A titan of African state capitalism has taken a knock. Will its vaunted restructuring set it straight, or is it more of the same?
Angola’s national oil company, Sonangol, is the ‘island of competence’ in Angola’s post-war economy, surviving, indeed thriving, through civil war, Marxism and crony capitalism. Now, as ever, the organisation is at the heart of the Angolan economy, providing the government with the bulk of its revenues, and expanding into a diversified group, with its own oil and gas production and distribution companies, logistics and service units, factories, a bank and an airline. It is hard to emphasise enough the centrality of Sonangol to the Angolan economy. But the organisation has stalled. It is undergoing a root-and-branch restructuring, amid allegations of financial mismanagement, bogus contracting, to say nothing of the multiple corruption cases that have dogged the organisation in the last ten years. What went wrong with this titan of African state capitalism? And what kind of organisation will emerge?
Sonangol is all things to everyone in the Angolan oil and gas market; acting as concessionaire, equity partner on behalf of the government, all-round service provider and industry regulator. Fortunately for an organisation that straddles so many roles, it has a rich history of shrugging off its conflicts and contradictions. For instance, during Angola’s civil war (1975-2002), Sonangol was a model of MBA managerialism controlled by an ostensibly Marxist president, and surrounded by crumbling government institutions.
Sonangol is Angola’s pre-eminent economic institution, and has remained under the firm control of President José Eduardo dos Santos since he came to power in 1979. This control has enabled the president, with a small coterie of advisors, to create a ‘parallel state’, separate from the ruling MPLA, and other bodies of public administration, with its own agenda and budget. And an accompanying lack of transparency and oversight. Sonangol’s black box was almost exposed in a 2011 report by the International Monetary Fund, which revealed a $32 billion shortfall in government accounts between 2007 and 2010; later attributed to Sonangol’s ‘quasi-fiscal activities’. This combination of factors has created unique opportunities for graft – figures close to the president have profited enormously from investments and joint ventures with Sonangol.
Corruption is a plausible but inadequate explanation for Sonangol’s current malaise. Sonangol’s suspect corporate governance has had a surprisingly modest impact on its ability to raise funds from global banks and secure partnerships with oil and logistics companies. Sonangol was the only game in town, and its professionalism was sufficient for multinationals to overlook some of its excesses. The international market settled for a plausible company that appeared clean enough, and paid its bills on time.
The big problem with Sonangol and Angola for that matter is the lack of money. In June 2016 President dos Santos admitted that Sonangol had not paid anything into government accounts since January, a strong indication of the extent of its financial problems. In a country where oil accounts for over 90 percent of export revenues, a sustained slump in the oil price was always going to have a devastating effect. The country’s GDP has shrivelled from $126 billion in 2014 to around $81 billion in 2016.
Reports of Sonangol’s shoddy financial management have not helped. In June 2015 the former chief executive of Sonangol, Francisco de Lemos, produced a confidential report that was subsequently leaked indicating that the organisation was on the brink of bankruptcy, chiefly as a result of an explosion of bogus service contracts created by Sonangol and other government officials for their own benefit. According to this leaked report, the organisation’s only functioning division was its upstream unit, whose operations are managed by external oil and gas companies ‘without any intervention by Sonangol’. Lemos hastily backtracked and claimed in July 2015 that Sonangol would have to lose $22 billion within a year to go bankrupt, a feat that was ‘nearly impossible’. But the damage was done. Less than a year later, Lemos was out of a job.
All this explains the drive for the restructuring. It is an opportunity to keep a closer eye on costs, without any radical changes to corporate governance. A good time to clear the decks, and remove some of the old guard, tainted as they are by past corruption scandals, with some structural innovations to boot. Sonangol’s assets will be split into three holding companies, one for oil and gas operations, another for related logistics services, and another for non-petroleum investments (which Sonangol is looking to divest). A new higher council will be put in place, as will a new regulator. An army of Portuguese consultants have flown in, auditing every relationship, and blocking every unauthorised expenditure. No doubt Sonangol will be a leaner organisation. But the beefed-up role that the Ministry of Petroleum was promised looks largely illusory. Presidential control remains undiminished. All new bodies report to the president. And the person leading the charge as Sonangol’s new ‘non-executive chairwoman’? Isabel dos Santos, the President’s daughter.
This article was first published on African business Review.