The Angolan economy has been dominated by the production of raw materials and the use of cheap labor since European rule began in the sixteenth century. The Portuguese used Angola principally as a source for the thriving slave trade across the Atlantic Luanda became the greatest slaving port in Africa (see Slave Trading in the 1700s , ch. 1). After the Portuguese Empire abolished the slave trade in Angola in 1858, it began using concessional agreements, granting exclusive rights to a private company to exploit land, people, and all other resources within a given territory. In Mozambique, this policy spawned a number of companies notorious for their exploitation of local labor. But in Angola, only the Diamond Company of Angola (Companhia de Diamantes de Angola--Diamang) showed even moderate success. At the same time, Portuguese began emigrating to Angola to establish farms and plantations (fazendas) to grow cash crops for export (see Agriculture , this ch.). Although these farms were only partially successful before World War II, they formed the basis for the economic growth that shaped Angola's economy in the late 1980s.

Before World War II, the Portuguese government was concerned primarily with keeping its colonies self-sufficient and therefore invested little capital in Angola's local economy. It built no roads until the mid-1920s, and the first railroad, the Benguela Railway, was not completed until 1929. Between 1900 and 1940, only 35,000 Portuguese emigrants settled in Angola, and most worked in commerce in the cities, facilitating trade with Portugal. In the rural areas, Portuguese settlers often found it difficult to make a living because of fluctuating world prices for sugarcane and sisal and the difficulties in obtaining cheap labor to farm their crops. As a result, they often suspended their operations until the market prices rose and instead marketed the produce of Angolan farmers.

But in the wake of World War II, the rapid growth of industrialization worldwide and the parallel requirements for raw materials led Portugal to develop closer ties with its colonies and to begin actively developing the Angolan economy. In the 1930s, Portugal started to develop closer trade ties with its colonies, and by 1940 it absorbed 63 percent of Angolan exports and accounted for 47 percent of Angolan imports, up from 39 percent and 37 percent, respectively, a decade earlier. When the price of Angola's principal crops--coffee and sisal--jumped after the war, the Portuguese government began to reinvest some profits inside the country, initiating a series of projects to develop infrastructure. During the 1950s, Portugal built dams, hydroelectric power stations, and transportation systems. In addition, Portuguese citizens were encouraged to emigrate to Angola, where planned settlements (colonatos) were established for them in the rural areas. Finally, the Portuguese initiated mining operations for iron ore, manganese, and copper to 1000 o complement industrial activities at home, and in 1955 the first successful oil wells were drilled in Angola (see Extractive Industries , this ch.). By 1960 the Angolan economy had been completely transformed, boasting a successful commercial agricultural sector, a promising mineral and petroleum production enterprise, and an incipient manufacturing industry.

Yet by 1976, these encouraging developments had been reversed. The economy was in complete disarray in the aftermath of the war of independence and the subsequent internal fighting of the liberation movements. According to the ruling Popular Movement for the Liberation of Angola-Workers' Party (Movimento Popular de Libertação de Angola-Partido de Trabalho--MPLA-PT), in August 1976 more than 80 percent of the agricultural plantations had been abandoned by their Portuguese owners only 284 out of 692 factories continued to operate more than 30,000 medium-level and high-level managers, technicians, and skilled workers had left the country and 2,500 enterprises had been closed (75 percent of which had been abandoned by their owners). Furthermore, only 8,000 vehicles remained out of 153,000 registered, dozens of bridges had been destroyed, the trading network was disrupted, administrative services did not exist, and files and studies were missing.

Angola's economic ills can also be traced to the legacy of Portuguese colonial development. Although the Angolan economy had started to show strong signs of growth by 1960, most developments had originated recently and precariously. Many of the white settlers had come to Angola after 1950 and were understandably quick to repatriate during the war of independence. During their stay, however, these settlers had appropriated Angolan lands, disrupting local peasant production of cash and subsistence crops. Moreover, Angola's industries depended on trade with Portugal--the colony's overwhelmingly dominant trade partner-- for both markets and machinery. Only the petroleum and diamond industries boasted a wider clientele for investment and markets. Most important, the Portuguese had not trained Angolans to operate the larger industrial or agricultural enterprises, nor had they actively educated the population. Upon independence Angola thus found itself without markets or expertise to maintain even minimal economic growth.

As a result, the government intervened, nationalizing most businesses and farms abandoned by the Portuguese. It established state farms to continue producing coffee, sugar, and sisal, and it took over the operations of all factories to maintain production. These attempts usually failed, primarily because of the lack of experienced managers and the continuing disruptions in rural areas caused by the National Union for the Total Independence of Angola (União Nacional para a Independência Total de Angola--UNITA) insurgency. Only the petroleum sector continued to operate successfully, and by 1980 this sector had helped the gross domestic product (GDP--see Glossary) reach US$3.6 billion, its highest level up to 1988 (see fig. 6). In the face of serious economic problems and the continuing war throughout the countryside, in 1987 the government announced plans to liberalize economic policies and promote private investment and involvement in the economy. But most observers believed that the key to Angolan economic success rested only partially with the privatization of production. Even if peace were achieved, the economy would still have great difficulties in reaching its full potential.

Data as of February 1989