RaboResearch - Economic Research

Country Report Angola

Country Report

Share:

Angola flag

Angola is an oil-rich country and Africa’s second largest oil exporter. Angola’s economic growth is highly dependent on oil price developments and a declining international oil price will therefore remain a cause of concern. 

Author: Iris van de Wiel (trainee)

Strengths and weaknesses

Strengths

Vast oil wealth

Angola is among the largest oil producers of the African continent. The commodity positively contributes to the economy, as oil production generates 98% of the country’s exports.

Weaknesses

Low level of development

Angola is amid the countries with the lowest level of development in the world. Very low rankings in the Human Development Index (148/187) and the corruption perceptions index (157/176) emphasize the low standard of living in Angola.

Undiversified economic base

Angola is significantly dependent on oil, in 2012, the commodity accounts for 98% of total exports and 34.4% of GDP. Since any progress on economic diversification is lacking, the country’s economic performance is highly exposed to the risk of a declining oil price.

Social and political tensions present

Last year’s elections were rather calm, but civil opposition against high income disparities and the presence of Chinese construction workers is increasing.

Key developments

1. Economic recovery slowing down as a result of dependence on oil

The strong economic recovery of 2012 was short-lived and might even be questionable. Growth figures for 2012 have namely been downwardly adjusted towards 3.8%, down from last year’s reported estimate of 8%. Output growth uncertainty seems to remain high, as growth estimates for 2013 vary significantly between different institutions and range between 5.4% and 8.3%. The discrepancies most likely result from the delayed commissioning of new oil fields. With oil production accounting for 98% of total exports, 70% of total government revenues and more than 50% of GDP, Angola’s economy is highly dependent on oil. Over the next years, average oil production is forecasted to rise from 1.75 million barrels a day in 2012 to 2.12 million barrels a day in 2017. The commissioning of new oil fields will contribute to this forecasted rise in oil production, which will reach its peak no later than 2017. However, if the current oil price decline, as seen in the first quarter of 2013, were to persist, it would pose a downside risk to Angola’s growth forecasts. A severe oil price drop would, furthermore, affect the economy in several other ways including a worsening of fiscal and external balances and a reduced capacity to implement social development programs. The state-owned oil company, Sonangol, plays an important role as a vital source of revenues for the government. Delays of oil revenue transfers from Sonangol to the authorities undermine the government budget. The development of a strong fiscal framework would help to clear the risks that surround Angola’s fiscal performance, as the impact of volatilities caused by the oil-sector dependency could thereby be reduced. Among positive developments in the oil sector are currently maintenance repairs which further reduce the chance of costly technical breakdowns and production downtime. An important step in reducing Angola’s dependence on oil is the government’s support of non-oil sectors, such as the diamond industry (currently profiting from improved regulation), and the energy, transportation and construction sectors (benefiting from a surge in public investment). Despite an increasing amount of companies active in non-oil sectors, the authorities keep on controlling the economy by only providing financial aid to companies that fit into their development plans. Hence, these sectors are expected to underperform. 

Figure 1: Oil prices affect GDP growth
Figure 1: Oil prices affect GDP growthSource: EIU, Reuters EcoWin
Figure 2: FX reserves have been rising strongly
Figure 2: FX reserves have been rising stronglySource: EIU

2. Inflation in single digits

The Monetary Policy Committee of the Banco National de Angola (BNA), created in 2011, was given the target of reducing inflation to 10% by the end of 2012 and further in the years thereafter. The BNA succeeded, bringing the rate of inflation back to 8.9% in the first quarter of 2013. Important in this process was the enduring rise in international reserves towards more than 8 months of import cover, which gave the BNA sufficient room to support the value of its currency and thus to keep the exchange rate stable. In spite of a number of rather positive estimates for 2013, such as a current account surplus of 5.4% of GDP and a liquidity ratio of 176%, risks remain present. A drop in the oil price will negatively affect the accumulation of reserves, as the trade surplus would shrink, which, in turn, could have a negative effect on exchange rate stabilization and drive up inflation. For the time being, the structural measures taken to reduce inflation seem to be paying off and the price level is therefore likely to stay in single digits in the coming years.    

3. Social and political tensions

With 72% of the vote, the long-serving president José Eduardo Dos Santos was re-elected in August 2012. His party, the Movimento Popular de Libertação de Angola (MPLA), will therefore be in office for at least another 5 years. President Dos Santos, however, is likely to resign during his current term and will probably hand over the presidency to vice-president Manuel Vincente, the former Sonangol chief. In the run-up to last year’s legislative elections, anti-government protests broke out. This led to fears of Arab Spring-inspired escalations, but the elections passed rather calm. President Dos Santos seems to have taken notice of the rising discontent in his country and once more emphasized the promises he made during the run-up to the elections, namely to improve basic services, health care, sanitation, drinking water and adequate housing in a poverty-reduction plan. At this point in time, Angola is characterized by high income disparities, with a high Gini-coefficient of 42.7 (in 2009) and the richest 10% of the inhabitants gain 44.7% of total income. Another important development to keep an eye on is the rising civil opposition against the increasing number of Chinese construction workers in the country. Besides the low percentage of the local workforce employed in Chinese companies, the quality of the work carried out by Chinese companies has also come under criticism. As in 2011, China was the main destination for Angola’s exports in 2012. Furthermore, China was among the main import suppliers of the country. Since the Angolan authorities aim to tighten ties with China even further, neither situation is likely to change soon, and therefore civil opposition remains an ongoing concern.

Factsheet of Angola
National facts of AngolaSource: EIU, CIA World Factbook, UN, Global Economic Forum, Transparency International, Reporters Without Borders, World Bank.

Background information

Angola, officially named the Republic of Angola, is a former Portuguese colony. Since its independence in 1975, Angola had suffered from a 27-year civil war in which two liberation movements, Popular Movement for the Liberation of Angola (MPLA) and the National Union for the Total Independence of Angola (UNITA), were the main actors. The death of UNITA leader Savimbi in 2002 marked the end of the civil war; the MPLA won and MPLA leader José Eduardo Dos Santos subsequently took office as President. As a result of his own constitutional change in 2010, Dos Santos was reelected again in 2012.

In the years following the civil war, Angola became one of the fastest growing economies in the world. Angola’s oil industry contributed to a large share of economic growth and the country became the second largest oil exporter of Africa, right behind Nigeria. With oil production accounting for 98% of Angola’s total exports, 70% of total government revenues and more than 50% of GDP, the country is highly dependent on the commodity. This dependence was clearly visible during the global economic downturn, starting in 2007; world oil demand stagnated and Angola’s exports diminished sharply in the consecutive years, leading to a substantial reduction of economic growth. Dependence on oil is just one of the country’s significant problems, as Angola is among the countries with the lowest standards of living in the world. 

Economic indicators of Angola
Economic indicators of AngolaSource: EIU. Due to large fluctuations in the data, the tables presented in this evaluation should be interpreted with caution.
Share:
Author(s)

naar boven