Dutch Disease – Angola’s Resource Curse Challenge
Named after the Netherlands’ experience following North Sea gas discoveries in the 1960s, Dutch disease describes the paradox in which a natural resource boom harms an economy’s non-resource sectors – and Angola, with crude oil accounting for approximately 90-95% of export earnings and 50-60% of government revenue (IMF Article IV, 2024), is one of the most frequently cited contemporary examples.
Key Facts
- Definition: Macroeconomic phenomenon where resource wealth causes real exchange rate appreciation, making non-resource tradeable sectors (agriculture, manufacturing) uncompetitive
- Mechanism: Resource exports drive up foreign exchange inflows, strengthening the currency, raising domestic costs, and diverting labour and capital away from productive diversification
- Angola’s Oil Share of Exports: ~90-95% (IMF, 2024)
- Angola’s Oil Share of Fiscal Revenue: ~50-60% (IMF, 2024)
- Angola’s Total Oil Production: ~1.1 million barrels per day
- Key Policy Responses: Exchange rate liberalisation (2019), PRODESI import substitution programme, ProPriv privatisation, ENDS diversification strategy
How Dutch Disease Manifests in Angola
The transmission mechanism operates through several channels. First, massive oil export revenues – channelled through Sonangol (Sociedade Nacional de Combustiveis de Angola EP) and international operators such as TotalEnergies, Chevron, and ExxonMobil – generate sustained foreign exchange inflows that, prior to 2019, kept the Kwanza artificially strong under the BNA’s fixed exchange rate regime. This overvaluation made Angolan non-oil products expensive relative to imports, effectively pricing domestic agriculture, manufacturing, and services out of both export and domestic markets. Second, the concentration of government spending power in oil-funded public investment created a “spending effect” that bid up wages and input costs in non-tradeable sectors (construction, services), further squeezing producers in tradeable sectors. Third, the allure of oil-sector returns drew the most skilled labour, the most patient capital, and the most favourable policy attention away from diversified economic activity.
The consequences have been severe. Angola imports roughly 80% of its food despite having 35 million hectares of arable land. Manufacturing contributes under 5% of GDP. The country’s economic growth has been almost perfectly correlated with oil price cycles, producing painful contractions during the 2014-2016 and 2020 price collapses.
Policy Response
Since 2019, the government has pursued a multi-pronged strategy to mitigate Dutch disease effects. The BNA’s exchange rate liberalisation – abandoning the fixed peg and allowing the Kwanza to float – was the most consequential reform, eliminating the artificial overvaluation that had suppressed non-oil competitiveness. The PRODESI programme (Programa de Apoio a Producao, Diversificacao das Exportacoes e Substituicao das Importacoes) provides credit guarantees and preferential financing for domestic agriculture and manufacturing. The ProPriv privatisation programme (Programa de Privatizacoes) aims to redirect state capital toward productive private enterprise, and the ENDS long-term development strategy frames diversification as the central national objective through 2050.