RaboResearch - Economic Research

Country Report Angola

Country Report


Flag Angola
Stagnating oil production lowered economic growth in 2013, highlighting Angola’s dependence on the energy sector. The political scene was dominated by a succession debate. 

Strengths (+) and weaknesses (-)

(+) Generous natural endowments

Angola has vast hydrocarbon and mineral resources, ample arable land and a high potential for hydropower generation and tourism. Oil revenues have supported low public and external debt.

(-) Narrow economic base

Oil accounts for 98% of exports, around 80% of government revenue and 34% of GDP. Angola is therefore highly susceptible to volatility on the oil market.

(-) Unfavourable business environment

Doing business in Angola is cumbersome, as underscored by the low ranking on international business indicators, infrastructure is poorly developed, corruption is pervasive and institutions are weak. All this hinders the development of the non-oil private sector.

(-) Persistent tensions and disparities

Angolan society is divided along social, economic and ethnic lines. Besides, unemployment, poverty and inequality are high, while human development is poor. These tensions and disparities contribute to a social environment prone to social unrest. 

Key developments

1. Falling oil exports hurt macroeconomic indicators

In 2013, a slight fall in revenues from oil export hurt economic growth, the budget deficit and the current account surplus. Technical problems and maturation of oil fields kept oil output at an average of 1.7m b/d, around the 2012 level; oil export revenues fell from USD 68bn in 2012 to USD 65bn in 2013, in nominal terms. As a result, economic growth rate almost halved to 3.6% in 2013, though a long-running drought also affected energy supply and performance in agriculture. It should also be noted that that the reliability of Angola’s GDP data is relatively low. Lower income from oil also hurt the budget balance, which fell into deficit for the second time since 2004. The deficit was 1.5% of GDP in 2013, after a 6.1% of GDP surplus in 2012. The current account surplus also decreased significantly, from 12.1% of GDP in 2012 to 5.2% of GDP in 2013. Low levels of public and external debt, at 14% of GDP and 17% of GDP, respectively, provide comfort. However, progress on establishing a wealth fund has been slow, while Angola’s foreign exchange reserves are sizeable, but not overly large. As a result, a prolonged period of low energy prices could still lead to a significant deterioration of the fiscal and external positions.

For 2014, economic growth is projected at about 4.5%, as oil output is expected to increase slightly, despite technical difficulties in the first half of the year. However, the budget deficit is forecast to improve only marginally to 1.4% of GDP and the current account surplus is forecast to deteriorate further to 3.6% of GDP, on the back of increased public spending on capital investments that need to be imported. The deterioration of economic indicators in 2013 is a clear illustration of the country´s dependence on the oil sector and stresses the importance of diversifying the economy to increase its resilience. From that perspective it is positive that the government has adopted a series of reforms to improve the business environment and support diversification of the economy in the past year, such as a reduction of registration costs for companies, the implementation of higher import tariffs to protect local production and legislation aimed at improving market access of small scale farmers. It is also positive that the government is prioritising investment in energy supply and transport, which are currently important constraints to economic development. However, most projects will only be completed in the long term and it is questionable whether recent reforms will be effective while the current infrastructural deficit persists.

Figure 1: Budget balance into the red
Figure 1: Budget balance into the redSource: EIU
Figure 2: Current account surplus plummets
Figure 2: Current account surplus plummetsSource: EIU

2. Vulnerabilities in the banking sector appear to have increased

Angola’s banking sector is the third largest in Sub Saharan-Africa and has grown briskly in recent years. Assets increased from USD 39bn in 2009 to USD 71bn in 2013. But, the sector also experienced a marked decline in profitability, mainly due to higher provisions for bad debt. Profits fell by 31% yoy in 2012 and 2013 preliminary data point at a further deterioration, while non- performing loans (NPL) increased by a remarkable 84% yoy to 6.8% in 2012. The increase in bad debt is related to a build-up in domestic arrears of the government and slow budget execution by the government. Consequently, the high exposure of the banking sector to the public sector is worrisome. Another reason for concern is the high degree of political influence in the sector, which may conflict with adequate supervision. The five largest banks, accounting for 78% of assets in the sector, are co-owned by either the state of influential politicians. The bailout of BESA, the second largest bank, in July 2014 raised questions about supervision. According to 2012 data, the bank, which was for 43% owned by influential politicians, had an extremely high loan to deposit ratio (185%). The fact that, on average, the sector is liquid, well capitalized and follows a classic deposit-based model provides comfort though.

3. Lack of clarity about succession of the president creates uncertainty

A legacy of Angola’s civil war (1975-2002) is a highly influential and politicized military and deeply rooted ethnic tensions. President Dos Santos managed to control these by developing a strong network of influence and patronage, repressing dissent and concentrating power in his function. However, this means his departure is likely to cause a political vacuum that could threaten stability. This is especially the case if health problems force him to leave office suddenly. Health problems in 2013 raised concerns about such a scenario. In June 2014 the president addressed the issue of future leadership for the first time, stating that it will be discussed during the 2016 congress of the ruling MPLA party, and not earlier. In the meantime, the lack of a succession plan and the behind closed doors infighting within the MPLA create uncertainty about future stability and policy direction, which is unnerving for investors.

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

Background information

The Republic of Angola is a former Portuguese colony located in the south of Africa. Independence in 1975 was followed by 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. MPLA has dominated the political landscape since the end of the war, with president and MPLA leader José Eduardo Dos Santos being in office since 1979. A new constitution was adopted in 2010, which concentrated power in the hands of the president. The country is a multiparty republic, but dissent is often cracked down upon, freedom of speech is limited and the influence of the MPLA in parliament and beyond leaves little space for the opposition. The civil war changed both the social and economic landscape. 4m Angolans were displaced and most of them eventually found shelter in cities, accelerating urbanisation. Together with a strong development of the oil sector, this resulted in a reduction of the share in the economy of the agricultural sector from 14% to 8% between 1975 and 2007. However, a buoyant oil sector supported a high average economic growth rate of about 10% in the past decade. Angola is the second largest oil producer in Africa and one of the top 5 diamond producers worldwide. US and increasingly China are important trade partners, as well as sources of foreign investment and aid. The development of a local Chinese business community has led to tensions with the local population. Historically linked to Portugal, Angola currently provides important trade, investment and job opportunities for its past ruler. Economic growth has not trickled down and the society is characterized by high income disparities and widespread poverty.

Economic indicators of Angola
Economic indicators of AngolaSource: EIU
Note: Data are often subject to significant revisions, so they should be interpreted with caution.
Alexandra Dumitru
RaboResearch Netherlands, Economics and Sustainability Rabobank KEO

naar boven