Angola is by nature one of Africa’s most resource-rich countries. Nevertheless, only a small part of the natural resources are utilized. Since independence in 1975, the economy has gradually become more unified around the dominance of one product: Oil. Oil wealth has led to a high concentration of relative wealth in a small part of the population, but little for the large majority.
Compared to other countries in the region, Angola had a varied economy towards the end of the colonial era. For many reasons, this variation disappeared after 1975, including failed economic policies, 27 years of almost continuous civil war, and a political regime built around the control of the oil economy.
After oil, the following products were Angola’s most important export goods in 2019: Diamonds, fish, aviation, timber, beverages, granite, cement and coffee. However, it is difficult to exaggerate the importance of oil for the economy as a whole.
Oil and public consumption
After 2000, oil has gained an ever-increasing place in the economy as both production figures and oil prices rise. From 2000 to 2019, the state’s revenues from oil exports varied between 95 and 98 percent of all export revenues. Diamond exports accounted for between one and three percent, and the rest of the economy was no more than 0.5 percent of exports.
As in some other oil states, the scourge of Angola’s oil economy can be summed up in this: Almost no productive business is as profitable as securing a share of oil revenues. The easiest way to secure part of the oil revenues is through political loyalty to those in power. Economic alignment and political power concentration have resulted.
This structure has provided the basis for the notorious corruption in Angola, where the presidential and party power distributes the opportunities for enrichment through public wages, licenses and other forms of state-sanctioned privileges.
The Norwegian oil company Equinor (formerly Statoil) has long been active in Angola, where the oil industry dominates the economy as a whole. However, little of the oil revenues benefit the poor population of the country.
Today, Angola’s economy is highly dependent on public consumption as an engine of the economy, and this consumption has historically been closely linked to oil prices. The prolonged and powerful oil boom in the period 2002–2014 drove up state revenues, and public consumption followed. In the period, around $ 900 billion was spent in the economy through state consumption (including from state oil company Sonangol), and the oil sector accounted for well over half of gross domestic product (GDP), and 40 percent as late as 2012. Initially, GDP growth rates at over 10 per cent a year for many years, among the world’s highest growth rates (see illustration).
Angola experienced a dramatic and lasting downturn in the years following the sudden fall in oil prices in 2014. State revenues fell in line with oil prices and declining oil production. When three quarters of oil revenues disappeared, the government had to reduce government spending by 60 per cent in the period 2014–2018. The authorities tried to maintain public consumption somewhat by raising loans, so that public debt increased from 35 per cent to 91 per cent of GDP in the same years. However, this did not stop the economic decline. In the years 2016–2019, the economy shrank (ie negative economic growth, or recession), and growth was expected to remain below two percent for many years. Halted against that population growth is among the highest in the world (three percent a year), so that means, on average, Angolans have been poorer for several years, and will become ever poorer in the years to come.
Low production, high imports
With virtually no industrial production of importance, and low agricultural productivity, the need for oil-financed imports has been enormous. Many in the economic elite enriched the resale of import goods, often with monopoly rights or highly controlled market conditions. At the top of the oil boom you could find all modern consumer goods and luxury products in the cities, but almost nothing was produced locally. Even simple basic products that can be manufactured in Angola were imported from other continents.
The oil boom in the 2000s led to tremendous momentum in the construction industry, and a large market for Brazilian and especially Chinese companies – financed by credit lines to banks in these countries in exchange for future supply of Angolan oil. Around 2012, it was estimated that 250,000 Chinese workers were engaged in the construction industry. About the same number of Portuguese worked in various parts of the trade and services sector.
These traits continued and reinforced colonial trends: Economic growth and boom times did not lead to lasting and well-paid work for most Angolans, nor to business development. Rather, it led to large-scale imports, and the use of foreign labor, which disappeared with knowledge when the recession hit.
At the start of the 2020s, the economic outlook was not favorable. Most forecasts indicate that without massive investments in the oil sector – funds the indebted country does not have – production will continue to decline rapidly. The political regime under President João Lourenço has promised to reduce oil dependency through economic diversification, but this has been delayed.
The development of the economy
Portuguese colonialists built up extensive plantation agriculture in Angola, as well as a mineral extraction and an industry using low-paid local labor. Until the mid-1900s, there was also extensive use of forced labor. The African population was only slightly included in the development of a modern economy, nor was education given any significance. When most Portuguese people traveled from Angola for a short time around independence, this led to major technical, administrative and thus also financial difficulties.
The war that lasted from 1975 to 2002 (with a few interruptions) further aggravated the economic development: the country’s infrastructure was even more destroyed and millions of Angolans were driven from their homes – and large parts of the agricultural area were broken. The state budget, including the large oil revenues, was turned toward military purposes. The rebel movement UNITA financed most of its warfare in the 1990s with the illegal extraction and export of diamonds. During this same period, Angola was also affected by periods of drought, which aggravated food shortages and social disorders.
After independence in 1975, the MPLA allied with the Soviet Union and Cuba and embarked on a communist course, with an associated state-centered economic policy. The extensive nationalizations after independence were partly due to ideology, but were also a necessity after the Portuguese who owned and operated the companies left the country. At the same time, US companies accounted for most of the oil recovery, making the US a key trading partner and the largest importer of Angola’s crude oil.
From the mid-1980s, Angola pursued an economic policy designed to attract capital from Europe and the United States rather than from the Eastern Bloc, with membership in the International Monetary Fund (IMF) and the World Bank. In 1987, Angola launched an economic reform program that opened up the privatization of state-run enterprises. Thus, great value fell into the hands of the economic elite around the president and the ruling MPLA. In the 1990s, the MPLA rejected all previous ideological ties, and has since completed the transformation of the party elite into an economic elite. From the late 1990s, long-time president José Eduardo dos Santos consolidated its regime, mainly built around the control of major oil resources.
Although the ideological foundation had disappeared, the logic was the same: in the absence of private investment capital, all new economic initiatives were financed by funds that were ultimately supported by the state’s oil revenues. Dos Santos’ regime leaders distributed oil revenues primarily to their own network of clients (family and political supporters).
Agriculture and forestry
Agriculture remains the main occupation. About half of the population gets their livelihoods from agriculture, but the sector accounts for less than five percent of GDP. Angola’s land area is larger than Germany, France and the UK combined and spans several climate zones. The UN Food and Agriculture Organization estimates that almost half of the area (47 per cent) is arable land, but that only ten per cent of this is utilized today. Only about three percent of the land area is cultivated on a permanent basis.
During the colonial era, agriculture was two-fold, with a large commercial sector run by Portuguese settlers, with production for the export of coffee, sisal, sugar, corn, cotton and other. By independence, most of the Portuguese emigrated, and the plantations became nationalized. African small farmers produced for their own subsistence – primarily foods such as corn, millet, yams, cassava, and beans – and only to some extent for turnover. Most of them at the same time did some flocking. Storfehold was and is still concentrated to higher altitudes in southern and central Angola.
Prior to independence in 1975, Angola was the world’s third largest coffee producer and the world’s largest supplier of robust coffee. Angola was also Africa’s next largest sisal producer. A few years after independence, production was reduced to a fraction of the plantations. Not only was it inconceivable to continue the plantation economy the way the colonial gentlemen had done it – with widespread use of forced labor and the separation of labor from the household economy – but the intense civil war made investment in agricultural plantations very difficult. In addition, the new regime’s state-run command economy (inspired by Eastern European advisers) was poorly adapted to local conditions. During the Civil War, a significant portion of the population became refugees, and many depended on food aid.
The oil boom in the 2000s added a new factor that also contributed to reduced profitability in agricultural investments: the so-called Dutch sick. Although millions of people in the cities were given increased purchasing power, the increased demand for food was covered by cheap imports. For long periods in the 2000s, it was difficult to find Angolan-produced foods in the supermarkets in the capital Luanda. Potatoes, corn, eggs, dairy products and even bananas – all cultivated in Angola – were imported from South Africa and other continents. Angolans with capital invested rather in import trade than in local agriculture. All these factors have contributed to Angola’s considerable agricultural potential being underutilized.
Angola has significant forest resources, which are to a limited extent exploited – with several sought after precious woods. Eucalyptus plantations were established during the colonial period as fuel for railway locomotives.
With its long coastline, Angola has one of Africa’s largest and richest fishing resources. The well-known Benguela Sea stream supplies nutritious and cold water from the south to the coastal areas. In addition to fishing from small boats, which run along large parts of the coast, Angola has tried to run a modern fishing industry. Among other things, sardine and the coveted tuna have been fished.
During the colonial period there was a rich fishery, with fishing industry in Namibe, Luanda and Benguela and in the province of Zaire. This collapsed a long way when the Portuguese trawlers, who had been responsible for most of the catch, disappeared after independence. Catches were reduced by 95 per cent, to increase again in the 1990s. Authorities have allowed larger vessels, especially European ones, to operate an overfishing that greatly reduced their occurrences during periods. Since 1987 Angola has an agreement with the EU on the utilization of fishery resources. In 2018, Angola exported fish worth $ 85 million.
The Marine Research Institute in Bergen has for many years had a collaboration in Angola.
Minerals and oil
Angola is one of the most mineral rich countries in Africa, with particularly valuable petroleum and diamond deposits. Petroleum was first detected in 1955, and exploration is still ongoing. Most of the recovery has taken place outside the Cabinda exclave in the north, but in recent years oil fields further south have also been developed.
Since the turn of the century, Angola has been Africa’s second largest oil producer after Nigeria. Around 2015, oil production reached a peak of approx. 1.8 million barrels per day. In 2019, production fell below 1.4 million barrels per day. Due to a lack of investment in exploration and production equipment, as well as aging wells, it is expected that Angola’s oil production will decline rapidly.
For a long time Angola was considered a promising market for the oil companies, but interest has declined significantly, especially after the dramatic fall in oil prices after 2014. Oil reserves are no longer considered large (0.7 per cent of the world’s known reserves).
Some petroleum processing takes place at the Luanda refinery. Because the country is using large funds to import fuel from other countries, plans are underway to build a new one in Lobito to reduce its dependency on imports.
In addition to the state oil company Sonangol, many companies participate in exploration and recovery. The Norwegian companies Saga Petroleum, Norsk Hydro and later Statoil, now Equinor, have participated in exploration and recovery since the 1990s. With its holdings in Angolan oil fields, Equinor has extracted approx. 200,000 barrels of oil per day, a significant proportion of the company’s operations. Norwegian supplier companies, such as Odfjell and Aker Solutions, have had very valuable contracts in the Angolan oil sector.
Angola is among the world’s ten largest diamond producers, both of gemstones and diamonds for industrial purposes. Diamond deposits were detected in 1911, and are considered among the world’s five largest. The recovery, which is especially happening in the northeastern part of the country, sank after independence, when it was at approx. 2.4 million carats, but increased already during the war, to approx. six million in 2000, and nine million in 2019, worth approx. $ 1.3 billion. In 2019, the diamond sector represented two percent of GDP, one-twentieth of the oil sector.
Angola also has significant deposits of other minerals, including gold, iron ore, phosphate, manganese, copper, lead, quartz, plaster, marble and zinc. There is little or no recovery of these resources today.
Industry and energy
Like other sectors, industrial production also fell dramatically as the Portuguese population brought along their skills, means of production and capital as they emigrated. With large natural resources from both agriculture and mining, as well as significant energy reserves, Angola has good conditions for increased industrial production. Several large watercourses ( Kwanza, Queve, Cunene and Catumbela) have considerable potential for hydropower development (estimated at 18.2 gigawatts). In 2019, according to the International Hydropower Association, only four countries in the world contributed more to the world’s hydropower than Angola. Nevertheless, a lack of stable power supply represents one of the major structural barriers to industrial development in Angola.
Today’s industry is concentrated around the major port cities of Luanda, Lobito and Benguela, as well as the inland villages of Huambo and Lubango, and includes petroleum refining, iron, metal and cement industries, some finished goods production and processing of agricultural products. Beverages, and mainly beer, are the only industrial goods exported to any degree, but amounted to only $ 21 million in 2018.
Angola participates in regional development cooperation in southern Africa, but besides South Africa, trade with other African countries is rather small. Angola is poorly integrated into the regional economy, and foreign trade is substantially geared towards the Atlantic – with ties to the United States and Europe, especially Portugal. Brazil and South Africa are also major trading partners. Since 2004, trade with China has quickly become very important. The US is important because of the oil business. China joined in 2003 and became the most important trading partner at times in the 2000s.
The main source of imports is Portugal, followed by the United States and South Africa. Angola has long had a substantial surplus on its foreign trade balance, thanks to oil exports, but in recent years has had deficits and growing foreign debt. In 2019, foreign debt amounted to approx. $ 70 billion. Much of the income in foreign currency thus contributes to servicing the foreign debt, and more than half of the state budget agreed on debt service. Norway has exported considerable quantities of seafood to Angola, especially clipfish.
Transport and Communications
Bad communications have hindered the development of the country’s economy. Railways go inland from the main port cities of Luanda, Lobito and Namibe, but the lines are not linked to each other. The longest and most important, the Lobito track, was completed in 1928, and was originally used to transport copper from the Shaba province in the Democratic Republic of Congo and from Zambia. The operation ceased during the war and until it was reopened on the Angolan side in 2012–2015 after prolonged rehabilitation of Chinese companies. The ore transport has not yet been resumed.
The many rivers are not navigable for larger boats. All the provincial capitals (without those closest to Luanda) are linked to the capital with a functioning air network.
A motorway network links the most important cities, but the lack of good secondary and tertiary roads to link the countryside to the urban markets is a real challenge for economic development. Like the rail network, 80 percent of the road network was probably damaged or destroyed during the war. The post-war period has also shown that much of the road network that was rehabilitated in the period 2002–2010 became dysfunctional a few years later due to weather, heavy use and lack of maintenance.
Angola was early in the process of developing a mobile telephone network after 2002. Isabel dos Santos, President dos Santos’s daughter, had a long-standing monopoly on mobile telephony in the country through his company Unitel.