Generally, countries which are rich in resources have done more poorly than countries without resources. They have developed more slowly and with greater inequality which is a contradiction of what is expected. There are a lot of reasons and much academic debate about the causes for and exceptions to the various outcomes. Most of the people believe the resource curse is not global or inevitable but is more likely to affect certain countries or regional areas.
By being totally dependent on oil, Angola’s economy exposed itself to dangerous price fluctuations. Unpredictable prices make economic planning very difficult and in Angola have resulted to excessive borrowing. Unfortunately, oil producing countries have access to more credit due to the availability of future oil earnings as collateral on loans. This credit money can end up supporting wars. This was the method Angola ruling popular Movement for Liberation of Angola was able to finance war. In the long the economy is drugged down (Alexander, Gilbert, Betzing, , Steyn, & Institute for Democracy in Africa,2010).
In most of the African countries, the political and economic systems are unequal. In Angola, this imbalance resulted from the abundance of oil. The systems creates wealthy people who exist beside abject poverty. The rich are able to isolate the poor from political power. Data that tries to quantify the extent of these inequalities is rare as leaders tend to cover up corruption and mismanagement of resources within the Angola (Alexander, Gilbert, Betzing, Steyn, & Institute for Democracy in Africa, 2010).
Oil profits in Angola led to promotion and strengthening of unrestricted neo patrimonial style of leadership which led to loss of accountability. Profits from oil gives leaders power to subvert justice and to deny the people their right to an equal share of the profits made. The elites add on to their wealth using other investments that increase their influence and power. Therefore, oil leads to a concentration of political power in the hands of leaders and elites who are only concerned with their own survival. In both Angola and Gabon, the elites used their wealth from oil rents to gain favor and support from various people who would in turn protect them from their powerful rival counterparts. This involved military, politicians, officers, judges and rich businessmen .However, during periods of instability such as elections, the disbursement of aids would be done equally to reach the poor people. Though it failed to rich the extreme poor people in isolated areas. Favors from the elites took different forms such as selective awarding of licenses to business owners, jobs, payment of government loans and free fuel and water for a selected few. The expensive Trans Gabonese railway is an example of such a favor. The railway was identified as a form of neo patrimonialism after it was diverted to president Batekes’ tribe. Having bought the major key players, the elites would then proceed with impunity to do as they liked in Angola as few could challenge their positions both in political and military spheres. The existence of vast oil reserves and revenues remove accountability between state and society (Alexander, Gilbert, Betzing, Steyn, & Institute for Democracy in Africa, 2010).
The ability of governments to depend on oil rents rather than tax has led to corruption and oppression. The leaders of Angola get their wealth from the oil industry and not from the Angolans whose interests they are supposed to safeguard. Taxations plays a key role in constructing robust, accountable countries. Generally, rents are not the underlying problem but to a degree, they accelerate corruption and lack of transparency in the country (Fabrizio, & International Monetary Fund, 2015).
The presence of vast natural resources revenues can cause harm to other sectors of the economy, particularly industries that rely on exports, by causing inflation and shuffling labor and capital from non-resource sector to the resource sector. This is normally known as the Dutch disease. While exchange rate and inflation can cause damage to large areas of the economy within a number of years, their impact can be protracted for decades. This has been well documented in Angola as the agricultural sector declined due to the fact that the farmers could not afford to import fertilizers from other countries due to the exchange rate. This caused other sectors of the economy to shrink.
Economic diversity may be delayed as other sectors of the economy are neglected to focus on limited natural resources. Diversifications that occur are often projects which are related to the natural resource. The projects are often mismanaged. However, even when leaders try to diversify the economy, it is made difficult by resource extractive companies and industries which outcompete other industries from different sectors .This is known as comparative advantage. Angola leads in the export of crude oil which is the its main revenue earner .The over dependence on oil has discouraged Gabon to make long term investments in infrastructure that would let the economy diversify to and grow in other sectors (Sachs, Stieglitz, & Humphreys, 2007).
Dependence on oil in Angola has become a major challenge due to the fluctuation of oil prices. In 2015, the country’s budget was reduced by 25%.In a country where the government is the main source of employment and finances, such reductions are devastating to the whole economy. When national assembly approved the budget cut, revenue from oil related exports dropped to 50%.Falling of the price of oil has resulted to mounting inflation linked to the worsening of the currency and the fact that Angola relies heavily on imported goods.
Angola policy makers are well aware their economy’s vulnerability to the international market. Indeed, during the country’s previous economic recession following price fall in 2008, questions were asked on how the government uses the country’s vast oil income. Efforts made in the macroeconomic stability were seen late in the year 2012 where inflation dropped to a single numeral. Angola made enormous stocks of foreign exchange to protect the country’s economy against the future expected volatile in income. In a country where the oil makes up 95% of the export and 75% of the financial revenue, mitigations focused on protecting the economy’s vulnerability to volatile product prices can only be part of a the solution (Fabrizio, & International Monetary Fund, 2015).
A Part from International Monetary Fund (IMF) and World Bank reports, there has been very minimum independent monitoring of Angola’s budgets and expenditure program. Civil societies and the national assembly in Angola are very weak and cannot carry out their mandate. These bodies lead to lack of accountability and transparency by leaders and companies responsible of overseeing equitable distribution of wealth. Another issue that has not been addressed by the civil society in the context of transparency is cost in the oil industries. The IMF noted that Angola’s share of each barrel is around 50% with the rest going to foreign companies. But the World Bank estimates that the government takes the share that belongs to Angola and its people from each barrel. However no civil society has not bothered to investigate this problem (Fabrizio, & International Monetary Fund, 2015).
Recommendations
In countries such as Angola that depend solely on oil export, economic policy –making should be guided by flexible medium budgets planning that will provide for immediate non-oil budget losses. In addition, the predicted oil prices should also be included in the budget (Sachs, Stieglitz, & Humphreys, 2007).
The government of Angola should strengthen their management of public finances through transparency and accountability that will see introduction of clear bidding exercises for contracts. The government should also adopt adjustable policies when in debt and in matters concerning international; reserves and foreign exchange (Sachs, Stieglitz, & Humphreys, 2007).
In a country such as Angola with meagre social services and infrastructure, it is not wise to save money generated from vast oil exports in sovereign wealth funds. Using the oil revenue to finance recurring expenditure is also not a good option. The best option is to increase availability of domestic capital by investing in various investments (Sachs, Stieglitz, & Humphreys, 2007).
Lastly, macroeconomics done through cautious policies can help diversify the economy. The government should come up with the right mixture of economic policies .the polices will then enable further growth and strengthening of a dynamic economy through the creation of attractive institutional ,legal and regulatory environments (Sachs, Stieglitz, & Humphreys, 2007).
Conclusion
Angola faces major macroeconomic problems which include management of its oil revenues before it declines in production and at the same time ensure both sustainability in their budgets and long term debts. Another challenge is to increase the competitiveness of its economy through diversification and to create non-oil and non-extractive parts of the economy but also strengthen its institutions and political leadership that will be accountable and transparent.
References
Fabrizio, S., & International Monetary Fund. (2015). Angola: Technical assistant report - Angola - fuel price subsidy reform the way forward.
Sachs, J., Stieglitz, J. E., & Humphreys, M. (2007). Escaping the resource curse. New York: Columbia University Press.
Alexander, K., Gilbert, S., Betzing, C., Steyn, J., & Institute for Democracy in Africa. (2010). Oil and governance: A case study of Chad, Angola, Gabon and Sao Tome é Principe. Pretoria: Idasa.
