Will Angola’s sovereign wealth fund allow it to adapt to falling oil prices?
Amidst declining global oil prices, Angola – Africa’s second largest oil producer – has announced plans to minimize its dependence on international commodity exports by dedicating part of its sovereign wealth fund to infrastructure and hospitality projects.
Angola’s $4.95 billion sovereign wealth fund, the Fundo Soberano de Angola (FSDEA), has launched a $1.1 billion dedicated Infrastructure Fund focused on investments in energy, transport and large industrial developments across Sub-Saharan Africa. Additionally, $500 million of equity capital has been earmarked for a Hotel Fund for Africa, which has begun construction on the Academia de Gestão da Hospitalidade Angolana, a new hospitality training school.
While the FSDEA was established in October 2012, it only received the last part of its endowment in June 2014. Its current portfolio mainly comprises listed securities, and it has only recently started to invest in illiquid assets. The FSDEA can take up debt up to 50 percent, which would potentially allow it to double its investment capability.
Angola’s launching of the FSDEA is consistent with the decision of many commodity-rich African countries to create sovereign wealth funds to diversify their economies and develop sectors shielded from international market volatility.
As Africa’s second largest oil producer after Nigeria, Angola is highly dependent on oil revenues: they account for 95 percent of export revenues and 75 percent of government revenues.
Due to plummeting oil prices, down 40 percent since June, Africa’s oil producers have struggled to adapt. Angola’s currency, the kwanza, has reached an all-time low, and the government recently announced that fuel subsidies would be cut, raising gasoline and diesel prices by 20 percent. The IMF predicts a 2 percent budget deficit for this year.
Meanwhile in Nigeria, the government was forced to devalue the naira by 8.4 percent in November and had to revise its budget for 2015. In this context, the FSDEA’s investment in sectors shielded from global market volatility appears to be a necessary adaptation to an unfavourable economic climate.
It is unclear whether greater investment in the infrastructure and hospitality sectors will succeed in stimulating economic development.
Angola, which is still recovering from a 27-year civil war that ended in 2002, remains one of the most corrupt and unequal countries in Africa, in spite of its oil wealth and rapid growth. According to Transparency International’s 2014 Corruption Perceptions Index, Angola ranks as the fifth most corrupt country in Africa.
President José Eduardo dos Santos, who has been in power for more than three decades, has been accused of governing Angola as a “family business” due to the predominance of his family members among the country’s business elite.
His son, José Filomeno dos Santos, was appointed as Chairman of the Board of Directors of the FSDEA. His daughter, Isabel dos Santos, is reported to be the wealthiest woman in Africa.
Additionally, President dos Santos has been criticized for engaging in opaque oil-backed loans with China as a means of eschewing IMF-recommended governance reforms. China has lent Angola $14.5 billion since 2002 and has extended an additional $2 billion to Angola’s Sonangol to expand oil and gas projects in December. Angola sells half of its 1.7 million barrels per day of oil to China.
Lastly, the government’s relationship with Quantum Global Investment Management, the FSDEA’s only external fund manager, has faced severe scrutiny. The chairman of Quantum’s advisory board, Jean-Claude Bastos de Morais, is the founder and a board member of Banco Kwanza Invest, Angola’s first investment bank.
Overall, Angola’s decision to stimulate growth in sectors other than the extractive industries is wise in the face of falling oil prices. Yet insofar as Angola’s sovereign wealth fund remains tainted by cronyism, it is doubtful that its investments will yield favourable returns for the majority of the country’s population.
