An­gola: be­yond the oil boom

An­gola needs to di­ver­sify its oil econ­omy

Africa Renewal - - Front Page - By Nirit Ben-Ari

An­gola has one of the world’s fastest grow­ing economies. Its econ­omy grew by 5.1% in 2013. As ma­jor public in­fra­struc­ture in­vest­ments in en­ergy and trans­port kick in, its growth is pro­jected to reach 7.9% in 2014 and 8.8% in 2015. Yet, the United Na­tions Devel­op­ment Pro­gramme ( UNDP) re­ports that around 36% of An­golans live be­low the poverty line and one in ev­ery four per­sons is un­em­ployed.

Ac­cord­ing to the In­ter­na­tional Mon­e­tary Fund (IMF), An­gola is a “post­con­flict coun­try that pro­duces a lot of oil and faces the chal­lenges of both.” De­spite be­ing the fifth largest econ­omy in Africa, or­di­nary An­golans have seen lit­tle change in their stan­dard of liv­ing. Only 37.8% of coun­try’s 21 mil­lion peo­ple have ac­cess to elec­tric­ity. While about half of the pop­u­la­tion has ac­cess to safe drink­ing wa­ter, this num­ber falls to 34% in ru­ral ar­eas, says the World Bank. There are few jobs for the un­em­ployed, mostly un­der 25 years, who make up 60% of the pop­u­la­tion. What should An­gola do to change the cur­rent sit­u­a­tion? Ex­perts say the so­lu­tion is for An­gola to di­ver­sify its econ­omy, save and in­vest for the future — es­pe­cially in skills and in­fra­struc­ture devel­op­ment — and im­prove gover­nance.

A need for di­ver­si­fi­ca­tion

An­gola is Africa’s sec­ond big­gest oil pro­ducer af­ter Nige­ria. Its oil comes al­most en­tirely from off­shore fields, off the coast of Cabinda and from deep­wa­ter fields in the Lower Congo basin, in ad­di­tion to small-scale pro­duc­tion from on­shore fields. Last year, ac­cord­ing to the US En­ergy In­for­ma­tion Ad­min­is­tra­tion, an agency that pro­vides statis­tics and analy­ses on en­ergy, An­gola pro­duced 1.85 mil­lion bar­rels of pe­tro­leum per day, and oil rev­enues could top $60 bil­lion this year, notes the African Economic Out­look, a re­port pro­duced jointly by the African Devel­op­ment Bank, the Or­ga­ni­za­tion for Economic Co-op­er­a­tion and Devel­op­ment, UNDP and the UN Economic Com­mis­sion for Africa. But as with other oil-pro­duc­ing coun­tries in Africa, oil has not proved to be a ben­e­fit to An­golans. If any­thing, say an­a­lysts, it has pro­duced few jobs and in­creased in­equal­ity and al­le­ga­tions of cor­rup­tion.

An­gola’s min­eral prod­uct ex­ports as a share of to­tal ex­ports are more than 95%, ac­cord­ing to data from the World Bank and the Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries (OPEC). Oil pro­duc­tion and its sup­port­ing ac­tiv­i­ties con­trib­ute about 45% to the na­tion’s gross do­mes­tic prod­uct (GDP) and 80% to gov­ern­ment rev­enues. With lit­tle di­ver­si­fi­ca­tion, the An­golan econ­omy has limited in­vest­ment and job op­por­tu­ni­ties, and gen­er­ates growth only for a small group of elites, economists say. In fact, in terms of the com­po­si­tion of its ex­ports, An­gola is the world’s sec­ond most con­cen­trated econ­omy af­ter Iraq, says UNDP.

The World Bank has iden­ti­fied three prob­lems fac­ing the An­golan econ­omy: high de­pen­dence on oil rev­enue, mak­ing the coun­try vul­ner­a­ble to oil price volatil­ity; an economic sys­tem that is prone to cor­rup­tion; and the ab­sence of a di­ver­si­fied job mar­ket. The Bri­tish mag­a­zine, The Econ­o­mist, re­ported last April that An­gola was “still much too oily,” be­cause oil pro­vides few jobs, es­pe­cially good jobs, and ac­cord­ing to the gov­ern­ment’s own ad­mis­sion, there has been a “fail­ure to de­velop the non-oil econ­omy.” In fact, the oil in­dus­try em­ploys just 1% of An­golan work­ers, which is a fac­tor in the 26% un­em­ploy­ment rate.

The Cen­ter for Sci­en­tific Stud­ies and Re­search (CEIC) at the Catholic Univer­sity of An­gola, by con­trast, sees the oil- dom­i­nated econ­omy ex­pand­ing sub­stan­tially since in­de­pen­dence, par­tic­u­larly since the end of the civil war in 2002. While con­ced­ing that di­ver­si­fi­ca­tion was largely ab­sent from gov­ern­ment pol­icy un­til 2011, the CEIC says that other sec­tors are now con­tribut­ing to the GDP, though not sub­stan­tially.

All that glit­ters

In ad­di­tion to oil, An­gola ex­ports di­a­monds. It is Africa’s sec­ond largest source of rough di­a­monds af­ter Botswana and the fourth in the world. The main re­serves are con­cen­trated in the north­east­ern re­gion. Di­a­mond pro­duc­tion gen­er­ates over $650 mil­lion an­nu­ally, al­though ex­act num­bers are un­cer­tain due to il­le­gal di­a­mond min­ing and smug­gling.

But the di­a­mond in­dus­try is of­ten al­leged to be in­volved in hu­man rights abuses, such as forced over­time with­out ad­e­quate com­pen­sa­tion and cre­at­ing en­vi­ron­men­tal degra­da­tion through min­ing ac­tiv­i­ties. Rafael Mar­ques de Mo­rais, an An­golan jour­nal­ist, hu­man rights ac­tivist and anti-cor­rup­tion cam­paigner, re­cently filed a crim­i­nal com­plaint against two di­a­mond min­ing com­pa­nies and their

di­rec­tors, in­clud­ing top mil­i­tary of­fi­cers. In re­sponse, au­thor­i­ties la­belled him an “of­fi­cial sus­pect” and of­fi­cials from some min­ing com­pa­nies have ac­cused him of defama­tion. Is­abel dos San­tos, the bil­lion­aire daugh­ter of the An­golan pres­i­dent, is said to be one of the main ben­e­fi­cia­ries of the di­a­mond trade in An­gola, ac­cord­ing to an ar­ti­cle this year in Forbes busi­ness mag­a­zine.

Agri­cul­ture is a life­line

Be­sides oil, other con­trib­u­tors to GDP in­clude non- oil en­ergy, agri­cul­ture, fish­eries, manufacturing and con­struc­tion sec­tors. An­gola has high qual­ity soil and good wa­ter sup­plies, which po­ten­tially could make com­mer­cial farm­ing a valu­able in­dus­try, ac­cord­ing to the African Devel­op­ment Bank ( AfDB). Cur­rently, agri­cul­ture ac­counts for only 11% of GDP but 70% of to­tal em­ploy­ment.

In 2013, farm out­put grew by 8.6%, mostly through strong growth in ce­real pro­duc­tion, notes the African Economic Out­look. The Na­tional Ce­re­als In­sti­tute of An­gola says that the coun­try re­quires 4.5 mil­lion tonnes of grain a year but only grows about 55% of the corn, 20% of the rice and just 5% of the wheat needed for lo­cal con­sump­tion. Higher gov­ern­ment spend­ing on agri­cul­ture could change that and make An­gola self-suf­fi­cient, sug­gests the Food and Agri­cul­ture Or­ga­ni­za­tion, the UN body that mo­bi­lizes ef­forts to erad­i­cate hunger and poverty. How­ever, over­all, An­gola’s agri­cul­tural sec­tor is grow­ing im­pres­sively. The Com­pre­hen­sive African Agri­cul­ture Devel­op­ment Pro­gramme (CAADP), an ini­tia­tive of the African Union, re­ported in 2011 that the sec­tor grew at more than 25%, sur­pass­ing the 6% tar­get set for African coun­tries. That growth rate made An­gola’s agri­cul­ture the fastest grow­ing on the con­ti­nent, fol­lowed by Namibia’s at 15% growth rate.

More ex­pa­tri­ate work­ers

An­gola has also be­come a mag­net to economic refugees from China and Por­tu­gal. “Def­i­nitely more Por­tuguese peo­ple are com­ing here in re­cent years, not only be­cause of the bad fi­nan­cial sit­u­a­tion in Europe but be­cause An­gola is one of the fastest-grow­ing economies in the world,” ob­serves Luis Ribeiro, a Por­tuguese na­tional who runs a pizze­ria in Luanda.

They are join­ing an in­flux that in­cludes Chi­nese, Brazil­ian and, to a lesser ex­tent, Bri­tish in­vestors. “We’ve always been one of the big­gest com­mu­ni­ties, but we’re slowly be­ing sur­passed by the Chi­nese,” Mr. Ribeiro, told The

Guardian, a Bri­tish daily. “The Chi­nese are very re­silient peo­ple and are pre­pared to do the don­key work that Por­tuguese and An­golans are not.”

Por­tuguese en­gi­neers, for ex­am­ple, may make €900 per month in Por­tu­gal, but they make four times more in An­gola, re­ported the Bri­tish Broad­cast­ing Cor­po­ra­tion ( BBC). As a con­se­quence of this re­verse pop­u­la­tion flow, Luanda, An­gola’s cap­i­tal, “has over­taken Tokyo as the world’s most ex­pen­sive city to live in for ex­pa­tri­ates,” ac­cord­ing to the Amer­i­can news chan­nel, CNN.

Chi­nese in­vestors are heav­ily in­volved in An­gola’s large-scale public works such as roads, rails and other in­fra­struc­ture. But crit­ics say th­ese in­vestors do not cre­ate suf­fi­cient jobs be­cause they bring most of their work­ers from China. In 2008 alone, the An­golan con­sulate in China is­sued more than 40,000 visas to Chi­nese work­ers, re­ports the bi­monthly global af­fairs jour­nal,

World Af­fairs. For ex­am­ple, the China In­ter­na­tional Trust and In­vest­ment Cor­po­ra­tion em­ployed 12,000 Chi­nese work­ers and only a hand­ful of An­golans dur­ing the peak of the Kil­amba Ki­axo so­cial hous­ing devel­op­ment project in Luanda. In ad­di­tion, the jour­nal states that while the ma­jor­ity of Chi­nese in An­gola work in the con­struc­tion sec­tor, thou­sands later branch out into real es­tate, re­tail, street hawk­ing, etc.

Future prospects

In 2013 the An­golan econ­omy weak­ened be­cause of lower-than- ex­pected oil spend­ing and mis­man­age­ment of the public debt. But the AEO re­port pre­dicts that with in­creas­ing di­ver­si­fi­ca­tion, the non-oil sec­tor could ex­pand by 9.7% and the oil sec­tor by 4.5% in 2014.

Wor­ried about the un­easi­ness among its pop­u­la­tion over grow­ing in­equal­ity amid rapidly ris­ing economic growth, the gov­ern­ment is now tak­ing steps to im­prove the lives of its cit­i­zens. There are on­go­ing in­vest­ments in elec­tric­ity, wa­ter and trans­port. As part of the in­fra­struc­ture-for- oil trade agree­ment between China and An­gola, rail in­fra­struc­ture is ex­pand­ing. To cre­ate more jobs, the gov­ern­ment has in­tro­duced a new for­eign ex­change cur­rency law for the oil in­dus­try and re­formed the reg­u­la­tions gov­ern­ing the min­ing sec­tor. In­tro­duced in Novem­ber 2012, the law also cuts busi­ness taxes from 35% to 25%, which in re­turn has led to sig­nif­i­cant in­vest­ments by com­pa­nies in­clud­ing di­a­mond pro­duc­ers De Beers and Su­mit­omo Corp. Both com­pa­nies are cur­rently de­vel­op­ing an am­mo­nia and urea plant. This year, An­gola’s cen­tral bank plans to de-dol­lar­ize the for­eign ex­change mar­ket to limit the use of for­eign cur­rency in lo­cal trans­ac­tions. In the past, most oil re­ceipts were con­ducted off­shore; the new laws re­quire trans­ac­tions to be han­dled on­shore.

But An­gola needs more sound poli­cies to at­tract in­vestors to all sec­tors, not just di­a­monds and oil, ex­perts say. Cur­rently, the World Bank’s “Ease of Do­ing Busi­ness” re­port ranks An­gola 179 out of 189 coun­tries. This low rank­ing has to change for the econ­omy to live up to the ex­pec­ta­tions of its 21 mil­lion peo­ple.

An­golans party in the Mi­ami Beach Night­club in Luanda.

Panos/ Robin Ham­mond

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