Angola’s economic growth as measured by its gross domestic product (GDP) has slowed down in 2013 (real GDP was at 4.1% in 2013 from 5.2 in 2012) amid lower performance of the oil sector, which accounted for more than 40% of GDP during the same period. Oil prices, while higher compared to the 2009-10 crisis levels, reached an average of $107.3 a barrel, below the 110.9 a barrel in 2012. Non-oil GDP is accelerating thanks to developments in the electricity sector and the recovery of the agriculture sector following the long drought, which affected agriculture output. GDP growth is expected to accelerate in 2014 as oil production recovers. For the first time since the 2009 crisis, Angola is estimated to have registered a fiscal deficit. Lower oil-related revenue as a percentage of GDP brought about an estimated fiscal deficit of 1.5% of GDP. The 2014 budget (adopted in December 2013) is expansionary with capital expenditures expected to increase by about 3 percentage points of GDP, to about 13% of GDP. It outlines expenditures of $55.4 billion (41.9% of GDP), with the broad aim of helping to diversify the heavily oil-dependent economy and boost job creation. Revenue is put at $48.6 billion, giving a deficit equivalent to 4.9% of GDP.
The current account surplus is shrinking as oil exports earnings are declining. It was estimated at 5.5% of GDP in 2013, down from 9.2% of GDP in 2012. By the end of 2013, international reserves stood at $33 billion about the same level as in 2012. After reaching a peak in June, net international reserves declined in July and again in December mimicking a decrease in government foreign exchange deposits in the Central Bank. International reserves play a pivotal role, shielding Angola’s economy from oil price fluctuations.
Thanks to declining global food prices and the efforts of the Angolan central bank to stabilize the nominal exchange rate, inflation has continuously declined. 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 (y-o-y). 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.
There are significant challenges remaining to lift Angola’s development effort to a higher ground. 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.
Angola has maintained political stability since the end of the civil war. The new Constitution adopted in February 2010 established a presidential parliamentary system. Under the new system, 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 effective from the 2012 election.
Parliamentary elections were held under the new Constitution in August 2012. Movimento Popular de Libertação de Angola (MPLA) won 175 out of 220 seats, 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) created just six months before the elections, and Partido de Renovação Social (PRS) won eight and three seats respectively.
Following the elections, the newly constituted government worked quickly to operationalize the MPLA elections manifesto “enhancing growth and distributing better” into National Development Plan, 2013-2017 which focuses on poverty reduction, eradication of hunger, accelerated infrastructure development, assistance to young entrepreneurs, and better access to education and vocational training.
The prospects for rule of law and peace are good. Progress is being made in ending armed conflict in the country, including in the oil-rich province of Cabinda where the Armed Cabinda separatists Frente de Libertação do Enclave de Cabinda (FLEC) have fought for independence since 1975. A Memorandum of Understanding (MOU) was signed between the government and a faction of FLEC in 2006 seeking to bring a formal end to the conflict. However, sporadic attacks on government and other members of the society are still common.
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.
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.