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AOPI
PAPERS
FUTURE BUSINESS RELATIONS
BETWEEN
ANGOLA AND SOUTH AFRICA



Occasional Development Paper N5
April 2009
Angola and South Africa (SA) have undergone a
remarkable transformation since their democratic
transition in the last decade, but economic
development and employment generation have
been disappointing. Most worryingly,
unemployment is currently among the highest in
the world. While in SA the primary cause of high
unemployment is considered to be that prevailing
wages levels are too high, in Angola the situation
as regards wage levels is the contrary; the deeper
cause lies elsewhere, and is intimately connected
to the inability of both countries to generate
significant growth and development momentum in
the past fifteen years. High unemployment and low
growth and development rates are both ultimately
the result of the shrinkage of the non-mineral
tradable sector since the early 1990s.

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CONTENTS




PAGES
1. INTRODUCTION 5
2. ECONOMIC POLICYMAKING IN BOTH COUNTRIES 6
3. THE CONTEXT, OBJECTIVES AND PRIORITIES FOR ENERGY POLICY 7
4. CROSS-CUTTING ISSUES 8
5. POLICY FRAMEWORK - ENERGY 10
6. CONCLUSION 13



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ABSTRACT

Angola and South Africa (SA) have undergone a remarkable transformation
since their democratic transition in the last decade, but economic
development and employment generation have been disappointing. Most
worryingly, unemployment is currently among the highest in the world.
While in SA the primary cause of high unemployment is considered to be
that prevailing wages levels are too high, in Angola the situation as regards
wage levels is the contrary; the deeper cause lies elsewhere, and is
intimately connected to the inability of both countries to generate significant
growth and development momentum in the past fifteen years. High
unemployment and low growth and development rates are both ultimately
the result of the shrinkage of the non-mineral tradable sector since the
early 1990s. The weakness in particular of export-oriented manufacturing
has deprived both countries from growth opportunities as well as from job
creation at the relatively low end of the skill distribution. However, both
countries have the advantage that their economies are complementary to
one another and can be utilized synergistically for economic development
and job creation if their strengths can be leveraged to their full capacity.

In this paper we will demonstrate that the recent election results in Angola
and in South Africa in the last six months should be the catalyst for aligned
policies for business development between Southern Africas most important
economies. Such policies should target economic policy objectives that drive
economic development, generate employment and improve the living
standards of the population.

A crucial and internationally important element of economic policy relates to
the area of oil, gas and energy. Policy in this area should optimize the
social, economic and environmental benefits of these resources.
Furthermore, we believe that aligned policies will drive the private sector to
realise complementary advantages in this sector enabling both countries to
benefit from Angolas strong upstream resources and development, and
South Africas downstream capabilities in refining and distribution assets

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and development, to generate wealth and employment whilst also
enhancing regional energy security.

Beyond the energy sector we can see many advantages and great potential
of strong bi-lateral trade links between neighbours. Here again
complementary resources technical skills, stages of development provide
opportunities for South Africas world-class businesses in sectors such as
infrastructure development and management (ports airports, transport),
industrialization and capital asset projects with $8bn of finance planned,
social housing developments where $50bn has been earmarked, agriculture
and agri-business with $2bn allocated, in additional other reconstruction
and public works projects.

Two neighbors with such strategic importance to SADC, converging in their
political and democratic development, with complementary strengths and
opportunities in many sectors have much to gain by aligning policies in key
areas to stimulate development, employment and security nationally, within
SADC and beyond to the African context.

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1. INTRODUCTION

The Southern African business community is probably the largest and most
independently minded private sector on the continent, yet its ability to
interact and win business does not fully reflect this. The Angolan and South
African business community resembles the Palancas Negras and Bafana
Bafana, the respective national soccer teams: while they perform relatively
well at the highest levels, sometimes, their performance is still not what it
could be. Often (Sometimes), much smaller rivals outplay them. Why?


In the beginning
While the ANC and the MPLA are two of Africa's oldest and most
sophisticated liberation movements, thinking about economic policy in the
ANC and MPLA began very late in the organizations lives. Beyond the
vaguely redistributionist tenets of their Freedom Charters, little was said -
or thought - about economic policy until the early 1990s. As a political
transition hove in sight, the ANC and MPLA began to pay more attention to
this area - and business began to work much harder to win the ear of those
who were to be crucial to economic policymaking.

This attempt was uncoordinated and took a variety of forms. Much has been
written about the various scenarios and development exercises: including
the influential Montfleur scenarios that involved Trevor Manuel and the
various reform processes in Angola during the late 80s and early 90s. Much
has been made, too, of the impact of executive training, short courses and
opportunities to study abroad offered to key figures within what would
become the ANCs and the MPLAs inner circle on economic policy. Here one
should not underestimate the impact of the Washington consensus, then
enjoying near hegemony in international academic and policy circles. This
international environment was as if not more - influential than the efforts
of business locally.


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The victory of our democracies now demands that national economic
policies and business environments be reviewed. Our Constitutions demand
this review, on the basis of fairness and equity, values that are enshrined as
cornerstones of our new societies. However, there are other pressing
reasons too.

The development of our societies, our growing populations, and the
legitimate demands of the disadvantaged majority for access to those most
crucial natural resources water, energy and housing - have presented new
demands.

The way that we use our resources at the moment is far from ideal: we are
not getting the social, economic or environmental benefits from the use of
our resources that we could, or should, be getting, indeed, that we need to
get.




2. ECONOMIC POLICYMAKING IN BOTH COUNTRIES

Exposure to neo-liberal dogma increased and intensified as both parties
moved into government and began to deploy their cadres in the various
ministries like Trade and Industry, Finance and at the Reserve Bank. The
market - or rather its proxies, international stock and currency traders -
delivered some swift and salutary lessons about how little policy slack would
be afforded in both countries, despite their status as the worlds political
darlings. Similarly, attempts to implement a Reconstruction and
Development Programme (RDP) taught government some hard lessons
about the difficulties of effecting structural changes to poverty and
inequality. All of this served to disarm those on the left who favoured a
more redistributionist and interventionist approach.

And still, while both parties had not yet, to businesss view, done anything
seriously wrong, it did not appear that they would be unequivocally

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committed to a market-driven approach. The slow recovery of direct foreign
investment was seen as evidence for this. South Africa and Angola are
endowed with abundant energy resources. Fossil fuels, such as coal,
uranium, liquid fuels, and gas, play a central role in the socio-economic
development of our countries, while simultaneously providing the necessary
infrastructural economic base for the countries to become attractive hosts
for foreign investment in the energy sector. Biomass forms the main energy
source in the rural domestic sector, while other renewable energy
development opportunities are already being explored in the fields of solar
power, wind power, pumped storage and in hydro-power schemes.


3. THE CONTEXT, OBJECTIVES AND PRIORITIES FOR ENERGY
POLICY

As government pursues its macro-economic policy on growth, employment
and redistribution, as well as policy of reconstruction and development,
changes are taking place within the energy sector that continue to present
us with interesting challenges.

These challenges include the transformation of state-owned entities, the
reshaping of governance principles, the enhancement of socio-economic
welfare within communities, and even peoples changing attitudes towards
the use and importance of national energy resources.

Government is committed to the promotion of access to affordable and
sustainable energy services for small businesses, disadvantaged
households, small farms, schools, clinics, in our rural areas and a wide
range of other community establishments. As provided for in our
Constitutions, the state must establish a national energy policy, which will
ensure that the national energy resources shall be adequately tapped and
developed to cater for the needs of the nation. Energy should therefore be
available to all citizens at an affordable cost.



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The restructuring of the energy sector is to be informed, inter alia, by the
need to redress economic and social power imbalances. Emphasis should
also be placed on the pursuit of cooperation among other SADC members
and African countries and the need for a Pan-African energy strategy.

Global financial markets have melted down. Private finance is in increasingly
scarce supply. Government needs to create policy that attracts investment,
while ensuring the achievement of national policy objectives.

The energy sector has larger environmental impacts than most other
economic sectors. Energy policies are reducing emissions as energy
investments are subjected to greater environmental scrutiny. There is a
greater focus on energy end-use. The research and development of
alternative and renewable energy sources is also being promoted.

The Southern African Development Community (SADC) has adopted an
energy cooperation policy and strategy. South Africa and Angolas energy
policy must therefore seek to be compatible with regional energy policy.

4. CROSS-CUTTING ISSUES

Six related concrete policy adjustments to be considered necessary to
economic development and employment are:

1) Dealing with crime and violence;
2) Streamlining government spending and revenues;
3) Reforming Government owned entities (Parastatals and agencies);
4) A flexible labour market;
5) Diversification of the economies; and
6) A vigorous export drive.

Economic growth, in the world or in a particular region or country, depends
to a large extent on the nature and quality of economic policy (Collier and
Dollar, 2001). For example, if there is a good environment for households

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and firms to save and invest in the developing world, economic growth is
generally observed. The International monetary Fund (2000) also claims
that where sound macroeconomic policies have been sustained, they have
raised growth.

In terms of our economic structure, the central objective of the policy
reform package introduced at the beginning of the democratic era was to
restructure the economy in order to render it internationally competitive.
Both countries incorporation into the world economy narrowly rested on
three pillars:

1. exporter of raw materials
2. imported of both capital and labour-intensive goods
3. recipient of portfolio and Foreign Direct Investment




Evidence shows that South African and Angolan export-led growth, while
beneficial to the balance of payments, is unlikely to immediately affect
levels of unemployment, given the capital-intensity of the export sector,
unless labour-intensive and downstream industries can be developed.
Both countries industrial focus seems caught in a paradox. It is geared
towards swelling trade flows that are based on largely capital-intensive
exports and an influx of labour-intensive imports against a background of
population growth, rising unemployment and poverty. Given the emphasis
on high-value added products, export production tends to by-bass low
skilled labour. This is underscored by the high rate of job losses in the
export-oriented sectors that have shifted resolutely to capital-intensive
production.

The challenges of poverty and unemployment should be framed and
prioritised in economic policy and not relegated to separate welfare-based
interventions for the so-called second economy. Surely the acid test of the

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success of an economy is the degree to which it is able to generate
employment and improve the living standards of the population.

Relegating these issues to a second economy is hardly an appropriate way
to integrate unemployment and poverty into mainstream economic policy.
Incidentally, the analogy of two economies is itself misleading for it
assumes the existence of a Chinese wall between the two. This then enables
the state elites to suggest that the formal economy is doing well and should
be left untouched for it is modern, efficient, and internationally competitive.

At the same time the second economy is seen to be deficient and requires
both policy reform and social assistance for its inhabitants. There are a
number of factual inaccuracies and conceptual problems with this idea.
Firstly, evidence shows that the informal economy contributes up to 20 per
cent of GDP. Secondly, there are a number of forward and backward
linkages between formal and informal economic activities. Hence, informal
economic activities should not be seen as a separate sector or economy, but
as part of the entire economy.

Finally, the extent to which both countries macro-economic policies support
sustainable development has to be a central component of any worthwhile
evaluation of the countrys economic policies.

5. Policy Framework Oil, Gas, Energy
Government policy in the critical oil, gas and energy sector will ensure the
optimal and environmentally sustainable exploration and development of
the countrys natural oil and gas resources to the benefit of all in order to
achieve the aforementioned balanced policy objectives. Therefore
Government undertakes to:

Maintain an appropriate capability to perform regulatory and
promotional functions in respect of oil and gas exploration on behalf
of the state;



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Promote the development of both countries oil and gas resources by
ensuring that the tax regime and contractual arrangements as well as
the regulatory and operating environment will be consistent, stable
and internationally competitive;

Ensure private sector investment and expertise in the exploitation
and development of the countrys oil and gas resources;

Identify and promote the realisation of mutual benefits from the
complementary natures of Angolas strong upstream resources and
development and South Africas downstream refining and distribution
assets and development;

Promote research, technology development and technology transfer
to stimulate the optimal development of the countrys oil and gas
resources;

Promote oil and gas development by applying the "use it and keep it"
principle in contracts according to standard international practice;

Retain the rights to natural oil and gas offshore working towards
governments long term objective of all onshore mineral rights
vesting in the state;

Ensure a safe and healthy working environment in accordance the
rule of law, and good international oil and gas field practice;

Ensure that an integrated and holistic environmental management on
all onshore and offshore oil and gas exploration and production
operations is achieved in accordance with international oil and gas
field practice;


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Ensure that the "polluter pays" principle is applied in the regulation
and enforcement of environmental impact management measures
and standards.

Not only is good data required for the energy policy process but it is
fundamental to the implementation of integrated energy planning. To
facilitate integrated energy planning a database needs to be maintained
covering at least the following areas:

Energy resources;
Energy production from indigenous resources (mining, renewables, oil
and gas);
International energy trade (imports and exports);
Energy transformation (production of liquid fuels and electricity from
other sources);
Storage, transport and distribution of energy;
National energy trade (wholesale and retail);
Investment in plant and infrastructure associated with the above
areas;

Disaggregated energy usage, expressed in energy and cost terms;
Energy efficiency;
Energy related environmental emissions;
Average sectoral energy prices and taxes;
Institutions linked to all the above areas; and
Similar data from regional and international sources.

Policy Indicators Synergistic Development Policy

Looking beyond energy policy the complementary stages of development of
the Angolan and South African economies that point to gains in economic
output, development, security and employment if policies were aligned are:

Different stages of infrastructure development and management
where South Africa has technical strength and Angola offers

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development opportunities in distribution, port operations, transport,
telecommunications, airports, education, tourism etc.
Agriculture and agri-business: where Angola has earmarked $2bn to
invest in vast tracks of underutilised fertile agricultural land where
South Africas business and people have considerable technical
expertise.
Social housing projects: South Africa has technical and business
management and trade skills in construction and social housing;
Angola offers many opportunities with $50bn of housing development
planned for the next four years.
Reconstruction and public works projects offer similar opportunities
for business development and skills transfer.
Industrialisation: $8bn has been earmarked for investment in the
coming four years for industrial construction and capital plant.
Beyond the private sector South Africas strong and experienced
para-statals such as IDC, PIC DBSA could lead and support South
African businesses in Angolan development projects.

Beyond these specific policy areas, the proximity of South Africa and Angola
and their weight in SADC makes them natural partners whose relationship is
key to the development of SADC. Economic development of neighbours
increases demand for and trade in goods and services and promotes
regional security. Complementary in geographical terms too, the South of
Angola offers an accessible and available land resource and base for South
African businesses.

6. CONCLUSION

The publication of GEAR in SA and Agenda Nacional de Consenso in
Angola was a turning point respectively in the ANCs and MPLAs economic
policy making during the course of the last ten years. Prior to GEAR, the
ANC was receptive to a wide range of influences on economic policy and
operated via political institutions grounded in a stakeholder approach.
Perhaps even more important however, was the influence of the market
and an apparent international consensus (within financial and investment

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circles at least) on a particular set of neo-liberal policies. Over time, as the
ANC and the MPLA acquired some experience of governance and some
confidence in its own technocrats, the number of policy makers narrowed
for macro policy at least. Labour relations continued to be negotiated in
tripartite and multi-actor forum, even as the Treasury drew up the rest of
economic policy.

The new democratic consensus in both South Africa and Angola requires an
overhaul of policy towards Oil, Gas and Energy in the context of SADC that
will promote energy security and spur on economic development and
provide social justice through the creation of employment as opposed to
welfare based solutions. The complementary natures of the South African
and Angolan energy sectors provides the opportunity for both countries
Governments to work together to realise the synergistic gains to both
nations.

Furthermore the histories, political, social and economic development of
both countries has led them to a unique moment in the present day in
which complementary strength and synergies arise in many business
sectors. Governments should set policy, bi-lateral relations and conditions
that drive business towards achieving its potential through interaction
between Angola and South Africa to profit from complementary strengths
and create employment, wealth and promote development for all citizens.













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Authors:

Mario De Carvalho
Anthony Childers

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