the once and always king? dos santos, sonangol, and pre-salt

there’s no doubt that josé eduardo dos santos and the ruling movimento popular de libertação de angola (mpla) will win its legislative elections slated for sometime this year. but recent movements at sonangol reflect dos santos’ waning confidence in his ability to hold on to executive power and to secure his wealth inside and out of angola. manuel vicente, the widely-respected ceo of state oil parastatal sonangol was moved to the ministry of economic coordination on 30 january, an important bureau that was abolished in october 2010. as one of dos santos’ closest confidants, vicente’s appointment brings him closer to formal political decision-making, and positions him well to succeed dos santos when he steps down (most likely late this year).

sonangol’s new chief executive—francisco de lemos josé maria—previously served as the company’s financial director. lemos was most likely chosen to improve the financial transparency of sonangol, after human rights watch (hrw) declared that $32 billion dollars had been unaccounted. the imf quickly rebuffed hrw’s accusation, calling it “erroneous,” and that the funds went missing in a simple accounting residual on big-ticket infrastructure projects, like housing and railway refurbishments undertaken by sonangol. this report was a public relations nightmare for sonangol, as they look to grow millenium bcp, portugal’s largest bank by assets, and change the international perception that sonangol is not just another corrupt african parastatal. already sidelined with the other economic policy ministers within the government including abraão pio dos santos gourgel and josé de lima massano, finance minister carlos alberto lopes and minister of state carlos feijó—who is the true face of the finance ministry, but has been accused of corruption—could be sacked some time this year, if not see their informal roles drastically diminished. as oil is the country’s largest foreign exchange earner, sonangol essentially functioned as the de facto treasury; now that vicente has moved, it is likely that the ministry of economic coordination will play this role.

while dos santos djs and angola’s elites play musical chairs, angola—africa’s second largest oil producer—looks to outpace nigerian oil production in the short-term by developing its pre-salt basin. cobalt and maersk announced their first discoveries on blocks 21 and 23 in january, raising the profile for angolan deep-water. there is almost perfect geological similarity between brazillian pre-salt elements, including reservoirs and rocks, seals and traps, that makes the angolan play attractive. asymetric rifting, however, has created significant differences between brazil and angola’s potential reserves; brazil’s margin is characterized by lacustrine black to light oil in its pre-salt sequences, while angola’s margin most likely has a higher amount of light oil and wet gas/condensate (making angolan lng a potential global game changer—more on this in the coming weeks). a number of companies are well positioned to take advantage of the pre-salt play, such as cobalt energy and conoco phillips, while the ishares s&p global energy etf, with seven stocks with deep exposure to angolan pre-salt, looks particularly attractive.

further, unlike in brazil where pre-salt discoveries have only been found offshore, angolan pre-salt extends onshore. dos santos is positioning politically-well connected juniors to develop this acreage, who could possibly be lured by being exempt from signing bonuses or lower tax rates than their foreign competitors. angola’s banking sector (and south africa’s standard bank) is likely to benefit from the rush of new activity—although it has much ramping up to do to prepare for the newer, larger transactions—after dos santos passed a law mandating all transactions for services and equipment must be done through angolan banks.

this is all not to say that dos santos’ carefully managed succession and oil boom could run smoothly. in the same way that vicente and dos santos have developed an extremely close relationship, lemos and the head of the casa militar, general manuel hélder vieira dias júnior, (known as kopelipa) share a similar rapport that could challenge dos santos’ political primacy and seek to place their mark on the country’s oil and banking sectors. one of the reasons the mpla party conference has been delayed is because the inability for the party to come to a consensus over who will rule after dos santos steps down. while it is very clear that dos santos wants vicente to succeed him, many of the top military brass believe vicente has not paid his dues, in the liberation “struggle.” this rhetoric is not unique to angola; other southern african countries’ succession debates, like those in zimbabwe, south africa, and mozambique, are often framed in this manner. while the probability is still low, the lemos-kopelipa bloc could very well upend dos santos’ plan for vicente.

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things aren’t falling apart yet: jonathan & boko haram

boko haram—nigeria’s homegrown terrorist group—launched its deadliest attack last friday in kano, the country’s second largest city after lagos. they certainly hit the government  at a point of extreme weakness, as president goodluck jonathan and his economic team are rebuilding their credibility after scaling back ambitions plans on repealing costly fuel subsidies (which cost the government $7.5 billion/year).

the jonathan administration has and will continue struggling to come up with strategies to curb the boko haram threat. although it is clear that boko haram gets training from AQIM (it has been rumored that algerian AQIM members have trained nigerians in bomb making), the group’s small numbers (greater than 200 but less than 1,000) and the growing sophistication of its attacks make it hard for security forces to pursue effective counterterrorism. better cooperation with its neighbors–niger and chad specifically–would be a positive step in sharing intelligence (many rank and file members aren’t actually nigerian), as policy responses such as closing borders of nigerian states under states of emergency have privately incensed nigeria’s neighbors who are generally poorer and rely on cross-border migration to find jobs.

further, despite boko haram’s ties with foreign jihadis, it is important to remember that the group’s grievances are aimed at the nigerian government. although boko haram draws from contemporary salafist ideology, the group’s concerns are protests against legacies of colonial rule. historically, when britain colonized nigeria, they used muslim elites from the north to act as political and economic middlemen, as they sought to legitimize and consolidate their rule across what would become modern-day nigeria. the gradual loss of power in the post-colonial era—seen in the decline of military rule—and the advent of democracy, gave rise to the ruling people’s democratic party (pdp)’s idea of  “zoning,” or the idea that the party’s presidential nominee would rotate between a christian southerner and a muslim northerner. many northerners saw jonathan’s candidacy in 2011 as violating this unwritten rule.

amidst this backdrop, a number of intelligence officials—most of whom are northerners (aliyu gusau for example) and who unsuccessfully sought the pdp nomination in january 2011—see the escalating boko haram crisis as a strategy of weakening the president jonathan and his administration. although jonathan has accused some in his government of collaborating with boko haram (mostly true), the collusion among some in the pdp and boko haram is a political strategy. with each boko haram attack, these pdp officials look to de-legitimize jonathan as much as possible without tarnishing the reputation of the pdp, or leading the nation in to civil war. there has been much debate over the “internationalization of boko haram,” but given collective historical grievances and how the group operates today, it seems as if boko haram will limit its attacks to nigeria. reaching outside of its borders would discredit the party, and ultimately threaten the small cabal of pdp northerners working in security jockeying for key leadership positions in the party’s 2015 presidential bid.

as they have previously done following previous attacks, many in the security establishment will in the short-term argue that nigeria should devote more resources to fighting boko haram. given the partial repeal of fuel subsidies, which represented approximately 25% of nigeria’s budget, raiding the security sector instead of the downstream energy sector is a new, sure-fire way to raid the state’s resources. much has been said about how fuel subsidies are the main point of fiscal slippage in nigeria, but defense and intelligence spending, which also account for a quarter of state spending, is an area where nigeria could slip as much—or even more—than previously seen with fuel subsidies.

in the medium- and long-run, i still remain excited about the potential of nigeria for investors. the country debuted a $500 million dollar eurobond that was heavily oversubscribed in 2011, pointing to investor appetite in the country. nigeria’s strong growth prospects are due to trends in its expanding middle class. despite the growing reach of boko haram, their threats have yet to alter the patterns of demographic and social change, a story which is currently playing out in the south and middle-belts. until boko haram launches a series of high-profile, well-coordinated attacks like the one seen on sunday, i remain a nigeria bull.