Angola Country Profile

Oil and Mining

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. In the same year, oil accounted for around 55% of Angola's GDP and close to 90% of government revenues. The US and China are the largest purchasers of Angola's oil and Angola surpassed Saudi Arabia as China's single largest source of crude oil imports in 2006. 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. According to several observers, 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. This environment poses a challenge to investors, as contracts are not easily enforced through the Angolan judiciary.

The capital-intensive oil sector employs and benefits relatively few people as government revenues from oil production are not distributed equally and effectively. 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. Despite the fact that national law requires oil revenues to enter the accounts of the central bank, 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 2004 study by Global Witness of the Angolan government's misappropriation of oil revenues and foreign aid shows that almost none of Sonangol's income remains in Angola. According to a 2005 report by the World Bank, this dual system of financial management imposes great costs on the Angolan economy. There are several reports on the disappearance of USD millions paid by foreign oil companies in signatory bonuses in return for drilling rights. The International Monetary Fund (IMF) approved a $1.4 billion loan to Angola in November 2009 to help it combat the adverse effects of the global economic crisis. However, the anti-corruption watchdog Global Witness had expressed concern over granting such a loan as it argued that it would risk efforts at condoning widespread corruption in the country's government.

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 though, 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 reports that the processes by which local companies are granted equity stakes in oil consortia and firms are awarded sub-contracts, remain largely opaque.The government is exerting strict control on the access to information through intimidation and violence coupled with the use of bribery to co-opt individuals and organisations who publish information on these matters. Observers argue that the vast amount of natural resources has decreased the government's reliance on non-oil taxes to such a degree that it has made the Angolan state independent from the Angolan society and business community with regards to tax revenues. 

Angola also has considerable deposits of diamonds, gold and iron. Foreign investments in the diamond sector are on the rise and Angola is currently the world's fourth-largest diamond producer. Angolan diamonds are of high quality and diamond production is steadily increasing. The diamond sector, amid the partial cleanup of the oil industry, represents now a new instrument for illegal income for members of the ruling elite. 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 confirmed by the US Department of State 2008. Foreign diamond companies are forced into joint ventures with state-owned Empresa Nacional de Diamantes de Angola, E.P (Endiama) and a range of minor local companies. These domestic companies are mostly run by political allies and/or insiders.