Angola is beginning to achieve financial stability after failing to recover from their 2014 oil crisis. Angola relies on oil as it generates 80 percent of the government’s revenue. President Joao Lourenco, of the People’s Movement for the Liberation of Angola party, rose to power in 2017 and has since made efforts to tighten monetary policy, improve the business environment and reduce debt in order to bring economic relief to Angola.
Poverty and the Oil Industry
A 2014 oil price drop created high inflation rates, crippled the banking sector and resulted in foreign investors pulling out of Angola, a country where more than one-third of the population lives in poverty. Oil also accounts for more than 90 percent of exports, which only made matters worse for a country over-reliant on oil. Though corruption has marred the past Angolan presidency, the current president, Joao Lourenco, is seeking a more democratized government to bring economic relief to Angola. He is also pursuing stability in their currency, the kwanza, which has gone down 40 percent in value since last year.
Industry accounts for more than 60 percent of Angola’s GDP. Industry includes petroleum, diamonds, iron, cement, gold, uranium, tobacco products, sugar and textiles. Privatizing petroleum would welcome outside investors that were reluctant to invest in a country that has a government-owned oil industry. Privatization brings Angola one step closer to gaining foreign investors.
The elite owns the majority of Angola’s wealth, but now there’s a shift toward distributing the wealth by reducing the power of these political leaders, a power that was held by their positions of ownership in the petroleum industry. Corruption is being dealt with thanks to President Lourenco, which has been an important move in bringing economic relief to Angola.
More than one-third of Angolans are living in poverty. They would benefit from the money being distributed to the poor. A country that is ranked seventh in crude oil exports and is labeled as oil-rich has the capacity to bring all its inhabitants out of poverty. The first step is targeting corruption by the state-owned petroleum company, Sonangol and the political leaders that benefit from the government’s involvement in the oil company. Lourenco’s Macroeconomic Stabilization Program addresses these issues so that the wealth will be more proportionate.
External Aid to Angola
Under Lourenco’s Macroeconomic Stabilization Program, new policies were established for pricing natural gases and an independent regulator was created to manage oil and gas concessions. In December, the China Development Bank granted a $2 billion loan for Sonangol to build a refinery that will reduce reliance on fuel imports.
Angola also received a $3.7 trillion credit from the International Monetary Fund (IMF) that same month. The credit from the IMF was approved to support Angola’s efforts in transitioning the oil industry from government-led to being private sector controlled. It will also help return financial stability by reducing government debt. At the moment, Angola’s debt is around $80 billion despite being the third strongest economy in Africa.
Many state-owned Angolan companies are privatizing or are being liquated as part of Lourenco’s initiative to improve the business environment and reduce debt. Two new laws have already been approved that will encourage new companies to enter the Angolan market. The private investment law and the antitrust law both remove barriers to providing outside investment, furthering economic relief to Angola.
Looking To the Future
The World Bank estimates Angola’s GDP will rise to 2.9 percent in 2019. For reference, in 2017, the GDP was negative 2.5 percent. Under President Lourenco, Angola is welcoming the private sector and foreign investment, both of which may result in a better distribution of wealth among the poverty-stricken country. Angola’s economy is improving and with improvement comes the opportunity for investment in not just the oil sector but also in agriculture, tourism and other natural resource mining, bringing economic relief to Angola.