Angola: Still Too Oily

Courtesy of The Economist, a detailed look at Angola’s need to diversify its oil economy:

A new Luanda sprouts up under the old one

FROM the top of the Fortaleza de São Miguel, a 16th-century Portuguese citadel that once dominated the Angolan capital, you see an army of cranes erecting high-rise offices, fancy hotels and blocks of smart flats. Luanda’s traffic zooms below on an eight-lane highway, as pedestrians amble among palm trees or play basketball on the Marginal, a renovated, spotless promenade. “You almost forget you are in sub-Saharan Africa,” says a foreign businessman well acquainted with the region.

Such a view would have been unimaginable only 12 years ago when Angola’s devastating 27-year civil war had just ended, leaving it a basket case. The economy and infrastructure were in tatters. Health and education systems barely existed.

Since then the former Portuguese colony has grown rapidly thanks to oil. Crude production increased from 800,000 barrels a day (b/d) in 2003 to almost 2m b/d in 2008. The economy expanded by more than 10% a year, making it seem one of the most buoyant in the world. Today Angola’s GDP is the fifth-biggest in Africa.

The pace of economic activity is frenetic. In downtown Luanda developers plan to put up still more skyscrapers and in July the first grand shopping mall is set to open its doors and tempt shoppers with Armani, Hugo Boss and Prada. In the rest of the country, the government is spending billions of dollars on roads, railways, airports and energy projects.

Yet the days of sky-high growth are coming to an end. During and after a downturn in 2009 and 2010, caused by a crash in oil prices, Angolan policymakers were confident that the economy would quickly regain its swagger. But with oil output more or less stagnant since 2009, when it dropped to 1.8m b/d, the government has been forced to lower its expectations. José Eduardo dos Santos, the president since 1979, said in October that growth in 2013 would be 5.1%, well below the target of 7.1%. In fact it will end up at 4.1%, reckons the IMF.

Nor is it expected to speed up again in the next few years. Most foreign analysts reckon that predictions by Sonangol, the state oil company, that production will return to 2m b/d next year are unrealistic. Many think 5% GDP growth will be Angola’s lot for the time being.

This could herald big changes for the country. Crucially, it will press the ruling Popular Movement for the Liberation of Angola (known by its Portuguese acronym, MPLA) to do more to diversify the economy. Oil accounts for 97% of exports and almost 80% of state revenues. Last year the government posted its first budget deficit since 2009.

All the same, parts of the non-oil sector are thriving. The banking, telecoms, construction, drinks and retail industries are doing well, fuelled by the rise of a new (though still small) middle class. Manufacturing is picking up, from a very low base. The effects are beginning to be felt on the ground. Luanda, which ranks alongside Tokyo and London as one of the world’s most expensive cities for expatriates, is becoming slightly cheaper. “I bought sliced mangoes in a supermarket for the equivalent of $1.50 the other day,” says a foreign banker. “Not long ago, they would have cost me $5.”

Greasy palms

Yet Angola remains a difficult place for investors and entrepreneurs. In the World Bank’s latest “ease of doing business” survey, the country ranks 179th out of 189. Enforcing a contract through Angola’s inefficient and sometimes corrupt courts can take years. Getting a visa is a hassle. A dire shortage of electricity means local firms struggle to compete with imported goods.

Moreover, a rentier culture forces many businesses to “partner” with members of the political and military elite. That the president’s daughter, Isabel dos Santos, is Africa’s first female billionaire is seen by human-rights groups as an indictment of the system.

Oil provides few jobs for locals and Angola is horribly unequal. The quality of life of people in rural areas and slums, such as Luanda’s Chicala, has barely improved since 2002. Most Angolans lack running water or electricity.

Many within the MPLA privately admit to its failure to develop the non-oil economy. Since 2012 the government has talked more about improving social conditions, health care and education.

Yet there is little sign of large-scale political or social unrest. Protests in Luanda, including one in November when the police detained 300 people and shot dead an opposition activist, are sporadic. The MPLA controls almost all of the media, while the two main opposition parties lack mass appeal. A smooth transition is generally expected when or if the 71-year-old president steps down as he has hinted, probably between now and 2017, when the next national elections are to be held.

There was talk of his son, José Filomeno de Sousa dos Santos, who is chairman of Angola’s sovereign-wealth fund, being lined up as a successor. But it has died down. Instead, the president is thought to favour his business-minded vice-president, Manuel Vicente, who ran Sonangol from 1999-2012. He cannot be guaranteed to tilt the country away from oil.

But a new generation of Angolans is coming of age; about 60% of the country’s 21m people are under 25. Unlike their parents, they will not be satisfied solely with the MPLA’s achievement in making peace earlier this century. What they need is jobs. And oil alone will not provide them.

This entry was posted on Sunday, April 20th, 2014 at 2:31 pm and is filed under Angola.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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