Soren Kirk Jensen
Associate Fellow, Africa Programme
With oil prices forecast to be low for some time, there is a window for real reform to cut graft, build up government efficiency and diversify the economy away from its addiction to oil.
A pedestrian waits by an oil tanker waiting in a queue of traffic outside the Port of Luanda. Photo via Getty Images.A pedestrian waits by an oil tanker waiting in a queue of traffic outside the Port of Luanda. Photo via Getty Images.

Angola celebrates 40 years of independence this week, but international headlines and social media have been dominated by the country’s failure to diversify its economy when oil prices were high, as well as a crackdown on a group of human rights activists for allegedly planning a coup d’état.  There are the makings of a deepening crisis driven by a combination of low oil prices, further restrictions on foreign currency and a widening gap between official and black market exchange rates. This makes life ever more expensive for ordinary citizens and threatens to create social unrest. The recent outburst of violence when local minibus (kandungeiro) drivers went on strike, bringing the city to a halt, was an expression of rising levels of frustration with this situation.

Angola is indeed experiencing hard times. The national budget was revised in early 2015 and, even though the Public Investment Programme was slashed by more than half, a significant budget deficit remained to be covered. With Angolan-linked corruption probes in Brazil and China also progressing some commentators have described Angola as reaching a tipping point. The absence of President Jose Eduardo dos Santos from the yearly State of the Nation speech in October added to the sense of drama. But this speculation is overheated, and the idea that this might end his 36 year presidency is unrealistic.

Look a little deeper and the government seems to be managing at least the fiscal side of the crisis reasonably well, despite the foreign currency liquidity squeeze and difficulties in paying bills. The Ministry of Finance has learned lessons from the impact of the financial crisis of 2008, when it found controlling expenditure challenging. At the time, the quasi-fiscal expenditures by Sonangol, the state oil-and-gas company, were reduced much less than the expenditure controlled by the treasury and arrears of around $10 billion quickly accumulated. The government was saved by rebounding oil prices in late 2009, enabling liabilities to be cleared gradually and businesses to resume projects that had been mothballed.

While the Ministry of Finance claims that it is not currently building up any new arrears, companies are nevertheless complaining that they are not being paid. This contradiction arises from government use of payment rules as a mechanism for controlling spending, a valve to be turned up or down according to the fiscal or political context. A company may have concluded a project and submitted an invoice but, legally speaking, the government is not obliged to pay the bill until the delivery of the supply or completion of the work has been officially verified. Minister of Finance Armando Manuel was appointed with a mandate to loosen this valve, to increase public spending and boost growth, but with the onset of the current crisis it has been tightened again. The Ministry of Finance might even have tightened it too much, as actual spending at the end of the first six months of the fiscal year stood at just 33 per cent of the reduced Public Investment Programme budget. It even seems that the slowdown is affecting growth figures less than expected, with the ministry expecting four per cent GDP growth for 2015, which would not be a bad result for a country in crisis. 

Time for reform

The message from the Ministry of Finance is that the last quarter of the year will see more funds being released to invest in infrastructure. If this happens, the government should prioritize spending on pro-poor investments through the poverty reduction and rural development programme that has been used to finance construction of schools, health posts and other small infrastructure and goods by small- and medium-sized enterprises at the local level.

Throughout the past few years, before the current crisis, a coalition of churches (Council of Christian Churches in Angola and the Catholic Diocese of Lubango) has documented significant room for improvement in the level of completion of projects financed through this programme and this could easily have deteriorated in 2015. This should be followed up by settling on a stable level of public expenditure in the medium term and adopting a fiscal rule to sustain this. The level should be sustainable both in terms of absorption capacity of the economy and the capacity to monitor the quality of public expenditure. This would allow the government to deliver better results than if they keep turning the valve up and down in tune with oil prices and political signals.

Lastly, the government should prepare to do more with less by addressing corruption and lack of transparency in the process of awarding public infrastructure contracts. Companies are already adjusting to stricter monitoring of what they deliver so they might as well get used to stricter rules of winning contracts too. Low oil prices have always opened up opportunities for the Angolan government to embark on reforms. When prices have risen, some of these reforms are lost but with oil prices forecast to be low for some time, this opens up a window for real reform to cut graft, build up government efficiency and truly diversify the economy away from its addiction to oil. Reforming the awarding of contracts by moving away from patrimonialism to open, accountable bidding processes is the only way forward if the government is going to use the crisis to make bold changes that will allow the country to do more with less and show that 40 years after independence, progressive government is not forgotten.

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