Oil represents about 1/3 of its GDP and over 95% of its exports, and the sharp and prolonged decline in its price since mid-2014 has had a significant impact on Angola's economy. ... Despite this, government revenue increased in 2017 due to higher oil prices.
Reduced revenues have caused GDP growth to decelerate from an annual average of 10.3% (from 2004 to 2014), to only 1.5% (since 2015); this has negatively affected non-oil revenues as well. The government has reacted by cutting expenditure and increasing non-oil revenue, as well as by devaluing the kwanza.
It has also adopted an expansionary fiscal policy to boost economic activity, pegged its currency, increased forex sales, and tightened liquidity to contain inflation. This contained a downward spiral in the short-term but failed to rein in macro imbalances. These include high inflation (27% in August 2017), current account and fiscal deficits, soaring public debt, and real, negative interest rates. Public debt, estimated at 59.2% of GDP by the end of 2016, is expected to increase in 2017.
Oil production also fell by 5.5% in the first half of 2017, due to the challenging operating environment of Sonangol, the state-owned oil company. Average production stood at 1,640 tbbl/day, 8.2% lower than its peak in 2010. Despite this, government revenue increased in 2017 due to higher oil prices.
Angola has external imbalances, including forex shortages, which have hurt the private sector, and rapidly declining reserves. Net international reserves have decreased by 20.4% since the beginning of the year, reaching $15.6 billion in August 2017, its lowest level since early 2011. This was mainly the result of the National Bank of Angola's (BNA) strategy to defend the currency and combat inflation by repegging it at 165.9 kwanzas per US dollar.
The difference between the official and parallel exchange rates has since eased due to increased foreign exchange sales and monetary contraction, which reached 128% in September 2017.
The BNA's monetary policy was successful at substantially decreasing money supply, which pushed interbank and open market rates higher, even though the benchmark rate has held steady since April 2016 at 16.0%, and widened the interest rate policy corridor. BNA's deflationary policy mix helped decrease the annual inflation rate from 41.9% in December 2016. But all interest rates have remained negative in real terms.
Angola's current economic crisis underscores its need to diversify its economy and reduce its dependency on oil revenues. Despite enormous potential to increase the amount of area under cultivation and crop yields, and to increase the amount of area under cultivation and crop yields, and diverse agri-climate regions in the country, the agriculture sector only represents about 11% of GDP.
As independence was proclaimed in 1975, Angola ranked third on the list of Africa’s most important oil producing countries after Nigeria and Gabon. Angola is currently the second oil producer with 1 million b/d output, and it is expected that by next year it will overtake Nigeria, with a current output of 2.3 million b/d. Second to oil, diamonds are Angola’s main export product. Major diamond reserves are located in northeastern Angola, a region endowed with the finest and top quality stones. In fact, 70% of diamonds discovered are of great quality, listing the country among the main diamond producers.
Other Mineral Resources
Angola’s underground is also abundant with other minerals. From 1950s through 1975, iron ores were explored in provinces such as Malange, Bié, Huambo, and Huíla, and average output reached 5.7 million tons per year between 1970 and 1974. The most explored minerals were exported to Japan, Germany, and the United Kingdom, earning Angola $ 50 million a year.
In addition to iron ores, Angola has phosphate deposits estimated at 150 million tons, located in the provinces of Cabinda and Záire. These resources have so far been unexplored. In Southeastern Angola in the provinces of Namibe and Huíla, marble, granite, and quartz reserves abound. Marble is especially consumed at the local market, while black granite is on demand and exported to United States and Japanese markets.
Angola also enjoys a considerable agricultural potential having a climate, soil, and topography appropriate for modern and large scale agricultural production of a wide range of crops. Thus, the country’s underground is immensely rich with minerals including oil, diamonds, gold, and iron ores. Furthermore, the country has an important hydropower, forest, and fishery potential.
Angola has made substantial economic and political progress since the end of the war in 2002. However, the country continues to face massive development challenges, which include reducing its dependency on oil and diversifying the economy; rebuilding its infrastructure; and improving institutional capacity, governance, public financial management systems, human development indicators, and the living conditions of the population.
Acual Political Context
Elections in August 2017 brought President João Gonçalves Lourenço into office, Angola's first change of president in 38 years. He took over from José Eduardo dos Santos, who had been in office since 1979 but decided not to run again. President Lourenço had previously been Angola's Minister of Defense. Vice President Bornito de Sousa is also new to office.
President-elect João Gonçalves Lourenço says he wants to develop industries other than oil, increase activity in agriculture, tourism, industry, and other areas of the economy.
"Our country is in a difficult economic and financial situation due to the drop in oil prices on the international market and the consequent decline in foreign currency liquidity."
Angola's new president unveiled a programme of corporate tax sweeteners intended to boost foreign investment and ease the oil-rich country's dependence on the lacklustre price of crude. "We expect to adopt tax incentives for businesses that invest in the country," President Joao Lourenco said in his first address to Parliament since taking office following the August 23 vote.