Can Angola step away from the oil?

Angola is currently third biggest economy in Africa, behind only South Africa and Nigeria.[i] Since the discovery of oil in 1955 in the Kwanza basin, the commodity has come to represent the country’s great success story, despite the setback of a devastating 27-year civil war. Angola is the second-largest oil producer on the continent, with estimated gross reserves of 9bn barrels. Oil currently makes up around 60% of government revenue and 98% of exports.[ii] Oil production is now mostly offshore, around Cabinda and in the Lower Congo basin, mostly because the war made onshore exploration so difficult.[iii] It’s likely that there is still great potential in Angolan soil.

It’s not surprising then, that the recent drop in the oil price has badly affected the country’s economy, combined with volatile currency fluctuations. The oil wealth has, as in most places, also not been of widespread benefit and Angola needs a massive amount of investment in basic services such as healthcare, education, infrastructure and agriculture.[iv] The non-oil economy, amounts to only 10% of government revenue.[v]

The government does appear to be responding to this however, and has launched a policy of diversification and reforms to encourage foreign investment.

There is significant work to do. Despite the oil wealth, only around a third of Angolans have a reliable electricity supply; power outages are frequent and disruptive. Foreign investors receive tax breaks – which impact the government’s ability to raise the revenue needed to fund essential reforms – but a complex bureaucracy and foreign currency restrictions still make investing less attractive.[vi] Overall it has been a lose-lose situation for most Angolans.

The government has developed a new National Energy Power Security Strategy Policy to try to make some inroads in basic living standards. It is hoped that it will lead to structural reform, public private partnerships and basically, a transformation of the power sector. In conjunction with this, their Electricity Sector Transformation Program aims to increase the power access rate so that it reaches two-thirds of the people by 2025, and up the overall power generation capacity to 8,742 megawatts.[vii]

Reforms to the private investment law and changes to a credit scheme for local businesses should also start to turn things around for the economy.[viii] But is it enough? With more than 30% of Angolans still living on less than $1.25 a day,[ix] can these changes make a difference when investors still face delays, inefficiency and corruption?

[i] Angola, Japan : Signing of First Japanese ODA Loan Agreement with Angola, TendersInfo, 18 August 2015

[ii] Oil and Gas: Oil and Luanda’s best-laid plans, The Africa Report, 4 May 2015

[iii] Angola Energy Profile: Second-Largest Oil Producer In Sub-Saharan Africa – Analysis, Eurasia Review, 21 March 2015

[iv] Report – Angola – Sovereign Wealth Fund – Angola’s Wealth of Options, The Banker, 1 June 2015

[v] Angola economy: Moves to boost non-oil sector, EIU ViewsWire, 7 April 2015

[vi] Angola, Japan : Signing of First Japanese ODA Loan Agreement with Angola, TendersInfo, 18 August 2015

[vii] Angola, Japan : Signing of First Japanese ODA Loan Agreement with Angola, TendersInfo, 18 August 2015

[viii] Angola economy: Moves to boost non-oil sector, EIU ViewsWire, 7 April 2015

[ix] Angola Energy Profile: Second-Largest Oil Producer In Sub-Saharan Africa – Analysis, Eurasia Review, 21 March 2015

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