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Angola to grow the economy by 2020 through the non – oil sector

The majority of the Angola population live in poverty without adequate access to basic services, and the country could benefit from more inclusive development policies. President João Lourenço expects Angola economy to return to growth path by 2020 through focusing on non-oil sector.

Photo: Luanda is the financial center of Angola

The government is creating a social protection scheme program aimed at assisting the poorest of the poor. After a long civil war, the country had one of the highest economic growth rates in the world, driven by its oil wealth. Angola was then severely hit by the drop in oil prices and the fall in global demand (especially from China). Second oil producer in Africa, Angola also has the third most important GDP in sub-Saharan Africa, after Nigeria and South Africa.

“Angola’s economic crisis started in 2014 and got worse, not just because of lower oil prices but because the country is indebted and is honouring its commitments,” Lourenço said in a state of the nation address in parliament on Tuesday.

“In 2020, we expect the economy to return to growth due to rising output from the non-oil sector.”

He further note that the country’s oil production output would jump from 1,401, 235 barrels per day to 1, 436,900 barrels per day. 

Economic diversification during Former president’s José Filomeno dos Santos regime

Before the economic crisis, Angola’s government had laid out plans for diversification, setting up a sovereign wealth fund, or a state owned investment fund. That fund, with a $5 billion endowment and managed by the former president’s son, José Filomeno dos Santos, had begun investing in hotels, infrastructure, health care and mining across Africa.

Dos Santos, in an interview, emphasized the fund’s role in helping to “shift focus from the extractive industry and to invest in other sectors that could make the domestic economy more sustainable.”

Photo: Angola Economy Profile 2018. Angola’s economy is overwhelmingly driven by its oil sector. Oil production and its supporting activities contribute about 50% of GDP, more than 70% of government revenue, and more than 90% of the country’s exports. Diamonds contribute an additional 5% to exports.

 

State of the economy in AngolaThe Economy of Angola is one of the fastest-growing economies in the world, with reported annual average GDP growth of 11.1 percent for the period from 2001 to 2010. It is still recovering from the Angolan Civil War that plagued the country from independence in 1975 until 2002. Despite extensive oil and gas resources, diamonds, hydroelectric potential, and rich agricultural land, Angola remains poor, and a third of the population relies on subsistence agriculture.

Since 2002, when the 27-year civil war ended, the nation has worked to repair and improve ravaged infrastructure and weakened political and social institutions. High international oil prices and rising oil production have contributed to the very strong economic growth since 1998, but corruption and public sector mismanagement remain, particularly in the oil sector, which accounts for over 50 percent of GDP, over 90 percent of export revenue, and over 80 percent of government revenue.

Photo: The economic crisis alone doesn’t explain the country’s alarming public-health mess. Angola’s government has long been riddled with corruption and plagued by mismanagement. … By 2014, Angola had the third-highest GDP in sub-Saharan Africa, after Nigeria and South Africa.

Despite its abundant natural resources, output per capita is among the world’s lowest. Subsistence agriculture provides the main livelihood for 85% of the population.

In 2018, it entered its third year of deep recession, extended by declining production at mature oil fields. Fiscal revenues declined by 51% between 2014 and 2017. By 2017, public infrastructure spending was down 55%.With the debt service to revenue ratio already at 89% in 2017 and looming debt maturities in 2018, Angola has little choice but to continue to nurture the oil sector in the face of an acute foreign exchange shortage. That means the unfavourable effects created by the enclave oil sector may persist.Daily oil production has tumbled from its high of almost 2m barrels a day in 2008 to around 1.4m today. Since oil provided 95% of export revenues and almost two-thirds of government revenues, the fall in output as well as a slump in the price of crude has thrashed the eeconomy. The GDP has shrunk for three years in a row. This year the IMF expects growth of just 0.3%.

Some economy analysts project that Angola’s economy will return to growth only in 2021, expecting a rate of 2.5% after consecutive years of economic contraction, including in 2019, when the country is expected to see Gross Domestic Product (GDP) fall by 2.2%.

Entrepreneurship as a road map for economic growth 

Entrepreneurship in Angola displays typical signs of trauma from years of conflict and distortionary effects of oil dependence. Converting entrepreneurs’ risk-averse mindset to a risk-ready one is crucial. Otherwise, they may not respond as expected to market signals and policy support and so would not take advantage of market opportunities.

A policy approach to growing sectors or industries is likely to yield superior results for Angola and other commodity dependent countries, rather than one that targets specific issues such as small and mediumsized enterprises and women’s entrepreneurship in isolation. With the structural transformation of the economy firmly rooted, such an approach prioritizes entrepreneurs who can innovate and fast track structural transformation; and spearhead new and emergent sectors.

Angola’s economic freedom score is 50.6, making its economy the 156th freest in the 2019 Index. Its overall score has increased by 2.0 points, with improved scores for government spending and labor freedom, in particular, offsetting declines in monetary freedom and business freedom. Angola is ranked 33rd among 47 countries in the Sub-Saharan Africa region, and its overall score is below the regional and world averages.

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.

President João Manuel Gonçalves Lourenço has tried to restructure Angola’s economy away from dependence on oil, but his proposals have encountered resistance from vested interests in the ruling party. A small number of businesses have long enjoyed a stranglehold on most economic sectors. These monopolies have kept prices high, limited choice for consumers, and erected trade barriers and investment restrictions. Modest reforms have somewhat modernized the regulatory environment, but pervasive corruption and institutional weaknesses continue to undermine other important reforms.

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