AFRICAN DEVELOPMENT BANK

ANGOLA

COUNTRY STRATEGY PAPER 2017-2021

RDGS/COAO

April 2017

This report is based on the results and conclusions of the combined 2017–2021 Country Strategy Paper and Country Portfolio Performance Review mission conducted in Angola from 26 October to 5 November 2015.

TABLE OF CONTENTS

ACRONYMS AND ABBREVIATIONS ...... i MAP OF ANGOLA ...... iii EXECUTIVE SUMMARY ...... iv 1. INTRODUCTION ...... 1 2. COUNTRY CONTEXT...... 1 2.1 Political trends ...... 1 2.2 Economic Trends...... 2 2.3 Social Trends ...... 5 3. STRATEGIC OPTIONS ...... 7 3.1 Country Strategic Framework ...... 7 3.2 Aid coordination, Alignment and Harmonization ...... 10 3.3 Strengths and Opportunities/Challenges and Weaknesses ...... 10 3.4 Bank Portfolio Performance Review...... 11 3.5 Lessons learnt ...... 12 4. BANK GROUP STRATEGY FOR 2017-2021 ...... 13 4.1 Rationale and Strategic Selectivity ...... 13 4.2 Bank’s strategic alignment ...... 14 4.3 CSP Objective and Strategic Pillars ...... 15 4.4 The business program...... 18 4.5 Bank group resources ...... 18 4.6 Country dialogue ...... 19 4.7 Implementation arrangements and risks ...... 19 4.8 Risks and mitigation measures ...... 20 4.9 Monitoring and evaluation ...... 20 5. CONCLUSIONS AND RECOMENDATIONS ...... 20 5.1 Conclusion ...... 20 5.2 Recommendations ...... 20

Annex 1: Indicative results framework matrix for the CSP 2017-2021 I Annex 2: Current macroeconomic assessment and outlook ...... III Annex 3: Key macroeconomic indicators ...... X Annex 4: Progress monitoring on the sustainable development goals in Angola...... XI Annex 5: Comparative socio-economic indicators ...... XIII Annex 6: Division of labor between development partners in Angola ...... XIV Annex 7: Angola – Development partners aid volumes and main areas of focus ...... XV Annex 8: Angola - Portfolio of approved and ongoing operations as at 1st February 2017 . XVI Annex 9: Revised 2016 Country portfolio improvement plan (CPIP) ...... XVII Annex 10: Angola – CSP 2017-2021 selectivity criteria ...... XXI Annex 11: Angola – CSP 2017-2021 sectoral linkages and the High 5s...... XXIV Annex 12: Angola – CSP 2017-2021 indicative lending program ...... XXV Annex 13: Angola – CSP 2017-2021 indicative lending pipeline ...... XXVI Annex 14: Angola – CSP 2017-2021 indicative non-lending program ...... XXVII Annex 15: Angola – assessment of the public financial management systems ...... XXVIII Annex 16: Angola – assessment of the country’s procurement systems ...... XXX Annex 17: Main analytical studies consulted ...... XXXIV

LIST OF FIGURES Figure 1: Country Policy and Institutional Assessment (CPIA) performance ...... 2 Figure 2: Angola - Macroeconomic Performance ...... 3 Figure 3: Portfolio distribution by sector as at 1st February 2017 ...... 11

LIST OF TABLES Table 1: Country Assessment of Fragility Drivers ...... 4 Table 2: Doing Business Rankings (2016-2017) ...... 5

LIST OF BOXES Box 1: Gender Inequalities in Angola ...... 6 Box 2: Key measures adopted to mitigate the oil crisis ...... 7 Box 3: Agriculture and the National Strategy in Angola ...... 8 Box 4: Key Developments in the Angola’s Sovereign Wealth Fund portfolio ...... 9 Box 5: The Relevance of the Bank’s Country Office ...... 12 Box 6: Gender Mainstreaming ...... 15 Box 7: Power Sector Reform Support Program ...... 17

ACRONYMS AND ABBREVIATIONS AfDB African Development Bank AFD French Agency for Development AML/CFT Anti-Money Laundering and Terrorism Financing COAO Angola Country Office ALSF African Legal Support Facility ECNR African National Resource Center BNA National Bank of Angola CPIP Country Portfolio Improvement Plan CPIA Country Performance and Institutional Assessment CPISU Central Project Implementation Support Unit CPPR Country Portfolio Performance Review COP Conference of the Parties on Climate Change ECCAS Economic Community of Central African States EDCSP Economic Diversification and Competitiveness Support Program EIB European Investment Bank ENSAN National Food Security and Nutrition Strategy FATF Financial Action Task Force FDI Foreign Direct Investment FDSEA Sovereign Wealth Fund of Angola GDP Gross Domestic Product IBEP National Household and Well-Being Survey ICBPIP Institutional Capacity Building for Public Investment Program INE National Institute of Statistics LoCs Lines of Credit MDGs Millennium Development Goals MPLA People’s Movement for the Liberation of Angola NDP National Development Plan PDMPSA National Medium Term Development Plan for Agricultural Sector PEMFSR Public Expenditure Management and Fiduciary Systems Review PIP Public Investment Program PFM Public Financial Management PMU Project Management Unit PPP Public-Private Partnership PSRSP Power Sector Reform Support Program RDGS Southern Africa Regional Development and Business Delivery Office SDGs Sustainable Development Goals SMEs Small and Medium Enterprises TYS Ten Year Strategy UNDP United Nations Development Program

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CURRENCY EQUIVALENTS

(February 2017)

Currency unit = Angola kwanza (AOA) 1 UA = AOA 225.44 1 UA = USD 1.36 1 UA = EUR 1.26 1 USD = AOA 165.91

FISCAL YEAR

1 January – 31 December

WEIGHTS AND MEASURES

1 metric tonne = 2.204 pounds 1 kilogram (kg) = 2.204 pounds 1 metre (m) = 3.28 feet 1 millimetre (mm) = 0.03937 inch 1 kilometre (km) = 0.62 mile 1 hectare (ha) = 2.471 acres

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MAP OF ANGOLA

Disclaimer: This political and administrative map of Angola is for illustrative purposes and is without prejudice to the status of or sovereignity over any territory covered by this map.

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EXECUTIVE SUMMARY

1. The Country Strategy Paper (CSP) for Angola for the period 2017–2021 was prepared against a backdrop of an economy that has slowed down since 2014 due to lower international crude oil prices. The CSP 2017-2021 follows the endorsement by CODE in November 7th, 2016, of its proposed strategic pillars, including the results of the previous CSP 2011-2015 and Country Portfolio Performance Review (CPPR). While the process of preparation of the new CSP started by end-2015, it faced significant slippages due to delays in the adoption of a new annotated format of the Bank’s CSPs. In order to preserve the operational consistency of the new operations, CODE members recommended during the meeting held in November 7th, 2016, to shift the CSP timeframe from 2016-2020 to 2017-2021. The new CSP is based on the Bank’s 2013-2022 Ten Year Strategy (TYS) and its High 5s priorities. The new strategy adopts a broader context of policy continuity by anchoring on the longer Vision 2025 of the country, as the current government’s National Development Plan (NDP 2013-2017) ends in 2017, and the new NDP 2018-2022 that is under preparation is only due for approval after the general elections in August 2017. The strategic thrust of the proposed Bank’s support was guided by sectoral strategic documents of key areas (e.g. agriculture, energy and transport) that the government is promoting to diversify the economy’s dependence on oil. Following the country dialogue with government, it was concluded that these areas may not necessarily be affected by the outcome of the forthcoming elections.

2. Angola’s post-independence economic growth model focused on exploration and export of oil has affected the sectoral contributions to growth. Structural transformation remains low, since the economy is dominated by oil and gas sectors with 30.8 percent of Gross Domestic Product (GDP) in 2015, followed by services (27.8 percent of GDP), industry (20 percent of GDP, with construction being a dominant sub-sector with 11.1 percent), public administration and financial services account for 8.3 percent of GDP. Agriculture and fisheries are predominant economic activities in rural areas, accounting for 12.9 percent of GDP and employing 70 percent of the economically active population. According to the 2014 National Population Census, Angola has an estimated 25.8 million people living sparsely in a total land area of 1,246,700 square kilometers (km2), with more than 40 percent of the population in urban areas. Larger concentrations are along the coastal areas that are prone to natural disasters while the internal highlands are prime agricultural land.

3. Economic growth rate in Angola averaged 4.7 percent for 2011-2015 as against 12.6 percent over the 2006-2010 period. The economic slowdown was mostly driven by a decline in oil export revenues on account of falling international oil prices which led to sharp reduction in public infrastructure spending. In addition, agriculture underperformed its potential due to weak productivity and weather shocks. Meanwhile, Angola made significant progress in reducing poverty from 68 percent in 2000 to 36.6 percent in 2008-09, according to the National Household Well-Being Survey (IBEP, 2008-09). Despite this progress, more efforts still need to be done to achieve the Sustainable Development Goals (SDGs), since income inequality and unemployment remain relatively high.

4. The African Development Bank has been instrumental in facilitating the government’s achievement of its development objectives. The CSP 2011-2015 focused on infrastructure development and promotion of economic competitiveness. The Bank took a leadership role among the Development Partners (DPs) in the infrastructure sector (energy). The implementation of the Public Expenditure Management and Fiduciary Systems Review (PEMFSR) helped to design an Action Plan for the improvement of the country systems and the enabling environment to enhance competitiveness. In terms of project disbursements, the Bank was the top donor owing to the successful disbursement of the USD 1 billion

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Power Sector Reform Support Program (PSRSP). Overall, the implementation of the CSP 2011-2015 helped deliver significant outputs and outcomes in the areas of agriculture, fisheries, energy, water and capacity building programs.

5. Despite the progress made, there are persisting challenges that hinder inclusive growth in the country, notably: low agricultural production and productivity; lack of skills; weak trade facilitation and export support systems; weak quality and inequitable distribution of infrastructure; and challenging business environment. In addition, gender disparities in health, education and employment have persisted over time. On the other hand, Angola has favourable economic opportunities and prospects. The country has a high agricultural potential; natural resources; strategic geographical location that facilitates regional integration and intra- regional trade; and potential labour force which, if effectively harnessed with adequate skills and technology, could support labour intensive manufacturing.

6. The negative impact of the oil crisis has provided even greater urgency to accelerate the government’s economic diversification agenda. One priority will be to invest in agricultural transformation and value chains to diversify exports and national revenue sources. The expansion of electricity access, water and sanitation supply, and skills development is critical to improve the business environment and private sector should have a larger role in the economy, including in the development of infrastructure through public-private partnerships and concessions. The other area vital to growth is regional integration in order to unlock the potential of local manufacturing and boost trade. Therefore, the Bank’s strategy will focus on two complementary pillars, namely: (i) inclusive growth through agricultural transformation, and (ii) support to sustainable infrastructure development, in particular, in energy and transport. The interventions under the pillar I (inclusive growth through agricultural transformation) are aligned with the Bank’s High 5s priorities of Feed Africa and Industrialize Africa, while the infrastructure development interventions under pillar II will help achieve the following High 5s: Light-up and power Africa, Integrate Africa and Industrialize Africa.

7. The CSP 2017-2021 will reinforce the Bank’s position as a strategic partner of choice of the government and other stakeholders on demand-driven policy advice. To strengthen policy dialogue, the Bank will continue its partnership with the IMF and the World Bank in helping government to improve the quality of public investments by strengthening the processes of evaluation, selection and monitoring of projects. The Bank will scale up efforts to conduct high quality analytical work to underpin its investments, and leverage funds, including through Public-Private Partnerships (PPPs) to help advance the country’s economic transformation agenda. Overall, the main areas of country dialogue will include: PFM; portfolio management and ownership; institutional capacity building in the areas of natural resources management (e.g. creation of local content in oil, gas, and fisheries sectors, and water and land management) with support of the African Natural Resources Center (ECNR); strengthening of governance, operational efficiency of public utilities and improved legal framework for PPP with technical support of the African Legal Support Facility (ALSF). Private sector development and job creation will also be at the core of Bank’s country dialogue with the government as part of the implementation of the Bank’s Strategy for Jobs for Youth in Africa 2016-2025.

8. The Board of Directors are hereby requested to consider and approve the Angola’s CSP 2017– 2021.

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1. INTRODUCTION

1.1 This paper presents a new Country Strategy Paper (CSP) for the Republic of Angola for the period 2017-2021. The previous CSP for the period 2011-2015 was aligned to the country’s national development priorities as set forth in the National Development Plan (NDP) 2013-2017. Under that strategy, the Bank’s partnership with Angola was based on two pillars: Pillar I – Stimulus to the competitiveness of the economy; and Pillar II – Support to economic infrastructure development. The design of the new CSP was built on the lessons learnt from the ending CSP and takes into account the new country context characterized by the worsening of macroeconomic and social conditions on account of a protracted oil crisis.

1.2 The Bank’s new strategy in Angola seeks to assist the country to accelerate economic diversification and broaden the inclusive and sustainable growth base. Achieving this objective requires rapid agricultural transformation and value chains promotion for export diversification and job creation. Furthermore, there is a need to reduce the high logistical costs in the non-oil sector, improve skills while investing in technological innovation. In face of these challenges, the Bank is proposing a new strategy based on two complementary pillars (i) inclusive growth through agricultural transformation, and (ii) support to sustainable infrastructure development. The strategic goal is focused on the Angola’s “Vision 2025” objective of generating employment opportunities and further reduce poverty in line with the Bank’s High 5s.

1.3 The new CSP 2017-2021 has drawn significant lessons from the implementation of the previous CSP 2011-2015, especially, the need for the Bank to invest in large projects that are aligned with the country’s economic transformation agenda to ensure sustainability and greater impact amid the spectrum of limited financial resources. After this introduction, the rest of the report is structured as follows: Section 2 presents the country context from the political, economic, social and environmental standpoints. Section 3 presents the strategic options. Section 4 presents the Bank’s intervention strategy for Angola over the 2017-2021 period. Section 5 presents the conclusions and recommendation submitted to the Board.

2. COUNTRY CONTEXT

2.1 Political trends

2.1.1 Angola’s political environment remains challenging due to the deterioration of the macroeconomic and social conditions on account of the oil crisis and weak governance. President José Eduardo dos Santos who has ruled since 1979, was re-elected in August 2016 to lead the ruling People’s Movement for the Liberation of Angola (MPLA). The MPLA has been challenged by the opposition and civil society organisations over issues of economic freedom (e.g. Angola ranks low at 156th of 178 countries surveyed in the 2016 Index of Economic Freedom by the Heritage Foundation); protection of human rights; governance and transparency; and rising youth unemployment. Despite the ongoing low-level insurgency led by the Front for the Liberation of the Enclave of Cabinda, the country remains politically stable. The uncertainty over the political succession in the MPLA was brought to an end on 3rd February 2017 with the appointment of the Defence Minister João Lourenço as head of the party’s list and candidate for president in the next general elections scheduled for August 2017. Although the likelihood for political instability remains low, this could not be sustainable in the medium to long term if measures are not taken to enhance inclusiveness, hence becoming a potential source of fragility.

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2.1.2 Despite the Figure 1: Country Policy and Institutional Assessment (CPIA) improvements in governance performance 6,0 and accountability, corruption still remains a challenge. Following Angola’s graduation 4,0 to Middle Income Country scores CPIA (MIC) in 2013 its governance 2,0 indicators improved modestly. The 2016 Mo Ibrahim Index of 0,0 African Governance improved 2011 2012 2013 2014 2015 by 5 points to reach 39.2/100 CPIA Economic Management Structural Policies Policies for Social Inclusion and Equity points from 2006 to 2015; the Governance Infrastructure and Regional Integration Bank’s overall Country Source: African Development Bank, CPIA Database Performance and Institutional Assessment (CPIA)1 score improved from 3.20 in 2011 to 3.5 in 2015 (see Figure 1); and the World Bank’s (WB) Worldwide Governance Indicators improved in three out of six dimensions of governance between 2006 and 2014, especially in political stability, voice and accountability. Nonetheless, pervasive corruption (e.g. Angola ranks low at ranks 164th out of 176 countries surveyed in 2016 in the Corruption Perception Index from Transparency International) and lack of capable institutions undermine the successful implementation of structural reforms.

2.2 Economic Trends

2.2.1 The economy has been affected by lower international oil prices. Economic growth declined to 4.7 percent for 2011-2015 (see Figure 2) as against 12.6 percent over the period 2006- 2010. The economic slowdown was driven by a very sharp decline in public investment spending and cuts in private consumption on account of lower international oil prices. Growth is expected to pick up to 3 percent between 2018-2020, due to increased public spending, the vast natural resources potential and growing consumer base. A comprehensive macroeconomic assessment and outlook and key indicators are provided in Annex 2 and 3, respectively.

2.2.2 The inflation rate, which was at 14.3 percent in 2015, reached 42 percent in December 2016. This reflects the impact of strong exchange rate depreciation, higher domestic fuel prices due to the phasing out of fuel subsidies, and loose monetary policy conditions. In response, the National Bank of Angola (BNA) has tightened monetary policy. Since mid-2015, BNA’s policy interest rate was raised by 625 basis points to the current 16 percent. As a result, commercial bank’s lending interest rates increased from 9.6 percent at end-2014 to the current 21.9 percent, making access to credit more costly and shifting lending to short-term maturities.

2.2.3 The banking sector continues to face a challenging operating environment due to liquidity constraints. The non-performing loans ratio increased to 15.1 percent in October 2016 up from 11.6 percent in December 2015, according to BNA data. The banking system’s capital adequacy ratio deteriorated from 19.8 percent to 18.3 percent during the same period, reflecting the need for recapitalization of some Banks2. Meanwhile, a regulatory framework for secondary- market trading of government bonds was developed in 2015 and corporate bonds may follow in 2017. Anti-Money Laundering and Terrorism Financing (AML/CFT) regulations improved and

1 The 2015 CPIA shows that Angola has made significant strides in improving the quality of budgetary and financial management, which increased to 3.8 points in 2015 from 2.5 in 2009. 2 According to the IMF, two state-owned banks (BDA and BCI) were recapitalized in January 2016 at a total fiscal cost estimated at about 0.25 percent of GDP.

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Angola was removed from the Financial Action Task Force (FATF) list in February 2016, but foreign exchange channels with the international correspondent banks in the United States of America remain closed due to lack of compliance with governance issues. Figure 2: Angola - Macroeconomic Performance

GDP growth has declined due to lower international …Fiscal policy was tightened to align with oil prices and slowdown in non-oil activity. Inflation is declining oil revenues and overall fiscal balance trending high reflecting a weaker exchange rate… deficit is set to remain at 6 percent of GDP

40 GDP Growth (percentage change) 60 Fiscal balance and external debt 35 Percent 30 40 25 Percent 20 20 15 10 5 0 0

-5 -20

2011 2012 2013 2014 2015 -10 2010

2016(e) 2010 2011 2012 2013 2014 2015 2016(e) Oil GDP Non-oil GDP Total Revenues Total Expenditures Real GDP Angola Sub-saharan Africa Overall fiscal balance External Debt Annual inflation …However, the decline in international reserves Lower international oil prices have reduced total oil has been contained to preserve a minimum imports’ exports and FDI inflows thus widening the external coverage of 7 months… current account deficit…

120 External sector trends 15 Net international reserves 110 35 10 100 The Metical depreciated recently, due to decreasing10 30 90 8 FDI80 flows and lower exports due to international 70 5 25

commodities prices, which can assist competitiveness. billion USD 60 20 6 50 0 GDP of Percent 40 15 30 4 20 -5 10 10 2 cover import of months 0 -10 5 2010 2011 2012 2013 2014 2015 2016(e) 0 0 Imports (USD billion) Exports (USD billion) 2010 2011 2012 2013 2014 2015 2016(e) Trade balance (USD billion) FDI (USD billion) Net international reserves (USD) Oil price (USD/barrel) Months of import coverage Current Account (right scale)

Limited availability of foreign exchange, driven by …The BNA has tightened monetary policy in lower international oil prices and weaker oil exports response to rising inflation and this has led to a has prompted significant imbalances in the market sharp increase in the average market interest rates… … Official and Parallel nominal exchange rate Market interest rates 580 (AKz/USD) 250 29,0 510 220 440 190 Percent 23,0 160 370 130 17,0 300 100 11,0 230 70 160 40 5,0

90 10

juil.-15 juil.-16

mai-15 mai-16

nov.-15 nov.-16

janv.-15 janv.-16 janv.-17

sept.-15 sept.-16

mars-15 mars-16

juin-14 juin-15 juin-16

avr.-14 avr.-15 avr.-16

oct.-14 oct.-15 oct.-16

déc.-16 déc.-14 déc.-15

févr.-17 févr.-14 févr.-15 févr.-16

août-15 août-16 août-14 1-year average lending rates Differential (%) (right axis) AKz/USD official (left axis) BNA policy interest rate AKz/USD parallel (left axis) Standing lending facility

Source: National Bank of Angola, National Institute of Statistics and International Monetary Fund. Values expressed in percentage of GDP unless specified otherwise. Note: (e) the 2016 figures are estimates 3

2.2.4 High public expenditure financed by oil revenues has sustained Angola’s economic growth over the past decade. Fiscal policy was tightened in 2016 with total expenditures reducing from 30.6 percent of GDP in 2015 to 23.6 percent of GDP in 2016 to align with the sharp decline in total revenues from 27.3 percent of GDP to 19.5 percent during the same period. In August 2016, the government revised the 2016 state budget reference oil price from USD 45/barrel to USD 40.9/barrel and the fiscal deficit is set to rise from 3.3 percent of GDP in 2015 to 6.7 percent of GDP in 2017, according to the IMF’s Article IV staff report of December 2016.

2.2.5 The external current account deficit reduced to 4.3 percent of GDP in 2016 compared to 10 percent of GDP in 2015. The devaluation of the exchange rate by more than 40 percent since September 2014, helped to preserve export competitiveness. Nonetheless, balance of payment pressures persist due to the shortage of foreign currency, but the parallel-official exchange rate spread has declined from 244 percent in June 2016 to about 135 percent in February 2017 as the BNA increased its sales of foreign currency to mitigate foreign exchange market imbalances. As a result, gross international reserves fell from USD 24.4 billion in 2015 to USD 22.4 billion 2016, but still sufficient to cover about 8.1 months of imports. Following the trend in other oil producing countries, Foreign Direct Investment (FDI) in Angola declined by 3 percent to USD 8.6 billion on account of deferred investments in the oil sector due to lower profit margins.

2.2.6 The country’s total public debt increased significantly raising concerns about debt sustainability. According to the Ministry of Finance, in 2016, Angola has raised USD 11.46 billion on new loans, of which USD 8 billion are from China. Public and publicly guaranteed debt climbed over 65.4 percent of GDP in 2015 up from 32.9 percent in 2013 and is estimated to have reached 71.6 percent of GDP by end-2016 following the depreciation of the exchange rate and the fiscal deficit. The relatively large proportion of foreign currency denominated debt exposes the debt burden to the exchange rate depreciation raising concerns about debt sustainability3.

2.2.7 The international oil price shock also exposed the country’s economic and social fragilities. Angola’s economic base remains narrrow with oil accounting for over 95 percent of total export revenue, 52 percent of government revenues and 30 percent of GDP. As a result of the currency depreciation, GDP per capita is expected to fall to USD 3,514 in 2016, the lowest level in a decade, thus aggravating the country’s economic fragility. Angola’s political, social and environmental fragilities (Table 1) also were evidenced by the outbreak of malaria, yellow fever epidemics, and cyclical droughts and floods in Southern Angola which left more than 400,000 people in need of food assistance, according to the Food and Agriculture Organization.

Table 1: Country Assessment of Fragility Drivers Social Environmental Political Economic

•Low quality of •High population •Political patronage and •Poor infrastructure primary education, density and poor nepotism •High dependence on low access to infrastructure in urban •Politicisation of state natural resources, in secondary and TVET centers institutions particular, oil • Income inequality, •Deforestation and •Weak capacity of state •High economic youth unemployment desertification institutions inequality and poverty •Cyclical floods and •High economic •Skills and jobs droughts informality and mismatch burdensome business •Inadequate social environment protection programs •Weak PFM systems

3 Angola’s sovereign credit ratings currently stand as follows: Standard & Poor’s (B), with a Negative Outlook. Moody’s (B1) with negative outlook, and Fitch (B), with a Negative Outlook.

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2.2.8 Business environment and private sector development: Angola was ranked low at nd 182 out of 189 economies surveyed in the Table 2: Doing Business Rankings (2016-2017) World Bank (WB) report Doing Business 2016 2017 2017, falling one position relative to its 2016 Ease of doing business 181 182 -1 ranking (see Table 2). Critical bottlenecks for Starting a business 139 144 -5 Dealing with doing business include the relatively high 107 111 -4 number of procedures required to create a construction permits business, limited access to credit and Getting electricity 167 171 -4 inadequate infrastructure and skills. Private Registering property 168 170 -2 181 181 sector activities have been constrained by Getting credit No change Protecting Minority 78 81 -3 scarcity of foreign currency and this has investors delayed the implementation of key project Paying taxes 161 157 activities in agri-business and manufacturing. Enforcing contracts 186 186 No change The government of Angola approved an Resolving insolvency 169 169 No change SME’s development strategy in 2012 which Trading across borders 183 183 No change focus on reducing costs and time for starting Source: World Bank, 2017 Doing Business Reports business; access to credit through a government-led subsidised credit program (“Angola Investe”); entrepreneurship promotion through business incubators (e.g. so far 3 incubators were established by the Ministry of Economy’s Private Sector Development Institute – INAPEM); skills development; professional training; and provision of consultancy services to SMEs. Since its inception in 2012, the “Angola Investe” programme approved 497 loans corresponding to USD 810 million. The SMEs programme coordinated by INAPEM certified 11,000 firms and created 650,000 jobs. Despite this progress, private sector investment to non-oil GDP remains low at 3 percent, and only 2 percent of the 50,000 identified enterprises are exporters, contributing to 5 percent of total industrial tax revenue.

2.2.9 Regional Integration: Angola’s geographical location offers a potential to provide road and railway transportation and logistical platform services for the landlocked countries. The Lobito Corridor is central to Angola’s transportation infrastructure as it crosses 4 provinces and concerns 40 percent of the Angolan population; provides the shortest route to the seas for Zambia’s North Western Province, the Copperbelt, and the Democratic Republic of Congo (DRC)’s Katanga province with a population of 16 million working for a vibrant mining activity. Despite the huge investments made in the rehabilitation of the infrastructure, utilisation remains low at 25 percent. Potential for intra-trade is huge and Angola is already investing in a special economic zone at Lobito and an oil refinery. Intra-trade in agricultural products is also set to grow.

2.3 Social Trends

2.3.1 Poverty: Angola has achieved impressive growth in the past decade and has been able to reduce poverty from 68 percent in 2000 to the current 36.6 percent. According to Poverty and Household Wellbeing Survey (IBEP, 2008-09), poverty incidence in Angola was last estimated at 58 percent for rural areas and 19 percent for urban areas, but with no significant gender differences (e.g. 37.7 percent for males against 35.6 percent for females). The lack of sustainable employment opportunities; low household income; and regional disparities in access to economic and social infrastructure are among the key determinants of poverty. The incidence of poverty is much higher in the Southern and Eastern regions (e.g. 40 percent to 70 percent), while the coastal areas and highlands with vast presence of natural resources and high agricultural potential have relatively lower poverty rates around 8 percent to 34 percent.

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2.3.2 Despite the progress made in recent years, more efforts need to be done to improve human and social development. Unemployment remains high at 26 percent, particularly among the youth. The country still ranks low at 149th out of 187 countries surveyed in the United Nations 2015 Human Development Index. Income inequality in Angola, measured by the Gini coefficient, was last estimated at 0.427, one of the highest in the region. In response, the government has been implementing a Social Support Fund which benefited nearly 6.7 million people and generated more than 41,000 direct jobs over the past 20 years. A new social protection programme was launched in 2015 with the assistance of the European Union and UNICEF to strengthen social protection of the most vulnerable groups. An update of the IBEP is also underway to track progress on poverty. Angola actively started working on the mainstreaming of the Sustainable Development Goals (SDGs) in the National Development Policies and National Budget with support of the UN agencies and with positive progress as illustrated in the Annex 4.

2.3.3 Gender: Angola has made progress on promoting gender equality but significant challenges remain. Since 2013, the government adopted several policy reforms to enhance gender equity and equality, such as: the introduction of gender budgeting frameworks in public programs, the National Gender Policy and Action Plan, the National Domestic Violence Policy and Action Plan, and the National Campaign for Support of Rural Women. Positive trends are seen in the increase of women’s representation in the parliament which went up from 34.5 percent of parliamentary seats in 2012 to 36.8 percent in 2015. Nevertheless, gender inequalities persist in access to education, health services and employment opportunities (Box 1).

2.3.4 Education: Angola is undergoing Box 1: Gender Inequalities in Angola an intensive process of recovery and Cultural norms that favour early marriage and childbearing reform of its education sector. Public are significant barriers to retention of girls in schools. Data resources allocated to the sector increased from the National Institute of Statistics (INE) shows that women are less literate (60.7 percent) than men (82 from USD 1 billion in 2005 to USD 4.7 percent). Lack of access to higher education prevent billion in 2016, but public spending in women from acquiring the skills and training necessary for education, as a percentage of total productive employment and they remain trapped in government expenditure (7 percent), agriculture and other types of low-wage employment. It is remains below the Sub-Saharan average of estimated that 95.8 percent of women employed in the labor force in Angola are unskilled as compared to 84.7 percent 18.7 percent. Total enrolments in the system of men(1). The ratio of female to male participation in the increased sharply from 2.2 million students labour force is 82.3 percent, but only one-quarter of those in 2004 to 10 million by 2016, but gender involved in non-agricultural employment are women. The disparity is evident in school enrollment. UNDP 2015 Human Development Report indicates that Despite the improvement in the school the expected years of schooling for women is 8.7 years as compared to 14 years for men. Income inequality across enrollment, efforts still have to be made to gender remains high with the estimated gross national develop skills and technological innovation income per-capita for women (USD 5,497) being to enhance socio-economic transformation. significantly lower than that for men (USD 8,169).

(1) An Overview of Women’s Work and Employment in Angola: 2.3.5 Health: Angola has made Decisions for Life MDG3 Project. Country Report No. 2. Amsterdam Institute for Advanced Labour Studies. Amsterdam, Netherlands, July improvements in health but significant 2009 gaps in quality and access to services remain. The Maternal Mortality Ratio (Annex 5) has dropped from 1,400 per 100,000 in 1990 to 477 in 2015 but high rates of fertility among women (e.g. average of 6 children per women) increase the risk of maternal mortality and prevent them from entering the labour force, with higher risk among young women. Meanwhile, infant mortality rate reduced by 28.1 percent in the period 1990- 2015, currently standing at 96 per 1,000 births. The proportion of institutional deliveries increased from 15.7 in 1996 to 49.9 percent in 2010-2015 owing to better provision of obstetric and neonatal emergency care services. Nevertheless, efforts are still needed to reduce malaria, tuberculosis and HIV incidence and improve the life expectancy at birth (53.1 years in 2016) which falls short of the regional average of 61.5 years. Angola’s per capita expenditure on health services (USD 212)

6 is higher than the sub-Saharan region’s average (USD 95), but relatively higher spending has not translated into better health outcomes indicating gaps in the quality and access to health care. 2.3.6 Environment and climate change: Angola has made progress ensuring environmental sustainability. Total forests’ protected area increased by 95 percent, between 2012 and 2013, though marine protected areas remain small (less than 1 percent). The Ministry of Environment is leading the development of new legislation on environmental conservation zones and water quality but needs to strengthen national technical capacity in evaluating environmental impacts (e.g. infrastructure, extractive and industrial sectors) as well as quality management systems for air, land and water. The AfDB support on the development of pilot centers for environmental biodiversity is expected to mitigate these constraints. Angola is also engaging with the Clean Development Mechanism and already submitted important climate mitigation/adaptation projects within the framework of the Intended Nationally Determined Contribution, published during the Conference of the Parties (COP21) on climate change in Paris and COP22 in Marrakech.

2.3.7 Water and sanitation: A Sustainable water supply and sanitation services is a driver for economic growth, a means for ensuring gender equality and promotion of green growth through adoption of sound environmental management practices. In 2015, urban water coverage in Angola was at 75 percent against 28 percent for rural; while urban sanitation was at 89 percent as against only 22 percent in rural areas. Closing this service coverage gap requires huge upgrading and expansion. In this endeavour, the Bank’s ongoing USD 123.7 million Institutional Support and Sustainability for Urban Water Supply and Sanitation Development project will be vital for promoting green growth through harnessing of resources for removing the burden to women and children since women are responsible for household drudgery activities and hence victims of poor sanitation systems.

3. STRATEGIC OPTIONS

3.1 Country Strategic Framework

3.1.1 National Priorities: The Box 2: Key measures adopted to mitigate the oil crisis Angola Long Term Plan, dubbed  Total fiscal expenditure reduced by 21.2 percent as fiscal 2016 “Vision 2025” articulates the oil price was adjusted from USD 45/barrel to USD 41; country’s conceptual view to  Fuel subsidies were completely phased out in January 2016; achieve sustainable development  Rationalization of debt service from USD 3.32 billion in 2016 and seeks to “extricate the country to USD 2.91 billion by 2017;  Sustained capital spending (USD 6 billion) on agriculture, from poverty by promoting energy, construction and roads to stimulate aggregate demand economic growth, macroeconomic and prevent a recession; stability and employment”. It is  Import substitution and promotion of local content, value based on five main dimensions: (i) chains for exports of selected products such as tea, coffee, macroeconomic stability, (ii) human horticultures, timber, iron ore; development and employment  Use of the remaining balances of the bilateral public lines of credits estimated at USD 5.47 billion to finance private sector creation, (iii) private sector investment projects; development, (iv) economic  Maintenance of foreign reserves at USD 24 billion (equivalent competitiveness and structural to 8 months of imports cover), adoption of a flexible exchange transformation, (v) infrastructure rate to reduce market imbalances, and restore the relationships development and regional with U.S. dollar correspondent banks to enable access to cross- border finance and payments for both exports and imports. integration. The “Vision 2025” was designed to be developed in a period of 25 years, in three stages, with concrete objectives and targets and which may be adapted in light of the adjustments that may prove necessary and timely, in particular: 2000-2005 (Peace, national reconstruction and Economic Growth start up); 2005- 2015 (consolidation of National Reconstruction, Modernization and Development); 2015-2025 (sustainability and growth). The government’s National Development Plan (NDP) 2013-2017

7 underscored aspects of the “Vision 2025” by stressing the need to: (i) diversify the economy, (ii) invest in infrastructure (in particular, transport, energy and water and sanitation), (iii) enhance better management of natural resources, and (iv) expand employment opportunities to reduce poverty. Angola has been facing the paradox of high economic growth but with prevailing challenges in terms of poverty and income inequality, coupled with rising public debt needed to cover the fiscal deficit arising from the sharp decline in international oil prices. The government is adjusting its policies to facilitate the needed economic transition as international oil prices are not expected to recover in a near term. Two key policies were adopted, namely: (i) the Accelerated Program for Economic Diversification in February 2015, and (ii) the Strategy for Mitigation of the Oil Crisis adopted in January 2016 (Box 2).

3.1.2 Angola’s development priorities center on the promotion of economic diversification and its acceleration. Before the first discovery of commercial crude oil in 1955, agriculture was the most important sector in Angola and accounted for 30 percent of export earnings4. At the time, Angola was the world’s fourth largest exporter of coffee (e.g. about 100,000 tonnes/year) and diamonds (e.g. about 2 million carats/year). Nonetheless, with the advent of the civil war, the country’s infrastructure was dilapidated, quality of public service delivery deteriorated, and the economy became dependent on oil. This generated the so called “dutch disease” effect, in which high-value commodity exports led to the appreciation of the real exchange rate diminishing the competitiveness of producers and exporters in the non-resource sectors, in particular, in agriculture and manufacturing, while imports became cheaper in the domestic market.

3.1.3 Agriculture. Over the years, Box 3: Agriculture and the National Strategy in Angola Angola has initiated several strategies to boost the agricultural sector (Box 3). With The Government has defined several agricultural sector strategies the abundant water supply, and a over the years which include: the 2003 Poverty Reduction Strategy; the National Food Security and Nutrition Strategy favourable climate, the government is (ENSAN, 2009); the National Medium-term Development Plan for committed to use the agricultural sector as the Agricultural Sector 2013-2017 (PDMPSA). The main priorities a key driver of economic diversification for agriculture in the aforementioned strategies are as follows: (i) increase the production and commercialization of cereals, away from oil. However, inadequate rural horticultural, roots and tubers crops, coffee, artisanal/continental agricultural infrastructure (e.g. feeder fisheries’ products; (ii) livestock breeding; (iii) promotion of roads, irrigation systems, and unreliable sustainable natural resources management; (iv) promotion of research activities needed to support and promote productive electricity supply), low use of yield activities such as micro-finance, rural extension, small irrigation enhancing inputs and technologies, lack of schemes, milk production, apiculture and poultry. skills, limited access to credit, weak research and extension services for support to farmers and inefficient land management systems drive low agricultural productivity (e.g. Angola’s cereal yields increased from 662 kg/hectare (ha) in 2001 to 815 kg/ha by 2015 but remain below the Sub-Saharan average of 1,433 kg/ha) 5. In addition, only 5.7 percent of the arable land (e.g. about 575,900 km2) is under cultivation. The government has defined agricultural production targets in the NDP 2013-2013 and these include the increased of annual cereal production from 1.4 million tons in 2012 to 3.5 million tons by 2017, and livestock production from 10,000 units to 266,809 in the same period. However, for agriculture to reach its true potential, funding, capacity building, infrastructure, research, technology development, private sector-led initiatives and empowering agricultural environment are key enablers. Meanwhile, government reactivated, in October 2016, the Agrarian Development Fund to support the agricultural policy, under the Ministry of Finance. The Bank is

4 “Angola: Country Economic Memorandum – Oil, Broad-Based Growth, and Equity”, The World Bank, October, 2006. 5 World Bank, 2015 data. Cereal yield, is measured as kilograms per hectare of harvested land, includes wheat, rice, maize, barley, oats, rye, millet, sorghum, buckwheat, and mixed grains.

8 also assessing options for lines of credit (LoCs) to local commercial banks (e.g. including the Development Bank of Angola – BDA) to support SMEs but the weak quality of the balance sheets, currency mismatch between the project’s cash flows (e.g. in local currency) and the loans (e.g. in foreign currency), and lack of compliance with the Bank’s environmental and social safeguards still constrain these deals. The Bank is currently assessing options to expand business advisory services to mitigate these challenge as well as provide flexible financing options such as trade finance LoCs.

3.1.4 Since 2008 the Angolan government has addressed the impact of oil price volatility by creating a savings vehicle. A Sovereign Wealth Fund (FSDEA)6 was established in Box 4: Key Developments in the Angola’s Sovereign Wealth Fund portfolio 2012 with an initial USD 5 billion The Government of Angola launched its Sovereign Wealth endowment (Box 4). Mechanisms for Fund, known as the Fundo Soberano de Angola (FSDEA), with climate change management were also put an initial endowment of USD 5 billion. However, according to FSDEA financial reports (www.fundosoberano.ao), the Fund is in place. A National Adaptation Program of yet to make any profit. This is mostly due to the type of Action was approved in 2011, although the investments, as well as the challenges that the FSDEA is facing country still lacks a Nationally Appropriate regarding its operational costs. The FSDEA has been investing in: (i) domestic projects that contribute to growth and economic Mitigation Action Plan. Angola is still at its diversification over the medium term and (ii) financial assets early stages of development of its green abroad to generate savings for future generations. Based on an growth agenda. A National Strategy for April 2016 press release, the FSDEA’s investment portfolio was USD 4.7 billion, internationally diversified with allocations to Renewable Energy was approved in 2014. A venture capital funds (58 percent planned by 2020), fixed policy on renewable energy feed-in tariffs income assets (23 percent), variable income assets (19 percent), (REFIT) has been prepared with technical and currencies. Some 19 percent of its USD 1.1 billion Infrastructure Fund is in projects in Angola and Kenya, and 23 support of the Bank under its USD 1 billion percent is in hotel projects in Angola and Zambia. In addition, Power Sector Reform Support Program 10 percent of the USD 220 million Forestry Fund represents a (PSRSP). The implementation of the REFIT large-scale eucalyptus project in Angola. The Fund plans to apply International Financial Reporting Standards (IFRS) by policy will help enhance economic 2017. competitiveness and job creation through private sector investments.

3.1.5 Energy. Angola has a hydropower generation potential of about 18,267 Megawatts (MW) but is considered to be exploiting less than 20 percent, according to Ministry of Energy and Water (MINEA). According to the WB data, access to electricity is currently estimated at 37 percent (less than 9 percent in rural areas) and falls short of SADC’s average electricity access rate estimated at 38.2 percent. The current power generation capacity of Angola places the country on the 6th place in the region7. Total generation capacity in SADC is estimated at 55,081 MW with the region still impaired with an electrical supply deficit of approximately 6,000 MW8. Angola’s electricity network is not connected with the Southern Africa Power Pool but the government has put in place several projects to accelerate access to electricity from 30 percent in 2014 to 43 percent by 2017 and 60 percent by 2025. The main power generation projects are the hydroelectric stations of Laúca (2,067 MW), Cambambe II (960 MW), and the combined cycle power plant of Soyo I and II (750 MW), all due for completion by 2017. Other projects include the rural electrification of 82 municipalities and 531 districts, through small distribution and power generation plants, including mini-hydro power generation. The country’s renewable energy strategy aims to attain the goal of 800 MW by 2025 from renewables, representing 7.5 percent of

6 The key objectives of the FSDEA are capital preservation, return maximization, and promotion of social and economic development in Angola. 7 Mwale, S., and Davidson, I.: “Security Analysis of Electric Power Supply in SADC Region”. May, 25, 2015. 8 I. Esterhuizen, Public, private investment needed to tackle SADC power deficit, Engineering News, 11 September 2012

9 the energy generated by the country. The complete phasing out of fuel subsidies will make viable some rural electrification projects as the cost of fossil fuels will compete less with renewables.

3.1.6 Transport. Angola has a road network of about 76,000 km of which only 18,000 km are paved. The government is committed to rehabilitate and expand trunk roads including regional corridors connecting to DRC, Zambia and Namibia, so far about 13,000 km of roads were rehabilitated and upgraded. The country has a railway network of 2,950 km out of which 2,725 km were rehabilitated with the investment of more than USD 3 billion and made operational from 2012 to 2014, but the country’s railway network lacks interconnection. Angola has four important ports of trade, namely: Luanda, Cabinda, Lobito and Namibe making the country a regional transport hub for neighbouring landlocked countries. The government has plans to build a new commercial port north of Luanda at Barra do Dande to reduce traffic at the port of Luanda and the capacity of the port of Lobito has been expanded. Plans are underway to build 44 logistical platforms to connect to railway line and trunk roads. Total investment is estimated at USD 3.9 billion. Five platforms have already registered some progress in the civil works, namely: Lombe, Luau, Menongue, Soyo and Caala.

3.2 Aid coordination, Alignment and Harmonization

3.2.1 Angola’s development cooperation landscape comprises various multilateral and bilateral development partners (DPs), but the structure for dialogue is yet to be well established. The UN and the Ministry of Planning are preparing a formal aid framework mechanism. Angola became eligible for MIC graduation based on the UN’s GDP per capita criteria (e.g. USD 4,518 in 2015 as compared to the threshold of USD 1,242). The graduation process will only be completed by February 2021, as the country addresses its economic and environmental vulnerabilities. Official Development Assistance to Angola increased from 1 percent of GDP in 2011 to 2.3 percent of GDP by 2015. Donor activity has shifted significantly over the past five years to an increased presence in areas including energy, water and sanitation, governance and social protection (Annex 6 and Annex 7). The Bank’s USD 1 billion Power Sector Reform Support Program (PSRSP) helped leverage USD 200 million from the Japanese International Cooperation Agency (JICA) and a USD 450 million loan plus USD 200 million sovereign guarantee from the WB. The PSRSP facilitated the preparation of several reports such as the environmental licensing guidelines for energy projects, feed-in tariff for renewable energy, and revenue protection manuals for the power utilities. Drawing from the experience of the PSRSP, government requested the Bank to take a leadership role in financing a new power sector mega project which will comprise the construction of a 400 kV central-south transmission line, the reduction of technical and non-technical power distribution losses, and development of renewable energy programmes (e.g. solar). In addition, the Bank has been working closely with the IMF and the World Bank in assisting the government in building a Medium-Term Expenditure Framework, a Medium-Term Debt Management Strategy, as well as improving the quality of public investment by strengthening its evaluation, selection and monitoring processes.

3.3 Strengths and Opportunities/Challenges and Weaknesses

3.3.1 Angola has favourable economic strengths and prospects, which if well harnessed, can promote inclusive and broad based economic growth. In addition to the existing opportunities in the dominant hydrocarbons sector, the country also has vast potential in the mineral sector, in particular, diamonds and ornamental rocks. Among the major strengths and opportunities are: (i) Agricultural potential: Investments in agro poles and agro industries through provision of lines of credit to private sector can help boost local food production and exports; (ii) Natural resources: The sustainable exploration of natural resources, such as, arable land and water to sustain agribusiness, and promotion of local content in mining and fisheries

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can help Angola create value addition to its resources, generate jobs and reduce poverty; (iii) Regional integration: Angola can take advantage of its ports as well as the untapped regional market to boost intra-regional trade, in particular along the Lobito Corridor. 3.3.2 Despite the country’s economic potential, there are persistent structural challenges that hinder inclusive growth, notably: weak institutions; weak agricultural productivity; inadequate infrastructure; limited qualified human resources (in particular in business management, science and technology, construction, and manufacturing sectors); weak trade facilitation and export support systems; poor governance and challenging business environment.

3.4 Bank Portfolio Performance Review

3.4.1 The Bank Group portfolio reflects the strategic alignment with the Bank’s CSP, the TYS and the High 5s, with a strong focus on infrastructure and finance. The Bank’s active portfolio in Angola comprises ten (10) operations (Annex 8) for a net total commitment of UA 458 million up from five (5) projects worth UA 52 million in 2011. The portfolio comprises nine (09) public operations worth UA 224 million (49 percent), and one (1) private sector project worth UA 234 million (51 percent). The portfolio sector breakdown shows the predominance of finance (52 percent), followed by water and sanitation (20 percent), social (15 percent), multi-sector (5 percent), agriculture (4 percent), environment (3 percent), and the transport sector with 1 percent.

3.4.2 The COAO) and RDGS have taken proactive measures to restructure the portfolio as well as advance with ESWs to inform the design of new operations. A total of four ageing projects with final disbursement deadline set for 31 December 2016 were successfully completed with an average disbursement rate of 96 percent. These included the 11 years old Bom Jesus Agriculture Project. The Bank also completed several ESWs in the areas of private sector country profile which informed the design of the new Ministry of Economy; the oil and gas downstream concept note that guided country dialogue on natural resource management, the economic diversification study that informed the preparation of the new CSP 2017-2021.

Figure 3: Portfolio distribution by sector as at 1st February 2017 3.4.3 Portfolio performance: Over Multi-Sector Transport the 2011-2015 CSP period the Bank 5% 1% Water (Box 5) and the government intensified Social Sup/Sanit the monitoring of the portfolio 15% 20% implementation which resulted in an improvement of the disbursement rate Finance from 17.2 percent in 2011 to 52% Agriculture 4% 37.5 percent in 2015. The commitments-at-risk also declined Environment 3% significantly from 50 percent to 4.9 percent during the same period, while the proportion of ageing projects reduced from 40 percent to 28 percent owing to the approval of 10 new projects since October 2013 to December 2015. The Bank’s overall portfolio performance in Angola is deemed unsatisfactory with an average score of 1.9 out of 4, and based on the most recent reports on implementation progress and results (IPR). The low cumulative disbursement rate of the ongoing portfolio (7 percent by December 2016) stems primarily from the fact that the restructured portfolio is fairly young, comprising six projects approved between 2014 and 2015. This generally unsatisfactory performance calls for the need to maintain continuous monitoring, in order to raise the disbursement level for recently approved projects.

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3.4.4 The main problems identified in the 2016 Country Portfolio Improvement Plan (CPIP) include: (i) lack of ownership and leadership of the sector ministries in implementing the projects, (ii) lack of qualified PIU’s staff, (iii) inefficiency in public administration which delays processing of conditions for entry into force and first disbursement, (iv) weak financial management systems; and (v) delays in providing counterpart funding. The Bank made progress with the translation into Portuguese of the Rules and Procedures for Procurement of Goods, Services and Works, but the absence of the Portuguese version of Standard Bidding Documents (SBDs) still constrain local firms to bid on Bank’s tenders. The Bank will use Trust Funds to ensure a comprehensive translation of the Bank’s SBDs in Portuguese. The weak capacity of PIUs is being addressed with the implementation of a Central Project Implementation Support Unit (CPISU) in the Ministry of Finance and including the enforcement of performance based contracts for all Project Management Unit (PMU) staff. The preparation of the CPIP took into consideration the PD 02/2015, in particular, the need to strengthen project’s procurement, financial management, and disbursement procedures. Key measures were adopted in order to raise the disbursement levels for recently approved projects, and these include: the setting up of quarterly disbursement targets for each project; adoption of disbursement checklist manual; and government’s commitment to streamline the process of approval of disbursement requests within five working days. The CPIP action plan was prepared with the government and clearly outlines the accountability mechanisms for the delivery of the actions (Annex 9).

Box 5: The Relevance of the Bank’s Country Office The presence of the Angola Country Office (COAO) contributed to the exceptional growth of the portfolio (from five projects in 2011 to fourteen by 2015). The office also coordinated 44 project supervision missions and 29 country dialogue missions of a total of 182 missions that took place during the period 2012–2015, despite the absence of sector Task Managers. Some activities that gave greater visibility to the Bank would have not been possible without the presence of the country office. These include:  Bank’s leadership role, among DPs in Angola, on infrastructure support and financing through the successful implementation of the USD 1 billion PSRSP;  Enhanced country dialogue in the areas of energy, public procurement, economic diversification, private sector development and the mainstreaming of environment and social safeguards;  Technical assistance to the government in the unbundling of the power sector utilities, revision of the general electricity law, revision of the procurement law, and preparation of feasibility studies on fixed asset registry and technical losses reduction to inform new energy sector mega-project;  Bank support in the field of governance has enabled the government to prepare the PEMFRS, and improve Public Investment Programming (PIP);  Close monitoring of the portfolio and business development, particularly, in agriculture, fisheries and infrastructure (energy, transports and information and communication technology) and in the private sector (lines of credit for local commercial banks).

3.5 Lessons learnt

3.5.1 The implementation of the CSP 2011-2015 has helped identify some key lessons which will inform the main areas of Bank’s intervention for the period 2017-2021, and taking into account the current country challenges and specificities characterized by the sharp decline in oil revenues and the urgent need to accelerate economic diversification. More specifically, it was found that: (i) The alignment of Bank’s assistance programme with the government’s economic transformation agenda (e.g. in energy) increased visibility and fast-tracked implementation. In this context, consideration of key infrastructure projects (e.g. transport and energy) registered in the public investment programme ensured strategic alignment and government’s ownership; (ii) The enhanced policy dialogue and timely responsiveness to requests for financing (e.g. the USD 1 billion PSRSP) helped to build trust with government and facilitate implementation of projects;

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(iii) Project preparation should take into account the country’s absorptive capacity and complementarity with the activities of other development partners active in the country. Quality-at-entry should therefore be improved and should include preparation of detailed ESWs, adoption of realistic conditions for effectiveness and first disbursement and assessment of implementation capacity of the PMUs; (iv) The Bank should also focus on big projects, combining lending with policy advice and technical assistance, in order to reduce high transaction costs in Angola and influence critical reforms. 3.5.2 The prevailing challenges in the implementation of Bank’s portfolio in Angola also helped identify some critical lessons in order to improve portfolio performance and delivery in line with the new Presidential Directive (PD 02/2015). Overall it was recommended that: (i) Capacity building of project implementation units and relevant government departments should be enhanced and mainstreamed in Bank operations; (ii) Design of results framework should be improved, particularly elaborating on the results chain, to ensure a credible CSP monitoring framework. (iii) Availability of Portuguese speaking Task Managers, including Portuguese version of the Bank’s procurement and financial management rules, is critical for speedy implementation of projects; and, (iv) Budget for Monitoring and Evaluation (M&E) systems at project level should be provided to ensure regular supervision to timely address implementation challenges. 3.5.3 The previous CSP, 2011-2015, was designed during a period in which the Country Office was not yet operational. An ambitious pipeline of projects was identified in various sectors, but none of these strategic projects received requests for Bank’s financing by the Government by the time of the CSP Mid-Term Review in 2013. This was mostly due to: (i) lack of political commitment to engage with the Bank during the CSP preparation phase (e.g. despite several negotiation missions, government declined Bank financing for key infrastructure projects in the energy and transport sectors as it had secured financing from other facilities), and (ii) Government’s easy access to bilateral lines of credit such as those from China (e.g. about USD 10 billion financing for the Lobito-DRC corridor) that largely exceeded the Bank’s initial financing envelope (e.g. USD 84 million in 2011). However, with the opening of the Country Office in 2011, and the increased policy dialogue thereafter, the Bank started getting visibility and requests for financing large-scale infrastructure projects. As a result, the Bank’s portfolio in Angola increased from UA 52.27 million (USD 74 million) in 2011 to UA 1.2 billion (USD 1.7 billion) in 2015. The Bank has also drawn significant lessons from the implementation of the previous CSP 2011-2015, especially, the need to invest in large projects that are aligned with the country’s economic transformation agenda in order to ensure sustainability and greater impact amid the spectrum of limited financial resources.

4. BANK GROUP STRATEGY FOR 2017-2021

4.1 Rationale and Strategic Selectivity

4.1.1 The dialogue between the Bank and the government led to a consensual recognition of the need for the Bank to continue investing in infrastructure given its comparative advantage. This was further highlighted in the consultations with other DPs, where the need for the country to reduce dependence on oil was stressed. Therefore, the urge to find alternatives to promote economic diversification through agricultural transformation and value chains for job creation. The government’s strategy is to boost potential GDP growth by improving input factors, with infrastructure (e.g. energy, transport, and water and sanitation) playing a key role. The

13 dialogue also indicated an increased focus on private sector led investments in the revitalisation of the rural-urban commercialization circuits, and skills development, in particular for the youth and women, and contribute to the country’s efforts for the achievement of the SDGs 1, 5 and 8, on reducing poverty, gender inequality, and creation of good jobs and economic growth. Annex 10 provides a comprehensive selectivity criteria for the CSP.

4.1.2 The main economic challenge for Angola remains the need to reduce the dependence on oil by enhancing economic diversification and its export base. Now with the recent fall in commodity prices, it will be challenging for the public investment to continue leading economic growth. The limited availability of foreign exchange and its negative impact on the economy should be an opportunity to accelerate the economic transformation agenda with emphasis on the local production and its value chains. In this context, there is a need to gradually channel private sector investments towards productive sectors, in addition or replacement of public funds, with high potential to generate jobs and incomes. Based on the country’s natural endowments, agriculture is well positioned to transform the country, promote economic diversification and boost exports and generate foreign exchange. The Bank can play a catalytic role by providing lines of credit as well as leveraging PPP transactions to ease access to finance for private sector and SMEs, to transform agriculture as a business, reduce local food prices, enhance food security and improve the country’s economic competitiveness. By supporting the agro poles development and the agro industries, the Bank will contribute to achieve one of the High 5s target of Industrialise Africa.

4.1.3 In order to be competitive in agriculture as well as in the industrialisation process, Angola also needs to address structural bottlenecks on economic infrastructure. More specifically, investments in energy and transport are critical to reduce the current high logistical costs and unlock the full potential of the economic development zones and promote structural transformation. In view of Angola’s current financial challenges, the Bank has initiated dialogue with private sector entities in Angola for implementation of innovative financing instruments such as Special Purpose Vehicles to finance non-sovereign infrastructure investments (e.g. Port Amboim rehabilitation, and Luanda Benguela Highway) that can contribute to interconnect the economic development poles, improve export competitiveness and generate foreign exchange.

4.1.4 Since the emergence of the oil sector crisis, Angola is at a turning point of its development trajectory, with high expectations for an inclusive growth and income generation. The Bank’s financing is expected to use innovative instruments such as PPPs, partial credit guarantees combined with sovereign loans to invest in integrated infrastructure projects supporting agricultural transformation and industrialization through gradual import substitution programs to generate jobs and fill in the gap between the demand and the local supply of food. In fact, recent data from the Ministry of Finance shows that total imports of basic food basket needs declined sharply from by 27 percent (e.g. from USD 465 million in 2014 to less than USD 338 million by 2015), mostly due to lack of foreign exchange. This has led to sharp food price increases with negative impact on the welfare of the vulnerable population. In light of the above, it is proposed that the Bank’s strategy for the period 2017-2021 should be built around two complementary pillars of: (i) Pillar I: Inclusive growth through agricultural transformation, and (ii) Pillar II: Support to sustainable infrastructure development.

4.2 Bank’s strategic alignment

4.2.1 The Bank’s proposed strategy is designed to address the specific identified challenges that the country has been facing, notably: (i) the weak agricultural productivity, (ii) the lack of adequate skills, (iii) the existence of weak trade facilitation and export support systems, (iv) the inadequate infrastructure and, (v) the challenging business environment. The new CSP is aligned

14 to the Bank’s Feed Africa – Strategy for Agricultural Transformation in Box 6: Gender Mainstreaming In a cross-cutting-manner, the Bank will prioritize gender Africa 2016-2025, the Bank Group mainstreaming to increase women’s participation in productive Industrialisation Strategy for Africa employment through its operations. New operations will include 2016-2025, the Bank’s Private Sector gender as a cross-cutting area in project strategies to empower Development Strategy 2013-2017, the women with skills, resources and opportunities to overcome Bank Group Strategy for the New gender barriers and participate effectively in the labour force. Community-based strategies based on women’s groups and peer Deal on Energy for Africa 2016-2025, networks will be adopted to help overcome cultural and social the Bank Group Strategy for Jobs for barriers to women’s participation in productive employment. Youth in Africa 2016-2025, the The CSP will emphasize collection and tracking of data on Bank’s Regional Integration Policy gender indicators through operations to be able to report impact and Strategy 2014-2023, and the Bank on gender outcomes and reduction of gender gaps at completion.

Group Gender Strategy 2014-2018 (Box 6). Lastly, the CSP is fully aligned to the achievement of Angola’s SDGs, in particular, the SDG 1 (“No poverty”), SDG 2 (“No Hunger”), SDG 5 (“Gender equality”), SDG 6 (“Clean water and sanitation”), SDG 7 (“Clean energy”), SDG 8 (“Good jobs and economic growth”), SDG 9 (“Innovation and infrastructure”), SDG 10 (“Reduced inequalities”), and SDG 13 (“Protect the planet”).

4.2.2 The CSP pillars are aligned to the Angola’s Vision 2025 Pillars of “Rehabilitation and development of infrastructure to support economic development”, and “Promotion of economic diversification and competitiveness”. The strategic interventions also draw from the country’s agricultural sector plan - the National Medium Term Development Plan for the Agricultural Sector (2013-2017), the Angola Energy 2025 Vision, the National Strategy for Renewable Energy and the Transport Sector Development Strategy (2013-2017). Overall, the interventions under Pillar I of the CSP will help achieve the strategic goals of the Bank’s High 5s of Feed Africa and Industrialize Africa while Pillar II interventions will assist in the achievement of the strategic results of the High 5s of Light up and Power Africa, Integrate Africa and Industrialize Africa. The CSP sectoral strategic linkages with the High 5s are illustrated in Annex 11.

4.3 CSP Objective and Strategic Pillars

4.3.1 The strategic goal of the CSP 2017-2021 is to assist Angola in accelerating economic diversification and reduce the dependence from oil through integrated investments in agricultural transformation towards sustainable job creation and poverty reduction. The Bank’s interventions will contribute to address the main constraints to structural transformation, namely: (i) the need to enhance productivity in agriculture through provision of yield enhancing inputs; (ii) promote gradual industrialization by bringing basic services to the rural areas, in particular, energy and transport to foster agribusiness and value chains for transformation of local goods; and (iii) improve the enabling business environment to attract private sector investments and PPPs.

4.3.2 Pillar I: Inclusive growth through agricultural transformation. The interventions under this pillar are aligned with the Angola “Vision 2025” goal of enhancing economic competitiveness, and the NDP objective of accelerating economic diversification. Since many of the poor population in Angola still live in the rural areas (e.g. 59 percent, according to the IBEP, 2008-09 survey) and are dependent on agriculture, then the strategic objective of this pillar is to assist the country in enhancing agricultural productivity gains to quickly reduce its dependence on food imports (e.g. currently estimated at 70 percent) which draws on foreign exchange earnings. This approach falls within the objectives of the AfDB’s Strategy for Agricultural Transformation in Africa 2016-2025.

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4.3.3 Angola’s efforts to reduce food imports and ensure improvements in foreign exchange earnings from agriculture will require an engagement of private sector operators. The Bank will close the gaps, specifically in the provision of integrated agricultural supporting infrastructure along the Lobito Corridor, a region with a relatively high poverty rate of 69.4 percent but with high potential for cereal and livestock production. These investments will include the provision of all-weather and feeder roads (e.g. the 170 km Munhango-Luena and the Lumege- Luacano-Luau 186.5 km), extension of electricity distribution to rural areas, ICT infrastructure for delivery of agricultural market information across value chains, logistics and trading of agricultural inputs.

4.3.4 Lack of skills in science, business, agriculture and technology areas needed for enhancing food production may impact negatively on the country’s economic competitiveness. The Bank will establish partnerships with the private sector, and build on the experience of its ongoing Science and Technology and Private Sector Development projects, to design integrated technical training programs to equip smallholders (e.g. youth and women) on agricultural techniques and entrepreneurship skills in agri-business in line with the Bank’s Strategy for Jobs for Youth in Africa 2016-2025. This will include support to access agricultural land and financing to allow women farmers to transition from subsistence to commercial production. According to the WB, the use of fertilisers in Angola is estimated at 8.8g/ha and falls short of the world’s average of 119.9g/ha. The Bank will assist the country in boosting the use of yield enhancing inputs by initially subsidizing the use of fertilizers, in the first two years, like in the case of Liberia and Malawi. Thereafter, a risk sharing facility and input supply system with the private sector will take over. For instance in Liberia the total cost per farmer was USD 112 but farmers are paying USD 10. There will also be an e-registration exercise for farmers in the areas of interest taking advantage of the ICT infrastructure investments in place.

4.3.5 The Bank will enhance its focus on integrated rural agricultural development programs, in particular, at the Cabinda province, given its high poverty rates (e.g. 42.2 percent) and non- existent transportation infrastructure; lack of access to resources which impacts negatively on the productivity potential of both agriculture and off-farm sectors. Key interventions will include large investments in agricultural infrastructure in order to connect the major production zones to urban markets; water infrastructure (e.g. increase of irrigation capacity from 12,000 ha to 17,000 ha); construction of processing and storage facilities to add value as well as increase shelf life of agricultural commodities. These will substantially reduce post-harvest losses (which have greatly contributed to food shortages as well nutrition deficiency), bring smallholder farmers nearer to markets, increase value of their produce, boost agricultural exports from the region from 10,000 metric tonnes (mt)/year to 50,000 mt/year by 2021. Advisory services will be sought from the ECNR on land and water management for sustainable agricultural, fisheries and livestock production. The Bank will also pay special attention to mitigate the negative impacts of climate change resulting from the El Nino Southern Oscillation phenomenon, which has either caused floods or repeated droughts, especially in the Southern rural areas of Namibe, Cunene and Huila provinces where poverty incidence remains high (e.g. about 47.9 percent).

4.3.6 Pillar II: Support to sustainable infrastructure development. The interventions under this pillar are aligned with the Angola “Vision 2025”, and the NDP objective of promoting infrastructure development. The support will primarily focus on two main sectors, Energy and Transport. The objective is to assist Angola in addressing its electricity deficit and improve the transport infrastructure connectivity to further reduce the costs of doing business, open local and regional markets, attract FDI, and strengthen downstream linkages of economic development poles that can foster SMEs growth and job creation. Following the lessons learnt from the power sector reform support program, the Bank will also consider using Budget Support Instrument to during the CSP 2017-2021 cycle to enhance catalytic impact of its infrastructure interventions.

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4.3.7 Energy. The prevalence of high electricity technical losses (about 15 percent of the power produced compared to a benchmark of 10 percent) and inadequate power transmission infrastructure still constrains the expansion of electricity access in Angola. The Bank will build on the implementation of its support to the sector, through the PSRSP (Box 7), and focus on leveraging funding with key development partners (e.g. AFD, EIB, JICA) to scale up Angola’s ongoing efforts to expand access to electricity from 30 percent in 2014 to 43 percent by 2017 and 60 percent by 2025. Key interventions will include: the connection of 400 kV Central-South electricity transmission line, upgrading the electricity distribution and installation of systems to improve revenue collection (e.g. roll-out of 50,000 pre-paid electricity meters in Luanda city) to reduce technical and non-technical losses. The Bank will also explore opportunities for PPPs development of green Mini-Grids in rural areas (e.g. 10 MW solar energy generation in Tombwa and biomass power involving local communities). The Bank is also mobilising Trust Fund resources from the Sustainable Energy for All (SEFA) to finance capacity building programmes in renewable energy and foster the country’s green growth agenda. There is also potential for co- financing private sector projects with Independent Power Producers (IPP) of renewable energy through the Facility for Energy Inclusion. All these interventions are aligned with the Bank Group Strategy for the New Deal on Energy for Africa 2016-2025 aimed at enhancing universal access to electricity by 2025.

Box 7: Power Sector Reform Support Program In May 2014 the Bank approved a USD 1 billion budget support programme for Angola. The main objectives of the programme included: (i) completion of unbundling of power utility companies through creation of new companies for generation, transmission and distribution; (ii) improved operational efficiency; and (iii) strengthened governance and value for money in the power sector. The programme has succeeded in the unbundling of the three power utility companies. The PSRSP resources (about USD 400 million) have contributed to the financing of the construction of the 2,060 MW Laúca hydropower dam, which is expected to double the country’s generation capacity to 5,000 MW by 2017. The programme also delivered various legal reforms in the sector, notably, the new General Electricity Law approved in 2015, a water and power sector regulator and a renewable energy strategy. Overall, revenue collection improved by 50 percent against 2014 levels; percentage of on-grid customers who are metered more than tripled, from 20 percent to 70.5 percent; distribution system availability improved from 60 percent to 86.3 percent; and gender representation at board level improved from 23 percent in 2014 to 25 percent by 2015.

4.3.8 Women are disproportionately affected by energy poverty as they carry a heavy burden of domestic chores such as collecting cooking fuels, cooking and processing food which increases their vulnerabilities to health risks. The Bank will address these concerns in the design of new energy projects and make clean energy affordable and accessible to women users through the introduction of innovations such as clean cooking stoves.

4.3.9 Transport. Angola made significant strides to rehabilitate its infrastructure but a lot remains to be done to support the diversification of the economy. The main issues facing the transport sector include: (i) high logistical costs due to inadequate infrastructure which hampers productivity and trade; (ii) weak infrastructure maintenance; (iii) weak procurement management; and (iv) domestic contraction of the industry due to high construction costs and lower oil revenues. The Bank support in the preparation of a Transport Master Plan will guide the infrastructure development reforms in Angola and ensure its sustainability. Moreover, interventions aimed at supporting the construction of the 350 km rail link joining the Lobito Railway corridor to Zambia; upgrading trunk roads to paved standards; and including the rehabilitation of feeder roads to connect to agro industrial poles, logistic platforms to railway lines and trunk roads would contribute to stimulate intra-regional trade as well as support agricultural

17 production along the Lobito Corridor. Given the magnitude of the financing requirements for infrastructure development and the limited Bank’s financial headroom for Angola, the Bank will co-finance with the Africa Growing Together Fund (AGTF) to crowd in private investments. 4.3.10 The sustainability of Angola’s infrastructure has been challenged by climate change and lack of maintenance and management skills. The Bank will support the broad dissemination of best practices on climate resilience standards in all of its power and transport interventions. Training programs on operational efficiency and maintenance of power infrastructure will be conducted targeting more than 1,500 power utility operational staff (with 30 percent women). In addition, about 2,000 people living along the Lobito corridor will benefit from training on infrastructure maintenance, road safety and HIV/AIDS, in an effort to enhance sustainable livelihoods, reduce income inequality and ensure health safety in local communities. This training programme will be undertaken in partnership with the Angolan Roads Institute.

4.4 The business program

4.4.1 The downgrade of Angola’s sovereign credit rating will impact on the available headroom for financing CSP operations for the period 2017-2021. Therefore, Bank investments will focus on critical projects support the government’s economic diversification programme, while identifying potential opportunities for co-financing with private sector and development partners. The Annex 12 presents the Bank’s indicative lending programme for Angola for the CSP 2017-2021. All these projects have received government’s interest for financing and are at an advanced stage in terms of readiness. The Bank has already secured UA 2 million from the Fund for African Private Sector Assistance (FAPA) to finance capacity building programmes on trade and agricultural value chains along the Lobito Corridor. An agreement was also reached with key DPs (e.g. AFD, EIB, JICA, USAID) to co-finance the mega energy sector program estimated at USD 3.2 billion. Efforts are also ongoing to leverage financing with the new World Bank’s USD 230 million Commercial Agricultural Development Project that is under preparation.

4.4.2 The indicative pipeline and non-lending program. The Bank has identified other key projects (Annex 13) which are aligned to the CSP pillars, although not yet ready for implementation. These projects are part of a rolling pipeline program that will be updated on an annual basis and some projects may transit into the main CSP’s “Indicative Lending Program” as soon as their quality-at-entry conditions get satisfied. Moreover, as the portfolio is expanding and one of the lessons learnt from the previous CSP 2011-2015 is the need to improve quality-at-entry by enhancing project preparation (see section 3.5). Therefore, the new CSP 2017-2021 has adopted an innovative approach by using the balances of previous ADF projects and technical assistance grants to prepare ESWs (Annex 14) to fill the analytical knowledge gap, in particular, in agriculture, energy and transport sectors. The Bank will strengthen policy dialogue and improve governance systems in the agriculture and natural resource sectors with technical support from the ECNR. Key areas of focus include: (i) provision of demand-driven capacity building on land reforms in light of the revised Land Law, and (ii) creation of local content in oil and gas and fisheries industries. The Bank, and in collaboration with the ALSF and the Fiduciary and Financial Management and Procurement Policy Department (SNFI) will assist in improving governance systems through provision of advisory work on contract negotiations, PPP design, mechanisms for revenue improvement and efficiency in public utilities, and PFM and procurement reforms.

4.5 Bank group resources

4.5.1 The Bank’s indicative financial headroom will mostly depend on the combination of a decline in Angola’s Operational Country Limit due to the deteriorating creditworthiness and the

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Bank’s Total Potential Exposure to Angola. This will require a selective approach in the use of the resources to support the country’s economic diversification agenda. at two levels in alignment to the High 5s of Feed Africa and Industrialise Africa – through Pillar I: inclusive growth through agricultural transformation, and Light up and Power Africa, Integrate Africa, and Industrialize Africa- through Pillar II – support to sustainable infrastructure development. 4.6 Country dialogue

4.6.1 The CSP 2017-2021 country dialogue between the Bank, government, development partners and civil society was carried out in November 2015 and led to the consensual identification of the proposed CSP areas of intervention. The Bank will build upon the work already carried out during the CSP consultations to deepen dialogue in the following key issues: (i) Public Financial Management (PFM) and Use of Country Systems: The Bank will continue working with other DPs (e.g. IMF and WB) to implement the recommendations of the PEMFSR action plan as well as the Bank’s Country Fiduciary Risk Assessment (CFRA) in order to reduce the fiduciary risks and contribute to the Bank’s gradual use of country systems; (ii) Portfolio management and ownership: Given the challenges faced in portfolio management and taking into account the recommendations arising from the CPPR workshop, the Bank will continue its dialogue with the government for the operationalization of the CPSIU in the Ministry of Finance, streamline disbursement procedures, and enforce results-based culture and accountability through the implementation of performance based contracts for all PMU staff; (iii) Legal and institutional support: Due to the sharp decline in international oil prices and revenues, there is an urgent need to assist the government in the design of efficient systems for management of its natural resource wealth as well as search for sustainable sources of funding to advance its economic diversification agenda. In this context, the Bank, and through the ALSF and ECNR will undertake regular dialogue with government to assess demand-driven needs for capacity building and including design and management of PPP and Partial Risk Guarantees; (iv) Private sector development and job creation: The Public sector dominance in the economy in Angola as a result of a long history of a centrally-planned state has led to the emergence of Politically Exposed Persons in the private sector, which poses governance and transparency challenges. Looking ahead it will challenging for the public sector to continue leading growth due to the sharp decline in fiscal resources on account of lower oil prices. The Bank, and based on strict due diligence criteria, will assist in mobilizing lines of credit for local commercial banks to finance SMEs, in particular, in agribusiness. The Bank also started dialogue for the implementation of the youth apprenticeship initiative in Bank’s financed projects in the areas of private sector, water and sanitation, science and technology, environment and fisheries as part of the Bank’s Strategy for Jobs for Youth in Africa 2016-2025.

4.7 Implementation arrangements and risks

4.7.1 Angola country fiduciary risk assessment 4.7.1.1 The Bank conducted a Country Fiduciary Risk Assessment (CFRA) in 2016 as part of the appraisal mission of the EDCSP, a Policy Based Operation. The CFRA focuses on four main pillars, namely: (i) Budgeting, (ii) Reporting and Audit, (iii) Procurement, and (iv) Corruption. The assessment noted substantial government’s commitment to improve the PFM systems over the past years, notably the adoption of the General Inspectorate of Finance (IGF) regulations, the new Procurement law and regulations (2016), and the frequent reporting of budget execution using the government’s Integrated Government Finance Management System (SIGFE). These developments indicate that Angola is exhibiting a positive trajectory of change in the overall country PFM systems. Nevertheless, the CFRA highlighted significant challenges on capacity development including the accounting profession in Angola, general oversight, enforcement of procurement contract management norms, procurement complaints review mechanisms,

19 existence of independent structures within the public administration to perform a prior review of procurement processes. The summary of the assessment of the country’s PFM systems is provided in Annex 15 while the summary on the fiduciary risk in procurement is in Annex 16. 4.8 Risks and mitigation measures

Risks Mitigation measures Political Risk - Low probability risk: Mitigation measure: Given the downside risks and ahead of the general Social unrest arising from political elections in 2017, the Bank and other DPs will continue with policy uncertainty and deteriorating living dialogue with the government to improve efficiency in public conditions expenditure and enhance broad-based inclusive growth. Macroeconomic risks - High Mitigation measure: The Bank will intensify the dialogue with the probability: slow economic growth government to adopt supportive macroeconomic policies to rationalise and deterioration of the country’s fiscal expenditure, introduce exchange rate flexibility, strengthen the creditworthiness due to persistent oil banking system to prevent systemic crisis, and implement structural crisis reforms for economic diversification. Fiduciary and technical capacity Mitigation measure: The Bank will assist the country to improve risks - High probability risk: governance and the business environment through regulatory reforms Fiduciary risk and weak for enhanced efficiency of public utilities, management of PPP contracts entrepreneurship capacity in private in infrastructure with support of the ALSF; full implementation of the sector new procurement law as well as the PEMFSR action plan, and dialogue on the land tenure reforms. Entrepreneurship skills will be deepened with capacity building programs in partnership with the ECAD. Climate change risks - Average Mitigation measure: Since the problem of climate change is cross- probability: Agriculture and cutting, the Bank will collaborate with a diversity of stakeholders that infrastructure investments are have operations to curb the negative effects of climate change on vulnerable and cyclical floods and infrastructure and build resilience in Angola. The Bank will also support droughts in Angola. land and water management for sustainable agriculture.

4.9 Monitoring and evaluation

4.9.1 The CSP 2017-2021 Indicative Results Framework is anchored on the national M&E system. The proposed indicators will serve as basis for monitoring the CSP implementation and progress towards achievement of sector-related SDGs while contributing to the achievement of the Angola “Vision 2025” objectives. The proposed M&E framework consists of specific and gender disaggregated output and outcome indicators and respective Bank’s proposed operations that will be implemented to achieve the expected results. The baseline values were drawn from the NDP 2013-2017, and the results framework of Bank’s new projects in the areas of agriculture, energy, transport, science and technology and water and sanitation. The Bank will use the results of the planned Household Well-being and Poverty Survey scheduled for 2017 to track progress and undertake the CSP MTR in 2019.

5. CONCLUSIONS AND RECOMENDATIONS

5.1 Conclusion

5.1.1 The Bank has significantly scaled up its interventions in a difficult context, albeit dynamic and growing, large African economy. The CSP 2017-2021 argues for Bank’s continued support in infrastructure (e.g. transport, energy) to enhance efficiency and sustainability of private sector investments. Also a selective approach should be adopted to address issues of inclusive growth and poverty reduction through agricultural transformation and promotion of light and labour intensive industrialization to assist in reducing the country’s dependence on oil and enhance sustainable job creation.

5.2 Recommendations

5.2.1 The Bank’s Board of Directors is invited to consider and approve the Angola 2017-2021 Country Strategy Paper with the following strategic pillars (i) Inclusive growth through agricultural transformation, and (ii) Support to sustainable infrastructure development.

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Annex 1: Indicative results framework matrix for the CSP 2017-2021 Angola’s Key Expected outcomes at Expected outputs at Expected outcomes at Expected outputs at mid- ADB Interventions: development Constraints/Issues the end of the CSP the end of the CSP mid-tem (2019) term (2019) Ongoing and new goals (“Vision Impeding period (2021) period (2021) operations to be 2025”) Achievement of implemented during the Goals CSP period Pillar I: Inclusive growth through agricultural transformation Agriculture Lobito corridor and Lobito corridor and Lobito corridor and Lobito corridor and Lending Goal: To Cabinda agro-poles Cabinda agro-poles Cabinda agro-poles Cabinda agro-poles Ongoing: promote  Low agricultural  Food security improved  Cereal output  Improved food  5,000 ha of cereal crops  Bom Jesus Agriculture agricultural productivity increase from 10,000 production and diversity rehabilitation completed project transformation  Agricultural mt (2017) to 50,000 mt for Cabinda  Science and Technology and rural infrastructure (2021) development  Artisanal fisheries (irrigation/storage  Improved livelihoods  Dry fish production  Improved access to  4 fish landing sites based on New: /marketing/access from fisheries due to increased from 0.7 diverse and quality fishery constructed and in use by family roads) is poor increased incomes tons/year (2017) to 1.5 products at least 40 vessels to land  Integrated Cabinda farming,  Post-harvest tons/year (2021) their catch agricultural rural cooperatives losses are high  Improved knowledge of  500 smallholders  Improved productivity for  250 smallholders trained development and public-  Low use of yield  Lobito Corridor private private modern agrarian trained on agrarian farmers as a result of new on agrarian extension enhancing inputs techniques and better extension services (of technologies and practices techniques sector agri-business and partnerships and technology trade facilitation natural resource which 30 percent and weak management women)  Line of Credit for SME agricultural and  Improved productivity  Fertilisers use  Increased access to  Fertiliser supply Non-Lending entrepreneurship through increased use of increased from 8.8g/ha fertilisers and organic increases from 5,000 mt to New: sector skills yield enhancing inputs (2017) to 15g/ha (2021) farming inputs 10,000 mt  ESW: Cabinda  Access to credit  Improved access to  Irrigation capacity  Increased availability of  2 irrigation systems Integrated Rural for agricultural irrigation systems increased from 12,000 water and efficiency of rehabilitated Development inputs finance is ha (2017) to 17,000 ha water use for agricultural  Commercial agricultural limited, especially (2021) production and processing development study for for women Northern Angola  Improved value  2 pilot agro-industries  Improved access to  One line of credit for  Private sector agri- addition by processing constructed and 700 finance to SMEs (of which SMEs and agri-business and increased non-farm jobs created: of which 10 percent women financing approved (5 business study for employment 30 percent women percent benefits women) Lobito Corridor  Increased access by  Number of new land  Percentage of legally  Revised land law enacted  Agricultural livestock agricultural households to titles increase from recognised rights to land by Parliament granting and infrastructure study legally recognised rights 1,000 (2017) to 5,000 improved from 1 percent increased rights for for Southern Angola to land (2021) – of which 30 (2017) to 2.5 percent (2019) women’s associations percent women needs

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Angola’s Key Expected outcomes Expected outputs at Expected outcomes at mid- Expected outputs at ADB Interventions: Ongoing development Constraints/Issues at the end of the CSP the end of the CSP tem (2019) mid-term (2019) and new operations to be goals Impeding period (2021) period (2021) implemented during the CSP (“Vision Achievement of period 2025”) Pillar II: Support to sustainable infrastructure development Goal: To Transport  Logistics  350 km of cross-  Improved transportation  Draft National Lending improve  Low road density performance index border railway systems and linkages for the Transport Master Plan Ongoing: access and  Insufficient improved from 2.24 constructed communities along Lobito Completed  National Transport Sector quality of financial resources (2017) to 2.56 (2021) Corridor Master Plan infrastructure for infrastructure Lending  Travel time to reach  A total of 386 km of  Reduced freight tariffs (by 5  Construction of 74 km services to expansion New: nearest roads reduced paved roads constructed percent) for transport of of paved roads connecting enhance  High transport and  Munhango-Luena 170 km road to 0.9 hours (2021) agricultural output agricultural production efficiency of trade transaction  Lumege-Luacano-Luau 186.5 from 1.5 hours (2017) areas to markets private sector costs Km  Air quality  Total of 500,000  Improved quality of air  About 100,000 trees investments  Limited  Angola-Zambia Railway Link improved along the trees planted with through reduced CO emissions planted along Lobito and institutional 2 Lobito Transport involvement of women (1.4 kg/ USD GDP in 2017 to Corridor railway line accelerate capacity for Corridor and youth 1.2 kg/ USD GDP by 2019) economic management and diversificatio maintenance of  Living standards for  Contract out to local  Road and health safety  About 2,000 people n and job infrastructure 1.5 million rural communities at least improved and community trained on infrastructure creation  Weak transport and residents improved USD 6 million invested capacity to manage unclassified maintenance, road safety logistics services in works network roads enhanced and HIV/AIDS – of which 30 percent women Energy  Population with  400 kV power  Access to electricity  Procurement documents Lending  Low access to access to electricity transmission line increased from 37 percent for the 400 kV power Completed: electricity increase from 37 constructed (2017) to 39 percent (2019) transmission line  PSRSP  Low power percent (2017) to 43 launched generation capacity percent (2021) New:  High dependence on  Power losses  50,000 additional pre-  Increased revenue collection  Number of customers  Electricity system distribution fuels reduced to 10 percent paid meters installed by 30 percent (2019) up from metered in Luanda  RE mini-grid (IPP/PPP)  High technical and (2021) from 15 15 percent (2017) increase by 10 percent to  400 kV Central-South power non-technical losses percent (2017) 487,275 transmission line  Insufficient financial  Staff’s Operational  1,500 power utilities  Staff productivity improved  700 power utilities staff Non-Lending resources and management skills staff trained of which to 250 customers per employee trained of which 30 New: improved 30 percent women percent women  Fixed-asset registry  Increased access to 10MW IPP solar  Increased private sector  New feed-in tariff for  Technical and non-technical clean energy in rural project launched participation in RE generation renewable energy (RE) losses areas approved

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Annex 2: Current macroeconomic assessment and outlook

1. Overview

1.1. The Angolan economy is gradually moving away from the lowest point reached in 2016Q1 when crude prices dropped to USD 34.4 per-barrel, prompting sharp devaluations to the Kwanza. The economy will, however, continue to experience slow growth over 2016 and 2017 as high logistical costs in the non-oil sector, inadequate infrastructure, human capital bottlenecks, liquidity constraints and high borrowing costs prevent businesses from growing. The authorities have taken steps to mitigate the impact of the decline in oil prices, including a significant improvement in the non-oil primary fiscal balance and devaluation of the kwanza vis-a-vis the U.S. dollar to improve export competiveness. While the non-oil sector is projected to recover in 2017 due to a planned increase in public spending and improved terms-of-trade, a quick recovery may not be in the books as high inflation and weakening levels of investment are likely to cap growth below the historic trend (e.g. average growth between 2006-2010 was 12.6 percent, and with a further decline to 4.7 percent during the 2011-2015 CSP period). The latest figures suggest that oil production slid by 13 percent between September and October 2016. The recovery of global oil prices in October will have blunted the effect of lower volumes on Angola’s oil revenue. Nevertheless, Angola’s oil production is expected to remain stable at 1.8 million barrels/day over 2017-2020. The Bank estimates real GDP growth at 0.1 percent in 2016, before climbing slightly to 3 percent in 2017 (the IMF projects 1.3 percent growth in 2017).

2. Inflation and foreign exchange liquidity constraints

2.1. Inflation rose to 42 percent in December 2016, year-on-year, but is projected to decline to 20 percent in 2017, with tighter monetary policy conditions and a stable kwanza supporting disinflation. Signs of easing price pressures seem to have prompted the Central Bank of Angola (BNA) to keep the policy rate stable at 16 percent in December 2016. However, foreign exchange shortages and official/parallel-market exchange rate mismatches might keep price pressures elevated in 2017. Official foreign exchange reserves fell from USD 24.4 billion in January 2016 to USD 22.4 billion in December 2016, the lowest level in the past five years. Exports contracted by 4.9 percent to USD 5.3 billion in 2016 Q1. However, oil prices have trended higher since then, which is likely to have lifted export earnings in the following quarters. Angola is expected to run current-account deficits throughout 2016-17. With oil prices remaining depressed compared to declines in recent years, total export earnings are set to have declined by more than 34 percent in 2016. Similarly, imports in 2016 are also likely to have contract due to shortages of foreign currency. Meanwhile, BNA has stepped up its forex sales to the market and as result the parallel-official exchange rate spread has since declined from 244 percent in June 2016 to less than 153 percent by December 2016.

3. Fiscal Policy Measures & Outlook

3.1. Constraints on government revenue arising from the low oil price environment will continue in the short term. In an attempt to counter this, the government is seeking to boost non- oil tax income by increasing formalisation in the sector. Indeed, rebalancing the economy requires finding the appropriate policy mix while restoring macroeconomic stability and building reserves. The general belief, however, is that the government will have to proceed cautiously, since raising tax bills during wider economic slowdown could stifle non-oil growth and weaken efforts to foster the development of medium-sized enterprises that can generate employment and growth.

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3.2. In view of Angola’s current financial situation, domestic resource mobilisation will be key to mitigate the negative impact of lower fiscal revenues due to the oil crisis. A complete overhaul of Angola’s tax regime was initiated in 2010, delivering much-needed modernisation to an antiquated system that was created in 1969, during Portugal’s colonial rule. One of the drivers behind the reform effort was the increased awareness after the 2008/9 drop in oil prices of the need to accelerate domestic resource mobilisation and diversify fiscal revenue sources. When the Executive Program for Tax Reform (PERT) was launched in 2010, three quarters of total government revenue came from the oil sector. Related objectives were to broaden the tax base, rationalise incentives, increase control with voluntary tax payments and fight tax evasion. The reform delivered some quick wins, but its impact has softened as oil prices recovered strongly in 2010 and there was less urgency. However, in July 2014, several new tax codes were approved by the National Assembly aimed at reducing the income tax rate from 35 percent to 30 percent, broadening the tax base and closing loopholes for tax evasion. At the same time, the country’s tax and customs departments were merged leading to the creation of the General Tax Administration (AGT). A return to lower oil prices has renewed urgency for domestic resource mobilisation to boost non-oil fiscal revenues and the government is stepping up its efforts to crackdown on tax avoidance. After 5 years of implementation, PERT’s mandate has come to an end and AGT now plans to introduce a second generation of modern reforms in the Angolan tax system in order to enhance domestic resource mobilisation by doubling the share of non-oil tax to GDP by 2020 and from the current 8 percent of GDP. Such reforms will include:

(i) The gradual introduction of Value Added Tax (VAT) in replacement of the current consumption tax on goods and services by 2018 or earlier 2019; (ii) The introduction of an integrated registration system for tax and customs IT systems also called “Asycuda”; (iii) Enhance training and professionalization of tax authority staff; (iv) Further simplification of the tax code to broaden the tax base and bring in the informal sector taxpayers to help raise non-oil tax revenues.

4. Macroeconomic impact of the current oil crisis in the various sectors of the economy

4.1. The protracted decline in international oil prices created significant structural imbalances in the Angolan economy. As illustrated in the Figure 1, below, the international oil price shock affected the economy through three main channels: (i) total exports, (ii) fiscal account and, (iii) the exchange rate. First, the oil price shock that started in mid-2014 has substantially reduced fiscal revenue and exports. Growth was estimated to come to a halt in 2016, with the non-oil sector contracting by 0.5 percent dragged down by the industrial, construction, and services sectors. The external current account deficit reached 10 percent of GDP in 2015, compared to 3 percent of GDP in 2014, as oil exports dropped by 32 percent (about USD 22.2 billion) and were partially offset by lower imports (about USD 20.9 billion in 2015). Secondly, the reduced fiscal oil revenues prompted the government to curb public consumption and postpone non-critical public investment. Thirdly, lack of foreign exchange has adversely affected non-oil sectors, most of which are reliant on credit to access imports. In fact, the industrial sector was the most affected sectors and it is estimated to have lost more than 60,000 workers due to the closing down of some manufacturing industries, according to reports from the Angolan Industrial Association (AIA). Despite its potential for import substitution, the industrial sector was constrained by shortages of imported inputs due to limited availability of foreign exchange.

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Figure 1: Transmission mechanism of the international oil price shock in the Angolan economy

Oil price shock

Direct channel Indirect channels

Fiscal channel Monetary and exchange rate channels External Public financing consumption Oil Domestic revenues Public financing investment Credit

Non-oil Banking revenues sector/ Informal FX Market Access Exchange market expectation to FX bureau

Private Public consumption debt

Exchange Net exports Private Inflation Inflation rate investment target

External solvency/imports Monetary and coverage International Gross Domestic exchange rate reserves Product (GDP) policy

Source: Adapted from the 2016 Revised State Budget Proposal in Angola, Ministry of Finance

5. Painful austerity measures to facilitate fiscal recovery

5.1. Angola's fiscal deficit narrowed over 2016, particularly given the government's efforts to curtail spending in the wake of the oil price collapse. The BNA allowed the kwanza to weaken by 40 percent since September 2014, to accommodate for weaker demand for the local currency following the collapse in oil prices. After episodes of repeated devaluation, the authorities have kept the Kwanza pegged at AKz 166/USD since April 2016. The kwanza could continue to depreciate in 2017 if the central bank eases forex liquidity conditions in response to weakening inflationary pressure. While the devaluations have had the effect of increasing inflation, they have also increased the government's local currency revenues from the oil sector. Oil has traditionally accounted for a large proportion of total government revenue, and given that the majority of the sector's taxes and royalties are paid in US dollars, these revenues have increased in local currency terms and will continue to do so as oil price recovers.

6. Public Debt Outlook

6.1. Angola now records some of the highest levels of public debt in the region. Much of this debt has been accumulated in the past two years, with total public and publicly guaranteed debt climbing over 65.4 percent of GDP in 2015 up from 32.9 percent in 2013. Public debt is projected to have exceeded 71.6 percent of GDP by end-2016 following the depreciation of the exchange rate and the fiscal deficit. The rise in Angola's sovereign debt follows from borrowing to stem widening fiscal revenue amid a collapse in the price of oil since 2014. Oil revenue has come to play an important part in the government's budget, averaging 76.8 percent of total government income between 2003 and 2013, before dropping to 52 percent in 2015. The drop in the price of crude from an average of USD 99.5/bbl. in 2014, to a projected USD 46.5/bbl. in 2016, has had a serious impact on the government's fiscal health. Total revenue as a percentage of GDP

V declined from 40.2 percent in 2013 to 20.6 percent in 2016 and may not return to pre-collapse levels in the foreseeable future.

6.2. In addition to a high public debt to GDP ratio, the government's external debt servicing costs are some of the highest in the region, estimated to account for 25.5 percent of export revenue and 50.1 percent of total government revenue in 2016. These figures are well above levels classified as risky for countries like Angola, meaning debt servicing could quickly become problematic. Furthermore, the potential for additional exchange rate devaluations in 2017 may raise the country’s debt service burden, given the relatively large proportion of foreign currency denominated debt (about 42 percent at end-2015). The government, moreover, expects to finance nearly 44 percent of the 2017 state budget through new domestic and external borrowing, in total making up 16.3 percent of GDP. The envisaged fiscal deficit in the 2017 budget is likely to leave the economy vulnerable to shocks including contraction in oil prices and keen concerns about public debt sustainability. Overall fiscal deficit is projected to average 5.8 percent of GDP in 2017 consistent with a moderate improvement in the non-oil primary fiscal balance and continued gradual adjustment over the medium term to contain public debt.

7. Economic Diversification a priority

7.1. Stemming the susceptibility of the economy to global oil price, or domestic production shocks through diversification is singularly the most important public policy conundrum facing the country. Angolan agriculture remains largely untapped partly due to vast tracts of land that are rendered unproductive due to lack of adequate agricultural infrastructure (e.g. irrigation systems, feeder roads, power), and low use of yield enhancing inputs. The sector only contributes an estimated 12.9 percent of GDP though it employs nearly 70 percent of the economically active population in rural areas. The extractive industries (in particular, oil) account for 30.8 percent of GDP. The services sector has been growing rapidly in recent years and represents 27.8 percent of GDP. Despite the huge hydropower generation potential (e.g. about 18,267 MW), Angola is only generating less than 20 percent of its potential, hence the limited contribution of the energy sector to GDP (0.2 percent). The industrial sector accounts for 20 percent of GDP and is dominated by the construction sub-sector (11.1 percent). Industrial production continues to be impacted negatively by power and water shortages and lack of skills. The remaining sectors of the economy, including public administration and financial services, account for 8.3 percent of GDP.

7.2. In view of cascading economic difficulties, the main thrust of fiscal policy should be maintaining public expenditure control measures including keeping domestic fuel prices unchanged in order to accumulate buffers in the stabilization fund, strengthening efforts to enlarge the tax base, and introducing budget ceilings. Angola's tax ratio is currently well below the country's actual tax potential, suggesting revenues could be improved over the medium- to long-term. Overall, these measures will introduce efficiency in fiscal management and lay the foundation for removing structural challenges facing the economy. However, the long-term challenge is how to anchor the economy on a more diversified and competitive non-oil sector. This requires the removal of binding constraints to growth of the non-oil sector, including private sector policy reforms and steady improvement in infrastructure provision (particularly electricity and efficient transport systems) to reduce production costs. The latter especially requires the expansion of public investment in infrastructure over the medium to long-term in order to maintain and improve investor confidence and augment long-term private investment.

Meanwhile, there is a potential to boost exports and reduce the dependence on oil in the non-oil sector. Indeed, Angola is already exporting some products but under-investment, poor infrastructure, unfavourable price policies and weak commercialization systems have

VI constrained exports. Nevertheless, Angola’s non-oil exports, in fisheries, agriculture, geology and mining totalled USD 8.2 billion, over the past three years as illustrated in the Table 1 below.

Table 1: Angola’s non-oil sector exports, 2013-2015 Exports 2013 Exports 2014 Exports 2015 Item Product – productive sector Value (in USD) Fisheries 1 Fish 65,352,420.00 79,573,320.00 87,840,000.00 2 Seafood 13,950,000.00 16,042,500.00 18,769,725.00 3 Crustaceans 1,140,000.00 1,311,000.00 1,533,870.00 4 Fish’s flour 270,000.00 235,980,000.00 276,096,600.00 Total Fisheries 80,712,420.00 332,906,820.00 384,240,195.00 5 Coffee 91,200,000.00 30,816,000.00 9,707,040.00 6 Honey 1,600.00 1,600.00 1,600.00 7 Soy 963,410.00 1,546.273.05 487,076.01 8 Maize 101,212,140.00 81,222,742.35 25,585,163.84 9 Beans 8,000,000.00 103,105,200.00 32,478,138.00 10 Rice 4,376,808.00 6,108,501.60 1,924,178.00 11 Wood 28,000,000.00 23,112,000.00 7,280,280.00 12 Natural fertilizers 0.0 0.0 0.0 13 Reindeer potato 9,000,000.00 96,993,552.60 30,552,969.07 14 Legumes and oilseeds 30,048,480.00 64,303,747.20 20,255,680.37 15 Horticultures 676,342,735.60 542,765,045.32 170,970,989.28 16 Banana 210,000.00 4,200,000.00 1,764,000.00 17 Roots and tubers 412,536,420.00 662,120,954.10 208,568,100.54 Total Agriculture 1,361,891,593.60 1,616,295,616.22 509,575,215.11 18 Cement and other construction materials 48,000,000.00 94,500,000.00 108,000,000.00 19 Beverages 206,258,183.64 825,032,734.56 1,265,050,192.99 20 Glass 7,072,056.00 28,288,224.00 45,261,158.40 Total Industry 261,330,239.64 947,820,958.66 1,418,311,351.39 21 Diamonds 1.150,577,759.98 1,335,412,753.36 1,076,404,696.74 22 Ornamental rocks 8,149,113.95 8,661,405.67 8,521,517.32 Total Geology and Mining 1,158,726,873.93 1,344,074,159.03 1,084,926,214.06 Grand Total 2,862,661,127.17 4,241,097,673.81 3,397,052,975.56 Source: MINCO, (BNA (Direcção de Estatística e Mercado de activos), AGT, CNC, CEEIA, Associação da Indústria Cimenteira de Angola, Ministério das Pescas, Ministério da Geologia e Minas e Ministério da Agricultura.

7.3. Despite the huge potential for economic diversification, import dependency is also growing. Angola’s imports of food basket goods increased from USD 2 billion in 2013 to USD 3.8 billion in 2015 (Table 2 below), with obvious consequences in terms of the pressure on foreign exchange and vulnerability to global prices. In this context, developing the agricultural sector and agribusiness to enhance transformation of local products along the food supply chain and boost both domestic sales and exports, is central to economic diversification. Unlocking Angola’s agricultural potential requires government’s commitment and investments, closing the infrastructure gap, facilitating trade and improving financing as well as skills and technology.

VII

Table 2: Angola’s food basket imports, 2013-2015 Goods 2013 2014 2015* Dry meat 31.87 62.17 59.83 Powdered Milk 16.03 32.05 32.04 Beans 107.84 208.21 204.85 Rice 352.39 689.80 658.18 Wheat flour 421.22 810.92 787.61 Maize flour 159.47 307.52 295.32 Cooking oil 201.87 392.14 381.03 Palm oil 364.40 705.23 684.47 Sugar 237.32 464.31 454.12 Pasta 121.36 233.42 226.78 Salt 8.47 15.58 15.09 Soap 31.92 61.49 59.32 Grand Total 2,054.16 3,982.86 3,858.65 Source : AGT/BNA *Latest data up to November 2015

7.4. Recent evidence points for a strong correlation between the fluctuations in international oil prices, and non-oil sector activity which has been historically financed through fiscal oil revenues (see Figure 1 below). The persistent decline in the international oil prices and consequent reduction in oil revenues led to a very sharp slowdown in non-oil activity as the industrial, construction, and services sectors adjusted to cuts in private consumption and public investment amid more limited availability of foreign exchange. These developments clearly show that Angola’s public capital expenditure led growth model will no longer be sufficient to drive economic diversification in the non-oil, thus the need for implementation of structural reforms to boost growth and reduce poverty. It is in this context that, the proposed Bank’s support to agricultural transformation should aim to assist the country in generating foreign exchange savings, create value chains and jobs locally. In addition, the infrastructure support program will contribute in improving the competitiveness of the economy while enhancing the efficiency and profitability of private sector investments towards the diversification of the economy.

Figure 2: Relationship between international oil prices and economic growth in Angola 15 110

90 10

70

5 (%)

Oil Oil GDPrates growth 50 - 0

30

International International pricesoil(USD)

2008 2009 2010 2011 2012 2013 2014 2015 2016

Oil and Oil Non -5 10 Real GDP growth Oil GDP growth Non-oil GDP growth International oil prices -10 -10 Source: Author’s computation using data from Ministry of Planning of Angola and OPEC

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8. Assessment of the country’s strengths, weaknesses, opportunities and threats 8.1. Angola has favourable economic opportunities and prospects which, if well harnessed, can promote inclusive and broad based economic growth. The Box 1, below, summarises the major country’s strengths, weaknesses, opportunities and threats.

Box 1: SWOT Analysis Strengths Extensive endowment of natural resources Political stability Tremendous agricultural potential Enormous hydropower potential

Weaknesses Weak governance and public financial management systems Low levels of human capital and skills development Weak agricultural productivity Heavy reliance on oil and high vulnerability to external shocks

Opportunities Privileged geographical positioning for regional integration Potential for development of light industries Abundant young population that can support labour intensive manufacturing Opportunities for development of local content in the oil, gas and minerals sectors

Challenges Weak trade facilitation and export support systems Challenging business environment, poor infrastructure, and bureaucracy

IX

Annex 3: Key macroeconomic indicators Actual Estimate Projections Indicators Unit 2013 2014 2015 2016 2017 2018 2019 2020

Real GDP Growth Rate Percent 6.8 4.8 3.0 0.1 3.0 3.5 2.8 2.5 Oil Percent -1.1 -2.6 6.3 0.8 6.4 6.8 4.8 3.7 Non-oil Percent 10.9 8.2 1.5 -0.4 1.1 2.1 2.3 1.6 Inflation (Consumer Price Index) (annual average) Percent 7.7 7.5 14.3 42.0 20.0 19.7 9.5 8.3 Exchange Rate (end of period) AKz/USD 97.6 102.9 135.6 166.1 208.5 228.4 240.5 257.4 Total revenue and grants percent of gross domestic product (GDP) 40.2 35.3 23.7 19.5 18.9 22.1 27.3 26.1 Total expenditure percent of GDP 40.5 41.9 30.6 23.6 25.6 24.5 30.9 30.5 Overall deficit (-)/surplus (+) percent of GDP -0.3 -6.6 -3.3 -4.1 -6.7 -2.3 -3.6 -4.4 Current account balance percent of GDP 6.7 -3.0 -10.0 -4.3 -6.1 -5.1 -6.6 -7.1 Gross reserves months of imports 7.2 8.8 11.0 8.1 6.8 6.9 6.7 6.4 Total public debt percent of GDP 32.9 40.7 65.4 71.6 62.8 60.2 59.7 57.2 External debt percent of GDP 23.8 28.6 40.5 43.1 37.6 38.9 43.3 42.0 Domestic debt Percent of GDP 9.0 12.0 25.0 28.5 25.3 21.3 16.4 15.2 Social Indicator Indicators Unit 19901 20002 20163 Population Million 10.3 13.9 25.8 Employment to population ratio 15+, percent of total 66.6 65.4 68.3 Poverty headcount ratio at $1.90 a day, percent of population … 54.3 30.1 2008-2013 (purchasing power parity) Maternal mortality ratio modelled estimate, per 100,000 live births 1,200 890 477 Total enrolment, primary percent net … … 85.7 Proportion of seats held by women in parliaments percent 14.5 15.0 36.8 Prevalence of HIV, total percent pop (15–49) … 1.7 2.4 Environment and Climate Change Indicators Indicators Unit 19901 20002 20153 CO2 emissions kg per purchasing power parity USD of GDP 2.3 1.5 1.4 Improved sanitation facilities percent of population with access 22.0 48.3 52.0 Improved water source percent of population with access 46.0 48.1 49.0 Source: Ministry of Finance, Angola, BNA, IMF, AfDB Statistics Department, AfDB Statistics Department Databases; World Bank: World Development Indicators; UNAIDS; UNSD; WHO, UNICEF, WRI, United Nations Development Programme; Country Reports, and Economist Intelligence Units projections country forecasts (2017-2020). Notes: … Data Not Available 1 Latest year available in the period 1990–1995; 2 Latest year available in the period 2000–2004; 3 Latest year available in the period 2013– 2016. Last update – September 2016. Joint WHO/UNICEF Joint Monitoring Report 2015 - Progress on Sanitation and Drinking Water.

X

Annex 4: Progress monitoring on the sustainable development goals in Angola Progress Progress monitoring monitoring Goal 1: End poverty in all its forms everywhere Goal 6: Ensure availability and sustainable management of water and sanitation for all  Population below the international poverty line of USD 1.90 per 30.13%  Proportion of population using improved drinking water 48.96% day (2008-2013)  Proportion of rural population using improved drinking water 28.17%  Proportion of urban population using improved drinking water 75.37%  Proportion of population using improved sanitation 51.59%  Proportion of rural population using improved sanitation 22.45%  Proportion of urban population using improved sanitation 88.61% 25.76  Official flows for water supply and sanitation (USD millions) Goal 2: End hunger, achieve food security and improved nutrition, and promote Goal 7: Ensure access to affordable, reliable, sustainable and modern energy for sustainable agriculture all  Prevalence of undernourishment (2016) 14.2%  Proportion of population with access to electricity (2012) 37%  Proportion of population with primary reliance on clean fuels 0.48%

 Renewable energy share in total final energy consumption 57.18%  Energy intensity level of primary energy (megajoules per USD in constant 2011 3.97 prices in 2012) Goal 3: Ensure healthy life and promote well-being for all at all ages Goal 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all  Maternal mortality ratio per 100,000 live births (2015) 477  Growth rate of real GDP per capita 1.43%  Infant mortality ratio per 1,000 live births (2015)  Growth rate of real GDP per capita employed person 0.96%  Under-five mortality rate per 1,000 births (2015) 96  Domestic material consumption per capita (Tons per capita) 2.77  Total official flows for medical research and basic 156.9  Domestic material consumption per unit of GDP (kilograms per unit of GDP in 0.94 health sectors (USD millions in 2014) 47.03 2010)  Malaria incidence per 1,000 population in 2013  Tuberculosis deaths per 100,000 population in 2014 145.72 52 Goal 4: Ensure inclusive and equitable quality education for all and promote lifelong Goal 9: Build resilient infrastructure, promote inclusive and sustainable learning opportunities for all industrialization and foster innovation  Total official flows for scholarships (USD millions) – (2014) 2.11  Freight colume transported by air transport (Tons in 2014) 16,643.32  Passengers transported by air transport in 2014 1,335,850.4  Manufacturing value added share in GDP in 2015 6.77%  Manufacturing value added per capita (USD per capita in 2015) 302.23  Emissions of carbon dioxide per unit of GDP (PPP) – (Kilogram equivalent per 0.14 USD of GDPat constant 2005 PPP in 2013)  Proportion of the population covered by a 2G mobile network 95% Goal 5: Achieve gender equality and empower all women and girls Goal 10: Reduce inequality within and among countries  Share of seats held by women in national parliament (2016) 36.82%  Total assistance for development (USD millions) – (2014) 5,160.89

Progress Progress

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Goal 11: Make cities and human settlements inclusive, safe, resilient and sustainable monitoring Goal 15: Protect, restore and promote sustainable use of terrestrial ecosystems, monitoring sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss  Proportion of urban population living in slums (% in 2014) 55.5%  Forest area (percent of total land area in 2015) 46.41%  Urban population living in slums (persons in 2014)  Proportion of important sites for terrestial biodiversity that are covered by 26.09% 5,316.71 protected areas (% in 2016)  Proportion of important sites for freshwater biodiversity that are covered 33.33%

by protected areas (% in 2015)  Red list index (in 2016) 0.94  Total official development assistance for biodiversity (USD millions in 3.83 2014) Goal 12: Ensure sustainable consumption and production patterns Goal 16: Promote peaceful societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels  Material footprint per capita (Tons per capita in 2010) 3.18  Proportion of young women and men aged 18-29 years who experienced n.a sexual violence by age 18 (%)  Material footprint per unit of GDP (Kilograms per unit of GDP in 3.18  Proportion of children aged 1-14 years who experienced any physical n.a 2010) punishment and/or psychological aggression by caregivers in the past month (%)

 Victims of international homicide per 100,000 population (in 2012) 10.72 Goal 13: Take urgent action to combat climate change and its impacts Goal 17: Strengthen the means of implementation and revitalize Global Partnership for Sustainable Development  No country data available  Debt service as a proportion of exports of goods and services (% of exports 6.92% of goods and services in 2013)  Fixed internet broadband subscriptions (per 100 inhabitants in 2015) 0.67  Proportion of individuals using internet (% in 2015) 12.4%

Goal 14: Conserve and sustainability use the oceans, seas and marine resources for sustainable development  Protected marine areas coverage (% in 2016) 0.2%

Source: African Development Bank, Statistics Department, 2016 Monitoring Sustainable Development Goals. Note: n.a. - not available

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Annex 5: Comparative socio-economic indicators Develo- Develo- Year Angola Africa ping ped Countries Countries Basic Indicators GNI Per Capita US $ Area ( '000 Km²) 2016 1,247 30,067 94,638 36,907 Total Population (millions) 2016 25.8 1,214.4 3,010.9 1,407.8 6000 Urban Population (% of Total) 2016 40.8 40.1 41.6 80.6 5000 Population Density (per Km²) 2016 20.7 41.3 67.7 25.6 4000 GNI per Capita (US $) 2014 4 850 2 045 4 226 38 317 3000 Labor Force Participation *- Total (%) 2016 68.3 65.6 63.9 60.3 2000 Labor Force Participation **- Female (%) 2016 59.8 55.6 49.9 52.1 1000

Gender -Related Dev elopment Index Value 0

2009 2013 2005 2008 2010 2011 2012 2014 2007-2013 ... 0.801 0.506 0.792 2000 Human Dev elop. Index (Rank among 187 countries) 2014 149 ...... Popul. Liv ing Below $ 1.90 a Day (% of Population) 2008-2013 30.1 42.7 14.9 ...

Angola Africa Demographic Indicators Population Grow th Rate - Total (%) 2016 3.2 2.5 1.9 0.4 Population Grow th Rate - Urban (%) 2016 4.9 3.6 2.9 0.8 Population < 15 y ears (%) 2016 47.5 40.9 28.0 17.2 Population Growth Rate (%) Population >= 65 y ears (%) 2016 2.3 3.5 6.6 16.6 4.0 Dependency Ratio (%) 2016 99.5 79.9 52.9 51.2 3.5 Sex Ratio (per 100 female) 2016 98.5 100.2 103.0 97.6 3.0 Female Population 15-49 y ears (% of total population) 2016 22.3 24.0 25.7 22.8 2.5 Life Ex pectancy at Birth - Total (y ears) 2016 53.1 61.5 66.2 79.4 2.0 Life Ex pectancy at Birth - Female (y ears) 2016 54.6 63.0 68.0 82.4 1.5 Crude Birth Rate (per 1,000) 1.0 2016 44.5 34.4 27.0 11.6 0.5

Crude Death Rate (per 1,000) 2016 13.1 9.1 7.9 9.1 0.0

2000 2010 2015 2009 2011 2012 2013 2014 Infant Mortality Rate (per 1,000) 2015 96.0 52.2 35.2 5.8 2005 Child Mortality Rate (per 1,000) 2015 156.9 75.5 47.3 6.8 Total Fertility Rate (per w oman) 2016 5.9 4.5 3.5 1.8 Angola Africa Maternal Mortality Rate (per 100,000) 2015 477.0 495.0 238.0 10.0 Women Using Contraception (%) 2016 19.4 31.0 ......

Health & Nutrition Indicators Phy sicians (per 100,000 people) 2004-2013 16.6 47.9 123.8 292.3 Life Expectancy at Birth Nurses and midw iv es (per 100,000 people) 2004-2013 166.0 135.4 220.0 859.8 (years) Births attended by Trained Health Personnel (%) 2010-2015 49.9 53.2 68.5 ... 80 Access to Safe Water (% of Population) 2015 49.0 71.6 89.3 99.5 70 60 Healthy life ex pectancy at birth (y ears) 2013 45.9 54.0 57 68.0 50 Access to Sanitation (% of Population) 40 2015 51.6 39.4 61.2 99.4 30 Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS 2014 2.4 3.8 ...... 20 Incidence of Tuberculosis (per 100,000) 10

2014 370.0 245.9 160.0 21.0 0

2000 2011 2014 2015 2009 2010 2012 2013 Child Immunization Against Tuberculosis (%) 2014 81.0 84.1 90.0 ... 2005 Child Immunization Against Measles (%) 2014 85.0 76.0 83.5 93.7

Underw eight Children (% of children under 5 y ears) 2010-2014 15.6 18.1 16.2 1.1 Angola Africa Daily Calorie Supply per Capita 2011 2 473 2 621 2 335 3 503 Public Ex penditure on Health (as % of GDP) 2013 2.1 2.6 3.0 7.7

Education Indicators Gross Enrolment Ratio (%) Primary School - Total 2010-2015 128.7 100.5 104.7 102.4 Primary School - Female 2010-2015 100.4 97.1 102.9 102.2 Infant Mortality Rate Secondary School - Total 2010-2015 28.9 50.9 57.8 105.3 ( Per 1000 ) Secondary School - Female 2010-2015 22.7 48.5 55.7 105.3 140 Primary School Female Teaching Staff (% of Total) 2010-2015 36.8 47.6 50.6 82.2 120 Adult literacy Rate - Total (%) 2010-2015 71.2 66.8 70.5 98.6 100 Adult literacy Rate - Male (%) 2010-2015 82.0 74.3 77.3 98.9 80 Adult literacy Rate - Female (%) 2010-2015 60.7 59.4 64.0 98.4 60 Percentage of GDP Spent on Education 2010-2014 3.4 5.0 4.2 4.8 40 20

0

2000 2011 2014 2009 2010 2012 2013 2015 Environmental Indicators 2005 Land Use (Arable Land as % of Total Land Area) 2013 3.9 8.6 11.9 9.4 Agricultural Land (as % of land area) 2013 47.5 43.2 43.4 30.0 Forest (As % of Land Area) 2013 46.6 23.3 28.0 34.5 Angola Africa Per Capita CO2 Emissions (metric tons) 2012 1.4 1.1 3.0 11.6

Sources : AfDB Statistics Department Databases; World Bank: World Development Indicators; last update : August 2016 UNAIDS; UNSD; WHO, UNICEF, UNDP; Country Reports. Note : n.a. : Not Applicable ; … : Data Not Available. * Labor force participation rate, total (% of total population ages 15+) ** Labor force participation rate, female (% of female population ages 15+)

XIII

Annex 6: Division of labor between development partners in Angola Partners Sector/Thematic Area

rights

Trade

Health

Energy

Gender

Fisheries

Demining

Education

Framework

Governance (incl. M&E)

Development

Private Sector

Other (specify)

Other (Specify)

climate change)

Public Public Sector &

Macroeconomic

Financial Sector

Social Protection

Education/Higher

Environment (incl.

Water & Sanitation

Security & Stability

Agriculture & Rural

(incl. refugees, human

Capacity/Inst. Building

Judicial & Legal Reform

Infrastructure/Transport AfDB X X X X X X X X X X X X X Denmark X X European X X X X X X X X X X X X Commission France X Japan X X X X X X X X X X X X X X Netherlands X X X X X Norway X X X X X X X USAID X X X X X X X X United X X X X Kingdom United Nations X X X X X X X X X X X X Development Programme UNFPA X X X X X UNICEF X X X X X X UNHCR X X WFP Currently negotiating an agreement with GoA of food security and Nutrition WHO X X X IOM X X X UNHABITAT Policy on Housing UNEP X World Bank X X X X X X X X X

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Annex 7: Angola – Development partners aid volumes and main areas of focus

Total ODA volume (2015) - approved and ongoing projects (Million USD) ODA Sectoral Distribution, Approved and Ongoing projects (2015) 1 500 AfDB 1 400 1 300 1 252,89 Power; 5; 1 244,93 World Bank 876,05 1 200 1 100 Japan 268,61 1 000 Multi-sector and 900 Trade & Regional European Union 251,61 800 Social, Integration; 2; Governance, 5, Capacity Building 700 2, 68,53 13,77 554,35 USAID 40,35 & Institutional 600 UNDP 12,28 USD) (Million volumes ODA 500 Water & Development; 8; 400 Sanitation ; 5; 10,38 Netherlands 5,15 Fisheries; 3; 326,11 300 Environment ; 11; 200 29,97 Norway 3,70 28,50 100 United Kingdom 1,28 0 Multinational0 2 Higher4 Education6 8 10 12 14 France 0,66 projects; 3; 9,71 Justice; and Vocational Other Health ; 8; 148,79 Training, 5, 83,36 Infrastructure; 0 200 400 600 800 1 000 1 200 X- axis: Number of projects Agriculture , Note: Bubble size - represents ODA volumes (Million USD)

Angola: Top Sectors Financed by Development Partners in 2008 Angola: Top Sectors Financed by Development Partners in 2015

Agriculture; 2% Social Protection; Demining; 7% 3%

Water and Education; 3% Sanitation; 8% Health; 21% Health; 5% Power; 46% Water and Education; 12% Sanitation; 12% Governance; 20% Rural development; 14%

Source: African Development Bank and World Bank development partners surveys, 2008 and 2015

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Annex 8: Angola - Portfolio of approved and ongoing operations as at 1st February 2017 Planned Amount Amount Age IP DO Status of Approval Entry into Effective 1st completion App. Dis. Disb. Rate (years AfDB Group Financed Projects Sector Name PFI STATUS Project date force disb date (Million (million (%) ) UA) UA) Fisheries sector support project Ongoing Fisheries NON PP/ PPP 15/05/2013 29/10/2014 26/08/2015 30/06/2019 20.00 1.31 6.6% 3.2 1 1 Cabinda Province Agriculture Ongoing Agriculture - 22/12/2014 25/03/2015 28/12/2015 30/06/2017 0.42 0.19 46.1% 1.9 n.a n.a Development Program Sub-total Agriculture 20.42 1.51 7.4% 2.52 1 1 Environmental Sector Support NON PP/ Ongoing Environment 11/03/2009 17/12/2009 14/01/2010 31/12/2017 12.00 6.96 58.0% 7.6 2.29 2.25 Project NON PPP Sub-total Environment 12.00 6.96 58.8% 7.6 2.29 2.25 Financial Support Ongoing Multi-sector NON PP/ PPP 14/11/2007 04/09/2008 22/12/2010 30/06/2017 5.90 2.53 43.0% 9.1 2.21 2 Management Project Institutional Capacity Building Ongoing Multi-sector NON PP/ for Private Sector NON PPP 17/09/2014 14/04/2015 14/04/2015 31/12/2019 18.32 0.34 1.8% 2.1 2 2 Development Sub-total Financial Governance 24.22 2.87 11.9% 6.7 2.11 2 Institutional and Sustainability Water NON PP/ Approved 04/01/2015 31/08/2015 18/03/2016 31/12/2020 91.23 0.28 0.3% 1.6 2 2 Water Supply Project supply NON PPP Sub-total Water and Sanitation 91.23 0.28 0.3% 1.61 2 2 NON PP/ Higher Education Study Ongoing Social 14/02/2014 25/03/2015 25/03/2015 30/06/2017 0.40 0.06 15.1% 1.9 2 2 NON PPP Science and Technology NON PP/ Approved Social 21/10/2015 16/06/2016 16/06/2016 31/12/2019 66.34 0.00 0.0% 0.9 2 2 Sector Project NON PPP Sub-total Social 66.73 0.06 0.1% 1.37 2 2 National Transport Sector Ongoing Transport NON PP/ PP 17/09/2013 20/05/2015 01/06/2015 31/12/2018 2.90 0.00 0.0% 3.0 1 2 Master Plan Sub-total Transports 2.90 0.00 0.0% 3 1 2 Line of Credit for a Financial Approved - 21/10/2015 - - 30/06/2024 239.55 0.00 0.0% 0.1 n.a n.a Commercial Bank BPC sector Sub-total Financial Sector 240 0.00 0.0% 0.1 n.a n.a Grand Total 457.05 11.68 3.1 1.8 1.9 Notes: n.a. – ratings not available in the the most recent reports on implementation progress and results (IPR). IP – Implementation progress, and DO – Development operations. The IPR rating scale ranges from 1-4.

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Annex 9: Revised 2016 Country portfolio improvement plan (CPIP) Issues Recommendations Expected Results Responsible Timetable A. Quality at Entry Elapsed time from a) Identify prior actions for the fulfillment of the conditions for the  Projects submitted to Board Approval have clearly ADB Concerned Bank’s Board first disbursement, before the approval of the project by the identified the prior actions for the fulfillment of the Sector Department project approval to Board. conditions for the first disbursement. first disbursement b) Ensure the active involvement of the Executing Agency in the  Staff from Executing Agency is appointed to participate in Executing Agency is long. More than design of the project, in the assessment of the institutional project design and definition of implementation Ministry of 17 Months in capacity for project implementation and definition of the nature arrangements. Finance average to meet and type of PIU arrangement necessary to improve the likelihood ADB concerned conditions for first of success. sector Department disbursement c) Identify qualified project staff in advance and ensure that they are  Qualified project staff is identified before project approval Executing Agency sensitized for the priority actions to be undertaken once the by the Board. Not being possible, it should be guaranteed Ministry of project is approved. Guarantee that the Project Management Unit that the staff is appointed before the signature of the Loan Finance Staff had an early contact with the project and was involved at Agreement and that proper debriefing on project details is the design stage. ensured. d) Immediately after the Loan Agreement Signature by the parties,  Startup training provided for new projects; Ministry of Immediate Ensure the provision of a startup training, led by the Ministry of  Overall project results to be achieved in each year and Finance for all new Finance and ADB, specially targeted to address the initial general implementation calendar; ADB projects procurement programming and potential challenges.  Initial Procurement Plan, Disbursement Plan and Work PIU Program are timely submitted for ADB NO, no later than 2 weeks after the conclusion of the training.  Counterpart funds included in the State budget and made Executing Agency e) Ensure the early insertion of the project in the PIP in order to available at the time of project start up and Ministry of secure the counterpart fund availability at the time of the project implementation. Planning start up and implementation. Ministry of Finance f) Define and establish a mechanism to speed up the working permit  Mobilization of international TA, after contract signature, Executing Agency issuing process for long term technical assistances. Difficulties in takes less than one month. Ministry of obtaining visas has been having negative repercussions on the Finance execution of the project and should be, therefore, subject of reflection by the Ministry of Finance and Sectoral Ministries.

XVII

Issues Recommendations Expected Results Responsible Timetable B. Management of Procurement Processes Weak capacity a) Appoint experienced and trained staff for the  All new projects have experienced and trained staff in Executing Agency Continuously contributing to long procurement expert position for all new projects. procurement area. Ministry of Finance delays and quality of b) Provide continuous training and support to PIU  Specific training on procurement is provided at least once a Executing Agency Continuously procurement processes procurement staff, targeting the specific issues year. Ministry of Finance and operational challenges that are posed to the ADB/ COAO efficiency and quality of the procurement processes and outputs. Lack of planning and a) Ensure the timeline elaboration of the annual  All PIUs submit for NO objection the Annual Procurement PIU Jan/2017 accountability Procurement Plan (PP), the quarterly reporting on Plan for 2017 before the end of January 2017; Executing Agency preventing the efficient the implementation of the procurement activities  All PIUs submit, on a quarterly basis, no later than 45 days April/July/ management of and subsequent update of the PP. after the end of the quarter, the updated PP, including October 2017 procurement processes effective implementation, initial and revised planning;  Procurement monitoring mechanism in place by all PIUs: i) April/July/ nr. of bidding processes, by category and stage, whether in October 2017 preparation or implemented compared to that foreseen in the beginning of the year; as well as ii) the average of time needed to complete a procurement process in each category and different methods. Weak capacity in a) Ensure a proper contract management and  All PIU adopt a contractor performance evaluation PIU Immediate for all contract management evaluation of contractor performance certifying mechanisms. Executing Agency projects leading to delays in that the precedent conditions to each payment is project implementation fulfilled and respected based on the terms of the contract. Language issues a) Use of Portuguese language for Shopping and  All PIU make use of the possibility of using the Portuguese PIU Immediate for all affecting fair shortlisting; publication of requests for language for Shopping and shortlisting; publication of projects competition in expression of interest and respective evaluation requests for EoI and respective evaluation reports. procurement processes reports. The CPISU should encourage and assist and limiting the the PIUs to use fairly the flexibility provided by participation of national Bank’s rules. bidders

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Issues Recommendations Expected Results Responsible Timetable C. Financial Management Weak capacity a) Appoint experienced and trained staff for the financial  All new projects have experienced and trained staff in Executing Agency Continuously and management position for all new projects. financial management area Ministry of Finance understanding of b) Provide regular training (classroom and on-the-job training) to  Specific training on financial management is provided at Executing Agency Continuously project financial PIU financial management staff, targeting the specific issues least once a year Ministry of Finance management and operational challenges that are posed to the efficiency and ADB/ COAO rules and quality of the financial management processes and outputs. processes Lack of a) Ensure that proper financial management mechanisms are in  All PIUs have proper financial management mechanisms/ PIU Established by compliance with place. systems in place the Other Bank financial Condition of reporting and the LA auditing b) Ensure the early preparation of annual budget and disbursement  All PIUs submit, by January 2017, the annual budget and PIU Jan/2017 requirements plan disbursement plan (fiduciary issues) c) Ensure the timely quarterly submission of financial reporting  All PIUs submit for NO objection the Annual Budget and PIU Jan/2017 on the resources mobilized, by the Bank and by the Disbursement Plan for 2017 before the end of January 2017 Government, against the initial disbursement planning;  All PIUs submit, on a quarterly basis, no later than 45 days after the end of the quarter, the financial report (ADB and April/July/ Counterpart Funds) October 2017 d) Ensure proper audit planning and management: timely  All projects submit the audit planning sheet for 2017 by PIU Dec 2016 submission of the reports and quality of reports and supervision December 2016 of the implementation of recommendations.  All audit reports are submitted to the Bank for NO, no later than 6 months after the end of fiscal year June/2017  100% of audit reports are in compliance with the Bank rules and are accepted D. Disbursement Slow and low a) Encourage the cooperation and exchange of knowledge and  PIU capacity to address operational, day-to-day challenges, Executing Agency Continuously disbursement practices on procurement, financial management and is improved Ministry of Finance disbursement between PIUs; ADB/ COAO b) Provide continuous support and training to PIU staff on ADB  Specific training on disbursement rules and procedures is Executing Agency Continuously disbursement rules and procedures. provided at least once a year Ministry of Finance  Reduction of the number of Disbursement Requests ADB/ COAO returned by the Bank c) Improve and speed up the ADB disbursement processes  Average number of days to complete a payment is reduced ADB Continuously

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Issues Recommendations Expected Results Responsible Timetable E. Project implementation, counterpart responsibilities and ownership Lack of a a) Ensure the operationalization of CPISU, under the  CPISU set up with proper follow up mechanisms in place and ready to Ministry of Finance Immediate structured and authority of the Ministry of Finance: urgently provide support to the PIU coordinated define the operating rules and Statute and provide  90% of project issues are proactively solved. Lapse of Time for approach, from the necessary budget allocation and human Procurement (Goods, Works and Services) reduced from 9-10 moths the GoA, to resources to ensure the efficient functioning of the is average to 6 months. The PIUs received support from the CPISU address the slow CPISU without delays and their capacity is reinforced; 95% of projects are project timely implemented. Fiduciary activities implementation delays are implementation reduced by 70%. Number of people trained on project implement increased annually by 10%. Reduce substantially the delays for procurement and awards of contracts Lack of proper a) Reinforce project coordinators’ and M&E staff  Specific training on project management, to project coordinators and ADB 2017 results-oriented capacity on results-oriented project management; M&E staff provided at least once a year planning, b) Ensure the implementation of a results-oriented  Annual M&E framework defined for all projects, and monitored and PIU April/July/ monitoring and approach in all PIUs: timely definition of the results revised on a quarterly and annual basis, taking into the account the Executing Agency October 2017 evaluation of to be achieved each year, the necessary technical initial planning. project and financial means for the accomplishment of the implementation foreseen results; and elaboration of an M&E Plan c) Executing Agencies (EA) put in place a follow up  EA conduct a close follow up of the project: Focal points are involved PIU Immediate mechanism of project technical and financial and project coordinators participate in the Ministry periodic work Executing Agency execution meetings (Conselho Directivo)  Steering Committees are in place, meeting at least once every six months and ensuring the necessary guidance for project implementation Weak a) Reinforce the accountability through the adoption  All project coordinators, procurement and financial management PIU Dec /2016 accountability of of a results-oriented contracting method of PIU experts from all projects signed the Performance Based Contract Executing Agency Executing appointed staff (coordinator, procurement expert, before the end of 2016 Ministry of Finance Agencies (EA)/ financial management expert).  Performance of PIU staff assessed quarterly and improved April/July/ Sectoral October 2017 Ministries Lack of timely a) During the last quarter of 2016 it should be  All projects are registered in the PIP and the allocated amount is PIU Continuously release of confirmed by the PIUs that the respective projects foreseen in the State General Budget; Executing Agency counterpart funds are registered in PIP for the fiscal year of 2017 as  100% of the foreseen amount disbursed and timely disbursement of Ministry of well as the amount approved in the State's General counterpart funds for implementation of foreseen activities. Planning Budget. In 2017, early efforts are necessary to Ministry of Finance ensure the registry of projects in PIP for the 2018 Budget. . The insertion of projects in PIP should be based on the prior preparation of annual budget, procurement, disbursement and work plan.

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Annex 10: Angola – CSP 2017-2021 selectivity criteria

1. Dialogue between the Bank, the government, development partners, private sector and civil society led to consensual identification of six (6) selectivity criteria for new strategic and operational options of the CSP. These are: (i) need to help the country benefit from its advantages and opportunities while addressing its developmental challenges and fragilities; (ii) Bank strategies and their alignment on Angola Vision 2025; (iii) consultations with the stakeholders; (iv) comparative advantage of the Bank; (v) resource constraints and need to establish complementarity with other development partners; and (vi) lessons learned from implementation of the previous CSP.

2. The first method of selecting Bank operations is guided by the need to benefit from the country’s advantages and opportunities, while addressing its challenges of vulnerability to internal and external shocks and inadequate infrastructure. Internal vulnerability is mainly due to poverty, inequality, and climatic hazards. Exogenous shocks stem from Angola’s dependence on oil exports whose prices and production are highly volatile. The CSP and the second of the High 5s priorities (Feed Africa) underscore the strong causality effect between rural poverty and the dependence of small farmers on agricultural incomes. Agriculture holds the key to broad-based economic growth, poverty reduction and food security in Angola but the sector is not productive and mechanized. Inadequate rural agricultural infrastructure (e.g. lack of feeder roads, irrigation systems, and unreliable electricity supply), low use of yield enhancing inputs and technologies, lack of skills, limited access to credit, weak research and extension services for support to farmers and inefficient land management systems drive low agricultural productivity. In addition, changes in hydro-climatic conditions have strongly reduced the fisheries potential, which is now estimated to be about 360,000 tons/year. Most of the agricultural production is predominantly generated by smallholders, and is estimated that only 5.7 percent of the arable land (e.g. about 575,900 km2) is under cultivation and with significant post-harvest losses (Table 1 below). The country’s trade balance for agricultural and agro-industry products is still in deficit. In 2015, Angola imported food basket products for approximately USD 3.8 billion, as against agricultural exports of USD 509 million. In this context, there is much leeway for transforming Angola’s agriculture and boosting the various links of the value chains. All analytical studies agree on the need to also focus on power infrastructure for agro-processing , as well as road infrastructure, which facilitates the evacuation of agricultural and agro-industry products at national and sub-regional levels.

Table 1: Angola’s agricultural production, productivity and consumption needs for key products (2013) Description Total production (Tons) Utilization (Tons) Productivity (kg/ha) Smallholders Commercial Domestic Harvest Angola Sub-Saharan producers consumption losses Africa Maize 1,223,636 325,114 2,160,843 232,313 983 3,973.7 Rice 18,302 19,306 302,261 3,761 1,274 2,644.3 Beans 272,907 39,080 468,382 31,199 398 987.7 Cassava 15,347,613 1,064,060 8,799,976 164,1167 14,052 10,800 Potatoes 323,128 347,008 915,852 67,014 14,566 31,267 Coffee(1) 12,550 1,800 n.a 308 408.65 Source: Ministry of Agriculture of Angola and FAOSTAT. Note: (1) In Angola, 97 percent of producers are smallholders and 3 percent are estates and Angola stands at 43rd place in the world coffee production rankings.

3. The second selectivity criterion is alignment of the new CSP on Angola’s Vision 2025 and the Bank’s Ten-Year Strategy 2013-2022, particularly the five institutional priorities (High 5s). The new CSP is aligned on the Bank’s Feed Africa – Strategy for Agricultural Transformation in Africa 2016-2025, the Bank Group Industrialization Strategy

XXI for Africa 2016-2025, the Bank’s Private Sector Development Strategy 2013-2017, the Bank Group Strategy for the New Deal on Energy for Africa 2016-2025, the Bank Group Strategy for Jobs for Youth in Africa 2016-2025, the Bank’s Regional Integration Policy and Strategy 2014-2023, and the Bank Group Gender Strategy 2014-2018. Lastly, the new CSP is fully aligned on the achievement of Angola’s Sustainable Development Goals (SDGs), in particular, the SDG 1 (“No poverty”), SDG 2 (“No Hunger”), SDG 5 (“Gender equality”), SDG 6 (“Clean water and sanitation”), SDG 7 (“Clean energy”), SDG 8 (“Good jobs and economic growth”), SDG 9 (“Innovation and infrastructure”), SDG 10 (“Reduced inequalities”), and SDG 13 (“Protect the planet”).

4. The third selectivity criterion was guided by the dialogue held at COAO with the Government, development partners, private sector and civil society which led to the selection of agricultural investments and economic infrastructure development, with focus in rural areas, since this strategy is aimed at accelerating economic diversification, create jobs and reduce poverty. Policy dialogue has also recognized that rural development will be effective only when it is accompanied by integrated infrastructure systems (e.g. reliable electricity and water supply systems and sustainable transportation infrastructure) for promotion of agropoles and agribusiness for job creation, and including climate and gender sensitive interventions as women are disproportionately affected by poverty. In fact, the National Household Well-Being Survey (IBEP, 2008-09), indicated that rural areas in Angola were still plagued by widespread poverty, with an incidence that was three times higher in rural areas (58 percent) than in the urban areas (19 percent). With regard to the development of agropoles in Angola, two priority regions were identified based on the following criteria: (i) potential of the areas concerned; (ii) production levels; and (iii) public or private investments underway or scheduled. These criteria guided the identification of the potential areas, namely Cabinda and Lobito Corridor, which are currently subject to integrated rural development, trade facilitation and agricultural value chain studies to inform the design of the new CSP operations.

5. The selection of energy and transport infrastructure is justified by the Bank’s comparative advantage (4th selectivity criterion) with respect to the High 5s priorities of Light up and power Africa and Integrate Africa. The other major infrastructure projects are supported by other donors. Increased access to electricity has proven to be the catalyst for the planned agricultural transformation and development industries, in particular, in rural areas. Access to electricity will be accelerated by focusing on the implementation of a mega-project expansion of the country’s electricity transmission line network (e.g. Central-South 400 kV line), upgrading of the electric power distribution systems, improved operational efficiency and revenue collection in the power utilities and promotion of green growth through investments in renewable energy projects in off-grid areas with private sector participation. These interventions will draw from the experience of the implementation of the USD 1 billion Power Sector Reform Support Program (PSRSP) that was completed in June 2016. The new power mega-project will be piloted through the New Deal for Energy in Africa, whose objective is to achieve universal access to energy by 2025 - with access rates of 100 percent in urban areas and 95 percent in rural areas. The selection of transport infrastructure (e.g. roads, railways, ports, and logistical platforms) is based on the comparative advantages in terms of planning and preparation of feasibility studies, in particular, the ongoing National Transport Sector Master Plan and Feasibility Study for the railway link between Angola and Zambia. Once completed, the Transport Master Plan will open the possibility of rapid implementation of agropole activities along the Lobito Corridor and boost trade with the hinterland countries in Southern Africa Development Community, in particular, the Democratic Republic of Congo and Zambia.

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6. The fifth selectivity criterion took into account the impact of the scarcity of resources on the implementation of the initially proposed Bank operations. The deterioration of the key macroeconomic indicators due to lower international oil prices pose significant concerns about the country’s debt sustainability. The potential downgrade of the country’s sovereign credit rating will imply significant reduction of the Bank’s financial exposure and interventions in Angola. This will require a rationalization of interventions, in particular, in the primary areas that were considered for agropole development (e.g. the northern province of Cabinda and the central region along the Lobito Corridor). This choice is also dictated by the need to complement the other partners. In fact, the World Bank is preparing a USD 230 million commercial agriculture development program in the central-south regions of Kibala, Huambo, Lubango and Bié. The project will focus on revitalizing commercial agriculture development for coffee and cereals production. The selection of Cabinda and Lobito Corridor regions are also based on their comparative advantages in terms of the possibility for rapid implementation of agropole activities, as well as the availability of studies that were completed in 2016, using some of the ADF resource balances from the Bom Jesus Agricultural Development Project. Meanwhile, the industrial and agricultural sectors still play a limited role in reducing poverty in the region. Agriculture and livestock production has been sustained mainly by small farmers producing to face family consumption and not supplying to the market. According to INE’s 2015 enterprise survey, it is estimated that only 4.3 percent of agribusiness units have been established in Angola but with limited capacity in terms of food processing. In this context, the Bank’s interventions in these agropoles could help develop several value chains, including the processing of cassava, cocoa, coffee, fish, maize, poultry and livestock. These value chains are also targeted by the Bank's strategy for the transformation of agriculture in Africa (2016-2025), in particular, cassava which is widely consumed in northern Angola and interests some investors on account of its export potential.

7. The lessons learned from implementation of the previous CSP and led to the adoption of a new strategic approach, namely, the investment in large projects that are aligned with the country’s economic transformation agenda in order to ensure sustainability and greater impact amid the spectrum of limited financial resources. The use of Budget Support instrument for infrastructure financing is considered critical to enhance catalytic impact of Bank’s interventions drawing from the successful implementation of the USD 1 billion PSRSP. Other key innovations in the new CSP include: (i) intense focus on inclusiveness by investing on agricultural transformation and infrastructure development in poorest regions and communities, particularly targeting youth and women, while protecting their natural environment; (ii) green growth through pilot investments on renewable energy in off-grid areas to accelerate rural electrification and industrialization. The new CSP 2017-2021 for Angola mainly recommends integrated infrastructure (energy, transport and water infrastructure) that supports value chains in agriculture and agro-industry to generate sustainable jobs and reduce poverty.

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Annex 11: Angola – CSP 2017-2021 sectoral linkages and the High 5s

Improved skills and Increased agricultural Provision of sustainable Impact employment production and productivity economic infrastructure creation

Increase Linkages Open regional PPPs and Reduce domestic food and value markets to Outcomes FDI transaction production chains increase enhanced costs and services enhanced exports & FX

Alignment with High 5s Feed Africa/Industrialize Africa | Light-up and Power Africa | Integrate Africa

Access to ICT Food Extension Access power Transport processing services Transmission Roads/Ports Technology transfer Interventions Private sector Seeds/fertilizer Logistical Utilities Agri-business efficiency platforms Agricultural Research/ Railway link markets Irrigation/ smallholders Renewable communication Storage support energy Lobito/Zambia

CSP 2017- Pillar I: Inclusive growth through Pillar II: Support to sustainable infrastructure 2021 Pillars agricultural transformation development

Alignment to the Pillar 4: Promotion of economic Angola Vision Pillar 3: Rehabilitation and development of diversification and infrastructure to support economic development 2025 Pillars competitiveness (agriculture, (energy, transport, water and sanitation) rural development, livestock) Cross-cutting issues Gender | Climate Change | Economic fragility (infrastructure and natural resource management)

Weak Lack of adequate Weak trade Inadequate Challenging Challenges facilitation and business agricultural skills infrastructure productivity export support environment

Strategic Accelerate economic diversification and reduce the dependence from oil through integrated objective investments in agricultural transformation towards sustainable job creation and poverty reduction

Source: Author, based on the sectoral analytical thematic notes prepared as part of the Angola CSP 2017-2021.

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Annex 12: Angola – CSP 2017-2021 indicative lending program ADB Total Total Preparation status Indicative Lending Program(1) Alignment Reg. Reg. ADB Co- Year Sector Scope Instrument Non- ADB ADB Details High 5s Loan Grant Sov. Financing Sov. Group Project PILLAR I – INCLUSIVE GROWTH THROUGH AGRICULTURAL TRANSFORMATION: The implementation of integrated investments in agricultural infrastructure in rural and semi-urban areas (e.g. through Public-Private Partnerships) will be critical to increase the country’s agricultural productivity and domestic food production, boost exports, generate incomes and enhance food security and poverty reduction.

Strategic outcomes: (i) Increased domestic food production; (ii) Linkages and value chains enhanced; and (iii) increased agricultural exports and foreign exchange earnings ESW underway, preparation Cabinda integrated agricultural 2017 Agriculture Nat. Investment Feed Africa - - 100 - 100 10(a) 100 mission undertaken in project November 2016 Lobito agricultural trade facilitation Agriculture/ Feed Africa ESW underway to be completed 2017 Reg. Investment - 2 - - 2 2(b) 4 and value chains project Regional Integrate Africa in May 2017 Due diligence done in August Trade Finance LoC Banco BAI 2017 Financial Nat. LoC Industrialize Africa - - - 178.7 178.7 - 178.7 2016 ESW prepared, preparation Private sector agri-business project Feed Africa 2018 Agriculture Nat. Investment - - - 200 200 230(c) 200 mission undertaken in along Lobito Corridor Industrialize Africa November 2016 PILLAR II – SUPPORT TO SUSTAINABLE INFRASTRUCTURE DEVELOPMENT: Consolidate Bank’s infrastructure interventions under the previous CSPs in order to bridge the country’s infrastructure gap by addressing its energy deficit, increase population’s access to energy, in particular, in rural areas, and improve transportation systems to support agricultural production, ease access to markets and boosts exports

Strategic outcomes: (i) Reduce transaction costs; (ii) open regional markets to increase exports and foreign exchange earnings; (iii) enhance PPP and FDI for infrastructure Electricity system upgrade, access ESW on fixed-asset registry and 2018 Energy Nat. Investment - - 300 - 300 30(d) 300 scale up and revenue protection technical losses underway to be Renewable Energy Mini-grid Light up and Power completed in 2017. Co-financing 2018 Energy Nat. Investment - - - 30 30 10(e) 30 (PPP,IPP) – Private Sector Africa of transmission line project with Central south electricity transmission AFD EIB, JICA, and USAID 2019 Energy Nat. Investment - - 300 - 300 300(f) 300 line phase 1 (411 km) under negotiation. Munhango-Luena 170 Km Lobito National Transport Master Plan 2018 Transport Reg. Investment - - 182 - 182 18.2(g) 182 Corridor Road studies underway to inform Lumege-Luacano-Luau 186.5 Km project components of the 2018 Transport Reg. Investment Integrate Africa - - 200 - 200 20(h) 200 Lobito Corridor Road railway link. MIC grant being prepared to finance the Lobito Angola-Zambia Railway Link 2019 Transport Reg. Investment - - 500 - 500 50(i) 500 Corridor road studies in 2017. Notes: (a) Project to secure 10 percent co-financing from the government of Angola. (b) UA 2 million co-financing secured from FAPA. (c) USD 230 million to be leveraged with the World Bank’s Commercial Agricultural Development Project that is under preparation. (d) Resources agreed to be co-financed by AFD, JICA, EIB, and USAID (e) Resources initially planned to be co-financed by SEFA and Facility for Energy Inclusion (f) Resources agreed to be co-financed by AFD, JICA, EIB, and USAID (g) Project to secure 10 percent co-financing from the government of Angola. (h) Project to secure 10 percent co-financing from the government of Angola. (i) Project to secure UA 50 million co-financing from the AGTF

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Annex 13: Angola – CSP 2017-2021 indicative lending pipeline ADB Total Indicative Lending Pipeline* Alignment Reg. Reg. ADB Other Co- Year Sector Dep. Scope Instrument Non- ADB Total Details High 5s Loan Grant Sov. Finance Finance Sov. Group PILLAR I – INCLUSIVE GROWTH THROUGH AGRICULTURAL TRANSFORMATION: The implementation of integrated investments in agricultural infrastructure in rural and semi-urban areas (e.g. through Public-Private Partnerships) will be critical to increase the country’s agricultural productivity and domestic food production, boost exports, generate incomes and enhance food security and poverty reduction. (i) Increased domestic food production; (ii) Linkages and value chains enhanced; and (iii) increased agricultural exports and foreign exchange Strategic outcomes: earnings

Nova Agrolíder Agribusiness Project 2017 Agriculture OPSD Nat Investment 100 100

Fazenda Girassol 2017 Agriculture OPSD Nat Investment 10 10 Trade Finance LoC Banco Keve 2017 Financial OFSD Nat. LoC - - - 14.3 - 14.3 - 14.3 Trade Finance LoC Banco Atlântico 2017 Financial OFSD Nat. LoC - - - 71.5 - 71.5 - 71.5 Industrialize Commercial agricultural development project in 2018 Agriculture OSAN Nat. Investment Africa - - - 40 - 40 - 40 Northern Angola Agricultural infrastructure and livestock 2019 Agriculture OSAN Nat. Investment - - 60 - - 60 - 60 production Southern Angola PILLAR II – SUPPORT TO SUSTAINABLE INFRASTRUCTURE DEVELOPMENT: Consolidate Bank’s infrastructure interventions under the previous CSPs in order to bridge the country’s infrastructure gap by addressing its energy deficit, increase population’s access to energy, in particular, in rural areas, and improve transportation systems to support agricultural production, ease access to markets (i) Reduce transaction costs; (ii) open regional markets to increase exports and foreign exchange earnings; (iii) enhance PPP and FDI for Strategic outcomes: infrastructure

Camama Technological Park 2018 Transport OITC Nat. Investment - - 50 - - 50 - 50 ICT & optical fiber for agricultural markets 2018 Transport OITC Nat. Investment Integrate - - support Africa/ 20 - - 20 - 20 Luanda-Lobito Highway 2019 Transport OITC Nat. PPP Feed Africa - - - 700 - 700 70* 700 Porto Amboim Development Project 2019 Transport OITC Nat. PPP - - - 310 - 310 31* 310

*Note: The Indicative Lending Pipeline corresponds to a list of identified projects that are also aligned to the CSP pillars but not ready for implementation. They form part of a rolling pipeline of projects that will be updated on an annual basis and they may transit to the category of “Indicative Lending Program” provided that all quality-at-entry conditions (e.g. ESWs, financial headroom and official letters from Government requesting financing) are all met.

(a) The Bank has initiated dialogue with private sector entities in Angola for the implementation of innovative financing instruments such as Public-Private Partnership (PPP) to co- finance these two non-sovereign infrastructure investments.

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Annex 14: Angola – CSP 2017-2021 indicative non-lending program

ADB MIC Trust Other Total Alignment ADF ADB Indicative Non-Lending Program Sector Scope Year Non- Grant Fund Project Status High 5s balances Sov Sov cost PILLAR I – INCLUSIVE GROWTH THROUGH AGRICULTURAL TRANSFORMATION

Cabinda Integrated Agricultural Rural - 0.42 - - Agriculture Nat. 2016 - - 0.42 ESW underway for completion in Q1 2017 Development Study Commercial agriculture development study for - - - - Agriculture Nat. 2016 0.6 - 0.6 Northern Angola Feed Africa ESW underway for completion in Q1 2017. Studies are Private Sector Agri-business study along the - - - - being funded with the remaining balances of the Bom Agriculture Nat. 2016 0.4 - 0.4 Lobito Corridor Jesus Agriculture Development Project that was Agricultural infrastructure and livestock study in - - - - completed in November 2016. Agriculture Nat. 2016 0.5 - 0.5 Southern Angola Trade Facilitation and Export Competitiveness Reg. - - 0.4 - Study underway and to be completed by May 2017. Reg. 2016 Integrate Africa - - 0.4 Study Integration Study funded by the Korea Trust Fund. Legal Support Facility (infrastructure contract - - 0.5 - Capacity building program approved by ALSF and negotiations and management, PPP contract Nat. 2017 - - 0.5 COAO and to be implemented in 2017 negotiations) Natural Resource Management (Land tenure - - 0.5 - Capacity building and technical assistance program reforms, local content in oil and gas, fisheries Nat. 2017 - - 0.5 approved by ECNR and COAO to be implemented in Governance/ mining, and water management) Improve quality of life 2017 Multi-sector Capacity Building on Project-Cycle Management for the people of Africa - - 0.5 - Capacity building program approved by ECAD and Nat. 2017 - - 0.5 and Entrepreneurship, PPP Training COAO to be implemented in 2017 - - 0.5 PEMFSR report and Action Plan was funded with Public Expenditure Management and Fiduciary PAGEF project resources and to be disseminated in Systems Review (PEMFSR) Action Plan & Nat. 2017 - - 0.5 2017. Country Procurement Assessment Report to be Country Procurement Assessment Report 2017 undertaken by SNFI in 2017 PILLAR II – SUPPORT TO SUSTAINABLE ECONOMIC INFRASTRUCTURE

Power Sector Technical Assistance Studies on: - - - Light up and Power Studies funded with technical assistance resources from “Technical and non-loss reduction in the Energy Nat. 2016 - 6 6 Africa the USD 1 billion PSRSP and to be completed in 2017 distribution system, and fixed-asset registry” Integrate Africa/ - - - Transport Master Plan for Luanda Transport Nat. 2017 Improve quality of life - 5.5 5.5 for the people of Africa Request for grant financing being prepared by OITC for approval in 2017 Preparation of studies for the logistics platforms - - - Transport Reg. 2018 Integrate Africa - 12.5 12.5 along the Lobito Corridor Wastewater management in the coastal towns - 1 - Water&Sanit. Nat. 2017 - - 1 study ToRs prepared and studies to be funded by a MIC grant Improve quality of life in 2017 Water Resources Management Study Water&Sanit. Nat. 2017 - - - 0.8 - 0.8 for the people of Africa 20 - - Identification mission undertaken in November 2015. Angola Environmental Services (AES) Environment Nat. 2017 - - 20 Project funding under negotiation.

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Annex 15: Angola – assessment of the public financial management systems

I. Introduction

1.1. In line with the Bank guidelines, this Country Fiduciary Risk Assessment (CFRA) has been carried out as part of preparation of the new Country Strategy for Angola (2017 - 2021) to highlight the developments in PFM systems. The purpose of the assessment is to establish reliance on the core PFM systems for the implementation of the Bank’s programs and to identify the scope for capacity development for the weakness identified. The review is based on the latest available PFM diagnostic work including the draft report of ongoing Public Expenditure Management and Fiduciary Systems Review (PEMFSR) and discussions with key officials of Government ministries, departments and other development partners.

II. Executive Summary 2.1 Over the years, the Government of Angola (GoA) has taken steps to improve the fiscal frameworks and public financial management (PFM) systems. The commitment by the Government to reform the country’s PFMs over the years is acknowledged, with recent progress in a number of areas including the legal framework where recent developments include the adoption of the revised Inspecção Geral das Finanças (IGF) Regulations, widened and more frequent reporting on use of resources (both in year and end of year) through the use of the Government wide IFMIS (SIGFE), a consultative budgeting process and increased availability of fiscal information in the public domain. There is also progress in the audit of the national accounts by the “Tribunal de Contas” (although not obligated by law). These developments indicate that Angola is exhibiting a positive trajectory of change in the overall country PFM systems.

2.2 The ongoing reform efforts are however yet to address a number of areas in budget execution, internal controls, capacity development and general oversight. Whilst a SIGFE inbuilt commitment system exists, an analysis of the Annual State Accounts for the three years to 2014 reveals significant variances (actual budget vs outturn), possibly underscoring gaps in the absorptive capacity in general to fully implement public investment programs as well as a shortcoming in the effective use of the commitment system. The developments made by the Inspector General of Finance in executing internal control function, have been hampered by capacity constraints, resulting in a significant part of the national budget not being subjected to reviews in a given year. In addition, the department responsible for Public Sector Accounting, i.e. the Directorate of Public Accounts also typically faces capacity constraints, particularly in terms of skills. The profession of accounting still has to reach maturity levels in Angola with the absence of a national Professional Accountancy Association though efforts are underway to promote its development. Corruption perceptions in Angola are significant but the situation is experiencing a gradual though minimal improvement with the country ranking 164rd out of 176 countries in the 2016 edition of Transparency International’s Corruption Perceptions Index (CPI) with an overall score of 18 over 100.

2.3 Furthermore, a stronger link between the budget and the National Development Plan through sector strategies is yet to be established. In this regard, the overall risk is substantial with the need for the continued implementation of the PFM reforms aimed at further improving the national systems and public investment management systems to improve quality of expenditure. The PEMFSR currently underway will provide an in-depth analysis of Angola’s PFM system. Based on the findings, a medium-term PFM reform action plan will be developed that will include

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capacity building and training programs for PFM and non-PFM experts to strengthen the capacity of key government institutions and deepen PFM reforms in Angola. In this regard, there is a scope for the Bank to maintain an approach based on a limited use of country procedures and systems, while continuing the country’s efforts for the system's reform.

SUMMARY TABLE ON FIDUCIARY RISK ASSESSMENT Initial Residual Elements Mitigating Measures Risk Risk 1. Budget 1.1 The Budget sub-system Substantial Develop plans and budgets based on a Moderate capacity is adequate to plan broad Government Public Investment (formulate) budgets for the Program (PIP) with a link to public programs and projects investment. 1.2 The Budget sub-system capacity is adequate to execute Enhance effectiveness of the SIGFE in budgetary control of programs built commitment system intended to curb or projects both unapproved expenditures and those beyond approved limits

Improve payment verification process to enable budget units to efficiently plan and carry out delivery of public goods and services 2. Treasury 2.1 The Treasury sub-system Substantial Improve overall debt management Moderate capacity is adequate to manage the inflow of resources and Program funds flow and use through disbursements of aid funds. dedicated accounts with proper oversight 2.2 The Single Treasury Account is arrangements an appropriate and reliable way to administer aid funds

3. Accounting Recording and Reporting Substantial Further automate ongoing key processes Moderate 3.1 The Financial Accounting sub- and integrate a number of other systems system is sound and capacity is into SIGFE for the purposes of adequate to record program streamlining fiscal and economic data and/or project transactions and account for their progress and Enhance user training and operational financial status. support on SIFGE to improve the quality 3.2 Financial Management and integrity of system produced data and information systems have information. flexibility to accommodate specific reporting requirements System generated reports should be fully of programs and projects and inclusive of the state budget operations to have procedures in place to enhance reliability of the information. ensure timeliness and quality of

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information produced. Develop skills for staff in the Directorate 3.3 The Financial Accounting sub- of Public Accounts to address the capacity system has an integrated Fixed constraints. Assets module for the proper

recording and control of assets purchased with program / The Action Plan from the PEMFSR project funds. exercise will recommend a timed and cost 3.4 The Accounting sub-system action plan, for whose implementation is maintains up to date records of expected to lead to improvements in PFM the country’s borrowings. and in the use of resources. 3.5 The Accounting systems are secure against deliberate manipulation of data and/or accidental loss of or corruption of data. 4. Internal Control Substantial Moderate 4.1 The Internal Control sub- Increase number and provide training of system capacity is adequate to staff to address the capacity constraints control the financial operations that remains a significant challenge. of programs and projects. 4.2 Competition, value for money Establish formal follow up mechanism on and controls in procurement are implementation of the IGF’s audit adequate recommendations. Adopt a formal Internal Audit work plan 4.3 The Internal Audit function to guide the operations of the IGF for capacity is adequate planning and monitoring 5. External Scrutiny and Audit Specific arrangements for external audit to Moderate 5.1 The SAI has the level of Substantial be done for projects/programs. “independence” needed to enable it to effectively fulfil its Continue efforts towards increasing the functions. capacity of the “Tribunal de Contas” to 5.2 The SAI has the capacity to enable them carry out their work meet its audit mandate Establish adequate and formal mechanisms on following up implementation of audit recommendations.

Annex 16: Angola – assessment of the country’s procurement systems

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I. Bank Procurement Strategy

1.1. The Bank will continue to support reforms in the procurement system of Angola during the CSP period, mainly through: (i) preparation and implementation of a PFM, including Procurement, Action Plan as part of the PEMFSR exercise; (ii) policy measures as part of PBO/PBG operations; (iii) implementation of the new Bank “Procurement Policy for Bank Group Funded Operations” dated October 2015 for new projects, which provides for greater use of country procurement system; (iv) support the preparation and implementation of the SNCP strategic plan; (v) comprehensive training for SNCP staff and procurement training at provincial level; and (vi) hands-on support and training to executing agencies of Bank-funded projects.

II. Legislative and Regulatory Framework 2.1. Angola has updated its legal and regulatory framework in 2016, with the aim of modernizing its public procurement system. A new procurement law has been adopted and entered into force on 16 September 2016 (Lei nº 9/2016 dated 16 June). It has been complemented by implementing regulations, already adopted (price of selling of bidding documents; procedures for procurement of real estate; registration and certification of State suppliers; procedure for and execution of framework contracts). The law is applicable to central and local governments, as well as state owned enterprises (SOEs). The procurement methods are clearly outlined, although competitive procurement is not the default method (one of the methods to be selected subject to thresholds and to other “material” factors). A new set of standard bidding documents have also been adopted, in order to support the proper implementation of the law.

III. Institutional Framework and Management Capacity 3.1. The public procurement system has the oversight of a dedicated body, Serviço Nacional da Contratação Pública (SNCP). However, it is noted that SNCP is involved in procurement transactions as a decree adopted in 2014 gives responsibility to SNCP to review all procurement processes that are to be submitted for prior review to the Minister of Finance. The 2016 Procurement law opens the possibility for creation of specialized procurement units within the contracting entities. A specialized unit has been created to manage all procurement above an equivalent of USD 10 million, which are to be approved by the President of the Republic. Some SOEs also have dedicated procurement units (i.e. ministry of energy and water). There is a procurement Portal but it is not updated regularly. SNCP produces statistics on the system but the information is not complete, as it relies on information provided by the contracting entities (not all provide information). A contract management module, including information on the procurement stage, is under preparation to be implemented in the PFM management system. This will support the improvement of the compliance to procurement procedures and the collect of information needed to produce accurate statistics.

IV. Procurement Operations and Market Practices 4.1. Capacity is a major constraint in the public procurement system. SNCP prepares an annual training plan and delivers training to contracting entities, including at provincial level. However, trainings depend on the demand and should also target other stakeholders of the system (i.e. auditors, private sector). The 2016 Procurement Law provides for contract management in Works and Goods/Services contracts and alternative dispute resolution mechanisms are foreseen. Their implementation, as well as practical contract management mechanisms, still to be put in place.

V. Integrity and Transparency of the Public Procurement System

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5.1. Some weaknesses were identified in the internal and external controls, as follows: (i) SNCP is involved in transactions, (ii) the Public Financial Management internal control entity (General Inspectorate of Finance – IGF) lacks of capacity in procurement and its reviews are usually ex- post and not systematic, and (iii) there is not a dedicated and independent procurement entity in charge of quality review of procurement processing. However, 2016 was the first year of procurement Audits held by SNCP. Regarding the complaints mechanism, there is not an independent administrative body for review of complaints, which may impact the confidence of the private sector to the system. The procurement law calls for ethical behavior for public servants intervening in procurement procedures and for the bidders, including sanctions for non- compliance.

6. Assessment of the Fiduciary Risk in Procurement 8.2. Overall, the risk in the procurement system is high. The table below summarizes the main risk factors as well as current and future reforms to address them:

N° Risk Factors Initial Risk Reform Measures Residual Risk (2017-2021) 1 There is no clear Substantial Prepare and implement a Moderate strategy for the public Strategic and procurement system Operational Plan for the public procurement oversight body (SNCP)

2 There is no integration Substantial Deploy the Contract Moderate of Procurement with module for SIGFE, the PFM system including training for (SIGFE) users 3 Weaknesses in the High Create an internal Low internal control system, control mechanism that

making the public would avoid the procurement oversight implication of SNCP in body (SNCP) transactions intervening in transactions

4 The Complaint High Set up an Independent Moderate mechanism is Appeals Body as last inefficient recourse in the administrative system, including representatives of the public and private sectors 5 The global capacity High Prepare and implement a Moderate level in procurement is comprehensive capacity weak building plan

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6 Bids are opened in the High Revise the Law, which Low next business day of should include that bids the submission date. If are open immediately so justified, the after the deadline for opening session can submission of bids occur within 10 days of the initial date 7 Information in the Moderate Update regularly Low procurement Portal is information in the Portal not updated (legal (centralize information documents, statistics, of all tenders, advertisements,…) information on contract awards, information on complaints treated,…)

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Annex 17: Main analytical studies consulted

1. AfDB (2012). Angola 2012 Private Sector Country Profile. 2. AfDB (2012). Angola Transport Sector Brief. 3. AfDB (2013). Review of the AfDB’s economic and sector work (2002–2010). 4. AfDB (2013). “Financial Inclusion in Africa”. 5. AfDB (2014). Angola – Energy Sector Analytical Report. 6. AfDB (2016). Bank Group Strategy for Jobs for Youth in Africa, 2016-2025. 7. AfDB (2016). Feed Africa - Strategy for Agricultural Transformation in Africa 2016-2025. 8. AfDB (2016). The Bank Group New Deal on Energy for Africa 2016-2026 9. AfDB (2016). Gender Strategy 2014-2018 10. AfDB (2016). Feed Africa Strategy for Agricultural Transformation in Africa 2016-2025 11. AfDB (2016). Bank Group Industrialisation Strategy for Africa 2016-2025 12. Deloitte and Touché (2015). Angola 2015 Banking Review, October 2015. 13. Esterhuizen, I. Public, private investment needed to tackle SADC power deficit, Engineering News, 11 September 2012 14. Economist Intelligence Unit (2016). Country Report, Angola, June 2015. 15. Government of Angola (2003). Angola Poverty Reduction Strategy: Social Reinsertion, Reconstruction and Economic Stabilisation. September 2003. 16. Government of Angola (2011). Light Rail Network Study for Luanda. Ministry of Transport. 17. Government of Angola (2011). The National Energy Security Strategy and Policy. Ministry of Energy and Water. 18. Government of Angola (2012). National Development Plan 2013–2017. 19. Government of Angola (2013). National Strategy and Policy for the Development of the Transport Sector, 2013–2017. 20. Government of Angola (2013). “Energy and Water Sector Action Plan – 2013–2017”. 21. Government of Angola (2014). National Railway Rehabilitation, Expansion and Modernisation Programme. Ministry of Transport. 22. Government of Angola (2014). Power Sector Transformation Project (PTSE). Ministry of Energy. 23. Government of Angola (2016). State Budget Report – Relatório de Fundamentação do Orçamento do Estado. 24. Government of Angola and Government of Norway (2012). Institutional Strengthening of the Energy and Water Resource Sectors in Angola. 25. ILO (2014). Labour Organization: World Social Protection Report: Building Economic Recovery, Inclusive Development and Social Justice, 2014–2015. 26. IMF (2015). Article IV Staff Report. November 2015. 27. IMF (2015). World Economic Outlook 2015. 28. INE (2013). Integrated Survey on the Welfare of the Population – IBEP (Analytical Report Vol III – Poverty Profile). 29. Mwale, S., and Davidson, I.: “Security Analysis of Electric Power Supply in SADC Region”. May, 25, 2015. 30. OSISA (2013). Angola’s Oil Industry Operations, Report prepared by Open Society Initiative for Southern Africa. 31. Pushak, N, and Foster, V (2011). Angola’s Infrastructure: A Continental Perspective. Africa Infrastructure Country Diagnostic. The World Bank. 32. UN Development Programme (2014). Human Development Report 2014. Sustaining Human Progress: Reducing Vulnerabilities and Building Resilience. New York, USA. 33. UNICEF (2013). Angola: Social Protection and its Perspectives. June 2013. www.imf.org/external/country/AGO/rr/2013/060513ap.pdf 34. WEF (2014). Global Competitiveness Report, 2014–2015 by World Economic Forum. 35. World Bank (2006). Angola: Country Economic Memorandum – Oil, Broad-Based Growth, and Equity”, The World Bank, October, 2006. 36. World Bank (2015). Doing Business 2016 Report.

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