Angola
Synthesis
major macro economic indicators
2021 | 2022 | 2023 | 2024(p) | 2025(p) | |
---|---|---|---|---|---|
GDP growth (%) | 1.2 | 3.0 | 0.9 | 2.5 | 3.0 |
Inflation (yearly average, %) | 25.8 | 21.4 | 13.6 | 26.0 | 15.0 |
Budget balance (% GDP) | 3.4 | 0.6 | -1.9 | 1.0 | 1.5 |
Current account balance (% GDP) | 10.0 | 8.3 | 3.8 | 3.5 | 3.0 |
Public debt (% GDP) | 74.3 | 56.1 | 73.9 | 60.0 | 58.0 |
(p) : Forecast. *Includes central government debt, the external debt of the national oil company Sonangol and the national airline TAAG, as well as guaranteed debt.
STRENGTHS
- Significant oil production, liquefied natural gas and diamond production with development prospects
- Considerable economic potential: iron, gold, leather, agriculture, fishing, hydroelectricity
- Immense arable land (over 35 million hectares, 28% of the territory)
- Multilateral and bilateral financial support
WEAKNESSES
- Heavy dependence on hydrocarbons (95% of exports, 60% of budget revenues and nearly a third of GDP), as well as on China (main creditor and customer)
- Low contribution of agriculture to GDP (10%), despite providing more than half (56%) of jobs
- Depletion of existing oil fields
- Poor business environment: corruption, bureaucracy, slow pace of reform
- Infrastructure deficiencies
- High unemployment (28% among young people), strong social inequalities, poverty and regional disparities
- Conflict with separatists in the Cabinda exclave
RISK ASSESSMENT
Growth underpinned by investment in hydrocarbons
In the first half of 2024, economic growth rose sharply, boosted by increased oil production and solid performances by the mining and gas industries. This trend is set to continue in the second half of the year, and into 2025, as investment in oil and gas infrastructure increases. The National Oil, Gas and Biofuels Agency (ANPG), which took over regulation of the sector from the national oil company Sonangol, aims to maintain production at 1.1 million barrels per day until 2027, before increasing it to 2 million bpd, which was the 2010 level! It signed a USD 6 billion contract with TotalEnergies (Kaminho project) in May 2024 to develop the Cameia and Golfinho fields some 100 km offshore from Luanda. The French group, which holds 40% of the fields alongside Malaysia's Petronas (40%) and Sonangol (20%), plans to complete the project in 2028, with a production target of 70,000 barrels per day. Also in May 2024, ExxonMobil discovered a promising new oil field off the coast of Cabinda. Angola also wants to increase its meagre refining capacity, currently around 65,000 bpd for fuel consumption of around 440,000 bpd. To achieve this, the country plans to build three new refineries - Lobito, Soyo and Cabinda - under the aegis of Sonangol. They are due to come on stream in 2025 and 2026, although delays are possible. Sonangol's objective is to reach refining capacity of 425,000 bpd. In addition, to meet European demand, investments are also focusing on the development of natural gas. Eni, TotalEnergies, BP, CABGOC and Sonangol have formed a consortium (New Gas Consortium) to exploit the Quiluma and Maboqueiro offshore fields in the north of the country by 2022. This project, including the construction of two offshore platforms and an onshore gas processing plant, aims to produce 4 billion cubic meters of LNG per year by 2026. These multiple projects should support services and construction. The outlook for diamonds is also positive, with the opening in November 2023 of Angola's largest mine at Luele, majority-owned by the national company Endiama. Last, the "Vision 2050" strategy and the National Development Plan (2023-2027) focus on infrastructure modernisation and expansion, as well as economic diversification, which should support non-hydrocarbon activity. The modernisation of the Lobito Corridor, a railroad line linking the mines of northeastern Zambia to the Angolan port of Lobito, is supported by the United States (which has earmarked an investment of USD 250 million) and the European Union. The government aims to increase the agricultural sector's contribution to GDP to 14% (from the current 10%) by 2027. To achieve this goal, Angola secured a loan of around USD 105 million from the African Development Bank at the end of 2023. This funding will be used to improve the productivity of small farms and strengthen the governance and capacity of public agricultural institutions, thereby encouraging private investment. In December 2023, the United Arab Emirates announced a USD 30 million investment in rice and avocado production in Angola. Nevertheless, the agricultural sector's contribution to economic growth will remain weak and irregular, at the same time as drought from the El Niño weather phenomenon has been harming the maize harvest throughout southern Africa in 2024. Pressure on food prices due to this weather phenomenon, together with kwanza depreciation, fueled inflation in the first half of 2024, which is expected to remain high until the end of the year, thereby adversely affecting private consumption. In response, the National Bank of Angola (BNA) is expected to maintain its key rate at 19.5% after raising it by 50 basis points in May 2024. In addition, the reduction in fuel subsidies initiated in mid-2023 will continue to reduce household purchasing power. In 2025, price rises are expected to moderate gradually, as the effects of subsidy removal and the pass-through of exchange rate depreciation fade, while rains are expected to return once La Niña has replaced El Niño.
Budget and current account surpluses based on hydrocarbons
In 2024, as in 2025, the public account should show a surplus thanks to fiscal consolidation efforts supported by buoyant hydrocarbon revenues. The modernisation of tax collection, including the introduction of electronic declarations, and IMF-supported reforms should improve revenue collection. In addition, public spending should be further reduced with the completion of the phasing-out of fuel subsidies in 2025. However, violent protests following the announcement of this phase-out in mid-2023 could slow the implementation. After soaring in 2023, notably due to kwanza depreciation and the size of its external share (70% of the total), public debt should ease thanks to the budgetary efforts realised by the substantial primary surplus (6% of GDP in 2024). This primary surplus offsets the high interest payments on the external debt, which have been rising sharply since 2023 (10% of GDP) following the expiry of the three-year debt-servicing suspension agreement with China. In May 2024, Angola signed a one-year renewable agreement with China, which holds almost 40% of its external debt. It allows up to USD 200 million a month to be drawn from the escrow accounts (which guarantee debt repayment and are funded by the surplus of oil revenues over debt servicing) for interest payments. To refinance maturing debts, the government also plans to issue a Eurobond in late 2024 and another in 2025.
As the current account balance trends correlate positively with hydrocarbon and mineral exports, the current account balance should remain in surplus in 2024 and 2025 as new facilities come on stream. Nevertheless, it will tend to decline because of the growing imports of equipment and services required to develop these same facilities, as well as of fuel imports due to the persistent shortfall in refining capacity. The primary income balance will remain in deficit due to the repatriation of profits by foreign companies and the servicing of foreign debt. The extension of the privatisation program (PROPRIV) over the 2023-2026 period following the privatisation of 96 small state-owned companies over the 2019-2022 period (out of a target of 178) should encourage the entry of foreign capital. That said, progress on this program remains mixed, and the privatization of large public entities such as Sonangol and Unitel (a telecommunications company) continues to be postponed. In addition, despite the government's efforts, the extractive sector will remain the main destination for FDI flows. By allowing the kwanza to depreciate in 2023 (-40% against the US dollar), the central bank (BNA) has been able to accumulate comfortable foreign exchange reserves (equivalent to around 7 months' import cover), which will enable it to stabilise the currency in the short term.
Erosion of the presidential majority against a backdrop of social discontent
Joao Lourenço, first elected president in 2017, was re-elected for a second term in the August 2022 elections thanks to the victory of his party, the Movimento Popular de Libertaçao de Angola (MPLA). In power since independence in 1975, the MPLA has nevertheless seen its popularity erode. The party won only 124 of the 220 seats in Parliament, 26 fewer than in the previous elections. Its main opponent, Unia Nacional para a Independencia Total de Angola (UNITA), continued to gain ground, winning 90 seats. The political situation will remain difficult, with a high risk of demonstrations, due to strong social discontent with unpopular budgetary measures and the high cost of living.
On the external front, Angola is seeking to balance its relations between China, its main trading partner, and the United States, taking advantage of their competition for access to essential minerals. In addition, Angola aims to strengthen ties with the European Union, which is seeking to diversify its energy sources. However, persistent clashes between Angolan security forces and the Cabinda Exclave Liberation Front, an oil-rich Angolan province, continue to pose a security threat.
Last updated: August 2024