Angola: Risk Assessment

Country Rating¹

Rating: C

Business Climate Rating¹

Rating: D

Risk Assessment²

Economic growth in phase with the flow of oil revenues
Thanks to the upturn in oil prices, the slight recession in 2009 gave way to significant growth in 2010 with a further but slight acceleration expected this year. And little change is expected in oil prices and production volumes. Public-sector investment will remain constrained by the necessity of settling arrears with local construction companies. A more clear-cut acceleration of growth will be unlikely to come until 2012 with the start of exploitation of new deep-water fields and of exports of liquefied natural gas.

Sensitivity to imported inflation
Inflation will likely exceed 10% in 2011 in the context of relative weakness of the Angolan kwanza and firmness of world agricultural prices. With imports constituting 90% of the merchandise marketed in the country, effective management of the kwanza exchange-rate is particularly crucial.

Public sector accounts dependent on oil revenues and subject to tax evasion
In 2009, the fiscal budget went suddenly into deficit with the decline in oil revenues. Excluding oil, moreover, the deficit exceeded 30%, which attests to the preponderance (80%) of the oil revenues in the budget. In 2010, the budget balance was only marginally in surplus with the upturn in oil prices offset by the start of a process of settling arrears with the non-oil private sector and by better execution of budgeted expenses. Little change is expected in the fiscal surplus in 2011. Fiscal revenues will remain limited by the narrowness of the tax base attributable notably to the flight of capital and shortcomings in collection.

External account balance dependent on oil and foreign investment
After showing a deficit in 2009 due to a decline in oil deliveries and prices, the current account showed a slight surplus in 2010 thanks to the turnaround in the oil market. But the surplus will likely decline in 2011 with oil exports greatly exceeded by the growth in merchandise imports, particularly capital goods associated with oil exploration or infrastructure remediation. The increase in the repatriation of dividends and the billing of services by foreign oil companies will also be a contributing factor. Despite its traditional current account surplus (except in 2009), Angola has financing needs resulting from the amortization of its debt and the flight of capital. Those needs are covered by foreign direct investment (13% of GDP) focused mainly on oil but also on transport and energy infrastructure. Although foreign exchange reserves will grow they will still represent only three or four months of imports. The new stabilization funds created at the insistence of the IMF fed in principle by a fraction of the revenues from oil and diamonds, do not guarantee improvement in that regard.

A difficult business environment
The legislative elections in September 2008 bore out the supremacy of the MPLA, the party of President Dos Santos, who emerged in 2002 as the winner of the Civil War. Early 2010, President Dos Santos promulgated a new constitution that only provides for the indirect election of the president by the Members of Parliament and replaces the function of Prime Minister by a vice president selected by the president among those same MPs. The main opposition party UNITA has been very critical of those constitutional clauses, which it considers to be intended to perpetuate the hegemony of President Dos Santos and the MPLA. Though the opposition appears marginalized and co-opted, the tension has been growing among those in power with some elements opposed to the anticorruption campaign desired by the IMF. Angola remains among the countries rated lowest by the World Bank in terms of the business environment and governance.

Strengths

• Strong regional influence
• Large and growing oil production thanks to offshore development
• Diversified economic potential (diamonds, iron, copper, gold, hydroelectricity, agriculture, and fishing)
• International backing

Weaknesses

• Regional inequality exacerbated by dilapidated infrastructure
• Vulnerability to oil price downturns
• Difficult business environment
• Instability of the Cabinda enclave, source of one third of the oil
• Largely poor and unskilled population