The challenges facing Angola Angola is one of the fastest growing economies in the world and also one of the most specialised. It had an average annual growth rate of 11% between 2002 and 2012. In 2010, the country's capital city, Luanda, was the most expensive capital city in the world. The average fare charged by the only taxi (cab) firm in the city was high at US50, and a standard house cost more than US1m to buy. Oil production plays a key role in the economy. The country produces 1.9m barrels of oil a day and this is expected to double by 2020. There is the possibility that Angola could overtake Nigeria to become Africa's largest oil producer. The oil industry accounts for most of the country's output, provides 97% of its export revenue and 75% of government tax revenue. Economists have expressed concern that the country is too dependent on oil. Sonangol, the state- owned oil enterprise, is seeking to diversify. It is already involved in banking and it also owns an airline and a football team. The government is trying to develop other industries. One of these is the diamond industry. World demand for diamonds increased in 2012. The Angolan Government faces a number of challenges in promoting other industries. One of these is a lack of capital equipment in its manufacturing industries, and another is that much of its agriculture is in the form of subsistence farming. The economy faces other problems and three of these are connected. They are a widening gap between the rich and the poor, a lack of education, and a rapidly growing population. Some people in the country are very rich but 35% of the population live in poverty. Half of the population have no access to health care, the infant mortality rate is one of the highest in the world, and life expectancy is one of the lowest. Most of the population only experience five years of education and a third of adults are illiterate. Between 2005 and 2010, the country had the eighteenth fastest growing population which might have influenced its level of average income see Table 1. Table 1: Population growth, Gross Domestic Product (GDP) and GDP per head in selected African countries in 2011 | Country | Population growth (annual % change) | GDP (USbn) | GDP per head (US) | | :------------ | :---------------------------------- | :---------- | :----------------- | | Angola | 2.92 | 120 | 6000 | | Kenya | 2.58 | 72 | 1800 | | Nigeria | 2.50 | 420 | 2600 | | South Africa | 0.96 | 562 | 11 100 | | Uganda | 3.24 | 47 | 1300 | In 2012, Angola was experiencing an overall unemployment rate of 26% and an unemployment rate of 50% among the young. The Angolan Government was considering cutting taxes to reduce unemployment.

Mark scheme

Marking points from the official mark scheme (May/June 2014). The mark or mark type is shown in brackets.

1. [2] 1 mark each for any of the following two:
2. • most of its output is oil/plays a key role in the economy/country too dependent on oil/dependent on oil/most of its resources are devoted to oil
3. • oil production accounts for 97% of its export revenue
4. • provides 75% of government tax revenue
5. • government trying to develop other industries/diversify
6. Note: no marks for produces 1.9m barrels a day/large quantity of oil/specialises in oil.
7. [2] 1 mark for recognising there is only one firm/a monopoly.
8. 1 mark for mentioning that the lack of competition enables firms to drive up price/firm is a price maker/price can be driven up because demand is inelastic.
9. [4] 1 mark for axes correctly labelled – price and quantity or P and Q.
10. 1 mark for demand and supply curves correctly labelled.
11. 1 mark for demand curve shown shifted to the right.
12. 1 mark for correct equilibriums identified either by lines drawn to both axes or equilibrium points clearly identified e.g. E and E1.
13. [3] • May result in more dependants [1] due to rise in birth rate or fall in death rate [1].
14. • May mean fewer workers [1] if there is a high birth rate, there may be fewer parents in the labour force [1].
15. • A higher labour force may increase competition for jobs [1] may push down wages [1].
16. • There may not be enough vacancies [1] for increasing number of potential workers [1].
17. • Resources may be devoted to providing for the extra population [1] rather than expanding productive capacity [1].
18. • Population may grow more rapidly than GDP/average income is GDP divided by population [1].
19. • Population growth may be caused by low income [1].
20. Note: these points may be inter-linked. 3 marks may be awarded for one reason that is well developed.
21. [4] • Generally the information supports the view/ supports the view. [1]
22. • Uganda has the highest population growth rate and the lowest real GDP per head/Kenya's population growth rate is higher than Nigeria's and its income per head is lower. [1]
23. • South Africa has the lowest population growth rate and the highest real GDP per head. [1]
24. • Angola is an exception – second in both rankings. [1]
25. [5] Up to 3 marks for why it might:
26. Up to 3 marks for: may generate more tax revenue [1] which can be used on spending on benefits [1] or on measures to reduce poverty in the long run e.g. education and health care [1].
27. Up to 3 marks for: high GDP may increase average incomes/living standards [1] higher incomes may enable people to spend more on basic necessities [1] such spending will reduce absolute poverty [1].
28. Up to 3 marks for: higher output will create jobs [1] this will reduce unemployment [1] with more in work absolute poverty will fall [1].
29. Up to 3 marks for why it might not:
30. Up to 3 marks for: income may be unevenly distributed [1] and so not every one may benefit from higher incomes [1] and so relative poverty may rise [1] even if absolute poverty falls [1].
31. Up to 2 marks for: real GDP may not have increased [1] need to adjust for inflation [1].
32. Up to 2 marks for: (real) GDP per head may not have increased [1] if population has risen by more than GDP [1].
33. Maximum of 3 marks for a list-like response.
34. [4] 1 mark each for two reasons identified:
35. • lack of capital equipment
36. • subsistence farming
37. • lack of education/high degree of illiteracy
38. • poor health care.
39. 1 mark each for two reasons explained:
40. • workers will not be able to produce much if they are working with low amounts of capital
41. • subsistence farming tends to use poor quality resources
42. • poor education will mean workers are unable to work with advanced technology/will be less inventive/will lack skills
43. • poor health care may result in workers being off sick/being tired.
44. [6] Up to 4 marks why it might:
45. Up to 3 marks for: a cut in income tax will increase disposable income [1] this may increase the incentive to work [1] a greater incentive may reduce voluntary/frictional unemployment [1].
46. Up to 3 marks for: a cut in corporation tax will increase the profit firms can keep [1] this may encourage firms to expand [1] and so take on more workers [1].
47. Up to 3 marks for: a reduction in income tax and indirect taxes will increase purchasing power [1] this may increase demand [1] and so cyclical unemployment may fall [1].
48. Up to 4 marks for why it might not:
49. Up to 3 marks for: firms may not spend extra profits on expansion [1] if they lack confidence [1] that they will sell the extra output [1].
50. Up to 3 marks for: consumers may not spend extra income [1] if they lack confidence [1] instead they may save the extra income [1].
51. Up to 3 marks for: tariffs may be cut [1] which may increase imports [1] and raise unemployment, at least, in the short run [1].
52. Up to 3 marks for: government spending may fall [1] due to less revenue [1] and as a result cyclical unemployment may stay unchanged/increase [1].
53. Up to 3 marks for: higher demand may cause inflation [1] may result in workers pressing for wage rises [1] firms may make workers redundant to cut costs [1].
54. Up to 3 marks for: a cut in taxes on firms may encourage firms to use more capital-intensive methods (1) resulting in lower demand for labour (1) causing technological unemployment (1)
55. Up to 2 marks for: frictional and structural unemployment may not fall [1] if unemployed workers are still occupationally and/or geographically immobile [1].
56. Maximum of 3 marks for a list-like response.