Keeping Angola's Wealth Fund in the family
Angola’s Sovereign Wealth Fund has been struggling for credibility since its high-profile launch in October last year.
Angola’s Sovereign Wealth Fund has been struggling for credibility since its high-profile launch in October last year. For seven months, the Fundo Soberano de Angola (FSDEA) appeared to talk big but do little. However, after rather embarrassingly missing its own self-imposed deadline to publish its investment policy by the end of the first quarter of 2013, the FSDEA has finally – three months later – given us a glimpse of how it plans to use its pot of US$5billion.
In a statement delivered last Friday afternoon – possibly the worst time to break news in Africa, especially something financial – the FSDEA said the Angolan Government had approved its investment policy. It was also announced that Jose Filomeno de Sousa dos Santos, the eldest son of Angola’s long-serving President, Jose Eduardo dos Santos, would be the fund’s chairman.
This was not a total shock given Jose Filomeno’s existing membership of the board, but it was still a slight surprise.
There was already a degree of negative feeling about his initial appointment – ranging from ‘possibly inappropriate’ to ‘outrageous nepotism’. And this is not just from government critics and opposition members. Within the ranks of President Dos Santos’ ruling MPLA, many are unhappy about what is perceived to be ‘grooming’ for the aging leader’s succession.
The reaction on Twitter – and other social medial – to the news of Jose Filomeno’s promotion last week was along the lines of #nepotism, #shakeshead, #onlyinafrica and #youcouldn’tmakethisup. For people who talk about the cult of ‘Eduardoismo’ (coined from Mobutismo) or the ‘Eduardo-isacao’ of Angola, this is another brick in that wall.
Given the vast sums of money that the FSDEA is spending on various different publicity agents spread across three continents, who are tasked with promoting the fund’s public image, it seems a little counterintuitive to score such an own goal. However, chairman aside, the FSDEA undoubtedly has the potential to be an excellent tool for Angola to prolong its finite oil wealth for the benefit of future generations.
It is fanciful to imagine that Angola will ever have a fund the size of the Abu Dhabi Investment Authority or Norway's oil fund, the world's largest sovereign wealth fund, or even that it should, given the country’s current investment needs after decades of civil war. But prudent investing could help Angola build up a strategic buffer to protect its oil-dependent economy against commodity price shocks.
Prudent is the key word here. As Ashby Monk, executive director of the Global Projects Center at Stanford University, outlined to me in an interview for The Africa Report last year, setting up a fund is only the beginning. There are many risks to running sovereign wealth funds, just as there are to making investments in the world’s increasingly volatile and unpredictable markets.
In the same article for The Africa Report, World Bank Africa chief economist Shanta Devarajan warned that countries with weak governance and institutions should take great care in designing their sovereign wealth funds. He said there was a risk that “the same weak institutions that were the rationale for the fund” may “end up undermining the fund."
According to last Friday’s press release – we are yet to see the actual, legal investment policy – the FSDEA’s approach will be three-pronged: preservation of capital, maximisation of returns over the long-term and infrastructure development. It says 50 percent will be dedicated to ‘fixed income instruments and cash, issued by sovereign agencies, supranational institutions, large companies with investment grade credit ratings, financial institutions and additionally, in equities issued within the G7’.
The remaining 50 percent of the funds will be allocated to ‘alternative investments, including, but not limited to, emerging markets, high yield, commodities, agriculture and mining, infrastructure, property, BRICS and frontier market stocks, assets and depreciated opportunities’.
In other words, the fund will pretty much invest in anything and everything in all different markets, industries, sectors and currencies, as it (father and son) sees fit.
The key of course will be who manages Angola’s assets – i.e. which firm(s) they entrust with their money. Currently, it is being ‘interim managed’ by Quantum Global Investment Management. This is a Switzerland-based firm, whose advisory board is chaired by Swiss-Angolan Jean-Claude Bastos de Morais, a long-time friend and associate of Jose Filomeno dos Santos. The two are founding shareholders in Angola’s Banco Kwanza Investe (BKI), (formerly known as Banco Quantum) although Jose Filomeno had said he would sell those after joining the FSDEA – something we are yet to hear an update on.
Anyway, regardless of who will hold the purse strings, somewhere inside one of those 50 percent chunks there will be a focus on ‘hospitality’ with money being allocated to setting up a hotel school and running a portfolio of 3-4* establishments. The aim of skilling and job creation is noble, but one can’t help but wonder whether there aren’t slightly more pressing areas that the FSDEA could be looking at.
Two thirds of the Angolan population has no access to clean water, over half are in poverty and despite the stellar post-war economic growth the country ranks near the bottom of the United Nations Human Development Index. Does the country really need more hotels for visiting business delegations grubbily clamouring for a stake in a joint venture part owned by a government official?
And, given the existing eagerness of international (and Angolan) groups to enter the Angolan market, is the carrot of government funding really necessary? The theory is that by making Angola – and Africa - a more attractive place to do business, more Foreign Direct Investment (FDI) will flow into both business schemes and infrastructure projects.
I would argue that a serious investor would be less bothered by an over-priced breakfast and mis-matching curtains, and more interested in (beyond making money) a transparent and corruption-free government with an independent judiciary and healthy democracy.
Hotels, bonds and stock markets aside though, the FSDEA has also committed 7.5 percent (although we’re not sure from which 50 percent – and whether that makes one of the 50 percent portions actually 42.5 percent) to ‘social development and socially responsible projects’. These will be in the areas of ‘education, income generation and off-the-grid access to clean water, healthcare and energy’, according to the statement.
One such initiative that will receive funding is the Kamba Dyami project, supposedly part of the international “One Laptop, One Child” programme (although oddly not mentioned on its website), which is being run at a catholic school in Luanda’s impoverished Sambizanga neighbourhood. The scheme was launched in 2011 by the African Innovation Foundation, which was set up by the aforementioned Jean Claude Bastos de Morais (of Quantum / Banco Kwanza Investment fame) and which, until last year counted, Jose Filomeno dos Santos as a board member.
According to Jose Filomeno, the FSDEA will ensure that by 2015 ‘1,200 additional laptops will be availed (sic) which will allow 2,400 more children to benefit from computer-based learning’. By my calculations, that’s one laptop for two children, but regardless of that, and the loftiness of the scheme in an area where few have sanitation or electricity, it is good to see aspirational sort of investment in education.
I’ve been told by people who’ve been involved that it is working well, but I do find press release quotes heaping praise on the FSDEA from Father Santiago Christophersen, the director of the Dom Bosco School in Luanda, a little bit uncomfortable.
Talking of legitimacy, I’ve mentioned before about how the FSDEA was formed out of the Fundo Petrolifero (FP) created by Presidential Decree in March 2011. This was supposedly taking the revenue from 100,000 barrels of oil per day and putting it aside to spend on infrastructure projects. When the FSDEA was launched last year, Armando Manuel, then chairman and now Minister of Finance, admitted this is where the FSDEA had acquired its starting pot of US$5billion.
Thus it was a little odd to read that it was only last Thursday, hours before the announcement of the FSDEA’s investment policy, that President Dos Santos ‘changed the designation of the Oil Fund set up on 9 March 2011 to Angola Sovereign Fund’ (sic).
Just another unanswered question I suppose.
Since 2008 when President Dos Santos first floated the idea of Angola having a sovereign wealth fund, there have been more headlines and questions than details and delivery. The FSDEA makes much of its commitment to transparency, good governance and accountability. I, and many others, look forward to following the fund’s progress in the years to come and in particular, to reading its audited accounts.