Abstract
This is a case-study based project, which interprets both qualitative and quantitative secondary resources to analyze the relationship between trade of commodities and development, mainly focusing on the Angolan oil sector and its impact on the economic development. Foundational information is provided in order to distinguish economic growth from development, mainly focusing on Todaro, P. and Smith, C. (2009) book. A conceptual background study is made on the basis of the main development approaches and schools of thought (neoclassical, dependence and structural), in order to provide an in-depth understanding of different development strategies, and in order to successfully review and critically evaluate the actual policies implemented in the Angolan oil sector. The analysis of the development indicators is carried out in order to prove whether there has been development. In addition, the study focuses on the political economy of oil in Angola and its challenges. Oil is regarded as a very important subject for study for various reasons. First, it is because it has been a significant and pervasive product in the contemporary society, and its use value has explicitly affected many factors of current production and consumption. Angola has witnessed sharp increase in oil production and has even surpassed Nigeria to become the highest producer in the continent. The contribution of oil to the Angola’s economy is a mixed one. Despite the sharp increase in production which translates in revenues, the citizens of this country are still wallowing in abject squalor. This is because of a massive corruption and mismanagement witnessed in the state controlled organizations and institutions, poor policies, bad governance among others.
Introduction
Development is a multifaceted term which encompasses social, economic, political, environmental, and human development. Human development is based on the first three concepts, whilst economic and social development reflects social development (Todaro, 1997, p.5). As a wide and complex concept, development has been expansively explored with the aim of attaining economic growth and social development. However, the focus has been shifted to industrial and economic development as the principle factor in societal transformation (Todaro, 1994, p. 12). Economic growth normally brings material gain to the populace, whilst development enriches the lives of people in the society. According to Todaro and Smith (2006, p. 22), development is physical actuality and a state of mind in which it is necessary for a society to improve their life. It is only through development that the society can ensure growth in wealth acquisition and intellectual enrichment and improve the standard of living. Therefore, both, economic growth and development contribute to the betterment of the living conditions of people in the society (Todaro and Smith, 2009, p. 15).
Oil is regarded as a very important subject for study for various reasons. First of all, oil has been a significant and pervasive product in the contemporary society. Its use value has explicitly affected many factors of current production and consumption. The importance of all is that it has persisted and defied time. Oil prices are among the principle industrial index, while oil products remain part and parcel of our lives through its consumption in both, domestic and industrial levels. However, there is much to oil than meets the eyes (Ross, 1999, p. 4). Oil is considered to have played a major role in most global events, especially the U.S that led invasions in the Middle East. Therefore, oil plays a significant part in the interest of nations and occurrence of probable conflicts over the control of this valuable resource (Smith, 2004, 233; Yates, 1996, p. 3).The magnitude and significance of oil production, as well as its monopolistic power attracts interests and state interventions (Perlich, 2011, p. 4).
There have been a lot of debates on the role played by oil in the development of the oil-rich countries. This led to the notion of “oil curse”. The proponents of these theory believe that overdependence on oil as the major sources of government revenue among the oil rich countries has done them more harm than good (Sawaff and Jiwanji, 2001, p. 28). Angola has witnessed sharp increase in oil production and has even surpassed Nigeria to become the highest producer in the continent. The contribution of oil to the Angola’s economy is a mixed one. Despite the sharp increase in production which translates in revenues, the citizens of this country are still wallowing in abject poverty. This is because of a massive corruption and mismanagement witnessed in the state controlled organizations and institutions, poor policies, bad governance among others (Human Rights Watch, 2004, p. 3).
Statement of the problem
There have been a lot of debates on the effect of oil production on the development of the oil-rich countries. This led to the concept of “oil curse”. Proponents of this theory believe that oil is the major obstacle to economic development and democracy in oil-rich nations, particularly in the developing economies which lack structured and strong institutions in place. Ross (1999) in his study established that oil dependent economies considerably perform worse than their counterparts across a broad range of economic measurements. Despite the massive revenues linked to oil production, citizens of most oil-rich nations wallow in extreme poverty and persistent conflicts. These countries are also characterized by corruption and patronage.
The aim and objective of the study
The main aim of this study is to explore the relationships between oil production in the oil-rich countries and economic growth and development. The following objectives were determined to achieve the aim of the paper:
- To distinguish economic growth and economic development.
- To explore the main development approaches and school of thoughts to gain more understanding on different development strategies.
- To look at the relationship between trade and economic development.
- To explore the political economy of oil in Angola and the major reforms and challenges.
Hypotheses
- H1. Economic development cannot be achieved without economic growth.
- H2. There is a positive relationship between trade and development.
- H3. Oil is an obstacle to economic development and democracy.
- H4. Oil has contributed to massive development and good governance in Angola.
Literature Review
Economic growth and Development
Todaro (1994) defines development as a multifaceted process involving transformation in structures, institutions, and attitudes in addition to increased economic growth, decline in inequality, and the elimination of absolute poverty. Development is characterized by a complete transformation of social system, tuned to the numerous fundamental needs of individuals and society as a whole, from the condition of life that is commonly perceived as unacceptable to a situation or condition of life that is regarded as materially or spiritually superior (Treurnicht , 2000, p. 4). On the other hand, economic growth is defined as an increase in the country’s national output (GDP) as a result of rise in the quality and quantity of resources and technological advancements (Todaro and Smith, 2006, p. 23). Economic growth is usually measured through the rise in the gross domestic product (GDP) (Cypher and Dietz, 2009, p. 3).
Economic development is a normative concept. According to Todaro (1997, p. 6) economic development is the improvement of the people’s living standard, self-esteem and freedom from servitude as well as greater choice. Economic development is normally measured through Human Development Index (HDI) which takes into consideration the literacy level of the populace and life expectancy which have significant impact on productivity and can result in the growth of the economy (Gylfason, 1999, p. 20). In addition, economic development results in the creation of additional opportunities in different sectors such as health, education, employment, and environmental conservation and sustainability. This translates to the rise in per capita income of each and every individual in the economy (Treurnicht, 2000, p. 8).
The definition of development generates a number of development objectives. The first objective of development is the improvement of the accessibility and provision of basic needs necessary for life sustenance. These include food, shelter, health, and security. To enhance the living standard with respect to social aspects such as education, domestic and national income, and cultural values, for the improvement of individual and national welfare and self-esteem. Lastly, to increase the array of the existing individual and national economic and social choices by liberating them from servitude by foreign forces on the one hand, and lack of knowledge and human suffering on the other hand. Therefore, development is less concerned with the national wealth, but the general welfare of the people in the society (Todaro and Smith, 2009, p. 16; Treurnicht, 2000, p. 6).
Traditionally, economic development was seen as the first form of development. Economic growth has often been associated with the concept of economic growth, which is the increase of per capita income of the economic systems (Todaro, 1994, p. 15). As a matter of fact, this definition of economic growth is seen more as a consequence of economic development process, i.e. the changes in the configuration of the economic systems, rather than a development process as such. Nevertheless, there are numerous differences between economic growth and economic development. One of the differences is that economic growth is only concerned with the general increase in the output or the material aspect of the economy, whilst economic development is multidimensional and is concerned with the overall welfare of people in the society. Economic experts argue that economic growth does not take into consideration the size of the informal economy/ black economy which is unrecorded economic activities (Todaro and smith, 2009, p. 7). Economic growth does not take into consideration the issues of environmental conservation and sustainability, while economic development emphasizes on the subject of sustainability which means prudent management of the natural resource without compromising the needs of the future generation. The subject of environment has attracted a lot of attention in the recent past as a result of global warming (Todaro and Smith, 2006, p. 25).
Economic development is related to the growth of human capital indexes, drop in the inequality indexes, and structural transformation that enhances general quality of life of the population. On the other hand, economic growth is related to the steady increase in the components of gross domestic product (GDP) such as consumption, government expenditure, investments and exports (Treurnicht, 2000, p. 10). Economic development is associated with the transformation in the components of the gross domestic product in addition to socio-economic structures, whereas economic growth relates to the enhancement in the real output of goods and services in the economy. For instance, increase in individual and national income and savings, investments, consumptions among others (Cypher and Dietz, 2009, p. 3). Economic development is measured qualitatively and involves Human Development Index (HDI), Gender Related Index (GDI), Human Poverty Index (HPI), Mortality rates, literacy levels among others. On the other hand, economic growth is measured qualitatively and involves increase in gross domestic product (GDP) as shown in the production possibility frontier (PPF). Lastly, economic development brings both, qualitative and quantitative changes in the economy as opposed to economic growth that only brings quantitative changes in the economy (Todaro and Smith, 2009, p. 27).
Economic development has been the subject of focus in the contemporary society. This is because economic development gives a society or a country a potential to flourish and grow. Being a characteristic of advanced nations, economic development completely transforms the lifestyle of the people in the society. In other words, economic development aims at improving the general standards of living among the ordinary citizens. The expansion of the economy guarantees expansion in the volume of investment which is able to transform a country into a developed state. One of the principle element in economic development is innovation. Innovative ideas create investment and therefore different sectors of the economy are able to produce sufficient amount of products and services for the population resulting in a permanent economic system of goods and services (Cypher and Dietz, 2009, p. 3; Barro, 1997, p. 4). A country that has a steady and considerable development will pursue technological sphere after taking care of the sphere of fundamental needs. In our contemporary society, technological advancement is the main driver for the successful future of less developed economies and further development of advanced economies (Gereffi, 1999, p. 2).
The process of economic development is a multi-dimensional process for enhancement of quality of life and includes a number of aspects such as social development, development of culture and national resourcefulness, development of positive social environment, social security, labor supply among others (Srinivasan and Bhagwati, 2001p. 45). Nonetheless, the aspect of economic development is the creation of competitive climate that acts as the driving force for the development of businesses and therefore the overall development of a country (Rutherford and Tarr, 2002, p. 248). Another significant facet of economic development is infrastructural development, creation of gold reserves, and the development of consumer market. The above developments can not be accomplished without technological advancement. GDP is also one of the indicators of economic development; however it is not wise to rely too much on it, since it does not translated to the overall well-being of the citizens in a country. One of the reasons for this is that GDP can not measure the development of leisure activities, environmental conditions, freedom from oppression, confidence in the systems of social justice and opportunities in education and healthcare. Most developing countries, particularly those of Latin America and Africa, have been experiencing considerable economic growth but minimal economic development since most fundamental necessity such as shelter, food production and healthcare have remained stagnant or inadequate. The living standards of their people have remained the same and in some cases even deteriorating, as basic needs were inequitably distributed. The population in these countries is also fighting work-related stress and organizational competency (Treurnicht, 2000, p. 24: Todaro and Smith, 2006, p. 105).
Approaches and theories of economic development
Theories of 1950s and 1960s viewed economic development in terms of a series of progressive phases of economic growth through which all nations must pass through. It was basically an economic theory of development in which accurate amount and combination of saving, investment and external capital were vital in helping less developed economies to follow the trail that had been followed by advanced economies historically. Therefore, economic development was synonymous with swift overall economic growth. Many literatures released after the second- world war were dominated by four major and sometimes competing schools of thoughts. These include the linear stages of growth model; theories and patterns of structural transformation; the international- dependence revolution and neoclassical-free market counter revolution (Todaro and Smith, 2006, p.125).
Linear stages of growth model
Linear stages of growth model is a school of though that emphasized on the deficiency of national savings and investment. To boost growth developing countries, governments are required to encourage more savings and investment in the economy, a proposal that is easy to propose than implement. Linear stages of growth model include Rowstow’s stages of economic development and Harrod Domar’s growth model (Todaro, 1997, p.130). Rowstow’s approach to economic development summed up a sequence of well-defined stages that an economy passes through to achieve a developed status. His approach received a positive reception in the developing countries, but attracted massive criticism in developed countries. According to Rowstow (1960), these stages are not simply descriptive but provide a way of summarizing real life observations about the cycle of development in the contemporary society. These stages have analytical structure and are pegged on the dynamic theory of production. Rowstow’s stages include predominantly agricultural society, prerequisite for taking off, actual take-off, direction to maturity and the era of high volume of consumption (Rowstow, 1960, p. 12).
Traditional society is characterized by ill –developed science and technology which makes innovation a rare feature of the economy. As a result, there is limited productivity and low per capita income. A large chunk of the resources are spent on food and other non-productive purposes. There is a minimal rate of capital accumulation and modest modification on economic organization and production (Brian and Hobsbawn, 1961, p. 234). Effective political system may exist but it may be influenced considerably by a few wealthy individuals. This stage represents the biggest obstacle for individuals or groups with intention to initiate changes. The precondition for take-off stage is the stage where economic development is considered to be enviable and feasible section of the society. This stage is characterized by rationalization and modernization of agriculture. Increased agricultural production increases exports and importation of capital goods. The above developments promote the net supply of capital, formation of commercial institutions, surfacing of efficient nation state and good governance (Todaro, 1969, p. 140).
Take-off to sustained growth is the most critical stage according to Rowstow and it is very difficult to achieve. It is the stage where economic growth is considered to be normal and can be attained when there is an increase in the rate of investment to the net national income. The stage is also characterized by emergence of principle manufacturing sector and employment of the latest technologies. The significance of the principle manufacturing sectors is their ability to offer considerable peripheral economic effect. The stage is also characterized by strong institutional framework that is sufficient to support the principle sector and enable its benefits to be felt throughout the economy. In overall, take-off stage oversees the establishment of favorable environment for progressive absorption of capital and at times increase in population growth (Rowstow, 1960, p. 13). Drive to maturity is a very short stage which begins 2 decades after the take-off stage. During this stage, the growth of the principle sector in the economy tends to slow down with other sectors picking up more rapidly. The main distinction between this stage and other stages is that growth and use of advanced technologies is not limited only to the leading sector and sometimes these sectors may use more advanced technology than those used in the earlier stages. This stage brings necessary socio-economic adjustments to the society (Todaro, 1994, p. 210).
The last stage according to Rowstow is the age of high mass consumption (Rowstow, 1960, p. 14). The characteristic of the previous stage of drive to maturity is amassing of considerable economic surplus. The societies normally have a number of open choices during the disposal of these surpluses. These include expansion of the welfare programs and overhead capital, quest for economic and military power and stature, global investment and adjusting the economy around a specific model of consumption (Rowstow, 1960, p. 14). The initial three choices often result in a prolonged drive to maturity stage. However, the last choice involves moving into the stage of high mass consumption. This stage is normally characterized by an increasing significance in housing and capital goods, education, luxury and health services. Therefore, this stage focuses on consumption as opposed to production like other stages. Nevertheless, Rowstows model received a lot of criticism. The model was viewed as favoring the western models of modernization and its attempt to force economic progress into a linear system. The model is also regarded to be biased since it only considers large countries or countries with large population and natural resources (Todaro, 1994, p. 212; Rowstow, 1960, p. 16).
Harrod Domar Growth model explains how growth has taken place and its future trend. Therefore, it is a model, not a strategy. Strategies are future plans and normally follow the path suggested by the model. Harrod Domar Growth model was developed in the late 30s and emphasizes on the significance of saving ratio (marginal propensity to save) and capital output ratio on the GDP growth. In other words, GDP growth rate equals to saving ratio over capital output ratio. For instance, if the saving rate in an economy is 15 percent and the capital output ratio is 5, then the country’s GDP will grow at the rate of 3 percent per annum (Ray, 1998, p. 98). Therefore, according to this model, the rated of economic growth can be increased by enhancing the rate of savings in the economy and by minimizing capital output ratio. In other terms, GDP growth rate is proportional to the level of investment spending in an economy (Todaro and Smith, 2006, p. 98).
Nevertheless, this model has a number of limitations. One of them is that increasing the level of savings in developing economies is not an easy task. Most of these economies have low marginal propensity to save and most of the income gained spend capital goods and infrastructure instead of saving them. Another limitation to this model is that most developing economies are devoid of sound financial system. Thus, increased household savings do not necessarily translate to availability of more funds in the financial institutions to be borrowed for investment. In addition, it is very difficult to attain economic efficiency (enhanced capital output ratio) in the developing economies as a result of underdeveloped human capital. Therefore, most of the capital invested in these countries is often wasted due to inefficient labor. Lastly, governments in the developing economies normally give less priority to research and development required to help in improving capital output ratio (Todaro and Smith, 2009, p. 240).
Structural-change model
Structural-change model deals with policies emphasizing on transforming the economic structures of less developed/ developing economies from subsistence agriculture to a modern, more urbanized /advanced industrial economy (Todaro and Smith, 2009, p. 242). The two main theories of structural-change include two-sector surplus model by Sir William Arthur Lewis and H. Chenery’s patterns of development approach. Lewis’s two-sector surplus model considers the dualism between the agricultural or traditional sector and the industrial or modern sector in less developed/ developing economies. He argues that these two sectors are different in terms of technology used and institutions. The difference between the two sectors acts as the driving force for labor transfer between them. The high demand and wages in the industrial/ modern sector normally attract labor from the crowded and low-waged agricultural sector. The migration of labor between the two sectors goes on up to the pint where there is no more surplus labor in the industrial sector. The pull out of labor from the agricultural sector to the industrial sector leaves the former with the right number of labor and this translates into increased productivity and wages. It should be noted that previously agricultural sector had too many labor and that means most of them were not working at their full potential. In economic terms, this is referred to as disguised unemployment (Todaro and Smith, 2006, p. 102).
According to Chenery’s patterns of development approach, increased saving and investment are viewed as an important factor, but not a sufficient one for the growth of the economy. In addition to accumulation of human and physical capital, an array of interdependent structural transformation is required to transform an economy from the traditional/ agricultural subsistence to a modern/ industrial economy. Structural transformations include changes in consumer demand, embracing global trade, prudent use of resources, modern techniques of production, urbanization and growth and distribution of the population. The approach emphasizes on the domestic and global constraints on economic development. Domestic limitations include resource endowment and physical population, government strategies and goals. Global constraints include foreign capital, technological difference and global trade. Chenery argues that the level at which developing countries experience domestic and international constraints determine their level of development. This approach recognizes the significance of the integrated global systems to which developing economies belong. These systems can enhance or limit their economic development (Ray, 1998, p. 78).
Based on experimental studies conducted by Hollis Chenery and others using a cross-sectional data in addition to time –series data, patterns of economic development analysis showed a number of distinctive features of the process of development. These include shift from agricultural to industrial production, constant accumulation of human and physical capital, changes in the consumer demand from fundamental needs to assorted manufactured products and services and reduction in family size and general population growth rate (Todaro, 1997, p. 168). The main preposition of the structural transformation model is that economic development is a distinctive process of growth and transformation its principle features are identical in all countries. However, the model recognizes the fact that this subject to differences in the condition/ situation of the developing economies, for instance, differences in physical endowments (Todaro, 1997, p.208).
Nevertheless, those using this model may be drawn to a misleading conclusion about causality because this approach is pegged on the experimental observations and minimum theory. For instance, users of this model may notice the significance of education in less developed economies and recommend policies such as improving high education system even before giving consideration to majority of the populace who are illiterate. Such kind of policies can rebound resulting into a rise in inequality (Solow, 1956, p. 75). In addition, normally the patterns recognized through experimental observations direct to international factors that are to a large extent beyond the control of most developing countries. Generally speaking, analysts of structural transformation are very positive about the future as they believe that the correct combination of economic policies can produce beneficial patterns of self-sustaining economic growth (Aghion and Bolton, 1997, 152). The critics of structural change theory argue that it focuses a lot on urbanization at the expense of rural development which is viewed by the contemporary economists as the only way to achieve equality in different regions of a country. The assumption of the Lewis’ two-sector model that agricultural societies have surplus labor received a lot of criticism. Less developed countries with highest levels of unemployment tend to have surplus labor in the urban areas compared to the rural areas (Cypher and Dietz, 2009, p.102).
Global reliance theories
These theories grew out of the mounting dissatisfaction with the linear stages of growth model and the structural transformation models only to start being criticized in the 1980s and 1990s as the neoclassical models took over. According to these models developing countries as beleaguered by institutional, political and economic constraints both locally and globally and bogged down in a dependence and dominant relationship with advanced economies. The main theories focusing on global include neocolonial dependence theory, false paradigm model, and dualistic-dependence model (Todaro, 1997, p. 170).Neocolonial dependence model is a direct product of Marxist school of thought. This model blames the underdevelopment of many countries on the historical progress of highly lopsided capitalist system of the developed-less developed country relationships (Treurnicht, 2000, p. 49). The pronouncement of the lopsided relationship between these countries renders the efforts of the less developed countries to be independent and self-sufficient futile. In addition, the elite groups in the developing economies are used to perpetuate the international capitalist system of inequity and compliance. The elite group serves the interest of the international special interest power groups either directly or indirectly and is greatly rewarded. The international special-interest groups identified by this model include the Breton wood institutions (IMF and World Bank), multinational corporations, and multilateral assistance organizations. These special interest groups are tied by the commitment or funding to the rich capitalist economies. In most cases, the activities of these elite groups tend to obstruct any reform agenda that might benefit the country as a whole resulting to unending underdevelopment (Todaro and Smith, 2006, p. 250).
The perpetual poverty in the developing countries is largely ascribed to the existence and policies of the wealthy capitalist economies and their global extensions in the form of few but very powerful elite groups in the less developed countries. Therefore, underdevelopment is viewed as superficially-induced experience. Less developed countries which are dependent can only progress as a reflection of the expansion of their master. The over dependence of the less developed economies has caused backward growth and exploitation from advanced economies. Thus, neocolonial dependence model advocates for revolutionary struggle or restructuring of the global capitalist system as the solution to these problems (Todaro, 1997, p. 173).
The false paradigm model which is less radical than international dependence model attributes the underdeveloped state of most economies to the defective and unsuitable advice offered by well-meaning but normally unacquainted, inclined and foreign advisers from developed economies’ aid agencies and multinational corporations (Ray, 1998, p. 106). Their advices normally fail to recognize elastic structures, inequality in land ownership and other property rights, the unequal control of local and international financial assets by the elite groups and extreme disproportionate access to credit facilities (Weatherby et al., 2007, p. 13). The policies advice provided by classical and neo-classical models in most cases only serve to protect the interest of small fraction of powerful individuals, both locally and internationally. In addition, most university scholars, top government officials and other civil servants receive foreign education which is inapplicable in the local context (Isbister, 2003, p. 43).
Dualistic-dependence model explains the existence and doggedness of the increasing disparity between less developed economies and advanced industrial economies, and between the rich and poor individuals in the society (Todaro, 1994, p. 227). This model introduces four aspects of dualism. The first aspect is the diverse condition under which superior and inferior people or nations can coexist peacefully. Secondly, coexistence is persistent and lacks transition. Thirdly, the disparity between the superiors and the inferiors widens with time. Lastly, the superior individuals or nations do very little to help the inferior individuals/ nations and at times contribute to their worsening state (Alistair, Hulme and Turner, 2007, p. 18). The economic experiences of developing countries that have pursued radical campaigns of nationalizing industries and state –controlled production have mostly given negative results. However, dependency theory recommends that economies should be more inward-looking and less dependent on developed countries, engaging only with other developing economies (Todaro, 1994, p. 228). Economies like China and India with this kind of development experienced slacked growth which forced them to open up their economies eventually. The four Asian Tigers who have been focusing on exporting to developed economies have progressed (McCann and McClosckey, 2003, p. p. 6).
Neoclassical counterrevolution theories
Neoclassical counterrevolution theories signify a fundamental shift from international dependency models. These theories advocate less state interference in the economic activities. They recommend unobstructed free market for faster and successful economic development. Competitive free market conditions unobstructed by statutory regulations are viewed as the most efficient way of allocating national resources and ensuring increased economic growth and stability (Todaro and Smith, 2009, p. 245). Besides the call for free markets and minimal or no state interference, neoclassical theories also advocate for dismantling of public ownership and statist planning. Neoclassicists gained control over the Breton wood institutions (IMF and World Bank) which are considered to be the world’s most influential global financial institutions (Todaro and Smith, 2009, p. 246; Alistair, Hulme and Turner, 2007, p. 22).
Neoclassical theories attribute underdevelopment to poor allocation of resources as a result of erroneous price policies and excessive government interventions in developing economies (Alastair, Hulme & Turner, 2007). Neoclassicists believe that by allowing free markets to thrive, privatization of state owned companies, promotion of free trade and expanding exports, attracting foreign investment and eliminating the excess government regulations and distortion of factor, product and financial market price can promote efficiency and stimulate economy (Todaro and Smith, 2009, p. 248). The three main approaches of neoclassical theories are free market approach, public-choice theory, and market friendly approach (Hoff & Stiglitz, 1999). The free market approach and public choice theory advocate for a complete free market where there is zero government interference. On the other hand, market friendly approach contends with free market but acknowledges the fact that there are flaws in the markets of most developing economies and therefore recommends some state interventions to deal with these imperfections (Weatherby et al., 2007, p. 25).
Role of trade on economic development of developing countries
The seminal study by Srinivasan (1999) identified freedom as a fundamental and necessary means of realizing economic development. Srinivasan and Bhagwati (2001) asserted that development must entail environmental sustainability. Other authors emphasized on reduction of poverty and empowerment of common citizens. In general, all these approaches considered economic growth as a very important constituent of economic development process, at the same time, stressing the fact that development is more than growth. Growth is conventionally expressed in terms of aggregate output of the economy measured in the market prices of goods and services, and adjusted regularly as a result of changes in the price level. Economic growth generally defines the productivity of an economy, fluctuations in the capacity utilization and the unemployed resources that are ignored. In our contemporary society, the economic systems of many countries are totally dependent on economic growth despite of the fact that it is only a necessary condition and not a sufficient condition. Economic growth is basically limited by the productive capacity of its productive resources (factors of production). The degree of productivity of these factors is not definitely fixed because it can be altered in different ways (Rutherford and Tarr, 2002, p. 250). On of the obvious and fundamental way of increasing the capability of productive resources is developing the capacity of labor for particular areas or devising capital equipment and tools suited for a particular industries, for instance, increasing division of labor. Given the fact that some industries and sectors are more contended with the employment of basically one productive resource to others, specialization may take the form of taking pleasure in the benefit of having one particular factor in abundance and focusing more on the development of other sectors that would largely utilize these factors. This forms the basis of international division of labor (Srinivasan, 1999, p. 30).
For a long period of time, experts have argued that countries specializing in industries that particularly employ the most abundant productive resource would in general benefit from the enhanced productivity as a result of division of labor. However, the prerequisite for this is the existence of far-reaching trade among these countries. Or else, each country would end up with particular products that are in excess or extremely scarce (Akyüz, 2003, p. 45). In line with this school of thought, trade is believed to promote successful possibilities of specialization that increases productivity. In other words, this will ensure efficient allocation of resources among nations. Increased productivity means increased economic growth (Kokko, 2002, p. 16). Alternatively, specialization in some industries can result in reduced commodity prices which lead to significance improvement in welfare (Srinivasan, 1999, p. 34). This approach has been challenged for the last five decades by the concrete experience of the developing economies. The limitation of this approach arises because of the nearly static position of most developing economies in the international division of labor, which have compelled them to find solution to the problem of balance of payment. The main problem is that diverse set of commodities exhibit diverse methodical trends. Conversely, the prices of capital goods have been increasing in the global market as a result of high demand, while those of primary goods remained stagnant. Therefore, countries that have specialized in the production of manufactured products have always gained at the expense of those producing primary goods (Srinivasan and Bhagwati, 2001, p. 65).
As exhibited above, what a country trades on is very significant. The impact of trade on economic development to large extent depends on the definite specialization of a nation in manner of international division of labor. In addition, the current implications of trade are felt within the confines of global production networks (Rutherford and Tarr, 2002, p. 255). Before bringing in the concept of global production networks, it is prudent to present the concept of dynamic products in the global market. According to a report by World Trade Organization released in 2002, market dynamism of the products is defined as the high average yearly export value growth. The market dynamism of products was experienced between 1980s and 1998, where the average value of the global exports increased at the rate 8.4% per annum. The products which export increased from 11.5 percent to almost 16 percent were categorized as most dynamic products (Akyüz, 2003, p. 47).
The first reason why some goods and services are excessively dynamic in the international market is the global income and demand composition. Economic experts argue that rising global income is the reason behind increased trade. High income has resulted into increased demand for products in the global market (Wacziarg, 2001, p. 394). This can be illustrated by the concept of income elasticity of demand, which measures the responsiveness of quantity demand in relation to the changes in the level of income. Income elasticity of demand is varies from commodity to commodity and also changes for a particular commodity in the path of economic growth. During the initial stages of economic development, elasticity for primary commodities is relatively high, however this diminished with increased economic growth. Nevertheless, there are some primary goods that perform better than others (Solow, 2001, p. 285). Another reason for dynamism of some products in the global market is the market access. Protectionism policies applied by developing economies especially the non-tariff measures (such as quotas, anti-dumping policies, and voluntary export limit) has force producers in this countries to switch to other commodities for export (Srinivasan and Bhagwati, 2001, p. 68). The third and the last reason is the global production network. The tendency of outsourcing some stages of production and marketing by multinational corporations, normally impose the production of certain types of commodities for export. According to Akyuz (2003), products with the fastest and steadier growth rate are the most vulnerable to globalization of production processes as a result of outsourcing.
Another link between trade and economic development is the role of government in export promotion (Srinivasan and Bhagwati, 2001, p. 70). Some of the most flourishing economies that have implemented export-oriented growth strategies are those from East Asia (Akyüz, 2003, p. 50). Even though, these countries have distinctive geographical and historical background, their common experience exhibits the necessity of vigorous government policies during the course of export-oriented economic growth strategy. The general guidelines to achieve a long term growth experience through export-led strategies are provided by the EU member states. These includes increased public-private sector partnership, free-market and prices for the allocation of resources efficiently, suitable incentives to boost entrepreneurship, and taking part in the global economy (Rutherford and Tarr, 2002, p. 253). According to Kokko (2002), sustainable development requires healthy competition and protection of property rights and the provision of infrastructure, education and social amenities in cases where market results are not convincing. He also argued that export promotion is not basically the provision of market orientation and strongly established principles of free market, it also entails a well defined industrial policy that gives room to the domestic market.
Political economy of oil
Ancient economists believe that the wealthier a nation, the greater the likelihood that it will maintain democracy. For that reason, many would expect countries that are rich in natural resources, especially those with large volumes of oil reserves, to excel far beyond all other nations and act as role models of democracy and freedom. Unfortunately, the above notion is very far from the truth. Among the ten leading producers and exporters of oil globally, only Mexico and Norway can rationally be considered as democracies, while the rest only exhibit a meager impression of democracy (Watts, 2005, p. 56). To make the matters worse, advanced economies driven by energy politics are forcing their way into other countries to explore new sources of oil. Oil reserves are increasingly being discovered and exploited in the poorest economies in the world. At the moment, oil and natural gas comprises of a third of the overall export revenue for about thirty least -developed countries, but none of them can be classified as a free or democratic nation (Karl and Gary, 2003, p.8).
As a matter of fact, researches have shown that overdependence on oil results in twisted political forces. It focuses production to regional enclaves and power into the hands of a few elite groups. The few powerful elites use their wealth to jokey for positions and influence to obtain rewarding contracts, the proceeds from which are used to corrupt and control those in power (Ross,2001, p. 36). As a result, leaders who are benefactors of these few powerful elite groups, develop a continuous circle of fraud and patronage, secured from accountability, press or legal organs. Economies that depend on oil as their major source of revenue laze around in wealth, but devastatingly suffer from what experts refer to as “poverty of policies”. These countries exhibit some of the greatest inequity that you can think of. In addition to lack of accountability, transparency and freedom of press, these economies tend to concentrate wealth in the hands of a few people with majority of the population wallowing in extreme poverty (Watts, 2005, p. 56). A Nobel Peace prize winner and former World Bank chief economist, Prof Joseph Stiglitz, refers to these oil rich nations as “rich economies with deprived people” (Ross, 2001, p. 38).
A study conducted by Watts (2005) showed that the situation in these countries is even much worse than imagined. Major oil producers like Nigeria, Algeria and Angola have been facing considerable decline in per capita incomes in the last decade. In Nigeria it is estimated that over 70 percent of the citizens live in less than a dollar a day in a country that has earned approximately 400 billion dollars in oil revenues in the last three decades. The main questions that have lingering in the minds of many is what is causing this and how is it possible for a country to be that rich yet poor. Some of them have been wondering if the saying that “oil is a resource curse” is really true. In spite of fact that scientific studies point to that oil is a cause of major misery, some countries like Norway have thrived democratically and Indonesia is picking up from its harmful effects.
Sawaff and Jiwanji (2001) define the oil curse in limited terms. He stated that high dependency in natural resources, for instance oil, is inversely related to the rate of economic growth. This proves the notion that oil is a curse. Nevertheless, this theory has not escaped criticism. For instance, Harvard economist by the name Danni Rodrick claims that the standard used by the proponents of this theory for calculating economic growth is flawed. One of the questions asked by the proponents of these this theory is whether the economic conditions of the oil rich nations would be the same without oil. Fascinatingly, their results always contradict their problem statement. Ross (1999) points out that Indonesia experienced 20 years of steady growth despite of the fact that the government then was full of corruption and cronyism. In their work, “beating the Resource Curse”, Sawaff and Jiwanji established the long-term growth of the oil reliant states to be true. They criticized the use of per capita GDP for measuring economic growth over time, pointing out that less developed economies with oil exports would obviously have high quotient of per capita GDP and therefore, tilt the statistics considerably. In addition, oil producing countries have the tendency to grow at a slow pace because of the natural slow increase of oil output and for that reason oil has a positive impact on the economic growth (Sawaff and Jiwanji, 2001, p. 28).
Regardless of such studies, development and political economists as well as political scientist agree that oil is a major obstacle in economic development. Ross (1999) in his study established that oil dependent economies considerably perform worse than their counterparts across a broad range of economic measurements. At the very minimum level, these countries should be performing better given the amount of revenue they earn every year which runs into billions of dollars. He adds that countries which lack natural resources have fared on better than their counterparts with enormous resources. For instance, going back the history lane, Denmark performed better than France back in the 17th C despite of the fact that the latter had massive gold and silver reserve (Ross, 2001, p. 14). The arguments against the oil curse theory are also reasonable. Most familiar pictures drawn from the oil rich developing economies are those of instability (both politically and economically), conflicts, military action, wanton corruption, poor governance and massive inequity. As the opponents of the theory of oil curse affirms, dependence on oil does not necessarily create considerable inequity. However, the inequities stems from the center of the oil curse, taking place at all levels of the political economy of the countries that are dependent on oil (McCann and McCloskey, 2003, p.8).
At the initial glimpse, it appears that oil and democracy are things of different worlds. However, there are remarkable exceptions to this notion; for instance, Canada, U.K. and Norway that can be use to provide more insight on this observation. All of the above economies were all established democracies before they discovered oil leading to the belief that dependence path plays an important role in this incident (Rose, 2001, 2005, p. 17).This can support the proposition that countries with well established institutions, rule of law and government systems are well suited to survive the oil curse in case they discover oil on a later stage. In other words, the matter is not oil, but the political and economic systems that precede it in time. Supporting this line, Wantchekon and Jensen (2000) in their study concluded that unlike the advanced economies from the West, newer oil-states have been avoiding the grueling process of collecting taxes from its populace and in turn granting rights, and noted that countries like Libya became rich overnight without forcing its people to sacrifice.
To answer the question of whether these oil-dependent nations would be better-off without it, Smith (2004) explored the situation in West African state of Chad. This country had gone through a three decade of civil war before it discovered oil. Even after discovering oil, this country has remained to be one of the most corrupt, obscure, and unstable states in the globe. Saudi Arabia depended on tax revenues from commercial activities of the merchants in Jeddah, long before discovering oil, a source of income that has been rendered redundant so far (Watts, 2005, p. 65). Similarly, before discovering oil, Kuwait relied on taxes collected from the merchants who shipped pearls abroad. After discovering oil these merchants discovered that they were losing influence and started to demand distributive rights on the revenues. This angered the ruler and when the dependence on pearl revenues ended as a result of oil, he ordered for the detention of the merchants who opposed him and disbanded their assembly. To strengthen his power, the then country’s rule got rid of taxes, employed all the merchants, provided social services free of charge and lured opposition on his side using money. In other words, he made falling in line more cost-effective than opposition (Karl and Gary, 2003, p.12).
Kuwait and Saudi Arabia are examples on how oil impedes democracy or at least promotes the lack of it. However, it is also hard to argue that those regimes were ever democratic. Nevertheless, they were very much dependent on tax revenues which compelled them to be more accountable to a larger population than when oil became their basic source of income (Perlich, 2011, p.4). This also points to the case of Russia and many would wonder if it also suffers from the “oil curse”. According to Wantchekon and Jensen (2000) that is not true, since Russia became oil-rich state the moment it started to shift from communism. Lacking regulatory mechanism and taxation system, Russia leaped into a rapid privatization plan. In addition, the country emerged from communism with massive bureaucracy, frail state, and with almost no civil society. Despite of the fact that it was ranked second among the top producers of oil in 2002/2003, the countries political and economic problems can not be pegged on oil. Unlike of other Western oil producers, Russia maintained the same structural qualities it had prior to becoming principal oil exporter. It did not lose any taxes or regulatory mechanism because it did not have one (Smith, 2004, p. 245). All the above cases demonstrate how dependence plays a major role in determining the effect oil would have a political and economic system. It is now clear that the predating oil dependence also known as the oil curse is less likely to hold in cases where there are structured and strong institutions in place. However, where those systems are non-existent oil is very much likely to cause doom, especially in developing economies. For developed economies or countries with strong democracies, oil would bring positive results or cause very minimal devastation structural-wise (Perlich, 2011, p.5).
Methodology
Introduction
This is a “case-study” based project, which interprets both qualitative and quantitative secondary resources, to analyze whether there is a positive relationship between trade of commodities and development, mainly focusing on the Angolan oil sector and its impact on the economic development. Foundational information has been provided, in order to distinguish economic growth from development, mainly focusing on Todaro, P. and Smith, C. (2009) book. A conceptual background study have been made on the main development approaches and schools of thought (neoclassical, dependence and structural), in the sense of providing full understanding of different development strategies, in order to successfully review and critically evaluate the actual policies implemented in the Angolan oil sector. An analysis of the development indicators will be made in order to prove whether there has been development. Further knowledge will be acquired regarding the political economy of commodities and its challenges and how it may be related with Angola. Finally, a conclusion will be reached with the objective of understanding the flaws and fortes of the correlation between trade and development and whether it would be necessary to make any changes or reforms in the related topic.
Political Economy of oil in Angola
A quick glimpse at the structure of the economy of Angola will expose its unstable nature despite its position as one of the richest country in Africa in terms of natural resource endowment. The most noted of the ludicrousness is the over-dependence of the economy and its destiny in the oil industry and crude oil export. Nothing can be written about Angola without touching on its oil and diamond production. Similarly, the political history of the post-independence war in Angola’s will not be complete without mentioning the impact of its natural resources (mainly oil and diamond) on the country’s politics, economy, social and ethnic relations and governance process in overall. The story of oil in Angola is a contrasting, enormous revenues accrued from oil exports to keep the government afloat, while the oil industry remains as the main stay (Hodges, 2003, p. 3).
However, Angola economy’s contribution to the local economy is a mixed one. The paradox of the Angola is that a country rich in natural resources but a majority of its people are languishing in abject poverty. Though bewildering, this absurdity of poverty amidst massive wealth is not restricted to oil producing regions in the country alone. As a matter of fact, Angola’s oil wealth and revenues has not translated in improved infrastructure, capital generation, reduction of poverty and improving the standard of living of the ordinary people (Human Rights Watch, 2004, p. 2). Poorly formulated economic policies and incoherent execution have restricted Angola from accruing the maximum benefits of its massive natural resources. The economic policies’ failure has resulted into slow growth of the economy, over-reliance on one commodity for revenue and export, the abandonment of the agricultural sector, crumbling infrastructure, and poor service delivery (Le Billon, 2001, p. 2). The policy problems were worsened by the mirage of other well-known predicaments namely a three decade of civil war, rampant corruption in the government, selective appointments in the government offices, and rent-seeking that has become a common practice in Angola. All of these challenges have resulted into a continuous decline in almost all Human Development Indices (HDI) in Angola (Human Rights Watch, 2004, p. 3).
Angola’s oil production has risen sharply over the last decade. In 2000 the country produced an average of 750 barrel per day. In the year 2008 this rose to over 2 million barrels per day and economists project this figure to go up to nine billion barrels. In 2008 China alone imported more than 600 million barrels from Angola even outperforming Saudi Arabia and has become the country’s most significant trading partner in oil (Dralle, 2010, p. 11). The oil sector made up approximately 90 percent of the export, of the gross domestic product and 75 percent of the state revenue. The country also exports over one billion worth of diamond each year even though some of them are smuggled abroad by unscrupulous businessmen. Besides, oil and diamond in the country are also known to export timber and granite. Despite of the fact that this country is massively endowed with natural resources, it will be very unfair to clam that it is rich. A majority of the Angolan people are wallowing in poverty even though the oil revenues at the moment work out at over 500 dollars per person annually (Aguilar and Goldstein, 2009).
Following independence of 1975 from Portugal, Angola was under Marxism-Leninism policy and the Soviet path up to 90s. In the following decade during the nervous liberalizing reforms, the political elite groups amassed a lot of wealth and consolidated their power on the state and its resources. The country’s assets fell in the hands of a few people in a Russian fashion of privatization, spinning the reform process into a personal agenda. The elite groups that amassed wealth during the reform process are still powerful up to date. As a matter of fact, the post-independence Angola was developed from revenues received from oil and diamond in a perspective of conflict and war. This has essentially influenced the evolution of economic and political power in this country (Le Billon, 2001, p. 2). Angola’s political and economic systems (including civil societies and opposition parties) are highly state dependent, resulting into lack of opportunities outside the government’s scope. In addition, the states’ power has been strengthened further by oil and diamond resources in relation to the private sector which has limited resources (Hodges, 2006, p. 17).
The economic structure of Angola was conditioned by the three decade long civil war. The war was prolonged by the economic interests of different political factions within the country. For instance, government army and UNITA forces in the diamond and oil rich zones in the 90s mined side by side, after signing non-aggression treaties to ensure that mining and trading took place without interruptions across the frontline. They also received kickbacks on arm procurements as a may of accumulating wealth. These types of arrangements contributed a lot to protraction of the civil war, but it would not be fair to say that economic interest was the only reason for the war (The World Bank, 2007, p. 5). The state controlled much of the off-shore oil which enabled it to control the urban areas. UNITA leaders used these as a propaganda against the government and defined his faction as the fighters for the oppressed poor living in the countryside. According to the government statistics, the rich households in Angola earn nearly 20 times more than the poor. Therefore, the rural/urban gap in Angola is very big despite of the sharp increase in oil production and the end of civil war (Human Rights Watch, 2004, p. 3).
The government of Angola is accused of mismanagement of considerable oil revenues and, notwithstanding of its rhetoric, it is yet to show a meaningful commitment to reforms. Over the recent years, money worth billion of dollars in oil revenues has illicitly sidestepped the country’s central bank and has not been accounted for (The World Bank, 2007, p. 6). From 2002 to 2008, more than 4 billion dollars of oil revenues were unaccounted for. Over the same period, the total amount spent on social service including the government and private sector spending funded by the global financial institutions were estimated to be approximately 4.3 billion dollars. As a result, the total amount lost through corrupt practices was almost equal to the sum amount spent on welfare services (such as health, education, humanitarian and social services) of the distressed population (Hodges, 2003, p. 7).
Human rights activists in Angola argue that had the government appropriately accounted for and managed the lost oil revenue funds it is highly probable that it would have fulfilled all the socio-economic and cultural, and other social rights (Watts, 2005, p. 68). Since the government is the direct beneficiary of the major source of revenues and does not rely too much on taxation, a clique of powerful people with influence in the government has had unique opportunities to enrich themselves through corruption (Jean-Paul, Fosu & Ndung’u, 1999). This compounded by the fact that there is lack of accountability in the management of major sources of revenue (The World Bank, 2007, p. 5). This is made even worse by the fact that political power is the main avenue for amassing wealth and holding into this power is the main objective of the politicians in Angola. This trend has had a negative influence on governance and respect for human rights in this country. Instead of focusing on economic growth and development, the leadership in Angola has focused more on enriching themselves without corresponding accountability (Human Rights Watch, 2004, p. 6).
Reforms process and challenges in Angola
Despite of the efforts from the international community, non-governmental organizations, multinational corporations and other African states, the Angolan government has resorted to maintaining the status quo. IMF and World Bank are among the most significant forces pushing for accountability in Angola’s fiscal and monetary policies. The recent developments in the country including pressure from the international community and relative stability have resulted into fresh calls for reforms (The World Bank, 2007, p. 6). How the country manages its oil proceeds will be a very significant measure of the country’s progress towards good governance, accountability, lucidity and respect for human rights (Ranis, Stewart, & Ramirez, 2000). The successful implementation of these reforms mainly depends on the government. However, the international community can also playa major role by using its arms to pressurize the government (Le Billon, 2001, p. 10). Angola made a deficient transition from the Marxist-Leninist system to a laissez -faire market economy. The economic system is still centrally controlled by the central government which uses the developing oil industry as the principle device of political and economic power. This has immensely been used to restrict international community particularly the West perceived as having harmed the country in the past through interference (Rodrik, 2004, p.3). The country’s reform agenda is progressing, however at a slow pace mainly because of the influence and constraints from the elite groups and a policy of taking issues slowly to avoid the shocks experienced in the 90s and to enable the government to control the pace of reforms. The main impetus of the reforms is the desire to create additional vibrant economic systems offering new opportunities, especially for the elite groups (Neto and Jamba, 2006, p. 3).
The economic reforms under president dos Santos are tailored towards IMF and World Bank template. They are aimed at liberalizing the economy through privatization of the underperforming state enterprises. The major reform programs are aimed at deregulation of the oil industry through elimination of subsidies in the energy sector, particularly from petroleum products. These reform programs are aimed at encouraging participation of the private sectors in the economy and minimizing the dominant role of the government. However, deregulation exercise in the oil industry was tenuous since the removal of subsidies led to an increase in the prices of petroleum products. This further to a deteriorating living condition of the common citizens as the pump prices had an overall effect on the prices of the consumer commodities (Neto and Jamba, 2006, p. 4).
This regime also kicked-off reforms in the civil service which led to the monetization and introduction of performance contract to guide service delivery in public organizations and institutions. Monetization policy was aimed at reducing public expenditure by eliminating unnecessary expenses incurred by the civil servants. The most highly resisted reform agenda was the elimination of the redundancy through restructuring the civil service (OECD, 2006, p.5). Another significant effort to curb wastage in public spending was the introduction of regulatory tough regulatory laws in public procurement. This was achieved by publicizing and competitive bidding of pubic contracts besides other initiatives that promoted transparency. This led to the formation of Budget Monitoring and Price Intelligence division whose responsibilities were to oversee strict adherence to procurement procedures and public expenditure (Rodrik, 2004, p.8).
The regime of President dos Santos also engaged in vibrant promotional strategies to woo foreign investors and draw investment in its bid to rouse economic growth and development. However, the most exceptional achievement of President Eduardo dos Santo was the successful negotiation of the debt relief package; the government was promised debt relief on payment of the debts owed to foreign creditors. The government also made efforts to tackle the problem of internal debt through capitalization, for instance, issuing bonds and other forms of securities. There were also major reforms in the pension scheme, banking sector and oil industry. Reforms in the oil industry were anchored on the Extractive Industry Transparency Initiative (EITI) initiative. Dos Santos regime also initiated fiscal and monetary to stabilize the economy from internal and external shocks. For instance, oil price based fiscal policy from which the revenues received oil was premised for the expenditure in the national budget and the extra sales from the crude oil was saved as foreign reserve. These reforms went a long way at trying to salvage the image of Angola at the international stage (Neto and Jamba, 2006, p. 3).
Though not convincing, President dos Santos has made several efforts to tackle the problem of corruption. His government established an anti-graft body and many other related offence commission to tackle corruption in the public offices (Le Billon, 2001, p. 12). In addition, he later established Economic and Financial crimes body to tackle the problem of economic and financial crimes, fraud, and money laundering among other financial offenses. This body was able to indict and convict a number of politicians, civil servants and kingpins of the illegal businesses like diamond smuggling. No doubt President Jose Eduardo dos Santos regime would be remembered for numerous economic and structural reforms, nevertheless, like other African countries, the reform processes in Angola display what experts refer to as partial reform syndrome (Neto and Jamba, 2006, p. 6). The reform process in Angola has been exempted from challenges and controversies. The reform process was marked by dominance of the policies from Breton wood institutions (IMF and World Bank) and donor communities. Given the crisis that originated from the implementation of the SAP policies and programs during the 90s, Angolan citizens are cynical and hesitant of results of the reform agenda. Economic liberalization policies which entailed deregulation of the oil sector were met with a lot of resistance from the public and the civil society. The deregulation and fractional elimination of subsidies by the government resulted into a strong face-off between the labor organizations and the state. The face-off includes a succession of crippling strikes, protests and demonstrations (OECD, 2006, p.8).
Another controversy was on the manner in which the privatization of the oil companies and enterprises were carried out. According to the Human Rights Watch dog in Angola only a few clique of powerful individuals and foreign collaborators gained access to these vital assets. The main beneficiaries were close associates of the president and politicians. The privatization process confirmed the corrupt manner in which government excises were executed under the regimes watch (Neto and Jamba, 2006, p. 7). A study conducted in 2004 by the Human Rights group established that the reform programs and policies only benefited a few people and that the government had failed to minimize social inequalities and have even provoked such imbalances. Therefore, the regime’s social and economic policies of poverty reduction, privatization and economic streamlining have caused more misery than good (Human Rights Watch, 2004, p. 3). In a nut shell, Angola has been able to achieve economic growth through its oil and diamond exports but the subject of economic development is up for debate.
Conclusion and Recommendation
Economic development is a multi-dimensional process which not only emphasizes on the growth of the country’s material product or general output but also the overall welfare of the people. Economic growth, on the other hand, only focuses on the increase in the country’s GDP. Angola has overtaken Nigeria to become the top oil producer in the continent (Winters, 2002). The country’s economy depends mostly on oil and diamond proceeds. However, most of the revenues worth billions of dollars received in oil and diamond exports have been lost through corruption in the past and under the current regime. The three decade civil war cost the country over 1.5 million lives and destruction of major infrastructure. Even though the government has been trying to rebuild the infrastructure and execute major reforms in the country, it has ignored the plight of the common citizens who were growing poorer and poorer. Therefore, the Human Development Index, which is one of the economic development measures, in Angola is very wanting. This has been made worse by massive corruption and lack of accountability in the current regime. As a matter of fact, Angola is ranked nearly at the bottom of the global Transparency and corruption index. Though the government under the pressure from the Breton wood institutions and the international community has been forced to embrace accountability and transparency, this has not extended to the oil industry.
Economic development in Angola can only be achieved with political goodwill of the current regime in the reform process. The reform process should focus on strengthening of institutions to tackle the problem of corruption and distribution of the country’s resources. For instance, enacting accounts and editors. Act will ensure compulsory editing of all the companies to minimize corruption and to enhance tax administration. The country should also try to diversify its economy and stop relying too much on the oil and diamond revenues. This can be achieved through expansion of other industries such as agriculture, construction, manufacturing, and service industry among others. In a short term basis, government can access more funds through petroleum secured loans to help it provide essential services to its citizens. The government should enact policies that are aimed at putting monopolies in the major sectors of the economy, including oil industry in order to free these sectors and ensure smooth distribution mechanisms. The process of privatization and dismantling of centralized businesses to encourage market-geared wealth accumulation to proceed but in a transparent manner. Last but not the least, the political system in Angola should be overhauled to promote real democracy and free and faire elections. This is the only way to give citizens power in electing and removing good and bad leadership respectively.
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