In the fourth quarter of 2008 and the first two quarters of 2009, Angola came to yet again realize its vulnerability to oil price shocks. As oil revenues declined from 80% to 72.6% of total revenues, the country was brought to a frightening stage of uncertainty (African Economic Outlook, 2011). Faced with a 0.6% decline of real GDP, plummeting revenues, and an imbalance in foreign accounts, the government was forced to harshly tighten its fiscal and monetary policies (African Economic Outlook, 2011). As a result of these anti-cyclical policies, which go hand in hand with Angola’s insistence in using foreign reserves to stabilize its national currency, the country was left with a severe lack of liquidity (African Economic Outlook, 2011).
As the government proceeded to continue with its tight policies, new legislations that aimed to offset the tendency to overstress the country’s liquidity were introduced in April of 2009. Amongst these was a significant restriction in the maximum amount Angolan residents may pay non-residents without a formal authorization from the National Bank of Angola (BNA). While prior to April 17th that maximum amount was USD 500,000, the new provision states that any payment greater than USD 100,000 must be authorized by the BNA (Miranda Correia Amendoeira & Associados e Fátima Freitas Advogados, 2009). The government also reformed the legislation in the domain of contracts the private sector holds with the state. Amongst other provisions, the new legislation limits the maximum amount of down payments entities can request from the state, prohibits increases of contracted values that exceed 15% of the value in the initial contract, and mandates that all payments be perfected in Kwanzas (Angola’s National currency), with some exceptions (Miranda Correia Amendoeira & Associados e Fátima Freitas Advogados, 2010). As one might imagine, this creates some level of drag in the country’s private sector. It is also worth mentioning that the country passed a law that increased the level of bank reserves from 20% to 30% (Miranda Correia Amendoeira & Associados e Fátima Freitas Advogados, 2009). However, in fear of shocking the markets with the vast reduction of loanable funds, this law was revoked just over one month after it was introduced.
One of Angola’s most time sensitive reforms was that of the taxation system. Prior to May 2010, Angola had its tax system divided into three categories: oil, diamond, and non-oil (including customs and tariff revenues). Although the oil sector continues to be the backbone of the economy, non-oil activity has been growing at fast rates over the past years (African Economic Outlook, 2011). As the country’s tax system had been in place for 30 years, it did a poor job in accounting for the changes in Angola’s economic composition. For that reason, a tax reform committee was established in 2007 to develop a tax reform proposal (African Economic Outlook, 2011). The proposal came to be approved in May of 2010. Quintessentially, the reform aims to broaden the country’s tax base, reduce the bureaucracy of the system, and is expected to enable a reduction in tax rates over the long run (ANGOP, 2010).
In mid-2009, as oil prices began to gradually increase, the country began to stabilize along with its revenue stream. However, after the recession, Angola was left with a serious unfavorable imbalance of foreign and domestic payments (African Economic Outlook, 2011). As a result of this, the government sought the intervention of the IMF, which provided a stand-by-arrangement of USD 2.4 billion (African Economic Outlook, 2011). However helpful this arrangement has proven to be for Angola, the true remedy lies in making much needed structural changes. These structural changes involve reducing the economy’s dependency on oil and diamond revenues, improving infrastructure, as well as creating an overall attractive business environment (African Economic Outlook, 2011). Presently, it would be unfair to say that the government has not been making serious efforts in steering the country in this direction. According to official estimates the non-oil sector of the economy is predicted to have grown approximately 8.8% in 2010, and is expected to grow at twice the pace of the oil sector during 2011 (African Economic Outlook, 2011). At the end of 2009, the government announced an ambitious USD 1 billion plan to resuscitate the country’s iron mining industry, a metal which the country holds great reserves of. In previous years, the government has continuously demonstrated its strong will to invest in the country’s vastly underexplored agricultural sector. In an effort to concretize the sector’s development, the government has successfully attracted numerous sources of funding for its private and public agricultural projects (African Economic Outlook, 2011). Among these funds are USD 50 million from the International Fund for Agricultural Development (IFAD), a USD 30 million from the World Bank, as well as several special lines of credit from Angola’s National Development Bank (BDA). Furthermore, Odebrecht, a Brazilian construction firm, has invested in a USD 220 million sugar and ethanol production facility in the Malanje province (African Economic Outlook, 2011). The facility which has the capacity to produce 260 000 tons of sugar and 30 million litres of ethanol per year, will eventually make a great contribution in boosting the country’s exports. However, one issue that has held back agricultural development is the country’s shortage of qualified human resources within this particular sector (African Economic Outlook, 2011).
The government’s boldest and most prominent investment to date is the ongoing construction of the Angola Liquid Natural Gas Plant (Angola LNG). The project is a consortium between Chevron (36.4%), Sonangol (22%), and BP/Total/Eni (each holding 13.6%). This USD 8 billion investment is expected to be completed in 2012, with shipments scheduled for 2013 (African Economic Outlook, 2011). The country’s natural gas production rose by 14.2% between 2008 and 2009, and is expected to grow by approximately 407% until 2013 with the introduction of this plant. The plant, which is located in Soyo, is to capitalize on the massive 270 million cubic metres of natural gas reserves (African Economic Outlook, 2011). This plant, as well as a planned second one, are expected to immensely contribute to Angola’s natural gas exports, mainly destined towards the U.S market (African Economic Outlook, 2011).
During 2009, manufacturing grew by 9% and is estimated to have grown by 20% during 2010. In order to further diversify the economy and promote industrial output, Angola has seen the implementation of several special economic zones (SEZ) such as the ones in Viana, Futila, Catumbela, Caála, and Matala (African Economic Outlook, 2011).
Although Angola came to yet again be reminded of the oil dependency in 2009, the country truly has been placing an effort to modernize its infrastructure and legislative system and to diversify its economy. With private investment estimated to have grown 17% in 2010 and forecasted to grow by 20% in 2011, and public investment estimated to grow at a modest 3% in 2011, Angola will continue to expand and solidify its economy(African Economic Outlook, 2011). Angola remains a very challenging market to do business in, however, if the government continues to place the efforts it has been placing over the past years, the country may very well have a bright future ahead of it.
By Rui Gonçalves
- African Economic Outlook (2011). Angola – Overview/Structural Issues/Public Resource/Mobilization/Recent Economic Developments and Prospects. Retrieved from http://www.africaneconomicoutlook.org/en/countries/southern-africa/angola/
- ANGOP (2010, May 27). Cabinet council approves tax reform project.
- Agência AngolaPress – Politics. Retrieved from http://www.portalangop.co.ao/motix/en_us/noticias/politica/2010/4/21/Cabinet-Council-approves-tax-reform-project,b241c3f9-f503-427f-9de1-bb83d2b357ba.html
- Miranda Correia Amendoeira & Associados e Fátima Freitas Advogados (2009). Bancário e valores Mobiliários. Notícias do direito.
- Miranda Correia Amendoeira & Associados e Fátima Freitas Advogados (2010). Novas regras nos contratos com o estado. Notícias do direito.