How Angola's Exports Have Been Adversely Affected

Angola's exports have decreased due to a combination of factors, including the country's heavy dependence on the oil sector, economic contraction following the end of the oil boom in 2015, and structural decline in oil production. Angola's economy is heavily reliant on oil, with the sector contributing about 50% of GDP and more than 90% of exports. However, with the end of the oil boom, Angola entered a period of economic contraction, and the country now faces challenges such as high poverty, income inequality, and unemployment. Additionally, the oil production output is in a structural decline, and global decarbonization efforts further impact the sector's long-term prospects. These factors have likely contributed to a decrease in Angola's exports.

Oil exports

Angola's economy is heavily reliant on its oil sector, which contributes about 50% of its GDP, more than 70% of government revenue, and more than 90% of the country's exports. However, there have been fluctuations and a general downward trend in the country's oil exports over the years, which can be attributed to various factors.

Firstly, Angola's oil production levels have been variable. In 2010, the country produced approximately 2 million barrels of oil per day (bpd), but this later decreased to 1.16 million bpd. Angola's oil output has shown recent declines, with a production level of 1.18 million bpd, surpassing Nigeria's 1.02 million bpd in May. This fluctuation in production levels can lead to decreases in exports over time.

Secondly, the end of the oil boom in 2015 led Angola into a period of economic contraction. High international oil prices and rising oil production had previously contributed to strong economic growth, but the decline in oil prices and the subsequent reduction in oil exports affected the country's economy.

Thirdly, the COVID-19 pandemic severely impacted the demand for crude oil globally, making upstream activities economically unviable. This led to a decline in Angola's crude oil exports, with a total of 98.9 million barrels exported during the fourth quarter of 2021. The pandemic, compounded by decisions made by the Organization of Petroleum Exporting Countries (OPEC) to reduce oil prices, had a significant effect on Brent crude prices, the benchmark for Angolan exports.

Moreover, the business environment in Angola's oil and gas sector is challenging to navigate due to industry barriers and macroeconomic threats. The sector imposes many restrictions and barriers to investors and operators, deterring potential investments. High production costs, averaging US$40 per barrel, also hinder the entry of new players and limit new investments.

Lastly, the country's dependence on imported refined petroleum affects its oil exports. Angola spends over $2 billion annually on petroleum imports, and the refining of crude oil and distribution of its derivatives remain well below domestic demand.

Diamond exports

Angola is the world's sixth-largest producer of diamonds, accounting for 9% of global production. Diamonds represent 5% of the country's exports. In 2022, Angola's diamond exports were valued at $5.02 billion, with an expected growth of 9367% between 2023 and 2027.

Diamond mining in Angola has a long history, dating back to the eighteenth century when the Portuguese first reported diamond exports from the region. However, modern industrial diamond mining began in 1912 when diamonds were discovered in a stream in the Lunda region. The diamond industry in Angola has been plagued by conflict, human rights violations, corruption, and diamond smuggling. The civil war that lasted from 1975 to 2002 disrupted mining activities, making it unsafe for miners and leading to a decline in production. Despite these challenges, diamond production has increased in recent years, with a 24% rise in output between 2022 and 2023.

The Angolan government has made efforts to address the issues in the diamond industry, such as launching Operation Brilliant in 2003 to crack down on diamond smuggling, which resulted in the arrest and deportation of 250,000 smugglers between 2003 and 2006. However, the country continues to lose significant revenue due to smuggling, with an estimated loss of $375 million annually.

The diamond industry in Angola has significant environmental impacts. The two primary methods of diamond extraction, kimberlite pipe mining and alluvial mining, cause harm to plants, water, and soil. Pipe mining involves removing large sections of rock with heavy machinery, disrupting local flora and removing massive amounts of land. Alluvial mining affects water quality by diverting rivers and creating canals and dams.

Angola has only explored 40% of its diamond-rich territory, and the government is trying to attract foreign investment to further develop the industry. However, challenges such as corruption, human rights violations, and diamond smuggling have made it difficult to attract investors.

Lack of economic diversification

Angola's economy is heavily reliant on its oil and gas industry, which generates more than 90% of its exports. This dependence on a single sector has hindered economic diversification and left the country vulnerable to market volatility in the oil and gas industry.

Angola's lack of economic diversification is largely due to its history as a colony and the aftermath of its struggle for independence. During the colonial era, Angola's economy was primarily based on the exploitation of raw materials and cheap labour, with the Portuguese using the country as a source for the slave trade. Even after the abolition of slavery in 1858, Angola remained a source of raw materials for Portugal, with little investment in local industries or infrastructure. As a result, Angola became heavily dependent on its former coloniser for trade, with Portugal serving as its dominant trade partner.

Following independence in 1975, Angola was plagued by internal conflicts and a civil war that lasted until 2002. This period of instability disrupted economic activities, particularly in the agricultural sector, as Portuguese landowners abandoned their farms and factories, and UNITA's insurgency disrupted rural areas. The lack of investment in local industries and the destruction caused by the war left Angola with limited economic opportunities outside of the petroleum and diamond industries, which had a wider clientele for investment and markets.

Since the end of the civil war, Angola has made efforts to diversify its economy and reduce its dependence on the oil sector. The government has implemented regulatory and structural reforms, including the creation of a new oil and gas regulator, the National Agency for Oil, Gas and Biofuels (ANPG), and the privatisation of Sonangol, the state-owned oil company. These reforms have resulted in new discoveries and the development of oil fields by companies such as TotalEnergies and ENI.

However, Angola continues to face challenges in diversifying its economy due to its lack of infrastructure, skilled labour, and investment in other sectors. The country's most promising non-extractive sectors, such as agriculture and fisheries, are highly climate-sensitive and vulnerable to the impacts of climate change. Southern Angola, in particular, has been experiencing a severe and protracted drought, which is expected to have dire consequences for the economy and its people.

To achieve economic diversification, Angola needs to address these challenges by investing in climate resilience, improving infrastructure, and promoting private sector investment in renewable energy and climate-resilient infrastructure. By tapping into its renewable resources, such as water, fertile land, and solar and wind potential, Angola can boost productivity in agriculture and fisheries, creating economic growth, jobs, and improved living conditions for its citizens.

Economic contraction

Angola's economy is heavily dependent on the oil sector, which has dominated since the sixteenth century. In 2017, oil exports accounted for over 90% of exports by value and 64% of government revenue. However, with the end of the oil boom, Angola entered a period of economic contraction from 2015 onwards.

The country's economic woes can be attributed to the decline of the oil industry, which has suffered from oil depletion and a lack of investment. This has resulted in lower-than-expected oil exports, reducing the supply of foreign currency and triggering a 40% currency depreciation in May-June 2023. The depreciation of the currency, coupled with an increase in gasoline prices, has fuelled inflationary pressures, with year-on-year inflation reaching 24% in February 2024.

The over-reliance on oil has hindered economic diversification and job creation, with 80% of employed people working in the informal sector. The economy is not generating enough jobs to keep up with Angola's growing working-age population, resulting in surging unemployment rates, particularly in urban and youth populations.

The structural decline in oil production, coupled with the global push for decarbonisation, has further exacerbated Angola's economic woes. The country needs to urgently invest in removing barriers to private sector investment to achieve economic diversification, with agriculture being the sector with the highest potential to drive this change.

High poverty and inequality

Angola's exports have been impacted by high poverty and inequality, which are the result of a complex interplay of historical, economic, and social factors. Here are 4-6 paragraphs elaborating on this issue:

Angola's history of slavery and civil conflicts has left a legacy of injustice and inequality, with a significant portion of the population living in precarious conditions. The country's struggle with poverty is evident, with a high level of income inequality and a significant gap between the richest and poorest segments of society. Angola's Gini index, a measure of income inequality, stands at 0.55, indicating a highly unequal distribution of wealth. The top 20% of earners receive 59% of all incomes, while the bottom 20% receive only 3%. This disparity presents significant challenges for poverty reduction efforts and can undermine social cohesion and democratization.

The limitations faced by the majority of Angolans contribute to the high poverty levels. These limitations include a lack of access to essential social rights, such as education, health, and employment opportunities. The inequality in economic and social opportunities further exacerbates the problem, hindering social mobility and trapping people in sustained poverty. Additionally, the country's heavy dependence on the oil sector, which accounted for over 90% of exports by value in 2017, makes it vulnerable to fluctuations in oil prices and contributes to income inequality.

The dynamics of urban and rural poverty in Angola also differ significantly. In rural areas, such as Kalandula in Malanje, material poverty is more pronounced, with limited access to employment, markets, and social services. Agriculture is the dominant economic activity, and income levels are generally low. However, rural communities often have stronger social cohesion and safety nets, such as access to agricultural land, which can provide a potential path out of poverty. On the other hand, urban poverty, as seen in the shantytowns of Luanda, is characterised by a heavy dependence on money, weaker community networks, and higher vulnerability to economic shocks. While employment opportunities may be more diverse and accessible in urban areas, incomes are often inadequate, fluctuating, and accompanied by poor working conditions.

The lack of voice and power among the poor, both in rural and urban settings, further exacerbates the problem. De facto, Angola is a one-party state dominated by the MPLA, leaving little room for the population to influence institutions. This dynamic particularly affects the urban poor, who constantly confront reminders of their marginalisation and deficiencies. The rural poor, on the other hand, may have more social cohesion and traditional authority structures, but they still face challenges in making their voices heard and influencing policies that affect their lives.

Overall, Angola's high poverty and inequality levels are deeply rooted in its history and current economic structure. Inequality in access to opportunities and resources, as well as the income disparities that result, pose significant challenges to poverty reduction efforts. Addressing these issues requires a multi-faceted approach that prioritises not only economic growth but also the promotion of individual freedoms, skills development, and improved access to essential social services for the most vulnerable populations. Breaking down social barriers and strengthening community networks are also crucial steps towards reducing poverty and inequality in Angola.

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