Angola: Opportunities and Challenges of a New Green Economy

In the past decades, governments and international organizations have agreed on the necessity for improving human living conditions. Undoubtedly, environmental sustainability has been one of the core topics discussed among world politicians and policy-makers. In particular, reaching more sustainable environmental standards was part of the Millennium Development Goals published at the dawn of the 21^st century.

Growing international concern attributed to environmental issues was also expressed in drafting the Sustainable Development Goals, released in September 2015 by the United Nations, which represent a new generation of objectives that countries hope to pursue. Among the seventeen new goals, five deal with environment-related themes, such as renewable energies, climate change and biodiversity. Partly due to the international stance on environmental matters, developing countries have started to address the subject by enhancing the collaboration between government and civil society. The Republic of Angola, the seventh largest African country in dimension, second in oil production and third largest national economy in sub-Saharan Africa, has engaged in the process of greening its economy. Nevertheless, economic, political and social interests sometimes collide and building a greener society is not an easy goal to reach.

Belamino Jelembi is the director of Action for Rural Development of Angola (ADRA), an NGO that is highly committed to democratic and sustainable rural development in the country. The words he spoke during the World Conference on Environment held in 2012 are still echoed today. He claimed that by solely investing more on small producers, Angola could successfully implement its green economy strategy. Now, more than four years since that public event, the country is still on the path to improve its development process.

Economic data show that Angola has a population of 24.3 million people and still strives for growth. Being part of the UN, OPEC, African Union and other international alliances has not yet wiped out its serious humanitarian crises, some of them related to Angola’s violent historical path to gain independence. Indeed, 40.5% of the population still lives below the poverty line, with 85% of the workforce employed in the agricultural sector where revenues are highly dependent on seasonality and weather conditions. This economic structure implies that resources are unevenly allocated among social classes.

The Gini coefficient, a measure of the income distribution ranging from zero (perfect equality) to 100 (perfect inequality), corroborates this stance. The United Nations database reports a Gini of 42.7 for the country, a number that is mainly derived from the exclusive control of oil and diamond extraction and export that is given to elite classes of entrepreneurs. Euromonitor, a market research firm, also reports that the top 10% of income earners control one-third of total income. Therefore, given Angola’s reliance on oil as a main export commodity, increasing green businesses’ penetration is both a necessity and an opportunity. With oil accounting for 90% of export earnings, 80% of tax revenues and half of Angola’s GDP, the country might be threatened by the resource-course paradox.

This theory states that a country endowed with a great amount of natural resources does not grow as fast as expected when it uniquely exploits the development of those resources. The main cause of this phenomenon is the great dependence on commodities that shapes the entire economy, therefore promoting economic fragility. In the last four years, for instance, oil prices dropped from above $120 to a minimum of $26 in the first quarter of 2016, causing a considerable reduction in Angolan revenues generated by the sector.

Additionally, extensive Chinese investment in the country has exposed the economy to foreign economic trends. According to the Wall Street Journal, 46% of Angolan oil exports were routed to China in 2013, indicating that the current economic slowdown in the Asian country tremendously affects Angolan oil revenues. The African Economic Outlook 2016 also highlights three main channels through which economic downturns would potentially hurt the Angolan economy. Among them are diminishing global growth and global demand, decreasing exports of commodities and a loss in the supply of liquidity from foreign investors. Given this delicate scenario, it is important to focus on strategies that reduce dependence on oil production, increase equality and improve population living standards. Therefore, sustaining green businesses and greening the economy assume multifaceted meanings and take place through both government reforms and direct engagement of civil society. Angolan projects developed with the aim of driving environmental change in the economy should be analysed, as they might positively affect the entire economic structure of the country.

First, let us focus on infrastructure. Investments in this sector help reduce carbon emissions, with a subsequent positive impact on the environment. Euromonitor reveals that the cost for transporting food in the Angolan countryside is five times higher than in many African countries, since most of the country’s infrastructures are obsolete, dating back to the Portuguese colonisation. According to PwC, a consultancy firm, Angolan infrastructures are expected to strongly improve, underpinned by political stability and adequate government reforms.

Another set of innovations that drive environmental improvements has taken place in Angolan cities. In the last 25 years, water supply and sanitation have developed substantially in Angolan urban areas due to a decentralisation of water delivery. This policy increased urban access to water from 52% to 75% in the last two decades. Benefits of these green policies are seemingly not restricted to urban citizens as effective management of urban wetlands leads to flood control, enhances storage and purification of water and preserves biodiversity.

A third sector that actively contributes to greening the economy is waste management. Recycling presents many benefits for the environment: it limits demand for virgin material, prevents contamination of land and produces new forms of energy. In Viana and Lobito, located in the Angolan provinces of Luanda and Benguela respectively, the Portuguese group Moncartel has been recycling glass, plastic and engine oil since 2008, after an investment of USD 20 million.

In addition to these three dimensions developed from the cooperation between the public and private sector, namely infrastructure, water supply and waste management, the Angolan government has officially expressed its environmentally-friendly policies in the Long Term Strategy for Development of Angola (2025). This commitment takes the formal name of mitigation contribution. There are two main goals: on one hand, to diversify the energy matrix, reduce reliance on oil and extract power from renewable resources, and on the other, to reduce greenhouse gas (GHG) emissions by 50% by the year 2030 and adopt a program of reforestation. The reason for the widespread public concern about environmental conditions is the threat of climate change and its possible disastrous consequences, such as floods, soil erosion and droughts. One practical solution adopted by the government to mitigate climate change is the repowering of the Cambambe hydroelectric power plant. The plant capacity has been increased from 180MW to 260MW, reducing GHGs thanks to the use of water instead of fossil fuels as a power source. Another interesting project has been developed in the municipality of Tombwa, where fifty wind turbines convert energy from wind into electrical energy. These initiatives are only two among the many projects promoted by the Angolan government within mitigation contribution. However, substantial investments of an estimated USD 14.7 billion are required to finance these innovations and the cooperation of international investors has been already invoked. Thus, Angola issued a USD 1.5 billion bond at an interest rate of 9.5% in late 2015. The consequences of increasing public debt should be carefully considered together with precise analysis of the interests to be paid on bonds. Indeed, fluctuations of oil price would directly influence government revenues, whereas dependence of the Angolan kwaza on the US dollar exposes the national currency to an exogenous factor. Therefore, issuance of bonds should be considered a delicate matter by the government.

Finally, it is worth mentioning the other public obligation of the Angolan government: the adaptation contribution. Contrary to the mitigation contribution, this commitment has no international implications yet it still envisions a broad agenda that include improvements in agriculture, coastal zones, land-use, forests, ecosystems, biodiversity, water resources and health. Most of the projects listed under this category are financed by international organisations, such as FAO and United Nations, which collaborate closely with the Angolan Ministry of Energy.

In conclusion, the Republic of Angola, as most developing countries, faces obstacles in its path to improve human living conditions. Yet, despite considerable income inequality, widespread poverty and reliance on oil as a unique commodity, the government has publicly committed to green the country’s economy. Undoubtedly, financing mitigation projects and implementing energy reforms are delicate matters requiring prudent management of state finances and constant control of results achieved. However, by relying on new sources of energy, Angola will augment its resilience to the impact of climate change. By attracting foreign financial resources and collaborating with investors, Angolan people will receive assisted training and capacity-building programmes, spurring their human capital potential. Through the construction of hydropower plants and the development of other renewable energy sources, rural communities and businesses will be better supplied with electricity. Most importantly, by stimulating the whole economy with both government and investor spending, youth job creation will increase as demand for labour goes up. Greening the economy is not trivial for any country, but the commitment shown by Angolan public and private stakeholders is proof that the first steps toward future rewarding environmental achievements have been established.