Misleading Business Improvement

A 15% growth from June 2018 to June 2019 may seem like a great deal for any food retail chain. At least if you are not in Angola, where inflation is a big component of the economy. Although this indicator is now around 17%, it reached a peak of 42%, between 2016 and 2018, according to Trading Economics.

When compared to the Euro, the Kwanza (Angola’s currency) depreciated almost 40% in relation to the previous year. In 2018, one euro bought 290 Qwanzas, whereas nowadays it buys around 395.

Given this, a 15% rise in nominal terms does not reflect an excellent real growth, which may in fact even be negative.

Bearing this in mind, are these growth rates in Angola that bad?

To answer this question correctly, one has to travel back in time. Angola was highly affected by two main wars: the war for independence from Portugal in the 1960s and 1970s, and the civil war, which ended in 2002. During almost four decades of political instability, Angola’s economy was stagnated, remaining one of the poorest countries in the world, despite its abundance in natural resources.

At the beginning of the 21st century, the government reformed and improved social and political institutions and Angola’s economy started growing fast. Although with high inequality and corruption, its GDP grew exponentially, and Angola became one of the fastest growing countries in the world. However, its prosperity depended strongly on oil exports revenues, which are very vulnerable to changes in the international oil prices.

During the European financial crisis, developed countries slowed down their demand for petroleum. Coincidentally, during that phase, new oil sources were discovered, so its supply increased without any international entity watching over. For these two reasons, the price of a barrel of crude in the international market decreased abruptly and Angola’s oil export revenues halved.

The overall balance of the country started decreasing a lot in 2012 and became negative in 2013, which means that Angola was losing reserves and borrowing from the rest of the world. This is translated into a negative current account and a surplus in the financial account.

Consequently, since the end of 2014, the country is experiencing a recession, dragging thousands of businesses into bankruptcy.

On the one hand, during a crisis, people who lived with less than 1 dollar per day do not lose a lot of purchasing power, because they already had none. Moreover, the richest 20% who, in this country, hold 50% of the income, do not struggle. As a matter of fact, their fortunes usually increase.

However, on the other hand, the picture is a little bit different for the middle class. As Angola used to be a Portuguese colony, this class is made up mostly by Portuguese people inhabiting there, who are the ones balancing the economy. When the crisis hit its peak, around 200 000 expatriates returned home, decreasing Angola’s domestic product. In 2015, around 60 thousand work posts were extinguished, the majority being related to construction and oil exploration. It represented not only a great loss to the government (less money earned in visas, taxes…), but also to the private sector (less money spent in leisure, shopping, rents…).

One cannot stress enough this last one, since a one-bedroom apartment rent was around 5 000 dollars per month and the resident had to pay for the entire year in January.

Moreover, the informal sector constitutes a huge part of Angola’s economy. This is usually closely tied with poverty, yet this sector did not shrink during the economic upturn in the first decade of the century. Actually, this sector became more productive and started to cover various activities: from water supply to transportation. Some developing countries are so used to these kinds of markets, that a sales boost is highly noticeable when the country improves. For the past few years, during the oil exportation crisis, the informal sector remained. These are bad news for the retail business, since food and beverages are easy products to trade informally. In 2018, 80% of existing soft drinks were sold in these markets.

To sum up, it is accurate to argue that reaching the growth rates aforesaid is pretty good.

This is true, especially when almost all of the food sold in formal markets in Angola is imported and travels by sea for 3 long months, so companies have to predict the client’s necessities well in advance.

When there is a problem with transportation, supermarkets simply run out of stock and rely on the sales of non-perishable products. This would not be an issue if the government made serious inroads against corruption, providing local producers with financial support, given that the country is known for its fertile soils and rich raw materials.

Will this picture change?

According to the Corruption Perceptions Index 2018, created by Transparency International, an organization dedicated only to public sector corruption, Angola is one of the worst countries regarding this matter. The country assumes place number 165 out of 180, where number 1 is the cleanest country (Denmark) and 180 is the most corrupt one (Somalia). The failure to control this problem is affecting all Angolan taxpayers, including businesses.

Boosting sales, even in nominal terms, is an excellent achievement in a country where the majority of the population lives in one of the following two scenarios: