Angola

major macro economic indicators

(e): Estimate (f): Forecast

RISK ASSESSMENT

Economic growth shaped by oil price fluctuations

As the largest oil producer in sub-Saharan Africa, Angola has benefited from high oil prices to record robust growth in 2022 after several years of recession and weak recovery. The country's economic outlook is broadly positive for 2023, but growth is expected to moderate due to the expected global economic slowdown and a slightly lower average oil price. Export revenues, which account for 40% of GDP and are 90% hydrocarbon-based, will be effectively curtailed by lower oil prices and reduced production, while the country will return to its usual production capacity after exceeding it in 2022. The contribution of the non-oil sector to GDP growth is expected to reach 1.8% in 2023, thanks in particular to the extraction and export of diamonds, metals and non-metallic minerals. Last, industry, agriculture and fishing should benefit from the incentives put in place by President Joao Lourenço to reduce the country's dependence on hydrocarbon prices. The briskness of these sectors, which employ more than 70% of the active population, should bolster private consumption, which has already been stimulated by a revaluation of civil service salaries and a 50% increase in the minimum wage. In addition, the significant and continuous decline in inflation will boost private consumption. Already in 2022, high inflation shrank markedly thanks to lower food prices following an excellent harvest and kwanza appreciation due to exceptional oil export revenues. While the pace of disinflation will slow in 2023 due to monetary easing by the National Bank of Angola and the expected relative weakness of the kwanza due to declining oil prices, lower interest rates should stimulate public and private investment. Public investment carried out under the National Development Plan (2023-2027) will prioritise the development of human capital and the modernisation and expansion of the country's infrastructure. The enterprise privatisation programme started in 2018 will also continue. This has already resulted in the privatisation of 96 out of the 178 designated state-owned enterprises, which produced USD 1.13 billion (567 billion kwanza). Despite all the efforts made by the government to make the business environment conducive to investment and thus reduce the country's dependence on oil prices, many obstacles are still hindering Angola’s economic diversification, namely the weakness of its banking sector, high-level corruption, budget constraints, lack of infrastructure, amongst others.

Continued public debt reduction despite declining public and external surpluses

Given the dependence of Angola’s public finances on the oil sector, favourable oil prices improved Angola's fiscal position in 2022, resulting in a comfortable public surplus. In 2023, however, lower oil revenues (60% of total revenues) and inefficient VAT collection will cause the budget surplus to decline. The price of oil will nevertheless remain higher than the price needed to ensure the country's budgetary balance (USD 78 per barrel), despite a durably high level of public spending. The government will boost its popularity by increasing social spending and maintaining fuel subsidies. On top of this, Angola faces expensive debt repayments, particularly to its Chinese creditor who holds over 40% of the country's external debt (68% of GDP). Debt service could therefore represent 80% of state income in 2023. Although it is still relatively high, public debt is continuing to fall rapidly thanks to successive budget surpluses and the trends in the kwanza. However, developments in the public debt stock will remain sensitive to oil market movements.

Given that movements in Angola's current account balance are positively correlated with those of hydrocarbon prices, the country recorded a particularly high current account surplus in 2022. This external outlook is set to remain positive in 2023 but will nonetheless moderate. Export earnings are expected to follow a downward trend in line with a lower average oil price. This phenomenon could be reinforced by persistently uncertain Chinese growth trends: China imported 80% of Angola's crude oil exports in 2021. This decline in export earnings will be responsible for a significant drop in the trade surplus, despite the lower import bill due to lower world food prices. The deficit in the balance of services, as well as in the balance of primary income, will persist given the importance of imports of services in the gas and mining sectors and the repatriation of their profits by foreign companies. Despite the government's efforts to stimulate foreign investment in the non-hydrocarbon sector and thus diversify Angola's economic model, the oil sector remains the main destination for FDI flows. FDI flows are expected to increase again in 2023, driven by the deepening of investment links between Angola and the European Union. The country's overall favourable external position will ensure sufficient liquidity and its foreign exchange reserves are expected to cover six months of imports in 2023.

Erosion of the presidential majority and social tensions

Joao Lourenço, first elected as President of Angola in 2017, was re-elected for a second term in the last elections held in August 2022 on back of the victory of his party, the Movimento Popular de Libertaçao de Angola (MPLA). In power since 1979, the MPLA has nonetheless seen its popularity erode. The party won only 124 out of 220 seats in Parliament, 26 fewer than in the previous election. Its main opponent, the Unia Nacional para a Independencia Total de Angola (UNITA), is gaining ground after winning 90 seats in August 2022. Joao Lourenço will try to reverse the trend and ensure the country's internal stability in 2023, mainly by increasing social spending. Poverty, the government's inability to curb corruption, persistent inequality and poor access to housing, education and health care are fuelling social tensions and could make anti-government protests increasingly common.

Internationally, Angola maintains its close relationship with China, which is its main creditor and trading partner. The country is also trying to deepen its investment ties with the European Union, which is seeking to diversify its energy sources.

Last updated: April 2023