A vast country with a long coastline and central plateau, Angola thrusts inland across Southern Africa to border Namibia, Botswana, Zambia, and the Democratic Republic of the Congo. Its principal cities, including its capital, Luanda, look west over the South Atlantic to Brazil, another Portuguese-speaking nation (like itself). It has a population of about 24 million (2016).
Angola is struggling with the rebalancing of the global oil market. 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. 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 diverse agri-climate regions in the country, the agriculture sector only represents about 11% of GDP.
This is partly because for years an overvalued exchange rate had undermined the competitiveness of agriculture and other non-oil sectors. Infrastructure, skills weaknesses, and a challenging business climate remain constraints for private investment outside the oil sector. The challenging regulatory environment for business is illustrated by the Angola’s ranking of 182 out of 190 countries in the Bank’s flagship Doing Business 2017 report, although progress is being made in areas such as creating a company.
Elections in August 2017 brought President João Gonçalves Lourenço into office, Angola’s first change of president in 38 years. He is taking 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.
Six political parties took part in the August polls. The ruling People’s Movement for the Liberation of Angola (MPLA), led by Lourenço, won 150 out of 220 parliamentary seats, receiving 61% of the vote. As a result, President Lourenço was sworn in on September 26, following the dismissal of cases opposition parties had filed alleging electoral irregularities. His predecessor, Dos Santos, will remain the leader of the ruling MPLA until 2018.
The main opposition party, the National Union for the Total Independence of Angola (UNITA), led by Isaias Samakuva, received 51 parliamentary seats (26.67% of the vote), while an emerging third political force, the Broad Convergence for the Salvation of Angola–Electoral Coalition (CASA-CE) doubled its representation in Parliament with 16 seats (9.54%).
The Social Renewal Party (PRS) and the National Front for the Liberation of Angola (FNLA) received 2 and 1 seats respectively (1.35% and 0.93%), but the National Patriotic Alliance (APN) did not win a seat in Parliament (0.51%).
More than 9.3 million people were registered to vote in the recent polls, which were witnessed by international observers.
Angola has maintained political stability since the end of the 27-year civil war in 2002. In 2010, a Constitution established a presidential parliamentary system with the president no longer elected by direct popular vote but instead as the head of the party winning the most seats. The 2010 Constitution sets a limit of two, five-year presidential terms.
Internationally, Angola is becoming more assertive and demonstrating a more steadfast commitment to peace and stability in Africa, in particular in the Great Lakes region, whereAngola has secured a commitment to economic and political sanctions against the region’s armed rebel groups.
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.
Large pockets of the population still remain living in poverty without adequate access to basic services, and the country could benefit from more inclusive development policies.