An Emerging Markets Crisis? (Part 3 of 5: Angola)

Here’s a pub trivia question for you: What is sub-Saharan African’s third biggest economy? Chances are, you didn’t answer Angola, but that’s the correct answer. With GDP of around $125 billion per year, its economy is just a fraction smaller than Hungary and two and a half times bigger than that of Slovenia. The country is almost never reported on in the Western media, despite the size and importance of its oil reserves, which are the reason why its economy is surprisingly large. Yet Angola’s long boom is now over as well. Like all the world’s other commodity-based economies, it has been experiencing huge economic challenges over the last 12 months, and the country is now struggling to adapt.


Like many other parts of the world, Angola has experienced a devastating drought in recent times. In the province of Cunene alone, there are an estimated 800,000 people facing food shortages. This is 70% of the entire population of the province. Malnutrition is spreading across the entire south of the country and the international aid community is gearing up from a large-scale intervention in the nation

This has come at a particularly bad moment for the country as the government are reeling from a collapse in revenue from oil sales. In 2015 Angola was forced to slash government expenditure by an incredible 50% due to falling revenues. This brought to an abrupt end a legendary era of excess in Luanda, the Angolan capital, where the local elite had lavished huge sums on imported French wines at fashionable eateries, just metres away from the fetid slums of the capital. According to Angola specialist Ricardo Soares de Oliveira, the excesses of the boom years were a lost opportunity of “monumental proportions”. State funds were “squandered in pointless projects or hoarded by the few, and most Angolans were left with nothing”.

The nation’s currency, the Angolan kwanza, has also taken a battering over the past twelve months, drifting out from around 90 kwanzas per dollar to around 155 now. This reflects the increasing weakness of commodity-based economies in trade terms as demand for their resources dries up. The graph below shows the sharp and sudden drop in the Angolan currency against the USD. While one kwanza had long been equivalent to 1 cent US, it now buys only 6/10 of a cent, and it is dropping precipitously.

chart (2)

As of January 2016, the government is savagely cutting subsidies and services, trying to stave off fiscal catastrophe. As of last week, it has now removed all remaining subsidies on fuel and diesel. The sharp decline of the oil price has also meant that numerous infrastructure projects have already been delayed or cancelled. Unless the oil price recovers swiftly in the next few years, the country will have many years of austerity and cutting ahead.

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