Angola, Africa’s second-biggest oil producer, announced in October 2012 the creation of Fundo Soberano de Angola (FSA), a $5 billion sovereign wealth fund designed to ease the impact of commodity price volatility that spawned a massive liquidity crisis in the country in late 2009 and prompted Angolan authorities to seek a $1.4 billion bailout from the International Monetary Fund (IMF).
According to Angolan authorities, the Fund will use some of the country’s oil proceeds to generate wealth for future generations. But the three-member board set up to manage the fund is already raising some eyebrows.
Dr. Assis Malaquias, Academic Chair for Defense Economics at the Africa Center for Strategic Studies (ACSS) and author of numerous books and articles on Angola’s economy and politics, shares his thoughts in an interview with ACSS staff writer Serge Yondou.
Q: On October 17, 2012, Angola launched a $5 Billion sovereign wealth fund to invest in domestic and overseas assets. Could you explain what this type of fund is and how it works?
DR. MALAQUIAS: A sovereign wealth fund is an investment fund owned by a sovereign state. Such funds invest a state’s excess funds – often derived from the sale of natural resources – globally as a way to achieve specific economic, social, political, security, or symbolic objectives. Sovereign wealth funds are ideal for countries that are dependent on the export of natural resources like oil due to the volatility of the markets for such resources. Often, when the prices for such resources on the international markets experience significant declines, countries are faced with severe liquidity challenges. A sovereign fund sets aside some of the country’s earnings as a hedge against price fluctuations. It can also serve as a way to set aside a percentage of the wealth earned from the exploration of a country’s finite natural resources for future generations.
Q: The Angolan sovereign fund will be headed by Armando Manuel, economic advisor to President José Eduardo dos Santos. But, José Filomeno dos Santos, one of the president’s sons, will also sit on the board. This second appointment raises questions about the transparency of the fund’s management team. What do you think?
DR. MALAQUIAS: The Angolan government is not known for the transparent management of the country’s resources. In fact, it is widely considered to be one of the most corrupt governments in the world. President dos Santos and his family are regularly accused of having misappropriated billions of dollars in oil revenues for their private enrichment and that of a small ruling elite. The appointment of the president’s son to the new sovereign funds’ management team will definitely further substantiate the view that the dos Santos family has every intention to continue controlling Angola’s wealth.
Q: The World Bank estimated Angola’s GDP at $101 billion in 2011. It is also set to grow between 8 and 10 percent in 2012, thanks to higher oil prices and increased production. However, the country still faces high poverty rates and blatant social inequality. Can the new fund help lift Angolans out of poverty?
DR. MALAQUIAS: Yes, it can help, but only if it is managed with this objective – lifting Angolans out of poverty – as the main goal. But the past record of the Angolan government does not offer reasons for optimism. Since attaining independence in 1975, the Angolan government has squandered just about every opportunity to manage the national wealth for the benefit of the average citizen. Instead, the national wealth has been used to enrich a very small group of individuals who have political or family connections with the President. Most Angolans live in poverty. What Angola needs, more than a sovereign wealth fund, is a set of policies that provide equal opportunities for all Angolans to have opportunities to improve their lives in all spheres of productive activities. Concurrently, Angola must also put in place mechanisms that prevent public funds from being captured by individuals and used for private ends. Those funds could then be used to expand/support both public and private investments to generate well-paid employment opportunities for all.
Q: Angola has been a major oil producer in Africa for decades, and President dos Santos has been in power since 1979. Why create the sovereign wealth fund now? How do you explain that?
DR. MALAQUIAS: The Angolan government understands that oil – its main source of revenue – is a finite resource. Sooner or later, there will be no more oil. The government will then be faced with two basic dilemmas: the first is economic – how to prevent economic collapse if the economy is not sufficiently diversified by the time oil runs out; the second is profoundly political – how to maintain political stability when the majority of the population’s aspirations for a better life cannot be fulfilled because the government no longer has access to revenues derived from oil. Setting up a sovereign wealth fund is a way to preempt both scenarios. The question is whether the government has sufficient time to address both the economic and the political dilemmas before it is too late.
Q: More broadly, is the sovereign wealth fund the best way for oil-producing African countries to diversify their oil-dependent economies?
DR. MALAQUIAS: No. The best way for oil producing African countries to diversify their economies is to manage their resources in efficient, transparent, and accountable ways for the public good. Oil monies must be invested in education, health care, infrastructure, food production, and all the other sectors that enable a country to develop in sustainable ways. This must be accompanied and supported by policies that support economic growth and overall development. It is the role of government to do this. A government cannot devolve its responsibilities to a sovereign wealth fund, however rich or well managed that fund may be. The role of the sovereign wealth fund is not to do the job of a government. It is simply a tool for a government to use excess funds either to save/invest for future generations or for a time of real need.
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