Angola, one of Africa’s leading petroleum producers, has been badly hit by plummeting oil prices. Strapped for cash, the government has sought to diversify the economy – a move, the country’s President acknowledges, that is long overdue.
Since the end of its ruinous 27-year civil war in 2002, oil has been the driving force behind Angola’s recovery, generating $468 billion worth of revenues, which have funded huge infrastructure and construction projects around the country. But while the former Portuguese colony has experienced rapid rates of growth, it has struggled to build up non-oil sectors, becoming one of the most concentrated economies in the world. Oil makes up 95 per cent of exports and 75 per cent of fiscal revenues.
Plummeting oil prices over the past eighteen months are now posing a threat to the country’s economic and political stability. The governing Popular Movement for the Liberation of Angola, MPLA, has vainly sought to increase oil output to make up for the financial shortfall. It was forced to reduce last year’s budget by 25 per cent to $52 billion, shelving development projects and cutting fuel subsidies on which many Angolans depend.
The downturn has brought Angola’s acute economic inequality into sharp focus. Many of the country’s elite have become rich through corruption and their privileged access to economic opportunities, while the government has failed to raise living standards and employment prospects for the majority of the population. For all officials’ talk of development, unemployment remains at around 26 per cent and two-thirds of the population live on less than $2 a day.
The authorities have maintained stability through a “carrot and stick” approach. Public subsidies bought a degree of social peace and any dissent was quelled by internal security forces. But the country is now facing growing social tensions, particularly over the loss of fuel subsidies which has led to a 28 per cent increase in gas prices. Rights activists have accused the government of resorting to harassment and intimidation to silence critical voices. In April security forces clashed with a Christian sect in an opposition stronghold; in June the police arrested 15 youth activists, accusing them of plotting a coup.
The government has had to draw on foreign currency reserves to support the depreciated national currency and pay for imports. The scale of revenue loss was underlined in June when it was reported that Angola planned to borrow $25 billion to fund the budget gap, and had asked China, currently its main financial backer, for a moratorium of two years or more on loan repayments. The financial crisis has prompted the authorities to step up efforts to attract foreign investment and diversify the economy.
In October officials launched $1.5 billion worth of sovereign debt bonds, which they hope will boost Angola’s standing in international markets and attract European and American investors. A new private investment law aims to make it easier for foreigners to enter the Angolan market by speeding up project approval procedures, removing the minimum $1 million investment requirement, making tax benefits and incentives more objective and transparent, and creating free trade zones.
At the same time, efforts to expand the non-oil sectors of the economy are gaining momentum. The food and beverage sector is set to be revitalised with an investment of $2.4 billion, while $1.15 billion has been earmarked for the relaunch of the textile industry. Angola has invested $600 million in gold exploration in the north of the country; its agribusiness sector has been bolstered with the opening of a $750 million ethanol and sugar production facility; and a $300 million steelmaking plant will enable it to become a self-sufficient steel producer. There are also plans to build 22 new industrial development hubs and to more than quadruple electricity production through the construction of new hydroelectric dams and the rehabilitation of old ones.
The government is also attempting to appeal to investors by enhancing Angola’s credibility as an international actor. In October 2014 the country secured a non-permanent seat at the UN Security Council, and last year chaired the Kimberley Process, a certification scheme for the diamond industry. Towards the end of 2015 it held a major conference on maritime and energy security amid regional concerns over the threat of piracy to oil shipments in the Gulf of Guinea.
It is too soon to judge whether the current efforts to broaden Angola’s non-oil sectors will help to wean the country off its dependence on oil. In his New Year address to the nation, President José Eduardo dos Santos admitted the process was long overdue. “We spent much time talking about diversification of the economy, but we did very little," he said, adding that it was better to start late than never. The efforts are welcome but the timing is poor. With the oil price showing no sign of recovery and the risk of social unrest, Angola will have to work hard to make up for lost time.