April 13, 2010

I. Summary

The government of Jose Eduardo dos Santos, in power in Angola since 1979, has historically mismanaged the country's substantial oil revenues and used its control over oil wealth to insulate itself from public scrutiny. While the government has introduced some important reforms in oil sector transparency in recent years, far more needs to be done to curb corruption and give Angolan citizens the tools necessary to hold the government accountable for its actions.

This report examines reforms to date, details recent corruption scandals, and offers recommendations on steps that Angolan authorities, the International Monetary Fund (IMF), and key partners such as China and the United States can take to ensure that reforms are meaningful and lasting.

The scale of corruption and mismanagement in Angola has been immense. Human Rights Watch and others have previously documented how, while Angola's development indicators remained among the worst in the world, billions of dollars in oil revenues illegally bypassed Angola's central bank and disappeared without explanation. For example, from 1997 to 2002, approximately US$4.2 billion disappeared from government coffers, roughly equal to all foreign and domestic social and humanitarian spending in Angola over that same period. While millions of impoverished and war-ravaged Angolans went without access to hospitals or schools, billions of dollars were squandered that could have gone to providing necessary social services.

Such missing revenues reflect a failure of government accountability more generally and are directly linked to the Angolan government's failure to foster institutions that uphold the rule of law and human rights. Disclosure of the massive corruption and mismanagement of the country's wealth has made the government a symbol of the depredations of a resource-rich, but unaccountable government. It was denied access to funds from institutions like the IMF, and western donors refused to hold an international aid conference because of concerns that any new assistance might only subsidize mismanagement and corruption.

Angola's brutal nationwide civil war ended in 2002-with the exception of the enclave of Cabinda, where a separatist insurgency has continued-thus allowing the government to focus on rebuilding and providing for its suffering population. The end of the war also coincided with a massive increase in oil revenues due to increased production and a dramatic increase in the global price of oil. As a result, the country's gross domestic product (GDP) grew more than tenfold between 1997-2008, from $7.8 billion in 1997[1] to some $83.4 billion only 11 years later.[2]

The end of the war and the country's newfound wealth also coincided with the rise of China and other rapidly growing countries with a thirst for oil comparable to their western counterparts. Angola found major new sources of financing, new allies, and fewer calls for reform. But corruption scandals abroad and glaring shortcomings at home in areas such as education and health have kept a spotlight on poor governance in Angola.

The government has taken some steps to reform since the civil war ended in 2002. It now publishes timely accounts of oil revenues; it has instituted a financial management system to track government expenditures; it has audited the powerful state-owned oil company; and the president has recently launched a forceful public condemnation of government corruption.

But basic indicators of development, especially when contrasted with those on corruption, do not suggest improvements commensurate to a 1,000 percent increase in the country's GDP in a little over a decade. There have been improvements in the country, such as rebuilt infrastructure, but its human development indicators have been dismal.

When the country was wracked by civil war and its economy was less than one-tenth its current size, Angola ranked 157th out of 175 countries in the United Nations Development Programme's Human Development Index (HDI). In 2006, the country ranked 161st out of 177 countries.[3] In 2007 and 2008, the country ranked 159th out of 179 countries.[4] While in 2009 it improved to 143rd out of 182 countries,[5] it still ranked 162nd out of 180 countries in Transparency International's 2009 Corruption Perceptions Index.[6] That was a worse corruption ranking than in 2008 when the country ranked 158th out of 180 countries.[7] It has been among the most corrupt countries in the index since the index first appeared in 2000.

Moreover, President dos Santos and his ruling Popular Movement for the Liberation of Angola (Movimento Popular de Libertação de Angola, MPLA) are more entrenched in government than ever before. The party won an overwhelming parliamentary majority in the September 2008 elections, gaining control of 191 out of 220 seats. In January 2010, the parliament ratified a new constitution that eliminates presidential elections and allows President dos Santos, assuming he remains party leader, to remain in power until 2022, 43 years after he first came to power.

Angola remains an example of the problems that plague a resource-rich state. It relies on a centrally controlled major revenue stream and is therefore not reliant on domestic taxation or a diversified economy to function. Its rulers have unique opportunities for self-enrichment and corruption, especially because there is not enough transparency or political space for the public to hold them accountable. There are enormous disincentives to relinquish political power because it is also a path to economic enrichment.

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 like oil can serve to reinforce or exacerbate an undemocratic or otherwise unaccountable ruler's or governing elite's worst tendencies, providing the financial wherewithal to entrench and enrich itself without significant pressures for accountability. It is no accident that the president of Angola, one of the world's major oil producers, is entering his fourth decade in power.

Despite limited reforms and a political economy that creates enormous obstacles for improvements in governance and human rights, 2010 offers some prospects for change. Like many oil-dependent countries, Angola rides an economic boom-and-bust cycle tied to the volatile price of oil. Historically, the country has gone to the IMF in times of hardship, only to reject their calls for reform when the price of oil rebounds. After almost a decade of boom, the global economic crisis and fall in the price of oil have led Angola back to the IMF, and this time they have accepted $1.4 billion in emergency funds. In exchange they have agreed to complete audits of Sonangol and to better track government expenditures, steps that could significantly increase government accountability if they were done and made public.

This may also be an opportunity for key trading partners to press for change in Angola through the IMF framework. The Chinese government, Chinese companies, and US companies, are the largest investors, trading partners, and consumers of Angola's oil. The Chinese government and Chinese companies have invested billions in oil-for-infrastructure deals while remaining relatively silent on governance in Angola and elsewhere. Of particular concern is the China Investment Fund, a prominent private Chinese company that has extensive ties to Sonangol. The United States has been outspoken about corruption, but some of its policy proscriptions are unlikely to have a significant impact. Both have an opportunity to hold the Angolan government accountable to commitments it has made under the IMF agreement.

The US Senate also has provided an opportunity for reform because it has exposed how corrupt officials and businesspeople in Angola have moved funds to the United States. In a February 2010 report the Senate provided a comprehensive set of recommended reforms that would make it harder for kleptocrats to steal their citizens' money and move it to the United States. Human Rights Watch believes that these measures are critically important to help ensure that corruption does not undermine human rights in Angola.

This could be a turning point for reform in Angola. But without political will on the part of the government and meaningful pressure from the international community, it could be another squandered opportunity to use the country's immense natural wealth for the benefit of its people.

[1]Human Rights Watch, Angola-Some Transparency, No Accountability: The Use of Oil Revenue in Angola and Its Impact on Human Rights  (New York: Human Rights Watch, 2004) http://www.hrw.org/en/node/12195/section/1; Economist Intelligence Unit, "EIU Country Profile 1998-99: Angola," 1998, p. 11.

[2] The World Bank, "Data Profile: Angola," 2000-2008, http://ddp-ext.worldbank.org/ext/ddpreports/ViewSharedReport?&CF=&REPORT_ID=9147&REQUEST_TYPE=VIEWADVANCED (accessed February 14, 2010).

[3] United Nations Development Programme (UNDP), "Human Development Index,"2006,  http://hdr.undp.org/en/media/HDR06-complete.pdf (accessed February 14, 2010).

[4] UNDP, "Human Development Index,"2007, 2008, http://hdr.undp.org/en/media/HDI_2008_EN_Tables.pdf (accessed February 14, 2010).

[5] UNDP, Human Development Index 2009, http://hdr.undp.org/en/media/HDR_2009_EN_Indicators.pdf (accessed February 14, 2010).

[6] Transparency International, "Corruption Perceptions Index,"2009, http://transparency.org/policy_research/surveys_indices/cpi/2009/cpi_2009_table (accessed February 14, 2010).

[7] Transparency International, "Corruption Perceptions Index" 2008, http://transparency.org/news_room/in_focus/2008/cpi2008/cpi_2008_table (accessed February 14, 2010).