OIL – IT MATTERS A LOT

Oil – IT IS WHAT REALLY MATTERS

The country's breakneck growth is slowly benefiting the masses

TWO years ago, oilrich Angola was reckoned to have one of the world's

Fastestgrowing economies. In both 2006 and 2007 real GDP had surged

by around 20%, and doubledigit growth rates were widely predicted for at

least the next five years. Then oil prices crashed with the global recession.

Last year the economy is estimated to have grown, at best, by 1.5%. But

it is bouncing back. Some say Angola will be among the world's top five

performers again this year, with growth exceeding 8%. After four decades of strife, Angola was a basket case. A 14year war of independence against its former Portuguese masters until 1975 had been followed by nearly three decades of fighting between the communist Popular Movement for the Liberation of Angola (MPLA) and Jonas Savimbi's proWesternNational Union for the Total Independence of Angola (UNITA)\ that ended in 2002. Out of a population of 7m in 1980, some 1.5m were

killed and more than 4m forced to flee their homes. A whole generation

had missed their education. Infrastructure, political institutions and social

services had to be rebuilt, often from scratch. The pace of development

since peace returned eight years ago has been staggering. Angola feels

like a gigantic building site, as roads, ports, railways, hotels, shopping

centres, hospitals, universities—even whole new towns—rise up out of the

bush. The capital, Luanda, has changed out of all recognition, as the

dilapidated redtiled colonial buildings and encroaching slums make way

for a forest of elegant highrise hotels, offices and apartment blocks.

None of this would be possible without Angola's vast oil reserves,

estimated at 13 billion barrels. Discovered in the 1950s, oil was one of the

few things that drew investment throughout the civil war. Production rose

from 172,000 barrels a day in 1975 to 800,000 in 2002. Today, it stands

at 1.9m, making Angola subSaharan Africa's biggest producer after

Nigeria. Oil accounts for more than half of the country's GDP, 80% of the

government's revenues and 90% of export earnings.

Last year's slump in oil prices from an average of nearly $100 a barrel in

2008 to just over $50 pushed Angola's current account and budget into

deficit for the first time since the war. Despite a rebound in oil prices, the

ruling MPLA, now wedded to a market economy, is trying to slash public

spending this year to 37% of GDP, down from last year's 50%. Long

resistant to outside interference, particularly from the West, it has also

accepted a 27month IMF standby loan of $1.4 billion.

Despite this dip in fortunes, the country has barely paused for breath,

relying on international lines of credit for infrastructure projects, with

China to the fore. Since 2002, China's Eximbank has lent Angola $4.5

billion. The secretive China International Fund, which is privately owned,

has provided another $3 billion; some say the figure may rise to $9 billion.

Angola is repaying all of this in oil, overtaking Saudi Arabia and Iran to

become China's biggest supplier. Two fellow Portuguesespeaking

countries, Brazil and Portugal, have provided another $1.8 billion and $1.4

billion in credit lines. Foreign direct investment, at $15.5 billion in 2008,

up from $6.8 billion in 2005, now accounts for over half the total for

southern Africa. In the 1990s it averaged just $600m a year.

Yet Luanda is one of the world's trickiest places to do business in. It is

sticky, dirty, chaotic and hugely expensive for visitors. Logistics are a

nightmare. As the country has no manufacturing base to speak of, most

items have to be imported, which pushes prices up. The ports are clogged.

The rubbishstrewn streets, potholed and still usually made of mud, are

jammed with traffic. Red tape snags almost every activity. Electricity is patchy. Taxes are low, with a top incometax rate of 17% and a corporation tax of 35%, but they

are hideously complex. Moreover, the petrodollar influx has yet to improve ordinary Angolan lives very much. On paper, GDP a head (at purchasingpower

parity) has more than doubled since 2002, to $6,300 in 2008, lifting its IMF ranking to 98^th out of 181 countries measured, just above China. But last year's UN

human development index put Angola near the bottom in almost every

category: life expectancy is 46 years; infant mortality is 180 per 1,000 live

births (against less than ten in America and Europe); onethird

of adults are illiterate. While the new elite lives sumptuously, twothirds

of the 17m Angolans survive on less than $2 a day. Civil and political liberty is limited.

Yet things are improving. The country's first democratic elections in 16

years, held in 2008, were reasonably fair, with the MPLA winning more

than 80% of the vote. The governmentdominated

press is becoming a bit freer, with independent weeklies and local radio stations beginning to speak out. Red tape is being cut. The port is being modernised and

unclogged, partly by increasing the cost of storing containers. Hundreds of

miles of new roads and rail track are speeding up transport. Landmines are

steadily being removed from farmland that had gone to pot.

The government plans to build 1m homes for shackdwellers

by 2012. Teachers and doctors are being trained, children sent back to school,

clinics opened, waterpurification plants installed, electricity brought to

villages and urban slums. José Eduardo dos Santos, Angola's autocratic yet

popular leader for the past 30 years, has even pledged—for the first time—

to reduce corruption.

This brings a wry smile to those who see the president and his friends as

the source of many of Angola's problems. But businessmen hope his

warning will have a salutary effect. As they continue to pour in, investors

plainly think the opportunities outweigh the risks.