I. Economic Environment

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I. Economic Environment Angola WT/TPR/S/158/Rev.1 Page 1 I. ECONOMIC ENVIRONMENT (1) OVERVIEW 1. Angola covers an area of 1.25 million km2 on the Atlantic coast of Africa. With a western coastline of 1,600 km, it is bordered by Congo (Brazzaville) to the north, Congo (D.R.) to the north and east, Zambia to the east, and Namibia to the south. The population is estimated at some 15.5 million1, of which it is officially reckoned that 34% live in urban areas.2 Thirty years of civil war led to a large number of internally displaced persons, as well as refugees living outside Angola; one United Nations estimate in November 2001 stated that there were as many as 4.1 million displaced persons, although more recent estimates put the number at between 40,000 and 340,000.3 2. Per capita GDP in 2004 was estimated at roughly US$1,305 and GDP per capita on a purchasing-power-parity (PPP) basis in 2003 was estimated at US$2,344, well above the sub-Saharan average.4 Poverty is still strongly entrenched. Angola was 160th out of 177 countries in the UNDP Human Development Index (HDI) for 2005 (166th in 2004), and the difference between its ranking in terms of per capita GDP and its HDI was 34 points (Table I.1). Life expectancy at birth is 41 years and, with a total fertility rate of 7.2 births per woman, the mortality rate in the first five years of life is estimated at 260 per thousand live births. Annual health expenditure is some US$70 per capita5; the education budget is 3.9% of GDP, and it was estimated that 61% of primary age children attended school in 1998-99.6 Half of the population was estimated not to have access to clean water in 2002.7 Income distribution is extremely skewed; one estimate of the Gini coefficient, published in 2001, was 0.62 for urban income inequality8, and it is estimated that more than two thirds of Angola's population lives below the official poverty line of US$1.07 per day, and 28% in extreme poverty (US$0.70 per day).9 3. Since the end of the civil war in 2002, Angola has made progress in stabilizing the macroeconomy, consolidating peace, clearing landmines and beginning the reconstruction of the economic infrastructure. However, economic growth remains largely dependent on the performance of the oil and diamonds sectors; relatively little progress has yet been made in the rebuilding of agriculture and industry, and there is a large informal economy. Greater security in the country, combined with greater macroeconomic stability, are two essential preconditions for the rebuilding process. However, there is still a severe shortage of skills; many markets are still distorted by subsidies, price controls, and extensive State or parastatal participation; and much of the infrastructure is still destroyed or damaged, with landmines remaining a significant hazard.10 Many challenges lie ahead in progressing on a broad range of structural reforms and in increasing transparency and participation in the reconstruction process. 1 IMF (2005a). No census has been taken in Angola since 1970. The CIA World Factbook gives an estimate of 11.2 million for July 2005. 2 Government of Angola (2003). 3 Norwegian Refugee Council. 4 IMF (2005b) and UNDP (2005a). 5 WHO (2005). 6 UNDP (2005a). 7 UNDP (2005a). 8 Aguilar (2001). The Gini coefficient is a measure of income inequality: a value of 0 denotes perfect equality and 1 complete inequality (see www.http://en.wikipedia.org/wiki/Gini_coefficient). 9 Government of Angola (2003). 10 Although de-mining is progressing, with an estimated 20,000 km2 of land cleared between 1999 and 2003, it is estimated that there may still be between five million and ten million landmines in Angolan soil. For a comprehensive survey of the situation in 2004, see ICBL (2004). WT/TPR/S/158/Rev.1 Trade Policy Review Page 2 Table I.1 Main social and economic indicators, 2005 Land area 1,246,700 sq. km. Nominal GDP at current market prices US$983.2 million (2003) Population (2004) 15.5 million GDP per capita, purchasing power parity, US$ 2,344 Urban share of population (2004) 34 % 2003 Annual population growth 2.9% (trend 2002-15) UN human development index (2005) - Overall ranking 160 - GDP per capita rank 126 Life expectancy at birth (2003) 40.8 years Enrolment ratio in education (2002) Infant mortality rate per '000 live births 154 - Pre-school .. (2003) - Primary 61% Under five mortality rate per '000 live 260 - Secondary .. births (2003) Population without sustainable access to 50% Adult literacy (2003) 66.8% improved water source (2002) - Male .. - Female .. .. Not available. Source: UNDP (2005a); IMF (2005a and b). 4. The economy of Angola is highly dualistic. Oil extraction is the largest single contributor to GDP and the largest export item. Increasing oil prices have benefited government revenue significantly, but concerns remain concerning transparency of the payments process for oil and the use of oil revenues. The civil war led to the destruction of both agriculture and industry (Chapter IV) and the challenge is now to rebuild. (2) RECENT ECONOMIC PERFORMANCE (i) Growth, employment, and poverty reduction 5. Angola's overall economic growth rates (measured by increase in estimated GDP) have varied considerably in the last three years, falling from 14.4% in 2002 (the year the civil war ended) to 3.4% in 2003, and accelerating to 11.2% in 2004 (Table I.2). Almost all of these changes were due to variations in the value of oil output which, after rising by over 20% in 2002, declined in 2003 and increased sharply again in 2004. Since 2001, non-oil sector GDP has grown more steadily than the oil sector, at rates between 8% and nearly 10%. World Bank projections for 2005 suggest that, with increasing oil prices, overall GDP growth might average 18% annually over 2005-07.11 6. Petroleum is the largest sectoral contributor to Angola's formal GDP, accounting for 48% in 2003 (Table I.3).12 Total mineral extraction, including diamonds and other minerals, accounted for 53%. Angola's oil reserves were estimated at 22,800 million bulk barrels in 2004, the fifteenth largest in the world and second in Africa after Nigeria.13 7. Within the formal non-oil economy, "trade and commerce" and "non-tradeable services" are the largest sectors, accounting jointly for an estimated 59% of non-oil formal sector GDP in 2003; agriculture is the third largest with 16.6% in 2003. 11 World Bank (2005). 12 Between 2000 and 2003, the value of oil sector GDP increased from US$5 billion to US$6.5 billion, but its share in GDP fell from 60% to 48.3%, while the share of "non-tradreable services" increased from 6.7% to 15.1%. IMF (2005). 13 CIA (2005). Angola WT/TPR/S/158/Rev.1 Page 3 Table I.2 Economic performance, 2001-04 (Per cent and US$) 2001 2002 2003 2004 GDP at current market prices (US$ million) 8,936 10,792 13,825 19,535a GDP at current market prices (Kz billion) 197.1 471.6 1,031.4 .. Non-oil GDP at current market prices (Kz billion) 142.0 220.6 532.9 GNI per capita (US$) 544 650 838 1,154a (Annual percentage change) Real GDP 3.1 14.4 3.4 11.2a Real GDP (non-oil) 9.4 7.9 9.8 8.8a Broad money, M3 (December) 41.7 107.6 180.3 .. Consumer price index (annual average) 248 325 109 98a (Per cent) Interest rates Time deposit rate (0-90 days, December) 56.1 41.0 26.7 .. Commercial lending rates (0-180 days maturity, December) 97.6 99.7 93.4 .. Central bank discount rate (December) 150.0 150.0 150.0 .. (Per cent of GDP) Government fiscal balance, before grants (accrual basis) -4.0 -9.3 -7.9 .. Domestic revenue 45.1 40.5 37.5 .. Non-oil sector 9.2 9.4 9.4 .. Grants received 2.4 0.0 0.8 .. Total expenditure 49.0 49.8 45.5 .. (US$ million) External sector Current account balance -1,329 -150 -720 .. of which: oil sector 1,362 3,856 1,971 .. Net merchandise trade 278 808 -1,452 .. Exports (f.o.b.) 3,457 4,568 4,028 .. Imports (f.o.b.) 3,179 3,760 5,480 .. Average price of Angola's oil (US$/barrel) 22.7 23.7 28.2 36.4 Financial and capital account 954 -552 1,103 .. Overall balance -842 -551 -5 .. Gross official reserves 732 375 660 1,365 in months of imports (c.i.f.) 1.2 0.5 0.9 .. External debt/GDP ratio (%) 81.3 81.0 69.9 48.6 .. Not available. a IMF staff estimate. Source: IMF(2005a), International Financial Statistics, August 2005, Washington, D.C. and (2005b), Angola: Selected Issues and Statistical Appendix, and Staff Report, August 2005, Washington, D.C. 8. The size of the informal sector raises questions on the accuracy of data on total GDP and sectoral shares. With the disruption caused to the economy by the civil war, the informal sector has become increasingly important in Angola, causing serious implications for the economic structure and for tax revenue. It is estimated that up to 70% of jobs in Angola are within the informal economy.14 14 IRINNews (2004). A recent discussion of the informal sector is contained in Cain (2004). See also Development Workshop (2005). WT/TPR/S/158/Rev.1 Trade Policy Review Page 4 Table I.3 Sectoral shares in GDP, 1999-03 (Per cent) 1999 2000 2001 2002 2003 Share of main sectors in GDP (a) including oil sector and import duties Agriculture, forestry and fishing 6.3 5.6 8.1 8.1 8.2 Mining and quarrying 66.3 66.4 57.3 58.0 52.9 Petroleum and LPG 58.1 60.0 51.1 53.2 48.3 Diamonds 8.1 6.4 6.1 4.8 4.5 Manufacturing 3.4 2.8 3.9 3.7 3.8 Services Construction 2.9 2.7 3.6 3.4 3.6 Electricity and water supply 0.0 0.0 0.1 0.0 0.0 Trade and commerce 15.1 14.2 15.4 14.2 14.2 Non-tradeable services 4.6 6.7 9.3 16.7 15.1 Import duties 1.2 1.3 2.2 1.8 2.1 (b) excluding oil sector and import duties Agriculture, forestry and fishing 15.7 14.7 17.5 13.9 16.6 Mining and quarrying 20.0 16.3 13.1 10.6 9.2 Manufacturing 8.6 7.3 8.3 8.3 7.7 Services Construction 7.1 7.1 7.7 7.7 7.2 Electricity and water supply .
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