Angola: Growth Slips Over Oil Price

Johannesburg — Despite a huge drop being anticipated in oil revenue, the Angolan government should have enough in the bank to push though its promised poverty reduction and health provision plans – provided it is willing to spend.”The economic perspectives for Angola in 2009 are deeply uncertain,” Ricardo Gazel, senior economist at the World Bank in Angola, told Reuters news service on 27 January.According to the World Bank’s new estimate, Angola’s GDP growth would decline to 8 percent for 2009 – a considerable difference compared to the government’s 15.6 percent growth estimate for 2008.

Oil exports account for over 85 percent of income and falling oil prices and production restrictions agreed with the Organisation of Petroleum Exporting Countries (OPEC) means “The economy could enter into a recession in the second quarter of 2009,” Gazel warned.

The country has enjoyed sustained double-digit growth since the end of a protracted civil war in 2002. An oil bonanza – Angola recently overtook Nigeria as Africa’s main oil exporter – paved the way for an investment boom by China and some Western nations that helped turn Angola into one of the world’s fastest growing economies.

But revenues from an estimated production of 1.9 million barrels per day have done little to alleviate poverty: about 70 percent of the population live on US$2 or less a day, rising to as much as 94 percent in rural areas, and according to the UN International Fund for Agricultural Development, health services cover only 30 percent of the rural population.

Keeping the promise

Now, with the possibility of drastic cuts in government expenditure as a result of falling income, fears have been raised that ambitious pre-election plans to tackle poverty and improve service delivery might suffer.

“They have just promised to deliver,” Jose Cerqueira, an independent economist based in the capital, Luanda, told IRIN. The ruling MPLA (Popular Movement for the Liberation of Angola) party retained power in legislative elections in September 2008 on the promise of increased social spending.

At the swearing-in of parliament on 30 September 2008, Fernando Dias dos Santos, the former prime minister and newly appointed Speaker, announced: “Angola is turning an important page in her history by starting a new cycle of a better life for all.”

Government promises included investment in housing, improved health facilities at both primary and secondary care levels, and to reduce the prevalence of HIV/AIDS.

If you have it, spend it

Angola’s oil industry has been characterised as an “enclave economy” because it has few links to the rest of the country’s economic activity, and although the oil sector functions as part of the global economy, Cerqueira said ordinary Angolans would remain insulated from the impacts of the worldwide economic volatility and oil price drops.

“We have a special kind of dual economy in Angola – in the enclave [oil] economy there will surely be an impact – we might see investments being postponed and see a rise in unemployment – but it is not so sure there will be a recession in the ordinary economy. This will depend on the government’s economic policy,” he said.

Years of oil windfall have meant that Angola should have enough in the kitty to weather the storm and keep its promises. “In principal, the Angolan government should have enough to spend,” Cerqueira commented.

Income from the oil sector should be enough to sustain government [programmes] for another two years

“Income from the oil sector should be enough to sustain government [programmes] for another two years – there is enough to pay the civil service, including the county’s physicians and teachers,” he added.