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CSR in the Oil Sector in Angola:
World Bank Technical Assistance Study
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2. Oil sector and corporate social responsibility (CSR) in Angola
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Corporate Social Responsibility (CSR) is the commitment of business to contribute to sustainable economic development - working with employees, their families, the local community and society at large to improve the quality of life, in ways that are both good for business and good for development. In political science terms, CSR includes:
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a company running its business responsibly in relation to internal stakeholders;
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its role in relationship to the state, locally and nationally, as well as to inter-state institutions or standards; and
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its role as a responsible member of the society in which it operates and the global community.
The first role involves the companies’ core business in relation to its internal stakeholders (shareholders, management, employees, customers and suppliers). This includes ensuring its own house is in order, in terms of corporate governance, product responsibility, employment conditions, workers rights, training and education.
The second role includes abiding by relevant legislation, and the company’s responsibility as a tax payer, ensuring that the state can function effectively - after all, there is little point in a company voluntarily financing scholarships if at the same time it is failing to pay the taxes that enable the Ministry of Education to function. It also includes providing a business perspective that can contribute towards state policy – in this case, towards curriculum design and pedagogical practices, focused on the skills and attitudes that will be needed for Angola to compete.
A company’s third role, as a member of society, is also multi-layered. This involves the company's relations with the people and environment in the communities in which it operates and those to which it exports. Too often, CSR at this level is understood as a transfer of financial resources from business to a worthy activity - but a financial contribution alone fails to take advantage of the most valuable contributions that a company has to make. This third role lends itself well to partnership arrangements: voluntary, multi-sectoral, consensual, based on shared objectives and the notion of ‘core complementary competencies’, with each party providing resources that derive from their core activities and that are complementary to those provided by the other actors, resulting in synergistic improvements to outcomes1.
The fact that Angola is a poverty dominated country with an oil dominated economy makes this process more complicated from the perspective of both the companies and the government. Angola produces nearly 1 million barrels of oil per day. The production rates are likely to double over the next decade. Angola’s astonishing estimated growth rate of 18% in 20022 is almost entirely due to the fact that more than half of its GDP is attributable to the oil and gas industry. The industry accounts for more than 90% of Angola’s exports, and around 90% of the Government’s revenue. In economic texts, natural resource dominance conventionally leads to three impacts which are easily identifiable in the case of Angola:
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Angola is a classic victim of Dutch Disease (DD). In other words, the oil boom has led to a tendency for real exchange-rate appreciation that has contributed to reducing the competitiveness of the non-resource/tradable sectors (predominantly agriculture and manufacturing). This has been massively exacerbated by 35 years of civil war in which production has been hindered by displacement, destruction of infrastructure, instability, banditry, and landmines. To this challenging and complex business environment, should be added Angola’s legacy of centuries of bureaucratic colonization and central planning.
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The dominance of oil revenue has reduced the Government’s incentives to rely on non-oil tax revenues for the financing of its activities. This means that the relationship between the Government of Angola and its people is less based on the normal “social contract” arising from a better functioning taxation system.
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The potential for rent seeking behavior has been increased – i.e., only those with access to the oil sector can benefit, creating the incentives for patronage and lack of transparency.
These impacts are exacerbated if, as in the situation in Angola, the oil operations are mostly off-shore making local supply and support services less competitive. Although oil exploration and production as well as LNG production is increasingly moving on-shore.
The result is that Angola is scoring worse and worse on every index of development indicators. In 2000 UNICEF declared Angola as the worst country in the world for a child to be born. The following year, the UNDP Human Development Index ranked it 146 out of 162 surveyed countries despite its relatively high GNP. The war has displaced almost 4 of its 12.8 million population. Life expectancy is 46 whilst only 1 in 4 women are literate and less than 1 in 3 people have access to clean water. The humanitarian situation in Angola is clearly stark.
Despite these circumstances, there are clear signs that this might be “the golden opportunity”3 for Angola in terms of development and economic competitiveness:
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a ceasefire was declared on April 4th, 2002, and there is a widespread belief that this time the peace process is irreversible;
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full elections may take place in 2004 and, with more vocal and active civil society and an improved public sector wage structure, there is an increased incentive for responsible accountable government;
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the country will need to demonstrate sound macro-economic management and transparency if it is to attract favorable terms for interest on its existing cash flow deficit and proposed projects inside and outside of the oil sector;
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there are small signals that there is a concerted Government effort to improve the investment environment and transparency, e.g., in 2000, Ernst &Young performed an audit of the country’s central bank and in 2001 audited the companies associated with ENDIAMA, the State-owned diamond concessionaire; undertook a study diamond sector; in 2001, Crown Agents was appointed to assist in the modernization of the country’s customs services; in 2001, KPMG were commissioned to undertake an oil sector diagnostic with recommendations to improve the mechanisms for monitoring revenues more accurately; and in September 2002, the Ministry of Finance published recent oil revenue figures on its website;
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there are relatively few large oil companies operating in Angola making joined-up action a real possibility.
To date, the bulk of oil companies’ CSR activity in Angola has been focused on humanitarian responses from a quasi-philanthropic perspective. Recognizing the unique opportunity to impact on the shared objective of peace and development in Angola, companies appear potentially ready to ratchet up that CSR involvement to a more strategic level, provided that they see a real commitment from the GoA to seek a more efficient and transparent partnership with the oil companies.
Experience from other countries suggests that a strategic and structured partnership approach that seeks to engage the strengths of corporations alongside those of government and civil society can yield better results for communities as well as for business, and in the context of Angola could provide a significant boost to efforts to bed down the current cease fire. The underlying principle of a more strategic CSR approach is that all partners act upon their core competencies - their complementary resources, knowledge and skills - to jointly address the complexities surrounding social development. This is very different from traditional, charitable approaches to corporate social responsibility, where companies might be expected to contribute little more than cash. Core competencies might include the private sector’s financing, project and financial management, IT and engineering skills; the public sector’s strategic co-ordination or ability to source funding, and oversight; NGO’s ability to identify social and environmental issues of concern and to mobilize local community participation to help address them.
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Footnotes:
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For more on these partnership approaches to CSR, see ‘Putting Partnering to Work’, the final report from Business Partners for Development, at www.bpdweb.org
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IMF staff estimates.
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This phrase was coined during a speech delivered by President Josй Eduardo Dos Santos in occasion of the signing of the cease-fire agreement between Government of Angola and UNITA, April 4, 2002.
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