What’s the future of Angola’s economy?

The framework of a two-speed economy is becoming antiquated in a world of accelerating change and increasing complexity. But thinking in terms of a multispeed economy is not especially helpful, either. Instead, it is better to view the economy as a mosaic, with hot spots of opportunity and cool spots of slow growth. This commentary is part of our From Emerging to Diverging Markets series, which tracks hot spots and the changes under way in the world’s rapidly developing economies.

Recent volatility in commodity prices could spell big trouble for many nations in sub-Saharan Africa, a region not known for sound economic management of its wealth of natural resources.

Angola is also likely to suffer from the drop in oil prices. But in the longer term, it will continue to benefit from its big progress over the past decade. In recent years, the oil-rich nation of 24 million has been moving aggressively to put its economy on a more sustainable footing. Not only is its government investing a major share of its oil wealth in new industries and infrastructure; it is also investing in its own people, with increased spending on education and health care.

Thanks to more than a decade of political stability and steady economic growth, the percentage of Angolans living below the poverty line dropped from 65 to 36 between 2002 and 2009. The number of children enrolled in primary school tripled, mortality rates for children under the age of five dropped, and life expectancy rose by five years over roughly the same period. In fact, Angola has achieved greater progress in improving the social and economic well-being of its population in the recent past than any other nation aside from Brazil, according to The Boston Consulting Group’s Sustainable Economic Development Assessment. (See Strategies for Improving Well-Being in Sub-Saharan Africa: The New Prosperity, BCG Focus, May 2013.)

Before the collapse in oil prices, Angola’s economy was expected to grow by 9.7 percent in 2015, according to government budget forecasts. That level may be difficult to reach if global oil prices remain at around $50 a barrel or less. Oil accounts for about 30 percent of GDP, 36 percent of government revenues, and 95 percent of exports, according to the Angolan government.

But the government is taking a number of measures to encourage other industries that should start bearing fruit over the next five years. And the gains in living standards are likely to translate into a larger consumer class and a better-educated, more able-bodied workforce that should provide new pillars for economic growth over the medium and long terms.

This doesn’t mean that Angola is not a very challenging place to do business. Luanda is the most expensive city in the world, according to one cost-of-living ranking. While it still has immense potential for further development of its natural resources, Angola hasn’t even begun to explore natural gas, for example, and its agricultural sector has yet to recover from civil war. The country ranks low in terms of ease of doing business. Infrastructure remains poorly developed in the interior. Poverty and unemployment remain high. Government bureaucracy is bloated, and many public services function poorly.

But Angola’s government is committed to structural reforms. It has reduced fuel subsidies and created a stock exchange; fiscal and bureaucratic reforms are under way. And the country’s economic progress is impressive when one considers the context. Thirty years of civil war, which ended only in 2002, left several generations of Angolans in extreme poverty, with little education, and in poor health. Since then, government agencies have had to devote most of their resources and energy to fighting famine and disease and rebuilding roads and health clinics.

Angola has a lot of work to do to build an economy that can continue to thrive despite volatile swings in global commodity prices. But it has stabilized the economy, is moving in the right direction, and has its priorities in the right places. If Angola can execute its plans and mobilize its resources efficiently, the economy has the potential to boost annual growth into the double digits.

This article is published in collaboration with BCG Perspectives. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Alexandre Gorito is a partner and managing director in the Luanda office of The Boston Consulting Group.

Image: Dusk settles over the Angolan capital, Luanda. REUTERS/Mike Hutchings