17 October 2012

Angola: Govt Launches $5 Billion Sovereign Wealth Fund

Angola follows in the footsteps of fellow hydrocarbons giant Nigeria by launching a sovereign wealth fund.

Africa's second biggest oil producer, Angola, has launched a sovereign wealth fund to save its oil revenues and ease the impact of commodity price volatility. The Fundo Soberano de Angola, or FSDEA, has $5bn in assets and mandate to promote economic and social development.

The fund will invest both domestically and internationally, with initial targets including financial securities, infrastructure and hospitality, as well as other sectors which "represent significant wealth creation opportunities across sub-Saharan Africa and also offer the potential for a higher growth multiplier for the Angolan economy", it said in a written statement.

It will be managed by a three member board, headed by Armando Manuel, a secretary for economic affairs in the ruling MPLA government.

"Securing both a financial return and a high social return will be of equal importance to the FSDEA," Mr Manuel said in the statement. "We will support existing government social programmes, partner with leading international development agencies and create independent FSDEA programmes, which will reach out directly to communities across Angola."

Almost every member of OPEC operates a sovereign wealth fund to invest oil revenues long-term, thereby ringfencing savings and ensuring that huge oil profits don't circumvent the country.

Angola pumps around 1.85m barrels of crude a day, but state owned oil firm Sonangol, which also operates in a quasi-fiscal capacity, has been criticised for its opaque spending of revenues. Last year, the International Monetary Fund revealed accounting discrepancies of approximately $32bn between 2007 and 2010 - a sum equal to about a third of the country's GDP. Angolan authorities attributed those largely to Sonangol-financed infrastructure projects.

Angola's president José Eduardo dosSantosfirst announced plans for a sovereign wealth fund in 2008, when the IMF had to lend it $1.3bn in response to falling oil prices. Finally launched, it is unclear what impact the fund will have on Sonangol, though "a tighter remit might allow the state oil company to refocus its resources on its objectives of increasing domestic production targets and strategic expansion overseas", argues Sian Bradley, Africa analyst at Maplecroft, the risk consultancy.

However, the board membership of the president's son, José Filomeno de Sousa dos Santos, is likely to raise some eyebrows. Mr dos Santos is Africa's second-longest serving leader, and secured another five years in power when he won presidential elections last month. The other board member remains unnamed, but the fund will also be accountable to an independent advisory council, including the Minister of Finance, the Minister of Economy, the Minister of Planning and the Governor of the National Bank of Angola, it said in the statement.

Nigeria, the continent's biggest oil producer, announced the management team for its sovereign wealth fund - the Nigerian Sovereign Wealth Investment Authority - in August, though political wrangling has left it with modest initial assets of $1bn; a sliver of the size of the country's $7bn Excess Crude Account.

"As political and public pressure for revenue transparency and a more equitable distribution of oil wealth increases, the argument for accountable, transparent sovereign wealth funds is expected to become increasingly salient across the region," Ms Bradley argues.

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