The Wealth Gap

 Angola’s middle class grows, but disparities loom large

Sustained rapid economic growth in Angola has led to higher incomes and a growing middle class that is fuelling consumption, analysts have often pointed out in recent years.
The end of Angola’s civil war in 2002 has inspired 10 years of economic expansion, with production of lifeblood oil, minerals and agriculture all growing phenomenally.
The retail and construction sectors are fighting to meet ever growing demand from the emergent class, and African investors have joined a global rush to put some cash into the high-yielding economy.
“A middle class is rising as the population is fast-growing, average GDP (gross domestic product) per capita is increasing and the economy has, in US dollar terms, grown significantly over the past decade,” says Celeste Fauconnier, research analyst at Rand Merchant Bank in South Africa.
Economic growth in Angola — Africa’s second-largest oil producer after Nigeria — is forecast at 7.1 percent this year, down from eight percent in 2012.
While this is a slowdown, it still represents a fast pace of growth.
The good health of the economy is starting to trickle down to ordinary people.
Last year, the World Bank classified Angola as an upper middle income state — in the same bracket as South Africa and Namibia — that covers countries with per capita incomes in the range of US$4 036 and US$12 475.
Just ten years ago, Angola was classified as a low income country, with per capita income below US$1 006.
Household consumption of above US$5 000, represents a level at which individuals spend more than half their disposable income on items other than food, analysts say.
For Angola, that disposable income goes to investment in consumer-focused industries. That has led to an increase in construction development, including new shopping malls, and residential and commercial buildings, the analysts said.
Angola’s growing middle-class has opened up prospects for investment in the highest real estate segment as supply is insufficient to meet the market’s needs and is focused on the highest segments in Luanda, says Anushuya Gounden, head of the Africa desk at business advisers Deloitte.
Reflecting on Deloitte research on Angola, she says demographic indicators show that a young middle class is emerging in Angola.
“With higher education levels than average, these people often work for multinationals set up in Angola, in the public sector or the financial sector, the study said,” Ms Gounden says.
“They benefit from greater stability in their contracts with employers and have the financial capacity to buy their own home.”
Deloitte’s research analysis was focused on cities with the greatest potential for development, such as the capital Luanda, and the cities of Benguela, Lobito, Huambo, Lubango and Soyo.
Angola’s neighbours – Namibia, Zambia, and DRC – are also benefitting from this stability and growth. New transport links mean that Angolans can easily travel across the region now and they are taking advantage of it.
With their own country very expensive, Angolans often travel to Namibia for holiday and shopping, says real estate firm Pam Golding Namibia.
Angolans can now go directly to Windhoek, rather than connecting through Johannesburg as they have had to do for decades.
Ms Gounden says Angola wants to diversify away from oil, which accounts for 50 percent of GDP.
“A new investment regime, covering special economic zones and free trade zones, provides investor incentives in a wide range of industries, including agriculture, manufacturing, rail, road, port and airport infrastructure, telecommunications, energy, health, education and tourism.”
The incentives include tax and customs benefits for investments exceeding US$1 million operating in special development zones. Angola provides privileged visas for investors on a case-by-case basis, and enters into trade agreements with major economic partner countries.
Analysts say a burgeoning financial market has improved buying power by increasing access to credit, but it still largely benefits a small group.
“Regardless of credit growth expected to rise rapidly, it comes from a low base, and lies within growing demand from the minority benefiting from oil wealth,” says Ms Fauconnier.
Vast economic disparities in Angola mean that the middle class is only a tiny percentage of the population and economists believe the wage distribution architecture is flawed.
“Half of the country’s workforce is employed in the agriculture sector, which only contributes 11 percent to 13 percent of GDP, while only one percent is in the petroleum sector, which contributes nearly 50 percent of GDP,” says Young Kim, senior economist at the World Bank. “This is not a good mechanism for wealth to be redistributed to the rest of the country.”
For those visiting or planning to do business in Angola, a huge expense bill awaits.
Furniture prices can be up to five or six times higher than in South Africa, says Mr Kim. A box of cornflakes retails at US$20 and a loaf of bread at US$6, says a report by financial services firm Standard Chartered Bank.
 

April 2013
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