At the end of 2020, a panic gripped officials in the Angolan capital of Luanda, as the country’s graduation from the group of least developed countries (LDCs) planned for 12 February was looming.
The event, which is usually seen as a political success among the world’s poorest nations, was not welcome.
Already suffering from a recurring economic recession for six consecutive years, Angola’s oil-dependent economy was shattered by a sharp fall in oil prices as energy demand plummeted amid Covid-19 restrictions.
As revenues collapsed and increased spending was needed to respond to the health crisis, Angola’s debt was expected to spike to more than 130% of its GDP by the end of 2020.
The graduation from the UN category would see Angola lose support measures including preferential market access, capacity building and specific funding opportunities, particularly to address climate change.
In a last-minute U-turn, the Angolan government requested to defer its exit from the group to 2024. The request was granted by UN member states on Thursday, hours before Angola was due to leave the LDCs.
Women and children show their honey production. The Angolan government sees honey as a product that could help diversify its economy. (Photo: Unctad/Flickr)
Angola’s delayed graduation from the group has exposed the precarity of its oil dependency and the challenges it faces to diversify its economy.
“I don’t think today Angola would qualify for graduation,” Giza Gaspar Martins, climate change director in Angola’s environment ministry, told Climate Home News. “Covid-19 has only helped to show that perhaps it was not such a good idea to graduate to begin with.”
With other LDC countries, including Bhutan and Bangladesh, expected to leave the group in the next three years, experts have told Climate Home the classification needs to be fundamentally reviewed to address growing climate vulnerabilities.
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The LDC group was created in 1971 to support newly independent former colonies in developing their economic, institutional and human resources. The 46 countries that make up the group are among the world’s most affected by climate change.
Three criteria are used to determine whether a country belongs the LDC category: per capita income, human asset index and economic and environmental vulnerability.
A country is deemed ready to graduate if it exceeds the LDC threshold on two of the three criteria or if its national income is more than double the benchmark during two consecutive review periods, which take place every three years.
A recommendation for graduation is then made by the Committee for Development Policy, a subsidiary of the UN Economic and Social Council.
In UN climate negotiations, LDC countries benefit from technical support, capacity building and access to the LDC fund. The status also provides flexibility in terms of reporting greenhouse gas emissions.
Above all, the status guarantees quota-free and tariff-free market access to 22 countries, including to the European Union – the world’s largest trading bloc.
Oil exports are excluded from this special market treatment. Until now, Angola has taken little advantage of its preferential access to market to develop its productive capacity and diversify its economy. But its planned graduation was driven by its revenues from oil production.
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Angola is Africa’s second largest oil producer. Oil contributes a third of its GDP and more than 90% of its exports, according to the World Bank.
At the height of the commodity boom, the price of oil reached peaks of near $150 a barrel in 2008 – driving Angola’s national income per capita to levels to three times the LDC threshold.
But while rolling in oil money, the government missed the opportunity to invest in sectors that could benefit from the advantageous market terms and reduce reliance on a single commodity, Rolf Traeger, who heads the LDC section of the UN Conference on Trade and Development, told Climate Home.
Luanda’s new upmarket malls and skyscrapers created “an illusion of success… for the privileged elite that lived off oil revenues,” said Traeger, but inequality remained stark.
The port of Luanda, Angola, in 2015. (Photo: U.S. Navy photo by Mass Communication Specialist 1st Class Joshua Davies/Released/Flickr)
With sustained high national income in 2012 and 2015, Angola fulfilled the conditions for graduation. But social indicators remain much lower than countries with similar income levels such as Indonesia and Tunisia.
At the time the UN agreed on a date for Angola’s graduation in 2016, the country was experiencing a dramatic drop in its GDP. Oil exports that peaked to nearly $71 billion in 2012 plummeted to $26.6bn, according to data from Chatham House.
In 2019, oil exports were still worth less than half the peak at $32.6bn.
By February 2020, experts at the Committee for Development Policy warned of an “alarmingly wide gap” between Angola’s income level and social indicators, such as adult literacy and maternal mortality rates.
The Chicala township on the edge of Luanda, Angola. (Photo: David Stanley/Flickr)
Today, Angola’s productive capacity remains lower than the average across LDC countries – leaving it with little to plug the gap left by the fall in oil prices. And with smaller revenues, efforts to develop other products such as honey for export have been timid so far, Traeger said.
And yet diversification away from oil has never looked more urgent. Analysis by Carbon Tracker found the Angolan government risked losing more than half of its revenues by 2040 under a low-carbon scenario.
Before the oil boom, Angola used to be an exporter of coffee and other agricultural products, Taffere Tesfachew, one of the independent members of the Committee for Development Policy, which reviews and monitors LDC countries, told Climate Home.
“But this is the problem with oil. The government focuses on oil and it kills other sectors until it realises the oil price will not always remain at $130 a barrel,” he said.
And despite talks of diversification, the government has recently proposed a bill that would open environmental conservation areas to oil and mineral exploration.
“People in power are not sensitive to environmental issues and options for diversification. They talk about it but they don’t know how to do it,” said one Angolan environmental campaigner, who spoke on condition of anonymity, citing fear of repercussions.
UNCTAD and the European Union are working with the Angolan government to improve honey production and boost exports.(Photo: Unctad/Flickr)
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With a number of other climate vulnerable countries such as Bhutan, São Tomé and Príncipe and the Solomon Islands due to leave the LDC group in the next three years, experts have questioned whether the type of support available for LDC nations is meeting their needs.
In the 50 years since the creation of the LDC group, only six countries have reached sufficient development levels to leave: Botswana, Cabo Verde, the Maldives, Samoa, Equatorial Guinea and Vanuatu, which graduated in December 2020.
When a country graduates, it continues to receive LDC benefits during a three-year transition period, after which advantages end.
Bangladesh is expected to meet the threshold for graduation during a review planned before the end of the month. This would see it leave the LDC group in 2024.
Concerned about facing tough competition from dynamic economies such as Vietnam and Malaysia and faced with the impacts of Covid-19, Bangladesh wants a longer transition period beyond the three-year cut off, Tesfachew said.
“The whole criteria and type of international support measures should be reviewed in terms of whether it’s really helping poor countries to move up the development ladder. What is tariff-free export good for if we are not helping countries to produce goods for exports?” he added.
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Environmental vulnerability to natural disasters and shocks is taken into account in LDCs’ assessments, but their adaptation and resilience capacity need to be given a lot more weight, Binyam Gebreyes, researcher at the International Institute for Environment and Development (IIED) told Climate Home.
“Graduating from the LDC should not just be seen as a political win. The question is whether the benefits of the status has improved standards of living,” he said.
With intensifying climate impacts, it is becoming more important to ensure LDC countries don’t slide back and a longer transition period with targeted support would help them cement development gains, Gebreyes said.
The Committee for Development Policy recognises the need for climate-tailored support.
Development cooperation, it warned “will be ineffective if climate change continues to threaten countries’ and peoples’ livelihoods, food security, economies, and lives…and if inadequate regulation of cross-border financial flows continues to drain their economies”.
In 2018 it recommended the creation of a new category for countries facing “extreme vulnerability to climate change and environmental shocks”. This, it said, could apply to Pacific islands such as Kiribati and Tuvalu, which fulfil the criteria for graduation but are at risk of setbacks from rising seas and weather disasters.