The Multinational Monitor



The Government Haig Calls a "Soviet Surrogate" Is Signing Sweet Deals with Gulf, Boeing, and More

by David Neigus

On July 8th the U.S. Export-Import Bank signed an agreement with the government of Angola to lend $85 million to the national oil company of Angola, Sonangol, and Cabinda Gulf Oil Company for an offshore oil development project. This loan came on the heels of hostile statements by the Reagan Administration towards Angola. Both President Reagan and Secretary of State Haig have referred in recent months to the government of Angola as a "surrogate" of the Soviet Union and have threatened to aid rebels trying to overthrow the government. Reagan has asked Congress to repeal the Clark Amendment, which prohibits CIA covert assistance to the Angolan rebels without explicit Congressional approval. Thus far even this compliant Congress has balked at meeting Reagan's request.

One reason why Congress has refused to repeal the Clark Amendment, and why the Ex-Im bank has agreed to finance a project in Angola, is that the nation's socialist government has made some surprising and influential friends in the Western world. Gulf Oil, Texaco, Boeing and General Electric all have contracts with the Angolan government. For Angola, these corporate allies, though anathema in theory, are an economic and political necessity. So far, the nation's leaders have shown adroitness in dealing with them.

The present MPLA (Popular Movement for the Liberation of Angola) government in Angola came to power in 1975 after 19 years of fighting the Portuguese and winning a bitter factional war against two rival movements, the FNLA (National Front for the Liberation of Angola) and UNITA (Union for the Total Independence of Angola).

The war left the country in a shambles. The economy had come to a virtual standstill, infrastructure was destroyed and the Portuguese who had run the government and all the significant economic enterprises fled the country, taking with them everything that could be moved and leaving no trained Angolans to replace them. Less than 10% of the Angolan population was literate and even fewer could manage the machines and institutions which the Portuguese had installed. After independence there were only 119 shops open in the nation's capital, Luanda, to serve a population of over 100,000 people.

Rebuilding After the War

Angola was in desperate need of a source of income for national reconstruction. The nation's largest revenue earner, Cabinda Gulf Oil, had ceased production at the end of 1975 on account of the civil war. In addition, then Secretary of State Henry Kissinger had persuaded Gulf to halt payments of taxes and royalties owed to the government for the previous two quarters of production. In March, 1976 the MPLA government successfully negotiated with Gulf for the release of blocked funds, and the resumption of oil production began a month later.

Oil is the mainstay of the Angolan economy (see chart). Current production has reached 160,000 barrels per day, making Angola the third largest producer in sub-Saharan Africa. Angola has opened up its territory to exploration and production by foreign oil companies-while trying to protect its own national interests. An indication of Angola's ongoing desire to negotiate with Western companies is its retention of the established Massachusetts-based consulting firm Arthur D. Little, which has handled Angola's negotiations with Western oil companies since 1977. Exploration and production contracts have been signed with no fewer than thirteen oil companies including Gulf, Mobil, Texaco and Cities Service (U.S.), Elf Aquitaine and Total (France), Petrofina (Belgium) and Braspetro (Brazil).

In 1978 Angola unveiled a new petroleum law, declaring all oil and gas deposits to be state property and giving Sonangol total control over their exploitation. The law also provided that Sonangol maintain a minimum of 51% ownership in any oil-related venture, with the foreign partner bearing the entire risk of exploration. Just weeks after this law was announced, agreement was reached with Gulf on the renegotiation of the Cabinda Gulf contract giving Sonangol a 51 % share of the enterprise, which was previously owned entirely by Gulf.

Angola's oil minister Jorge Morais explained his government's position on negotiations with Western oil companies in a recent issue of the French journal Marche Tropicaux: "We accept these companies because they have great financial and technical resources which will primarily benefit the Angolan state. We are aware of our power as an oil producer and we won't enter into negotiations as beggars."

Since 1978 Angola has devised an innovative production-sharing agreement with Texaco including a "price cap" provision which has become the standard for its negotiations with other oil companies. Under the terms of this agreement, Sonangol holds a 60016 share of the joint venture, and its share of the "profit oil" (the remainder after costs are subtracted) can rise to 90% as production increases. The "price cap" provision insures that all profits resulting from the increase in oil prices will go to Angola after adjustments are made for the effects of inflation on the costs of production. Petroleum economist Rich Nafzinger told Multinational Monitor that Angola's current agreements were "very sophisticated," noting that Angola had devised "one of those rare agreements which benefits both the foreign companies and the host government."

Angola and the Western oil companies have been able to work together successfully because it has been in both of their interests to do so. Angola needs oil revenues to reconstruct its battered economy and materially improve the lives of its people. It also needs stability and recognition from the West which good commercial relations with the oil companies can bring. Just as the commercial interests of the French oil company Elf Aquitaine helped to dampen the French government's support in 1978 for rebels trying to overthrow the Angolan government, (see sidebar), the Angolans hope that their relations with U.S. oil companies will induce a more positive attitude in the Reagan Administration.

The oil companies have a large stake in maintaining a stable and viable government in Angola. The prospects for successful drilling off the Angolan coast are promising. Present production levels are expected to double by 1985. Gulf alone plans to invest about $1 billion in Angolan oil exploration during the next five years. The companies need reliable oil supplies to operate their refineries at capacity levels. This is especially true for Gulf, which experienced problems supplying oil for its refineries during much of the 1970s and recently decided to close down two refineries in the U.S. In Gulf Oil's words, relations between the companies and Angola have been "business-like and non-ideological."

Angola is currently Gulf's second largest overseas supplier of oil and perhaps even more significantly, Nigeria is number one. Gulf is understandably concerned that U.S. government support for UNITA or a significant U.S. tilt towards South Africa could jeopardize relations with both of its top foreign suppliers. Nigeria has demonstrated willingness on several occasions to use its oil as a political weapon. Earlier this year Nigerian President Shehu Shegari warned that U.S. support for the Angolan rebels "would be extremely serious." It is not necessary to look much farther than Shegari's words to understand why Gulf has lobbied hard in Washington on behalf of the Angolan government.

Encouraging Foreign Investment

Angola has welcomed foreign investment in sectors of its economy besides oil, establishing what economists at Chase Manhattan Bank term a "liberal investment code." Special provisions for foreign investment were made in the Foreign Investment Law of June, 1979, which assure those who bring in capital that they will be allowed to stay at least 10 years and to repatriate profits equal to 25% of their investment annually. The law also guarantees the right of compensation in the case of nationalization and can provide special exemptions or reductions of taxes and customs duties.

The investment law, however, is no give away. The law makes provisions for the transfer of technology and the training of Angolan workers. It also demands that investors ensure that the health and safety of workers is not endangered and that the environment is protected against pollution.

Angola has been successful in attracting foreign capital in part because of its vast economic potential-in addition to oil, Angola has reserves of diamonds and iron ore, abundant agricultural land and rich fishing waters -but also on account of its meticulous servicing of its debts in recent years.

Between 1975 and 1979 Angola made many of its overseas purchases with cash and thus did not substantially increase its external debt. Recently the government successfully negotiated both short and long term credit. A consortium of banks led by Morgan Guarantee Trust and including Chase Manhattan recently lent Angola $50 million for gas reinjection equipment at the Cabinda oil wells. The U.S. Export-Import Bank, prior to granting its recent loan, checked Angola's repayment record and reported to Congress that "the Angolan central bank services its debt with care, and payments to creditors are current on all transactions contracted since independence."

Relations With the U.S.

The U.S. is one of only three nations in the world (the other two are Senegal and China) which does not recognize the government of Angola. But despite this lack of recognition, U.S. trade with Angola has increased substantially over the past few years. In fact, Angola is presently the fourth largest U.S. trading partner_ in subSaharan Africa, surpassed only by Nigeria, South Africa, and recently Cameroon. Angola's 1980 trade with the U.S. was valued at $638 million-over twice the value of Zambia's trade with the U.S. last year. A substantial portion of this trade is in Angola's oil, 70% of which is sold to the U.S. Angola is also increasing its purchases from the U.S.; U.S. exports to Angola more than tripled in two years from $32 million in 1978 to $111 million in 1980.

Angola's corporate connections have served it well, particularly in the face of Reagan's attempts to repeal the Clark Amendment.

  • Gulf Oil, with the largest stake in Angola, has led the lobbying effort. Melvin Hill, president of Gulf Oil Exploration and Production Company, testified before Congress in September, 1980 and again in April, 1981, when he told the House Africa subcommittee that repeal of the Clark Amendment "would have an extremely negative effect, both in Angola and elsewhere in Africa." Hill also met with Vice President George Bush to discuss the Administration's Africa policies.
  • Chase Manhattan Bank chairman David Rockefeller wrote a letter to President Reagan concerning U.S. policy towards Angola, according to a report published in Africa News. A Chase official confirmed to Multinational Monitor that repeal of the Clark Amendment "is of some concern" to the bank and that lack of U.S. recognition "is hindering American business in Angola and in the rest of black Africa."
  • An executive of the General Tire Company, which has a 10% interest in an Angolan plant, told New York Times columnist Anthony Lewis, "I think it's a tragic mistake that we don't recognize Angola. Here is a country with incredible buying power and a need for every product on earth. I'm talking about America's self-interest."

The corporations' lobbying efforts are certainly making an impact. In May, the House Africa subcommittee voted unanimously against repeal. Prior to the vote the ranking Republican on the subcommittee, William Goodling of Pennsylvania, was visited by a delegation of 15 businessmen. Goodling had previously supported the Administration's position, but after listening to this delegation, he changed his mind and voted against the repeal, pulling the rest of the Republicans on the subcommittee with him.

Prospects for the Future

Angola is by no means out of the woods, either economically or politically. The conflict in Namibia continues to spill over Angola's southern border; the latest South African attacks on Angolan territory were launched in July. UNITA activities in the southeastern corner of the country are bothersome as is their disruption of the Benguela railroad. These problems have caused delays in reconstruction, large expenditures for arms and a drain for manpower into the armed forces.

But Angola's economic problems-commodity shortages, low living standards and black marketeering-cannot be blamed on the external threat alone, concluded a report to the MPLA party congress in December. The main causes of poor productivity were "lack of organization, lack of technical and management skills and chronic lack of responsibility," the report stated.

For all its problems, Angola has been able to survive for five and a half years in the face of external threats, a coup attempt and a change in leadership. It has maintained a double-digit real growth rate over the past two years as well as a substantial balance of trade surplus. It has succeeded in maintaining its longstanding ties to socialist countries while at the same time gaining the support of some of the largest corporations in America.

Angolans hope to take full control of "their natural resources and to develop them for their own benefit and not for the benefit of the multinational corporations," Angolan foreign minister Paolo Jorge told the UN General Assembly last September. While Angola may be a long way from attaining this goal, it appears to have devised satisfactory interim arrangements with the multinationals-to the benefit of both parties.

David Neigus is a freelance writer in Washington, D. C., formerly with the Washington Office on Africa.

The Angolan Oil Weapon

Angola's relations with France provide a clear example of the political leverage behind the oil weapon. Although France was the first Western European country to recognize the MPLA, government, in 1977, it still provided a European base for the activities of the opposition FNLA, UNITA and FLED (Liberation Front for the Enclave of Cabinda).

After issuing several unsuccessful protests to the French government about these practices, the Angolan government suspended all French oil prospecting in Angola in early 1978. The French national oil company Elf Aquitaine invited the Angolan oil minister to France shortly thereafter, to discuss the suspension. The minister reiterated his government's demands and the French eventually acceded to them, as the pressure for finding new oil supplies mounted.

France and Angola signed an agreement in September 1978, which provided for closing he offices of UNITA, FNLA and FLEC in France, refusal to allow their leaders to enter the country, and an end to all their official and clandestine activities. The agreement also provided for the development of economic relations, particularly in oil exploration.

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