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Country reportsApril 27 2012

Angola profits from a decade of peace

Angola’s government has presided over 10 years of peace and booming economic growth, and neither looks likely to be disturbed in the foreseeable future. Nonetheless, managing the expectations of Angolans over the next decade as the memory of civil war fades will become harder. 
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April this year marked the 10th anniversary of the end of Angola’s civil war. The 27-year conflict, which itself followed a 14-year independence struggle against colonial ruler Portugal, led to 500,000 people being killed and millions being displaced. The country's economy was shattered and most of its infrastructure was destroyed.

The turnaround in the past decade has been remarkable. Thanks to booming oil production, which now stands at 1.7 million barrels a day, Angola is Africa’s second largest crude exporter and the world’s second largest supplier of oil to China after Saudi Arabia. Its economy of $100bn is the third largest in sub-Saharan Africa, behind only South Africa and Nigeria. And its diplomatic clout is such that it was made president of the Organisation of Petroleum Exporting Countries (OPEC) cartel in 2009 and was invited to take part in the G-8 summit that year.

Political stability

Perhaps the main achievement, however, of the ruling Popular Movement for the Liberation of Angola (MPLA), in power since independence in 1975, has been to consolidate peace. That is no mean feat for a country as used to war as Angola was in 2002. Today, analysts view the possibility of a return to any form of conflict as remote. “I’m very comfortable with Angolan political risk. It is low,” says Victor Lopes, an Africa strategist at Standard Chartered.

Sporadic protests have taken place in the past 18 months over the high cost of living in Angola, but they have not spread to the mass population. “A lot of people complain because the poverty is huge,” says Pedro Calixto, a partner at accountancy firm PricewaterhouseCoopers in Luanda. “But the appetite for violent protests is [tiny]. I don’t expect much political change in the medium term.”

The country is scheduled to hold only its second legislative elections in 20 years in September. Few doubt that the MPLA, which won 81% of the vote in 2008 polls, will again trounce its rivals, including the main opposition party and former rebel group the National Union for the Total Independence of Angola, or Unita.

Some commentators describe Angola as a de facto one-party state, with the MPLA having restricted the growth of opposition groups and dominating access to the media, almost all of which is state-controlled. But most believe the party has the support of a majority of Angolans, many of whom still back it because of its victory in the civil war. “It is not a country where there is a huge appetite for hotly contested politics,” says Jolyon Ford of Oxford Analytica, a risk analysis firm. “The government knows that. It doesn’t take things for granted. But it is not being disingenuous when it says most Angolans want peace, prosperity and the MPLA.”

Watch the party list

Still, this year’s elections will be closely watched for signs of discontent, such as a low voter turnout. Crucial, too, will be the composition of the MPLA’s party list, which determines the pecking order of its politicians. It will almost certainly be headed by José Eduardo dos Santos, who has been president since 1979. Yet many believe the 69 year old will step down before 2017, when his five-year term would end. If so, he will be replaced by the vice-president, likely to be whoever secures the number two position on the list. Mr dos Santos had favoured as his successor Manuel Vicente, the former head of Sociedade Nacional de Petroleos de Angola (Sonangol), the state oil company, who was appointed minister of economic co-ordination in January.

The list was expected to be published early this year, but is yet to be released. Some analysts believe that this a sign that Mr Vicente, who lacks liberationist credentials and has not come through the ranks of the MPLA, is opposed by some members of the party’s elite. “The big issue is who will be number two on the party list,” says Alex Vines, an Angola expert at think tank Chatham House. “They still haven’t released it, which suggests there is a power struggle and that the president didn’t automatically get his way.”

The decade ahead

Whatever the outcome of September’s polls, Angola’s economy is likely, thanks to oil, to remain one of the fastest growing in the world over the next 10 years.

The government should have little difficulty continuing to spend huge sums on infrastructure. Although this has improved since 2002, with new roads, railways and bridges having been built, plenty of problems persist. Angola’s ports are congested and electricity supply falls way short of demand.

More importantly, however, policy-markers will have to increase their efforts to tackle poverty. Despite Angola’s rapid growth, the majority of its 20 million people live in poverty. An inability to address this quickly could trigger the spread of protests, particularly among Angolans born after or too young to remember the civil war. “The easy stuff has been achieved,” says Mr Vines. “It now gets more difficult. The government increasingly will not be able to blame shortcomings on the war as it becomes more distant.”

Diversifying from oil will be crucial to cutting poverty, given that Angola’s hydrocarbon industry provides few jobs for locals, most of whom are unemployed. Moreover, the economy is dangerously exposed to falling oil prices, as was made clear in late 2008 and 2009, when it went in to a slump and export earnings plummeted.

Foreign direct investment (FDI) will be vital to developing the non-oil sector. Angola’s government has done much to attract investors in the past three years, including enacting laws friendlier to businesses.

Lack of transparency

Many barriers to FDI remain, however. Angola’s reputation for graft and opacity, particularly in the oil sector, where companies are often made to partner with murky entities thought to be controlled by members of the ruling elite, puts off many would-be investors, who fear their reputation will be tainted by operating in the country.

While efforts to boost transparency have increased since 2009, the IMF’s discovery in December of a gap of $32bn in the national budget particularly alarmed investors. Even those who think it was an innocent mistake – a consequence of the government getting Sonangol to carry out fiscal duties on its behalf and then not accounting for it properly – say it demonstrated the need for further reforms of Angola’s management of public finances. “The $32bn cloud – indicating that somewhere that amount had gone unaccounted for – was essentially a result of off-balance sheet public expenditures,” says Elio Codato, Angola country director at the World Bank. “Sonangol was paying on behalf of the government. And Sonangol wasn't used to putting it in the accounting books properly.

“Sonangol has always been an island of excellence in Angola. Even during the civil war it continued to produce oil. It is well managed from a corporate point of view. But it has an ambiguous role of also playing the part of government.”

Over the next 10 years, Angola’s political environment will change. Mr dos Santos will step down and whoever succeeds him will be the head of a country very different from what it was in 2002. A new generation of Angolans, many of whom will have had no experience of war and thus little time for liberationist politics, will come of age. Although the onset of widespread violent protests or deep political instability might be improbable, these younger Angolans will likely be more impatient for change than their parents. The MPLA will have to strike a delicate balance managing their expectations; it may even be forced to loosen its stranglehold on Angola’s politics.

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