Business & Economy

Oil is not well with Angola’s capital

A FEW years ago, Luanda, the capital of Angola, was on every ambitious investor’s lips. With big infrastructure and housing projects rapidly changing its appearance, the city seemed to be leaving behind the country’s 27-year civil war. But hopes for renewal are dissipating as the price of the commodity on which Angola’s future was being constructed — oil — declines.
Angola is Africa’s second-largest oil producer and one of the countries hardest hit by the fall in oil prices. The oil crash forced Angola to slash its 2015 budget by $17bn, a 25% reduction. Construction companies are having difficulties paying workers, and the Angolan central bank has devalued the kwanza. Construction threatens to screech to a halt.
The fantasy built on oil is crumbling, showing that its benefits were barely felt outside elite consumption. As criticism mounts and Angolans ask what happened to the glut of oil dollars, Luanda acts as a lesson that spectacle is no substitute for substantial political and economic change.
Angola’s economic challenges seem dramatic given the optimism following the end of its civil war (1975-2002). The war left Angola shattered. Infrastructure was destroyed, an estimated 4.1-million people were displaced, and the economy outside of the oil sector collapsed. When peace was announced in April 2002, Angola’s future was uncertain. This changed when the price of crude oil rose from $34.86 a barrel to $146.12 in 2008. Combined with increased oil production, Angola went from financially fragile to stable.
Angola initiated oil-backed credit lines, chiefly with China, the creditor extending a line of funding in return for Angola selling a fixed amount of future oil to the creditor. The reconstruction project included initiatives for improved social services and poverty reduction. But the primary focus was on real estate and infrastructure. Luanda, home to 6.5-million people, was the centre of these investments. Oil profits were sunk into redevelopment plans, including state land reserves for urbanisation; construction of a big rehousing zone, Zango, for people forcibly removed for reconstruction projects; the building of a satellite city, Kilamba, to house 500,000 people; and high rises in the city centre and real estate developments aimed at high-income earners.
Prices went through the roof, leading to Luanda being ranked the most expensive city in the world for expatriates. For those living in wealthy areas, it felt like a new world was emerging. But for three-quarters of Luandans who live in informal settlements, little changed. Their urban status was uncertain.
Central to the project was mass demolition of slums (bairros), and removal of residents to rehousing zones. Many were not rehoused and lost their homes. There was little legal recourse, as the Angolan state is the owner of all land.
After the oil price crash, Luandans are wondering what was achieved. Between 2004 and 2014 Angola failed to diversify its economy significantly. Foreign reserves are drying up and inflation hit a three-year high of 10.4 percent in July. This has led to a rise in food and consumer goods prices, negatively affecting even the small gains that the urban poor made during the boom years.
Ever stronger evidence is emerging of mismanagement and corruption in the administration of oil funds. A 2011 IMF report identified that public funds of $32bn linked to the state oil company, Sonangol, were unaccounted for. Although it later found that $27.2bn was due to unrecorded expenditure by Sonangol on behalf of the Angolan government, this left open the question of what had happened to the outstanding amount.
While Angola is now searching for new sources of financing, the general feeling is that its economic problems are set to continue.
A nascent urban youth movement emerged in 2011 calling for changes to the political system. Their demands included respect for civil liberties and the resignation of President José Eduardo dos Santos.
These signs of change have been crushed as the government has sought to contain political dissent. Seventeen youth activists have been charged with attempting to overthrow the government. Fifteen have been detained for more than 100 days. But crushing political dissent will not solve the problems. To bring change, financial resources have to be orientated towards the needs of the majority.
Claudia Gastrow

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