
is a sister company of Company X. This decision was made by the
highest level officials in the Presidency, known as Futungo.
Companies X and Y are subsidiaries of a company
connected to certain individuals who have been instrumental in
the provision of oil-backed loans—these individuals have
been implicated in the recent scandal which surrounds the arrest
of Jean-Christoph Mitterand. These same individuals also organised
the "lifting" of the oil (in order to pay back the loans)
by a very well known oil trading company that was notorious during
the 1980s as a leading oil sanctions buster to Apartheid South
Africa. These same individuals, who have been the quasi-monopoly
weapons suppliers to Angola since around 1993/4 through Simportex,
are now supplying both the financing and weapons, and food and
in fact all supplies required by the FAA through companies X and
Y.
What are the implications of this new arrangement?
This new method of supply has resulted in a
number of changes. Whereas, the suppliers referred to above previously
benefited from large kick-backs sometimes amounting to 30-40 per
cent and which were shared with top-level officials, the margin
of profit has escalated. This is because whilst previously they
profited from the kick-backs alone, they now benefit from both
these kickbacks and the profits generated from their joint ownership
with Angolan officials of Companies X and Y.
This removal of the contract from the Angolan
parastatal to Company X represents a de facto privatisation
of the current phase of Angola's civil war. This is because every
item from bombs and bullets to clothing and food generates money
for those who are involved in Companies X and Y. If, as most objective
commentators once again recognise, there is no military solution
to the current conflict in Angola, then the current scenario represents
a serious conflict of interest, given that those who should be
seeking a peaceful outcome to the war, are in fact making money
from its very continuation. A subsidiary of company X for example
received more than US$1 billion in kickback revenue during 2000
alone and this is not the only vehicle for capital flight from
Angola.
It is clear that frequently supplies of weapons
and other commodities purchased through these individuals, both
prior to and after the involvement of Companies X and Y, were
not always up to the job. There have been many occasions where
weapons including tanks and other heavy weaponry were literally
dragged off the supply ships, because they were unable to be driven
off under their own power. This purchase of inadequate military
equipment has made up a significant percentage of overall supply
in recent years, and is consistent with imports of other commodities,
such as rotting meat from Portugal, which appear to have been
obtained for the commission alone.
The mid 1999 successes of the Angolan Armed
Forces in part relate to the fact that these and other suppliers
finally delivered weaponry (involving the same kickbacks) of sufficient
quality and quantity to do the job.
Whilst it is obvious that the war in Angola
has been a massive drain on the State's finances, and hence capacity
for development, it is also very clear that corruption has taken
a vast percentage of potential State income, of which in recent
years, over 90 per cent of been derived from oil. Given that oil
(in fact all state natural resources) is enshrined in Angola's
Constitution as belonging to the people of Angola, it is very
difficult to see where any benefit has been derived by Angolans
from their resource. This is clearly illustrated by Angola's free-fall
from position 73 (out of 172 countries assessed) in the UN's Human
Development Index (HDI), when daily production was 482,000 barrels,
to position 160 by 1999, when production had reached 770,000 barrels
per day. It should be noted that the volume of oil production
in Angola has since increased, with no appreciable change to the
country's HDI position—see Appendix.
The capital, Luanda, is a vastly over-populated
(due to the influx of war refugees) sprawl, which some describe
as the second most expensive city in the world. It is a city of
utter squalor, mixed with a smattering of very expensive boutiques,
available only to the elites. Whilst hordes of children sift through
the garbage, the elites sometimes drive past in their limousines;
or as many do, en route to the airport for a spot of shopping
in Lisbon for the weekend. Many of the other major towns in the
countryside resemble Dresden after World War II.
What is the value of oil to the Angolan Economy?
Angola is sub-Saharan Africa's second largest
oil producer, following Nigeria, with recent discoveries suggesting
it soon become the largest. Oil revenue makes up some 90+ per
cent of state income. One might presume that for such a significant
sector, it might be relatively easy to determine the actual dollar
value of this resource to the economy - this of course would not
be difficult in any developed country. But in the Angolan case,
as for many developing countries where resource revenue is siphoned
off to benefit an elite class, the lack of transparency makes
this task almost impossible.
Global Witness conducted investigations in an
attempt to uncover raw data to calculate the dollar contribution
of oil to the Angolan economy. The results, not only demonstrate
the difficulty of such a task, but also clearly indicate the difference
between the access provided to civil society in developed countries
regarding transparency of tax contributions of major business'
to developed country economies, and the lot meted out to Angolans.
I will return to this theme later.
From the best available data, Global Witness calculations
indicate that Angola generated between US$1.8 billion and US$3.0
billion annually for the period 1990-1999. Clearly there is considerable
variation year on - some of which is reflected in global oil price
fluctuations, but a significant source of this variation is due
to the lack of available and accurate data. In other words, this
estimate is not one that should be considered as particularly
accurate. In contrast, by late 1999, analysts were predicting
an annual income from oil of US$2.9 to US$3.2 billion for the
years 2003 through to 2010, with other forecasts suggesting that
the industry is set to invest some US$18 billion over the next
four years in Angola.
Global Witness has also made its own calculations
of estimated income from oil in Angola over the period 2000 through
to 2006. This forecast is based on analysts' predictions for oil
volume extraction compared to two different, but conservative
estimates of global oil price—of US$ 12 and US$ 18 per barrel.
Given these current forecasts, we estimate that Angola will receive
between US$1.4 billion and US$2.7 billion annually respectively
over the next six years. It is worth pointing out that for much
of 1999 and 2000, the global price of oil has hovered at or above
the US$30 per barrel level (it has only recently fallen to a value
in the low US$20s). Clearly, it is unrealistic to suggest that
this price will be maintained in the long term (as we may be seeing
now), but it is worth noting that such high levels and therefore
higher than estimated income levels have been maintained for a
significant proportion of the period we are looking at.
The role of civil society in Angola
Angola's growing civil society is gradually
escalating its opposition to the war, and is also seriously questioning
the scale of corruption that is governing the country. However,
NGOs and the press in Angola are facing an enormous up-hill battle
against seemingly impossible odds. Those that have dared to challenge
the current situation, and who have publicly voiced their concern
over corruption by state officials have been ruthlessly dealt
with—perhaps the best known case is that of Rafael Marques
who has been tried for "defaming" President dos Santos
because he accused him of corruption. His case should in no way
be considered in isolation, and the response has been to pursue
such cases on a criminal basis, rather than through the civil
courts. Although there is a growing independent press in Angola,
they are severely limited in their capacity to cover contentious
issues—Folho 8, which attempted to cover the launch of Global
Witness' "Crude Awakening" report in December 1999,
found its printer threatened, which then refused to print the
first four pages of the paper—the banner headline front
page leads with the launch of the report, but inside, the reader
is treated to four pages of blank columns interspersed with photographs
of oil rigs.
It is very clear that in addition to the almost
complete lack of available data concerning the true value of oil
production to the Angolan State, it is also not possible for Angolans
to question any of the decisions of the state, as to its conduct
of the war, or the economy. Despite the constraints placed on
a state at war, this situation is clearly unacceptable, especially
given the implications for the Angolan people and the vast benefit
being generated by the elite few through the continuation of current
practices, at the expense of the population. There is no accountability
of government in Angola today, and the scale of looting is approaching
that of Abacha in Nigeria, and Mobutu in former Zaire.
The role of oil companies in Angola
Currently, there is no significant transparency
by the oil companies in Angola. In stark contrast to the availability
of tax and royalty data to the general public in developed countries,
through the standard process of filing annual accounts by companies
and other such reporting requirements, such data is not available
in Angola. Given that Angolans have no recourse to the data that
they would require to at least begin the process of holding their
government to account for its use of this resource, this situation
of lack of oil company transparency is also clearly unacceptable.
In July 1999, the three oil companies BP-Amoco,
Elf (now TotalFinaElf) and Exxon, finalised their agreements with
government for the three ultra-deep water oil blocks, respectively
Blocks 31, 32 and 33. The three companies paid a total of US$870
million dollars in signature bonus', of which Global Witness estimates
that between US$4-500 million was "disappeared" through
the Presidency. Not only have the above companies not published
details about these payments, but in effect they went along with
the Angolan Government's desire to keep these payments covered
up by signing confidentiality clauses.
Global Witness believes, due to the lack of
company transparency, that the oil companies that are operating
in Angola are complicit in the plunder of Angola by the country's
elite. This is not to say that the companies are directly involved
in the paying of bribes, though some clearly are. But, it is saying
that the companies are playing the key role in the provision of
over 90 per cent of Angola's State income, and given that it is
this income which is being stolen, they cannot absolve themselves
from that relationship and responsibility without taking every
step to ensure that it is as hard as possible to siphon off such
revenue. It is therefore clear that the companies can only escape
from such a charge through all the companies collectively publishing
all payments they make to government (taxes, royalty and signature
bonus payments etc) just as they already do in developed countries,
such as the US, UK, Holland and Norway.
The role of the banking sector
The international banking sector has played
a key role in the provision of short-term, high interest loans,
which have severely exacerbated the effect of oil price fluctuations
on Angola's economy, and which have significantly increased the
national debt.
Many of these loans have been negotiated in
secret, and the resultant monies have been utilised through the
same opaque system as oil-derived state income. The value of the
loans which have been provided against future oil extraction have
been so vast that by 1998-99, Angola actually derived little physical
income from the volumes of oil production, because the vast bulk
of this revenue was needed to service the expanding debt. Of course,
the conduct of the war, required continued funding, and so new
loans have continued to be negotiated, greatly assisted by the
high oil price; many of the negotiations involving the same individuals
already referred to above, who are intimately involved in the
supply of weapons to Angola.
The Angolan parastatal oil company Sonangol
is one of the main routes of loan repayment, often involving the
direct selling of oil, with resultant revenues being directed
through off-shore accounts. One of the implications of such a
significant proportion of state revenue being directed via off-shore
financial systems, is the development of a set of parallel financial
systems within the Angolan economy. This simply adds to the lack
of state transparency, providing ample opportunity for further
misappropriation. It has also allowed for Sonangol to discount
its tax liability to treasury, with the result that a large proportion
of the Angolan economy being run through a set of foreign bank
accounts—this set of off-shore parallel finances being controlled
by the various elites within Angola, with the vast bulk by the
Presidential clique.
Given not only the scale of the loans which
have been provided, but also the level of secrecy surrounding
their negotiation and the subsequent control which is being exercised
by the elite over the off-shore repayment structures, there is
clear complicity of those international banks which are involved,
in the plundering of Angolan state revenue. As for the oil companies,
the international banks should publish full details of existing
and any new loans that are made available, and they should insist
that full transparency concerning future loans be a condition
of agreeing further financing. Given the risk of providing loans
to Angola, it would also be in the interest of banks considering
loans to Angola, to insist on a radical change in the level of
transparency exercised by Angolan State institutions.
The role of the IMF and the World Bank
For some time the IMF has been trying to restart
a programme in Angola. It came close to an agreement with the
Government in 1998, when the international oil price fell below
US$10 per barrel. This was because Angola was close to defaulting
on its international debts due to the low oil price. The Government
was becoming desperate to secure new and preferential rate loans,
which would only become available through an IMF agreement. In
early 1999, the government did make some positive changes to the
state financial systems, by posting Aginaldo Jaime as the new
head of the National bank of Angola (BNA). This was a significant
improvement, because the BNA had been a major partner in the system
of state robbery, and Mr Jaime appears to be well respected in
the international community.
However, despite the improvements that Mr Jaime
continues to implement to the operation of the BNA and various
other structural changes, there are still significant improvements
required. These concern not only the fact that a vast percentage
of Angola's economy (as already described) takes place entirely
off-shore, but also the role of both Sonangol and the role of
the Presidency in the deployment of state revenue.
In April 2000, the IMF finalised its "Staff
Monitoring Programme" (SMP) agreement with the Angolan Government.
This agreement is a positive step forward that Global Witness
welcomes as a useful first stage towards improving transparency
in Angola. However there are serious flaws in what is being proposed.
These include:
1. There is no provision for any significant
retrospective analysis of the oil accounts and subsequent expenditure
for the period 1998 to the present day—perhaps the worst
period for massive corrupt arms deals, involving both oil and
loan revenue, in Angola's history.
2. The agreement appears to be only contemplating
an analysis (from July 2000 onwards) of oil revenue to government—as
far as the treasury—with no analysis of subsequent expenditure.
3. This analysis (known as the oil diagnostic)
was originally intended to run until the end of 2000 - for six
months only. This now appears to be extended until late 2001.
However, there appears to be no consideration as to what happens
after that.
4. Given that a vast proportion of plundered
revenue has been siphoned off through a convoluted system of off-shore
companies and accounts, it is extremely doubtful if the team hired
to do the oil diagnostic will be able to deal with this problem;
meaning that the structures which have served the purpose of state
robbery so well, will likely remain in place.
In fact, the auditing company KPMG have now
been hired to undertake this project. To date, the international
community has been keen to promote the IMF programme as an "audit"
of the oil accounts, and as the start of a clean up process. This
now seems extremely unlikely, given the fact that even KPMG staff
have been keen to stress that this work does not constitute an
audit. A spokesman recently even stated that he could not confirm
whether their work would lead to a greater level of transparency
in the future - begging the question as to what this work is really
intending to achieve?
The World Bank had pulled out all its country
staff in 1999, leaving a token office representation in Luanda.
The Bank was recently tasked to hire the international accountancy
company for the "oil diagnostic" (KPMG—see above),
according to the IMF's SMP agreement. It seems likely that once
the diagnostic team is operational, that the Bank will resume
its activities in Angola.
It is imperative that international pressure
is brought to bear to ensure that the IMF's SMP programme is truly
a programme worth having. Global Witness appreciates that there
is a balance to be drawn between having the programme, and pushing
too hard and losing it all—however, if the price of having
the programme is such that it will not deliver transparency, that
it remains severely compromised as described above, then it seems
likely that the IMF's programme will be insufficient for the job
required.
This is of major concern, because if the Angolan
Government does perform according to what is required of this
flawed programme, leaving significant areas of corrupt activities
in place, which the diagnostics team is simply going to miss,
then the logical next step is a likely resumption of international
aid, where we can envisage a scenario where the international
donor community pump US$ millions into redeveloping the country,
whilst the country's elite continue their looting. Whilst in the
long run, Angola does desperately need international assistance,
Global Witness believes that such an outcome will send the wrong
message and will allow for a continuation of current practices.
The role of the UK and the International Community
It is very hard to be precise about the role
of the UK in the continuation of current corrupt practices in
Angola. On the one hand the UK Government, together with the US,
has played a very valid role in pushing the "conflict diamond"
issue to date. Here congratulations are certainly due. This is
of course another area where corruption is also an issue.
There is a very strong perception amongst the
NGO community and beyond, that the US and other governments with
oil interests in Angola (especially France which fits into a category
all of its own), because of the nature of oil, will make all the
necessary "token" noises about corruption, how bad it
is, etc, but in the end will do nothing, because they do not want
to upset the elite in Luanda, which may have repercussions for
oil companies. The US-Angola chamber of Commerce, which could
be seen ostensibly as a positive vehicle, may in fact be contributing
to the impression that the primary concern appears to be business
interests regardless of other factors.
Despite having had the opportunity to brief
IMF officials directly involved in the SMP negotiations with Angola
as to some of the essential areas which desperately need addressing
on no less than three occasions prior to the signing of the SMP
agreement, and having similarly done so with the other key oil
interest countries, all of whom have significant influence at
the IMF Board, Angola is now left left with an SMP agreement which
is flawed and deeply inadequate, as described above. To what extent,
if any, the country's policies, or their lack, may have led to
this situation is not clear.
What next—solutions to the current situation
Regardless of what may or may not have been
undertaken by the various governments involved in the past, there
is an area which I have briefly focussed on which has not yet
been tried out. This involves all the major oil companies that
are present in Angola. It is an initiative which has been started
by the UK Government and which, I hope, can also include a significant
involvement from the US Government, together with the initial
moves which are being made by the UK Government, and which will
hopefully also involve other governments as the strategy moves
forward.
As I have already described above, there is
clear complicity of the oil companies in Angola in the looting
of state assets. Many of the companies are clearly and genuinely
concerned about this situation, I think both in terms of the implications
for the Angolan people, but also because it does not make sound
business sense to be operating in an utterly corrupt environment.
There are others, unfortunately who are directly involved in this
problem, and I would like to provide more detail in private.
The key for the companies to escape this charge
of complicity is that they need to publish all payments they make
to government in all the countries of operation. Effectively,
they already do this across the developed world - so why not for
all countries. It is clear that for companies that are not involved
in illicit payments that this should not be a problem.
If the companies were to adopt such a change
across all countries of operation, the result would be to "de-Angolanize"
the issue—the companies could then easily explain their
move as part of a global move to reform accountancy practice to
adopt highest standards in order to act as "responsible global
citizens" regarding issues of corruption and lack of transparency.
If such a move was adopted, no one country could blame a company
for its actions, since these would take place internationally.
It is certainly clear that a similar move would be of immense
value in countries such as Nigeria, Gabon, Cameroon, Congo-B,
and the DRC, to name just those in Africa.
I hope this is a strategy which appeals to the
International Development Committee and that Global Witness might
be able to ask for your assistance to take this forward. Angola
desperately needs a radical change, and although this will not
cure the ills, such a move would provide the necessary data (at
no cost to the companies), which would at least allow Angolans
to start the process of holding their Government to account for
its actions. In addition, I strongly believe that genuine transparency
on behalf of the companies, together with a real focus on this
issue from the international community would be a major help to
the IMF in its efforts through the SMP and any subsequent agreements.
Simon Taylor, Global Witness
January 2001
For further information regarding this issue,
the following documents will be useful:
"A Crude Awakening"; Global Witness;
December 1999. Available at: www.globalwitness.org/
"A Rough Trade"; Global Witness; December
1998. Available at www.globalwitness.org/
The New Yorker; August 14, 2000—Page 46-59—"Letter
from Angola—Oil and Blood" by Jon Lee Anderson.
"The International Monetary Fund's Staff
Monitoring Program for Angola: The Human Rights Implications";
A Backgrounder by Human Rights Watch—June 22, 2000—updated
and available from: www.hrw.org/press/
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