‘Blurred lines’ on Angolan wealth fund

The launch of Angola’s $5-billion sovereign wealth fund was hailed as a major step in the country’s post-war economic development and asset managers from around the world licked their lips in anticipation of an opportunity to work with Africa’s second-biggest oil producer.

Nearly two years on from its high-profile beginning in October 2012, the Fundo Soberano de Angola (FSDEA) is still regarded in investor circles as a tantalising opportunity, but it is dogged by a number of unanswered questions.

First, there is the discomfort around the fund being chaired by José Filomeno dos Santos, the eldest son of Angola’s president José Eduardo, who since 1979 has led one of Africa’s most corrupt countries where vast oil revenues have done little to address grinding poverty.

Next there is the appointment of a sole and little-known Swiss-based asset manager called Quantum Global, whose chief executive is Swiss-Angolan Jean-Claude Bastos de Morais, a close friend of Dos Santos Jr, with whom he until recently co-owned Angolan investment bank Banco Kwanza Investe.

And then there is emerging confusion around the core aims of the FSDEA’s investment policy and overall strategy.

Mixed opportunities
The FSDEA will mix domestic and African opportunities in areas such as hospitality, infrastructure and agriculture, but also focus on social development and developed markets fixed assets such as bonds.

Last Friday, fund managers, journalists and development economists packed a session on African sovereign wealth funds, hosted by London think-tank Chatham House, to hear a keynote address by the FSDEA’s chairperson.

Dos Santos Jr – whom some have tipped as a possible contender to succeed his father, who this month clocks up 35 years in power – told the audience that, although Africa has been successful in attracting foreign direct investment, it is “not fair to watch the country’s wealth and resources fly out of the country while most [African] nations remain stagnant in terms of development”.

The irony that his sister, Isabel dos Santos, who was famously dubbed Africa’s first female billionaire by Forbes magazine in 2012, owns significant stakes in Portuguese banks, telecoms and energy companies, is not likely to have been missed by the audience.

Dos Santos Jr went on to explain that the context in Africa in general is different to that of countries with wealth funds, and that his country in particular has significant social needs, such as high rates of child mortality and a lack of health infrastructure.

For that reason, he explained, the FSDEA will focus on “social” as well as “financial” returns and at one point he even referred to the delivery of humanitarian assistance.

Social focus
As part of its social focus, he said the fund has launched a scholarship to send 45 Angolans to a university in Switzerland to learn about asset management and plans are under way to open a hospitality school, because a strong hotel industry is “the doorway for additional investment into the country”.

Victoria Barbary, the director of Institutional Investor’s Sovereign Wealth Centre, who attended the event, which was sponsored by Quantum Global and featured speakers from several other African countries with wealth funds as well as industry experts, told the Mail & Guardian that there are some “blurred lines” and “confusion” about the FSDEA and its core aims.

“I don’t think they know what a sovereign wealth fund is for, or why you set one up,” she said. “In one breath it is about financial assets, but in the next it seems to be about social investment or building hotels to attract businesses to Angola.”

And she added: “If you want to fund education development or health services, then give the money to the ministry of education or the ministry of health; it’s not for a sovereign wealth fund to pay for these sectors. A sovereign wealth fund is not a development fund.”

José Filomeno dos Santos chairs Angola’s sovereign wealth fund.

The International Monetary Fund (IMF) has also raised some flags about the FSDEA. In a report published last month, it called for clearer rules about how the fund would be resourced and for its transparency and governance to be strengthened.

“While not unusual, it is not considered best practice for an SWF [sovereign wealth fund] like FSDEA to have development objectives,” the IMF noted, pointing out that investing external proceeds in the domestic economy can trigger sterilisation costs, lead to competition or duplicate projects already financed by the government.

IMF recommendation
The IMF recommended that Angola, which is this year on course for a budget deficit of 4% of the gross domestic product owing to a drop in oil production (main revenue), does not top up the fund unless it has a surplus because debt costs more to service than invested assets can return.

Elias Isaac, Angola programme manager for the Open Society Initiative for Southern Africa, whose mandate includes campaigns for more transparency over resource management, is sceptical about the FSDEA.

“The Angolan SWF has got nothing to do with savings for the future in a transparent and accountable manner,” he claimed. “It is a pure business to serve the interests of the president and his family.”

Commenting on the Swiss scholarship scheme, which Dos Santos explained during a recent interview with al-Jazeera is an example of how ordinary Angolans will feel the benefits of the FSDEA, Isaac said: “Angola may need asset managers, but this is not a priority.

“What Angola needs at this moment are honest public servants who are accountable to deliver social services to the poor majority, along with an unequivocal political will to stop nepotism, clientelism and corruption in the state institutions.”

The FSDEA has gone out of its way to stress that it is transparent and Dos Santos Jr has repeatedly denied that his appointment is owed to nepotism or favour.

Tech savvy
Rare for an Angolan state entity, the fund has a functioning and up-to-date website with a whole section dedicated to “governance”, including a video (which does not load) on its disclosure policy, and it also has a large public relations team spread across Europe, Africa and the Middle East.

Last week the fund announced its audited results, noting in an accompanying press release that during 2013 it had allocated $24-million “to the internal organisation development and operational expenses … due to the fund’s focus on creating strong governance foundations and accountable internal operations”.

This was the first time the FSDEA had shared any of its numbers publicly and the information was welcomed, especially as they had been due to be released in the first quarter of this year, according to the fund’s own timetable.

But details however are scant about actual investments and specific returns.

Moreover, the accounts only go up until the end of December 2013, leaving nine months of the year still unexplained.

“They state they are trying to be transparent, but they seem to be anything but,” said Barbary, who questioned why a copy of the results signed by the auditors hadn’t been shared, instead of a press release.

“I don’t know at this point if it’s down to a genuine lack of understanding of what to do or what a SWF is, or if it’s deliberate obfuscation,” she said.

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