A vast country with a long coastline and central plateau, Angola thrusts inland across Southern Africa to border Namibia, Botswana, Zambia, and the Democratic Republic of the Congo. Its principal cities, including its capital, Luanda, look west over the South Atlantic to Brazil, another Portuguese-speaking nation (like itself). It has a population of more than 33.08 million (2022).
Economic Overview
Angola’s economic fortunes have been tied to global oil demand, which brought volatile growth and left the country with high levels of poverty and inequality. Reforms over the past five years have improved macroeconomic management and public sector governance. Macroeconomic stability has been enhanced through a more flexible exchange rate regime, central bank autonomy, sound monetary policy, and fiscal consolidation. Laws have been introduced to allow greater private sector participation in the economy, increasing the stability of the financial sector.
Growth accelerated in 2022 to 3% (from 1.2% in 2021) thanks to expansion in non-oil sectors and a small rebound in oil production. Higher oil prices allowed for fiscal expansion, especially in public investments, and appreciation of the domestic currency, underpinning strengthening domestic demand and generating a 7% growth in private consumption.
The oil sector contributed to this recovery with a growth of 0.5%, the first expansion since 2015. Non-oil output accelerated with agriculture and fisheries growing almost 4% and the services sector recovering to pre-COVID-19 levels. Construction activity expanded 5.5%, benefiting from higher government investment in the context of improved financial conditions and an election year.
In the first quarter of 2023, the economy expanded 0.3% year-on-year as growth in services (4.1%) was offset by a decline in oil production (-8.0 %). With higher oil prices, the currency appreciated 26.2% in 2022, though appreciation pressures receded in the second half of the year once oil prices began to fall. Between mid-May and end-June 2023, the kwanza depreciated around 40% against the US dollar due to lower government supply of foreign currency, resulting from lower oil revenues and larger external debt servicing as debt relief deals expired.
The current account surplus decreased to 0.4% of GDP in the second quarter of 2023, driven by lower oil revenues. International reserves remain stable at around $13 billion or about seven months of imports. Inflation continued falling rapidly from a peak of 27.7% in January 2022 to 10.6% in April 2023. However, the partial removal of gasoline subsidies and the weakening of the kwanza have reversed the inflation’s declining trend. The reform raised gasoline prices from 160 to 300 kwanzas per liter in June and mitigation measures were insufficient to shield poorer consumers.
As inflationary pressures resurge, the Central Bank has decided to keep the reference rate at 17%. Growth for 2023 is estimated at 1.3%, as both the oil and the non-oil sectors are expected to underperform. Despite the recent recovery in oil production, the average in 2023 will very likely stand close to the 2022 level. Non-oil sectors will be affected by cuts in public investments and a recent sharp currency depreciation, which is harming private consumption and production in sectors that rely on imported inputs. Slowing growth and rising food prices are expected to result in negative per capita private consumption growth and increased poverty at $2.15 per day (2017 PPP) from 32.4% to 32.8% in 2023, with a total of 11.8 million Angolans living in poverty.
While much remains to be done to achieve this transformation, reforms over the past years have improved macroeconomic management and public sector governance. Transforming the state-led and oil-funded economic model into a sustainable, inclusive, private-sector-led growth model requires high-level political commitment, strong coordination, and solid institutions.
Development and social challenges
High poverty is linked to a lack of good quality jobs: 80% of jobs are informal and half are in the primary sector (often subsistence work). Urban and youth unemployment remain high, exceeding 38% and 50%, respectively. Economic diversification remains elusive while oil production is declining and global decarbonization looms in the medium-term. Angola needs to urgently invest in removing barriers to private sector investment to achieve economic diversification to support growth, job creation, and poverty reduction. With abundant agricultural and arable land and favorable climatic conditions, agriculture is the sector with the highest potential to drive this diversification. Nonetheless, Angola will need to build climate resilience as its exposure to extreme climatic events is expected to increase water scarcity, increase temperatures, and extend dry seasons, hurting agricultural productivity.
Given the jobs challenge, high poverty, and a rapidly growing population, investing in human capital and poverty reduction is a top priority. The inadequate provision of health and education reduce the potential productivity of a child born in Angola to 36% of what it could be. Recent investments in education and health have been complemented with the roll-out of a social registry and the Kwenda cash transfer program in 2020, with nearly 750,000 rural households receiving payments as of August 2023. A broader social safety net with adaptable income support could substantially reduce extreme poverty, mitigate the impact of shocks on households, and support investments in human capital. Investments in human capital will require sustainably increasing spending and improving management and accountability to ensure results.
Political Context
Angola's fourth, post-war elections were held on August 24, 2022, and the ruling MPLA (Popular Movement for the Liberation of Angola) party won with 51% of the vote. UNITA (Union for the Total Independence of Angola), the main opposition party, secured 44% of the votes, its best results ever. The results confirmed a second and final term for President João Lourenço.
Overall, the opposition won 96 seats, up from 70 in the 2017 elections. The government comprises 23 ministers and 3 ministers of state.
Internationally, Angola is continuing to be assertive and demonstrating a steadfast commitment to peace and stability in Africa, particularly in the Democratic Republic of Congo where it has led regional efforts to end the instability which threatens the entire Great Lake Region.
Last Updated: Sep 24, 2023
