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Economy: import addiction.

In March, the Central Bank Governor, John Rwangombwa, (above) announced a projected growth rate of 6% for 2014 and 6.7% for 2015. He also said he hoped the country's reliance on foreign aid would drop to 20% by 2018

In terms of the economy, the key question is the same as ever: what can Angola do apart from oil production? Stagnating oil output and lower global oil prices saw GDP flat line in 2010 and 2011, and expand by just 4.1% last year, a modest figure by the country's recent standards.

A recent IMF report on the country stated: "The resulting drop in oil revenues impacted the non-oil economy through diminished private consumption, cuts to public spending and the accumulation of substantial arrears to domestic firms, particularly in the construction sector. Despite its favourable near-term outlook, Angola's reliance on oil revenues and imports leaves the economy highly vulnerable to economic shocks."

Angola imports a staggering amount of its requirements. While many people in rural areas grow what they consume, there is little economic connection between rural and urban areas. Even staple foodstuffs such as flour and rice are imported from Europe, contributing to Luanda's reputation as one of the world's most expensive cities. This disconnect has prevented the country as a whole from benefiting from national economic growth and it is shocking that it exists amid such poverty.

New import tariffs introduced in March have driven up prices still further, far beyond the levels seen in New York, London or Tokyo, so there is plenty of incentive for domestic entrepreneurs to produce goods for local consumption. However, most sources agree that there has been a little progress. Anthony Lopes Pinto, head of Imara Securities Angola, said: "It is now easy to find local produce in the shops. Previously, it was hard. It's still an expensive city to live in, but not to the same extent as before." A 50% duty has been imposed on fruit and vegetables, even those imported from neighbouring states, although goods such as flour, rice, sugar and beans are exempt from the tariffs. The big fear is that the urban poor will be hardest hit.

As in South Africa, the gap between rich and poor is enormous. Most people do not have formal jobs but even for those that do, the average national salary was just $260 a month in 2010. This figure was skewed by the monthly average $5,400 in the oil industry. The move is seen by many as an attempt to prepare Angola for entry into the Southern African Development Community's (SADC) free trade area in 2017.

Most duties on goods traded with other SADC member states will have to be lifted in 2017, but three years seems a remarkably short time in which to cultivate new businesses within a protected environment. If the new tariff structure still fails to ignite interest in domestic production, then there really is something wrong in Angola.

Banking development

Improved financing for small and medium-sized enterprises (SMEs) could be on its way, although progress is likely to be slow and steady rather than spectacular. The government is in talks with the African Development Bank (AfDB) regarding possible funding to develop the Angolan banking sector.

The AfDB's representative for Angola, Septime Martin, says: "Negotiations with retail banks are under way and their aim is to finance, through credit lines, the banks and for them to provide those resources to the Angolan private sector at lower interest rates due to the AfDB's ability to finance itself at reduced cost."

At present, the AfDB is investing almost $100m in projects in Angola, covering six sectors: agriculture, fishing, water and sanitation, the environment, governance and transport.

Although Africa's biggest banks are increasingly investing in other markets on the continent in a process that may create a premier league of African banks with genuinely pan-African aspirations, Angola has not been among the main targets. The poor regulatory environment and lack of financial accountability are part of the problem, but the limited size of the private sector is perhaps the main stumbling block.

One new source of investment could come in the form of the Fundo Soberano de Angola (FSA), the country's new sovereign wealth fund, which is due to become operational this year. It already has a war chest of $5bn and that figure should increase if it is managed as the government has promised, with up to $3-5bn a year paid into it.

FSA chairman Jose Filomeno dos Santos, who coincidentally is the son of the President, has announced that it will target the hotel sector in the first instance. A total of 50 international standard hotels will be bought or built in sub-Saharan Africa to target business travellers. Dos Santos commented: "We believe there's a lot of investment interest in Africa. It has a lot of mineral potential, almost a commodity hub. We believe this interest will remain there for the coming years. The number of international-standard rooms is still very low and it has a big potential for growth." (See interview page 34.)

Closer to home, the lack of basic infrastructure, such as power and water supplies, deter industrial and manufacturing investment. Industry accounts for just 6.25% of GDP but is perhaps a better source of short-term growth than manufacturing given the availability of natural gas and port facilities. Indeed, industrial GDP has been growing by 10% a year over the past five years.

Nevertheless, the country needs to begin the transition from a postwar economy run by a liberation movement into a modern, democratic African nation. A vital part of that process is the emergence of a vibrant, diverse private sector that has a life and a vigour independent of the state.
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Title Annotation:REGIONAL FOCUS: Angola
Publication:African Business
Geographic Code:6ANGO
Date:Jun 1, 2014
Words:958
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