With the fast declining world oil prices, Africa’s second largest oil producer, Angola, has announced plans to reduce its dependence on commodity exports by allocating part of its sovereign wealth fund to infrastructure and hospitality projects. The sovereign wealth fund – Fundo Soberano de Angola (FSDEA) – currently stands at about $5bn.
The government has already launched a $1.1bn dedicated Infrastructure Fund for investments in energy, transport and large industrial developments across sub-Saharan Africa. Another $500 million of equity capital has been assigned to a Hotel Fund for Africa, which has begun construction on the Academia de Gestao da Hospitalidade Angolana, a new hospitality training school.
Established in October 2012, the FSDEA received the last part of its endowment last June. Its current portfolio consists mainly of listed securities, and has only recently started to invest in illiquid assets. It can take up debt up to 50 percent, which would potentially allow it to double its investment capability.
Analysts see Angola’s decision as part of a trend among commodity-rich African countries to diversify their economies. ‘Angola’s launching of the FSDEA is consistent with the decision of many commodity-rich African countries to create sovereign wealth funds to diversity their economies and develop sectors shielded from international market volatility,’ says Alexa Jablonski, an analyst with risk consultants Global Risk Insights (GRI). ‘As Africa’s second largest oil producer after Nigeria, Angola is highly dependent on oil revenues, [which]account for 95 percent of export revenues and 75 percent of government revenues,’ she adds.
Due to plummeting oil prices, down more than 40 percent since last 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 a cut in fuel subsidies, raising petrol and diesel prices by 20 percent. The IMF predicts a 2 percent deficit for 2015.
Meanwhile in Nigeria, the government was forced to devalue the naira by 8.4 percent last November and had to revise its 2015 budget. ‘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,’ says Jablonski. She is, however, not certain if the 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,’ says Jablonski. ‘According to Transparency International’s 2014 Corruption Perceptions Index, Angola ranks as the fifth most corrupt country in Africa,’ she adds. ‘President Jose 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, Jose 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,’ Jablonski charges. Additionally, President dos Santos has been criticised for engaging in opaque oil-backed loan with China as a means of avoiding IMF-recommended governance reforms. China has lent Angola more than $14bn since 2002 and has extended an additional $2bn to Angola’s oil parastatal 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.
While analysts endorse Angola’s decision to stimulate growth in sectors outside the extractive industries, they are doubtful if the right results will be achieved. ‘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,’ Jablonski says.