Angolan president's son talks about the country's new sovereign wealth fund
How we made it in Africa speaks to José Filomeno de Sousa dos Santos, one of the directors of Angola's new sovereign wealth fund.
In October 2012 Angola’s sovereign wealth fund, Fundo Soberano de Angola (FSDEA), was officially launched, and has received a mixture of approval and criticism. The fund was set up with US$5 billion in initial capital and will receive $3.5 billion a year in Angolan oil proceeds.
A sovereign wealth fund consists of financial assets – usually coming from budget surpluses and revenues from commodities – which are used in a state investment fund. In Angola’s case, the FSDEA consists of surpluses predominantly from its oil revenues, a sector that the country is currently relying on for its economic growth.
One of the three directors of the fund, José Filomeno de Sousa dos Santos, met with me in Cape Town to talk about the fund’s plans for Angola. As the son of Angolan president José Eduardo dos Santos – who has been in power for over 33 years – dos Santos' involvement in the fund has sparked some criticism and suspicion.
In person, dos Santos was not what I expected. With a father who has ruled the country for over three decades, I had not anticipated someone who seemed so – dare I say it – humble. He was soft spoken, reserved, and answered my questions with a calm tone. For half an hour he told me about Angola’s business environment, his belief that Africa should invest in its people, and what the FSDEA plans to achieve.
Introducing the FSDEA
“The primary aim of the fund is to promote the development of infrastructure in Angola and to increase the state reserves,” explained dos Santos who oversees the FSDEA’s investment strategy and manages its portfolio. “So this gives us a two-fold potential. We can basically invest anywhere in the world to increase the state reserves, but we also have the responsibility to invest locally to stimulate business growth through investment in infrastructure. We are expecting for the investment policy to be disclosed by the government over the coming weeks.”
The investment policy, which dos Santos states will be made public, is still being considered by the Angolan government and no new developments have been made public in this arena since the fund was launched in October last year. Dos Santos said this is because the government is still in the process of approving several other things such as the national budget. “But we understand that fairly soon this investment policy will be made clear and its going to give everyone a clearer focus on where we will invest,” assured dos Santos.
Angola was devastated by an armed struggle for 27 years up until 2002, when the conflict ended. During the war, the country’s infrastructure, particularly in transport, was left devastated.
“The war left millions of displaced people,” explained dos Santos. “It destroyed the arable lands and the transport infrastructure so the country was really concentrated in the capital cities which were by the sea border, and the hinterlands basically became isolated islands from the rest of the development. Today, 10 years ahead more or less, there has been a lot of investments in infrastructure, airports, ports and roads, all with the aim of bringing investment from the capital cities from near the sea, into the hinterlands where there used to be the farming and the industry.”
“That’s a process that started right after the war,” he continued. “The government contracted several loans which was somewhat interrupted because of the financial crisis and the liquidity shortage that brought about, and that was actually one of the reasons why the sovereign wealth fund was created. Because at that stage the parliament decided to set up a reserve account and, going forward, the account was regulated by the government and they created a special entity that would manage these reserves.”
Dos Santos said that the Angolan government is now starting to implement a development programme that will focus on cultivating the local business community, improving employment and attracting foreign direct investment (FDI). “So we have a lot of potential there and one of the roles of the sovereign wealth fund is going to be to stimulate business in industries that did not receive a lot of investment over the last few years.”
Angola is dependent on oil extraction for economic growth and dos Santos said that one of the major challenges for the country is to channel this through to other sectors of the economy, an issue he says the fund also aims to address.
“Obviously the main industry that is creating revenues now is the oil industry. But it’s still very extractive-based, it doesn’t bring products up the value chain. Just now a new refinery has been approved, but there is potential to develop also [a] petrochemical industry to make products such as plastics and fertilisers and so forth. So we see the potential really in stimulating the creation of this value chain in this region and also we have been looking very closely at the hospitality industry because we believe it has a high potential not only for employment but for the improvement in terms of the services provided in the region as a whole. That’s one sector that we believe is essential, especially for FDI in this region.”
Criticism
Dos Santos said that, in the long run, the fund will reduce poverty. However, a quick Google of ‘Angola’s sovereign wealth fund’ will reveal that some critics are less convinced. Transparency International ranked Angola 157th out of 176 countries in its 2012 corruption index, which is actually an 11-point improvement up the ranking from the previous year. I asked dos Santos what he would like to say in response to this suspicion.
“I would say that our accounts would be audited annually by an independent firm – probably one of the big four – and we will very likely, in terms of investment, follow the policy and guidelines set by the government which will also be public,” he said. “So we are aiming to be very transparent about that and adhering to these Santiago Principles, which aim to deal with issues such as this in particular.”
The Santiago Principles, proposed in 2008 by the IMF and the International Forum of Sovereign Wealth Funds, are a set of 24 voluntary guidelines that assign best practices for the operations of sovereign wealth funds. The FSDEA governance structure contains an autonomous board of directors, according to dos Santos.
“It’s a three member board that has the mandate to implement an investment policy that has the guidelines for investment set by the government," said dos Santos. "We also interact with the government again through an advisory board for local investments more to accommodate any impact that our investments could have in the local economy, because there is a fiscal programme and monetary programming that could be affected by large investments as a whole, or even FDI.”
His other two fellow board members consist of board chairman, Armando Manuel, who is also president José Eduardo dos Santos' secretary for economic affairs, and Hugo Gonçalves who is apparently a relative of a former government economy minister.
Some have questioned dos Santos' involvement with the fund. Not only is he the son of the country’s president, but he is also business partners with Jean-Claude Bastos de Morais who is the founder and advisory board chairman of the fund's asset manager, Quantum Global Group.
“I’ve always worked in the financial industry, this is what I’ve always done,” he said in response to my question on this criticism. “I’ve been in insurance, in banking and in trading, now I’m an investment entity of the state and I will continue to do my job, as I have always done. Obviously following up the mandate that was given which is to invest in the growth of the country and improving the lives of the people of the country. So I hope to be audited on that and not on the fact that I am the son of the president.”