Over the past year, the Angolan economy has shown signs of slowing down; real gross domestic product (GDP) grew by 4.2% in 2014, down from 6.8% in 2013. This is primarily due to the weak performance of the oil sector, which has contracted since 2011. Oil production declined by 2.6% in 2014 due to unscheduled maintenance and repair work in some oil fields, compared to a decline of about 1% in 2013. Growth in the non-oil economy also slowed in 2014 on account of delays in the execution of key electricity and industrial investments. Non-oil growth is nevertheless estimated to have reached 7.3% as a result of the recovery of the agriculture sector following the 2012 drought as well as expansion of the service sector.
The decline in international crude oil price has had a substantial impact on budget balances, with the fiscal deficit widening from 0.3% of GDP in 2013 to 2.9% in 2014. With a continuous decrease in global crude oil prices the country’s budget has witnessed a significant decline in oil revenues, from 30-24% of GDP between 2013 and 2014. By contrast, non-oil revenues slightly increased over the same period, from 8.1 to 9.1% of GDP between 2013 and 2014, thereby containing the decrease in total revenues to 14%. Alongside lower revenues, a contraction in public expenditure was also registered. Public expenditure as a percent of GDP fell by 3.2% of GDP in 2014, driven by lower current expenditure, specifically expenditure on goods and services and subsidies. Capital expenditure also fell by 0.6% of GDP in 2014 due to liquidity pressures arising from the decline in oil price. With expenditures contracting by 8%, the fiscal deficit widened from 0.3% of GDP in 2013 to 2.9% in 2014.
The current account surplus has narrowed, reflecting reduced oil-related export earnings and higher imports. Lower oil prices and a contraction in oil production, combined with structural deficits in the services balance and negative net income, have eroded the current account surplus. Oil exports began to decline in 2013 as domestic production fell. Combined with a slight increase in imports, the trade balance fell from 41.1% of GDP in 2012 to 24.3% of GDP in 2014 and led to a current account deficit of 0.9% of GDP — the first deficit since 2009. Net international reserves are projected to have reached $27.5 billion, representing nine months of imports, by the end of 2014.
Owing to declining global food prices, increased agriculture production, and the efforts of the Angolan central bank to stabilize the nominal exchange rate, inflation in 2014 reached the historically low level of 7.3%, down from 8.8% in 2013. Inflation is expected to remain below double digits in 2015.
Angola has maintained political stability since the end of the civil war in 2002. In February 2010, the Constitution 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. 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.
The next legislative elections are scheduled to take place in 2017. At the polls, the MPLA is likely to take advantage of its solid funding base, strong business connections and domination of the media to win another majority and retain its hegemonic grip on all aspects of power. Should President Jose dos Santos decide to relinquish power before the poll, the constitution dictates that the vice president (currently Manuel Vicente) would complete the term of office "with full powers." This term of office would run until the next election, which only the acting head of state would have the power to call.
Opposition groups had hoped that they would be able to build political momentum at long-delayed municipal elections, scheduled for 2015. However, this has been derailed following the announcement that the polls are unlikely to be held before 2018 at the earliest. Opposition parties accuse the MPLA of deliberately delaying local elections to protect its power base, and have also expressed concern about the government's planned alterations to the current electoral law to facilitate a new voter-registration process ahead of the 2017 legislative elections. The authorities argue that new registration is necessary to ensure that they have the correct details about all voters, but while cleaning up the electoral databases is a positive move, opposition groupings believe that the method of doing so will compromise the independence of the national electoral commission, the Comissão Nacional Eleitoral. This suggests that opposition groups will again regard the electoral process as in effect invalid if, as seems likely, they fail to mount a coherent and sustained electoral challenge to the ruling party.
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. After 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, most likely a result of Angola’s leadership. In this role, Angola was able to secure a commitment from the states of the region to economic and political sanctions against armed rebel groups for the first time.
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. With Angola’s high population growth rate and existing income, and service access disparity across different regions, which could benefit from more inclusive development policies.
With oil prices continuing to fall, the government passed a revised, austerity 2015 budget in late February and approved by the National Assembly in March 19th. This is based on a benchmark oil price of $40/barrel instead of the $81/b included in the original 2015 measure, and outlines a series of steps designed to reduce expenditure in the low oil price environment. This is consistent with previous warnings by the administration that the fall in oil prices will necessitate an "exercise in austerity" and a re-prioritization of public expenditure. In pursuit of this, the government has twice reduced fuel subsidies—and further cuts in subsidies are planned—and introduced a freeze on public sector hiring until the end of 2015. At the same time, however, it is likely to remain wary of implementing policies that could lead to sustained public unrest, and it has thus pledged that social programs such as health and education will be protected.
There is a risk that introducing kneejerk austerity measures—especially in the area of capital spending—could create longer term problems for the economy and slow down much-needed attempts at diversification. For the time being, therefore, the government remains overtly committed to an ambitious policy agenda designed to promote more stable and inclusive growth and formal job creation, as well as important social and infrastructure programs. However, Angola may resort to International Monetary Fund (IMF) support if oil prices fall substantially and for a prolonged period.
Last Updated: Apr 13, 2015