Rising Angola: Oil, Glorious Oil - Case Study Example

Economics Article Commentary The purpose of this paper is to provide some commentary on a developmental economics article that has been written in the last five months. The article selected for this paper is entitled “Rising Angola: Oil, Glorious Oil” which appeared in The Economist on January 28th 2010. The format that this paper will utilize will be to first highlight most of the major points covered in the article. Secondly this paper will give some background information on the economy of Angola, thirdly this paper will highlight some of the developmental economics issues that Angola is facing and finally this paper will provide some predictions as to the future of the nation if it continues down the same path. Probably the most startling piece of information that comes out of this piece is the fact that the article postulates that in 2007, Angola was estimated to have the fastest growing economy in the world with GDP growth at approximately 20% (See graph below) International Monetary Fund, World Economic Outlook Database, October 2009 This trend is owing to the fact that the nation has had an explosion in its oil production in the last few years. However as one can predict with the falling price of oil the nation was plunged this year into a growth rate of about 1.5%. However with prices on the rise again the near future of the nation looks optimistic. The article highlighted that whilst the future of Angola may be bright, the nation had experienced a number of years of hardships to get to this point, including a fourteen year war of independence from Portugal which lead into a bloody three decade civil war between the communist movement (The MPLA) and the pro western movement (The UNITA) which was concluded in 2002. The result of this long history of conflict is the fact that the infrastructure and institutions of the nation was left in ruins. Since its discovery in the 1950’s Angola was able to draw FDI throughout their civil war and has seen production reach an all time high of nearly 1.9 million barrels accounting for approximately 50% of GDP and the majority of government revenues and export earnings. See chart below. However as illustrated below it is the case that the net exports of the crude oil have been increasing year over year in the last decade, representing significant revenues for the government The effect that the falling oil prices of last year had on the Sub-Saharan nation was an ultimate current account deficit and the nation had to rely on loans from China to continue with infrastructure projects within the nation. The article also highlighted that the nation had accepted a 27 month International Monetary Fund standby loan of approximately $1.4 billion. How Angola is paying back their loans is largely through oil and it is expected that the nation will be China’s leading supplier of oil. Whilst ordinarily these oil reserves would be a excellent for the development of the nation, as the article highlighted it is the case that the capital (Luanda) is a hugely expensive city with a poor infrastructure for logistics. The country has not developed much of a manufacturing base so most items are expensive owing to the fact that they must be imported, the infrastructure remains in poor condition as roads are typically made of mud and electricity supply is not consistent. Having said all this is the strange fact that much of the oil jobs are still going to foreigners because the article argued there remain few skilled locals. Although it may be the fact that according to the CIA World Factbook (2010) that the nation has a purchasing power parity of $113.9 billion (2009 est.) which places the nation at 62 out of 226 entities, the nation still faces very high level of corruption and according to the article approximately two thirds of Angolans live on less than $2 a day. However it should be noted that there is some silver lining on the horizons for Angola. As the article argued that the nation is entering a transition period which is expected to bring positive results for the nation. Firstly there were democratic elections held in 2008, the port is being modernized and the government is starting to build over a million homes with the money from oil revenues, moreover there is an increased effort to train teachers and doctors with the aim of creating a healthier and better educated workforce. In conclusion I believe that this article provides an excellent snapshot of the current economic climate in Angola and whilst I would like to see more development in the country as a result of this massive FDI and export driven cash-flows it is clear that some positive change is coming. References CIA World Factbook (2010) Angola. [online] Available at https://www.cia.gov/library/publications/the-world-factbook/geos/ao.html Accessed on February 1st 2010. The Economist (January, 2010) Oil, Glorious Oil: The Countries Breakneck Growth is Slowly Benefiting the Masses. [online] Available at http://www.economist.com/world/middleeast-africa/displaystory.cfm?story_id=15401935 Accessed on February 1st 2010. Energy Information Administration (2010) International Energy Annual; Short Term Energy Outlook. [online] Available at www.eia.doe.gov/emeu/cabs/Angola/pdf.pdf Accessed on February 1st 2010. Read More