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Overview

Angola has one of the fastest growing economies in the world.

Real GDP growth has fluctuated since the end of the civil war but has remained positive hitting 20.6% in 2005 and averaging a 17% increase since 2002.

The economy grew by around 7.1% between 2009 and 2011. Against a backdrop of strengthened governance, macroeconomic stability and surging commodity prices, Angola is set to take its place on the global financial scene.

The oil industry, producing more than 2 million barrels per day still dominates the economy. Though indications of diversification are positive, oil production continues to account for approximately 50% of Angola’s GDP, 80% of government revenue and 95% of its exports.

Since 2006 however non-oil sector GDP growth has overtaken the oil sector. Angola is also the 4th largest producer of rough diamonds in the world.

The ending of hostilities has enabled this lucrative industry to become integrated into the formal economy, offering new and growing opportunities for investment.

Shattered infrastructure resulting from 27 years of conflict is being rapidly restored and will facilitate Angola’s growth and development, beyond mineral resource dependency.

Ambitious investment in hydroelectric schemes, telecommunications, and large-scale agricultural projects demonstrate the government’s long-term commitment to the reconstruction of the country.

Growth in the construction sector soared in the run up to the African Cup of Nations, held in January, and continues to grow despite fears that enthusiasm would fade when the competition came to an end.

Many challenges still lie ahead for the Angolan economy.  As the macro-economy stabilises, inflation is falling but remains high. Angola’s capital, Luanda has been listed as one of the world’s most expensive cities due to the high costs of imports.

Efforts must be made to reduce the cost of living to attract more foreign investment. Corruption remains endemic despite President dos Santos’ professed crusade against the practice.

Government revenue and expenditure is increasingly transparent though Angola remains 168th out of 178 countries in the 2010 Transparency International Corruption Perception Index. But the Angolan population are increasingly demanding their right to accountability.

Despite the challenges, the Angolan economy is firmly headed in the right direction.  Sound economic management will drive development, lifting many Angolans out of poverty.

Angola offers huge potential to international investors seeking to enter today’s frontier markets.


Quick Facts

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GDP growth
(annual %)
14.5 3.3 11.2 20.6 18.6 20.3 13.2 2.41 3.41 3.41
GDP
(US$, in billions)
11.4 14.0 19.8 30.6 45.26 59.3 84.9 69.1 82 101
Inflation
(annual %)
108.9 98.2 43.5 23.0 13.3 12.2 12.5 13.7 13.5 13
Exchange rate
(LCU per US$)
43.5 74.61 83.4 87.2 80.4 76.7 75.3 79.3 92 93.74

Source: World Bank

Insight

Moving beyond mineral resource dependence.

Angola’s economy remains almost entirely dependent on the country’s mineral wealth.  Oil and diamonds account for more than half of Angola’s GDP and more than 80% of government revenue.

Fluctuations in international market prices shock the Angolan economy.  Reductions in the price of oil have profound effects on state revenue and the government’s ability to push forward development projects.

For future stability it is vital that Angola moves beyond dependence on mineral resources, diversifies its economy and builds on domestic consumption by improving the living standards of the population.

After several years of GDP growth in double figures, Angola’s economy almost returned to recession in 2009.

The waves of the recent financial crisis were felt globally, and Angola’s primary weakness was its dependence on oil. Dramatically lowered international oil prices cost the Angolan economy dearly.  With rising oil prices in 2010 and a forecasted stability on the international market, Angola will return to it previous levels of growth.

Angola is overcoming the legacy of war and has exceptional potential to become an African giant.   For 27 years Angola’s protracted conflict was bankrolled by mineral wealth, but the ‘resource curse’ is not inevitable.

Sensible reinvestment of the enormous oil and diamond revenues into other sectors of the economy will ensure more stable development.  It is the responsibility of the Angolan government to forge new business and political partnerships and make this happen.

Prior to independence and the onset of civil war Angola’s agricultural sector was thriving.  Coffee, famous for its distinct quality, was a major source of foreign exchange.  Angola grew to become the world’s 4th largest coffee producer.

The country’s fertile lands offer great potential for diverse and sustainable crop production.  As a net importer of food crops, it is now vital for Angola to redevelop its agricultural sector and take steps towards self-sufficiency.

The majority of Angolans depend upon subsistence agriculture for their livelihoods and so investment could offer a great opportunity to lift the rural population/rural communities out of poverty.

Further investment in infrastructure and the energy and telecommunications sectors will build upon the significant gains already made in this new era of peace.  Creating a stable and attractive business environment will stimulate further growth and relations with the global economy.

Angola is endowed with the resources to make this possible.  Sound management of the economy – taking advantage of current growth levels to guard against risks in the future – will secure sustainable development.

Investment in the social sector holds the greatest prospects for Angola’s future.  The civil war has left the population lacking access to basic health and education services.  A generation of children have grown up without the opportunities to contribute to their country’s development.

Unlocking the potential of Angola’s greatest asset – its people – is the key to future prosperity.

Equitable Development in Angola

GDP growth figures mean little to the majority of Angolans who live on less than $1 a day.  Angola is ranked 146th out of 169 countries in the 2010 UNDP Human Development Report classifying it in the ‘Low Human Development’ group.

68% of the population live below the poverty line with 26% considered to living in extreme poverty. The government need to establish social and economic policies that ensure a fair distribution of national wealth.

The danger of resource-based economies is that extraordinary wealth is the privilege of the few while the majority of the population remain mired in poverty.

The Angolan Minister of Economy, Manuel Nunes Junior, has expressed his intention to build an equitable society, “with special emphasis on human development and the fair distribution of national income.” Angola’s ability to deliver on such promises will determine the historical legacy of President dos Santos and the MPLA.

Progress towards this is under-way.  In September 2000, Angola signed the United Nations Millennium Declaration demonstrating its commitment to the Millennium Development Goals (MDGs).

The Estratégia de Combate à Pobreza – ECP or Strategy to Combat Poverty, approved in February 2004 and revised in September 2005, details the government’s approach to poverty reduction.  In 2009 the new medium term development plan builds upon the Strategy to Combat Poverty and lists the goals to be achieved by 2013.

Substantial achievements are being made. Life expectancy has risen from 44.2 in 2002, when the civil war came to an end, to 47 in 2008. School enrollment rates are steadily rising. Mortality rates of children are falling. And maternal mortality rates are falling.

Improved access to health and education is producing tangible results in human development and social well-being.   So far however, these efforts are insufficient.

Greater political will and significantly more investment are critical. Equitable development is the precursor to political and social stability.

Analysis

Oil and Growth

Angola’s phenomenal economic growth rates between 2004 and 2008 were correlated with exceptionally high international oil prices. Angola’s GDP dropped from more than 20% in 2007 to 0.24% in 2009.  Cabinda oil prices reached a peak at $137 per barrel in June 2008.

The global financial crisis and the subsequent impact on demand for oil brought prices down.  By January 2009 prices had fallen more than $100 to $35 per barrel. With oil revenues accounting for approximately 85% of GDP a significant impact on Angola’s economic growth was inevitable.

The world economy is starting to recover though is still expanding (this is what you meant?) at below-average levels.  According to OPEC figures, global growth forecasts for 2010 stand at 3.9% and 3.6% for 2011.

The U.S. and Europe are particularly affected by the crisis while China and India are maintaining high levels of growth and helping to stabilise oil prices.  Cabinda oil prices have stabilised around $70-80 throughout 2010 and have pulled Angola’s economy back into healthy growth, estimated to be approximately 5.9% in 2010.

Forecasts suggest that oil prices are likely to remain stable for the foreseeable future.  Some analysts predict an ‘oil crunch’ in the next few years as developing economies grow and push demand beyond supply. Rising oil prices bode well for economic growth in Angola.

However, dependence on oil threatens to impact negatively on other sectors of the economy. This process is known as “Dutch Disease” – named after the Netherlands’ economic experiences in the 1960s after discovering oil in the North Sea.

Huge trade surpluses gained from oil revenue and the ensuing inflow of foreign currency cause the local currency to appreciate, thereby weakening the competitiveness of all other exports.  When foreign exchange rates are fixed the injection of currency causes inflation.

Dutch Disease threatens the potential diversification of the Angolan economy.  The government have made enormous progress in stabilizing inflation.  From a rate of almost 430% in 2000 inflation has stabilized to between 12-14% since 2006.

The Kwanza has also remained relatively stable since 2006 at between Kz75-80 : $1.  Sound fiscal management will be necessary to ensure Angola’s economic prosperity.

Reinvestment of oil revenues into the non-oil sector will contribute towards sustainability while concurrently contributing towards poverty reduction in the country.

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