Situation Report: Angola: Once Again Facing the Difficult Challenges of Peace: A Case for Cautious Optimism, Business in Africa Magazine, June 2002, Joao Gomes Porto

ANGOLA: ONCE AGAIN FACING THE DIFFICULT CHALLENGES OF PEACE - A CASE FOR CAUTIOUS OPTIMISM

João Gomes Porto, June 2002

Business in Africa Magazine
June 2002 Issue

Barely two months have passed since Jonas Savimbi, the leader of Angola’s National Union for the Total Independence of Angola (UNITA), was killed in an ambush by the Angolan Armed Forces (FAA) in the eastern Moxico Province, and here we are assessing the business prospects that a peaceful Angola may offer to internal, regional and international investors. That we are in a position to do so may reveal two very different realities. On the one hand we may be overly optimistic in believing the parties’ public pronouncements this time, the perils of Angola’s recent political history notwithstanding. In other words, peace ‘is for real’. On the other hand, in a more realist and cautious stance, while considering that a radically different window of opportunity has in fact been open, this may merely be the beginning of a difficult and surely long path to a peaceful and democratic Angola. While I tend to follow this latter approach, one needs to temper it with a measure of enthusiasm that enables us, in a somewhat pre-emptive and anticipated manner, to assess some of the business opportunities that peace in Angola may create. The recent politico-military developments in Angola substantially differ in content and context to the 1991 peace negotiations which resulted in the first comprehensive peace agreement between the belligerents (the ‘Bicesse Peace Agreements’) that paved the way for the first democratic elections in Angola in 1992, as well as the 1994 ‘Lusaka Protocol’, which under United Nations mediation, complemented the aforementioned agreement with a government of unity and national reconciliation, among other provisions.

Recent Politico-Military Developments

The events that followed the death of UNITA’s historic yet highly controversial leader have startled most observers of this 27 year old civil war partially because, even though Savimbi himself had for a time been viewed in several quarters as the main reason for this conflict’s intractability and his ‘removal’ essential for a peaceful resolution, no one was quite prepared for the pace at which the Government of Angola and UNITA were able to sit at the negotiation table and agree on a detailed cease-fire agreement. In fact, the pace with which the military leaders of the FAA (Angolan Armed Forces) and the FALA (UNITA’s Armed Forces for the Liberation of Angola) were able to produce and agree on a comprehensive cease-fire after just two weeks of negotiations in the town of Luena (Moxico Province) has been interpreted as an early yet unmistakable evidence that Jonas Savimbi himself was the main ‘stumbling block’ to peace in Angola. This reinforces the view that if in the absence of the ‘Savimbi factor’ the military leaders of both parties were able to put a stop to the war, the historically elusive goal of a political agreement between the government of Angola and UNITA might, after all, be a realistic possibility.

As a matter of fact, the belligerent’s military commanders achieved in a fortnight the very difficult task of drafting a ‘Memorandum of Understanding’ covering the modalities of a cease-fire and defining in detail all aspects related to the quartering and demobilisation of UNITA’s military forces. On 4 April, in a historic ceremony attended by more than 4,000 people and held in the Angolan Parliament in Luanda, this ‘Memorandum of Understanding Addendum to the Lusaka Protocol for the Cessation of Hostilities and the Resolution of the Outstanding Military Issues Under the Lusaka Protocol’ was signed by the two Chiefs of Staff (FAA’s General Armando da Cruz Neto and UNITA’s General Abreu Muengo Ucuatchitembo ‘Kamorteiro’) as well as by the Chief of the United Nations Mission in Angola and the Ambassadors of the ‘Troika’ of observer countries (Portugal, the United States and Russia). Following the signature and under the watchful eye of an unusually relaxed President Dos Santos, the two military commanders embraced each other ‘as brothers’ symbolically reflecting the wishes of some 12.8 million Angolans who have long wished for peace in a country that has been devastated by three decades of civil warfare.

This detailed cease-fire agreement provides for the quartering of an unrealistically high 50,000 UNITA soldiers in 27 quartering locations as well as includes provisions for 300,000 family members to be taken care of in areas adjunct to the quartering locations. The steering of such complex process will be undertaken by a Mixed Military Commission composed by members of both the government and UNITA. Military representatives of the ‘Troika’ of observer countries as well as a military representative of the United Nations serve as permanent observers. As a consequence, there is no provision in the agreement for a formal monitoring or verification role for the United Nations or any other body or country. Obviously there is no provision for a possible peace keeping operation with the size and mandate of the 7,500 strong United Nations Angola Verification Mission III (UNAVEM III) that was set up to monitor and verify the implementation of the 1994 Lusaka Protocol. The parties have in fact returned to a formula similar to that used in 1991 after the signature of the Bicesse Peace Accords where the responsibility for verifying compliance lay directly with them under the CCPM (Joint Political Military Commission) and where the United Nations participated by invitation only. Nevertheless, both UNITA and the Angolan government have kept the United Nations and the ‘Troika’ of observer countries on board, and have publicly called for assistance in the implementation of the cease-fire agreement.

President Dos Santos’ high spirits are therefore justified, his political skill and swift reaction to events having proved successful and earning him international acclaim. Following the death of Jonas Savimbi on 22 February last, the President seized the moment by declaring a unilateral truce and announcing on 14 March a ‘15 Point Peace Plan’. The plan officially halted any military activities of an offensive nature against UNITA, gave assurances that a ‘blanket amnesty’ would be passed in Parliament covering all individuals involved in the war as well as promised a comprehensive re-integration programme for all demobilized soldiers. It also provided for the speedy approval of the new Constitution currently being discussed in Parliament which will define the necessary conditions for elections to be held. Dos Santos’ ’15 Point Peace Plan’ therefore paved the way for the negotiations that followed in Moxico Province between the military delegations of the government and UNITA.

President Dos Santos leadership of this process has also been a function of the relative balance of forces on the ground, which gives the Angolan Armed Forces a degree of leverage against UNITA that it has not enjoyed in the past. In fact, and although the Angolan government has shied away from public triumphalism, from a purely military perspective the signs that the Angolan Armed Forces’ eastern advance (‘Operation Restauro’) has been a success are unmistakable. This may go a long way to explaining the fast pace with which a cease-fire was concluded, since the conditions prevailing at the negotiating table mirrored the highly asymmetrical situation on the ground. Severely weakened in the past one and a half years by the FAA’s eastern advance, and seriously limited in its external relations by the United Nations imposed sanctions regime, UNITA had by the end of 2001 lost the bulk of its conventional forces and was forced to resort to small-scale guerrilla incursions reminiscent of its early days, with an operational force that most analysts estimate not higher than 10,000 men. Furthermore, the death of its historic leader as well as several other prominent UNITA officials (particularly the second in command, UNITA’s Vice-President General Antonio Dembo) left UNITA severely paralysed in the weeks following the 22 February, with different UNITA voices claiming transitional leadership of the movement or more seriously accusing the government of holding the military delegation present in the Luena negotiations prisoner. In fact, Jonas Savimbi’s death has left UNITA seriously weakened and the movement is having to quickly adapt and find some sort of direction in a post-Savimbi Angola, while at the same time having to deal with the various ‘interest groups’ as well as individual personalities that over the years have developed separate and in cases radically different political agendas to Jonas Savimbi’s.

Business in Angola: Present Reality and Future Prospects

Discussing business prospects in Angola without considering this country’s socio-economic indicators and macro-economic conditions would be an exercise in futility. In fact, while a peaceful Angola is often considered as having all the necessary conditions to become an economic powerhouse in the Southern African region, the rate of socio-economic development will be severely constrained by present structural conditions. Mainly as a result of the war, Angola is placed at the bottom of the development ladder. And this is where the paradox as well as the challenges lie, for Angola possesses an unparallel natural resource endowment in the form of fertile and varied agricultural lands, rich fishing and forestry resources, large reserves of oil, gas, diamonds, iron ore and gold, as well as a strong hydroelectrical potential.

According to the United Nations Human Development Report 2000, Angola’s population is estimated at 12.8 million with a growth rate of approximately 2.9 and an estimated urban population of 32.9% in 1998. As a result of the war, Angola faces a critical humanitarian situation where between 2.8 and 4 million people are internally displaced. In fact, Angola has been ranked 160th out of 174 countries in the United Nations Development Programme’s Human Development Index for 2000, a ranking considered conservative by many analysts not least of the Economist Intelligence Unit (EIU). Life expectancy at birth stands at 47 years, child mortality at 292 (per ‘000) and infant mortality at 170 (per ‘000). Education levels also present a serious situation with 58% percent of people over 15 being illiterate and school enrolment as a percentage of the total school age population standing at a mere 25%. The same applies to a health service that is in a state of collapse with virtually no functioning infrastructure in many provinces and strong reliance on foreign non-governmental organizations for the provision of even the most basic services. Access to basic services is extremely poor with 69% of the population having no access to clean water and 60% without access to sanitation, in a country where malaria, cholera, acute diarrhea, respiratory diseases and measles are the main cause of death. HIV/AIDS is still not a big issue in Angola with low infection rates of around 2.1%, mostly as a result of the isolation that the war has imposed.

Furthermore, the war has seriously affected the road and rail link infra-structure in Angola as well as made a large proportion of fertile agricultural areas inaccessible. A road network that totaled 75,000 km in 1994, of which 8,000 km are asphalted (EIU), is in a state of disrepair making it very difficult and highly dangerous to transport people and goods by land. The same applies to the rail network, one of UNITA’s favorite targets during the civil war. Port facilities are still operating, in Luanda, Lobito and Namibe, catering for an economy that is highly dependent on imports following the collapse of the domestic manufacturing and agricultural sectors. Transportation by air has become the only viable connection for humanitarian aid delivery as well as for the oil and diamond industries.

For the last three decades, what was once a diversified economy (Angola produced surplus coffee, sisal and cotton for export; had a growing light industry as well as a strong mining sector) has been gradually destroyed as a consequence of almost uninterrupted war as well as bad policy choices at central level that have resulted in escalating macro-economic instability. According to the EIU, Angola has 2.1% of real GDP growth and a consumer price annual inflation of 325%. The bulk of Angola’s GDP is however related to the off-shore oil industry which contributes with 60.3% of GDP, according to 1999 figures. And both the oil sector as well as the diamond sector have grown exponentially in the last thirty years, making Angola one of the largest diamond producers and the second biggest oil producer in sub-Saharan Africa.

The oil sector in particular has benefited immensely from a number of new discoveries placing Angola in the coveted position of having the largest reserve growth in the world and first place among the world’s top 15 oil finders. A vast number of oil companies are involved in Angola’s oil business, and side by side with the ‘supermajors’ (Total Fina Elf, Chevron, Exxon Mobil, British Petroleum, Texaco and Shell), we find a large number of ‘independents’ (ENI, C-T, BHP, Ranger, Conoco, Ocean, ROC, PetroGal, among others) as well as a number of NOCs (National Oil Companies). Production forecasts for 2001 are of 755.000 barrels per day, for 2005 1.4 billion barrels per day and for 2008, 1.8 barrels per day, placing Angola among the world’s top producers of oil. Coupled with an important number of new discoveries, the opening of the Girassol field has substantially increased production levels. In addition, the projected construction of a new refinery in the coastal city of Benguela with a forecasted production of 200 million barrels per day has created new opportunities and excitement around this very lucrative and dynamic field. Furthermore, the government’s intention of developing natural gas exploration with the construction of a LNG (liquefied natural gas) terminal in Luanda has made LNG a very attractive business opportunity for foreign investors.

Yet, although Angola’s oil sector has operated with considerable success for the last three decades and has been relatively unaffected by the war, the growing revenues of the oil sector have not trickled down to the society as a whole, having been used to finance the war effort in detriment of all other areas. Controversy surrounding extra-budgetary spending and lack of transparency in public finances and particularly in the oil business have prompted strong international pressure from bilateral donors as well as the ‘Bretton Woods Institutions’ (World Bank and IMF) for greater transparency in public finances. The government of Angola finally agreed to a nine-month SMP (staff monitored programme) in April 2000 which was subsequently extended to June 2001. While the findings of the SMP reflect possibly the central challenge facing Angola, the pace of state reform has been disappointingly slow and macro-economic stability as well as greater transparency have not been attained. In fact, the government has increasingly distanced itself from the IMF after this organization’s negative assessment of the government’s performance last February (particularly the government’s refusal to establish fiscal and monetary controls and transparency in official payments).

While the oil industry has consistently grown, the formal economy in Angola has progressively shrunk, and is at present largely dysfunctional and stagnated. As a consequence, the informal economy and therefore non-regulated sector has grown exponentially. A paradigmatic example is the largest open-air market in Africa, the ‘Roque Santeiro’ located just a few miles from the centre of the capital city, Luanda. How the government will manage the shift from a largely informal economy and introduce and enforce fiscal and regulatory discipline will largely determine the possibilities for future business in the Angola.

Prospects for the Future? It all depends…

On a politico-military level, the cease-fire agreement between the government and UNITA must be seen as the first step in what is a ‘long road’ to peace in Angola. Several potential obstacles may still paralyse or severely hinder the pace of events, not least whether or not the cease-fire will hold, even though since the signature of the cease-fire agreement, it has been strictly observed by both belligerents. The quartering and demobilization of UNITA soldiers is proceeding smoothly at the moment and the government has guaranteed the logistical conditions for a revised 55,000 UNITA soldiers and 300,000 of their family members. Yet, just a fraction of these 55,000 will be integrated in the national armed forces which means that suitable re-integration programmes must be defined so that the risks of a return to violence are minimized. International donor fatigue towards Angola, with the possible exception of emergency assistance, suggests that the Angolan government will have to bear the bulk of the costs of such re-integration programme. Paradoxically, Angola is one of the few African countries that should be able to fund its own development- but not without a dramatic restructuring of the state sector.

Furthermore, the question of whether or not the Angolan government will fulfill the promises of constitutional reform leading to elections in the near future is critical to sustain peace and therefore bolster investor confidence. In addition, there is the question of UNITA’s future leadership, even tough the various ‘factions’ have implicitly recognized the interim leadership of General ‘Gato’. In terms of its constitution, UNITA must hold a Congress to decide on its future leadership. Within this, two aspects are relevant: the extent to which the Angolan government will allow the necessary political space for such Congress to be held (including perhaps ‘influencing’ the United Nations Security Council to lift some of the travel restrictions it has imposed on UNITA officials abroad); and the extent to which UNITA itself will be able to unify under a single leadership that will enable it to pursue the difficult political negotiations that lie ahead.

Provided these conditions are met, the prospects for business in Angola are very good indeed. The reconstruction of the road network has already been given priority by the government with the announcement of a massive programme of ‘road reconstruction’ (approximately 7,500 km of roads) a fortnight ago. Furthermore, the rehabilitation of the rail network has seen considerable interest from foreign investors and is due to go ahead in the near future. Housing and all aspects related to infra-structure rehabilitation will also need considerable investment and the demand for construction materials is likely to increase exponentially. Private road haulage services will also benefit from the end of armed conflict largely replacing the over reliance on expensive air transport. In addition, the agriculture and domestic fishery sectors will surely be an attractive avenue for investment bearing in mind the richness of the environment and the expected rise in demand that will surely ensue from peace in this country.

The challenges for Angola are considerable yet they are necessary. The direction taken at this juncture will once again depend on the will of Angola’s political, economic and military elites. It is not the world that demands it but every single one of Angola’s 12.8 million people.