Angola’s economy appears to have gained momentum in 2014 with its gross domestic product (GDP) growing at 4.4% in 2014. Compared to other oil-rich countries in Sub-Saharan Africa oil revenue makes up a large share of Angola’s total revenues. For the first time since the 2009 crisis, Angola is estimated to have registered a fiscal deficit although much smaller than anticipated and mostly due to oil-price fluctuations. Such is a reminder of Angola sensitivity to oil-price shocks. The 2014 budget (adopted in 2013) is expansionary relative to 2013, with capital expenditures expected to increase by about 3 percentage points of GDP, to about 13% of GDP. Thanks to expanded agricultural output, lower food imports, as well as efforts of the Angolan central bank to stabilize the nominal exchange rate, inflation has continuously declined to a single digit in 2014. The year-on-year rate of inflation slowed to a multi-decade low of 8.9% in January 2013, and further down to 7.69% in December 2013. However, as food imports are a major component of Angola’s consumption basket, consumer-price inflation is highly sensitive to changes in global food prices and the exchange rate. Inflationary risks are also linked to the planned fiscal expansion and the implementation of the new oil Foreign Exchange Law.
Angola has maintained political stability since the end of the civil war. The Constitution adopted in February 2010 established a presidential parliamentary system. Under the new system, the President is no longer elected by direct popular vote, but instead the head of the party winning the most seats in Parliament becomes President. The 2010 Constitution sets a limit of two, five-year presidential terms.
Parliamentary elections were held under the new Constitution in August 2012. The ruling party Movimento Popular de Libertação de Angola (MPLA) won 175 out of 220 seats in 2012, receiving over 72% of the votes. As a result, the incumbent Jose Eduardo dos Santos was sworn in as President together with Vice President Manuel Vicente, former head of the state oil company, Sonangol a month later. União Nacional para a Independência Total de Angola (UNITA) is the main opposition party with 32 parliamentary seats, while Convergência Ampla de Salvação de Angola (CASA-CE) established six months before the elections, and Partido de Renovação Social (PRS) won eight and three seats respectively.
Following the elections, the government vowed to operationalize the MPLA elections manifesto which seeks stronger growth and economic inclusion through better distribution of wealth, and by embedding it into the government’s National Development Plan (2013-2017), and its focus on poverty reduction, eradication of hunger, accelerated infrastructure development, assistance to young entrepreneurs, and better access to education and vocational training.
The next general elections are scheduled for 2017. Until then the government of President Dos Santos seems to enjoy political stability. A handful of governmental and judicial appointments marked 2014, these include: a new Governor of Luanda (capital); a new Supreme Court President; and a new Minister of Defense in replacement of veteran Carlos Van-Dunem.
Internationally, Angola is becoming more assertive and has been demonstrating steadfast commitment to peace and stability in Africa, in particular in the Great Lakes region. Ever since Angola took over the presidency of the International Conference of the Great Lakes Region in January, 2014 the situation in the region has improved significantly, clearly a result of Angola’s leadership. In this role Angola was able to secure for the first time a commitment from the states of the region to economic and political sanctions against armed rebel groups.
Angola has made substantial progress in economic and political terms since the end of the war. However, the country continues to face massive developmental challenges which include reducing the dependency on oil and diversifying the economy, rebuilding its infrastructure, improving institutional capacity, governance, public financial management systems, human development indicators and the living conditions of the population. Large pockets of the population still remain in poverty and without adequate access to basic services. Taking into account Angola’s high population growth rate and existing income, and service access disparity across different regions, there is a clear need for more inclusive development policies.
As a resource-rich developing country, Angola’s fiscal policies are essential to its medium-term growth. Effective fiscal policies can stabilize the economy against external shocks, and public investment, especially in infrastructure, is a primary mechanism for transforming the revenues of the resource sector into valuable public goods capable of supporting economic diversification and inclusive growth. While the authorities have taken steps to improve the resilience of the economy since the onset of the global financial crisis, there remains considerable scope to strengthen fiscal policy. Angola’s level of public investment is very low in comparison to other countries in the region, and at present current expenditures—including energy subsidies—account for the majority of public spending. Angola’s strong public debt profile and the revenue boost provided by the recovery of the oil sector offer a valuable opportunity to expand development spending and attract greater private-sector investment in the non-oil economy. However, in order to maximize its impact, new public spending must be efficient and productive. Sound fiscal rules and strong public investment management systems are essential to ensuring high-quality fiscal policy.
Recent reforms to curtail quasi-fiscal operations by Sonangol and to increase the transparency of oil-revenue management are positive steps. Angola’s recently established Sovereign Wealth Fund (SWF) can strengthen the country’s macroeconomic stability by isolating oil revenues and minimizing their inherent volatility, but its mandate and governing framework have yet to be defined in detail.
World Bank Group (WBG) in Angola
The WBG’s current partnership strategy (CPS) as set forth in the Angola CPS FY14-FY16, establishes the parameters through which the WBG and Angola collaborate. The CPS takes as its overarching theme the promotion of an inclusive growth with two core pillars and one foundation plank of cross-cutting nature, as follows:
- The first pillar focuses on supporting integrated national economic diversification by revitalizing rural economies toward greater competitiveness and employment. The target being strengthening of the non-oil economy, with emphasis on recuperating traditional lines of business that suffered greatly during the war, as well as providing technical assistance for the energy sector;
- The second pillar aims at enhancing the quality of service delivery to improve the quality of life of the population and equip them to take greater role in the development of the country and instituting a strong social protection program; and
- The Foundation Plank of the strategy revolves around building human and institutional capacity to approach levels common in middle-income countries.
These objectives would be achieved during the CPS period through stronger attention to quality and implementation performance enhancements in the five existing projects, as well as through the expected build-up of a series of Reimbursable Advisory Services (RAS) and International Bank for Reconstruction and Development (IBRD) lending.
The current WBG portfolio is comprised of five International Development Association (IDA) funded investment projects with a total net commitment of $426 million dollars. These include:
Last Updated: Oct 10, 2014