Angola [email protected]
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2018 African Economic Outlook Joel MUZIMA Angola [email protected] • The Angolan economy is experiencing a slight recovery stands at 20%. and the country has a Gini coefficient of 0.43. owing to a positive outlook in oil prices. GDP growth The slow pace of economic diversification, adverse business stood at 1.1% in 2017, up from 0.1% in 2016 but the environment, lack of skills and inadequate infrastructure have growth outlook is likely to remain modest at 2.2% in 2018 constrained non-oil sector growth. In January 2018, the Gov- and 2.4% in 2019. ernment adopted a macroeconomic stabilization plan to restore equilibrium in foreign exchange markets, reduce inflation, and • Angola made significant strides in reducing poverty from improve the business environment. The recent request by Gov- 68% in 2000 to the current 37%, yet the rising cost of ernment for an unfunded IMF policy coordination instrument living, high youth unemployment, and high income ine- (PCI) programme is set to enhance the reforms’ consistency. In quality remain major concerns. the medium term, an export-promotion and import-substitution • Improving the quality of infrastructure and expanding strategy will be put in place, targeting food production, fisher- access to basic services is crucial to achieving economic ies and agro-industry, mining, tourism, transport and logistics. diversification and sustained growth. This will be supported by fiscal incentives, and establishment of business incubators and industrial clusters. Angola initiated infrastructure reconstruction in the past decade OVERVIEW with some success. Power generation capacity expanded from 1 000 MW in 2008 to 5 400 MW in 2017, 13 000 km of roads Angola’s growth was negatively affected by the decline in inter- were rehabilitated, four main ports were upgraded, and rehabil- national oil prices and consequent foreign currency shortages, itation of urban water supply systems began. Numerous chal- which hampered economic activity and job creation opportu- lenges persist, however. The power transmission and distribu- nities, triggering an economic downturn, with growth of just tion of infrastructure remains deficient; road quality and safety 0.1% in 2016. Growth has since returned to a positive trend and requires improvement, water supply systems remain insufficient averaged 1.1% in 2017 owing to better performances in agricul- and their tariffs do not reflect cost. Annual public spending ture, fisheries, and energy. A slight recovery is also expected in on infrastructure in 2009-2015 in Angola was 6% of GDP, well 2018 and 2019 as growth is set to rebound to 2.2% and 2.4%, above the average of 2% of GDP in the Sub-Saharan region. respectively, owing to a positive outlook in international oil prices Nevertheless, Angola’s infrastructure quality still lags behind its and strong reform momentum. peers in the region as evidenced by its low score in the Africa Infrastructure Development Index. Angola is reliant on external Angola is yet to realize the economic dividend from a boom- bilateral credit lines from China and Brazil to finance its infra- ing oil industry in the last decade, since 37% of the popula- structure, with only modest private sector investment. tion is estimated to live below the poverty line, unemployment Angola TABLE 1. Macroeconomic indicators 2016 2017(e) 2018(p) 2019(p) Real GDP growth 0.1 1.1 2.2 2.4 Real GDP per capita growth -3.1 -2.1 -1.6 -1.2 CPI inflation 30.7 29.8 22.6 17.9 Budget balance (% of GDP) -5.1 -4.9 -3.6 -3.1 Current account (% of GDP) -6.3 -5.5 -4.8 -4.2 Source. Data from domestic authorities; estimates (e) and predictions (p) are based on the author’s calculations. RECENT DEVELOPMENTS 0.5% in 2017, driven to a large extent by an increase in diamond AND PROSPECTS production at the Luaxe mine and the exploitation of iron and ornamental rocks. Expansion of mining activities has increas- The long decline in international oil prices impacted Angola’s ingly demanded a significant supply of electricity. As a result, fiscal revenues, prompting the authorities to cut infrastructure the energy sector is set to expand by 60.6% in 2018, up from expenditure by 55% between 2014 and 2017. Foreign cur- 40.2% in 2017 due to the completion in 2018 of two transform- rency shortages constrained economic activity and new job ative projects, the combined cycle gas plant at Soyo and the opportunities in non-oil sectors, triggering a recession in 2016, 2 070 MW Laúca hydroelectric power plant. when growth in real GDP per capita fell by 3.1%. GDP growth has since rebounded to 1.1% in 2017 owing to strong perfor- The oil and gas sector remains the largest contributor to GDP in mance in agriculture, fisheries and energy. Economic prospects Angola, accounting for 30% of GDP in 2017. It also represents for 2018-2019 are subdued, with growth expected to remain more than 95% of total exports and 52% of fiscal revenues. The modest at 2.2% in 2018 and 2.4% in 2019 amid a positive out- absence of new oil licensing rounds in the past five years and look for international oil prices. ageing oil fields have negatively affected new discoveries and production growth. Planned new investments by the State- Despite recent efforts to establish special economic zones, the owned oil company (Sonangol) for oil prospection and devel- country’s manufacturing sector remains limited due to lack of opment in 2018-2020 are estimated at USD 6 billion, which will skills and capital. Local factories generally just process foods help to prevent a potential fall in output from 1.7 million barrels such as sugar, beer, and fish. The Government’s plan to privat- per day (bpd) in 2018 to 1.3 million by 2022. Plans are under way ize State-Owned Enterprises (SOEs) and improve allocation of to construct a high conversion refinery with capacity to process forex liquidity for purchase of equipment and inputs will drive a up to 200 000 bpd in Lobito, Benguela Province, by 2022. Opti- 1.8% growth in industrial output in 2018 compared to a -0.7% mization and modernization of the Luanda refinery (65 000 bpd) fall in 2017. Construction sector growth is projected to expand will be executed in the next 24 months, in partnership with the from 2.2% in 2017 to 3.1% in 2018, driven by public expenditure Italian oil company ENI. Oil sector growth is set to rebound from projects financed by bilateral credit lines (in particular, USD 2 bil- a fall of -4.6% in 2017 to 6.1% positive growth in 2018-2019 owing lion from Brazil). Growth of services is set to rebound from 1.3% to the recovery in international oil prices and rising investments. in 2017 to 4.3% in 2018, as the approval of a new market com- petition law will stimulate economic activity in telecommunica- Angola is also endowed with high quality soils and water tions while the simplification of entry visas to Angola from 61 resources vital for food production and economic diversifica- countries is expected to boost revenues in the tourism sector. tion. The agriculture sector currently accounts for 12% of GDP Table 2 provides an overview of sectoral contributions to GDP. and 70% of total employment. In 2018, agriculture output is pro- jected to grow by 5.9%, up from 4.4% in 2017, supported by Angola is one of Africa’s most resource-rich countries. It is the external funded projects from the African Development Bank fourth largest producer of diamonds. Nevertheless, the coun- (AfDB), World Bank (WB), and the International Fund for Agri- try has yet to exploit its potential; the mining sector accounts culture Development (IFAD) which aim to strengthen small- for less than 2% of GDP. Extractive activities in diamonds and holder production of cereals, oilseeds, roots and tubers, meat, metallic minerals are expected to grow by 4.4% in 2018, up from coffee, palm and honey. Angola’s 2018-2019 agriculture season 2018 African Economic Outlook Country Note 2 Angola TABLE 2. GDP by sector (percentage of GDP) 2012 2016 Agriculture, forestry, fishing and hunting 6.5 12.2 of which fishing 1.1 2.4 Mining and quarrying 47.0 30.5 of which oil 46.0 29.9 Manufacturing 6.6 4.8 Electricity, gas and water 0.5 0.9 Construction 7.8 12.2 Wholesale and retail trade; repair of vehicles; household goods; restaurants and hotels 9.0 8.4 of which restaurants and hotels 2.4 1.4 Transport, storage and communication 4.3 5.1 Finance, real estate and business services 2.4 6.5 Public administration and defence, security 8.1 11.4 Other services 7.8 8.7 Gross domestic product at basic prices / factor cost 100.0 100.0 Source. Data from domestic authorities. is likely to be negatively affected by drier climate conditions in MACROECONOMIC POLICY the Southern region. Low agricultural productivity, and lack of yield-enhancing outputs and processing facilities continue to Fiscal policy constrain output in the sector. Angola adopted a contractionary fiscal policy to align public expenditure with declining revenues. Overall, fiscal revenues Pressures on Angola’s fiscal and external current accounts are dropped from 30.7% of GDP in 2014 to less than 19.2% of GDP likely to ease as the rebound in international oil prices to around in 2017 (Table 3), prompting a sharp fiscal consolidation that USD 70/barrel exceeds Angola’s State Budget reference price phased out fuel subsidies, rationalized spending on goods and of USD 50/barrel, helping to boost oil exports and revenues in services, and audited civil servants to eliminate ghost workers.