Angola Day

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Angola Day
Oil, Broad-Based Growth, and Equity Angola
Country Economic Memorandum
Francisco G. CarneiroThe World BankMay 9 - 2007
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International Price of Oil
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(No Transcript)
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The Paradox of Plenty

• Karl (1997) Venezuela, Nigeria, Iran, Algeria,
  and Indonesia in the midst of 1970s oil booms
• Oil-rich countries have a tendency to create
  centralized bureaucracies to control oil profits
• Inefficiencies, inadequate policy choices,
  corruption, waste, and vulnerability
• Four main contributors to Paradox of Plenty (i)
  Dutch disease (ii) oil revenue volatility (iii)
  weak governance and (iv) limited institutional
  capacity.

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The Paradox of Plenty
Oil Dependency
Low Social Indicators
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Dutch Disease

• Formal treatment of Dutch disease Corden (1984)
  van Wijnberger (1984) and Nery and van
  Wijnberger (2000)
• Discovery and initial exploitation of vast
  domestic reserves of natural gas in the
  Netherlands
• Dutch Disease Resource Movement Effect Spending
  Effect and Exchange Rate Effect

Spending Effect
Increases in prices of non-tradables

• Expanded Demand
• Public Sector
• Budget
• Credit expansion

Appreciation of the RER
Exchange Rate Effect
Resource Movement Effect
Declining competitiveness of non-oil exports
Erosion of diversity and balance in the economy
concentration on oil sector
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Evolution of Real Exchange Rates in Oil Rich
Countries
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Facts to Watch

• Potential to become largest oil producer in
  Africa and worlds largest diamond producer
• Potential to assume a strategic role in Africa
• Vast economic potential that remains virtually
  untapped
• BUT
• Huge inflow of foreign exchange may complicate
  macroeconomic management (volatility,
  competitiveness)
• Daunting social challenges may create tensions
  that are difficult to manage
• High dependency on natural resources can be a
  source of constraints for diversification of the
  economy and can lead to conflict
• Limited institutional and technical capacity is a
  lingering concern

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Main Messages of the Report

• First, Angola needs to conclude the transition to
  a market economy
• Second, continuing deficiencies in policy design
  and implementation need to be addressed
• Third, a clear strategy to manage the countrys
  growing mineral wealth must be defined
• Fourth, improvements in the business environment
  and the investment climate are urgently required
• Fifth, agriculture should be prioritized given
  its potential to generate employment and incomes
• Sixth, the quality and supply of public services
  to the poor must improve