PORTUGAL: THE ECONOMIC IMPACT OF LOSING ANGOLA, MOZAMBIQUE, AND PORTUGUESE GUINEA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900030097-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 8
• Document Creation Date: December 20, 2016
• Document Release Date: August 18, 2005
• Sequence Number: 97
• Publication Date: September 23, 1974
• Content Type: MFR

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23 September 1974
SUBJECT: PorL~:gal: The Economic Impact of Losing
Angola, 2' ozarJ ique, and Portuguese Guinea
23 Septe:nbea- 1974
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On 20 September, we responded to a telephonic
request from :r. Ray L. Caldwell of the State Department
by LDXing our views concerning the economic impact on
Portugal of freeing its African
colonies.
Distribution:
S-6489
Original
+ 1 - Ray L. Caldwell, State Department, (LDX'd)
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PORTUGAL: THE ECO'1Oi;IC IMPACT OF LOSING ANGOLA, MIOZAi'~,DIQUE,
AND PORTUGUIESE GUINEA
SUMMARY
Angola, Mozambique, and Portuguese Guinea as a group
clearly have been net economic liabilities to Portugal in
recent years. The costs to Portugal were mainly attributable
to the guerrilla wars. The cost of military operations in
Africa has been equivalent to perhaps 3% of Portugal's GNP
and these operations have diverted about 4.v of its labor
force. into the armed forces. In other respects, economic
relationships between the tietropole and the three territories
have been.fairly well balanced and, probably, mutually
beneficial. If the move toward independence follows its
present course, these relationships -- both private and
governmental -- will not be severely disrupted.
At home, Portugal faces severe economic problems stemming
from the new government's failure to provide economic
leadership. The self-made problems are compounded by
the adverse balance-of-pa.:ments effects of a higher oil
import bill. and of the loss of foreign exchange earnings
from tourism and fro.,-., expatriate Portuguese workers as eoonol
slump elsewhere. The slack in Portugal's economy will
reGUCe one of the immediate benefits expected from the cut
in military operations, because discharged soldiers will have
great difficulty finding civilian jobs..
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TRADE WITH THE TERRITORIES
Trade between Portugal and the three territories
appears to be mutually beneficial, with neither side
having a particular advantage. In recent years, Portugal
has run annual trade deficits with the group ranging as
high as $75 million. The deficits have resulted mainly
exports, 30% of Mozambique's, and 90% of Portuguese Guinea's.
Both sides enjoy some special privileges in the trading
relationship. Portuguese exports, though subject to tariffs,
find a sheltered market in the territories. Goods from the
three areas -- of which coffee, sugar, bananas, and crude
oil are the most important -- normally enter Portugal
duty-free. The most valuable special privilege to
from trade with Angola. Trade with Mozambique has been
roughly in balance and there is regularly a surplus with
Portuguese Guinea. But with the Portuguese economy's
rapid expansion and the development of itt trade with
other ;,,es t European countries, the colonies' relative
importance in Portugal's trade has declined rapidly.
The three.areas' share of Portugal's exports dropped
from 23% in 1970 to 10% in the first four months of this
year; their share of Portugal's imports fell from 14% to
9%. The :?Setropole remained the key- trading partner of the
three territories in 1973, taking about 25% of Angola's
CON(I1)ENTIP L
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MILITARY COSTS
The main burden on Portugal of keeping the three
African colonies has been the cost of fighting guerrilla
movements. The overall military budget in 1974 is about
$580 million -- 27%. of the total budget and equivalent
to about 6% of G:;P. Nearly 40% of the military budget
(so.--,e $220 million) is for overseas military operations.
Allowing for Lisbon's habitual underestimation of government
spending in its budget proposals, the true financial cost
of the wars is probably close to $300 million annually.
In terms of manpower, Portugal keeps about 250,000 men
in uniform -- about 8% of the total labor force. Half
of these troops are stationed in Africa. In normal
circumstances, the men now in Africa could b,i holding
productive civilian jobs, either in Portugal or elsewhere
in Western Europe. At present, however, economic conditions
in Portugal are chaotic and unemployment is rising
elsewhere in Europe. With jobs scarce, the immediate benefit
from releasing men from military service would be reduced.
There would still be some economic gain even if all the
returned soldiers are kept in uniform because they will
be spending more of their wages in Portugal, providing
some stimulus to the domestic economy and reducing the
flow of funds out of the country.
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Portugal is its option of purchasing up to one-half of
Angola's crude-oil production. It was this provision that
effectively shielded Portugal from the Arab oil embargo
last winter. Portugal reportedly pays relatively low
prices for coffee and tobacco from the territories but
the total value of this benefit appears to be small --
perhaps $10 million annually for Angolan products and
much less for those from Mozambique. The Metropole is
currently getting sugar from Mozambique at a bargain --
about one-fourth the world price, equivalent to art $80
million annual saving. Arising from contracts signed
prior to the recent spectacular rise 'in world sugar prices,
this windfall will not endure. Indeed, until recently,
Portugal was paying a premium price for Mozambique's, sugar.
FINANCIAL FLOWS
The net flow of payments for services and unilateral
transfers between Portugal and its Ove:.?seas Provinces 1
was nearly in balance in 1973. Portugal receives a
substantial net inflow of foreign exchange from such
items as foreign travel, investment income, and private
transfers. These receipts are offset by large government
transfers to the provinces -- $180 million in 1973.
, - f t - is not possible: to separate the three African territories
ih question, but they account for an overwhelming share of
transactions between Portugal and the Overocas Provinces.
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With respect to long-term movements of capital, there was
a substantial net flow of funds from Portugal to the Overseas
Provinces.. The net outflow in 1973 was $88 million, nearly
all official. Short-term capital flows are quite small,
perhaps because of the exchange controls within the escudo
zone.
THE ESCUDO ZONE AND THE BALANCE OF PAYMENTS
There will be a small net disadvantage for Portugal
if the escudo zone -- consisting of Portugal and its
overseas,-territories -- breaks up. Angola has a large
trade surplus with third countries, and the foreign
exchange reserves it earns and turns over to Portugal
strengthen the Portuguese escudo. Even without this
help, however, Portugal's own balance-of-payments position
has been very strong in recent years. The current account
surplus in 1973 was about $600 million, a very large amount
for an economy of Portugal's size. Admittedly, higher oil
costs will cut the current account surplus by half, and
the current economic disruptions in Portugal will further
erode it. Nonetheless, over the next few years, Portugal
will probably have one of the stronger payments positions
in Western Europe, if there is at least a semblance of
domc5ti.c economic order.
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THE WHITE SETTLERS
The one way in which loss of the colonies could impose
a severe immediate burden on Portugal would be through
a mass return of white settlers. There are approximately
400,000 such people in the three areas, most of them Portuguese.
If a majority chose to return to the Metropole, Lisbon
would have enormous difficulty trying to feed, clothe,
house, and employ them on top of its other economic
problems. It appears, however, that most of the settlers
will stay in Africa. Most want' to stay and their skills
certainly will be needed there.
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