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Before independence in 1975 Angola had a diversified and prosperous
economy, though it was characterized by huge inequalities. The main
agricultural exports, coffee, sisal and cotton, were produced on European
dominated commercial farms, the mining sector was strong, producing
diamonds, iron ore and oil, and there was a relatively large and diverse
manufacturing sector. Today, after more than 25 years of nearly continuous
warfare, the Angolan economy is in disarray and per capita output among
the worlds lowest. In fact, for the last three decades, what was once
a diversified economy has been gradually destroyed as a consequence
of almost uninterrupted war as well as bad policy choices at central
level that have resulted in escalating macro-economic instability.
According to the EIU, Angola has 2.1% of real GDP growth and a consumer
price annual inflation of 325%.
Subsistence agriculture provides the main livelihood for 85% of the population,
many of whom are now facing threats of growing food insecurity as cereal
production has declined to an all time low. In 1999 agriculture accounted
for a mere 7% of GDP. The oil sector, mostly offshore and insulated from
the war, has boomed and is now vital to the economy, contributing about 61%
to GDP (1999) and producing 90% of exports. Angola is currently the seventh
largest exporter of petroleum to the USA.
Agriculture, forestry and fishing
In 1975 Angola was self-sufficient in all food crops, the fourth-largest
coffee grower in the world, a major producer of sisal and cotton and
possessor of the richest fishing grounds in southern Africa. The flight
of Portuguese settlers, the collapse of the marketing and distribution
networks and the 26-year civil war have since reversed this picture. The
recent upsurge in fighting across Angola continues to affect agricultural
production negatively. The commercial agriculture sector has collapsed,
except in some coastal areas where irrigation is used, and marketable
surpluses form the subsistence sector have declined sharply owing to
the continued insecurity. Negligible quantities of coffee are produced
as the main coffee growing areas are suffering from on-going conflict,
while the cultivation of sisal and cotton has virtually ceased. Traditional
crops include cassava and beans in the north, maize in the centre,
and millet and sorghum in the south.
Subsistence agriculture provides the main livelihood for 85% of the population,
many of whom are now facing threats of growing food insecurity as cereal
production has declined to an all time low. eliminary estimates for 2001
have showed that agriculture, forestry and fisheries accounted for a mere
8% of GDP. The oil sector, mostly located offshore and insulated from the
war, has boomed and is now vital to the economy, contributing about 53.6%
to GDP (estimate for 2001) and producing 90% of exports. Angola is currently
the seventh largest exporter of petroleum to the USA.
Manufacturing
Manufacturing contributed 3.5 per cent of GDP in 1999. Production
is centred on food processing, brewing, sugar, textiles and tobacco
products. Also important are light manufacture, electrical goods (eg
radio production), construction materials, steel production, motor
vehicles, detergents, bicycles and chemicals. Activity is concentrated
in Luanda, Lobito and Huambo. Output has been sluggish due to shortages
of foreign exchange, poor management and a low-paid labour force. About
60 per cent of total production is accounted for by nationalised industries.
The government has embarked upon a privatisation programme involving
some 200 state-owned enterprises in a variety of industrial sectors.The
industrial sector grew 5.2 per cent in 1998, down from 8.1 per cent
in 1997. Manufacturing declined from 8 per cent in 1997 to -10 per
cent in 1998.
Mining & Hydrocarbons
The mining and hydrocarbons sectors together accounted for 70 per
cent of GDP in 1999, employing around 4 per cent of the workforce.
Oil
Angola's economic performance is largely determined by the level
of oil production which accounts for over 90 per cent of exports. Sub-saharan
Africa's second-largest oil producer after Nigeria, Angola is considered
one of the world's most exciting oil exploration prospects. The oil
sector in particular has benefited immensely from a number of new discoveries
placing Angola in the coveted position of having the largest reserve
growth in the world and first place among the world’s top 15 oil
finders. A vast number of oil companies are involved in Angola’s
oil business, and side by side with the ‘supermajors’ (Total
Fina Elf, Chevron, Exxon Mobil, British Petroleum, Texaco and Shell),
we find a large number of ‘independents’ (ENI, C-T,
BHP, Ranger, Conoco, Ocean, ROC, PetroGal, among others) as well as
a number of NOCs (National Oil Companies). Production forecasts for
2001 are of 755.000 barrels per day, for 2005 1.4 billion barrels per
day and for 2008, 1.8 barrels per day, placing Angola among the world’s
top producers of oil. Coupled with an important number of new discoveries,
the opening of the Girassol field has substantially increased production
levels. In addition, the projected construction of a new refinery in
the coastal city of Benguela with a forecasted production of 200 million
barrels per day has created new opportunities and excitement around
this very lucrative and dynamic field. Furthermore, the government’s
intention of developing natural gas exploration with the construction
of a LNG (liquefied natural gas) terminal in Luanda has made LNG a
very attractive business opportunity for foreign investors. Consequently,
of the non-OPEC nations, Angola had the greatest number of new discoveries
for the period 1990-99 (1.35bn barrels in 1999 alone), and a reserves
replacement rate of 397%. Oil fields are located mainly in the northern
enclave of Cabinda, the remaining offshore area is divided into 13
blocks, eight of which are allocated to foreign operators.
Gas
Liquefied natural gas exports began in 1983, most of which
was sold to Brazil. Natural gas reserves are estimated at over 50bn
cu metres.
Diamonds
Diamonds (mostly of gemstone quality) are the country's second-largest
foreign exchange earner, most production coming from alluvial diamonds
which are scattered over large areas. The industry, however, remains
mired in uncertainty. Angola is the fourth-largest diamond producer
in the world, producing some US$500m of rough diamonds in 1999, and
US$739m in 2000. Of this, Unita is estimated to have earned US$150m
in 1999 and US$75m in 2000 (from illegal diamond mining & used
to finance arms purchases), while the informal sector diamond diggers
earned US$240m in 1999. In January 2000 the government launched a major
shake-up of the diamond industry in an apparent effort to bring diamond
sales from the large informal market - which accounts for 60% of all
diamond exports - under central government control/into official channels
and to prevent Unita leaking diamonds through government-held areas.
These changes had some success in raising official revenue: by mid-2000
revenue had increased to an average of US$4m per month, up from an
extremely small base of around US$10m per year. The Angolan armed forces
now control the richest mining sites, and Unita forces have been pushed
into secondary diamond areas. Unita is thought to have mined only US$75-150m
worth in 2000, while official output has risen sharply with production
reaching US$740m of rough diamonds, nearly 10% of world supply.
In late 2001 a UN monitoring panel reported that more than US$1mn worth of
diamonds were leaving Angola illegally daily. Of these, UNITA was thought
to be responsible for between 25-30%, the rest smuggled from areas taken
over by government troops.
Government finance and fiscal policy
After independence the government introduced a Marxist type centrally
planned economy, nationalising property and extending state control
across most sectors. Attempts at economic reforms in the face of serious
imbalances were made in the late 1980s and mid-1990, but foundered.
Faced with deteriorating economic and social conditions the government
adopted a number of bold measures during 1999, giving into long-standing
IMF demands and which were set to result in a substantial shift in
economic policy. The government established a national emergency programme
of humanitarian assistance to people displaced by the war and introduced
measures to improve transparency in the management of government funds.
In fact, the growing revenues of the oil sector have not trickled down
to the society as a whole, having been used to finance the war effort
in detriment of all other areas. Controversy surrounding extra-budgetary
spending and lack of transparency in public finances and particularly
in the oil business have prompted strong international pressure from
bilateral donors as well as the ‘Bretton Woods Institutions’ (World
Bank and IMF) for greater transparency in public finances. The government
of Angola finally agreed to a nine-month SMP (staff monitored programme)
in April 2000 which was subsequently extended to June 2001. The programme
sets out wide-ranging market reforms, intended to establish macroeconomic
stability, promote poverty reduction and dismantle the state controls
and economic distortions that have facilitated widespread corruption
and inefficiency. The main focus of the reforms is to bring an end
to extra-budgetary expenditure and unauthorised payments, lower import
tariffs, promote parastatal privatisation, overhaul the tax structure,
complete an audit of the oil sector and increase social sector spending.
A central assumption of the agreement is that economic gains and poverty
reduction can only be made if there is financial transparency and the
government is serious about its commitments. By mid-2001 reports indicated
some progress on the SMP, although implementation was seen to be very
uneven, with concerns being raised in particular around the failure
to establish fiscal and monetary controls. While the findings of the
SMP reflect possibly the central challenge facing Angola, the pace
of state reform has been disappointingly slow and macro-economic stability
as well as greater transparency have not been attained. In fact, the
government has increasingly distanced itself from the IMF after this
organization’s negative assessment of the government’s performance
last February (particularly the government’s refusal to establish
fiscal and monetary controls and transparency in official payments).
Foreign Aid and Donors
Regional and International economic
grouping/alliances:
- African Union
- Southern African Development Community (SADC)
- Southern African Customs Union (SACU)
- Common Market for Eastern and Southern Africa (Comesa)
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