Angola’s de-dollarization dilemma

By:
Published on:

The drive away from the dollar and towards meaningful use of the kwanza could make Angola’s poor even more vulnerable.

Chinese_construction_Lubango_angola_600

A woman walks past a Chinese construction site in Lubango, Angola

Angola is one of Africa’s richest countries. After a harrowing civil war lasting 30 years came to an end in 2002, the country has made huge strides forward, taking advantage of the country’s natural wealth of oil and diamonds. 

But this natural wealth has remained largely out of reach for the average Angolan. While there are the few that take lengthy holidays to the Mediterranean, sail their yachts and drink champagne, the rest of the population lives in poverty: unemployment is rife, literacy rates fall far from expectations, and infant mortality rates are high. With stunted infrastructure growth and pressures from a subdued oil price, opportunities for Angola’s majority are limited.

Angola’s cash strapped government, which has revised its most recent budget down due the dramatic fall in the oil price, will soon start to struggle to keep up with the infrastructure spending as it currently stands.  

One way to tackle the slowdown in this development, which will also tackle Angola’s social inequality, could be through an increase in foreign direct investment. FDI can bring with it opportunities, jobs, and myriad other benefits.

Investor benefits

To this end, Angola is trying. Most recently, Angola’s authorities revised a foreign investment law, which offers tax breaks and other incentives to draw investors in. Further benefits are offered to those types of investments that target rural areas as well as those away from the oil sector and there are even plans in place for international companies to partner with local SMEs. Diversification of Angola’s oil dependent economy is key and the main driving force behind the law.

Ventures such as Porto Ciao, Angola’s first public private partnership which aims to build a world-class port in one of Angola’s northern-most provinces, plans on training locals to work on the project over the long term. It is the hope that some of these projects will have a sense of social responsibility as well as an aim of financial gain.

But Angola’s de-dollarization drive – the slow removal of the greenback as the currency of choice on the ground to be replaced by the local kwanza – comes at odds with Angola’s foreign investment drive. 

As low oil revenues combine with the de-dollarization process, government bodies are struggling to find the dollars to pay contractors and local SMEs are struggling to pay loans in an environment where dollars become harder to come by. As a result, banks are becoming a more risk averse as they see NPL ratios tick up as SMEs struggle to pay back loans. Within this context of low dollar liquidity, foreign investors will be rightly steer clear of the risks.

The de-dollarization drive is in part for Angola to begin using its own currency in a more meaningful way, and to create a national identity. But at the same time, the drive could limit foreign investment and the amelioration of the people.  That’s a situation that the government may find it tricky to deal with as time goes on and the gap between the rich and poor gets wider.