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Angola - Economy

In spite of its oil wealth, Angola is poor. Its GDP per capita figure of over US$2,000 is misleading. In 2007, it ranked 162 out of 177 countries on the UNDP Human Development Index. 95% of the population live in poverty (under US$1 per day) or extreme poverty (less than 76 US cents per day). All the socio-economic indicators are among the worst in Africa. Nearly 60% of the population is illiterate while over 60% have no access to potable water.

Over the two years 2014-15, an economic slump was caused by a sharp drop in oil prices that sapped dollar inflows, hammered the kwanza and prompted heavy government borrowing. The kwanza slid more than 30 percent against the dollar in 2015, and in January the central bank allowed for another 15 percent weakening to 155 against the dollar. The weaker currency saw inflation soar to 35 percent from 10 percent in 2014, forcing the central bank to hike interest rates by 675 basis points since June 2015.

The Angolan economy continued to be severely affected by the oil price shock. Economic growth slowed to 3 percent in 2015 driven by a sharp slowdown in the non-oil sector. Inflation has accelerated and reached (year-on-year) 29.2 percent in May 2016, reflecting a weaker kwanza that has depreciated over 40 percent against the US dollar since September 2014, higher domestic fuel prices following the removal of fuel subsidies, and loose monetary conditions. The external current account balance moved into deficit, although international reserves have been protected and remain at relatively comfortable levels.

The outlook for 2016 remained difficult, despite the increase of oil prices in recent weeks, and economic activity will likely decelerate further. However, a modest recovery could materialize in 2017, if Angola’s terms-of-trade continued to improve and shortages of foreign exchange that have adversely affected non-oil sector production are tackled.

Angola offers both high returns and great risks to investors and exporters. The oil and diamond industries and intensive infrastructure rebuilding following the end of civil war in 2002 create business opportunities, and future opportunities may develop in new areas such as agriculture and mining. The IMF forecast 5.5 percent real GDP growth in 2013 in comparison to 6.8% growth in 2012. The business environment remains one of the most difficult in the world. Investors must factor in pervasive corruption, an underdeveloped financial system, poor infrastructure and extremely high on-the-ground costs. Surface transportation inside the country is slow and expensive, while bureaucracy and port inefficiencies complicate imports and raise costs.

Angola’s economy had experienced extraordinary growth. In 2006 its gross domestic product (GDP) grew by 18.6 percent. Projections for 2007 then ranged from 27 percent to more than 30 percent [but by 2008 growth had declined to 13.8%, and fell to 2.4% in 2009]. This unusual economic performance and the building boom it fueled did not have a significant impact on poverty reduction: 68 percent of Angolans live below the poverty level, 28 percent of them in extreme poverty. Unemployment in urban areas is almost 50 percent. The country occupies position 161 on the United Nations Development Program (UNDP) Human Development Index, one of the lowest in the world.

Despite a rapidly-growing economy due to petroleum production and post-war reconstruction, Angola ranks in the bottom 10% of most socioeconomic indicators. GDP growth in 2009 was flat due to significantly lower oil prices owing to the global financial crisis. GDP growth in 2011 was estimated at 3.7%, with a continued pick-up in the pace expected for 2012, barring another global financial crisis. Higher than expected oil prices provided a significant short-term boost to government revenues, and international reserves recovered strongly in 2011, reaching a record U.S. $24 billion in June 2011.

Angola is still recovering from 27 years of nearly continuous warfare, and is slowly beginning to tackle problems of corruption, lack of transparency, and economic mismanagement. Despite abundant natural resources and rising per capita GDP, it was ranked 148 out of 169 countries on the 2011 UN Development Program's (UNDP) Human Development Index. Agriculture (primarily subsistence) accounts for 80% of the work force.

The Organization of Petroleum Exporting Countries (OPEC) cut Angola’s production target to 1.51 million barrels per day (bpd) in January 2009 in response to plummeting oil prices. Throughout 2009, Angola never got down to its OPEC quota and produced an average of 1.8 million bpd, and OPEC did not try to enforce the quota. Angola is Africa’s second-largest oil producer, following Nigeria. Production for 2011 averaged 1.8 million bpd, below its peak capacity of 1.9 million bpd, due to technical problems. Oil production was expected to reach 2.0 million bpd in the latter half of 2012, helped by the start-up of the 220,000 bpd Pazflor deepwater field.

Estimates of Angola’s proven oil reserves range from 9.5 billion to 13.5 billion barrels. In 2011, Angola exported close to 1.8 million bpd of crude oil. Crude oil accounted for roughly 46% of GDP, 94% of exports, and 76% of government revenues in 2011 according to the International Monetary Fund (IMF). Angola also produces 40,000 bpd of locally refined oil. Oil production remains largely offshore and has few linkages with other sectors of the economy, though a local content initiative promulgated by the Angolan Government requires oil companies to source from local businesses and increase the number of Angolan staff.

Angola has one refinery (in Luanda) operated by sole owner Sonangol, the state-owned oil company and regulator. There are plans to increase capacity of the Luanda refinery from 40,000 bpd to 100,000 bpd. Decade-old plans for construction of a second refinery in Lobito with projected production of 200,000 bpd are proceeding slowly due to financing difficulties, although U.S. company KBR has been selected for the front-end engineering and design work.

A consortium of Chevron, Sonangol, BP, Total, and Eni have developed a $5 billion liquefied natural gas plant at Soyo to take advantage of Angola’s estimated 25 trillion cubic feet of natural gas reserves. Construction by Bechtel began in February 2008 and the plant began production in 2012.

In January 2011, Sonangol announced the results of a restricted tender for exploration of the pre-salt layer in 11 blocks off the central coast of Angola. Cobalt International Energy was awarded an operatorship in block 20 and a stake of 40%, and ConocoPhilips was awarded operatorship and stakes of 30% in blocks 36 and 37. Sonangol has an interest in all blocks.

In 2010, Angola was China’s second-leading source country for crude oil by volume, providing 790 million barrels, after Saudi Arabia (890 million barrels). The United States was the second major destination for Angolan oil exports, importing close to 400 million barrels and making Angola one of the top sources for U.S. oil imports.

Diamonds make up most of Angola's remaining exports. The financial crisis severely depressed diamond prices in 2009, sharply curtailing Angola’s diamond exports, and at one point forcing the state diamond authority, Endiama, to buy up production at cost for stockpiling to keep operators going. In 2010, diamond production in Angola reached 8.5 million carats, representing revenues estimated at $995 million. Despite increased corporate ownership of diamond fields, much production is currently in the hands of small-scale prospectors, often operating illegally. Eight large-scale mines operate out of a total of 145 concessions. The government is making an increased effort to register and license prospectors while decreasing production by informal prospectors. In 2011, Angola passed a new law for the mining sector. Legal sales of rough diamonds may occur only through the government's diamond-buying parastatal, although many producers continue to bypass the system to obtain higher prices. The government has established an export certification scheme consistent with the Kimberley Process to identify legitimate production and sales. Other mineral resources, including gold, remain largely undeveloped, though granite and marble quarrying has begun.

In the last decade of the colonial period, Angola was a major African agricultural exporter. Because of severe wartime conditions, including the massive dislocation of rural people and the extensive laying of landmines throughout the countryside, agricultural activities came to a near standstill, and the country now imports most of its food. Small-scale agricultural production has increased several-fold over the last 5 years due to demining efforts, infrastructure improvements, and the ability of returnees and internally displaced persons (IDPs) to return safely to agricultural areas, yet production of most crops remains far below 1974 levels. Some efforts at commercial agricultural recovery have gone forward, notably in fisheries and tropical fruits, but most of the country's vast potential remains untapped. Recently proposed land reform laws attempt to reconcile overlapping traditional land use rights, colonial-era land claims, and recent land grants to facilitate significant commercial agricultural development. However, the lack of clear title to land tracts and burdensome registration process in Angola continues to be a significant impediment to foreign investment in the agriculture sector.

In November 2009, following increased Angolan efforts to make oil revenues more transparent, the IMF approved a 27-month Stand-by Arrangement (SBA) with Angola in the amount of approximately $1.4 billion to help the country cope with the effects of the global economic crisis. In The IMF Executive Board completed the sixth and final review under the SBA on March 28, 2012 and approved the final disbursement. As a result of inconsistencies in the reporting of oil revenues by Sonangol to the Treasury that came to light during the IMF program, Angolan authorities agreed to implement corrective measures and reforms to enhance the reporting and transfer of oil revenues by Sonangol. A December 2011 presidential decree ordered the phasing out of certain quasi-fiscal activities performed by Sonangol, which will also contribute to improving the transparency of oil revenues.

A new private investment law adopted in 2011 provides certain benefits and incentives for investors. The threshold for such incentives was increased from investments of $100,000 under the old law to $1 million.

In 2010, the National Assembly passed a new law to combat money laundering and terrorist financing. In 2011, the government established a Financial Intelligence Unit to implement provisions of the new law. A recent Financial Action Task Force on Money Laundering (FATF) report recognized that Angola had taken steps toward improving its AML/CFT (anti-money laundering and combating the financing of terrorism) regime. Angola is revising its tax code to improve the collection of tax revenues. The Angolan commercial code, financial sector law, and telecommunications law all require substantial revision.

Angola is the second-largest trading partner of the United States in sub-Saharan Africa, mainly because of its petroleum exports. U.S. exports to Angola primarily consist of industrial goods and services--such as oilfield equipment, mining equipment, chemicals, aircraft, and food. Angola is eligible for tariff preferences under the African Growth and Opportunity Act (AGOA).