Autocracy, corruption, and inequality: Is time running out for the regime in Luanda?
- By Robert LooneyRobert Looney teaches economics at the Naval Postgraduate School in Monterey, California.
This is Angola in 2015: The economy has been expanding for over a decade, but unemployment remains stubbornly high at 26 percent, and over a third of the population is below the World Bank’s poverty line. The urban poor have seen few benefits from the boom — instead, new luxury villas now clash with sprawling slums, underlining the country’s persistent inequality. A privileged elite remains firmly in control of the long-standing autocratic government, which has attempted few economic reforms that would make a difference for ordinary people. The country’s institutions are best characterized as extractive rather than inclusive. There is minimal budgetary transparency and little press freedom.
The fact that this description could just as easily apply to Tunisia or Egypt in 2011 — right before the Arab Spring revolutions swept away their governments — should give pause to the rulers in Luanda. Angola, indeed, looks like a country heading toward a dramatic political transformation.
Until quite recently, the Angolan government has been sufficiently awash with oil revenues to keep a semblance of peace — not only through popular subsidies for items like fuel, but also by building up its internal security forces. This carrot and stick approach has helped quell the periodic demonstrations against the harsh thirty-year rule of President Jose Eduardo dos Santos of the dominant Popular Movement for the Liberation of Angola (MPLA).
But the massive drop in oil prices starting in the second half of 2014 and extending into 2015 has changed this dynamic. Lower oil revenues (the sector accounts for 95 percent of Angola’s exports) have created foreign exchange shortages and a rapid depreciation of the local currency, the kwacha. Inflation is rising and may hit double figures later in 2015. The cash-strapped government is facing increased public anger over increased gas prices, which rose by 28 percent after the government was forced to cancel fuel subsidies. A highly unpopular public sector hiring freeze was also introduced.
Long-time criticism of the government’s economic actions has centered on the authorities’ inability to share the wealth, diversify the economy and protect country from fluctuating oil prices. In fact, the economy is less diversified than before — despite recording 8.1 percent growth over the last five years, the non-oil sector now accounts for just over 43 percent of economic output (excluding public administration and defense), down from 47 percent in 2009.
Protests have intensified across the country. In Luanda, the capital, urban youth and veterans of the country’s prolonged civil war have been protesting since 2011, but the demonstrations have now intensified, hinting that new socioeconomic concerns are merging with pre-existing political tensions. Groups in Cabinda and Lunda North and South provinces have also begun protesting against alleged human rights abuses by the military.
These developments are creating a quandary for Angolan authorities. Drastically cutting expenditures might set off an Arab Spring-like scenario: new rounds of even more violent demonstrations and the possibility that events will spin out of control. On the other hand, turning to the international financial institutions such as the IMF or the World Bank would make the government vulnerable to outside pressure to improve governance and pursue economic reforms, possibly leading to an opening of the political system — and the loss of the regime’s monopoly on power. For the authorities, neither option is acceptable.
Ultimately, the government adopted what can only be called a Goldilocks strategy — not too austere and not too reform-minded. Its 2015 budget did impose cutbacks, but they were not as draconian as they could have been. Introducing additional austerity measures, especially reducing capital spending, would risk creating longer-term economic problems and subject the government to the embarrassment of halting uncompleted projects. Fearful of public unrest — and mindful of how quickly the Arab Spring swept away regimes long considered table — the government is trying to create the illusion that everything is under control and that its cash-flow problems are only temporary. The authorities have pledged that social programs such as health and education will be protected and have promised, but not yet delivered, a $5 billion social housing program.
From an economic perspective, the government’s response makes little sense. It fails to address the economy’s underlying weaknesses — low productivity, dysfunctional labor markets, and the lack of any industries that could create jobs, such as manufacturing. Forecasts suggest it may be years, if ever, before oil will be able to drive the economy as it has in the past. Only real economic reforms, together with improved governance to improve efficiency and accountability, would be able to turn things around. That the government hasn’t moved toward such reforms suggests either that officials are unconvinced that they would make a meaningful difference, or that despite their potential longer-term benefits, their short-term effects could usher in another round of demonstrations that might spiral out of their control.
What the government must find attractive in its chosen strategy is the prospect of maintaining the status quo while holding out the hope that stability and relative peace can be restored simply by mortgaging the country’s oil. Actually, the strategy has been in play since around 2004 and is often referred to as the “Angolan Model.” Essentially it involves getting China to extend Angola massive lines of credit. These currently amount to around $20 billion, and are used to finance the government’s key capital projects such as a new international airport in Luanda, electricity grid improvements, and a liquefied natural gas plant at Soyo. Payment is specified in oil with the requirement that that 70 percent of project inputs be sourced in China. All in all, Angola plans to borrow $25 billion in 2015 to cover the oil price drop shortfalls.
The arrangement with China came about in the early 2000s after the Angolan government failed to secure reconstruction funding from international financial institutions. In particular, the Angolan government did not agree to improve transparency, good governance, and respect for human rights as demanded by the IMF. China requires no such conditions. Interestingly, a key trigger of the Arab Spring events — government corruption — has been worsening in Angola since 2005, shortly after the start of China’s stepped-up lending.
Angolan opposition groups and broad segments of the population contend that the main beneficiaries of these opaque loan deals with China are Angolan politicians and insiders. In a recent debate in the national assembly, the opposition criticized the president’s June trip to China. UNTA Lawmaker Raul Danda asked, “How much did our president get from China? Nobody knows. How will we pay for it? Nobody knows.”
The little research that has been done on how such Chinese programs affect host economies tends to support the opposition’s concerns. To put it bluntly: governance matters. Well-governed African countries are likely to experience net gains from Chinese investment. Democratic pressures in a well-governed country are often sufficient to ensure that such investments benefit the population at large. On the other hand, corrupt and unstable countries are unlikely to see broad gains. Instead, the projects simply create business opportunities for the elites.
There’s no doubt that Angola’s stepped-up borrowing is making the country more vulnerable to Chinese pressure. While not officially confirmed, leaks from the government suggest the latest Angola-China deal could involve Chinese use of over 1.2 million acres of prime agricultural land as a warranty for 30 percent of the loan. If this deal takes place, it will only heighten tensions with the local population, many of whom farm the land in question.
What might we expect over the next several years? The government’s “Goldilocks” gambit is unlikely to work. Public anger will likely increase, possibly resulting in violence. While the government’s suppression of the press will continue, as the case in the Arab Spring countries, social media will facilitate growing opposition. If Angola’s recent past is any indication, the authorities are likely to respond to increased unrest with ever more repressive measures. An uptick in oil prices could relieve tensions, but in the absence of serious economic and governance reforms, they will not rescue the economy — or reverse the growing opposition to the government.
Will Angola turn out to be an African variant of the Arab Spring? If one looks past the religious factor, the country shares a striking similarity, in terms of socio-economic indicators and political marginalization, to several Northern African countries whose regimes were swept away by popular uprisings in 2011. The Angolan government has the benefit of being able to study how countries like Jordan, Morocco and even Algeria were able to successfully address the many similar issues they faced during that year. Unfortunately, other than stepping up selected areas of expenditure, the Angolan government has not put into place anything resembling the successful economic or political reforms undertaken by those countries.
To date, Angola has escaped Arab Spring-type turmoil for three primary reasons. First, after a long bloody civil war, Angolans place high priority on security and stability. Second, as a major oil producer, the government has had sufficient financial resources at its disposal to buy peace. Third, shortly after Arab Spring uprisings in Tunisia and Egypt, the government stepped up its digital surveillance of suspected dissidents and their associates. One piece of spyware developed for this purpose was able to take screenshots of the suspected individual and then forward them to security personnel.
The government’s strategy is straightforward: Take advantage of high oil prices to maintain subsidies and patronage networks and, when oil prices fall, secure additional lines of credit from China in return for future oil deliveries. Since this approach conveniently preserves lucrative sources of income for the country’s elites, it represented the best of all possible worlds.
Because the plan appeared fool-proof, no plan B was developed. After all, who would have predicted that oil prices would drop from $110 to $50 per barrel in just a matter of weeks, or that the Chinese economy would be in serious trouble and possibly unable or unwilling to extend additional loans, or even agree to easier terms? Who in the government thought their spyware program would ever be detected? As usually the case with autocratic, governance-deficient, oil-based economies, vulnerability is never recognized — or acted on — until it is too late.
In the photo, opposition party activists protest for free elections in Luanda in August 2012.
Photo credit: ESTELLE MAUSSION/AFP/GettyImages