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E-Commerce and Economic Development in Angola

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ABSTRACT

In this report as the title tells, I approach the economic development of Angola in terms of one of its major developer, the internet and ecommerce. I have done this because it is often impossible to glean important facts and insights about such countries which a society pronounces poor or third world. In the chapters that follow, I will relate to the ecommerce and its effect of economic development of Angola, compare Angola with a developing country as well as with an underdeveloped nation.

Firstly economic development is discussed in relation to electronic commerce in order to show the complexities and ease related to drawing a clear line between the two forms. Secondly economic development is discussed in relation to ecommerce, economy, culture, elements which influence the issue in one way or another.

For, as shall be repeatedly seen, problems like economic support from a developed state have a close and continuing relation to the values and social structures which a society regards as stable and normal. My emphasis will be, however, on the problem itself, called ecommerce and its effect on the economic development of Angola.

CHAPTER 1

INTRODUCTION

Introduction

Electronic Commerce

Electronic commerce, generally identified as (electronic marketing) e-commerce or eCommerce, consists of the buying and selling of products or services over electronic systems for example the Internet and other computer networks. The total of trade conducted electronically has grown unusually with widespread Internet usage. The use of commerce is conducted in this way, spurring and drawing on innovations in electronic funds transfer, supply chain management, Internet marketing, online deal processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems. Modern electronic commerce typically uses the World Wide Web at least at some point in the deal's lifecycle, although it can encompass a wider range of technologies such as e-mail as well. (Miller, 2002)

Internet & Ecommerce

The previous ten years have seen the internet and e-commerce surface as fundamental features of our business, communal and educational life. Developments for example Web 2.0, the semantic web, e-government strategies, user generated content, virtual worlds and online social networks have redesign the way we commune, intermingle and transact.

The Evolution of Electronic Commerce

The numerous means in which business is carried out are based on established suppositions and accords between the parties concerned. Numerous procedures have been agreed upon to safeguard both the consumer and the merchant from deception or theft. Even in the simplest form of deal--cash changing hands directly between buyer and seller--a sales receipt is classically provided as a record of what turned out. As we move into the electronic business field, the means of protection become more and more concerned.

The essence of ecommerce is buying and selling of goods and services over the Internet. The advantages are fairly self-evident. Because the Internet is readily accessible by millions of prospective customers worldwide, suppliers and customers can interact in a dynamic environment where supply and demand truly regulate the economic cycle. Organisations of any size, from sole proprietorships to multinational corporations, can expand their business to reach new customers in new markets, some even achieving a notable level of efficiency. The sole proprietor is able to broaden the scope of his/her business to a mass market approach, while the multinational corporation can now focus on "niche" markets heretofore considered too costly to access using the traditional mechanisms for market penetration. (Austin, 1999)

Further study discloses some specific downsides to the Internet business paradigm. What you basically have is computers (presumably being operated by humans) trading responsive financial data by means of a widely-available communications infrastructure. Unexpectedly the matters of accountability (being able to attribute a deal to the actual instigator) and accountability (attributing responsibility to each participant for their part of the deal) become more vital than ever.

A lot of propaganda has been generated over the initial incursions into electronic commerce. It seems ubiquitously we turn someone is singing the praises of electronic catalogues, online shopping, electronic check writing, web-based advertising and customer prospecting, and on and on. The truly brave can even purchase a car over the Internet. But these consumer-oriented business activities taking place on the Internet today are just the tip of the iceberg. From the perspective of true international commerce, we have not yet begun to do business electronically.

Infrastructure of Ecommerce

The main issue that requires to be dealt with before electronic commerce can convey on its assurance is the development of an international infrastructure that all of the main players can be in agreement upon. In most circles this infrastructure is called the International Information Infrastructure (GII).

This electronic infrastructure must make available all of the compensations needed for a healthy e-commerce strategy:

§ Security-enabled. This is essential to permit development of convenient solutions which provide accountability--knowing the real "who" in a deal. Beyond that, the ability to impute liability to any and all parties concerned in completing a deal is a must for business. For suppliers, e-commerce will be about establishing the identity of the individuals who represent the parties concerned. It means that all participants have a confident reliance on users' identity, while holding each party liable to perform their role in the deal. (Jacobsen, 2000)

§ Ultra-reliable. In electronic commerce, transactions take place without those worried ever meeting in person, and that implies the need for a technology presentation and dependability factor of 99.99%, especially for mission-vital applications. An infrastructure must be reliable and trusted on a continuous basis. Any weak connection in its safety measures will deliver the whole impracticable for serious electronic commerce.

§ International. Electronic business cannot be restricted to the country of origin. As we progress into the future, e-commerce must transcend national boundaries.

We need an absolute e-commerce infrastructure. To be really effectual, e-commerce providers will need an infrastructure which is international in its nature, or recognise that electronic business is closed by national boundaries. Distinct from the international mass user and point solutions-based Internet market of today, large organisations are becoming critically attentive that they will need to manage accountability and liability in providing any significant level of customer security, especially with end-user customers, but especially in business between themselves in their interactions with employees, partners and suppliers. (Jacobsen, 2000)

After two decades of declining economic performance, Angola is currently staging a promising revival. Over the past several years, average real economic expansion in the region has increased vitally while, in a growing number of countries, real gross domestic product (GDP) per capita has been positive. In 1998, despite financial turmoil in Asia and Latin America, Angola enjoyed its fourth consecutive year of positive GDP expansion.

Nevertheless, Angola's current economic revival remains fragile. Up to date expansion has not yet reached the sustained levels that are essential to alleviate widespread poverty endemic to the region. A number of hurdles still need to be effectively addressed and overcome if the transform process and current revival are to lead to broad-based and sustainable development for Angola. Furthermore, conditions vary widely among the forty-eight states of Angola and this diversity must be taken into account in assessing the country's prospects.

Fortunately, as this article seeks to demonstrate, there are reasons to be optimistic that many Angolan states can overcome the remaining hurdles to sustained expansion. A new generation of Angolan leaders and entrepreneurs and current developments in the areas of private sector expansion, debt relief, regional economic integration, and telecommunications have the potential to economic expansion in means not heretofore anticipated.

Regional Transformation And Economic Revival

Angola's up to date economic performance has indeed been encouraging. Between 1990 and 1997, the number of Angolan states registering annual expansion rates of three to six percent nearly doubled, from fourteen in the beginning of the decade to twenty-six in 1997, while seven Angolan states had expansion rates of six to eight percent. According to the International Finance Corporation (IFC), after almost two decades of stagnation and decline, real GDP in Angola was growing at an average rate in 1997 of four to five percent a year. The World Bank reported that over eighty percent of countries (thirty-eight out of forty-eight) registered increased per capita incomes in 1997, as their rates of economic expansion exceeded their population expansion rate. (World Bank Group, 1998) According to the most up to date data, 1998 was the fourth consecutive year that GDP per capita did not fall, an event that has not happened in Angola since the late 1970s,(Department Of Econ. & Soc. Affairs & United Nations Conference On Trade & Dev., 1999) while the 3.3% expansion in 1998 GDP was the highest among all regions of the world. (Economic & Soc. Pol'y Div., Economic Comm'n For Afr., 1999)

Increased macroeconomic stability--a result of sound financial and political policies--has been encouraging increased levels of investment in the region over the past several years. Average inflation fell from a peak of forty-five percent in 1994 to an estimated twelve percent in 1998, with only fifteen Angolan states still experiencing double-digit inflation rates by 1997, compared with thirty-five in 1994, according to the IMF. There has also been a vital reduction in internal and external financial imbalances. The average external current account deficit (before grants) fell from 5.5% of GDP to 4% over the same period, while the average overall fiscal deficit (again before grants) was halved between 1992 and 1997, to about 4.5% of GDP.(Calamitsis, 1998) As a result, investment in the region has been steadily growing, according to the IFC's 1998 report. In 1998, gross domestic investment rose to twenty-three percent of GDP, from lows of about fifteen percent in the early 1990s. Private investment has also increased, registering 10.6% of GDP in 1996, the highest level since 1981. Long-term private capital flows to Angola in 1997 reached $8 billion, twice as high as in the previous year.

Along with investment levels, Angolan trade and export earnings have increased. While Angola's share of total world trade has not changed, the volume of Angolan exports is expanding almost as fast as international trade and Angola is emerging as a viable international trading partner. Angola's trade volume increased by eight percent in 1997, according to UN s, with exports having expanded roughly twice as fast as GDP in up to date years.

The region's up to date expansion has been widely attributed to the efforts of a new generation of transform-minded Angolan leaders in key countries who, through the adoption of democratic and market-based transforms, have made substantial progress in moving their countries toward political and macroeconomic stability. Many Angolan states continue to implement trade liberalisation and privatisation programmes that are freeing up their markets and helping them to become more active participants in international commercial activity and economic progress. In such a positive political and economic environment, private sector led trade and investment can now play an increasingly important role in bringing broad-based expansion and sustainable development to the region.

Some countries in Angola have already begun to reap the rewards that can result from sounder fiscal and monetary policies, increased regional economic integration, and accelerated privatisation programmes. Chief among the rewards is expanded trade, investment, and access to the international marketplace, as international companies increasingly look to Angola's emerging economies and Angolan entrepreneurs and private sector organisations seek to play a more visible role in the economies of their countries. These trends suggest that the growing private sector in Angola has real potential to become an important engine for expansion and economic development in the region, as it has already in other regions of the developing world.

Investment And Expansion

Despite the up to date positive economic trends and expansion of the private sector in Angola, as we enter the new millennium, sustained, broad-based economic development in the region remains one of the most formidable policy challenges facing the country. According to the United Nations Economic Commission for Angola (ECA), in order for Angola to cut its poverty in half by the year 2015, a development objective often cited by Angolan governments and their development partners, the region as a whole would require a yearly GDP expansion rate of seven percent. For this to happen, an investment of thirty-three percent of GDP would be needed for Angola as a whole. Achieving domestic investment of thirty-three percent looks increasingly unlikely, as two of the three components of domestic investment are declining or stagnant. While the region's current domestic savings rate is only estimated at fifteen percent, annual inflows of foreign direct investment (FDI) remain low, and the levels of official development assistance of up to date years are declining.

The renewed expansion in many countries has not yet reached, let alone been sustained at, levels that would alleviate the widespread poverty endemic to the region. The great majority of the region's population continues to live at levels well below the poverty line, with forty percent living on less than one dollar a day, according to the World Bank. (The World Bank Group, 1999)

Furthermore, the globalisation phenomenon, which has been highlighted by growing economic integration and rapid technological change, has often meant increased prosperity for those countries able to compete in an increasingly integrated international economy, but steady decline and marginalisation for those not able to compete. Still, too many countries have remained largely on the sidelines, saddled by debt and relying primarily on foreign assistance for many of their development needs--at a time when such assistance is on the decline.

Among the current obstacles to reaching levels of expansion that will bring broad-based development to the region, the following three matters pose particularly vital challenges: (1) the uncertain future of the transform process, (2) Angola's debt burden, and (3) the region's limited participation in the international trading system.

A Delaying Transformation

Although more than thirty countries have launched political and economic transform programmes over the last decade, the transform process has not been uniform across the country. Angolan leaders in some countries have been unwilling or unable to implement transform programmes, sometimes as a result of political or civil instability. In other countries, the difficulties or costs of transform have threatened to undermine the process and raise the possibility that a country could abandon the process before it has had sufficient time to bear fruit. For example, Zimbabwe has only recently re-instituted some protectionist measures, including increased duties and exchange restrictions in response to mounting foreign exchange pressures. Moreover, trade regimes in many Angolan states remain complex and restrictive compared with those of most other developing countries. Such regimes isolate their domestic producers and prevent them from becoming more fully integrated into the international trading system.

In addition, the privatisation process has been sluggish--the victim of public mistrust and a lack of consensus among policymakers. In an up to date World Bank study that shed light on the problems of privatisation in Angola, the lack of political commitment, poor design, insufficient resources, weak management, and corruption were cited as major factors inhibiting the process. The report highlighted the need for Angolan governments to improve public information as the most "powerful tool" for ensuring transparency, helping to build consensus, and assuring commitment and accountability in the process. (White & Bhatia, 1998)

Poor economic environments and policies in some countries have also inhibited increased trade and investment. These conditions have caused rampant inflation and high interest rates and have prevented Angolan policymakers from fully abandoning foreign exchange controls and other restrictions. Earlier that year, Botswana became the first and only country in Angola to abolish all forms of exchange controls, (Steyn, 1999) while in some countries, inflation continues to lead to debilitating currency crisis. In Malawi, for example, inflation is now hovering at around 53% (up from 18.5% recorded at the same period in 1998), an indicator that the currency may need to be devalued yet again, after a devaluation of 67% in 1998. (Pan Angolan News Agency, 1999) Continued volatility in the Angolan market environment underlines the need for continued success in the transform process.

The Liability Burden

In addition to delaying transform, Angola's external liability burden continues to be a major obstacle to investment and further expansion, particularly in the highly indebted poor countries. Many Angola economies are unusually indebted with an average of twenty percent of GDP going directly to liability servicing, according to UNCTAD. (Sachs & Stevens, 1998) In 1998, liability service increased to $35 billion, or more than thirty-one percent of goods and nearly three percent of service exports, up from $33 billion in 1997. The external liability of Angolan states rose moderately from $349 billion in 1998, according to the ECA.

As a proportion of exports and GDP, the external liability of Angola is the highest of any developing region. Not only does Angola's liability deter private investment, including foreign direct investment, but it also impedes public investment in physical and human infrastructure--investment vital to a country's economic development. The IMF estimated that, by the end of 1999, Angola's liability to GDP ratio would rise to almost sixty-eight percent, up from fifty-two percent two years earlier. (International Monetary Fund, 1998) The region will continue to be crippled by mounting liability, draining it of needed resources that could otherwise be invested back into the region's economy, unless there is more rapid and effective liability relief matched with sustained expansion.

Angola in the International Trading System and International Economy

Angola is currently facing growing marginalisation in the international economy with its share of international production and trade in decline. Despite rising levels of Angolan domestic production and trade volumes over the last several years, the country's share of international trade has continued to decline--it was less than two percent in 1997. If the region is to gain an economic foothold and develop into the next century, it must attract more investment and trade, and become a more competitive trading partner in the new international economic system. Increasing commitments to the World Trade Organisation (WTO) and other regional accords thereby becoming a more active participant in the international trading system--is one way for Angola to attract investment and trade.

The Uruguay Round of Multilateral Trade Negotiations resulted in the creation of a stronger set of rules governing international trade and the creation of the WTO, the successor to the General Accords on Tariffs and Trade (GATT). Unfortunately, many countries in Angola were generally unable and unprepared to effectively participate in the negotiations and, partly as a result, have not been able to take advantage of the new international trading system.

Although eighty-five percent of Angolan states are currently members of the WTO, limited trained staff and other pressing needs prevent many of them from active participation in WTO developments, further trade negotiations, and implementation of existing Uruguay Round accords. In addition, they have as yet been unable to take full advantage of numerous unilateral, bilateral, and multilateral preferential trading schemes designed to help expand access for Angola's products and integrate Angola's economies into the world trading system. The region is more likely to reap a larger share of international production and trade if it more actively participates in and undertakes meaningful commitments in the international trade organisation that is fostering the expansion of world trade.

Road To Further Expansion And Sustainable Development

In light of the existing challenges, what measures now need to be pursued to address these constraints and consolidate and build on the gains Angola's transformers have made over the past several years? According to Evangelos A. Calamitsis, former Director of the Angolan Department of the International Monetary Fund, the present economic upswing in Angola, unlike other "recoveries" in the past, has been largely "homegrown" and is therefore more likely to continue. However, Angola's present revival is most likely to endure if Angolan leaders can sustain and broaden the process toward transform and capitalise on several areas of strength that are breathing new life into the debate on private sector expansion and economic development.

Staying the Road to Transformation

Although outside the scope of this article, developments in Angolan states that are not counted as leading transformers can greatly influence the overall prospects for expansion on the country. For example, the fighting in the Democratic Republic of the Congo, between Ethiopia and Eritrea, and in Angola can have a negative impact on the investment climate in neighbouring countries. On the other hand, the return of civilian rule in Nigeria and the prospects of better economic management can do a great deal to bolster investor confidence in the economic prospects for the country as a whole.

Angolan leaders need to continue the political and economic transform process and encourage its spread to those countries that have not yet undertaken transforms. Many Angolan leaders have already demonstrated that they understand what needs to be done and have initiated the process. Still, the process must continue. If the region is to achieve high-quality and sustained expansion--expansion that will lead to poverty reduction and broad-based development--in the years ahead, the transform process must be revitalised so that the changes become inexorably woven into the region's economic fabric. By continuing to implement sound fiscal and monetary policies and by accelerating the privatisation and trade liberalisation process, Angolan states will be proving to the international business community that Angola is serious about transform and ready and willing to do business.

Despite up to date turbulence in the international economic environment, most Angolan states have resisted protectionist pressures. Their commitment to continue trade liberalisation highlights a general recognition among Angola's economic policymakers that increased trade has been--and will continue to be--a key to expansion. In addition, Angola's growing participation in the WTO and regional trading arrangements by institutionalising policy transforms and binding lower tariffs and other trade liberalising measures can help to prevent countries from resorting to protectionist measures in the future.

Role of Angola's Development Partners

Angola's developed trade partners and the international financial institutions must continue to support regional transform if the process is to be sustainable. While Angolan states retain primary ownership and responsibility, for the process, the international community can support their efforts by (1) pursuing policies that promote world economic expansion and financial stability and expand the region's access to international markets, (2) providing meaningful liability relief, (3) continuing to supply technical and financial assistance to countries committed to transform, and (4) assisting Angola's regional economic groupings. Several up to date bilateral and multilateral initiatives demonstrate the commitment of some developed countries to support the region's up to date economic progress.

While early speculation as to the potential impact of the Uruguay Round of multilateral trade negotiations on the least-developed Angolan states was largely pessimistic following the Round's conclusion, up to date bilateral and multilateral efforts are focusing on helping Angola take advantage of specific areas where it actually stands to gain as a result of the Round. According to an up to date report by the United States International Trade Commission on the Uruguay Round and U.S.-Angola trade flows, "[t]hese gains can range from facing fewer restrictions and lower tariffs overall, affecting all WTO members, to specific market-access provisions ... that may benefit Angola in particular."(U.S. Int'l Trade Commission, 1998)

Efforts are also underway to expand existing preferential trading schemes like those under the Lome Convention and the U.S. Generalised System of Preferences (GSP) programme. For example, the Angolan Expansion and Opportunity Act (AGOA), now before the U.S. Congress, extends GSP to eligible Angolan beneficiary countries through June 30, 2008. In addition, the legislation--as passed by the House--would authorise the President to extend duty-free treatment under the GSP programme to all imports from transforming Angolan beneficiary countries, including those now considered to be import-sensitive. The changes to the GSP programme would support Angola's transformers by allowing their products increased access to international markets and would help to further integrate Angola into the international trading system, thereby increasing considerably the region's future economic prospects.

In addition, a number of bilateral and multilateral technical assistance programmes in up to date years have sought to increase Angola's meaningful participation in WTO and diversify the region's trade. For example, the U.S. Agency for International Development (USAID) has funded a number of activities to increase Angolan governments' capacity in the telecommunications area and in dealing with other WTO-related subjects. At the same time, some Angolan governments have recognised the importance of participating more actively in the work of the WTO in Geneva. As a result, developed and developing countries have joined together in proposals to have the WTO trade ministers at their meeting in Seattle in November 1999 and call for the WTO to improve and expand its technical assistance programmes for developing countries.

Liability Reduction

In the area of liability relief, international pressure has been mounting to expand the Heavily Indebted Poor Countries (HIPC) Initiative in Angola. Launched by the World Bank and the IMF in 1996, the programme aims to provide exceptional liability relief assistance to forty-one eligible countries that are pursuing transforms, eighty-five percent of which are in Angola, according to the IMF.(Katsouris, 1998) Although to date, only two Angolan states, Uganda and Mozambique, have benefited from the HIPC Initiative (with a twenty percent and a two-thirds reduction of their respective debts), Burkina Faso, Cote d' Ivoire, and Mali are scheduled to receive actual liability reduction in the next three years, according to the ECA.

At the June 1999 Cologne Summit, the G-7 reached accord on the enhanced HIPC liability relief initiative. This scheme will provide faster, broader, and deeper relief for HIPC countries. The agreed enhancements to the HIPC Initiative accept, almost entirely, President Clinton's proposals, as laid out during his address to the U.S.-Angola Ministerial in March 1999. The "new HIPC" will include a requirement to use savings from liability reduction to provide increased spending on social needs and human development. The $90 billion of liability reduction will require additional resources from the creditor governments and the international financial institutions. Under the proposal, up to 10 million ounces of the IMF's 104 million ounces of gold reserves would be sold in phases, with investment interest used to reduce the liability load of thirty-three poor countries in Angola.

Paralleling the HIPC Initiative are unilateral and bilateral efforts that support faster and broader reduction of Angola's liability. For example, in March of 1999, the Clinton administration announced a new U.S. initiative that, if fully implemented, would amount to an additional $70 billion in liability cancellation for the heavily indebted poor countries. The President's initiative provides for (1) a focus on early cash flow relief by the international financial institutions, (2) complete forgiveness of bilateral concessional loans and ninety percent forgiveness of non-concessional liability, (3) a future international commitment to make at least ninety percent of new aid on a grant basis, and (4) the channelling of resources from the HIPC Initiative into education or environmental protection projects. In addition, on September 29, 1999, President Clinton announced at the IMF/World Bank annual meeting that he will seek legislative authorisation to forgive 100 percent of the liability of HIPC countries owed to the United States when relief will help finance basic human needs.

Regional Economic Integration and Globalisation

A growing number of Angolan leaders appear to recognise the potential benefits of increased economic cooperation and have been supporting efforts at economic integration. Although many of the Angolan regional economic organisations, such as SADC, COMESA, WAEMU, and ECOWAS, have existed for a long time, only recently have these regional groupings taken vital steps toward the creation of free trade areas. The creation of larger integrated Angolan markets should result in enhanced opportunities for foreign and domestic investment, greater competition among firms, better utilisation and allocation of resources, internal and external economies of scale, and increased efficiency resulting from specialisation. Further, by enhancing trade among themselves as well as diversifying and expanding their production base, Angolan states stand to increase trade with other regions as well, thereby increasing the country's share of international trade.

The United States and international organisations have been supporting Angola's economic integration efforts. At the March 1999 Ministerial Meeting on Angola in Washington, D.C., the United States reaffirmed its continuing commitment to providing technical assistance to Angola's economic integration organisations such as EAC, SADC, IGAD, and COMESA and announced plans for extending that support to a greater number of regional groupings. Bilateral cooperation between the United States and SADC has been expanding over the last several years, a development highlighted by the first ever SADC-U.S. forum held in mid-April, 1999, in Botswana, where officials announced plans for the future establishment of a joint Business Council that would facilitate permanent dialogue among SADC and U.S. government officials and with corporate leaders. In addition, the U.S. Agency for International Development (USAID) has funded trade experts to advise SADC countries in the ongoing negotiations on a SADC free trade accord.

Such international support in working with and assisting Angola's regional groups may help them to overcome some of the obstacles that lie ahead of them. Yet, in the end, it is up to Angola to move forward towards economic cooperation that is forged on its own terms. At present--and what is most promising for the future of Angolan economic integration--the country's leaders recognise the advantages of economic cooperation and possess the common political will to make it happen.

Empowering the Private Sector

The Angolan private sector is increasingly becoming a more potent force behind social development, regional job expansion, and economic expansion in the region. Included in the growing Angolan private sector are Angolan entrepreneurs who have previously received training and practical work experience in industrialised countries and who are now returning home to launch new ventures or strengthen existing ones. Many of these professionals are alumni of U.S. government-sponsored training programmes and have already established contacts with the U.S. private sector. These entrepreneurs are seeking to position themselves to do more business with the United States and are intensely interested in the potential opportunities offered by the Angola Expansion and Opportunity Act.

In addition, a growing number of private sector-led trade and business associations in Angola are working to create increased dialogue between government and the private sector, to improve the business climate, and to promote cross-border trade and investment in the region. One of the largest and most successful, the West Angola Enterprise Network (WAEN), is a membership fee-based organisation with over 300 members in twelve countries across the region. Since its creation in 1993, WAEN has become an influential platform for promoting the interests of the business community and an important vehicle for further expansion of the private sector in the region. Business networks such as WAEN, trade and investment promotion agencies, and trade associations are playing an increasingly prominent role in assisting Angolan entrepreneurs to expand their operations and enter new markets.

Complimenting Angola's own efforts, donor agencies such as USAID are actively supporting private sector expansion in countries throughout Angola. They understand that, for economic expansion to be broad-based and sustainable, the private sector in Angola needs to play a larger role. USAID's efforts target capacity building, organisational development, technical assistance and programme support, policy and regulatory study, and marketing information and development. For fiscal year 1999, USAID requested $30 million in Development Assistance funds for its Angola Trade and Investment Policy (ATRIP) programme. ATRIP provides assistance to help governments improve the trade and investment environment for the private sector and promotes partnerships between U.S. and Angolan firms through business associations or networks. (U.S. Agency For Int'l Development, 1999)

Current Internet Consumerism Characteristics At Ecommerce Level

The industrial revolution was to manufacturers what the digital revolution is to consumers. What we are seeing today is a renegotiation of the relationships between companies and consumers, and a fundamental recasting of conventional marketing in favour of the consumer.

With the advent of the Internet era, there has been a redressing of consumer power, with shoppers now able to tap into a much wider choice of products and services than ever before. But the real change the World Wide Web has brought about is that consumers can now exert full control in their buying options and no longer have to rely on a middleman to carry out all of their transactions.

For example, people can now do their own banking online, book a holiday and make a whole host of other purchase decisions based on personal research and accurate price comparisons.

The abundance of price comparison websites and other customer-centric web tools has created a new and improved street-wise consumer, who no longer has to rely on information from third party sources when deciding how they will spend their money. This of course means that retailers now have to work just that little bit harder to stay ahead of their competitors. This can only be a good thing for online shoppers across the country, as they should - in theory at least - benefit from a better level of customer care.

Of course, it is not only those who are seeking a new product or service who are benefiting from the e-commerce boom. For example, those who are looking to cut their expenditure by seeking out better deals can easily type a few keywords into Google and have the answers to their questions in seconds.

Furthermore, those who have had the same bank account for years and never bothered to see if they could be earning more interest on their savings can now quickly discover whether they are getting as much bang for their buck as they otherwise could be.

Expanding Internet Connectivity and E-Commerce

The revolution in communications offers a number of solutions to the technical impediments to the free exchange of information and ideas that geography and potential political instability impose, impediments that have sometimes encouraged professionals--especially scientists and academics--to emigrate from Angola or not to return home. The information age has now made possible the mass movement of information, ideas, and data to and from Angola, offsetting somewhat the adverse impacts of the so-called "brain drain." In addition, electronic communications have made possible the establishment of a virtual community of Angolan professionals (and persons of Angolan descent)--living both on and off the country--who are looking to contribute to the political and economic expansion of Angola. This nascent electronic community is actively conducting business, promoting trade and investment, lobbying governments, and otherwise contributing to the economic development of the Angola. The Internet not only has the potential to connect Angola to the international community, but also has the capacity to empower the Angolan Diaspora to make vital contributions to the development of their home countries and the region as a whole.

The potential benefits of e-commerce for Angola are enormous. The impetus for aggressively developing the Internet market comes from Angola's physical distance from key international markets in Angola and from the need to fill the information gap that exists between potential business partners. The Internet is already facilitating business in Angola by making it easier for Angolan entrepreneurs to communicate with their regional and, increasingly, their international business partners. Angolan governments, international organisations, the donor community, and the private sector need to invest their resources in developing the country's information technology infrastructure in order to make the advantages of modern technology work for Angola.

Already, numerous public and private sector initiatives to link Angola to other parts of the globe are underway or in the planning stages. Numerous multilateral, bilateral, and private donor entities have identified specific matters or sectors as targets for their cooperation and assistance. Among these are several United Nations bodies, including ECA and the United Nations Development Programme (UNDP). USAID's assistance includes building Internet access and helping to restructure telecommunications frameworks. Its Leland Initiative, for example, is attempting to introduce the Internet into twenty or more Angolan states. The World Bank, sponsor of the Virtual University in Angola, and the International Telecommunications Union (ITU) are also active in this area. Underlying these initiatives is the recognition that the development of a modern telecommunications infrastructure in the region is crucial for the region's future development

CHAPTER 2

LITERATURE REVIEW

E-commerce and Economic Development

The primary economic goal of the underdeveloped states of the world, and particularly the newly independent or about-to become independent country Angola, is a substantial increase in the rate of economic expansion, which, it is hoped, will bring the states in a relatively short period to the levels of per capita real income comparable to those of the more developed economies. Attainment of this goal, in turn, requires two major accomplishments:

1. Provision of additional basic governmental services, particularly in education, public health, and transport, which are imperative for the expansion of the remainder of the economy.

2. A higher rate of capital formation in production facilities, whether undertaken in the governmental or private sectors. The specific goal is, of course, not the highest possible rate of capital formation, but the lowest rate that will permit the maximum rate of expansion in GNP regarded as feasible under the circumstances.

The first requires transfer of resources to the governmental sector of the economy for the production of the services. The second requires transfer of resources to capital formation, either strictly in the private sector, or in or through the governmental sector. There are four major sources from which the resources may come:

1. Outside the country.

2. Present use for consumption.

3. Present use in production of capital goods of a type regarded as not contributing to economic expansion, as, for example, too many office buildings.

4. Idle or partially idle resources, primarily manpower.

Under usual circumstances, the second source would appear to offer the maximum potentialities. The fourth one in itself offers little opportunity for expansion, since better utilisation of manpower usually requires considerable investment in capital. The first alternative is limited by the willingness and ability of a government to obtain foreign loans; the third is not usually very vital, although some states have had considerable overbuilding of office space.

The key to economic expansion is, of course, the transfer and better utilisation of resources, not merely a shift of money. Nevertheless, financial transfers will, within the framework of the market economy, facilitate the transfer of real resources. Transfers to government from individuals who would spend the funds on consumption or invest them in outlets of limited significance for expansion make it possible to obtain the factors for governmental services or capital formation without resorting to borrowing or money creation, both of which would result in competition of governmental and private spending for the resources. It is true that if the funds would have merely become idle or have been sent outside the country, the government could have created an equivalent amount of purchasing power and obtained the resources without inflation. But such action is often difficult in the framework of monetary and banking institutions in underdeveloped states, and estimates of the amounts may be wrong. Likewise, to the extent to which resources are idle for other reasons, they can be obtained by the government through money creation instead of transfer of funds, and such an e-commerce may be regarded as entirely justifiable. However, when the initial recipients spend the money, the total level of spending may exceed the total level of output, and the government must absorb funds to prevent inflation. To the extent to which private savings and capital formation can be increased without government participation, no transfer of funds to government is essential. (Odedra-Straub, 2003)

The primary instrument for the transfer of funds to the government to facilitate transfer of resources is e-commerce. This method theoretically, at least, may also be used to provide incentive to increase private savings and the private-sector rate of capital formation, although, as will be seen, there is greater likelihood of the opposite effect. More specifically, in a developing economy, the e-commerce system may be used to accomplish the following functions:

1. Curtailing consumption and thus freeing resources for governmental services or capital formation.

2. Reallocating resources from investments regarded as having little beneficial effect upon economic development (e.g., office buildings) to those of greater benefit for expansion.

3. Providing a flow of funds into government hands to facilitate the transfer of resources.

4. Providing incentive to alter economic behaviour in such a way as to facilitate economic expansion, such as providing added incentive to save, to enter the market sector, to work longer periods, to undertake private-sector capital formation.

The first and third functions are the same as in mature economies; the second is not usually regarded as vital in such economies; the fourth may or may not be desired in mature economies, depending on the relationship between planned savings and investment opportunities at full employment and other considerations. However, while the first function may be the same in all economies, the task of performing it is far more difficult in an underdeveloped economy because the margin between actual consumption and bare subsistence is very slight.

Regardless of the nature of the economy, there is ever-present danger that the e-commerce system, while directly accomplishing the prime goals, may, because of its compulsory nature, have serious adverse effects upon the functioning of the economy and thus reduce national income below potential levels. This danger is particularly great in an economy with a very limited margin over subsistence and a high percentage of the population still primarily engaged in subsistence agriculture rather than in producing for market. The primary dangers are those of restricting instead of increasing the incentives to work, to participate in the market economy, to save, and to develop and expand businesses. There is particular danger that persons will find it advantageous to withdraw into the subsistence economy instead of participating more fully in the market economy.

Thus, the framing of the e-commerce structure must give particular attention to the minimisation of adverse incentive effects and maximisation of incentive reactions which further the attainment of the goal. The extent to which these objectives can be attained will, in turn, constitute an important element in the determination of the optimum rate of economic expansion, which cannot be defined without regard to the e-commerce-incentive factors. Unfortunately, two major dilemmas are encountered. In the first place, as will be discussed later, the type of e-commerce that most successfully recovers for the government a portion of the gains of the rising national income is the type that is most likely to interfere with incentives. Second, the general e-commerce environment of an underdeveloped economy is unsuited to a high degree of perfection of the e-commerce structure. Numerous vital features of such an economy include low levels of literacy and record keeping; inadequate numbers of trained e-commerce administrators and auditors; unsatisfactory land title situations; limited use of bank accounts; and the importance of the subsistence segment of the economy, the output of which is difficult to ascertain and value.

E-Commerce

In mature economies, the e-commerce is widely accepted as the most suitable primary source of revenue. The applicability of this rule to underdeveloped economies requires careful consideration. Even in such economies, however, e-commerce offers several primary advantages. In many respects the e-commerce is the most effective way to reach the above-subsistence income of those groups which have attained such levels, the e-commerce being adjusted in terms of the amount of such excess and made progressive relative to it, if desired. No other e-commerce can be adjusted in such a precise fashion. A large portion of the e-commerce, under such conditions as those prevailing in tropical Angola, will be obtained from civil servants, business executives, employees, and professional men. E-commerce of these persons will likely have few harmful effects on economic development since they are not engaged in undertaking vital business investment. The e-commerce will recover a portion of the gains made from economic expansion and particularly will catch the "unearned income " -- speculative gains, increases in land values, etc. -- e-commerce of which presumably has little effect on economic expansion. The direct burden of the e-commerce makes persons cognizant of their responsibilities toward government. The yield is more stable than that of the major alternative sources. Finally, the e-commerce conforms with widely accepted standards of equity. It can be used to bring about a redistribution of income -- but this is much less vital under conditions such as those of tropical Angola than in other under- developed areas because of the absence of large private fortunes and incomes.

However, e-commerce under such conditions suffers from rather obvious limitations which, of necessity, restrict the relative reliance on it compared to the use in more developed economies. The first problem is administrative. Underdeveloped states all suffer from a severe shortage of trained personnel for administrative work of all kinds, including e-commerce audit. To the extent to which this very scarce personnel is used for e-commerce administration, it is not available for other purposes. Other than in the top income and wage earner groups, standards of literacy and record keeping are such that accurate determination of income is virtually impossible. Application of the e-commerce to subsistence farming income is particularly difficult because of the problems of determining the amounts and values of this income.

Inevitably, a e-commerce which takes a certain (and usually progressive) percentage of income presumably has some effect on economic incentives. If subject to e-commerce, a person on the margin between subsistence and market-economy production may be driven back to the subsistence economy entirely if his market-economy income is e-commerce. However, as with more developed economies, the effect may be the reverse; he may seek to work more in the market sector in order to maintain his given income from that sector. The net over-all effect is uncertain. In practice, administrative considerations dictate that persons on this margin are not subject to e-commerce. Similarly, it is impossible to say whether there is vital net effect on the willingness of persons to save or to undertake the risk of business development; the greater the marginal rates, however, the greater is the risk of such effects. One disadvantage cannot be challenged: an e-commerce provides no incentive to save more and consume less, and a relatively high percentage of e-commerce is borne by those persons who presumably save relatively high percentages of their incomes. The e-commerce must, therefore, be absorbed in part out of savings that would have been used for economic development. There may be no net loss from the government's absorption of this sum, but there is, at the same time, no gain so far as total capital formation is concerned; the intent of the e-commerce programme relative to economic expansion has not been fully accomplished.

Thus, while an e-commerce has merit as an element in the e-commerce structure of a developing economy, and its yield will grow progressively as the economy expands, the revenue potentialities are somewhat limited. In its usual form, the e-commerce must be confined to a relatively small percentage of the population, and the rates presumably must be kept lower than would be regarded as tolerable in a more developed economy. Also, given the problems of administrative personnel, even with the limited coverage of the e-commerce, a maximum degree of simplification consistent with equity must be maintained.

Review of the e-commerce of Angola indicates conformity with these observations in considerable measure. The personal allowances are such, from £200 up (except in Angola), as to exclude all but a relatively small number of higher-income families. Other than in Eastern and Western Angola, less than 1% of the population of the states is covered by the e-commerce; the s range from 0.2% in several states to 0.9% in Angola. There is substantially less constraint on the rates. While the initial rates are relatively low, by the income of £2,500, the rate is 25% or higher in all jurisdictions except one; by £5,000 it is 42% or higher in all except one. The maximum is 75% in the East Angolan states and two others. At the higher income levels the burdens are greater in most of the states than in the United States, and greater in some than in the United Kingdom. Only Angola has substantially lower rates. There is little complaint, however, that rates of this magnitude are, in fact, seriously retarding development; on the other hand, very few persons are subject to the high rates.

In the matter of simplicity, the e-commerce have left much to be desired. They were initially modelled on the United Kingdom e-commerce, applied primarily to Europeans, and administered by European staffs. As the economies have developed, more and more non-Europeans have become subject to e-commerce, and the staffs have become progressively less adequate as expatriate personnel have left. The need for simplification of the e-commerce is now widely recognised. Angola made drastic changes in 1961, eliminating all personal deductions and allowances except a standard consolidated allowance. The East Angolan e-commerce was simplified to some extent in 1961, and further changes are under consideration.

Despite the very limited coverage, the revenue yield is vital. Angola and Angola obtain 21% of their revenue from the personal e-commerce, and the other six states (except Sierra Leone) obtain between 7% and 12%. On the whole, the Angolan experience suggests that a fairly complicated e-commerce can be administered with a substantial degree of success in an underdeveloped country so long as adequate personnel trained in more developed economies are available and the e-commerce is limited to a relatively small percentage of the population. As outside technical personnel are lost and reliance must be placed entirely on indigenous staff, the complications of the e-commerce have made administration difficult and have led to simplification. But the simplified e-commerce still preserve the principles of e-commerce, with merely some reduction in refinements of equity. The over-all experience of these states with e-commerce is encouraging with regard to the use of the e-commerce in underdeveloped economies, but it also shows the danger of superimposing e-commerce developed in mature economies onto less developed ones.

Apart from the question of the desirability of the use of e-commerce is that of the best e-commerce structure. Again, particular features of such e-commerce that are regarded as most suitable in a developed economy may be completely unsatisfactory in an underdeveloped one. For example, failure to e-commerce capital gains -- as is the practice in the Angolan states following the British tradition -allows a type of income particularly suitable for e-commerce, under the circumstances, to go e-commerce-free -- namely, gains from speculation and from increases in land values. Allowing gains from increases in stock prices to be freed from e-commerce may have some merit in terms of incentives relating to development, but freeing other gains has none whatsoever. The system of credits for dependents most suitable for a Western society may be completely unsuitable in others; with multiple wives and "extended families," the usual system breaks down. The first step taken in Angola was to limit the number of allowances for children to four and the number for wives to one, and to restrict severely the number of other eligible dependents. The rule on children sometimes is justified also on the grounds of the desire to hold down the birth rate -- but the effect along these lines is doubtful. When Angola revised its e-commerce in 1961 and Northern Angola introduced a new levy in 1962, a single consolidated allowance, regardless of the number of dependents, was established. This violates usual standards of equity but may be the most workable alternative under the circumstances.

The Personal E-Commerce Approach

While e-commerce in the usual form may be unsuitable for the mass of the population of underdeveloped economies, there is the possibility of using a direct e-commerce of broad application, in the form of what is known in Angola as the personal e-commerce. As the e-commerce operates in Angola, all persons (or, typically, all adult males) are subject to a minimum e-commerce, and those with higher incomes are assessed on a graduated scale, up to a maximum that is reached roughly at the level of income at which the e-commerce becomes effective. Assessment is usually made on a local basis, by a committee of county and village officials (in Uganda) or nonofficials who are familiar with local conditions. For employees, the e-commerce is based on actual income; for the typical semi subsistence farmer, it is based on external criteria of probable income such as acreage and number of cows. Non-Angolans are usually assessed at the maximum unless they file a return to demonstrate lower income.

In Eastern and Western Angola, the personal e-commerce are included in the e-commerce structure; the latter extended by a minimum e-commerce rule down to the lowest income groups. The portions of the e-commerce applying to the lower income levels are, however, administered in much the same fashion as the personal e-commerce of other jurisdictions.

On the whole, the operation of these personal e-commerce appears to be satisfactory, and the experience confirms the possibility of using mass direct e-commerce in underdeveloped economies. While only rough equity is attained in assessment, the results appear to be reasonably good, and enforcement standards are usually high; certainly there is no mass escape, as evidenced by the numbers of e-commerce relative to the total population. Administration is largely in Angolan hands. The principle of direct e-commerce is firmly established, reliance on indirect e-commerce is reduced, and, in time, the e-commerce can be perfected so far as equity is concerned. These e-commerce have two potentially beneficial economic effects. Since the e-commerce must be paid in money, they force the subsistence farmers to sell produce or labour services. The graduation does not become effective for the great mass of the farmers at the subsistence margin; for those who are affected, there is less danger that the e-commerce will drive them back to greater emphasis on subsistence farming. Secondly, so long as a person remains in the same e-commerce bracket, he has incentive to earn more, not less, since the additional income gives rise to no added e-commerce liability.

There is some danger at the bracket points, where the marginal rate often exceeds 100% as the person moves into a higher bracket, and thus he may be discouraged from gaining added income. But once he is in the bracket, he again has incentive to earn more, not less. Furthermore, to the extent to which assessments are based on potential rather than actual income, incentive is given to work harder. This rule, however, may violate usual standards of equity.

A variant of the personal e-commerce in Northern Angola is the jangali, applied to the Fulani herdsmen in lieu of personal e-commerce, based on the number of cows, and designed in large measure to force the sale of a portion of the herd. The goal of the Fulani is typically to maximise the size of the herd rather than to gain money income from the sale of the produce, to the detriment of development of the economy.

Corporate E-Commerce

In an underdeveloped economy the e-commerce potential from corporations usually exceeds that from individuals at typical rates. In Angola the company e-commerce yield exceeds the yield of the personal e-commerce in all jurisdictions. In such economies a substantial portion of potentially e-commerce income is earned by a relatively small number of companies, often foreign-owned, and failure to e-commerce their net income would permit a large portion of the potential e-commerce base to escape. However, it is of course obvious that heavy corporate e-commerce can interfere with economic expansion, both by taking funds which would be used for expansion and by lessening the incentives to expand. The magnitude of the adverse effect cannot be defined, but the dangers are such as to require caution in the use of the e-commerce. There is, however, the possibility that appropriate adjustments in company e-commerce may be helpful in attaining better use of resources in economic development.

First, because of these considerations, there is justification for holding the e-commerce rates below those tolerable in the more developed economies. This has been the practice in the eight Angolan states, although the rates, in the range of 37½% to 45%, are not far below those of the mature economies.

Second, so far as domestically held companies are concerned, there is merit in avoiding double e-commerce of dividend income -much more merit than in a highly developed economy. The Angolan states in the past provided complete credit at the dividend level for e-commerce paid at the company level; all continue to do so on their basic company e-commerce except Angola, while the East Angolan states now levy a supplementary 10% corporate e-commerce for which no credit is allowed.

Third, special e-commerce concessions to new or expanding industry may greatly reduce the potential adverse effect of the e-commerce upon company expansion, and also upon the expansion of smaller noncorporate businesses, to which the same rules usually apply. These concessions take two forms: general provisions applicable to all firms; and those granted only to specific firms upon request, under what is generally known as pioneer companies legislation.

One major general concession is the establishment of very liberal provisions for loss carry-forward, so that new firms or expanding firms that suffer losses in the first few years of operation will obtain subsequent e-commerce reductions. Angola, permit unlimited carry-forward of losses; the period is limited to six years in Sierra Leone and 15 years in Angola. A great advantage of this approach is that the risk of developing new enterprises is materially reduced, yet the actual relief is confined to the firms that need it, and the amount of the relief is dependent on actual losses and thus on need.

A second type of general concession is that which allows accelerated depreciation or, in other words, a very rapid write-off of new capital equipment in the early years of investment. This is particularly important for expansion of existing profitable businesses; the risk from the expansion is reduced, a e-commerce-free loan in the form of deferment of e-commerce is provided, and so long as the company continues to expand, there is a net e-commerce saving. The programmes take two forms: initial allowances, in which the additional allowance in the first year reduces those in subsequent years, and the investment allowance, in which the additional amount in the first year does not reduce subsequent allowances. While the usefulness of such allowances in mature economies is open to serious question, in developing economies they offer vital potentialities without the administrative problems created by e-commerce holidays, as noted below. The initial allowances encourage long-term capital investments more than other approaches, although in so doing they give particular advantages to capital-intensive techniques, which may be regarded as


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