Angola: Oil and diamonds and the prospects for recovery (continued)

UNITA was only able to continue to fight because it had access to Angola's diamonds. Government troops had been demobilized in much larger numbers than UNITA troops during the peace process, and UNITA was able to re-capture territory that contained Angola's richest alluvial diamond mining areas (Hodges 2001). Between 1992 and 1998 UNITA raised about US$2 billion from diamond sales, far more than it ever received from international donors (Hodges 2001).

Diamond wealth benefited UNITA's war effort in two ways. First, they were able to sell diamonds and use the proceeds to purchase arms, pay stipends to top officials and to their families abroad. Second, UNITA used gifts of diamonds to win favors from regional governments, including the Mobutu regime in the Democratic Republic of Congo (then Zaire) (Le Billon 2000).

In June of 1998 the UN Security Council froze UNITA bank accounts, and declared a worldwide ban on the sale of unofficial Angolan diamonds. While the UN sanctions did not stop diamond sales, they did significantly increase UNITA's transaction costs (Hodges 2001). In addition, by 1999 many of UNITA's best alluvial diamond deposits had been exhausted. At the same time that UNITA's resources were diminishing, increasing oil production was dramatically raising government revenue. The difference in resources broke the stalemate in the war. By the end of 1999 UNITA had lost its primary airport and turned entirely to guerrilla warfare, unable to defend territory through conventional means (Hodges 2001, 158). By the time of Savimbi's death, UNITA had been effectively defeated as an armed force (Africa Confidential 2002).

While increasing resources from oil production have allowed the government to defeat UNITA and end the war, the effect of oil revenues on the Angolan economy have been disastrous. In 2001, per capita income in Angola was $1 330 (CIA World Factbook 2002), well above average for African countries. But oil revenue accounts for 45% of GDP (CIA World Factbook 2002), and a majority of that money accrues to the government. Cilliers argues that Angola suffers from a "Dutch disease", implying that a primary commodity export raises prices, crowding out development of other aspects of the economy. Talent and resources that might have been applied to developing the non-oil economy are instead used for rent seeking (non-productive accumulation) in the oil economy (Cilliers 2000, 23).

As a result of the huge portion of the GDP centered on the oil industry, Angola has developed a "coastal enclave economy" (Hodges 2001, 94) sustained by imports of arms and consumer goods purchased with oil revenue. The rest of the country has been left by the government to fend for itself. 85% of Angolans live by subsistence agriculture (CIA World Factbook 2002), 61% live in poverty, and 12% live in "extreme poverty" (Hodges 2001). The oil sector has few linkages to the rest of the economy. It employs just 10 000 people, half of which work for the state oil company, Sonangol (Hodges 2001). Angola suffers from a crippling shortage of skilled labor, and competition from the oil sector pulls the few well-educated Angolans away from civil service and from other industries (CIA World Factbook 2002, 66).

While the war has contributed substantially to the decline in the standard of living for ordinary Angolans, government neglect and mismanagement have also played an important role. The security of oil revenue has allowed the MPLA government to ignore a steadily declining non-oil economy, and insulated it from the need to seek any kind of public support. As oil revenues have increased, government investment in social services has fallen dramatically[2]. Many of these services have been taken on by relief agencies and international donors, further eroding the legitimacy of the government.

Because oil revenue allows the government to allow non-oil companies to go largely untaxed, businesses have little incentive to hold the government accountable (Hodges 2001, 80). Le Billon argues that Angola displays all of the characteristics of dysfunctional, resource depended governance, including slow or negative economic growth, few economic linkages between the resource economy and the rest of the economy, a corrupt state, high levels of debt, and a high vulnerability to price shocks (Le Billon 2000).

Oil revenues have also contributed to widespread corruption. Nearly $1 billion per year in oil revenue, or 15% of Angola's GDP, is unaccounted for (Kessler 2002). The MPLA has secured its hold on power through the upkeep of patronage networks that distribute oil wealth to a tiny class of wealthy Luanda families that has become known as the "oil nomenklatura" (Le Billon 2000). Resources are transferred primarily through a fixed official exchange rate, which allows individuals to obtain foreign currencies at discounted rates (Munslow 1999, 551). During the 1992 elections, a common slogan among disillusioned Angolans was "UNITA kills, MPLA steals" (Le Billon 2000).

Footnote

[2] "According to the Ministry of Finance's own figures on national budget expenditures, the social sector's share fell dramatically from 31% in 1992 to 12% in 1996. This is extremely low compared with most neighboring countries, and other African states more generally" (Munslow 1999, 551).

References

AFRICA CONFIDENTIAL 2002 "An Edited Peace", 43(8-19), April.

ALLAFRICA 2002 "Interview with UNITA interim leader Paulo Lukamba, (General Gato)", June 18, 19.

CIA WORLD FACTBOOK 2002 "Angola".

CILLIERS, J 2000 "Resource Wars - a new type of insurgency", IN Angola's War Economy - The Role of Oil and Diamonds, Cilliers, J & Dietrick, C, Institute for Security Studies.

KESSLER, G 2002 "Powell Warns of Reduction In Aid to Oil-Rich Angola" IN Washington Post, 15 September.

LE BILLON, P 2000 "Political Economy of Resource Wars" IN Angola's War Economy - The Role of Oil and Diamonds, Cilliers, J & Dietrick, C, Institute for Security Studies.

MUNSLOW, B 1999 Third World Quarterly, June, 209(3).