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Published: Wednesday April 23, 2014 MYT 2:21:28 PM
Updated: Wednesday April 23, 2014 MYT 2:22:54 PM

Import tariffs strain rich-poor gap in 'madly expensive' Luanda

LUANDA (Reuters) - In Luanda's Jumbo supermarket, a half-litre tub of imported vanilla ice-cream used to cost $25, testament to the Angolan capital's rank as one of the world's most expensive cities.

With new import tariffs imposed last month, that price has jumped to $31, enough to make even wealthy locals and expatriates pause and putting it even further beyond the reach of millions of poor Angolans struggling to feed their families.

Luanda already ranks as the world's most expensive city for expats, with the presence of thousands of foreign workers, many involved in the oil industry, helping to drive up prices.

Sub-Saharan Africa's second largest oil producer, still rebuilding after emerged in 2002 from a 27-year civil war, imports three quarters of the goods it consumes.

The government of President Jose Eduardo dos Santos, who has ruled since 1979, imposed higher import tariffs last month on hundreds of items, from garlic to cars. The stated aim is to try to diversify the heavily oil-dependent economy and nurture farming and industry, sectors which have remained weak.

But this is expected to hike prices for consumers, hitting the less privileged sectors of society especially hard. The Angolan president, one of Africa's longest-ruling leaders, has been accused by critics of widening a dangerous gap between the rich and the poor that risks causing social unrest.

"Things were already hard and this will make it even tougher," said Jessy Andrade, 32, a mother of four shopping at Jumbo. She pointed to the meagre contents of her bag before going back to her occupation as a street-corner currency trader.

Some staples - flour, beans, rice, palm oil, sugar, powdered milk and soap - will be exempt from the tariffs.

But not other vegetables and fruit, imported from Europe or neighbours such as Namibia, which will carry a new top rate of 50 percent duty. The government believes these can be produced at home and the tariff barrier is designed to encourage this.

Oil output has soared since 2002, but the southwest African nation's agriculture and industry are relatively undeveloped. They make up 17 percent of gross domestic product, compared to oil's 41 percent, and the government wants to insulate them from foreign competition.

"The tariff increases will create inflation, at least in the short term, and affect consumption, especially for those with low incomes," said Salim Valimamade, an economist at Luanda's Catholic University.

Angolan officials, however, play down the inflation risk.

"We can think about the possibility of a rise in prices of the products for which duties were increased, but generalised inflation, which affects the essential goods which are exempt, we cannot see," said Garcia Afonso, head of trade and commerce at Angola's Customs Service.

Inflation has fallen over the last decade from 70 percent to 7.7 percent at the end of last year. Official data showed month-on-month inflation rose only slightly in March, but shopkeepers say the import tariff hikes have forced them to push up prices by up to 20 percent.

CUCA BEER AND CUTTLEFISH

Dos Santos estimated last year that 36 percent of Angola's 18 million people live in poverty, but dismissed the risk of income inequalities causing social upheaval, saying most people supported the government's policies.

U.N. High Commissioner for Human Rights Navi Pillay had a different view, urging Dos Santos to reduce the inequality gap and warning about the high cost of living.

Nowhere is that gap more visible than in Luanda's Ilha do Cabo, a peninsula that separates Luanda Bay from the Atlantic.

Ritzy beach bars and luxury condominiums that cater for expats and rich Angolans are mixed in humbler eateries where poorer Luandans can enjoy a cold Cuca beer and grilled fish.

Sandra Oliveira is one of a dozen women grilling cuttlefish on small barbecues in a lot they have occupied for decades. Their clients sit on shabby plastic chairs placed directly on the dusty ground.

"I can sell a beer for $1 and a plate of cuttlefish for $10, but the margins are tight, and pushing our costs up will end up pushing us out of here and take away our livelihoods," she said.

"Which business do you think the higher price will hit, my little barbecue or the expensive places?"

On the Atlantic side of the peninsula, upmarket restaurants with names like Caribe, Coconuts and Chill Out attract a wealthier clientele. Here, a Cuca can easily cost $4 and a meal for less than $50 is deemed a bargain.

"This is already a madly expensive city for everyone. A weekly trip to the supermarket for two already takes $500," said a British oil worker outside one of the Ilha restaurants.

STREET HAWKERS AND SUPERSTORES

While authorities in Luanda have cracked down on informal traders, an oil-driven construction bonanza in the city has seen modern European-style superstores, like Jumbo and the Kero chain, springing up along suburban roads.

"I only come to these shops when I cannot find basic items at the informal markets," money changer Andrade said, adding she earns about $15 on "good days" which she says are becoming rare.

When the government knocked down the historic Kinaxixi market in 2008 and then two years later did the same to Roque Santeiro, Africa's biggest open-air market, this put thousands of vendors onto the streets.

Since then it has tried to corral them up into newly built markets, often using rough tactics and confiscation of goods, but most say the new locations are too far away for customers.

Meanwhile, the new supermarkets, with their huge cooled areas, spacious car parks and conspicuous security guards, are drawing expatriates and Angolans lucky enough to work in oil, banking or construction.

The average national salary in 2010, the latest year for which official data is available, was around $260 per month. In the finance sector the average was 10 times higher and in the oil business over 20 times higher, or around $5400.

"Portuguese, Chinese, South Africans, they shop here but more and more Angolans too," said a worker at a Kero shop, asking not to be named. "You can see from their cars and clothes that they are the ones doing well."

At the other end of the scale, the Pombinha market in the Sambizanga slum near central Luanda is a maze of muddy alleys crammed with women selling goods. Most products here are also imported, the only local ones visible are baskets and bananas.

"Prices are only just lower here than in the supermarkets, sometimes even higher since we buy from middlemen while the big shops buy in bulk from abroad," said vendor Esperanca Gil.

"But people come here as they don't have money to shop monthly or weekly, so they have to buy day-by-day."

INCENTIVE OR PROTECTION?

Customs officer Garcia Afonso said the new tariff table actually increased the number of goods with zero or low duties from the one in place since 2007.

He said the tariffs should not be seen as protectionism, but as an incentive for local firms to be able to compete when Angola joins the Southern African Development Community's free trade area in 2017, an accession that has already been delayed.

But economist Valimamade said many challenges remain for Angola to deliver on its farming and industrial potential.

"The business environment has to improve... It is being done but the government itself says efficiency on big projects isn't satisfactory yet."

Critics say a small group of business owners with ties to the government may benefit most from the tariff hikes

"The protection must have a set timeframe, or we aren't protecting those who need it, only creating rents to line the pockets of a minority of so-called entrepreneurs at the cost of the majority," economist Carlos Rosado de Carvalho said in an editorial in business paper Expansao.

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