Economy and Trade
Angola is rich in oil, minerals, gold, and diamonds, and enjoyed an astonishing 23% growth rate in 2007 and double-digit growth in 2008, which is likely to be cut back to around 10% for 2009 if the oil price averages around US$45. Growth is almost entirely driven by the oil sector, but the government is determined to diversify, and to grow other sectors of the economy.
The 27-year-long civil war, which ended with the death of rebel leader Jonas Savimbi in February 2002, transformed Angola from being a strong exporter of food before the war, to being reliant on food imports. Before independence in 1975, Angola exported coffee, sisal, and cotton on European-dominated commercial farms. Today, as a result of the war, the countryside has been seeded with land mines, and will take many years to reclaim. However, the country has a US$7 billion line of credit from China, and strong credit from Brazil, Portugal, Germany, Spain, and the European Union, and is engaged in a massive infrastructure rebuilding program.
Economic Policy over 12 Months
The Angolan Central Bank has been largely successful in bringing runaway inflation under control. Consumer inflation has declined from 325% in 2000 to under 13% in 2008. A central bank policy of using oil-derived foreign exchange to buy up the country’s currency, the kwanza, has stabilized the exchange rate and reined in inflation. One of the challenges, however, is the extensive use of the US dollar by the population as an alternative to the national currency.
Angola joined the OPEC group towards the end of 2006, and a year later was given a production quota of 1.9 million barrels a day (below the 2.3 million barrels it is capable of producing).
The government is committed to encouraging inward investment, and there are opportunities for foreign companies both to set up operations, and to engage in joint ventures with Angolan companies. However, Angola ranks low on the literacy and productivity league tables as the war disrupted public education.
The country has great potential given its natural resources, which include not only its gold and diamond reserves, but extensive forests that constitute a great sustainable resource for both Angolan construction programs, and for export.
An IMF team that reported on Angola following an in-country inspection visit in 2007 gave the country full credit for its macroeconomic policies. The programs the government has put in place to address the ravages of nearly three decades of a vicious internal war are gaining traction. The government remains committed to continuing a high level of spending on infrastructure and the social sector, believing that this will enhance the efficiency and competitiveness of the overall economy.
Angola has been building up its internal reserves, and these will help it to weather the current volatility in the price of oil. External and domestic debt levels are relatively low. The IMF has been urging the Angolan government to design and implement fiscal policies that focus on the medium term and have an eye to a potential longer-term fall in the price of oil, and to “vigorously pursue appropriate structural reforms to support the development of the non-oil and non-oil extractive sectors of the economy (all areas where the country welcomes inward investment).”
Angola recently repaid a tranche of its Paris Club debt (some US$2.3 billion), settling principal and interest arrears, and bringing it into a better standing with the Club. The IMF also urged the Angolan government to work at bringing down the cost of doing business in the non-oil and gas sectors, including streamlining the existing costly and time-consuming registration requirements. The Angolan prime minister, Antonio Paulo Kassoma, announced in August 2008 that it was committed, in 2009, to making Angola a more attractive place in which foreign companies can invest. It also announced an ambitious job-creation program, saying it expects to create 320,000 new jobs in 2009 outside the oil and gas sector. Sector priorities for the year ahead include agriculture, geology and mining, industry, commerce, hotels, and tourism.
Economic Performance over 12 Months
Despite being the fastest-growing economy in Africa, Angola is still grappling with a per capita output that, at the end of the war, was among the lowest in the world, and is only gradually improving. In 1975, Angola was self-sufficient in all major food crops, and was the world’s fourth-largest coffee grower. Today, the government is working hard to return to a fully diversified economy after the ravages of the civil war.
According to the World Bank, the country’s economic performance over the last six years has been strong, with both the oil and non-oil sides of the economy performing well. GDP has doubled every third year, from US$19.8 billion in 2004 to US$30.6 billion in 2005, rising to US$41 billion in 2006 and US$60.4 billion in 2007.
The real growth rate of 22.3% of GDP in 2007 reflected a real growth of 20.4% in the oil sector, and a pleasing 25.7% growth in the nonoil sectors, including growth of 37% in construction, 32.6% in manufacturing, and 27.4% in agriculture.
The country runs a fiscal surplus, thanks to its oil revenues, and these surpluses have increased in the last few years, from 7.1% of GDP in 2005 to 9.9% in 2006, and 11.3% in 2007. Between 2003 and 2007, revenues grew at an annual average rate of 53%. The fact that revenues have grown faster than public expenditure explains the continued increase in surpluses. The non-oil fiscal balance, which had been running large deficits, has improved, and deficits have declined from 75% of GDP in 2003 to 55% in 2007. Excluding interest payments and grants, the non-oil deficit declined from 72.5% of non-oil GDP in 2003 to 52.6% in 2007.
The overall fiscal surplus in 2008 will be very close to the 2007 levels, at around 11% of GDP. Additionally, diamond exports are expected to grow even faster than in previous years. Net international reserves reached US$16.5 billion in July 2008, an increase of 47% compared to December 2007.
The World Bank rates the medium-term outlook for the country’s economy as positive. The decline in the oil price will knock GDP back from a predicted year-on-year growth rate, prior to the current downturn, of 15% for 2009, to something like 8–10%, which the Bank sees as sustainable until 2011. The determination of the Angolan government to diversify away from oil by boosting job creation in non-oil sectors such as agriculture, construction, and services is seen as very positive, as the oil and gas sector employs only around 1% of the country’s workforce.
Support for Inward Investment and Imports
The National Private Investment Agency (ANIP) is the body tasked with attracting foreign investment to facilitate the reconstruction, and the economic and social development of Angola. It is responsible for the complete administrative side of investing in Angola by foreign companies, and handles all applications, including those for tax and financial incentives, licensing and company formation.
The government has announced that it intends to minimize bureaucratic impediments to inward investment, and to bring in measures to guarantee the protection of investments, while giving foreign companies the ability to transfer dividends abroad.
Tax Exemptions
The government is committed to introducing further “special incentives on fiscal and customs duties,” according to a recent speech by Angolan president, Jose Eduardo dos Santos.
Statistics
GDP growth: 15.1% (2008)
GDP per capita: US$9,100
CPI: 12.5% (2008)
Key interest rate: 17.7% (commercial bank prime rate)
Exchange rate versus dollar: kwanza per US dollar—75.023 (2008)
Unemployment: Extensive—more than half the population
FDI: US$227 million (2006, est.)
Current account deficit/surplus: 11.3% of GDP (2007)
Population: 12,531,357 (July 2008)
Source: CIA World Factbook except where stated
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