1. Introduction
In the past decade and a half, Angola has prioritized the repair, expansion and modernization of infrastructure as a central element of post-civil war reconstruction and economic development. However, deficient governance has posed – and continues to pose – serious challenges to this project. Among other things, it has led to the mismanagement of resources, has undermined project quality, has reduced value for money from public investments, and has contributed over time to increased pressures on the public finances.
This paper reviews infrastructure policy in Angola principally between 2003 and 2016 (with particular attention given to the decade between 2006 and 2015). It takes into account the implications of a highly specific set of circumstances during the post-war period: an economic boom, driven by high oil prices, that rapidly lifted incomes and boosted public revenues;1 the ready availability of external credit to complement hydrocarbon revenues as a source of infrastructure funding; and, more recently, a transition from mid-2014 to a context of lower international oil prices, with all the fiscal constraints that this implies for the next phase (2018–22) of the government’s development programme.
The analysis focuses on the governance challenges associated with infrastructure development and public investment; the impact of such challenges on planning and delivery of public infrastructure; and the mixed record thus far of policymakers’ efforts to improve the institutional framework. The government’s plans for infrastructure development since the end of the civil war in 2002 have been overambitious and self-defeating. The advantages conferred on Angola by rapid GDP growth and abundant capital have been offset by insufficient capacity, a lack of transparency, low levels of skilled labour, corruption and unbalanced planning. The use of public funds has lacked proper oversight; budget assumptions have been unrealistic; planning has overemphasized transportation at the expense of other areas of infrastructure; and financing has been pro-cyclical, with debt accumulating rapidly both before and after the onset of the economic crisis in 2014.
The country, in short, failed to use its oil windfall as effectively as it could have done in the years covered by this study, and the emergence of more challenging economic conditions has seriously tested the ability of the government to continue financing capital investment projects and maintain existing infrastructure.
Above all, these difficulties have shown that the need for improved governance is greater than ever. While this paper assesses the governance of infrastructure development before the 2017 change of national leadership – when President José Eduardo dos Santos, in power since 1979, was succeeded by João Lourenço – its lessons and recommendations remain pertinent to the issues that the current administration will need to address. In particular, the economic climate of the past few years has illustrated the need for robust institutional arrangements capable of supporting inclusive growth and enabling better use of state resources. Since taking office in 2017, President Lourenço has initiated a series of economic reforms that, broadly speaking, have a strong focus on improving governance, tackling corruption and patronage, and ending unnatural near-monopolies (most notably in the cement and telecoms sectors). The articulated aim of these reforms is to put in place a legal environment that facilitates business, free enterprise and competition.
The reforms announced include some that directly and indirectly address infrastructure governance, although these are yet to be developed in detail and implemented. One of President Lourenço’s first acts was to announce the formation of a new Ministry of Economy and Planning, merging the previous Ministry of Planning and Territorial Development and Ministry of Economy.
One of President Lourenço’s first acts was to announce the formation of a new Ministry of Economy and Planning, merging the previous Ministry of Planning and Territorial Development and Ministry of Economy.
In particular, a more realistic approach to infrastructure planning requires better links between the medium-term budget framework and the national budget. One of the key challenges in the past in managing public investments has been the separation of the Public Investment Programme (PIP) from the national budget. This implies, for example, that operational and maintenance costs throughout project lifecycles were not taken into account in the preparation of financial estimates of the cost of PIP projects to the national budget. Vitally, responsibility for the PIP and the integrated public investment management system (SIPIP) has now been placed with the Ministry of Finance, rather than with the new Ministry of Economy and Planning. This should make it easier to develop a more realistic and sustainable portfolio of infrastructure projects both in the annual PIP and the government’s National Development Plan (NDP).
Plans have also been announced to strengthen control and oversight of infrastructure projects. This is crucial for addressing the mismanagement of public investment, as well as for tackling the broader anti-corruption agenda. Key institutions that will be involved in this initiative are the Civil Engineering Studies Centre (Laboratório de Engenharia de Angola), and a new Institute for Public Works (Instituto de Obras Públicas) formed on the foundations of the existing National Project Elaboration Enterprise (Empresa Nacional de Elaboração de Projetos). The National Project Elaboration Enterprise will reportedly be responsible for establishing rules and regulations on project preparation, implementation, specifications, tender procedures and inspection of works. It remains to be seen if these institutions will be able to deliver on their objectives, however.
Context and background
The period from 2006 to 2014 was characterized by extremely rapid economic growth2 and expansionary fiscal policy – a dynamic only briefly interrupted by fallout from the 2008 global financial crisis. Growth driven by high oil prices and increased oil production had a dramatic impact on a country recovering from decades of war: GDP per capita soared from US$711 in 2002 to US$4,804 in 2013, with government revenue skyrocketing in the same period.3 This also meant a rapid ascent for Angola within the World Bank’s country classification system, from the level of low-income country to that of upper-middle-income country.4
Yet massive disparities in income and wealth remain. This reflects the significant difficulties the government has faced in translating oil revenues into improved living conditions for the majority of the population. Infant and maternal mortality rates remain among the highest in the world. Notwithstanding its rise in the World Bank’s economic categorization, Angola continues to share many of the characteristics of very poor countries. It is still classified by the UN as a ‘least developed country’ (LDC), one of 47 worldwide.5 As a result of the domestic economic crisis that began in 2014, Angola’s per capita income dropped sharply and its World Bank classification fell back to that of a lower-middle-income country in 2017.6
Angola’s governance deficiencies and enduring development challenges were exposed, in particular, by the mid-2014 fall in international oil prices – from over US$110 a barrel (on average for Angola’s oil exports) to below US$50 a barrel. This highlighted the country’s vulnerability to fluctuations in oil prices and sent shockwaves through the economy, leading to a significant depreciation of the kwanza, soaring inflation and a sharp rise in public debt, among other problems. Managing this crisis would have been easier if sources of government revenue had been diversified, or if significant savings had been achieved during the years of prosperity. The downturn further underlined the importance of rebuilding the country’s civil infrastructure: both because of the role of capital investment in generating economic growth, creating jobs and providing opportunities for local business; and because of infrastructure’s beneficial long-term impact on productivity, competition and the quality of public services.
The background to this crisis was the government’s strong political commitment to rebuilding infrastructure after the end of the civil war. The challenge was immense after decades of conflict and neglect. The leadership set ambitious goals for investment in road networks, railways, ports, airports, energy, water systems and irrigation – goals that were reflected in a series of development plans and programmes. Although a few places such as the capital, Luanda, and major provincial cities had seen some additions or upgrades to their infrastructure during the war, they also needed further investment: their populations had grown so rapidly as a result of internal displacement that the capacity of existing infrastructure had been overwhelmed. Over the years, roads and energy became the government’s main development priorities.
The post-conflict situation with regard to infrastructure development was distinctive due to Angola’s unusually strong access to finance. An abundant supply of capital from oil revenues was boosted by a series of credit lines, most of which were extended by China. As a result, Angola found itself in the rare situation of not having to worry unduly about how it would finance its infrastructure plans. For most other countries, infrastructure planning invariably turns to the issue of where the financing is going to come from – in other words, how to close the ‘financing gap’. But this was not an issue for Angola, which instead offers a case study in the challenges of managing large amounts of infrastructure funding efficiently. The country’s experience is especially instructive in understanding governance issues around public investments in infrastructure.
1 International Monetary Fund (IMF) (2018), World Economic Outlook Database, January 2018, http://www.imf.org/external/pubs/ft/weo/2017/02/weodata/weorept.aspx?sy=2000&ey=2019&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=47&pr1.y=13&c=614&s=NGDP_RPCH%2CGGR_NGDP&grp=0&a= (accessed 20 Feb. 2018).
2 Real GDP growth averaged 9.1 per cent a year, and peaked at 22.6 per cent in 2007, according to IMF data. IMF (2018), World Economic Outlook Database, January 2018, http://www.imf.org/external/pubs/ft/weo/2017/02/weodata/weorept.aspx?sy=2006&ey=2014&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=55&pr1.y=9&c=614&s=NGDP_RPCH&grp=0&a= (accessed 20 Feb. 2018).
4 For an overview of the World Bank’s country classification system, see World Bank (undated), ‘How are the income group thresholds determined?’, https://datahelpdesk.worldbank.org/knowledgebase/articles/378833-how-are-the-income-group-thresholds-determined.
5 Angola started a five-year graduation process from LDC status in early 2016. For an overview of the LDC classification, see https://www.un.org/development/desa/dpad/least-developed-country-category.html.
6 World Bank (2017), ‘New country classifications by income level: 2017–2018’, TheDATABlog, 1 July 2017, https://blogs.worldbank.org/opendata/edutech/new-country-classifications-income-level-2017-2018.