The Political Economy of Oil in Angola Ellen Olafsen and Filippo Nardin, Boston, August 1998

Emphasis on Citizens Energy Corporation
and the Angola Educational Assistance Fund

Introduction

20 years of civil war has taken its toll on the southern African nation of Angola. The country has since independence was achieved from Portuguese colonial rule in 1975, experienced political as well as economic instability. Although a peace agreement was signed in 1994, reports on military activities still provide an uncertain environment for policy planners, domestic and foreign investors, and the general population of Angola. Recovery of the country requires immense human and capital input, and while the government does not have the ability to provide the funds needed to rebuild the country on their own, foreign investment (FI) is encouraged.

When transnational corporations (TNCs) operating in developing countries are discussed in international development forum, it is often with a negative connotation. Developing countries in desperate need for increased revenues and foreign exchange at times agree to contracts that would be unacceptable elsewhere. Reports of pollution, negative impact on the local population and their way of living, unproportionate repatriation of revenues leaving the host country with minimal resources for reinvestment, and unacceptable working conditions for local employees have been and continue to be reported, leading some to conclude that the net benefit (socially and economically) of foreign investment (especially with regards to direct investment) is minimal to the host country.

There is however a trend among TNCs to take social responsibilities into account when planning, coordinating and operating a business enterprise in a developing country. Corporations increasingly realize that it is beneficial, also from a corporate point of view, to conduct foreign subsidiaries in a socially responsible manner.

The Angolan government depends largely on foreign investors for the exploration, production and marketing of oil. Oil is the engine of the Angolan economy and provides for more than 90% of the country’s foreign exchange, 94% of government revenues and 46% of GDP (UNDP Development Report Angola 1997, UNDP, New York, NY, 1997). The fact that the country relies mostly on foreign companies to exploit this tremendous resource naturally poses a danger of exploitation. U.S. firms have significant concessions in Angola, and although most financial data is confidential, I will in this paper examine the role that some of them play in the political economy of Angola. I will specifically focus on the role of Citizens Energy Corporation (CEC) the Angola Educational Assistance Fund (AEAF, see section "The Angola Educational Assistance Fund").

In order to paint a realistic picture of the political economy of oil in Angola and the impact of foreign companies such as Citizens Energy Corporation, I will in the first part of this paper provide a background analysis of the social, political and economic situation of the country. The second part of the paper will be devoted to describing and analyzing the oil industry and the role of CEC and the (AEAF) in particular.

The Social and Political Situation of Angola

Angola was under Portuguese colonial rule from 1915 to 1975, and as in many other African nations, the legacies bequeathed by the colonial era are still evident. The 20 year civil war erupting shortly after independence has also had a profound impact on Angola economically and socially. Only in the last decade under Portuguese rule did the colonials start investing in the provision of education and health services for the populations outside the main cities. The war has further prevented the country from having sufficient funds and management available for social and economic development. The lack of infrastructure due to minimal provision of such under colonial rule, further deteriorated by the course of the civil war, has only exacerbated the constraints to dealing with Angola’s social and economic challenges.

Sixty-seven percent of the estimated 12 million people living in Angola currently live below the poverty line (presently measured by the UNDP as $40 per adult per month). The annual population growth rate is estimated at 2,8 percent, and is lower than in many other African nations (UNDP Development Report 1997, UNDP, New York, NY, 1997). Although the rate is expected to increase as a result of increased stability, overpopulation is not the root of the poverty problem in Angola. The country is in possession of vast resources that could, if managed correctly, benefit the Angolan population as a whole. The large portion of the Angolan people living in poverty can be contributed mainly to unequal distribution of income and access to resources bequeathed by legacies of the colonial time, civil war and half hearted implementation of development programs.

Poverty has repeatedly been found to correlate with access to primary education. In Angola the correlation between illiteracy rate (often used as an indicator of access to primary education) and degree of deprivation or poverty is 0.99 according to UNDP estimates (1997). Primary education is in other words an absolute must in the country’s future development policies. Today (1990 est.) the literacy rate of the population age 15 and over is only 42 percent. The ability to read and write is also unequally distributed between men (56%) and women (28%), and there are high drop out rates at all levels. These statistics are due not only to lack of resources at the schools, but also to poverty in itself as many families can not afford to have their children in school, and are caught in a "poverty trap".

The degree of poverty, including access to resources, is unevenly distributed across regions and groups. There is high income discrepancy between urban and rural areas, indicating that the investment of resources has continued to be heavily concentrated in urban areas. The latter has contributed to increased rates of rural-urban migration, only to move the problem of poverty in rural areas to a problem of overpopulation in urban areas (mostly Luanda). Income is however extremely unevenly distributed also in the main cities as the richest 10 percent earns 30 percent of the income generated while the poorest 10 percent earns only 2.2 percent (UNDP, 1997).

Although ethnic conflict was not the principal fuel of the civil war, the potential for such conflict is present. Angola has numerous ethnic groups; Ovimbundu 37%, Mbundu 25%, Bakongo 13%, Mestiço 2%, European 1%,Other 22% (Hodges, Tony, Angola to 2000:Prospects for Recovery, The Economist Intelligence Unit, New York, NY, 1993). Already in the struggle for independence, the three principal independence movements were rooted in different parts of the country, with their principal base of support among one of the three main ethnic groups (Hodges, 1993). A separatist group also emerged in the enclave of Cabinda, the oil rich province separated form the rest of Angola by a 25 mile strip of territory belonging to the Democratic Republic of Congo, former Zaire (Hodges, 1993; the information on the three independence movements is, if not otherwise noted, for the most part based on Hodges, Tony, Angola to 2000: Prospects for Recovery, The Economist Intelligence Unit, New York, NY, 1993).

Movimento Popular de Libertação de Angola (MPLA) was founded in 1956 with its initial core of supporters from Africans and mestiços in the capital, but the party is now heavily supported by the Mbundu, an ethnic group which makes up an estimated 25 percent of the population. (Mainly located in the North West region of Luanda, Bengo, Kwanza Norte and Malanje). The MPLA was early on influenced by Marxism and received diplomatic and military support from communist countries including the USSR.

Frente Nacional de Libertação (FNLA) had mainly Bakongo supporters and received assistance from the US and China as counter weight to USSR supported MPLA. FNLA was however fractioned from the very beginning, and one of the major splits of the organization resulted in the foundation of União Nacional para Independéncia Total de Angola (UNITA) in 1966.

UNITA received minimal support from abroad, but built a political base of support among the Ovimbundu (the largest ethnic group, dominating in the southern central zone from Benguela to western Moxico), with whom the MPLA and FNLA had little contact. Presence of anti-colonial mestiços and whites was significant in the MPLA, while negligible in UNITA and the FNLA. UNITA and FNLA emerged as racial, populist nationalist groups differing from the Marxist based MPLA ideologically. Frente de Libertação do Enclave de Cambinda (FLEC) was a small secessionist movement that has had little impact due largely to factional strife.

When Angola gained independence in 1975, the MPLA established a one-party state. There was significant fighting between the independence movements, and although the FNLA and FLEC soon ceased to pose a significant military threat to the Luanda government, the threat from UNITA continued. In the late 1980s it became clear that neither side could win a military victory, and the first peace accords (the Bicesse Accords) were reached in May 1991. In addition the MPLA issued constitutional reforms implementing measures of democratization.

With the signing of the peace accords, democratization efforts, and scheduling for Angola’s first elections, the prospects for peace and stability seemed promising. The democratization efforts were however partial, and freedom of expression was still limited. When elections were held in 1992, it was evident that the reconciliation process between the government and UNITA had not come as far as expected. The MPLA won a fair election supervised by international election monitors, and Eduardo dos Santos was elected as the first President of the Republic of Angola. UNITA did however not accept the election results and accused the MPLA of cheating. Consequently the worst period of the almost 20 year old civil war broke out. The death tolls in this period alone was higher than that of the whole war so far, vast numbers of people were displaced, and the nation was in complete disarray.

Intense mediation efforts between the parties led to the signing of the Lusaka Peace Protocols in 1994, and in April 1997, new efforts to stabilize the political situation accumulated in the formation of the Government of Unity and National Reconciliation. The new government integrates members of UNITA and other parties in vice president and minesterial posts, and the UNITA deputies elected in the 1992 elections have taken their seats in the National Assembly. Dr. Savimbi, the leader of UNITA has however not assumed his position as he claims to fear for his safety.

Several years of conflict has naturally scared the population on both sides. Although the agreements are signed, the psychological attitudes are difficult to alter. Occasional eruptions of violence still occur, and measures of trust building and unification are badly needed. Dr. Savimbi has according to numerous sources continuously presented an aggressive authoritarian image, and is seemingly uninterested in transition to democratic party politics.

The majority of UNITA’s supporters, the Ovimbundu, are traditionally socially and economically disadvantaged; therefore, the importance of addressing the issues raised by this people is extremely important in order to prevent a largely ideological and personalistic battle from becoming a matter of ethnic conflict. Now that millions of Angolans, who were displaced or exiled during the course of the war, are returning, posing the challenges of resettlement and reasserting the question of access to resources; failure to address these issues could have serious consequences.

As can be seen from the analysis above, social, political and ethnic issues are heavily intertwined in the Angolan society. All three aspects do therefore have to be taken into account when approaching the challenges posed in conjunction with recovery of the country. Foreign investors, NGO’s and others will have to be sensitive to this situation in order to approach their mission in a beneficial manner. Otherwise their involvement, although motivated by good intentions, can have undesirable consequences for the Angolan society, and in turn, for the project of the third parties.

Economic Conditions

The Angolan economy has been crippled by years of civil war and the resulting continued government spending and concentration on war efforts rather than economic policy planning. Little progress has been made in reforming public enterprises and financial institutions or improving public sector management. The economic legacies bequeathed by Portuguese colonial rule are still evident, especially in the critical shortage of skilled professionals, and high levels of corruption has been an important impediment to implementing sound economic policies. As Angolan Professor of Economics Fatima Roque expressed "Without progress in these areas, it will be difficult to sustain macro – economic stability, mobilize savings, efficiently allocate loan finance to productive investment, and provide basic services to the poor" (Roque, 1997).

Domestic investment and saving rates are currently lower than recommended by most economists due largely to the uncertain environment and inflation rates near 1000 percent. There are severe shortages in the domestic market, and a previously largely self-sufficient country is now importing food and other necessities. Due mainly to excessive war efforts, Angola also faces a large fiscal deficit, and the country’s external debt did in 1995 reach $8.8 billion.

The lack of sufficient book keeping and inability by government officials to explain the expenditure of large portions of revenues, have led the IMF and the WB to deny providing the country with badly needed debt rescheduling and renewals. This has in turn resulted in the government acquiring loans from other sources to be repaid at extremely high interest rates, further binding the generated revenues in years to come. The table below shows the percentage share of debt in exports and GDP, and suggests that major economic reforms are needed.

Source: UNDP Human Development Report Angola 1997.

As noted above the MPLA was a Marxist influenced party, and soon after consolidating power in 1975, the government launched substantial nationalization reforms. In December 1991 the government did however revise the constitutional law, and marked the formal establishment of a market economy. The transition from a plan economy has not been easy, and the reforms have been only partially implemented while disrupted by the course of the civil war.

The major reason for the government’s decision to privatize the economy was to attract foreign investment. Reconstruction of the Angolan economy did as earlier mentioned, require substantial capital which the government was in no position to provide. The government was however caught between the potential disadvantages in conjunction with allowing FI and the potential benefits to be accumulated from such activity.

Considering the tumultuous political situation the government was, and still is, reluctant to allow FI in certain sectors for social and political reasons; monopoly substitution, foreign ownership, ownership of strategic national interests by private investors, and the fear of being criticized by political supporters are all sensitive matters in a political economy in unbalance. The benefits of FI in form of increased income and opportunity, access to foreign capital, technology and management expertise, access to global markets, and enhanced efficiency are however crucial in order for the Angolan economy to move on (Roque, 1997, Hodges, 1993, Hare, 1992). Angolan Economist Roque states "Substantial FDI is indispensable to satisfying the basic needs of the population, efficiently exploiting the country’s resources and achieving rapid, balanced and sustainable economic growth in a context of provincial and regional diversity". But as noted in the very beginning of this paper, the foreign owned activities must be conducted in a socially responsible manner in order to be of mutual benefit to the country and the corporation involved (I personally do not agree that FDI specifically is needed in order to achieve the factors mentioned by Roque, but rather FI in one form or the other. It will most likely be easier for the government to control joint ventures and production sharing agreements than direct independent investment. See "the Oil Industry" for discussion with regards to the oil sector).

The Angolan government’s foreign investment policy has recently been revised and is now more favorable to foreign investors. The procedures are being simplified and expedited, and foreign companies are guaranteed equal treatment. As of 1994 foreign investors were allowed to transfer abroad dividends, profits and proceeds of the sale of investments; the percentage share that is allowed to transfer is however unclear, and could potentially leave the Angolans with little economic return on foreign investment. Special fiscal incentives are however applied to those companies employing a certain amount of Angolan employees and provide them with professional training and benefits equal to foreign employees. The latter provides for one way of enhancing the skills base of the Angolan population and for security of Angolan employees. The reoccurring question is whether these rules are being enforced.

Although the Angolan economy is now in a dismal condition, the country has tremendous resources that could, if managed correctly, turn Angola into one of the wealthiest nations in southern Africa. Numerous oilfields are located along the Angolan coast, there are several diamond mines in the interior, and the Southern part of the country has rich agricultural, livestock and fish resources and good prospects for mineral development. At the present time, the government does not have control over most of the diamond industry, but as the political situation stabilizes, the industry has potential to become a major contributor to the nations GDP.

The Oil Industry

Today the oil industry is the engine of Angola’s economy. Oil accounts for 46% of Angola’s GDP, 90% of its total exports and more than 94% of government revenues (UNDP, 1997). The oil industry was the only sector of the Angolan economy that was not affected by the course of the war. This due mainly to the offshore location of the majority of the producing oil wells. An ironic contributing reason was however also that while the civil war was raging and UNITA rebels were financed by the CIA, Cuban troops protected the oil production, mostly carried out by American owned companies.

Angola is currently the second largest producer of oil in Africa, producing an estimated 700-800.000 barrels a day. As the country is not bound by the production quotas of OPEC, the government continues to encourage increased production volumes in order to spur additional revenues, and production volumes may therefore overtake that of Nigeria after the year 2000. Almost all oil produced in Angola is exported. as the domestic electric generation is achieved mainly by hydroelectric resources.

Discoveries of oil were made already in 1910, but commercial discoveries did not start until 1952. As oil production had reached reasonable levels already under colonial rule, the first priority of the post independence government was to develop a national oil policy. The national oil company Sociedade Nacional de Combustiveis de Angola (Sonangol) was created and became the sole concessionaire for oil exploration and production.

The state owned company was granted to enter associations with foreign oil companies in order to acquire sufficient resources needed to carry out extensive oil exploration, development and production, and the company has since its creation been involved in all stages of the oil industry. The extent to which the state company is involved is however now being liberalized.

Due to the extreme dependence on the oil industry and the lack of capital to exploit the resource on their own, the government provides beneficial investment opportunities to foreign oil companies. In addition, low operating costs and favorable geology attract many foreign investors. The Economist Intelligence Unit reports that the overall exploration rate has been extremely impressive; in the 1987-1991 period, 57 discoveries were made for 88 exploration wells which constitutes a 65 percent success rate. Comparatively the success rate was 22 percent in the UK sector of the North Sea for the same period. These factors combined with increased stability in recent years have resulted in an FI increase in the industry from $2.7 billion in 1980-86 to $4 billion in 1993-97 (Embassy of Angola).

The geographic region where the oil industry operates is divided into more than 30 blocks. In order to acquire a concession for an exploration block, a foreign investor is obligated to drill a minimum of four oil wells, each of which costs about $20 million. Due to the high risk costs, companies do therefore often enter collaborative agreements. American oil companies with significant involvement in the Angolan oil sector include Chevron, Texaco, Mobil, Exxon and Occidental, and Elf, Agip, Energy Africa and Saga from other parts of the world. See map below for the distribution of companies in each block.

Angolan Oil Exploration and Production Areas, 1992

For a full view of the Oil Exploration Bolcks Map, clik on the thumbnail above.

Collaboration with foreign investors occur in the form of joint ventures and production sharing agreements (PSAs). In the first case the investment costs and production are divided according to the party’s share in the venture; in the latter the foreign partners act as contractors to Sonangol, finance all investment costs, recoup their investments with "cost-oil" and share "profit-oil" with Sonangol on a sliding scale linked to internal rate of return rather than cumulative production. The latter serves to increase the incentive to invest in achieving higher production levels.

PSAs are attractive both to the government and to foreign investors; the government avoids the risk costs, and the foreign companies are able to "frontload the cost-oil, enabling them to amortize investment quickly" (EIU, 1993). As the government encourages the PSA option, the tax rate is lower than for the joint venture option; in a PSA the foreign company pays 50 percent on retained profit oil, while in a joint venture the foreign partner pays production royalties, income tax and excess profit tax exceeding the 50 percent charged in the PSA option. As described earlier the taxes collected from the oil industry constitutes the vast majority of government revenues.

In general, there seems to be a tendency among TNCs to use an increasing number of local employees in operations abroad. The workforce in the oil sector of Angola did in 1996, according to the UNDP Human Development Report 1997, consist of 9000 Angolans and 1000 foreigners. Due to expansion of the oil industry and the turnover rate of expatriates, the current numbers of nationals and expatriates involved in the industry are however likely to be higher. The rate of Angolans employed on an administrative level is not available, and is most likely low considering the lack of Angolan skilled personnel. The UNDP states that the Angolans find the sector attractive to work in, as the working conditions are better than in most other sectors of the economy. The oil sector is however extremely capital intensive and has very few linkages to the rest of the economy.

The increasing dependence on one product for foreign exchange earnings and government revenues makes the country vulnerable to price changes in oil. According to an US-Angola Chamber of Commerce estimate, for every one-dollar drop in oil prices, Angola loses $120 million in projected income. As the taxes from the oil industry provides for most of the government’s income, this puts the country in an extremely vulnerable situation. The government is attempting to reform the tax system in order to provide a more efficient and enforceable system and to broaden the base of sources for government revenues. Ultimately this does however depend on the development and income generation of non-oil industries.

Although the industry is capital intensive and provides for few jobs, the revenues generated could, if managed correctly, have spurred growth in other sectors. The revenues earned have however been used mainly to fund non-productive expenditures (large portions of funds are not traceable) and a big portion of the revenues are mortgaged for several years to come against Angola’s external debt. As recent as 1997, the Angolan government managed to negotiate fresh credit from Portugal, Spain and Brazil by guaranteeing payment against future oil production (US-Angola Chamber of Commerce).

According to Hodges (1993) roughly 45 percent of the oil sector export earnings flow out of the country due to imports of equipment and other goods used by the oil industry, exploration costs, shipping, travel of expatriate oil workers, interest payments on loans, the repatriation of profits, and the transfer of expatriate salaries. After the expenses above are covered, little is therefore left to reinvest in productive operations that could increase the country’s PPF.

There is still potential for the oil industry to expand. Angola has large proven reserves, and as mentioned above the geological conditions are extremely favorable. A domestic refinery currently serves the domestic demand for oil, but it does not at the present time have the capacity to refine much of the oil exported. Studies have however been carried out regarding establishing a grass – root refinery in the Southern part of Angola in order to potentially serve other south African nations with refined oil.

There is no doubt that oil is a great asset to Angola. The debt burden, civil unrest, corruption and the lack of management skills and knowledge required to exploit the resource and reinvest the profits in a responsible and beneficial manner have however been impediments to exploit the industry to its full potential, contributing to leaving the nation in a dismal economic condition.

Citizens Energy Corporation’s Commercial Involvement in Angola

Citizens Energy Corporation (CEC) is a non-profit corporation which operates and invests in fully commercial, taxable subsidiaries in various fields. The company was founded in 1979 on the belief that business and social goals are inclusive of one another. Its mission is "to use business for social good by developing new forms of commercial arrangements to improve the quality of life for disadvantaged people and to create new commercial and social relationships, especially between developed and developing nations, that allow these nations to maximize human, economic and natural resources". In line with this mission, it has been company policy to fund social programs to the benefit of host countries of successful business operations using a case to case determined portion of the profit earned on commercial activities in the country.

As previously mentioned, the Angolan government has awarded over 30 blocks for oil exploration so far. In 1987 CEC became a partner in one of the offshore concessions, and later, a CEC subsidiary signed an additional block, which is still under exploration today. From the mid-1980s another CEC subsidiary began what is today the longest continuos oil trading contract with Sonangol. Also due to the company’s engagement in the social sector, CEC is a well known and sought after example in the oil business. The company has since the beginning of its involvement reinvested more than two million dollars in the country (in 1996, CEC sold part of its share in the above-mentioned subsidiaries, retaining only a minority participation).

The first reinvestment program began in 1987 in conjunction with Citizens’ first exploration and production contract, when Citizens sponsored a project focused on improving fish production. CEC has also sponsored projects with Africare on an emergency delivery of medicines program, ADPP for their work with orphaned children, and they were a co-founder of the U.S Angola Chamber of Commerce. Their latest, and most ambitious involvement so far, is the establishment of the Angola Educational Assistance Fund, which will be described below.

The Angola Educational Assistance Fund

Angola is in desperate need for skilled personnel. The sole existing public university in Angola, Agostinho Neto, has been severely damaged by the war and the resulting insufficient provision of funds, and could even if fully refurbished not meet the needs of an increasing demand for higher education. The government and foreign oil companies have for several years sponsored education for Angolan students abroad, but these efforts have proven extremely costly and relatively meaningless as most of the students sent abroad never return to benefit the restructuring of the Angolan society.

Alexandre Cardinal do Nascimento, Archbishop of the Catholic Church of Angola, is one of the individuals alarmed by future generations’ limited access to higher education in Angola. He realized the need to educate the leaders of tomorrow, and as the state university would not be able to meet the increasing demand, he in 1992 initiated the plan to build a new university, the Catholic University of Angola (CUA). As the Angolan Catholic Church did not alone have the means to launch the project, the Cardinal requested the assistance of Citizens Energy Corporation (CEC), a participant in several oil exploration concessions, and its Chairman the late Michael Kennedy, who at the time spent several weeks in Angola as an observer on behalf of the Department of State, for the first democratic elections.

All foreign oil companies involved in Angola are obligated to provide a signature bonus in the form of a social project when acquiring a concession. At the time of the Cardinal’s request, concession negotiations were ongoing between Mobil, Saga, Energy Africa and CEC and the Angolan state, and the foreign companies decided to support the Catholic University as their contribution to the Angolan society. In order to manage the funds The Angola Educational Assistance Fund (AEAF) was thereby created in 1996.

The creation of the AEAF was a big step forward. The foreign oil companies have previously been competing against each other also where social activities are concerned, leading to much confusion and projects impeding rather than complementing each other. With the creation of the AEAF, a larger fund was created, and cooperation guaranteed.

The AEAF represents the financial and logistic support for the CUA project. The role of the organization will not be solely devoted to establishing the CUA, but also to promote the collaboration between higher education institutions in Angola and abroad. The AEAF currently works to coordinate activities in support of the CUA, networking with American and Portuguese Universities, and Portuguese speaking universities in Brazil and Africa in order to broaden the perspectives of the university and provide an opportunity to collaborate with other higher learning institutions. The AEAF emphasizes that they were established to improve the education of Angolans in Angola, and all activities undertaken in conjunction with foreign institutions are with this mission in mind.

The AEAF has also stated that they intend to function as a link in encouraging the involvement of the private sector in the reconstruction of the Angolan society. Although the primary focus of the AEAF is currently the CUA, the potential for the AEAF to serve as a coordinator and communication link between foreign investors, the government, the catholic church, and various NGO’s involved in the country is therefore present.

There has been a tendency for NGO’s, the World Bank and others to invest in and sponsor projects without much regard for the need for and effects of the project and its sustainability. The result has been that millions of dollars have not been utilized to their full potential. In order to maximize the benefit of social project investment to the people, appropriate assessment studies must be carried out and the local population consulted to a larger degree. Although foreign advise and suggestions are feasible, it is crucial that the Angolans themselves assess what they are in need for, and that they have the final word as to what projects they will be able to launch and administrate.

The government, the Minister of Petroleum of Angola, and the Sociedade Nacional de Combustiveis de Angola (SONANGOL) are supportive of the AEAF and the CUA project, and representatives from the Ministry and SONANGOL are on the AEAF Board of Directors. The Board otherwise consists of representatives from the oil companies that initiated the AEAF, Cardinal Alexandre do Nascimento, Mrs. Robert F. Kennedy representing the RFK Memorial Foundation, Dra. Maria de Jesus Barroso Soares, former first lady of Portugal, representing the Fundação Pro Dignitate, a Portuguese human rights organization, and Dr. Agostinho de Miranda, a Portuguese lawyer of Angolan descent who represents the interests of several American oil companies involved in Angola. The Board of Directors does in other words have a mixed composition, and the AEAF serves as a non-profit organization.

Although the Board of Directors maintains the overall coordination of the AEAF’s activities, it is the Catholic University Installation Commission, consisting of Angolans appointed by the Episcopal Conference of Angola that directs and has the final word in all decisions regarding the Catholic University. This diversion of responsibilities secures that the CUA project does not become a project imposed by foreign entrepreneurs, but rather a project acted upon on the request of Angolans themselves.

In its initial stage, the Catholic University of Angola will focus on courses and programs considered most relevant in the present social and economic conditions of the country: reorganization of the educational, administrative and economic systems. The Installation Commission will start out with faculties of Law and Economics, and there will be a strong emphasis on fluency in Portuguese as this is the official language of Angola.

The options for further development of the university are many. The AEAF and the Installation Commission both see the potential benefit of establishing scientific faculties providing Angolans with the skills needed to go about the restructuring of the economy, including better utilization of the country’s resources. An engineering and geology department, a department of marine biology for improvement of the fish industry, a school of medicine to address the desperate lack of medical personnel and a department of agriculture would all clearly be feasible. The latter proposes excellent prospects, as there is great potential for agricultural activities in the Southern regions. Developing an agricultural skills base would benefit the economy overall as it would lead to a diversification of the economy, combined with food security ultimately leading to less dependency on imports. This would also lead to more equal income distribution across regions, as the potentially agriculturally productive regions are located in the non-oil and non-diamond producing areas.

If the development of the faculties of law and economics turn out to be successful, there is in other words potential for expanding to other faculties. One should also keep in mind that training classes and extension courses, that do not necessarily have to involve a university, could be launched at least to start the process of improving the social and economic prospects of the country. An example of a smaller scale, but yet valuable initiative is a 12-week English course offered by the AEAF in 1997. Energy Africa did at the time have an obligation, as part of their PSA with Sonangol, to spend $80,000 on training programs. Instead of sending a few students abroad for English classes, Energy Africa approached the AEAF, which consequently arranged a 12-week English program for more than 70 individuals.

A concern for some is whether the Roman Catholic Church will have a discriminatory influence on the university. The Angolan Church has however repeatedly stated that as an open university, it is ruled by principles of absolute liberty of access, regardless of race, gender, religion and social and economic conditions, with no limits other than those deriving from available space and academic selection criteria. Although this statement is no guarantee that discrimination will not occur, the relationship between the Catholic Church, other religions, the government and other parties is seemingly peaceful and collaborative.

As in many other African and Latin American countries the population now often adheres to a mix of traditional religions and Christianity, and there is to my knowledge no animosity between these two sides in Angola. Regarding the relationship between the Catholic Church and the political parties, although the MPLA has been communist traditionally, the current government seems open and respectful towards the Catholic Church. I have not been able to gather direct information as to the relationship between the Catholic Church and UNITA, but according to the Conflict Management Group, who have made an assessment of the civil conflict in Angola, the Cardinal has taken an apolitical stand apart from UNITA and MPLA, and receives great trust and respect within the Angolan society. The Catholic Church was further trusted to be one of the monitors of the 1992 elections. Hopefully the Church, and the administration of the university, will be able to keep an independent stance and have the Catholic University of Angola serve as a bridge between a turbulent past and a more stable future.

As mentioned above, most educational institutions are located in urban areas. Mestiços and whites have since the colonial times been the ones with highest access to educational resources, while many Africans, especially those from the rural areas, do not even have access to primary education (see discussion of education and other social factors under "Social and Political Situation"). The proportion of children not in school by geographical region is as follows: East (Lunda Norte, Lunda Sul, Moxico) 50 %, North (Zaire, Uige, Malange) 40%, Centre South (Huambo, Bié, Kuando-Kubango) 40 %, South (Huila, Cunene, Namibe) 35%, West (Benguela, Kuanza-Sul) 30 %, Capital (Luanda, Bengo, Cabinda) 20% (UNDP, Human Development Report Angola 1997).

Notably the heaviest concentration of the Ovimbundu (largely UNITA supporters) is located in the areas with high rates of children not enrolled in school. The majority of the Mbundu (largely MPLA supporters) are located in Luanda and Bengo where the proportion of children not in school is lowest.

It is in other words clear that even though the university will enforce a non-discriminatory admission policy, the majority of the student body will be drawn from the urban areas. The Ovimbundu has historically been worse off educationally and economically, and the pattern is enforced due to their low rates of primary school enrollment (see correlation between education and poverty under " Social and Political Situation").

In order not to further exacerbate the urban-rural discrepancies, increase rural-urban migration, and exacerbate rural and ethnic based aggravation, it is therefore important to ensure that some of the students getting the opportunity to acquire a higher education will work and live in rural areas, and that in the long term also the rural population is guaranteed access to primary education. It is clear that this is not the Catholic University’s responsibility alone, but the factor should be kept in mind and acted upon in cooperation with the Agostinho Neto State University. Both universities are stating that they in the future intend to open subdivisions in Ovimbundu areas, and granted that higher access to primary education is provided in the same areas, this would alleviate the situation somewhat.

One of AEAF’s current projects in conjunction with the CUA is to establish an Internet and computer center. A survey on Internet and Telecommunications in Angola was carried out from June-August 1997, and an in-depth feasibility study is scheduled to take place this summer in order to secure that unnecessary mistakes are made. The establishment of a computer center would provide the students at the Catholic University with the opportunity to benefit from distance learning programs, interact with students and faculty from around the world, and having access to sources of information that can be used for academic purposes. It has also been suggested that the computer center should be held open to the public when not in use by the student body.

The telecommunications center was a suggestion from the AEAF Board of Directors, and is to be approved of by the Installation Commission. The Installation Commission was initially intimidated by the technical challenges posed by an Internet and computer center, but is now convinced that this will in fact expand the opportunities and possibilities for the Catholic University. An issue for the government, due to the political instability of the country, is also the control of information spread to, from, and within Angola. Government approval is therefore essential, as the project might be limited or obstructed if the government does not accept its existence due to domestic security reasons (see discussion of social and political situation under "Social and Political Situation").

The IT-Project Advisory Board, otherwise consisting of American, Italian and Portuguese computer and telecommunications experts hired and supervised by the AEAF, also consists of an Angolan professional within the field. This serves to maintain a close connection with the Installation Commission and other Angolan decision-makers and to reduce the risk of making fatal mistakes due to lack of knowledge with regards to local conditions and procedures.

As the CUA is a permanent institution, it is important to ensure that financial measures will not inhibit the university in the future. As per decree approved by the Angolan government on April 17, 1982, petroleum companies operating in Angola were required to pay 15¢ per barrel of oil produced for unspecified educational and training programs, referred to as Training Levy Funds. After the finalized decision to carry out the plan to establish the Catholic University, the AEAF suggested to expand the decree in order to create a sustainable financing mechanism for the Catholic University and the Agostinho Neto University specifically.

July 11, 1997 a new decree was passed, expanding the decree approved in 1982. The new decree states that a portion of the Training Levy Funds is to be earmarked for the Catholic University and the Agostinho Neto University specifically. The CUA and the Agostinho Neto University will now benefit from 1¢ each of the total of 15¢ to be paid by the oil companies for educational purposes. At the projected 1998 level of oil production, this equals a cash flow to each university of over 3 million dollars (Nardin, Filippo, Principal events and summary of activities carried out by the Angola Educational Assistance Fund during the year 1997, AEAF, Boston, 1998).

A concern with this otherwise good attempt at ear marking funds from the oil industry is the lack of administrative control. The foreign oil companies entered the Angolan oil sector at different points in time, and it is likely that the contracts issued between the Angolan state and the foreign investors vary accordingly. Seemingly some of the oil companies are unaware of the diversion of taxes, and the ones that are, do seldom follow up to see whether the funds actually end up sponsoring educational projects. There also seems to be confusion as to which department the tax money should go to, and who is responsible for the further diversion of the Training Levy Funds. The lack of coordination and specific guidelines have contributed to a situation were the oil companies’ ability to fulfill the intention of the decrees passed in 1982 and 1997 is limited. A possibility would be for the oil companies to pay the taxes directly to the universities rather then through the government; there is however no doubt that in order to assure the continuation of the process of establishing and running the CUA, control measures are needed and information needs to be spread to the various parties involved.

As noted above the government of Angola has a large fiscal deficit, and little funds to meet the demand for higher education. The decision by the foreign oil companies to establish the AEAF is a sign that foreign investors are willing to take social responsibility seriously, and constitutes a positive step on the road towards the social and economic development of Angola. An increase in local population with higher education will hopefully result in increased stability, opportunities and job markets, which in turn will benefit not only the country itself, but also foreign investors engaged in business enterprises. The AEAF overall and the CUA project specifically, do therefore have potential to be great contributions to the recovery of the Angolan society, and stands as an example for the launching of similar projects in the future.

Conclusions

The prospects for economic growth as well as social and economic stability do to a large extent depend on whether the political unrest stabilizes. The opening of the CUA may also be postponed due to recent reports of escalation of conflict. Many have pointed out that Dr.Savimbi, the leader of UNITA, may not be interested in any sort of power sharing agreement with the MPLA, and it is difficult to see how the country will achieve peace if the personal stance of Dr. Savimbi is not resolved.

In this turbulent atmosphere it is extremely important that foreign corporations conduct their business in a socially responsible manner. The potential is certainly there for the country to benefit socially and economically from the presence of foreign oil companies, but this requires correct management and genuine interest both from the corporate and the Angolan government’s side.

Foreign investment, debt rescheduling, privatization, tax reforms and long term economic development planning are crucial factors on Angola’s road towards a stable, sustainable economy; the development of a skilled work force is however crucial if these reforms are to be planned and implemented, and the country to assume a more self-sufficient role. The contribution by foreign companies in improving the country’s skills base is therefore of tremendous value.

Although one can not expect that transnational corporations around the world will adapt the extent of involvement in the host country’s social affairs as that of Citizens Energy, Mobil, Saga, and Energy Africa in this particular case, this case does provide a lesson for the governments of developing nations and for transnational corporations in general. Governments of developing countries can learn from this case that they do have the ability to implement decrees of the sort passed by the government of the Republic of Angola in order to maximize the social benefit of foreign investment; whereas transnational corporations should note that although there is commercial competition between foreign investors, it is possible to cooperate on social projects to the benefit of the host country and the corporations themselves. Increased consumer awareness and global means of communication have contributed to making it commercially profitable to engage in social projects extending beyond what has traditionally been considered to lead to profit maximization.

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