Import reliant

Some of the reasons that have been highlighted for Angola's high living cost levels have been the huge reliance on imports by the country, the over-dependence on oil, other macro-economic effects and the continued devaluation of the local Kwanza currency.

For example, in the last 20 years Angola's agricultural output has contributed an average of 11.2 percent to the GDP. The country only has about 2.65 percent of land under crops, indicating a depressed agricultural sector and therefore the need to import most of the food supplies. The 27-year-long civil war has also left some arable land unproductive due to uncleared land mines. It is estimated that half of the arable land still has land mines and cannot therefore be immediately utilized.

Oil accounted for about 85 percent of Angola's GDP in the last two years. However during the 2008-09 period, the global prices for the commodity were volatile fluctuating between $35 and $82 per barrel. This had a negative effect on Angola's earnings.

The country is also ranked poorly in terms of the ease of doing business driven by high corruption index. In 2010, the country was ranked No. 168 out of 178 on the Transparency International Corruption Perception index. Corruption-driven factors therefore have inflationary effects on the overall price structures within the economic enclave. Inflation is forecasted to peak at 12.4 percent in 2012 and this is a further driver of high costs.

It is also important to trace the influence of Angola's political history as a possible cause of the current high costs of living. Upon the attainment of independence in 1975, about 300,000 Portuguese professionals left the country without any mechanism for immediate replacement with local capacity. The civil war that also then immediately ensued did not allow for room to build adequate human resource capacity to drive the socio-economic sector of the country. To date, Angola is ranked No. 146 from a total of 169 countries on the United Nations Human Development Index. There is therefore a substantial lack of local human resource capacity in Angola reflecting on the limited internal capacity to enhance the desired national productivity. This inevitably leads to some level of dependence on foreign capacity and goods therefore suggesting the reason for the high imports.

Government taking steps

The Angolan Economy Minister Abraao Gourgel has however highlighted government's efforts in addressing the high cost of living in the country. Part of the government's strategy in driving toward a projected 7 percent economic growth in 2011 is to diversify into non-oil sectors such as agriculture, manufacturing and mining. The government is also working toward reducing domestic costs by fighting inflation to reduce it to single figure digits.

Gourgel has also indicated that the current efforts in infrastructure, telecommunications, energy, and transport sectors development are all meant to increase local service efficiency, which will inexorably reduce domestic costs.

Angola's economic activity has some level of insulation from other countries from the sub-region. Angola is still one of the countries that have stringent visa conditions for other Southern African countries. Angola only has one Southern African country amongst its top 30 trading partners. The connectedness of the Angolan economy to the rest of Southern Africa is very restricted. The high cost of living within Angola may therefore not have much effect on the region. However, besides the oil attraction, other regional investments and tourist markets may then be considered more alluring with regards to the comparable costs of living.

(The writer is executive director of the African Reform Institute, Zimbabwe)