16 Nov

Angola is diversifying from oil

Angola has experienced rapid growth in the last decade, mostly propelled by the exploitation of its vast natural resources. Today, the country ranks as the third largest economy in sub-Saharan Africa (see Figure 1). Its history is characterised by struggle and battle. After its independence from Portugal in 1975, Angola endured a 27-year civil war, during which two major opposition parties, MPLA and Unita, fought for supremacy. In 2002, the two parties finally agreed on a cease-fire and started to focus on rebuilding the country. The rebirth of Angola started in 2002.

Oil and diamonds

From 2002 until recently, Angola relied on its natural resources as its main source of revenue. Oil makes up most of the country’s earnings. Angola is Africa’s second-largest oil producer, with much of its proven reserves concentrated in Cabinda Province, a region plagued by a separatist conflict. Oil production has more than doubled from about 800,000 barrels a day in 2001 to about 1.8 million barrels a day in 2015. This resource alone accounted for around 95% of foreign exchange revenues in 2014. Oil exports brought in US$60.2bn in revenues to the country in 2014. In 2015, foreign currency inflow generated by oil exports was $33.4bn, a 44.5% decline relative to the same period the previous year, a result of the drop in the oil price.

Diamonds account for a sizeable amount of revenue, although much smaller than that generated from oil. Angola is Africa’s third-largest diamond producer by quantity and value, surpassed only by Botswana, the world’s largest producer, with about 38 million carats, and the Democratic Republic of Congo, with 30 million carats. The country mined 10 million carats of diamond in 2014, generating a revenue of $1.6bn. Angola’s production volume oscillated between 9.7 and 8.3 million carats per year since 2006. The new mining code introduced in 2011 attracted foreign investment and boosted the exploration of the precious stone and other minerals.

The extensive natural resources gave Angolans the possibility of rapid prosperity, but also the curse of trusting finite commodities for a continuous stream of revenue.

Similarly to Nigeria, investments in Angola’s oil industry grew constantly over the past decade, dwarfing other sectors of the economy. In the colonial era, Angola was a major exporter of coffee, sisal, sugar cane, banana and cotton, and self-sufficient in all food crops except wheat. The civil war disrupted all agriculturalproduction and displaced millions of people. The discovery of large oil reserves shifted the focus of the economy from agriculture to oil exploration. The country ceased to invest in technology and the mechanisation of its agricultural sector. Agricultural productivity decreased. The seemingly endless supply of oil money and the dismantled agricultural sector made it easier to import food, rather than invest in domestic production. From being a net agricultural exporter in the 1970s, Angola now imports 90% of its food – at a cost of $5bn a year. Of this, $300m worth of agricultural products were imported from the United States in 2014.

The sharp decline in commodity prices in recent years has put severe strains on Angola’s economy. From an average GDP growth of 4.5% between 2010 and 2015, the country’s economy is expected to grow by only 2.5% in 2016 and 2.7% in 2017. The economy has recently undergone some structural changes to try to move away from its dependency on oil revenue. Time will tell whether it will be successful.

A lot to be fixed

Angola’s ranking as the third-largest GDP in sub-Saharan Africa is testimony to its natural resource wealth. However, this prominent position masks the socio-economic imbalances the country has been experiencing for decades. The drop in the oil price resulted in a shortage of revenue that could be balanced only by a cut in public spending. Government spending was cut to $24bn from $30bn projected in the original 2016 budget, as revenues were also slashed to $18bn from $24.4bn. The unfolding of this cut is palpable. Rubbish collection in Luanda has stopped, which helped spread an outbreak of yellow fever from the capital’s vast slums to the rest of the country.

The Angolan regime is considered a democracy. However, its current president has been holding the office for the past 37 years. José Eduardo dos Santos was first elected in 1979 and has since then managed to win the presidency at every election. But recently, amid the country’s economic turmoil, he announced he would not run for re-election in 2018. During his tenure as president, Dos Santos’ family has been raised to glory. His son is very likely to run for president when Dos Santos steps down and his daughter, Isabel, has managed to become Africa’s richest woman, with assets totalling $3.2bn. Dos Santos also appointed Isabel to head the Angolan state oil company, Sonangol.

Being the home of the wealthiest woman in a continent is an enormous contrast compared to Angola’s social and economic indicators. Angola ranks first in child mortality for children under five, with 157 deaths per 1,000 live births; 12% of children are born with low weight; 2.2% of adults live with HIV; adult illiteracy is still high, and gender inequality is rampant in every aspect of society.

Angola ranks 163 out of 167 in the Corruption Perception Index; it has one of the most unfriendly business environments, scoring 182 out of 189 in the World Bank’s ease of doing business ranking; and is badly recognised in the innovation arena, coming in at 120 of 141 in the Global Innovation Index. Innovation is essential in tailoring policies that promote long-term output growth, improve productivity, and create jobs.

Angola’s business environment remains one of the most difficult in the world. Investors must factor in pervasive corruption, an underdeveloped financial system, poor infrastructure, abundant but unskilled labour and extremely high on-the-ground costs. Surface transportation inside the country is slow and expensive, while bureaucracy and port inefficiencies complicate trade and raise costs. There is a lot to be fixed in this country of 25 million people, and some measures are already being taken in this direction. […]

You can read the full story here: How we made it in Africa

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