Oil - curse or cure-all?

[Angola] Port of Luanda
Luanda port (Otal)

Two offshore Angolan oilfields came onstream this month, signifying the start of a raft of new projects that should spawn an unprecedented level of growth in oil revenues over the next five years.

In a country desperate for funds as it struggles to rebuild after nearly three decades of civil conflict, the new oil flows should be reason for celebration.

"Oil production accounts for more than 90 percent of the Angolan government's export revenues, and is therefore crucial to the economy," said Catriona Boggon of the Edinburgh-based energy analysts, Wood Mackenzie. "Angola desperately needs this extra revenue to rebuild the country following more than 25 years of conflict."

But Angola-watchers and non-governmental organisations (NGOs) are reserving judgment before cracking open the champagne. There are a whole host of reasons why it will take years for this income to trickle down to ordinary citizens.

"Even in the best of situations, the income for the next three or four years could not benefit ordinary Angolans," said the head of one Luanda-based NGO. "This oil is probably not going to have much impact until 2006 or 2007."

Billions of dollars of potential revenue - no-one knows exactly how much – are believed to have been collateralised in the form of oil-backed loans to finance the national debt, and the government will also have to reimburse oil companies for the expensive development of these deep-water fields.

"Angola will get a relatively small share in the early days as investment costs are paid off," said Nicholas Shaxson, a research fellow at the London-based Royal Institute of International Affairs.

"Oil backed loans could, if managed well, be an effective (albeit expensive) way for angola to obtain money for urgent poverty reduction programmes, particularly since oil production is rising and so their ability to repay will grow. The problems stem from the fact that these are huge gobs of money arriving all at once, in secret, often into offshore bank accounts which even the finance minister sometimes does not know about. The repayments are also complicated and secret. This is all a recipe for corruption," Shaxson noted.

Transparency – whether oil companies publish what they pay the government, and the government discloses what it receives – is still very much a topic of concern, as shown by the arrival in Angola this week of another technical mission from the International Monetary Fund (IMF).

The IMF is worried about the murkiness of oil revenues, off-budget transactions, and the mortgaging of future oil production to secure short-term commercial loans. Greater transparency is vital if it is to offer Angola financial support.

"Trying to make sure that the oil revenue is fully accounted for, and that it is used in the interests of the Angolan population, seems to us an increasingly urgent issue," Aryeh Neier, president of the Open Society Institute (OSI) told IRIN.

The Jasmim field, operated by French oil giant Total, and the Xikomba block, owned by US behemoth ExxonMobil, represent the first new oil to come out of Angola in around two years, and has been widely welcomed by companies and consumers alike.

They are a welcome additional source for countries such as the United States who are keen to diversify their oil supplies away from the political and religious hotspot of the Middle East.

Boggon at Wood Mackenzie estimates that production from Angola's prolific reserves will double to more than two million barrels per day by 2008. "... this growth in deep-water production could generate over $7 billion per year for the Angolan government by 2009, with this plateau forecast to be maintained for several years," she said.

Those potential billions could be put to good use helping to reconstruct a decimated infrastructure and rebuild health and education systems that were all but destroyed in the conflict years.

Since the war ended in April 2002, Angola's 13 million people have seen little improvement to their lives. According to the UN Children's Fund, almost 50 percent of the population has no access to safe drinking water, one child in every four is likely to die before their fifth birthday, and little over half of Angola's children are in school.

Neier reckons Angola is a prime example of a country suffering from the "resource curse" – countries that should be wealthy, thanks to large mineral reserves, but in fact suffer from dire poverty.

A 2004 appeal from the United Nations for $263 million towards emergency and development projects pales in comparison to Angola's vast potential oil wealth.

"Clearly there's a great disjunction there," said Neier. "The level of the oil revenue is very great - the amount that is sought to deal with urgent humanitarian issues in Angola is relatively modest by comparison."

NGOs hope that international donors will seize the chance to have a say in the country's rehabilitation plans, so that when the oil wealth does start to flow, the machinery is in place to allow the country to benefit.

"The international community will never have another opportunity like this," said Allan Cain, director of Development Workshop. "When the oil income does come online, Angola will hopefully be in a different phase, with much bigger projects, major infrastructure plans. But it is now - this special period leading up to elections, when there is much more debate and much more civil society participation – that the mechanisms will be defined."

This article was produced by IRIN News while it was part of the United Nations Office for the Coordination of Humanitarian Affairs. Please send queries on copyright or liability to the UN. For more information: https://shop.un.org/rights-permissions

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