Economic studies
Angola

Angola

Population 26.5 million
GDP 5,304 US$
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Synthesis

major macro economic indicators

  2014 2015  2016 (f) 2017 (f)
GDP growth (%) 4.8 3.0 0.0 1.3
Inflation (yearly average) (%) 7.3 10.3 30.0 28.0
Budget balance (% GDP) -6.6 -4.9 -6.5 -6.3
Current account balance (% GDP) -2.9 -8.3 -10.0 -7.5
Public debt (% GDP) 40.7 64.2 77.7 79.1

 

(e) Estimate (f) Forecast

STRENGTHS

  • Major oil producer
  • Production of liquefied natural gas re-launched
  • Significant economic potential: diamonds, copper, iron, gold, agriculture, hydraulic resources
  • International backing

WEAKNESSES

  • Vulnerable to oil price volatility
  • High unemployment (26%), strong social inequalities and regional disparities
  • Infrastructure shortcomings
  • Fragile banking sector
  • Political and economic control held by a concentrated elite

RISK ASSESSMENT

 

Slow recovery in activity expected in 2017

The oil sector, which accounts for almost 40% of GDP, is expected to continue as the main driver of Angolan growth in 2017. Higher oil production could effectively contribute to a slow recovery in activity, thanks to the Mafumeira Sul (Chevron), East Hub (ENI) and Kaombo (Total) projects. Activity in the hydrocarbons sector could also be buoyed by the production of liquefied natural gas (LNG), which restarted at the Soyo site in 2016, after a one-year suspension. The construction and real estate sectors are likely to continue to be hampered by a decline in public investment, while private investment will be constrained by the maintenance of high interest rates (16% in October 2016).

Inflation, which exceeded 39% in September 2016, looks set to remain high in 2017, continuing to affect household consumption. Inflationary tensions, pushed upwards by higher fuel prices, import restrictions on numerous products (mainly food) and the consequences of the depreciation of the kwanza, will endure. Another fall in the exchange rate against the dollar will intensify the rise in prices.

Angola, being highly dependent on China (destination for almost half its exports, main financial backer and major investor), could be hit by the slowdown in that country's economy.

 

Worsening fiscal and current account imbalances

The 2017 draft budget presented by the government at the end of 2016 foresees a deficit of 6% of GDP, based on a relatively conservative oil price assumption ($46/barrel) and a growth forecast on the optimistic side of 2.1%. Revenues could be affected by less dynamic than expected activity, even if the resumption of hydrocarbon production (70% of budgetary revenue) is expected to prevent another sharp fall in government earnings. Current spending trends are likely to be kept under control so as to avoid deterioration in the public finances. Social spending cuts will, however, be curbed in view of the parliamentary elections in summer 2017. Moreover, the guarantees granted by the State to state-owned enterprises could put pressure on the budget, because of the poor financial position of some public entities, notably the oil company, Sonangol.

The public debt, about 60% of which is denominated in foreign currencies, has more than doubled since 2013 and is likely to continue to grow in 2017. As Angola renounced a loan of USD 4bn in June 2016, money it had previously requested from the IMF, financing conditions (especially Chinese) will be less concessional than those of that international institution, which is likely to lead to a further increase in the debt repayment burden. Uncertainties over the State's ability to meet its financial obligations threaten to worry investors.

With hydrocarbons representing over 95% of export income, the absence of another fall in the oil price together with increased production should help improve the current account balance in 2017, especially as weak domestic demand is likely to dampen imports.

Downward pressure on the exchange rate, which fell almost 20% against the dollar between January and end October 2016, could last and push the government to devalue the kwanza once again. The lack of foreign-currency liquidity and the economic slowdown is expected to continue to weigh on the banking system, itself highly dependent on the oil sector.

 
Political uncertainties and weak business climate

Since independence, the country has been led by José Eduardo dos Santos and his party (MPLA). The size of the opposition, although increasing, is still too small for a change to be considered. The next general elections are scheduled for 2017 and President Dos Santos (aged 73) reportedly decided to choose his defence Minister to replace him at the head of MPLA. Therefore, João. Lourenço may succeed M. Dos Santos as President. Given the political and economic hold the president and his party have, a chaotic succession could destabilise the country.

The president carried out a ministerial reshuffle in September 2016, replacing, in particular, his finance minister, in post for over three years. Beyond the tensions within his own camp, those between the MPLA and the main opposition party (UNITA) are expected to increase in the run-up to the elections. Meanwhile, popular discontent over inequalities and poverty, exacerbated by the economic slowdown and rising inflation, is intensifying the risk of social unrest.

Governance is a weak point of the country, due, in particular, to widespread corruption (Angola is ranked 201st out of 209 on the World Bank's Corruption Index).

 

Last update : January 2017

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