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Angolan Economy trends, necessary reforms and national employment plan

Março 17, 2023/in Research documents /by CEDESA-Editor

Social life in Angola is very alive and, at this moment, political and judicial matters dominate the country’s agenda. However, it is in the domain of the economy that there is an extremely significant evolution on which it is important to reflect and proceed to a careful analysis.

The recent (February 2023)[1] International Monetary Fund (IMF) report on the country underlines the favorable advances of the Angolan economy and also the necessary reforms. It is based on this report that we will enunciate Angola’s main trends in the economic field and the neuralgic points to avoid relapses such as the last long recession that began in the presidency of José Eduardo dos Santos.

Positive Trends

Angola’s economy is in full recovery after the five-year recession (2016-2020). By 2022, supported by higher oil prices and resilient non-oil activity, it has already reached growth of more than 3%, estimating the IMF that by 2023 the country continues to see the GDP increase in the order of 3.5%.

Therefore, we see growths of over 3% per year, which by our calculations, maintaining the price of oil and accelerating the liberalization of Angolan markets and foreign investment, could accelerate to numbers of 4% or 5%, adopted that are the right policies.

The optimism we share here results from the fact that non-oil growth has been widespread, despite a difficult external environment, as it means that the non-oil sector is reviving, as well as the attention that several developed countries with market economies are providing Angola, as is the case of US, Spain, France and Germany. Mentions should be made to recent visits to Angola of the King of Spain and the President of the French Republic, Emmanuel Macron (February and March 2023).

It should be noted that the debt that the public debt/GDP ratio has dropped about 17.5 percentage points of GDP, for an estimated 66.1% of GDP, aided by a stronger exchange rate. It is estimated that the checking account remained with a large surplus in 2022, while coverage of foreign currency reserves remained adequate (IMF data).

The fact is that the Angolan government has, according to the IMF, to adopt and maintain solid macroeconomic policies and maintained a commitment to structural reforms that are vital to Angola’s economy.

Necessary reforms

We understand that it is in the verification of fundamental structural reforms that resides the future of the Angolan economy. We highlight some reforms that are necessary to take and/or continue.

1-First renovation, with impact on the medium and long term, is to foster training for the economy of young people. Training not only means, and perhaps not in most, university education, but solid training in basic education and in professional aspects. We argue, therefore, that there must be an effective bet on vocational and technical education in Angola, before any other. A real bet on professional and technical schools and institutes, which are seen as valuable alternatives to academism and not mere university imitations (tragic error of Portuguese polytechnics).

2-Second renovation entails the creation of more conditions for investment, no longer at the legal level, where there is a modern framing and updated twice during the presidency of João Lourenço, but at the judicial, administrative and good practices level. The investor must feel safe to arrive in Angola and apply his money. One should not be afraid of being without the money due to any interference from an oligarch, or see any process dragging on in court. The speed and impartiality of justice is linked to good investment.

3-Third reform is dedicated to the financial sector, there is a special emphasis on increase credit to private persons and and the resolution of banking weaknesses. Quickly we must merge and capitalize banks, creating a banking sector not dependent on the state, clientelism or mere public debt management.

Finally, among other reforms, we highlight the true imperative of making more progress in strengthening governance and transparency, to improve the business environment and promote private investment.

Of course, continuing and accelerating anti-corruption strategy is also important.

National Employment Plan

All these news should be framed with the well-being of the population and the serious problems still pending. The one we highlight is unemployment, which although noting a slight descent, is still very high, about 30% [2]. This is an area in which we advocate direct state intervention. It is evident that the increase in GDP corresponds to an unemployment decrease, however, we believe that in the face of such high unemployment, in the short term the immediate action of the government is fundamental.

In this sense, the recent announcement of the World Bank of US $ 300 million for a project to accelerate economic diversification and job creation[3] is to greet. Not knowing in detail the design of this acceleration program, its existence should be underlined, as well as the previous announcement of the Angolan Labor Minister of the creation of a National Employment Program, with the aim of creating more opportunities for insertion of young people in job market[4]. Also, in this case, the data are scarce about the design of the plan, and it is certain that the President of the Republic had declared in the discourse of the State of the Nation of 2022, the creation of the referred plan.

So far, these initiatives related to unemployment, although positive, seem uncoordinated and poorly implemented. Therefore, the truth is that Angola would win to see a comprehensive national employment plan, specific and directly coordinated by the President of the Republic, without the risk of not properly implemented a plan, which in the short term is fundamental to the economy and Angolan population.

Fig.N. º1- Key Numbers of the Angolan Economy

[1] https://www.imf.org/en/News/Articles/2023/02/23/pr2352-angola-imf-executive-board-concludes-2022-article-iv-consultation-with-angola

[2] https://www.ine.gov.ao/

[3] https://correiokianda.info/banco-mundial-financia-usd-300-milhoes-para-fomento-do-emprego-em-angola/

[4] https://www.jornaldeangola.ao/ao/noticias/programa-nacional-de-emprego-e-implementado-este-ano/

Angola: The Employment Legislature

Setembro 28, 2022/in Research documents /by CEDESA-Editor

Electoral results and unemployment

The recent Angolan elections on August 24, 2022 were the subject of intense scrutiny by Angolan and international public opinion. Interestingly a good part of the attention was devoted to political and/or legal subjects. There was a great deal of courts, electoral processes, law application, voting counting, multitude of initiatives and even constitutional revision.

However, the qualitative inquiries that a partner executed during the election period did not point out these as the main concerns of Angolans, but those linked to the economy, namely employment and unemployment. What Angolans seem to ask above all is a job and good living conditions.

Consequently, the issue of unemployment is one of the most important in the activity of the executive who has now taken office.

At this time, the most current data point to a 30.2% general unemployment rate (data from the National Institute of Statistics for the II Quarter of 2022) and the youth unemployment rate (15-24 years) will be located in the 56.7%[1]. The unemployed population over 15 years old in the entire country is calculated in 4 913 481 of people, while young people from 15-24 unemployed is 3 109 296.

Source: Instituto Nacional de Estatística de Angola

Even if they doubt statistics and considering the very large weight of the informal economy, which makes calculations difficult, the reality is that the unemployment rate is too high. By the way, it is almost certain that the high rate of youth unemployment has manifestly contributed to the MPLA defeat in Luanda.

Unemployment is one of Angola’s most serious and important political, economic and social problems.

Government Employment Policy

Government policy regarding unemployment has been essentially passive, although accompanied by some concrete programs.

Essentially, the government expects the effort of macroeconomic stabilization (budgetary equilibrium, public account control, exchange rate liberalization, etc.) to translate into an incentive to private investment that in turn will increase employment.

The inaugural address of the President reaffirmed this approach when he said that “we will continue to work on policies and good practices to encourage and promote the private sector of the economy, to increase the offer of national production goods and services, increase exports and create more and more jobs for Angolans, especially for younger people”[2] (our emphasis).

The Minister of State for economic coordination, now reappointed, had already pointed out this direction when referring to unemployment and public employment promotion programs, he does not mention them concretely, but focuses on macroeconomic aspects. In early September, Nunes Júnior advanced that he was confident in reducing unemployment based on the private sector, claiming that the government was able to “put the country in economic growth giving currency stability and net international reserves” and placed “the country on the economic balance track, exchange rate stability and international reserves”[3].

The government successes in the area of stabilization of public finances and currency politics are not challenged, what is doubtful is the belief that the Angolan private sector has immediate ability to resolve the issue of unemployment.

On the basis of this non-interventional policy on the correction of excessive unemployment is the neoclassical model that summarizes the essence of all economic activity to the free interaction between supply and demand for price flexibility. The neoclassical model has a valid relevance in many areas of economic analysis, but certainly will not be applicable linearly in the job market[4] and even less in Angola.

The government continues to believe that it is sufficient to create the appropriate framework conditions (financial and currency framing) and employment emerges moved by the private sector.

This would be so if Angola were a free market economy with a strong and capitalized private sector. Angola is nothing like that. It is an economy that began with a process of destruction and Sovietization after independence in 1975 and whose “liberalization” after 1992-2002, it was false, or rather, was post-soviet, imitating Mother-Russian: some oligarchs linked to power took advantage of privatization and alleged free markets to quickly “hand in hand” with political power take dominant positions. In fact, there have never been true entrepreneurs, but essentially political entrepreneurs. And there was never a private sector, but a sector of friends of power. This reality has no strength to promote employment as the minister wants.

Making the recovery of employment in Angola dependent and combating unemployment only in the private sector is impossible.

There are two orders of reasons why the policy against unemployment is only based on the private sector.

Firstly, the operation of the market. As a general rule, the labor market does not function as a free market, by obeying the rules of supply and demand defined by the neoclassical economic model that seems to sustain government philosophy, the behavior of the labor market is tendentially rigid, wages are hardly lowered or people are fired without social turmoil and constraints.

In technical terms it is said that the labor market operates as a market without compensation (non-clearing market)[5]. While according to neoclassical theory, most markets quickly reach a balance without excess supply or demand, this is not true for the job market: there may be a persistent level of unemployment. Comparison of the labor market with other markets also reveals persistent compensatory differentials between similar workers.

Keynes in the context of the 1930s crisis studied the subject and concluded that the economy could go into underemployment balances, this means that it can reach a level where it will never employ all potential workers and not leave without the intervention of a “visible hand” that would be the State[6].

The second reason is the magnitude of unemployment in Angola. It is one thing to expect that the private sector hire people when unemployment is 10% and it is intended to go down to 6%.

It is possible that economic growth automatically increases employment. Okun’s famous law[7], even though it is inaccurate, tells us that a 2% rise of the product (GDP) implies a decrease of 1% of unemployment. Thus, if Angola’s GDP increased 4% by 2023, unemployment would only drop 2%, i.e. to 28%. Manifestly insufficient.

Explanation of the Okun Law

Therefore, there is a problem here for the economic theories in which the government rests on its policy. To go down unemployment to acceptable levels, for example 8%, 11 years would be needed with an average growth of 4% per year. Only in 2033 would unemployment be at a satisfactory level for the well-being of the population.

Exemplification of the necessary to achieve an unemployment rate of 8% without state intervention

Alternative and complementary policies

It is possible that this reality was what led the newly deposed minister of state to the social area, Dalva Ringote, to announce the “redinamization” of several government social programs. Although it has not specifically referred to unemployment, it is assumed that training programs, education programs and fighting poverty are included in the portfolio of the minister’s concerns and begins to have some inflection in the passive orthodoxy of the fight against unemployment[8].

It is evident that there are no miracles, but there has to be a government effort to idealize a more active employment policy than the private sector and expected economic growth supplemented.

Essentially this policy would be based on three pillars:

EMPLOYMENT PLAN

i) The hiring of staff for the State for the coverage of fundamental needs in education, health and social solidarity. Here the focus would be the hiring of licensed staff to occupy positions of human Capital that reproduce social welfare;

ii) The grant to private companies to hire contract workers, giving preference to Angolans;

iii) the launch of vast professional training programs for unlicensed citizens to provide them with practical qualifications in agriculture and in several posts.

In order to finance these massive programs to fight unemployment, one would have to rely, in part, on budget surplus funds and, on the other hand, on the famous recovery of assets in the fight against corruption.

There is no doubt that much of the government’s future is based on what will be done in the employment area. This will really have to be the employment legislature.

[1] INEAngola:https://www.ine.gov.ao/Arquivos/arquivosCarregados//Carregados/Publicacao_637961905091063045.pdf

[2] Presidência da República de Angola. Discurso de Investidura, 15-09-2022, in https://www.facebook.com/PresidedaRepublica

[3] https://correiokianda.info/governo-cria-programas-para-reducao-de-desemprego-no-pais/

[4] See a balanced description in Dagmar Brožová, Modern labour economics: the neoclassical paradigm with institutional content, Procedia Economics and Finance 30 (2015) 50 – 56.

[5] See for example: Willi Semmler & Gang Gong, (2009), Macroeconomics with Non-Clearing Labor Market, https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.587.8716&rep=rep1&type=pdf

[6] The best explanation remains Paul Samuelson & William Nordhaus, Economics, 2019 (20 Ed).

[7] See previous footnote.

[8] https://www.verangola.net/va/pt/092022/Politica/32628/Dalva-Ringote-anuncia-%E2%80%9Credinamiza%C3%A7%C3%A3o%E2%80%9D-dos-programas-de-combate-%C3%A0-pobreza-e-seca.htm

Proposal for a transversal youth policy in Angola

Dezembro 8, 2021/in Research documents /by CEDESA-Editor

Many countries don’t need a robust youth policy, either because the youth population is not significant, with most socio-economic problems being in the elderly, or because they have healthy economies and societies that easily encourage and incorporate young people.

This is not the case in Angola. The numbers on Angolan youth demand special attention from the political power to this age group. With reference to July 2021, it is estimated that 47.83% of the Angolan population is between 0-14 years old and 18.64% between 15-24 years old; therefore, 66.47% of the population is up to 24 years old, or in other words, about 2/3 of the Angolan population is young. It is an immense and impressive mass of babies, teenagers and young adults that constitute the immensity of the Angolan people.[1]

Fig. 1- Angola population pyramid (2021)

This impressive demographic is joined by unemployment figures. According to the most recent data available, unemployment affects 59.2% of the young population (here considered to be aged 15-24) in the third quarter of 2021, with a year-on-year increase in this situation of 2.8%. It is clear that this number does not reflect those who were somehow absorbed by the informal economy, however, its magnitude will always be remarkable[2].

In fact, from a sociopolitical point of view, it has been verified that the demonstrations against the government policy in Angola, and the activism in social networks, is carried out, in large part, by young people.

Youth is, therefore, a huge force in the Angolan economy and societies, which is on the boil.

These various factors: extremely relevant number of young people in the total population, youth unemployment and socio-political discontent that force the consideration of a transversal and encompassing youth policy for Angola.

***

Youth policy is defined as the government’s commitment and practice to guarantee good living conditions and opportunities for a country’s young population[3]. Youth policy is a strategy implemented by public authorities to provide young people with opportunities and experiences that support their successful integration into society and allow them to be active and responsible members of society and agents of change[4].

In these terms, a youth policy seeks to create opportunities for young people, promoting their participation, inclusion, autonomy, solidarity, in addition to well-being, learning, leisure, employment.

The government’s role will be to launch policies with these goals in relation to youth and to work together with the various actors involved in the information, development and implementation of youth policies, such as: youth councils, youth NGOs, interest groups, groups of young people, young workers, researchers, schools, teachers, employers, medical personnel, social workers, religious groups, media[5].

The model we developed attributes three axes to youth policies:

a) The axis of employment;

b) The axis of sport and leisure;

c) The axis of culture and training.

We understand that a youth policy must translate into measures in these three axes in order to provide young people with an integral and complete personal development.

In Angola there is a Ministry of Youth and Sports (Minjud) whose main function is to assist the President of the Republic in the elaboration and execution of the State’s youth policy (Article 2 of the Organic Statute of the Ministry of Youth and Sports, Presidential Decree no. 228/20, of September 7th).

However, in addition to advertisements or programs with a rhetorical value, there is no vision of a transversal and active youth policy such as is needed in Angola. And such a policy is essential. The relevant news that is noted about the activity of Minjud focus essentially on football and football stadiums.

It is therefore urgent to go further and launch a youth policy that will necessarily cover several ministries and will have to be coherent and consistent. As we mentioned, this youth policy would unfold along three axes, paying attention to employment, sports and culture.

***

It is proposed to adopt a youth policy for Angola described in the following terms.

The youth policy would be transversal to several ministries, not dependent only on one ministry, and therefore necessarily coordinated directly by the President of the Republic. As mentioned, it would have three axes that would complement each other.

• In the first axis, referring to employment, a program to guarantee full employment would be launched for all those aged between 22 and 23 years old and having completed a degree. The State would assume the responsibility to employ them in its structure or to subsidize for a period of time not less than 2 years a workplace in the private sector[6]. Therefore, the State would either ensure employment in its several administrations, institutes or public companies, or it would subsidize private companies for the creation and hiring of jobs for young people. All young graduates aged 22-23, in addition to receiving training and assistance to find work, would have guaranteed paid work, with the State having to pay 100% of their salary in a private company or employ participants in the public sector or support creation of a microenterprise. All participants would receive at least a minimum wage fixed in accordance with the Presidential Decree that regulates the subject adequate to a life with dignity[7]. In a second phase, the guarantee of employment for all young people aged 22-23, regardless of their qualification, would also be studied, although those without formal qualifications should attend training to acquire some ability in art or craft.

• In the second axis referring to sports, an integrated sports project in school and in the community would be promoted. In this context, a proposal should not be developed to do everything everywhere, or as referred to in connection with a previous plan “to involve sport modalities of handball, athletics, basketball, football, volleyball, gymnastics and chess” in all schools[8].

The plan would aim at the rational use of scarce resources and with the search for specialization. Thus, each school would be required to dedicate itself to only one sport and to develop it freely within its midst. They would not aim for national championships, nor for large structures, but they would bet on focus and specialization. Each school with its sport. Only one, but open to all young people. At the same time and in competition with schools, each municipality would also promote a sport open to all young people. We would thus have a sport project for everyone with a specialization from each institution and with no other initial ambition other than to put young people in sport.

• Finally, the third axis dedicated to culture would also have to be based on specialization. Here, efforts would be made to concentrate resources on promoting reading by young people. We would start by adopting a project launched by the Gulbenkian Foundation in Portugal in the middle of the last century and already sporadically adopted in Angola in provincial initiatives, such as the “Giro do Saber” promoted by the Provincial Library of Malanje[9].

Reading for youth based on traveling libraries and street readings would be a project aimed at encouraging young people’s taste and reading habits. The traveling libraries will consist of vans that would travel across the country with volunteers and books offered and would stop at each location allowing the reading of these books and explaining some of them. At the same time, these volunteers would perform street readings of books appealing to youth in a mixed spectacle of reading and music, thus attracting target audiences.

One would look for this reading project to be financed by the penal system. That is, it would give rise to a change in the law that would allow all prison sentences of up to two years for economic and financial crimes to be exchanged for donations of vans, books and volunteer support.

Fig. 2- Description of a transversal youth policy

With these measures in the field of employment, sport sand culture, a youth policy that is so necessary for Angola would be launched.

There is nothing like taking advantage of the present party Congresses to promote and discuss these proposals.

[1] Cfr. https://www.cia.gov/the-world-factbook/countries/angola/#people-and-society

[2] https://mercado.co.ao/economia/desemprego-afecta-592-dos-jovens-em-angola-YX1077607

[3] Finn Denstad, Youth Policy Manual, 2009

[4] Conselho da Europa CM / Rec (2015) 3

[5] https://www.coe.int/en/web/youth/about-youth-policy

[6] We have developed proposals for these full-employment programs in other CEDESA reports, see for example https://www.cedesa.pt/2020/11/16/proposta-de-um-esquema-piloto-de-garantia-de-emprego-em-angola/

[7] See the study referred to in the previous note

[8] https://www.angop.ao/noticias/desporto/polidesportivo-desporto-escolar-carece-de-continuidade/

[9] https://www.angop.ao/noticias/lazer-cultura/biblioteca-itinerante-chega-ao-municipio-de-cacuso/

Proposal for a pilot job guarantee design in Angola

Maio 11, 2021/in Research documents /by CEDESA-Editor

Introduction: the magnitude of the unemployment problem and the need for a systematic government response

In Angola, in the third quarter of 2020, the unemployment rate stood at 34%[1]. This number corresponds to a chain increase (i.e., compared to the previous quarter) of 9.9% and homologous (referring to the same period in 2019) in the order of 22%[2]. In view of these data, whatever the perspective adopted, it is easy to see that unemployment is a fundamental and serious problem facing the Angolan economy and societies.

Fig. Nº 1- Recent evolution of the unemployment rate in Angola (2017-2020). Source: INE-Angola

So far, the government recognizes this problem, but is betting on the recovery of the economy at the private sector level, to resolve the issue, believing that the State can do little to face the situation. The solution lies in economic growth and business dynamism, says the executive. The President of the Republic, João Lourenço, was clear in the last speech of the State of the Nation when he stated: “priority of our agenda [is): to work for the resuscitation and diversification of the economy, to increase the national production of goods and basic services, to increase the range of exportable products and increase the supply of jobs. ” João Lourenço makes an indelible link between the diversification of the economy and the increase in national production and the decrease in unemployment.

Basically, the government relies on the traditional postulate stated by the American economist Arthur Okun, according to which there would be a linear relationship between changes in the unemployment rate and the growth of the gross national product: with each real GDP growth in two percent would correspond to a one percent decrease in unemployment[3]. The truth is that several empirical studies do not confirm this empirical relationship at all, and in recent years in several countries around the world, an increase in GDP has not led to a sharp decrease in unemployment, while in other cases it has, therefore, it is difficult establish a permanent relationship between unemployment and GDP. In addition, the magnitude of unemployment in Angola would imply that in order to decrease the rate for the still frightening 24%, GDP would have to grow 15% …

The fundamental issue is that the problem of unemployment in Angola is not cyclical, but structural, this means that it is closely connected to the permanent deficiencies of the Angolan economy and does not have a mere dependence on the economic cycle.

The fact that the problem of unemployment is structural and of an economic recovery for the years 2021 and onwards is only between 2% and 4% of GDP[4], according to the current IMF projections, imply that such economic animation will have little impact on employment.

In this sense, it is essential to understand that the solution to the problem of unemployment does not depend only on the market and the economic recovery, it requires, at least in the short term, the muscular intervention of the State. It is in this context that this proposal for a pilot experience arises.

Fig. No. 2- GDP growth projections Angola (2021-2024). Source: IMF

A pilot job guarantee experiment in Angola

Starting from the first experience of universal employment guarantee in the world, designed by researchers at the University of Oxford and administered by the Austrian Public Employment Service, which takes place in the Austrian city of Marienthal[5], the same methodology would apply to a specific location in Angola, possibly, to a specific municipality in Luanda.

According to this regime to be implemented on an experimental basis in a municipality in Luanda, a universal guarantee of a properly paid job would be offered to all residents who have been unemployed for more than 12 months.

In addition to receiving training and assistance to find work, the participants would have guaranteed paid work, with the State subsidizing 100% of the salary in a private company or employing participants in the public sector or even supporting the creation of a microenterprise. All participants would receive at least one minimum wage set in accordance with the Presidential Decree that regulates the matter appropriate to a life with dignity.

The pilot Design would work as follows:

i) All residents of the chosen Luanda municipality, who have been unemployed for a year or more, will be unconditionally invited to participate in the pilot design.

ii) Participants begin with a two-month preparatory course, which includes individual training and counseling.

iii) Subsequently, participants will be helped to find suitable and subsidized employment in the private sector or supported to create a job based on their skills and knowledge of the needs of their community or will still be employed by the State.

iv) The job guarantee ensures three years of work for all long-term unemployed, although participants may choose to work part-time.

Fig. No. 3- Brief description of the pilot employment design

In addition to eliminating long-term unemployment in the region, the program aims to offer all participants useful work, be it in paving streets, in small community repairs, in a day care center, in the creation of a community cafe, in access to water and energy , basic sanitation, in the reconstruction of a house, or in some other field.

The pilot project is designed to test the policy’s results and effectiveness and then be extended to more areas of the country.

Financing

“As part of the asset recovery process, the State has already recovered real estate and money in the amount of USD 4,904,007,841.82, of which USD 2,709,007,842.82 in cash and USD 2,194,999,999.00 in real estate, factories, port terminals, office buildings, residential buildings, radio and television stations, graphic units, commercial establishments and others. ”

Thus, the President of the Republic spoke in the most recent speech by the State of the Nation mentioned above.

Now, nothing better than to allocate part of these recovered funds to the promotion of employment. Consequently, an amount withdrawn from there would be used to create an Employment Development Fund which we would simply call, because of the origin of the amounts, “Marimbondos Fund”. This Fund would receive part of the recovered assets and would use them to finance initiatives to promote employment such as the one presented here. Money withdrawn in the past from the economy would return to this one to foster work for the new generations.

With this self-financing model, any constraints imposed by the International Monetary Fund or the need for budgetary restraint would be removed. The promotion of employment would have its own funds resulting from the fight against corruption. There doesn’t seem to be a better destination for money than that.