Standard Chartered, one of the United Kingdom’s leading banks in the developing world, is proud of its record in Africa. The winner of several awards for best foreign bank south of the Sahara, the bank has a $1-million-a-year fund for community projects, taken from an operating profit across the continent of $200-million.
But you will search in vain to find a reference on its website to its activities in Angola. Which some see as curious, because Angola is the second-biggest oil producer in Africa, and that means big money for international financiers. Standard Chartered, now chaired by the former BP executive Bryan Sanderson, is a leader in the field.
”We were very excited,” John Goodridge, director of the bank’s trade finance arm, told a specialist magazine when he landed what it described as ”the largest oil-backed transaction in the entire history of the structured-trade-finance [international finance] market”. The deal last year, backed by a consortium of European banks including Barclays and Royal Bank of Scotland, was a loan of $2,35-billion to Angola’s state oil company, Sonangol. Repayments over five years are guaranteed from future oil production.
For Standard Chartered, as coordinating bank, the deal was a considerable commercial success.
With its liquid collateral, now being produced at a rate of more than one million barrels a day, Sonangol had a good reputation for paying its debts. And the bank earned good fees and an interest rate at least 2,5% above the base London bank rate.
For Angola, too, there appeared to be advantages as such a huge loan could never have been raised through the multinational institutions. At a stroke it was able to pay off $750-million of debts to one of its largest creditors, its former colonial master, Portugal.
Yet oil-backed commercial loans like this one go to the heart of concerns about Angola’s ability to improve living conditions for its people. In the United Nations’ Human Development Index the country comes 166 out of 177. In short, the country desperately needs funds that are well directed.
But commercial loans to Angola coordinated over the years by Standard Chartered and other lenders have been universally criticised by the World Bank, the International Monetary Fund (IMF) and leading NGOs as expensive, lacking in transparency and fuelling a parallel economic system outside the budget that is wide open to corruption.
In a valedictory interview in March, the British ambassador, John Thompson, called for more transparency from the Angolan government. Criticising the oil-backed loans, he said: ”If Angola can negotiate with the IMF and develop a good working relationship, then that should free up concession finance [finance from institutions at favourable rates]. It could also lead to an agreement with the Paris Club [the main group of country lenders] in rescheduling official debt.”
The IMF found that between 1997 and 2002 about $4,22-billion went missing, equivalent to 12% of Gross Domestic Product. The US State Department has said that Angola’s wealth is ”concentrated in the hands of a small elite”.
The scale of that enrichment has been revealed in the country’s media, which accused 10 of the presidential elite of having wealth of more than $100-million each.
While there is no suggestion of illegality or corruption by Standard Chartered itself, one senior fund manager said: ”The problem for the bank is that it can be accused of complicity in corruption.”
A group of six fund managers met Standard Chartered executives in May last year. The bank gave assurances about thorough due diligence and the Angolan government’s improving record. But the managers wanted more answers. ”The bank declined in a letter to respond to further questions,” they reported.
”The facility [the loan] includes specific conditions on the use of proceeds. Compliance with international regulations is paramount in the way we structure and conduct our business,” the bank said in a statement.
The core problem, says the latest World Bank report, is the role of Sonangol as a parallel treasury, handling the government’s oil-backed loans. The system was put in place largely to raise money for arms during the country’s disastrous 27-year civil war.
But since the peace settlement with Unita in 1992, the MPLA government has only slowly begun to open its books. The government did take its first tentative step to transparency in 2000 when it hired the international accountancy firm KPMG to examine its oil revenues. According to the report, KPMG found a shambles in the accounts of Sonangol and the Bank of Angola with discrepancies running to hundreds of millions of dollars. The Finance Ministry was in no better shape.
In its first corporate responsibility report, posted on the Internet, Standard Chartered made its first reference to the controversy although, once again, the name of Angola is missing.
The corporate responsibility report statement reads in full: ”We try to be open about the lending decisions we make. During the year, concern was expressed by a small number of NGOs and Socially Responsible Investment (SRI) analysts about our role as one of nine lead banks, in a $2,35-billion oil-backed financing deal. This issue has been a focus for regular dialogue with SRI analysts and NGOs in 2004.
The decision to support this transaction was undertaken after a significant amount of discussion. We accept that there are times when we will face disagreement from other stakeholders. It is difficult to provide full details of the process we undertook before making decisions such as this because of customer confidentiality.” — Â