ANGOLA: SEEKING A NEW PATH

The non-oil sector—notably agriculture, fisheries, manufacturing and construction—has been a major driver of economic growth in recent years. The government invested in improving infrastructure for the delivery of electricity, water and transport. Now the danger is that a protracted weakness in oil prices will constrain fiscal revenues and limit government capital expenditure, says Rasaq. He believes that concerns over Angola’s weakening current-account balance may impact foreign investment flows into the country, as the double whammy of lower oil production and oil prices hits the current-account balance.

However, Bailey-Smith does not expect the government to cut capital expenditure too sharply, given that there has already been steady progress with the national development plan. Rather, he says, authorities are likely to continue with projects that have already commenced but will deliberate more on projects planned for this year. The government may also concentrate a large portion of its expenditure on priority sectors like social projects, including education and healthcare, says Bailey-Smith.

The choices open to the government this year will be tough. Revenue estimates for 2015 were initially based on oil prices of $81 a barrel. But as the price decline persisted, the government cut its benchmark price to $40 a barrel. To appreciate the difficulty posed by this situation, one has to be reminded that in Nigeria, which is facing a similar challenge, the legislature and the executive had yet to agree on the correct oil price estimate to use in preparing this year’s national budget as of the beginning of February.

 To restrain imports and stem the outflow of foreign exchange, Angola’s Ministry of Trade plans to reduce importation of products that can be produced locally in the country, says Bailey-Smith. This strategy is similar to plans by Nigeria, where the central bank governor announced in late January that it would reduce the sale of foreign currency for importation of goods that are currently produced at home.

Despite high rates of economic growth in previous years, that growth has been relatively noninclusive. Many Angolans are unemployed, says Rasaq. Unemployment currently stands at approximately 26%, with 39% of Angola’s 21.5 million people living below the poverty line, according to figures published by the African Development Bank. Rasaq says this uneven distribution of wealth is similar to that of other African countries like Nigeria and blames it on neglect of the industrial sector, weak market reforms and infrastructure, and low access to capital, which limits job creation and entrepreneurial opportunities.

He believes that recent government efforts at fixing the country’s infrastructure, with a particular focus on improving access to electricity, water and transport, will help create job opportunities. “Angola needs a more robust market and economic reforms that can improve economic freedom and the ease of doing business, with less vulnerabilities to government interference, political struggles, corruption and uncompetitive monopoly powers,” he adds.

Unfortunately, the country slid to 181 from 180 the previous year (out of a total of 189 countries) in the World Bank’s Ease of Doing Business 2015 rankings. Angola needs “sincere and continuous reforms along macroeconomic and market lines that will broaden the economic base and create much-needed jobs,” says Rasaq, adding that they must be complemented with sustained investment in infrastructure.

GFmag.com data Summary: Angola

* Estimates
Source: GFMag.com Country Economic Report, IMF