Angola's Underdevelopment: A Complex Historical Legacy

Angola is a Southern African nation classified as one of the 45 least developed countries in the world. Angola's economy is heavily dependent on the oil sector, which has led to a cycle of commodity dependence and hindered economic diversification and job creation. This has resulted in high levels of poverty and inequality, with over 15.1 million people living in extreme poverty as of 2022. The country also has a history of conflict, including a war for independence from Portugal and a subsequent civil war, which have had lasting impacts on its economic development. While Angola has made efforts to diversify its economy and reduce poverty, it continues to face challenges such as corruption, human rights violations, and a lack of investment in sectors other than oil.

Extreme poverty

Angola is one of the 45 least developed countries in the world, with a large proportion of its population living in extreme poverty. As of 2022, over 15.1 million people in Angola lived in extreme poverty, defined by a poverty threshold of 1.90 US dollars per day. This number has been increasing, with around 10 million Angolans in extreme poverty in 2016, projected to rise to 16.3 million by 2026.

The country's economic structure is heavily dependent on the exploitation of its rich petroleum resources, which has locked Angola into a cycle of commodity dependence, undermining economic diversification and growth. This dependence on the oil sector has made the country vulnerable to external shocks, such as volatile global oil demand, and has contributed to high levels of poverty and inequality. While the oil sector has driven economic growth in the past, with high international oil prices and rising oil production contributing to strong economic growth, the end of the oil boom around 2015 led Angola into a period of economic contraction.

The overreliance on the oil sector has also limited the development of other sectors with high growth and employment potential, particularly in rural areas. As a result, economic opportunities have diminished for rural communities, women, youth, and other vulnerable groups, exacerbating poverty and inequality.

In addition to economic challenges, Angola is also facing social issues that contribute to extreme poverty. The country has a history of conflict, including the war for independence from Portugal (1961-1975) and a prolonged civil war (1975-2002), which disrupted economic activities and displaced millions of people. The aftermath of these conflicts left Angola with a lack of infrastructure, skilled workers, and operational businesses, further hindering economic development and contributing to poverty.

To address extreme poverty, Angola has implemented various initiatives with the support of international organizations. The World Bank, for example, is working with the Angolan government, development partners, and civil society to promote economic growth and reduce poverty. The United Nations Conference on Trade and Development (UNCTAD) has also adopted a holistic approach to economic development, aiming to diversify exports and the economy, and link Angola to regional and global value chains. These efforts are crucial to breaking the cycle of commodity dependence and promoting sustainable and inclusive growth in the country.

Dependence on oil sector

Angola's dependence on the oil sector has made it highly vulnerable to external shocks and has undermined macroeconomic stability. The country's economic fortunes have been tied to global oil demand, which has resulted in volatile growth and left Angola with high levels of poverty and inequality.

Over the last few decades, crude oil and oil products have accounted for a significant proportion of Angola's total exports, fiscal revenues, and gross domestic product. This heavy reliance on the oil industry has made the country susceptible to fluctuations in the global oil market. When oil prices declined in 2018, the Angolan government accumulated arrears to suppliers, and non-performing loans increased significantly, threatening financial stability.

Additionally, the oil sector's dominance has hindered economic diversification and job creation in Angola. The strong real exchange rate appreciation associated with high oil prices has stunted the development of non-oil sectors and limited their ability to compete internationally. This has resulted in a lack of economic diversification, with over 80% of employed individuals working in the informal sector.

Moreover, the capital-intensive nature of the oil industry has contributed to Angola's challenges in fostering inclusive growth. While the energy sector has generated significant revenue, it has provided a limited number of formal sector jobs. As a result, a large portion of the population continues to work in rural areas, relying on subsistence farming.

To address these challenges, Angola has implemented various economic reforms and development plans. The government has prioritized infrastructure improvement, regulatory reforms, and the development of non-oil sectors such as agriculture. However, the country continues to face obstacles in fully realizing these goals, and its progress has been hampered by issues such as bureaucratic processes, limited access to credit, and insufficient investment in human capital development.

Lack of economic diversification

Angola's economy is heavily dependent on its oil and gas industry, with oil and gas products making up more than 90% of its exports. This dependence on the oil sector has made the country vulnerable to external shocks and undermined macroeconomic stability.

The country's economic fortunes have been tied to global oil demand, which has brought volatile growth and left Angola with high levels of poverty and inequality. While the oil sector has driven strong economic growth in the past, with high international oil prices and rising oil production contributing to this, the end of the oil boom around 2015 led Angola into a period of economic contraction.

Angola's overreliance on oil means that risks to the economic outlook remain high. Diversification is difficult while oil production is in structural decline, and with global decarbonization on the horizon, the need to diversify is becoming more urgent.

Angola has abundant agricultural and arable land, and favorable climatic conditions, so agriculture is the sector with the highest potential to drive diversification. However, the impacts of climate change threaten to take a heavy toll on the Angolan economy and its people, and without adaptation measures, Angola’s gross domestic product (GDP) could be reduced by up to 6% by 2050. Southern Angola has been hit hard by extreme climate conditions, experiencing a severe and protracted drought for the past decade.

To drive economic growth, create good jobs, and improve living conditions, Angola can tap into its renewable resources such as water, fertile land, and solar and wind potential to boost productivity in agriculture and fisheries. There are also opportunities to significantly increase the production of renewable energy while reducing gas flaring and emissions.

To achieve a resilient and inclusive development vision, Angola needs to mainstream climate considerations into planning and fiscal management, reform fuel policies to free up more public financing, and boost private sector investment in renewable energy and climate-resilient infrastructure. Improving governance to channel oil wealth into strengthening resilience, while mobilizing additional green and blue financing, will also be crucial.

While it will not be easy, diversifying Angola's economy away from oil dependence is necessary to support growth, job creation, and poverty reduction.

Corruption

Angola has long been considered one of the most corrupt countries in Africa, with a weak and fragmented legal system that is highly susceptible to political interference. The country's post-independence history has been marred by a 30-year civil war, followed by decades of authoritarian rule characterised by widespread corruption and mismanagement, particularly in the extractive industries.

Angola's former president, José Eduardo dos Santos, has been accused of creating a highly corrupt system of governance that allowed him and his associates to exploit the country's economy for personal gain. This institutional corruption has resulted in a centralised government with authoritarian tendencies, where the president wields significant control over the nation's resources. The aftermath of the civil war and the influence of the Soviet command economy have further contributed to the centralisation of power, enabling the president and his associates to exert control over various sectors of the economy, including the oil sector.

The country's judicial system, media, and law enforcement agencies are also implicated in corruption. Judges, who are often appointed by the president or have military backgrounds, have been known to ignore or creatively interpret laws to favour their interests. The media, largely controlled by the state and pro-government groups, has been used to distort public perception and suppress criticism. Additionally, police officers and other public servants routinely demand bribes, known as "gasosas", to supplement their low wages and facilitate bureaucratic processes.

The scale of corruption in Angola has led to significant economic and social consequences. Most Angolans have a low standard of living, with high infant mortality rates and low life expectancy. The country's wealth remains concentrated in a disproportionately small part of the population, with a vast disparity between the rich and the poor. Efforts to combat corruption have been challenging due to the entrenched nature of the problem and the lack of political will for reform. However, there have been recent signs of progress, with President João Lourenço making the fight against corruption a key priority. High-profile court cases and dismissals of senior officials have taken place, and new laws targeting money laundering and the financing of terrorism have been introduced. Despite these efforts, critics argue that corruption complaints involving presidential and government personnel often go uninvestigated, highlighting the ongoing challenges in addressing institutionalised corruption.

Conflict and civil war

Angola's underdevelopment can be attributed to four decades of conflict in the latter part of the 20th century, including the war for independence from Portugal (1961-1975) and the subsequent civil war (1975-2002). The country's economy has been heavily impacted by these conflicts, with long-lasting effects that continue to hinder progress.

The civil war in Angola lasted for 27 years and resulted in significant destruction and disruption. The conflict caused widespread displacement, with 3.8 million people, or 32% of the population, forced to flee their homes by 2001. The war also severely impacted the country's infrastructure, agricultural sector, and economic activities.

During the civil war, UNITA, one of the liberation movements, relied heavily on the illicit trade of diamonds to fund their rebellion. This illicit trade, often referred to as "conflict diamonds," continued even after the civil war ended, with the government losing $375 million annually due to diamond smuggling. Efforts to address this issue, such as Operation Brilliant, have been undertaken, but the industry continues to face challenges due to corruption, human rights violations, and smuggling.

The conflict also disrupted the country's agricultural activities, which are vital for the nation's food security and economic diversification. Severe wartime conditions, including the extensive planting of landmines, brought agricultural activities to a near standstill. Even after the war, the presence of landmines continued to render vast areas of arable land inaccessible, hindering the recovery of the agricultural sector.

Additionally, the civil war resulted in the destruction of infrastructure, including transportation systems, bridges, and administrative networks. This disruption hindered the flow of goods and services, further damaging the economy. The post-war period saw efforts to repair and improve infrastructure, but the extent of the damage caused during the conflict has had long-lasting effects.

The conflict also contributed to a brain drain in Angola, with skilled workers, technicians, and managers leaving the country. This loss of human capital impacted the country's ability to recover and develop, particularly in the agricultural and industrial sectors.

Moreover, the civil war disrupted education and training, leaving a shortage of skilled workers and managers to support economic growth and development. This shortage of skilled personnel further exacerbated the challenges in rebuilding the country and diversifying the economy away from a reliance on the oil sector.

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