The Angolan Economy

The beginning of a new chapter

Downturn since mid-2014

Angola's economy has clearly struggled in recent years in the aftermath of the sharp drop in oil prices since mid-2014. The lower proceeds from the oil sector during this period and the need to secure some sort of fiscal deficit adjustment led to a marked decline in capital expenditure levels. This strategy only exacerbated the downturn in economic activity, as public investment remains a key source of growth of the non-oil sector, which now represents nearly 60% of the country's GDP (vs. less than 50% a decade ago). Real GDP growth slowed to 3% in 2015 and was flat in 2016. This compares with an average of close to 10% annually in the previous decade that made Angola one of the fastest growing economies in the world at the time.    

New president addresses immediate challenges

José Eduardo dos Santos' last term in office ended at the end of September after he was president for nearly four decades. Nevertheless, Mr. dos Santos remains the head of the ruling MPLA party for now. The new president, João Lourenço, hopes to change Angola's fortunes and quickly address its more acute challenges, including (1) reaching economic stability, (2) relaunching vigorous economic growth to create more jobs and (3) mitigating the more pressing social problems. Since taking office, Mr. Lourenço also replaced the heads of the central bank, Sonangol, Endiama (the government-backed diamond company) and the boards of all three state-run media companies as well as the top-management of other public companies. 

Six-month Interim Plan

The new government recently announced a set of measures to be implemented in an interim plan over a six-month period (October 2017 to March 2018). In a nutshell, these are intended to (1) continue the fiscal consolidation process, (2) ensure public debt sustainability, (3) consolidate and strengthen monetary and foreign exchange policies, (4) strengthen the local financial sector, (5) improve business environment, productivity and competitiveness of local companies and (6) attract foreign direct investment. It also announced the sale of a 45% stake in Angola Telecom to a private investor, initiating what could be the first of several privatizations of SOEs in 2018.

Growth prospects depend on structural reforms

Economic activity is expected to improve when compared with 2016, as the country continues to adjust to (structurally) lower oil prices and public and private spending recover from recent levels. However, real GDP growth is not forecasted to accelerate much faster than 1.5%-2% annually during the period 2017-18. Angola's economic growth prospects over the long-term will largely depend on the new government's willingness to implement much needed structural reforms. A rebalancing of the local economy away from oil dependence is critical, but other measures are also required to return the country to a more sustainable (and higher) growth trajectory. Although the set of measures recently announced in the government's interim plan is a step in the right direction, it is early to conclude its guaranteed success. The possibility of an IMF-backed assistance program is still mentioned locally on a recurrent basis, but is not a certainty. This would likely bring unpopular (and tough) measures for the local population, including constraints to the public sector wage bill and exchange-rate deregulation that could have a negative impact on inflation levels. However, it would also largely reinforce the new government's commitment to economic change in the country, which would be viewed positively by international investors.