Frustration as oil windfall spending neglects the poor

With oil prices soaring to record highs and new oilfields churning out more "black gold", frustration and resentment among Angolans is reportedly growing as they fail to benefit from their natural resources. The government pencilled in an earnings figure of around US $23 per barrel in its 2004 budget, but with prices now about double that, expectations of a government windfall are rising. "I've heard informal estimates that for every $1 a barrel increase in the price of oil, it translates to somewhere between $150 million and $250 million a year in excess revenue for the government," said Arvind Ganesan, Business Programme Director for Human Rights Watch. Even an average of $30 per barrel for the year still translates into an extra $1.4 billion for the treasury during 2004. But Angolans rubbing their hands in anticipation of a social and humanitarian bonanza may be sorely disappointed. "People are asking, with the doubling of the price of oil, why do we see no major investment being shared with the country," said one source. "The reality is that ... it is [being] used to repay loans faster." The state-owned Jornal de Angola hinted as much in an article last week but, other than that, the government has publicly said little about what it intends to do with the cash. Sources say that the way the loans have been set up means that when the oil price rises, the extra amount between the current price and the price in the agreement does not immediately find its way into government coffers. "The poor cash flow of today is a result of the oil-backed loans signed yesterday," said one. Billions of dollars of potential revenue - no-one knows exactly how much - are believed to have been used as collateral for oil-backed loans to finance the government's external debt, estimated at between $8 billion and $12 billion. The strength of the oil price and Angola's improving reputation mean the country will slowly be able to negotiate better loan terms, with more favourable interest rates and repayment conditions. But the risk, some analysts say, is that instead of being prudent, the government will use this lucrative period as an excuse to borrow more in future. "One problem that has been seen historically is that when the oil price is high, governments tend to invest according to the revenue that they are getting at the time, and when the oil price falls - and inevitably it falls - they run out of money," said Ganesan at the Washington-based HRW. "The other big problem is over-leveraging - borrowing against increased revenue and not being able to repay it at a sufficient rate to free up money to do other things. They could run into a real problem down the road. "Even with the oil price high, the information we've seen is that the Angolan government is still fairly cash-strapped because of this over-leveraging [borrowing against future oil income] in the past. People in the government or the public shouldn't be thinking that there's a huge windfall [on the way]," Ganesan added. Angola is in desperate need of funds to rebuild its infrastructure, and the country's health and education systems were shattered by almost three decades of civil war. But two years of peace have failed to make a sizeable impact - ordinary Angolans are yet to see the benefits of having a huge national oil reserve. "I have no water at home - I have to buy it on the street, yet the government is selling oil for more than $40 per barrel," said Graca Nunes, who works as a cleaner in the capital, Luanda. "My son has to bribe his teacher so he can pass to the next grade at school because the teacher is paid so poorly by the government. I don't understand why all this oil is not helping us," she complained. Observers fear that frustration with the lack of tangible benefits is growing. Some NGOs fear these tensions could escalate into riots and civil unrest if there are no evident benefits from peace and the abundant oil reserves. "The crime rates are rising - it's getting worse and worse. Poor people will tell you that hope is the last thing to die but, really, they are not getting any kind of conditions to make their life better," said one aid worker. Philippe Lazzarini, head of the United Nations Office for the Coordination of Humanitarian Affairs (OCHA), citing reports that the money would be used to pay off loans, said: "Long term, the increased oil price will have a positive effect, but if it is not all explained, that can only strengthen the incomprehension of the population - they already don't understand how it can take so long to benefit from the peace dividend." The Angolan authorities have also been widely slammed for corruption and inefficiency. An International Monetary Fund (IMF) report revealed that $4 billion went missing from government coffers between 1997 and 2002, in a country where two-thirds of the population live in poverty. But the government has also been congratulated on some of its recent steps to open its books to scrutiny. Publishing the $300 million signature and social bonus that the US oil giant, ChevronTexaco, paid to extend its operating licence in deepwater Block 0, off the Cabinda shore, was seen as a major step forward. The promise of an external audit of state oil firm Sonangol, publishing some of the KPMG oil diagnostic reports and expressing a willingness to sign up to Britain's Extractive Industries Transparency Initiative (EITI) also drew praise. "Angola has made some positive steps," Ganesan said. "But, fundamentally, all of those have to do more with how to account for incoming money. They've done less to account for how they spend the money, or where it goes." Others believe the government is doing its best in what is undeniably a very complicated situation. They argue that after such a long war, it will take more than two years to deliver a substantial peace dividend to the people. "This requires mindset changes first, then strategic thinking and strategic planning, and finally execution," said Olivier Lambert, senior country officer at the World Bank. "The mindset change phase is probably over, to a large extent; the strategic thinking and planning phase is in full swing; the execution phase has already started. Hence, the seeds have been planted but we cannot yet see the fruits."