It is almost inevitable that any evaluation of Angolan prospects for long term growth and development will focus first and foremost on oil and to a lesser extent diamonds. The reasons for this are obvious: the extent of oil dependence in Angola is extreme. In fact, it is well beyond that of almost all other oil exporting countries, and is well beyond that of any other oil exporter in Africa (see Table 1 over). This, together with the glaringly obvious economic distortions that come from the high levels of oil-funded spending, makes it superficially attractive to attribute to oil the primary causal role not only in Angola's short run economic problems, but also in its long term growth and development prospects as well.1
| Country | Non-renewable Resource Revenue as % of Total Government Revenue | Non-renewable Resource Exports as % of GDP |
|---|---|---|
| Chile | 8.6 | 10.1 |
| Kuwait | 59.3 | 39.7 |
| Norway | 14.4 | 12.1 |
| Oman | 77.3 | 35.9 |
| Papua New Guinea | 11.4 | 27.9 |
| Saudi Arabia | 28.7 | 39.2 |
| Venezuela | 58.2 | 19.1 |
| Angola | 84.0** | 48.5*** |
| Sources: *All non-Angolan figures exc. Saudi Arabia taken from Davis, Ossowski & Fedelino (eds.) 2003, p. 275; Saudi figures for 2003 taken from IMF Public Information Notice 05/03, January 2005, ‘IMF Concludes Article IV Consultation with Saudi Arabia’. **Average of 1996-2003. ***Average of 2002 and 2003. |
While it would be silly to deny that oil (and to a lesser extent, diamonds) plays a dominant role in the country's macroeconomy, it is also true that this income, when viewed in a longer historical perspective, can be seen as reinforcing regional and political divisions some of which have been evident since the earliest days of Portuguese conquest and colonisation. These historical features of the Angolan political and economic landscape have interacted with the oil syndrome in a way which has resulted in a more pronounced case of oil-induced economic distortions than would otherwise have resulted, and also in a far more vicious and destructive civil conflict than might otherwise have occurred. However, in perspective it is these underlying structural characteristics which will remain a fixture in the Angolan context – not the oil and diamond income. Even the most optimistic projections of revenue from these sources see a peak and eventual decline over the next two decades.2
It is important to be clear: it would be a mistake to try to understand Angola's economy and future prospects without taking into account the interplay of oil-caused distortions with other important features of the Angolan economic and political landscape. As will be discussed in more detail below, large flows of mineral income are important not simply because they represent a large prize to be fought over. In addition, the fact that such large sums of foreign exchange are injected into the economy by whoever wins them causes pervasive macroeconomic distortions that interact with pre-existing structures in a mutually reinforcing way.3 However, to argue that mineral income from oil and diamonds constitute the basic framework through which Angolan political economy must be viewed even in the long run would be equally mistaken given that oil, though it will last for years to come, will not last forever, while structural characteristics based on geography and natural resource endowments in addition to long-standing ethnic divisions will remain in place indefinitely.
Students of the Angolan agony of the 1980s and 1990s cannot help but conclude that a substantial share of the blame for the constant relapse into war and destruction lies in a simple power struggle over oil and diamonds.4 Additionally, there is also the issue of the personal quest for power on the part of Jonas Savimbi and the personality cult that was cultivated in the party and the areas it controlled. However, it is likely that even if the ‘one bullet solution’ that some advocated to end Savimbi's career had been implemented successfully during the 1990s, there would have been no lack of candidates to succeed him. During that period, UNITA controlled an estimated $380 million a year of diamond income5 and was the primary political party of the millions of Ovimbundu who comprise nearly one-third of the Angolan population. Indeed, although UNITA is clearly much weakened following Savimbi's death and the achievement of peace, there are numerous aspirants to his role as leader and spokesman for the Ovimbundu people.
Thus, it is very difficult to separate the current conflict from oil and diamond money and it is not the intent of this paper to try. Rather, it is argued here that any long run view of the future evolution of Angolan politics and economic growth must take into account the economic distortions caused by these resources which include the political power struggle that it engenders: pitting those with access to mineral income against those without. That this opposition of interests would cause political or physical conflict is obvious and has been the basic issue facing Angola since independence in 1975. But Angola also has additional and pre-existing political and economic fault lines which, rather than being cross-cutting as in many other countries, fall along precisely the same lines in Angola, thus reinforcing each other rather than providing for alternative patterns of conflict or coalition. And it is these that will condition political and economic development in the long run rather than the perhaps more acute polarisations arising from oil and diamond income at the present time.
Even if the problems of disposing of mineral wealth are dealt with (or the oil runs out eventually) the pre-existing historical animosities and tensions that exist in the country will remain, and will have to be dealt with at the same time if a truly equitable and sustainable political accommodation is to be found. To deal with only one of the dimensions of the current polarised situation is a recipe for failure since the remaining tensions will tend to reignite the conflict (at least in political terms) if they are not also addressed. Angola is not unique in having historical tensions and dichotomies. Other countries around the world and in sub-Saharan Africa suffer from many of the same issues to a greater or lesser degree. However, what is striking in the Angolan case is that these pre-existing divisions are all aligned in such a way as to cause the polarising forces to line up precisely the same groups in opposition to each other over each of these issues.
The most obvious of these divisions is that between the people on the coast and those in the interior. In the simplest geographical sense, those who control access to foreign markets exercise, in any country, economic power over those in the interior. In the Angolan case, this power resides in coastal cities, particularly Luanda and Benguela, through which foreign trade occurs.
The second ‘axis’ of polarisation is that between agricultural populations and urban/industrial populations. This is a division that has analogues in virtually every country that has undergone economic structural transformation from a low income and predominantly agricultural economy to a high income industrialised one. In the United States, for example, this tension was exemplified in the late 19thcentury by William Jennings Bryan and the Populist movement, which based itself primarily in agricultural areas of the midwest, in opposition to Eastern urban industrial interests. In Angola, a similar division exists, and is aligned so as to place in opposition the same people who find themselves on opposite sides of the port/ interior dichotomy above.
The third division is ethnic: the inland Ovimbundu planalto vs. the mainly Mbundu and mixed blood urban industrial elites. As in many parts of Africa, ethnic allegiances and identities are often more important than national ones, and this is as true in Angola as it is elsewhere. Both groups are linguistically and culturally distinct from each other, and often view themselves as historically opposed, as indeed has been the case for centuries. As in the above two axes of tension, this one lines up in precisely the same geographical and economic manner, thus providing yet another mutually reinforcing support to the overall nexus.
It should come as no surprise that internal political alignments reflect the three dichotomies above. Indeed UNITA has long had its base in the agricultural heartland of the country, the mainly Ovimbundu areas of the central highlands while the MPLA has as its primary base of support the urban/industrial areas of the coast. However, this divide has been exacerbated by the superimposition of geopolitics – UNITA had been for many years supported by the United States and South Africa, while the MPLA with its avowedly Marxist origins, was supported by the USSR and its proxy, Cuba. It is clear that oil has played a major role in the importance assigned to this particular internal conflict in the eyes of the superpowers – other sub-Saharan African countries without oil have not merited anything like the level of attention and support accorded Angola even though many have had similar political dynamics at work.
Recognition of the importance of geopolitical concerns has been evident in the scholarly literature on Angola, particularly in such studies as Power (2001), Malaquias (2001), Frynas and Wood (2001), Cilliers and Dietrich (2000) and Hodges (2001 and 2004). All of these writers emphasise the related nature of what has been dubbed ‘petro-diamond capitalism’ and the politics of the Angolan situation. Even though these external geopolitical tensions have abated with the end of the Soviet era and of the apartheid regime in South Africa, the internal political dynamics engendered by them continue to be important. Both the MPLA and UNITA remain influenced by their respective pasts and although UNITA has yet to pose a serious threat to MPLA dominance it is inevitable that it will gradually recover from the near total defeat suffered in 2002.
However, often there is gap between the literature cited above which explicitly analyses the links between mineral income and political conflict and the more technically oriented work typical of international financial organisations which emphasise the policy implications of large oil revenue in terms of maintaining economic stability. This literature (see, for example, World Bank 2004a and 2004b, Davis, Ossowski & Fedelino 2003, or IMF 2004), takes as its point of embarkation the role of oil and diamond revenue in producing macroeconomic distortions seen in many resource exporting countries and typically labeled ‘Dutch Disease’ or the ‘resource curse’.
The real exchange rate appreciation and other macroeconomic problems associated with this syndrome are indeed evident in Angola. Together with the enclave nature of offshore oil production, they serve to make each of the underlying dimensions of polarisation more contentious than they would naturally be (not to deemphasise how bad that can get – civil wars are routinely fought over such issues). In short, these distortions tend to penalise sectors that produce ‘traded’ commodities (for instance, the agricultural areas of the interior) and to reward those which can control the revenue streams generated (i.e. the urban areas and the central government apparatus). But it is the contention of this paper that oil and diamond income is not the underlying cause of these tensions but rather is a transient (at least in historical terms) factor which serves to sharpen them and make them more contentious rather than fundamentally changing their nature or their role in long run trends. It is also the case that attempts to implement policies to address the ‘resource curse’ syndrome must also address the underlying divisions and axes of polarisation since these issues involve the same groups as do issues of resource allocation and investment priorities with which short and medium term macroeconomic policy is concerned.
The next section discusses Angola's recent macroeconomic trends together with a brief summary of the distortions that occur in oil exporting countries and how this syndrome has manifested itself in Angola. This is followed by a discussion of each of the four dimensions of polarisation noted above: port vs. interior, rural/agricultural vs. urban/industrial, Mbundu vs. Ovimbundu and MPLA vs. UNITA. I will also discuss the intersection of these with oil-induced distortions and the prospects for a sustainable growth strategy.
Macro trends & the Angolan economy
This section first provides a brief overview of the Angolan economy highlighting the role of mineral income and international debt during the decades of civil conflict that have followed independence. The second part of this section builds on this discussion to discuss the major policy options open to the government for promoting growth and development now that a resolution to the conflict has been achieved.
Prior to independence in 1975, Angola was better known as a coffee exporter than as an oil exporter. Agriculture in general was the base of the Angolan economy, and food crops as well as cash crops played an important role in the country's domestic economy as well as in its balance of payments. Angola was not only the world's fourth largest coffee exporter, but also exported over 400,000 MT of maize annually, making it one of the largest staple food exporters in sub-Saharan Africa. Oil, while having been discovered prior to independence, had not yet achieved the high production levels that would be seen in the 1980s and thereafter.
The massive inflow of oil receipts since then has come to dominate not only Angola's exports, but also the finances of the central government which is nearly completely dependent upon oil receipts and oil-backed loans for revenue. GDP growth in Angola is similarly dependent on oil, with increases in production and/or international prices dominating what growth has been achieved in recent years. The stagnation of the remainder of the economy, which is primarily agricultural and employs the majority of the population, has been largely unchanged throughout the past two decades. The result is that Angola's exports of both of its major pre-oil export crops – maize and coffee – are now nearly zero.
The enclave nature of oil production is especially pronounced in Angola, where oil literally never touches the territory of the country apart from the Province of Cabinda which is separated from the bulk of the country by Congo. Offshore production is increasing with additional exploration continuing in order to expand output substantially over the next few years with production expected to expand from a current level of approximately 1 million barrels/day to more than double that within the next five years. Virtually all inputs used in production are imported by the concessionaires, including the majority of oil company workers.
The production enclave is matched by a consumption enclave. Oil receipts are used primarily to service foreign debt and to support the government budget which is expended mainly on defence, debt servicing and maintenance of the central government apparatus in Luanda. The resulting boom in spending has resulted in a highly inflationary economy in Luanda in which many of the traditional links to productive areas in the interior have been broken. In effect, Angola has two economies: one reliant on imports financed by oil receipts, while the bulk of the population lives in abject poverty divorced from the formal economy. In spite of the fact that most of the windfall has been spent on imports and has not directly affected the real exchange rate, enough of the additional demand has fallen on non-traded sectors to create a chronic problem of overvaluation which has proven particularly hard to deal with given the difficulties in reestablishing domestic productive capacity. Indeed, the degree of overvaluation of the exchange rate has become increasingly severe over the past several years. Essentially, the level of inflation inside the country has far outpaced the rate of depreciation of the Kwanza. As a result, those who produce goods which must compete with imports, such as small farmers producing maize in the interior, face prices of inputs and consumption goods which grow faster (due to inflation) than does the price of what they sell (as cheap imports due to the overvalued exchange rate hold down the price). The resulting profit squeeze threatens to put them out of business entirely. Indeed, this is precisely what happened in Nigeria in the 1980s as their oil driven exchange rate appreciation caused Africa's largest agricultural exporter to become its largest importer. Figure 1 shows the extent of depreciation in Angola since 1999. The present level of the index, 51, indicates that producers in trade exposed sectors such as agriculture are now facing prices about half what they were only three years earlier relative to domestic price levels.
Government expenditures have exceeded oil receipts, due both to large military expenditures necessitated by the war and more recently by the military expeditions sent to support factions in the conflicts in the two Congos, and the need to make payments on the external debt, which stood at approximately $10.9 billion by the end of 2003.6 At present, a substantial part of oil production is devoted to servicing debt, although there are more new fields scheduled to enter into production in the near future. While in the short term it will avoid a crisis by allowing financing gaps to be covered, in the long term it will merely postpone the inevitable adjustment at which time the gaps will be larger, the imbalances more severe, and the debt larger.
The government has periodically announced reform programmes designed to end the periods of hyperinflation that have plagued the country since the beginning of the 1990s. Unfortunately, none of these has proved successful for a sustained period of time, with control measures which are capable of repressing inflation for a time but which do not address underlying problems of fiscal imbalance and money creation to finance the resulting deficit. This pattern has continued to the present, with the most recent IMF public statement on Angola hailing a decline in inflation to ‘less than 50 per cent’ in July of 2004. However, even this has only been possible at the cost of substantial arrears in government payments to workers and has still left the government deficit at 7 per cent of GDP.7 Tables 2–5 show the evolution of the Angolan economy over recent years, illustrating some of the extreme dislocations that have recurred during that time.
| Lower mid-income | Angola | |
|---|---|---|
| Defence | 2.6 | 7.2 |
| Debt | 3.0 | 4.9 |
| Education | 4.0 | 2.9 |
| Health | 2.6 | 1.9 |
| sub-total | 12.2 | 16.9 |
| General government expenditure | 14.0 | 24.1a |
| Consumption sub-total | 26.2 | 41.0 |
| Public investment | 3.7 | 6.9 |
| Total | 29.9 | 47.9 |
| Source: World Bank (2002); IMF (2004); Note: a = estimated as the residual after deducting all other measured public spending from total public spending. |
| 2001 | 2002 | 2003 | |
|---|---|---|---|
| Revenue | 45.0 | 40.5 | 37.5 |
| Oil taxation | 35.9 | 31.1 | 8.1 |
| Non-oil taxation | 8.8 | 9.0 | 8.9 |
| Non-tax revenue | 0.3 | 0.4 | 0.5 |
| Expenditure | 47.2 | 47.6 | 44.1 |
| Personnel | 8.1 | 11.3 | 12.5 |
| Goods + services | 17.0 | 19.7 | 15.9 |
| Interest payments | 5.0 | 3.3 | 2.2 |
| Transfers | 5.4 | 2.7 | 6.4 |
| Capital expedniture | 11.7 | 10.6 | 7.1 |
| Fiscal deficit | −2.2 | −7.1 | −6.6 |
| Source: Derived from World Bank (2004a). |
| Low Income Countries | Angola | |
|---|---|---|
| Population (million) | 2,494.6 | 13.1 |
| PCGNI (Nominal US$) | 430 | 710 |
| PCGNI (PPP US$) | 2,110 | 1,840 |
| Total external debt (\(billion) | 523.5 | 10.1 |
| Debt/GNI ratio (%) | n.a. | 118 |
| Debt service/export earnings (%) | n.a. | 125 |
| Source: World Bank (2004a). |
| 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | '01 | '02 | '03 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| PCGDP(1999 PPP\)) | 654 | 653 | 685 | 706 | 694 | 682 | 650 | 586 | 429 | 432 | 464 | 502 | 528 | 550 | 554 | 555 | 557 | 624 | |
| GDP growth (%/yr) | n.a. | 2.8 | 7.9 | 5.6 | 0.4 | −0.3 | −1.2 | −6.9 | −24.7 | 3.5 | 10.4 | 11.2 | 7.9 | 6.8 | 3.3 | 3.0 | 3.2 | 15.3 | 4.5 |
| Agriculture (% GDP) | 13.6 | 14.4 | 12.9 | 15.9 | 19.2 | 17.9 | 24.0 | 10.1 | 11.6 | 6.6 | 7.5 | 7.1 | 9.0 | 13.0 | 6.9 | 5.8 | 8.0 | 7.8 | |
| Industry | 43.3 | 34.1 | 41.3 | 39.4 | 39.0 | 40.9 | 33.3 | 53.2 | 51.2 | 66.8 | 64.4 | 67.8 | 60.8 | 55.7 | 77.1 | 72.8 | 66.8 | 68.1 | |
| Manufacturing | 9.7 | 10.9 | 7.3 | 8.2 | 6.1 | 5.0 | 6.2 | 5.0 | 5.7 | 4.9 | 3.9 | 3.4 | 4.4 | 6.3 | 3.5 | 3.0 | 3.8 | 3.7 | |
| Services | 43.2 | 51.5 | 45.9 | 44.7 | 41.8 | 41.3 | 42.6 | 36.6 | 37.2 | 26.4 | 28.2 | 25.1 | 30.2 | 31.3 | 16.3 | 21.4 | 25.4 | 24.1 | |
| Oil Rent (% GDP) | 22.4 | 7.2 | 14.2 | 9.0 | 12.9 | 20.0 | 11.7 | 24.9 | 16.4 | 18.2 | 20.4 | 27.1 | 21.4 | 15.6 | 21.0 | 43.9 | 28.5 | n.a. | |
| Oil output (000 bbl/d) | 230 | 280 | 350 | 450 | 455 | 475 | 495 | 550 | 504 | 567 | 633 | 716 | 741 | 731 | 745 | 748 | 742 | 905 | 970 |
| Crop output index1 | 96 | 108 | 102 | 109 | 99 | 96 | 104 | 111 | 108 | 137 | 132 | 134 | 129 | 158 | 145 | 176 | 207 | 204 | |
| Source: World Bank (2004a); World Bank (2004b); BP (2004); 1. 1990-91 = 100. |
Relations with the International Monetary Fund and the World Bank have been important to Angola though the relationship is not entirely analogous to those between these institutions and other African countries. Angolan elites have their own source of hard currency income from mineral exports and so are not dependent on World Bank or IMF approval to maintain their positions or lifestyles. They have the option of simply refusing to go along with policy prescriptions from outside, a position which has been reinforced by the MPLA's military victory over UNITA. This victory was won without the need for the concessions and compromises which inevitably accompany negotiated settlements.
Nevertheless, the MPLA is currently making strong efforts to come to terms with the IMF. Doing so involves two major actions: first, an end to corruption through better accounting and control of oil and diamond revenue (usually labeled ‘transparency’ by the international institutions) and second, an end to rampant inflation. Here the IMF prescription is for greater fiscal control which the Angolans have yet to truly achieve. Instead, they have reduced inflation by buying up excess domestic currency with oil revenues. This reduces inflation but contributes to the exchange rate appreciation at the root of the ‘resource curse’.
Table 6 (p. 279) shows recent trade figures in which oil accounts for 90 per cent or more of exports. In terms of imports, food and other consumer goods have grown to a dominant position, squeezing out imports of intermediate and capital goods which previously were the dominant import items. Overall, the merchandise trade balance shows a large surplus due to the large exports of oil. In spite of this large positive merchandise trade balance, the balance on the current account has been negative in every year from 1987 to 2000 – largely due to the large payments to oil companies and for interest on the foreign debt. Since 2000 increasing oil revenue has allowed the deficit to be substantially lessened, even producing a surplus in some years.
| 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 est. | |
|---|---|---|---|---|---|---|---|
| Current account | −1,867 | −1,710 | 796 | −1,431 | −150 | −719 | 1,450 |
| Trade balance | 1,464 | 2,047 | 4,881 | 3,355 | 4,568 | 4,028 | 7,239 |
| Exports, f.o.b. | 3,543 | 5,157 | 7,921 | 6,534 | 8,328 | 9,508 | 13,971 |
| Crude oil | 3,091 | 4,491 | 7,120 | 5,803 | 7,539 | 8,537 | 12,904 |
| Diamonds | 432 | 629 | 739 | 689 | 638 | 788 | 838 |
| Other | 20 | 37 | 62 | 43 | 45 | 35 | 39 |
| Imports, f.o.b. | −2,079 | −3,109 | −3,040 | −3,179 | −3,760 | −5,480 | −6,732 |
| Services (net) | −2,514 | −2,442 | −2,432 | −3,316 | −3,115 | −3,120 | −3,556 |
| Receipts | 122 | 153 | 267 | 203 | 207 | 201 | 221 |
| Payments | −2,635 | −2,595 | −2,699 | −3,518 | −3,322 | −3,321 | −3,777 |
| Income (net) | −969 | −1,372 | −1,681 | −1,561 | −1,635 | −1,726 | −2,336 |
| of which: Interest due1−504 | −569 | −597 | −539 | −354 | −268 | −339 | |
| Current transfers (net) | 152 | 56 | 28 | 91 | 32 | 99 | 102 |
| Financial & capital acct | 304 | 1,664 | −450 | 954 | −508 | 934 | 1,224 |
| Capital transfers (net) | 8 | 7 | 18 | 4 | 0 | 0 | 0 |
| Direct investments (net) | 1,114 | 2,472 | 879 | 2,146 | 1,643 | 1,652 | 677 |
| Medium- and long-term loans | −974 | −291 | −766 | −618 | −393 | 298 | 1,303 |
| Disbursements | 593 | 1,501 | 1,610 | 1,619 | 1,048 | 1,890 | 2,414 |
| Amortizations | −1,567 | −1,791 | −2,376 | −2,237 | −1,441 | −1,592 | −1,110 |
| Other Capital (net incl. E+0 2002–04) | 156 | −524 | −580 | −577 | −1,758 | −1,016 | −757 |
| Net errors & omissions | 377 | −80 | −51−365 | −− | |||
| Overall balance | −1,186 | −126 | 295 | −842 | −658 | 215 | 2,674 |
| Net international reserves | 319 | −530 | −631 | 508 | 207 | −301 | −817 (− increase) |
| Exceptional financing | 868 | 656 | 336 | 334 | 451 | 87 | −1,857 |
| Memorandum items: | |||||||
| Current account (in % of GDP) | −29.0 | −28.1 | 9.0 | −15.1 | −1.4 | −5.2 | 7.1 |
| Exports of goods & services (in % of GD) | 56.9 | 87.2 | 92.4 | 71.1 | 79.1 | 70.2 | 69.7 |
| Imports of goods & services (in % of GD) | 73.2 | 93.7 | 64.7 | 70.7 | 65.6 | 63.7 | 51.6 |
| Debt service ratio2 | 56.5 | 44.4 | 36.3 | 41.2 | 40.0 | 39.0 | 17.0 |
| Gross international resources (end of period) | 203 | 496 | 1,198 | 732 | 375 | 636 | 1,453 |
| in months of imports of goods & services3 | 0.4 | 1.0 | 2.1 | 1.1 | 0.5 | 0.7 | 1.5 |
| in months of debt service3 | 1.0 | 2.0 | 5.2 | 3.9 | 2.4 | 5.3 | 9.6 |
| Source: Banco Nacional de Angola; 1. Including late interest from 1999 onwards. 2. Medium- and long-term debt service due in percent of exports of goods and services. 3. In months of next year's imports or medium- and long-term debt service. In 2002, using current year's data. |
Though it is argued in this paper that oil income and its effects are not the most fundamental aspects of long term growth, it is nevertheless true that from the point of view of policy makers, the problems associated with managing oil revenues loom large. Indeed, the interplay of oil revenue and international debt are the two most dominant issues in medium term economic management discussions at the present time. At the most general level, there are two main issues involved with this income: how fast to exploit the various mineral resources and how to spend the money.
With regard to the first issue, there is extensive literature on the dangers of excessively rapid exploitation of oil reserves and expenditure of funds in ways that do not contribute to long term growth and welfare. In particular, Gelb et al. (1988) have shown in numerous case studies, including several directly relevant to the Angolan case, that the distortions which result from large expenditures in the short term can, in the end, leave a country worse off than it was in the beginning. Given Angola's markedly greater dependence on these revenues than any of the countries whose experience forms the basis for these observations, there is good reason for caution.
Essentially, the issue is this: large inflows of foreign exchange have the potential to generate highly undesirable effects on the domestic structure of production and consumption due to the short run incentives to capture the large rents available. Distortions in the domestic economy can be avoided if the foreign exchange bonanza is spent on imports rather than domestically produced goods and services. In the Angolan case, this is what has for the most part been occurring to date on both the input side of oil production and on the expenditure side once receipts have been received. Even so, a substantial amount of the demand created by the oil windfall has fallen on non-traded goods, particularly in urban areas, where services and housing account for a large share of expenditures by the rich.
However, if we step back from the details of real exchange rate appreciation (real though these problems are), it is evident that these distortions have not caused, but have rather reinforced, the rural-urban tensions that were already inherent in the Angolan situation. Most important, the effects of the civil conflict resulted in de facto isolation of large parts of the countryside. The fact that urban elites could more easily live with this situation by relying on oil revenue no doubt is a contributing factor but does not alter the clearly primary role of the war in the decline and stagnation of the country's farm-based economic sectors. In addition, it is also important to note that the process of decolonisation itself played an important role, given the departure of most Portuguese planters and virtually the entire rural marketing system in the colonial exodus of 1975. This resulted in a very real disarticulation of the rural and urban economies and a vacuum in terms of physical circulation of both goods and people that continues to be evident to this day.
In terms of government expenditure, there is a tendency towards the ‘normal’ Dutch Disease pattern of high levels of expenditures on labour services, but this is not primarily a product of bloated government wage bills as is the case in some other countries. Though the government labour force is clearly larger than warranted given the large numbers of bureaucrats who work part time, the vast majority of these functionaries are so underpaid that salaries in fact constitute a relatively small share of the government budget compared to other countries at a comparable level of income (see Ministerio da Administração Publica, 2001). Insofar as there is greater expenditure on services in urban centres such as Luanda, this has occurred via the personal consumption decisions of those segments of society benefiting from the bulk of the oil revenue. In addition, it is also important to bear in mind the large military establishments maintained by both sides during the civil conflict of the past years.
What this means in terms of the internal and external structure of the Angolan economy is that the balance of payments has remained severely in deficit while pressures on the real exchange rate have been far less than would be the case if some of the oil funded demand had fallen on domestic production. Even so, it is clear even to a casual empirical observer of the urban economy in Luanda and other cities, that prices are quite high by international standards. Even at black market exchange rates, Luanda is a very expensive city comparable to large cities in Europe and North America, which is a testament to the high levels of demand resulting from mineral income.
If one of the basic problems is the inability of the economy to absorb the large sums of money spent in the short run without detrimental distortions, then one possible solution would be to save some of the money offshore, or to simply pump the oil out at a slower rate. The first option is one that has not been achieved with any great degree of success by any oil exporting country to date. There are simply too many pressures on the government officials – both personally and in their official capacities – to spend the money when it becomes available. Even so, the government can achieve much the same effect by using revenues to pay off past foreign debt to the extent possible. So far, this has not occurred, both because of political issues surrounding debt repayment and because the government has in fact been dedicating future oil production to servicing current debt obligations to such an extent that most of the revenue has gone to this end.
This leads to the issue of international debt, which is perhaps a more enduring legacy of the current era in Angolan economic development than oil revenue will turn out to be. Current figures indicate that the overall international debt owed by Angola is at a level of approximately $10 billion, a figure that is greater than GDP. Unfortunately, this debt was contracted over a period during which productive investment was virtually impossible and the proceeds of loans were used both to pay the expenses of the continuing internal conflict and to finance the needs of the central government apparatus and the elites who control it.
In fact, one important aspect of the Angolan situation has been the widespread diversion of oil revenue from government control, a subject of much contention between the government and outside observers. It is not the intention of this paper to resolve debates regarding corruption or other related issues, but it is of key importance to note that not only has Angola borrowed large sums of money but its only viable source of revenue for repayment at present is oil revenue. In fact, many loans are explicitly based on oil production and that future production is in effect ‘mortgaged’ to finance future debt service. The result is that much of current revenue is not available for financing development having been already promised to foreign banks or other creditors.
This is an important reason why the present situation offers some opportunities which have not been possible in the past. Given the large new oil fields coming on line now and in the near future, there is a window of opportunity for the government to use the additional windfall to make the adjustments needed to get out of the vicious circle of mortgaging increasing amounts of current production to future debt service. The alternative is to spend the money now and continue the pattern of the past, but at a higher level of debt.
The excessive debt accumulated has rendered the second issue – what to spend the oil money on – something of a moot question for the moment since most of the revenue is simply diverted to debt service to the extent that it is not absorbed by the central government or the party apparatus. Nevertheless, Angola does suffer from the same basic problem afflicting most other oil economies, that of a highly overvalued exchange rate, which has the effect of imposing high implicit costs on those sectors most exposed to international trade, either because they produce export products, or because they face actual or potential import competition. Accordingly, the factors of production employed in these sectors suffer, and to the extent they are able, migrate toward uses in which they can earn greater rewards – in this case the urban centres where oil money is received and spent.
In the Angolan case, it is clear that the hardest hit sector is agriculture, together with associated processing and transforming industries. Angola has historically demonstrated a strong comparative advantage in agriculture8 – a sector which provides employment and income for the majority of the population. Therefore, from the point of view of both poverty and equity, there is a powerful case to be made to avoid overvaluation to the extent possible to avoid penalising this sector.
Even if exchange rate overvaluation persists to some degree, the strong potential for low cost and efficient production in agriculture suggests a government investment strategy directed toward provision of infrastructure and public goods which can help lower costs of production in this sector. Obvious candidates are rehabilitation of the country's transportation system, including roads, ports and railroads, as well as investments in agricultural research and extension. All of this is, of course, predicated on a successful continuation of the peace process and resettlement of rural populations in producing areas. In addition, lack of public services such as water and sanitation, as well as electricity and other utilities, are a serious constraint to industrial investment and rehabilitation. Investment in human capital, especially primary education, is another area where high long-term returns can be gained.
It is important to note, however, that the short and medium term policies alluded to in the previous two paragraphs have an important relationship with the longer run structural characteristics mentioned in the introduction and discussed at greater length in the next section. That is, tensions over how to allocate mineral revenue can be seen as yet another chapter in a long running story of conflict between regions of the country which are divided by much more than medium term economic policy interests.
Historical dimensions: from colonial times to the present
The previous section documents the way in which oil dependence has affected Angola and the nature of the economic imperatives that this generates. This section looks at the four major pre-existing axes of polarisation in Angola: port vs. interior; rural/agricultural vs. urban/industrial; Mbundu vs. Ovimbundu; MPLA vs. UNITA. This last section also discusses the role of external geopolitical influences in reinforcing internal political divisions.
Port vs. Interior
In any part of the world, those who control coastal areas and/or ports exercise a degree of control over interior landlocked areas by virtue of their ability to control or charge for access to outside markets. Indeed, major conflicts in world history have revolved around just such access to the sea – one need only look at the centuries-long Russian goal to control the Dardanelles, which constitutes a choke-point for its warm water southern ports, or the long running European debates over the ‘Polish Corridor’ and the status of the port of Gdansk (Danzig). In the developing world, just such considerations motivate the long-term tension between landlocked Bolivia and Chile, which wrested Bolivia's coastal provinces away in the latter half of the 19thcentury.
There is a real economic foundation for these conflicts: whoever controls access to outside markets can charge a price for the privilege. That means a markup on every import item transshipped to the interior and a tax on every export item that exits the country through the port. The importance of free access to a port has been shown empirically by Bloom and Sachs (1998) who analysed the growth records of sub-Saharan African countries and found that geographical access to a port was a significant determinant of growth prospects.9 The same logic applies to landlocked areas within a country, particularly when the country in question is composed of provinces which have some degree of de facto autonomy, or the central government apparatus uses control of ports to generate revenue for its own use.
This is no different in Angola than it is elsewhere, with the major ports of Luanda and Lobito/Benguela playing the most important role, but also to some extent the lesser ports of Namibe, Porto Amboim, Ambriz and others. In colonial times as well as more recently, the central government (be it Portuguese or Angolan) has explicitly and implicitly taxed both agricultural exports (particularly coffee through the government marketing board) and imports of all descriptions, through tariffs and import quotas.
These direct controls and taxes have been supplemented with indirect methods such as foreign exchange controls which have over various periods been used to deny foreign exchange to disfavoured individuals or activities, surrender requirements which have forced exporters to exchange foreign currency for domestic currency, and exchange rate overvaluation, which penalises exporters and importers who cannot get access to foreign exchange in favour of those who the government chooses to give access to its limited supplies. In Angola this category has most often been comprised of government officials and coastal-based trading, processing and manufacturing activities which have operated to the benefit of coastal people.
Historically, the importance of controlling access to foreign markets first arose after the arrival of the Portuguese in the late 15th century. Prior to this time the most important trading routes in Angola and the Congo Basin in general were overland trade routes to the East rather than seaborne trade, as was the case in other parts of Africa.10 The arrival of the Portuguese signaled the opening of these areas to international trade. Indeed, this was the entire raison d'etre of the Portuguese colonial project in the first place; efforts to colonise in the 1400s and later were better characterised as efforts to either cart off riches such as gold, ivory and slaves or, if military superiority could not be brought to bear, to trade for these items so that they could be brought back to Lisbon and used to support the expenditures of the crown and of the nobility. Early efforts met with success. The Portuguese succeeded in trading for gold in West Africa (given their inability to conquer the well-organised kingdoms of Mali and Ghana), and were also successful in promoting a large trade in slaves from other parts of Africa, particularly the Congo Basin and Angola, to the islands of São Tomé e Príncipe as well as the Gold Coast and also to Portugal itself.
The earliest records of the Portuguese occupation of Angola bear out the discussion above: conflict between the coast and the interior has been recorded as early as 1506 when the outward-oriented future King Afonso of the Kongo defeated the reigning monarch and initiated a period of active participation in the slave trade which dominated European/Kongo relations throughout the early colonial period.11 In return, the King received exotic goods and other foreign items which enhanced his prestige and control over his dominions.12 The rapid growth of the slave trade had terrible consequences for the interior of the country. By the 1560s the hinterland of the coastal slave ports had become so depopulated and weakened that it was relatively easy for invading hordes of primitive and reportedly cannibalistic tribal peoples called Jagas from the east to topple the King and, at least temporarily, put a halt to the previous royal trading structure.
The Portuguese response was to give up the old colonial model of trading through the King and to try to impose their own military control directly with a Portuguese army in control of a restored puppet Kongo monarchy. This was coupled with attempts to control areas to the South of the Kongo Kingdom, that controlled by the ‘Ngola’, which provided a source of slaves which bypassed the export taxes imposed by the Kongo monarchy. This proved more difficult than had been foreseen, and the invading army took months to advance to the mainland from their first landing place on a sandy island just off the coast at Luanda. Even then it was more than 50 years before any progress at all was made in penetrating the interior of the country – eventually accomplished not as conquerors, but as traders working with coastal allies.13 This pattern of coastal control by the Portuguese, and domination of external trade with interior regions which they could not control directly was to continue for the next three centuries. It was not until the end of the 1890s and the emphasis on direct control in the scramble for Africa among the various competing European colonial powers that Portugal could be said to have truly ‘occupied’ the Angolan hinterland.14
This history bears out the longstanding nature of coast/interior tensions that date back at least to the 1600s, if not earlier. The monopolisation of trade with the exterior by the Portuguese on the coast was a fundamental basis of their ability to expropriate economic surpluses, something that has continued in post-colonial times by the Portuguese speaking coastal elites who have replaced the colonialist Portuguese themselves.
Rural/agricultural vs. urban/industrial
In Angola, the coast is not only a gatekeeper as described in the section above, but it is also the location of the major urban/industrial centres, particularly Luanda. The interior is the location of the most productive agricultural areas, particularly the central planalto where the principal grain supplies of the country are (or could potentially be) grown. Even in countries where this alignment of coast with cities/ industries and interior with agriculture doesn't exist there remains the tension of agricultural interests versus urban/industrial ones by virtue of the fact that what one party buys, the other one sells and vice versa. To be specific, urban/industrial interests depend fundamentally on two agricultural outputs:
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Food is the primary determinant of urban/industrial real wages since it constitutes the bulk of expenditures for poor working-class people. Indeed, food prices have often been cited as the most important single determinant of welfare and income distribution in a country;15
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Industries, and particularly the early developing light industries of textiles and food processing, need agricultural raw materials as inputs.
Rural/agricultural interests depend on urban/industrial outputs in two ways. First, rural populations buy consumption items that they cannot produce themselves from the manufacturing sector. In all but the most primitive subsistence economies, this will include items such as clothing, fuel, utensils, transportation, etc.
Second, farms that have advanced beyond the earliest self-sufficient shifting cultivation will typically buy inputs and implements from the manufacturing sector, beginning with such items as hoes, scythes and ploughs, but progressing to more complex machinery such as tractors, pumps, etc. In addition, to the extent that fertilisers or other purchases such as pesticides are used, these too will come from the manufacturing sectors.
The position of the central planalto (including the provinces of Huambo, Bie, parts of Benguela, Cuanza Sul and Huila) as the ‘breadbasket’ of Angola is well documented historically, and has been also demonstrated in various analyses of comparative advantage in the country.16 It is from this area that pre-independence grain export surpluses were taken, and where most of agricultural GDP originates. While there are certainly some agricultural activities that can be pursued in coastal areas, the generally arid conditions in these areas are a barrier to major agricultural development.
The observation that the principal geographical location of agricultural comparative advantage lies in the interior has a very important corollary: in order to maximise the return to this comparative advantage it will be necessary to invest in this area. While it is not the purpose of this paper to enumerate the investments necessary for Angolan agricultural investment, it is safe to say that the needs (as in any country at a similar level of per capita income) are large and include both on-farm investments that are properly the province of the private sector and large public sector investments such as roads, extension systems and research.
These investment needs have the potential to be contentious since at first blush the money would be going to one area of the country seemingly at the expense of the other. However, the experience of many other countries has demonstrated that to attempt to pursue industrialisation without investing in increased agricultural productivity is a self-limiting strategy. As the urban/industrial need for agricultural outputs grows, the agricultural sector must be able to keep pace since the alternatives are either higher agricultural prices and stagnation or else ever increasing imports to supply what domestic producers cannot. Thus, investment in agriculture is a prerequisite for success for all regions, and not just the agricultural sector alone.
Tension between agricultural interests and urban/industrial interests are part and parcel of the politics of countries transitioning from low to high per capita income. Every country which has undergone the structural transformation involved has confronted these issues, including those countries which are currently classified as ‘developed’.17 Examples include the period in Britain when the ‘Corn Laws’ were debated by David Ricardo and others, or the United States during the populist era when William Jennings Bryan, representing agricultural interests and campaigned on his famous slogan: ‘Don't crucify us on a cross of gold’.
Both of these examples reflect the tension over rural/urban terms of trade and issues of national policy which pit one set of interests against the other. They are inevitable when a country moves from a low income, predominantly agricultural economy with 75 per cent or more of the labour force located on farms, to a higher income, predominantly urban economy with 25 per cent or less of the population on farms. In Angola, these natural tensions are exacerbated because the agricultural interests are at the same time located in the interior, while the urban/industrial interests are primarily located on the coast – particularly in Luanda. In addition, these agricultural interests are also aligned with one of the main ethnic divides in Angola, which is the topic of the next section.
Mbundu/Mestiço vs. Ovimbundu
The ethnic composition of Angola is, as is often the case in Africa, quite heterogeneous, which includes several major and distinct ethno-linguistic groups. Figure 2 shows the major divisions in the country where it can be seen that the largest single group is the Ovimbundu, a primarily agricultural people occupying much of the central planalto. As was the case with most of the interior peoples of Angola, the Ovimbundu only came under explicit Portuguese domination in the waning years of the 19th century.18
The Mbundu, in contrast, were the only main ethnic group in Angola that came under direct Portuguese control from a very early date.19 This has resulted in this ethnicity being far more urbanised and also far more likely to speak Portuguese than are other groups in the country. In fact, it has recently been estimated that only 15 per cent of the Angolan population speak Kimbundu as their mother tongue, in spite of the fact that Mbundu account for nearly one-quarter of the total population. Indeed, a growing number of Mbundu are now monolingual in Portuguese and have no native speaking ability in their own or other African languages. Over the past 20 years this tendency has become quite pronounced in Luanda among all peoples and not just among Mbundu as the city has become increasingly populated with people who are monolingual in Portuguese.20
This is also true of the large mixed-blood mestiço population that is located in Luanda and is, along with many Mbundu, a dominant force in the MPLA (see below). This has been one of the (sometimes only implied) basis for the frequent UNITA calls for ‘Africanisation’ of the government. UNITA is very much an Ovimbundu organisation, and though it has not explicitly identified itself as such, it has always been nearly 100 per cent Ovimbundu in terms of its leadership. It has also made use of its close identification with the Ovimbundu people by making its long time ‘capital’ in Bailundo, the seat of the largest of the Ovimbundu kingdoms that survived through the 19th century.
Evidence of the close association of UNITA with the Ovimbundu population can be seen in the voting of 1992 where UNITA won the presidential race by more than 80 per cent in its three ‘home’ provinces of Bie, Huambo and Benguela (which include the ‘breadbasket’ interior agricultural areas of the planalto), but failed to outpoll the MPLA in any other province except sparsely populated Cuando Cubango. In contrast, the MPLA had a similarly lopsided margin of victory in its own ‘home’ turf of Luanda, Bengo, Kuanza Norte and Malange, but also polled strongly in other areas as well.
It has been reported that in the violence following the 1992 election, there were overt ethnic elements in the fighting in Luanda itself, with Ovimbundu people singled out as UNITA supporters by the dominant Mbundu and mixed blood population of the city. While such ethnic vio-lence is rather the exception in Angola (in marked contrast to such obvious examples as Rwanda or Zimbabwe) this example does show that there is potential for such problems in the future, particularly if people are con fronted with stressful or difficult situations.21
It is evident that the Ovimbundu/Mbundu divide lines up quite closely with both the port/interior and the agricultural/urban-industrial divides. The one possible exception to this is the fact that the province of Benguela, which is predominantly Ovimbundu, includes the major port of Lobito-Benguela. However, throughout much of the conflict of the past decades the MPLA has controlled the ports and the coastal areas, though it has never been able to extend its control very far inland. Thus, the mutually reinforcing nature of these various polarisations remains clear.
MPLA vs. UNITA & the geopolitical influence from outside
Perhaps the best-documented ‘axis of polarisation’ is that between the MPLA, historically a Marxist client party of the USSR and its allies, and UNITA, long a client of the US, South Africa and their allies. The interest of superpowers in Angola during the post-independence period was far keener than in most other African countries largely due to the fact of Angola's large oil reserves. Indeed, both the USSR and the US took a direct interest in developments (see Shubin and Tokarev, 2001 for a discussion of the role of the USSR in Angola) though actual fighting was of course done through proxies. On closer inspection, however, this axis may well be artificial to some extent, though it is (or at least has been) no less real for having been fueled by external considerations.
The MPLA is today no longer an avowedly Marxist party, though its command and control tendencies continue to influence the economic policies of the government. That these tendencies may have more to do with self-interested desires to control mineral income than with any real ideological basis is shown by the relatively seamless transition from ‘Marxism’ to ‘free market capitalism’ in the 1990s, a transition that was marked less by fundamental economic change than by fundamental change in political alignments with the US and other large Western powers. While there are no doubt legitimate roots to the MPLA's original Marxist character, it is also true that in fomenting rebellion against a NATO member, Portugal, the MPLA placed itself firmly on the ‘wrong’ side of the great geopolitical divide of the time. That this was more a marriage of convenience than conviction is shown by the fact that the MPLA did not hesitate to use capitalist oil companies to extract its oil, nor did it seriously alter its basic outlook when it switched sides thereafter.
UNITA has an even more opportunistic history, as its leader shifted from a one-time alliance with communist China to a more lasting alignment with the US and South Africa as it became entrenched as the principal opposition to the MPLA in the 1970s. While paying lip service to free market doctrine, it engaged in even stricter control of subject populations than did the MPLA, and can hardly be seen as an exemplar of democratic or liberal economic principles.
Nevertheless, the fact that these ideological splits, however convenient, did exist provided a basis for geopolitical interference that was at its roots, fueled by the desire to control oil and diamond sources and to deny them to the other side. This consideration has led to a level of superpower interest in the Angolan conflict that has been absent from other African civil wars. Indeed, it has been argued by Munslow (1999) that this interest has been responsible for the international community's inability to reach consensus on a way out of the Angolan impasse.22
Entirely apart from ideological or geopolitical concerns, the political issues inherent in the MPLA/UNITA split are fundamental to any long-term resolution to the Angolan conflict. First is the problem of maintaining a viable democracy as urged by outside powers, in a situation where the two main parties have a strong regional base. Any victory at the national level by one side or the other runs the danger of being seen by the loser as a ‘conquest’ as much as an electoral loss. Indeed, given the mutually opposing economic interests outlined above, it is likely that simple majority rule at the national level will result in conflict if the winner is seen to be maximising its own economic interests.
Such a situation would seem to support the notion that some sort of federal system, where a great deal of power is devolved to the provincial level, would be one possible recipe for a peaceful resolution. Indeed, recent government moves toward decentralisation are precisely in line with this observation. However, there are two main problems with this: first is the historical tradition of a unified state under strong central control that is an historical legacy from colonial times and which has been adhered to by both political parties ever since. There is no tradition of power sharing or a division of power in Angola and no political culture of accommodations on which to build. The reluctance of central authorities to cede budgetary authority to lower levels even while promoting decentralisation is evidence of the difficulty of such change.23 Second is the fact that the main prize in the political competition – the billions of dollars of annual mineral income – is not easily divided territorially. In fact, neither the oil, which is located mostly offshore, nor the diamonds, which are located primarily in the northeast provinces of the Lundas, are physically located in the ‘home turf’ of either political party.
To date, the oil income has been a de facto prize of the ruling elite. Rather than being used to develop particular parts of the economy, it has been used to support the activities of the elite in Luanda since economic activity in the countryside was largely impossible in any case due to the long armed conflict. The need to develop a real sectoral and regional development plan is therefore the political problem of the new era in Angola, and is the subject of the next section.
The interaction of macro trends with axes of polarisation: Future policy
This section first discusses how the current economic situation in Angola lines up with the axes of polarisation discussed in the previous section. Second is a discussion of the political realities of reaching a viable solution, both in terms of the regional accommodation that would be required, and the need for ruling elites to be willing to acquiesce in a fundamental change in the current situation.
The current economic situation & the axes of polarisation
Over the next decade, there are two important areas of potential problems in achieving a national consensus on a macro strategy for growth and development. The first is the issue of mineral rents from oil, diamonds and other sources, and the decision as to how and when to spend the income. The second is the difference in economic interests between agricultural regions and urban populations. However, on closer inspection it is apparent that these are really just different facets of the same issue.
Given the current macro trends of growth in mineral sectors and stagnation in trade exposed sectors such as agriculture, the standard prescription for addressing this problem is to invest in stagnating areas so as to prevent them from withering away.
The underlying rationale is clear: if Angola is not to place all of its eggs in one (oil) basket, then it is essential that it retain its ability to produce in those other sectors which historically have provided it with the bulk of its exports since these same sectors will constitute the main economic fall back if and when oil revenues decline in the future. In Angola it is obvious that these sectors are found in agriculture and related processing activities.
Additional benefits from such an agriculturally driven investment strategy would be found in the areas of income distribution and poverty alleviation. Development of rural areas would at the same time promote income growth for the poorest segments of Angolan society, discourage urban migration, and help to reduce and eventually eliminate the huge food import bills currently incurred by the large coastal population centres. Unfortunately, it is precisely these characteristics which present some of the biggest potential obstacles to implementation of this plan.
The problem is this: if an agricultural investment strategy is to be successful, then it must focus on the areas of highest agricultural potential, i.e. the agricultural breadbasket of the central planalto, which is at one and the same time an interior agricultural region whose core is the homeland of the Ovimbundu people and the centre of UNITA support. In short, this strategy would require the MPLA to focus investment directly on their erstwhile opponents rather than on their own supporters, who live in areas which are largely much less favourable in agroclimatic terms than is the central planalto. Indeed, the coastal regions where MPLA control has been strongest are precisely the areas with the least agricultural potential, having insufficient rainfall to support large-scale rainfed agriculture. An enlightened view of the growth and development prospects for the country might help promote such a strategy. In fact, a concerted programme of assistance to the UNITA areas may well be the single most important facet of a true plan for national reconciliation, in addition to having positive benefits for urban areas as well since a resurgent agricultural sector would go far toward lowering food prices throughout the country.
It is perhaps a truism that in order for reform to be pursued, it must be perceived to be in the best interests of those who must make the decision to do it. In the case of Angola, there are particularly high obstacles to achieving this perception, stemming not only from the current structure and distribution of oil-derived foreign exchange inflows and the distortions they induce (see Aguilar, 2003 and Vidal, 2003 for a discussion of the relation between oil revenue and the Angolan elite), but also from the long standing axes of polarisation which form the long run context for growth.
First and foremost in the immediate future is that oil rents are controlled by central government and allocated as dictated by those in charge of it. What this has meant in the past is that the political elite of the MPLA has been insulated from the economic problems afflicting the rest of the population due to their ability to control foreign exchange receipts and purchase needed consumer items from abroad. While most of the population has been suffering from the collapse of domestic production and rampant hyperinflation over the past decades, those in a position of privilege have had preferential access to foreign markets in order to avoid these problems, creating an artificial economy in Luanda which is almost entirely divorced from the rest of the country. Even after two years of peace this situation remains largely unchanged – elites live in a virtual economic enclave with little connection to the larger economy.24
What this means is that those currently benefiting from the present situation will not be better off in the short run after implementation of a reform programme which eliminates these preferences and distortions. It is simply not accurate, and certainly not persuasive, to attempt to make the case for change on the basis of a supposed improvement in the situation for the political elite because it will not happen. Rather, a case for reform must rest on the fact that the problems afflicting the Angolan economy are well known, and the trajectory of the economy, and that of the elites who benefit from the current situation, will inevitably result in a less favourable situation in the long run if reforms are avoided in the short run. In addition, there are real questions as to whether political and social stability can be maintained if the ‘stop and go’ economic cycle resumes and the situation for the general public deteriorates. At some point it becomes difficult to hire and pay enough police to contain unrest if the urban poor are subjected to a worsening economic situation while those in powerful positions are so obviously wealthy. If reform is avoided, there will be another period of prosperity for those with preferential access to oil receipts as the new production areas come on line. However, this strategy merely perpetuates the pattern of mortgaging oil production to pay off debt, a pattern which can only continue as long as oil production growth continues to outpace the growth of foreign debt and the cost of servicing it.
This point is extremely important: foreign debt, if it is never paid down (as has been the case to date) never stops growing; oil production growth does. While the outlook at the present time may appear favourable due to the imminent opening of new production, there is no reason to believe that current growth rates in output can be maintained forever. If, in fact, oil production growth cannot be maintained forever, then the day will inevitably come when oil output must once again be dedicated in its entirety to service foreign debt, as would have been the case in a very few years if the new oil fields had not been discovered. It is useful to emphasise that every single country which has enjoyed an oil windfall has suffered from these problems to some degree. Angola is in fact a more extreme case due to the higher degree of oil dependence as compared to other countries. Even Saudi Arabia, where oil discoveries were so huge relative to the economy and the population, that it seemed that they were inexhaustible, is now facing the fact that oil production growth cannot remain higher than expenditure growth forever, and that even in this case, adjustments are needed at some point. The key is that it is clear that adjustments taken early are far less painful and have far greater potential to result in a greater level of welfare in general than would be the case if they were delayed.
One fortunate aspect of the political economy of reform is that there are very few adverse implications for poverty or other social dimensions. The benefits from the current situation are concentrated in a relatively few hands, so removal of them will not affect the vast majority of the population in the short term. In effect, they have little to lose and a reform of investment policy and/or mineral income flows will not make their situation any worse than it already is. In the long run, an adjustment/ investment programme has substantial potential to improve the situation of these segments of society, as they can take advantage of growth in such trade-exposed sectors as agriculture.
A way out?
It is dangerous for any observer of the Angolan situation to pretend to have found a viable political solution to the economic imbalances plaguing the country with any certainty. It is certainly true that, for the moment at least, most Angolans are simply happy to have ended the long civil war and have little appetite for a renewal of the conflict. However, the discussion presented here suggests that underlying tensions are bound to resurface at some point but that there are also several possible elements of a long-term mutually agreeable political equilibrium.
First and foremost would be to recognise the obvious regional split differences by allowing political power to mirror these realities. This would imply providing for strong provincial governments with substantial power over affairs within their borders. A federal system, with powers of defence and authority over interprovincial and foreign trade (among others) reserved to the central government would help promote a feeling of ownership in the system on the part of the various factions involved while at the same time allowing each to express itself politically. This last point is particularly important, and is a strong reason to allow provincial governors to be elected locally rather than being appointed from Luanda since this would allow each faction to be ruled directly by members of their own group while maintaining the integrity of the nation as a whole.
Second, it is important to achieve an agreement regarding an appropriate formula for disposing of the mineral revenue accruing to the government. Fighting over these riches has been at the root of much of the conflict, and a feeling of being cheated out of one's ‘rightful’ entitlement is the single biggest potential spark for future conflicts. At one point, the outline of one such formula seemed to be visible when it appeared that UNITA would largely control diamond income while the MPLA would control oil income. Lopsided though such an arrangement would have been, it would still have allowed each faction the wherewithal to make investments in its own area without requiring renegotiation at each new expenditure.
But now that UNITA has been relegated to the status of a minority party within the government, the appropriate policy for disposal of oil income is a matter for debate within the ruling party. The question is not which party will control the money but rather which sectors and/or provinces will benefit from the additional expenditures made possible by the oil revenue. Here there are grounds for optimism in that there appears to be a true desire for national reconciliation. This paper has argued for a long term programme of investment, particularly in sectors such as agriculture which is, it has been argued, the mainstay of the non-oil economy and a sector with a large political constituency. However, in the long run, the ability of any government party to channel large sums toward the natural constituents of its opposition would be limited. And that is precisely the point of this paper: there are many powerful and long standing political and economic forces which align themselves in opposition to such a recognition in which there is also an absence of the need for a national debate.