Corruption Issues in Angola's Oil and Mining Industries

Oil and diamonds comprise the vast majority of Angola's exports, and several foreign investors are involved in Angola's extractive industries. Angola is Africa's largest oil producer and has joined the Organization of Petroleum Exporting Countries (OPEC) in 2007. The oils sector accounts for over 50% of Angola's GDP and over 90% of export revenues and over 80% of government revenues. An increasing number of Chinese companies have established themselves in oil and mining, and they are often engaged as sub-contractors in the many large construction projects financed by Chinese oil-backed loans to the Angolan government. Foreign investors in the oil sector should prepare themselves to operate on an uneven playing field characterised by government institutions notorious for high levels of corruption, patronage, inefficiency, and contract-breaking, as illustrated by the Bertelsmann Foundation 2006. This environment poses a challenge to investors, as contracts are not easily enforced through the Angolan judiciary.

The capital-intensive oil sector benefits relatively few people as government revenues from oil production are not distributed equally. The Angolan government has borrowed USD billions in oil-backed loans and continues highly unsustainable spending practices. This has allowed President Dos Santos to establish 'a state within a state', financed by flows from the Angolan central bank and the state oil company, Sonangol. Most of Sonangol's income is diverted to the ruling elite through complex offshore financial systems involving a multitude of subsidiaries and accounts in tax havens. The high oil revenues are also used by the government to control the already weak political opposition, as, when the situation requires it, it buys political support from MPs and other high ranking public officials. A detailed 2011 study by Global Witness of the Angolan government's misappropriation of oil revenues shows that none of Sonangol's income remains is independently accounted for, with frequent differences in government ministries responsible for the money. According to this study, there are also reports on the disappearance of USD millions if not billions paid by foreign oil companies in signatory bonuses in return for drilling rights.

Angola has not subscribed to the principles of the Extractive Industries Transparency Initiative (EITI), which set a global standard for companies in the extractive sector to publish what they pay to governments, and for host governments to disclose what they receive from these companies. The government has in the past discouraged extractive companies from disclosing details on their payments to Sonangol. Under pressure from international institutions, however, some progress has been made regarding Sonangol, which now publishes details on oil licensing competition and allows international audits. However, some observers suggest that the changes have only shifted the patronage system from the income side of Sonangol to the expenditure side, which includes kickbacks in procurement, the awarding of contracts to politically controlled companies, over-billing and the sale of state assets below market value. Despite the increase in available information about the bid rounds for oil exploration and production blocks, Revenue Watch Institute Angola profile illustrates that the processes by which local companies are granted equity stakes in oil consortia and companies are awarded sub-contracts, remain largely opaque.

Nevertheless, according to the Human Rights Watch Transparency and Accountability in Angola 2010, the government has significantly increased the transparency of oil revenues. For example, the Ministry of Finance has published the details of oil production by oil block on its website (in Portuguese), and the government has disclosed massive signature bonus payments since 2004. The ministry publishes detailed monthly data on oil production and oil exports, as well as the revenues that accrue to the government from those sales. According to the report, the website has significantly increased transparency in government oil revenues and, to a lesser degree, diamond revenues.

Currently, the Angolan diamond sector, amid the partial cleanup of the oil industry, represents a new instrument for illegal income for high-level figures. In fact, despite the high volume of production, tax revenues from the diamond sector remain low, allegedly due to under-reporting of official diamond production. The discrepancy between officially registered diamond production and estimates of the real diamond production is immense, indicating high levels of illegal mining and trade with diamonds. According to the Revenue Watch Institute Angola profile, the government has started publishing monthly data on diamond production and revenues, but these are not disaggregated between extracting companies. The level of transparency in the sector is therefore still very low, as indicated by the US Department of State 2010, typified by the National Diamonds Company (Endiama) who did not make public its audits. Foreign diamond companies are forced into joint ventures with the state-owned Endiama and a range of minor local companies. These domestic companies are mostly run by political allies and/or insiders.