Foreigners Bet Big on Angola … But That’s Not the Full Story
WHY YOU SHOULD CARE
Because Angola is one of the most expensive places to live.
Angola is a country of superlatives: the world’s worst place for kids, the most expensive city in the world for expats, site of the worst yellow fever outbreak in decades, home to Africa’s richest woman. But the best superlative of all has gone virtually unnoticed. According to the 2015 Africa Investment Report:
Foreign direct investment in Angola increased by 3,178 percent in one year.
Over 365 days, $16.5 billion was injected into the Angolan economy — that’s 19 percent of the $87 billion invested in the continent in the same year. That swift uptick boosted the country’s FDI ranking against its African counterparts by 18 spots, from 20th to second place, barely trailing Egypt’s $17.9 billion and beating out Nigeria.
The spark that ignited the investment boom is simple: O-I-L. Angola is the second-largest oil producer in Africa, behind Nigeria, but this alone is nothing new. The “tremendous amount of FDI” has more to do with speculation about the global price of oil and “the expectation of continuing high returns,” says Assis Malaquias, chair of defense economics and resource management at the Africa Center for Strategic Studies. The bulk of Angola’s FDI came from a single $16 billion investment by France’s Total oil company, to develop an offshore oil field with Angola’s state-run oil company, Sonangol. Other investors include China, Brazil and the U.S.; a 2011 law set a minimum investment at $1 million.
Such strong FDI might signal a rising middle class or rapid development … except that it doesn’t. President José Eduardo dos Santos recently announced that Angola is totally, utterly broke. (That minimum-investment law? Scrapped.) The OPEC member state bucked calls to diversify and relies on oil for 95 percent of its exports — higher than any other oil producer except Iraq. “Agriculture, services, fisheries, forestry, mining — all of those sectors are right there,” says Malaquias, but financiers are faced with too many economic disincentives. So when oil prices tanked in 2014, from a recent peak of nearly $110 a barrel in 2012 down to around $43 today, the Angolan economy bottomed out, and inflation skyrocketed. The currency is so overvalued that it makes more financial sense to import basics like food and water rather than source them from within the country.
But Angola’s problems run far deeper than economic mismanagement. The country is critically corrupt, and the Heritage Foundation, a conservative American think tank, ranks Angola 156th in its 2016 Index of Economic Freedom rankings, citing “pervasive corruption” and a “lack of capable public institutions.” The president’s daughter heads up Sonangol, and a few years back $32 billion in oil rents vanished from the Central Reserves (most was later found by the International Monetary Fund in “quasi-fiscal operations”). Some blame lingering effects of a 27-year civil war, but now Dos Santos has been in power for just as long, and during his tenure Angola’s seen a stunning 15 years of high GDP growth — an average of 10 percent a year. However, the country still ranks abysmally when it comes to human development. The rich profit while the poor languish and health budgets are slashed, leaving hospitals without basic supplies like yellow fever vaccines. “Angola is facing a multidimensional crisis … political, economic and social,” says Angolan parliamentarian and opposition party leader Abel Chivukuvuku, at a talk on Angola’s economic crisis this month at Chatham House, in London.
The irony is reflected in the U.S. approach to Angola, too. It’s a “clash between U.S. values policy and U.S. strategic policy,” says Alex Vines, the Africa program director at Chatham House. The need for oil wins out over democracy and human rights promotion, says Vines. Even when the story is boom, for the average Angolan, the bottom line is bust.