The Angolan economy

TheAngolan economy

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Africais the second largest continent with over one billion people livingthere. This noted, its impact on the global economy is significantlysmall as it contributes less than 5% of international trade. However,these statistics are about to change as Africa is currently thefastest growing region economically. The economic structure of the 55nations on this continent is highly influenced by their Europeancolonial masters who administered over the region up to the firsthalf of the 20thcentury. Angola and Kenya are some of Africa’s fastest growingeconomies. However, the impact of their colonial masters on the waytheir economies are shaped is evident. The paper provides acomparison of the economic structures of these two nations. It seeksto show the impact of the Portuguese rule over Angola and how thenation has improved since it gained its independence.

Briefhistory of Angola

ThePortuguese and Angolan have interacted for over half a millennium. Though the relationship between the two societies changed over time,the nation became a Portuguese protectorate after the continent waspartitioned among European powers. Angola gained its independence in1975, but was plunged into a civil war that lasted for close to threedecades (Solarin &amp Shahbaz, 2013). The situation led to thedestruction of its infrastructure and zero economic growth. However,in 2002, the civil war ended, and the nation embarked on areconstruction agenda that aimed at settling displaced persons andcreate infrastructure that would usher in an era of growth anddevelopment.

Theeconomy of the nation is highly dependent on its natural resourceswith oil export accounting for over 90% of goods sold by the nation.Additionally, the country has a significant amount of gold resourceswhich take second place in leading exports. The civil war led toincreased inflation with a triple-digit average (Barros, Caporale &ampGil‐Alana,2014). However, with increased stability, the figure has surged tounder 10%. With the current decline in oil prices, policy makers havebeen engaged in discussions that are aimed at diversifying theeconomy and boosting agricultural activities to ensure that thenation is not reliant on one sector.

Kenya

Kenyais the largest economy in East and Central Africa. The former Britishcolony gained independence in 1963, and this enabled the country toinvest in its economy from an early age. The nation continued to growand expand its economic activities and thus enabling it to emerge asa regional hub for investment. However, the growth was halted in the1980s and ‘90s as government interference in the private sectorbecame a matter of concern for investors. However, reforms adopted inthe early 1990s allowed the nation to begin a recovery phase. With anew government elected in 2003, the nation’s economic realitiesbegan to change as it started to liaise with international partners.The post-election violence that occurred in early 2008 coupled with aranging drought and the global financial crisis saw the country’seconomic growth rate shrink from 7% in 2007 to less than 2% thefollowing year (Karanja, 2013).

Agricultureis the backbone of the Kenyan economy and accounts for about 25% oftotal GDP. Additionally, the nation is also reliant on tourism, butthis has faced major challenges with the emergence of a Somaliextremist group that continues to attack different destinations. Thecountry has a growing middle class, and this has led to a significantboom in the service industry. Moreover, the government has realizedthe vulnerability of an economy driven by climate-dependentagriculture and has made significant investments in infrastructureand ICT with the aim of diversification (McCann, 2010). The nationhas also made itself the gateway to the region making it a vitaleconomic powerhouse.

Economiccomparison between the two nations

Havingdiscussed the brief history of the two countries, it is important toevaluate the economic realities of these countries. There are somesimilarities and differences in the way these two economies arestructured as discussed in the sections below.

Similarities

Theeconomies of the two nations are highly dependent on a single marketmaking them highly vulnerable. As stated earlier, the economy ofAngola is highly dependent on the export of oil and gold. Oil andrelated products contribute up to 50% of the nation`s GDP, and thismakes the nation highly susceptible to changes in global prices ashas been the case since late 2014. Additionally, the dependence onoil has made it difficult to diversify in other areas making theeconomy too predictable. Similarly, Kenya significantly depends onits agricultural imports to increase its GDP. With a steady market inAsia, Europe, and the Americas, Kenya is a leading exporter ofcoffee, tea and horticulture products (McCann, 2010). However, thefarming technology is not well advanced to handle unexpected weatherpatterns, and this makes the country vulnerable to changing climaticconditions.

Anothersimilarity is that both economies are highly dependent on theirformer colonial masters. For years, Portugal has been the leaddestination for most of all exports from Angola. Though the nationhas been able to venture into other markets, the Portuguese marketremains vital. The economic unity between Angola and the formercolonial master is evident when one evaluates the foreign directinvestment into the country. Currently, most of the industry found inthe country originate from Portugal, and this has made Angoladependent on her former master. The situation is the same in Kenya.The United Kingdom account for the largest portion of all Kenyanexports (Karanja, 2013). Additionally, the nation also has a lot ofinvestment in the different sectors of the economy. This makes Kenyadependent on the UK as is the case for Angola.

Theother similarity is in terms of the impact that the politicalactivities in the nation have on the economy. As noted earlier, theeconomy of Angola suffered heavily because of a political deadlockthat plunged the nation into a 27-year long civil war. As a result,investors are highly cautious about the political stability of thenation, and this serves as a disadvantage. Similarly, Kenya alsosuffers in regards to the impact that political processes have on theeconomy. It is approximated that the government loses millions ofdollars every day as business close down in the run-up to anelectioneering period (Karanja, 2013). The impact of perceivedpolitical instabilities in the two nations makes it difficult todevelop.

Anothersimilarity between these nations is in regards to the inability todiversify the economic base and make their manufacturing sectorscompetitive. In Angola, the nation has been unable to diversify, andthe result of this failure is an economy that is pegged on the oilmarket. Additionally, the influx of foreign manufacturing companiesespecially from Portugal has made it impossible for local firms to beable to compete and this has killed home-made industries. Thesituation is no different in Kenya. Though there are significantefforts that are aimed at ensuring that the nation is not entirelyreliant on agriculture, a significant percentage of its GDP comesfrom this sector (Karanja, 2013). Moreover, foreign entities thathave set up shops there have made it so difficult for local playersto produce similar commodities and compete fairly.

Lastly,the economies are similar with regards to the economic system upheldin both states. Both the Angolan and the Kenyan economy areconsumer-based as opposed to being manufacturing based. This limitsthe ability of these nations to be able to grow its GDP to levelsthat allow them to be self-sufficient. An evaluation of Angola`simports shows that most of them are composed of machines andtechnological input. Additionally, the nation imports food productsto be able to feed its population. This reliance on other nations,and in particular Portugal, makes Angola’s economy expand at a ratethat does not meet its potential (Vines, &amp Weimer, 2011).Similarly, the Kenyan economy depends on developed nations for itsmanufactured good. This is to say that most its manufactured productsare imported from other nations. Most of these manufactured productsare imported from western countries and in particular Britain, whichstill holds sway over the economic interest of its East Africanprotectorate.

Differences

Thoughthe economic realities of these two countries are similar as shownabove, they also differ in the following ways. Firstly, the economiesare dependent on different market areas. isdependent on oil-related industries while the Kenyan one is based onagriculture (Karanja, 2013). As a result, the economic challengesfacing the two nations are very different, and this can be portrayedby evaluating how the two are structured and investment prioritiesfor each government.

Theother difference is in regards to the market models used in these twonations. The Angolan economic machine is highly influenced by thePortuguese. This, in turn, determines the way companies are formed,the regulations of the market and the role of government in makingthe economy attractive to investors. On the other hand, the Kenyanmodel is highly influenced by the British (Karanja, 2013). This isevident from the way the economy is structured and how the market isregulated.

Thirdly,the economies of these nations differ in regards to proposed futureeconomic prospects. Currently, Angolan authorities are focused ondiversifying the base of the country to shield the country from therisks associated with relying on the oil market (Ovadia, (2013). Toachieve this, the nation is focused on investing in agriculture. Thisis aimed at ensuring that the nation reduces its reliance on importedfoods and also providing in the alternative form of investment forits citizens. The strategy is highly favoured by the fact that thenation is becoming increasingly secure, and this provided a conduciveenvironment for people to engage in agriculture. Kenya, on the otherhand, is focused on positioning itself as a major manufacturing andtransport hub for the region. To achieve this, it has increasedinvestments in energy and infrastructure development which are twoareas that will play a vital role ensuring this vision becomes areality (McCann, 2010). Moreover, this policy is highly favoured bythe falling oil prices as Kenya is dependent on imported oil.

Lastly,these countries differ in regards to the available workforce. Theeconomic growth of a nation is highly dependent on the ability of itsworkers to provide much-needed labour for its different industries.The war had a devastating effect as it claimed much of the Angola’sworkforce while those with skilled labour have opted to flee thecountry. As a result, the nation has a depleted labour force withmost of the population being under the legal working age and with nohopes of acquiring specialized skilled that will allow them tocontribute positively to the economy. The Kenyan workforce isentirely different from that of Angola. With one of the besteducation systems in the region, Kenya has a robust workforce that ishighly underutilized (Karanja, 2013). This has made the nation a netexporter of talent as people move to other countries in search forbetter opportunities.

Stridesmade by Angola’s economy since independence

Beforethe nation gained independence, its economy was structured in amanner that was aimed at providing resources for Portuguese industry.This was especially important because of the vast natural resourcesand accessible harbours that are found in Angola. After acquiring itsindependence in 1975, the nation took control of its economicsituation with a goal of ensuring that the resources benefitted thosewho lived in the country. The section below evaluates the economictransformation that has occurred in Angola since it gained itsindependence.

Thecivil war that ensued after the nation gained its independence had alot of effects in regards to the economic progress of Angola. Theconflict led to the destruction of the infrastructure that had beenleft behind by the Portuguese including railways, bridges, and roads.As a result, the country’s economic capability was undermined withinflation rates getting to as high as 325%. Though the nation hasmade significant efforts to reconstruct, the effects are stillvisible. Additionally, the war also had a vital impact on the labourforce. Currently, Angola lacks a pool of skilled human resources asnearly half of the population is under the age of 15 (Schmitz, 2016).The situation has been made worse by an ineffective education systemthat is not accessible to many children coupled with a healthcaresystem that has been unable to cater to the needs of its population(Schmitz, 2016). These two factors continue to eat away the labourforce leaving Angola at a disadvantage.

Withthe war over, the nation embarked on a policy that has seen theeconomy grow and expand over time. The nation’s oil production hasgrown significantly over the past decade and has overtaken Nigeria asAfrica’s largest oil producing country (Ovadia, 2013).Additionally, its gold production grew from 0.6 tonnes of gold in2003 to 2 tonnes by 2007 (Burgos &amp Ear, 2012). The other economicdevelopment is in regards to agricultural investment. In light of thepeace deal attained in 2002, the nations have resettled millions ofdisplaced civilians, and this has had a positive impact on theoverall growth of the economy with forecasts showing that Angola willbe able to reduce its reliance on imported food significantly.

Theindustries illustrated above are of great importance to the economyof Angola. Oil alone accounts for around 50% of the nation’s GDP,75% of total government expenditure and 90% of all exports (Barros,Caporale &amp Gil‐Alana,2014). This is a nation whose economy is too dependent on one sector.Other major contributors are gold and diamond, but these also arefacing price challenges, and this has reinforced the drive by policymakers to diversify and invest in agriculture to ensure that theeconomic risk is spread evenly across all sectors.

Therealso has been growth in infrastructure as development partnerscontinue to provide funds that the government can use to reconstructits depleted infrastructure. For instance, in 2004, the governmentacquired a $2 billion loan from China which was aimed at improvingits infrastructure (Burgos &amp Ear, 2012). Europe has also been onthe forefront in aiding Angola reverse the effect of the war byproviding billions of dollar that are aimed at rebuilding the nation.Though the country is still engaged in this endeavor, the stridesmade show great promise for the future.

Thebest way to measure the nation’s economic growth will be byevaluating its GDP. After the end of the civil war which was followedby a global appetite for oil, the nation experienced an economicboom. From 2003 to 2008, it had an average growth rate of 17%.However, the global financial crisis experienced in 2008/2009 hadsome impact on the nation and this led to the growth rate dropping to2.5% in 2011 (Barros, Caporale &amp Gil‐Alana,2014). The nation embarked on a steady growth rate with 2013 analysisshowing that Angola grew by around 6%. With global prices at anall-time low from 2014, the GDP growth rate has stagnated, and thishas made it more important for the nation to come up with a bettermethod of ensuring that it is no longer susceptible to any variationsin international market trends.

Foreigndirect investment (FDI) is another avenue that is showing thetremendous improvement made by the Angolan government in ensuringthat the nation becomes a preferred region for investment. Currently,the nation is the fourth largest recipient of FDI in the whole ofsub-Saharan Africa. The attractiveness of the nation has been as aresult of increased investment in infrastructure and regulations thatfavour trade and businesses. Portugal, the former colonial master, isstill the leading investor followed by other large democracies likethe US, UK and South Africa (Burgos &amp Ear, 2012). The industriesthat have benefited most from foreign investments include banking,real estate, construction and tourism among others.

Thoughthe nation is free from the influence of the former master, economicrelations have ensured that the two countries remain entangled. Theeconomic alliance was necessitated by the increased amount of importthat the state gets from Portugal. As stated earlier, Angola importsmost of its products including foods. To cut on the expenses,Portuguese companies opted to set up in Angola, and this has greatlyincreased the number of foreign companies that operate from Angola.The relation has also played a vital role in facilitatingintellectual transfer which involves allowing the Angolans to learnthe best practices from their Portuguese counterpart. This has playeda significant role in bridging the manpower gap that has been achallenge to the Angolan economy.

Inan unprecedented occurrence, the challenges that have faced theEuropean Union, especially those nations in the south has made Angolathe first nation in Africa to have more foreign investments in othernations than the FDI invested in it. This is to say that it has moreinvestments abroad than what it has received from other nations. Abig chunk of this investment is in Portugal where the nation putresources to aid the ailing economy. In essences, the country hasbroken tradition and became an investor in a nation that had been itseconomic lifeline for decades (Schmitz, 2016). Though this is this isnot a common occurrence, it moves to show the hidden potential thatthe economy of Angola has and the impact it can have if it was fullytapped. Additionally, it allows one to speculate on the possibleprogress that the nation could have attained had it not gottenentangled in a civil war that lasted for more than 27 years.

Conclusion

Theeconomic structures of most if not all African nations are highlyinfluenced by the colonial master that ruled the countries beforethey gained independence. These nations have continued to pay animportant role in the economic prosperity of their formerprotectorates. The analysis of similarities and differences betweenthe Kenyan and Angolan economy coupled with an analysis of the stridemade by Angola after the war was over is a clear indication of theimpact that colonial masters have on the economic structures of theirformer subjects. However, the analysis also shows the great potentialthat these countries hold especially when they are allowed todetermine their economic paths.

Moreover,the ability of Angola to grow its economy over a very short period oftime and even become a major investor in Portugal moves to show thatthere is potential for economic prosperity in Africa. It is thereforeimportant for other leaders from the region to take a leap fromAngola and implement policies that will ensure the economic potentialof the continent is fully exploited. This move will go far in makingsure that the fortunes of Africa changes and thus improving the livesof the billion plus people residing there.

References

Barros,C. P., Caporale, G. M., &amp Gil‐Alana,L. A. (2014). Long memory in Angolan macroeconomic series: meanreversion versus explosive behaviour. African Development Review,26(1), 59-73.

Burgos,S., &amp Ear, S. (2012). China`s Oil Hunger in Angola: history andperspective. Journal of Contemporary China, 21(74), 351-367.

Karanja,G. (2013). Factors influencing the growth of agribusiness enterprisesin Kenya. International Journal of Social Sciences andEntrepreneurship, 1(3), 340-350.

McCann,G. (2010). Ties that bind or binds that tie? India`s Africanengagements and the political economy of Kenya. Review of AfricanPolitical Economy, 37(126), 465-482.

Ovadia,J. S. (2013). The Reinvention of Elite Accumulation in the AngolanOil Sector: Emergent capitalism in a rentier economy. Cadernos deEstudos Africanos, (25), 33-63.

Schmitz,C. M. T. (2016). African Perceptions of China in Zambia and Angola.

Solarin,S. A., &amp Shahbaz, M. (2013). Trivariate causality betweeneconomic growth, urbanisation and electricity consumption in Angola:Cointegration and causality analysis. Energy Policy, 60, 876-884.

Vines,A., &amp Weimer, M. (2011). Angola: Assessing risks to stability.Center for Strategic and International Studies.