Sunday, March 02, 2014

Part 18 Fundo Soberano de Angola (Angola SWF)--Reimaging the State in the Global Sphere: An Inventory of Sovereign Wealth Funds as Regulator and Participant in Global Markets

(Pix (C) Larry Catá Backer 2014)

This Blog Essay site devotes every February to a series of integrated but short essays on a single theme. For 2014 this site introduces a new theme:  Reimaging the State in the Global Sphere: An Inventory of Sovereign Wealth Fund as Regulator and Participant in Global Markets.

There have been a number of studies that have sought to provide an overarching structure for understanding SWFs. The easiest way to to this is to find the largest and most influential funds and then extrapolate universal behaviors or characteristics from them.  This is a useful enterprise, it may erase substantial nuance that itself might provide the basis for a deeper understanding of SWFs within globalization and in the context of a state system in which not all states are created equal.  In this sense, while the large SWFs are better known, they do not define the entire field of emerging SWF activity. This study provides a brief critical inventory of the emerging communities of sovereign wealth funds. Each post will consider a different and less well known SWF.  Taken together, these brief studies might suggest the character and nature of the emerging universe of SWFs, and their possible rationalization.

This Post considers the Fundo Soberano de Angola (Angola SWF).

The Fundo Soberano de Angola (Angola SWF) (FSA) is an interesting effort to use SWF forms to discipline spending, but one in which the almost picture perfect formal organization has been dogged by charges of Corruption.  It is also notable for making explicit the agenda of international development and lending organizations, like the International Monetary Fund, to think about SWFs as an important disciplinary tool that ought to be in the toolkit of developing states with large reserves of natural resources, especially petroleum. 
Angola, Africa’s second-biggest oil producer, is starting a sovereign wealth fund with $5 billion in assets to ease the impact of commodity price volatility that prompted an International Monetary Fund loan three years ago.
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The IMF promoted setting up a fund and cutting the quasi- fiscal operations of the state oil company Sonangol when it loaned the nation $1.3 billion after crude prices fell in 2008. ( Angola Starts Sovereign Wealth Fund With $5 Billion, )
 By 2011 Angola was reporting to the IMF of its efforts to establish what it then called an Oilf for Infrastructure Fund: "In the medium term, we see a need to enact policies that avoid the disruption caused by the boom-bust cycles associated with oil price volatility. . . . For the time being, an Oil for Infrastructure Fund was set up in February 2011 (but is not yet operational) in order to secure financing for very high priority investments, mainly in water and energy." (IMF Country Report No. 11/346 (Dec. 2011) Angola—Fifth Review Under the Stand-By Arrangement, ¶ 31) This fund will is fully integrated in our budget."This was to serve as a stabilization Fund (Ibid., "We are continuing to consider alternative fiscal rule, perhaps to be formalized in legislation for a stabilization fund, which would help to smooth public spending over the oil price cycle and prevent the disruptive and sharp contraction of investment spending recorded in 2009–10." ¶31).  
Building on this the IMF proposed that 
"The OIF should be used as a fiscal buffer. To be effective in this regard, the OIF would need to be fully funded, and withdrawals judiciously managed until absorption capacity is strengthened. This would allow a gradual scaling up of investment, and protect priority projects from detrimental stops and starts. The OIF could also help sterilize liquidity." (ANGOLA, Staff Report for the 2012 Article IV Consultation and First Post Programming Monitoring, IMF Country Report No. 12/215, June 28, 2012, ¶ 56
The IMF Report noted that "under an OIF-like mechanism, Angola would be able to set aside excess
revenues in a stabilization fund while gradually scaling up investment. In the event of a repeat of the 2008 oil price shock, investment program could go forth uninterrupted by drawing on the resources set aside in the stabilization fund." (Ibid., App. 1, ¶ 6). All of this was viewed positively by the globval investment community. "Angola's decision to set up a sovereign wealth fund is positive news, Fitch Ratings says. It reaffirms our view that government policies are reducing the economy's exposure to movements in the oil price, and laying a foundation for sustainable growth. "(Sovereign Wealth Fund Plan Positive for Angola, Fitch Ratings, Oct 23, 2012).

It was reported at the time of its establishment that the "money will target domestic agriculture, water, power generation and transportation to attract foreign investment to Angolan infrastructure projects, according to fund documents. Hotel projects including a hospitality school in Angola are part of the fund’s plans." (( Angola Starts Sovereign Wealth Fund With $5 Billion, )).

The Official website put the best face on it that it could: "On 20 November 2008, Angola’s President, José Eduardo dos Santos, announced the establishment of a special commission to build the foundations for a new sovereign wealth fund (SWF) to promote growth, prosperity and social and economic development across Angola. In 2011, the Fund was legally ratified, and officially established as the Fundo Soberano de Angola in 2012 with an initial endowment of USD 5bn." (FSA, About, Overview).

FSA is structured to conform to international standards.  Angola is a member of the International Forum of Sovereign Wealth Funds.  "The Fundo Soberano de Angola was established in accordance with international governance standards and best practices as stated in the Santiago Principles and in the future the Fund will be rated by the Linaburg-Maduell Transparency Index. The Fundo Soberano de Angola is committed to operating transparently, responsibly and in full compliance with the laws and regulations of Angola and the countries where it will make future investments." (FSA, About, Overview). And the FSA has worked hard to construct a set of formal structures that appear to implement most of the core requirements of the Santiago Principles. 
Our Vision
To promote the social and economic development of Angola by generating wealth for the Angolan people.

Our Mission
Our investment focus is to generate sustainable financial returns that benefit Angola’s people, economy and industries. We manage a diverse portfolio of investments and are an active partner in these ventures.

Our Values
The Fund is guided by a set of values that act as its guiding principles in everything we do and everything we strive to achieve:

• Transparency
The Fund is committed to the highest level of transparency across all areas of our business. The Board of Directors will continue to devote to a transparent and responsible management, in accordance with the best practices of the industry, as well as the Santiago Principles. In the future the Fund will endeavour to receive a high rating by the Linaburg-Maduell Transparency Index, an internationally renowned third party index established to rate sovereign wealth funds and their commitment to transparency.

• Accountability
The Fund is fully accountable for all of its actions and always acts in the best interest of the people of Angola and all other stakeholders. The Fund will endeavor to follow the Generally Accepted Principles and Practices (GAPP) as stated in the Santiago Principles in all its undertakings.

• Commitment
The Fund is a responsible state entity and is committed to making an impact on all stakeholders, especially the Angolan people and their communities.

• Integrity
The Fund’s actions are founded on integrity and always respect the laws and regulations of Angola and the countries where it invests and operates. (FSA, About, Mission Vision Values).
The FSA's organizational structure is unexceptional and conforms generally to the Santiago Principles for autonomous organization under the guidance of the state.
The Fund’s organizational structure ensures adequate review mechanisms are in place including:

The Board of Directors defines the Fund’s investment strategy and oversees the Fund’s activities and assets.
The Fiscal Council ensures compliance with the laws and regulations applicable to the Fund. The Fund will also be subject to regular annual audits conducted by independent auditors.
The Advisory Council, consisting of the Minister of Finance, Minister of Economy, Minister of Planning and the Governor of the Central Bank, reviews investment proposals and strategy recommendations by the Board of Directors. The Council offers recommendations to the President of the Republic of Angola who ultimately approves the Fund’s investment policies.
External Auditors and Advisors also offer their expertise on investment decisions, operations and risk management. (FSA Organizational Structure)
The FSA is meant to serve as a stabilization fund, development facility and a mechanism for fiscal discipline.  Though the FSA is empowered to invest glbally, it has indicated a preference for local investment.  Under some definitions this would make this something other than a SWF, but the form has now outgrown definitions that though relatively new (back to 2005) are now outpaced by the changes in the SWF universe.
The Fundo Soberano de Angola’s investment strategy is founded on its commitment to Angola’s social and economic development. While the FSDEA considers investing across Africa and globally, it has a strong focus on investments in the domestic market, building Angola’s infrastructure and creating opportunities for the citizens of Angola. By taking a long-term view with its investments, the FSDEA aims to achieve sustainable and stable returns as well as to play a critical role in the development of Angola’s human capital that is required to build the economic foundations, which are an essential prerequisite to improve the living standards of all Angolans. (FSA Investments)
Among projects initially identified for promotion are a dedicated Hotel Fund to promote the hospitality sector and projects to finance infrastructure projects in Sub Saharan Africa.  (Ibid). Interestingly it also includes a social charter that, were it to be operationalized to any significant degree would serve as an innovative and useful mechanism for economic progress among the poorer segments of a political community.
Through the Social Charter, the Fundo Soberano de Angola supports social programs and partners with aid agencies through its social impact program that is set out to reach the communities across Angola and other jurisdictions it invests directly.

As a part of this commitment, the Fund dedicates 7.5 per cent of its endowment to social development and socially responsible projects in the areas of education, income generation and off-the-grid access to clean water, healthcare and energy.

The Social Charter aims to ensure that the Fundo Soberano de Angola plays an integral role in nurturing the country’s future by providing the tools for Angolans to participate in the country’s economic growth in a manner that allows them to reach their individual aspirational goals.

The Fund will look to focus on a number of priority areas such as income generation, access to off the grid clean water, healthcare and energy, as well as professional training to ensure the sustainability of its investments. (FSA Social Charter).
Among its projects, one is listed--the one laptop per child initiative, the Kamba Dyami (FSA Initiatives). 

But even as it begins its operations the FAS has also begun to be mired in accusations of corruption. "
The fund was officially set up by Dos Santos in October last year using Angola’s oil revenues, with the stated purpose of investing in the country’s infrastructure and accumulating savings for future generations. However, it is widely seen as a way of bolstering his son’s patronage base, possibly in preparation for him to succeed to the presidency." (Aristides Cabeche, Angola: President’s son dips into sovereign fund for ‘trophy’ Savile Row office, Mail And Guardian, 15 Nov. 2013; see also Angola names president's son to chair $5 bln sovereign wealth fund, Reuters June 21, 2013 ). But beyond the suggestion of nepotism was the allegation of misuse of FSA funds for personal benefit.  "The son of Angolan President José Eduardo dos Santos is again at the centre of controversy following reports that the Angolan Sovereign Wealth Fund he effectively controls has invested R3-billion in a ­“trophy” property in London’s Mayfair district. . . . There has been much adverse comment on Dos Santos’ junior conflicted role in the wealth fund. In addition, he has been criticised for presiding over a fund that answers only to the president, not to Angola’s Parliament, which is constitutionally responsible for such oversight." (Ibid).  But the allegaiton of corruption extended beyond that, going as well to the appointment to the FSA advisory board of a friend of the President of Angola with hiring of an investment manager with a questionable past. (Ibid).

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