Angola: Risk Assessment
Country Risk Rating
Business Climate Rating
- Significant oil production and liquefied natural gas producer
- Major economic potential: diamonds, iron, gold, leather, agriculture, fisheries, hydropower
- International financial support
- Very high public debt (55% commercial, with interest absorbing one-third of revenues)
- Vulnerable to an oil price reversal
- High unemployment, major social inequalities, poverty (56% in 2020) and regional disparities
- Deficient infrastructure (transport, water supply and sanitation, education)
- Low-skilled workforce
- Fragile banking sector
- Conflict with separatists in the Cabinda enclave
A limited economic rebound in 2022 after six years of recession
After being in recession since 2016, mainly due to the decline of the hydrocarbon sector (40% of GDP), Angola's economy stabilized in 2021. It should pick up at last in 2022, thanks in particular to the rebound in exports (35% of GDP). These are 95% made up of hydrocarbons, which are set to benefit from persistently favorable oil prices and limited growth in production. The commissioning of new capacity by BP and TotalEnergies should help stem the downward trend in production associated with the lack of investment and the depletion of existing oil fields – factors that contributed to a more than one-third decline in crude oil production between 2015 and 2021. While oil activity will contribute to growth, non-oil activity will also play a role. In particular, the agricultural sector (11% of GDP) is expected to bounce back from the worst drought in 40 years and a locust invasion in 2021. The rebound in the sector, which employs about half of the workforce, will support private consumption. Government social assistance payments should also provide support. However, inflation is expected to remain high, eroding household disposable income. That said, inflation should decline in 2022 as the drought and, thus, its impact on food prices eases. The improved economic environment is expected to revive the program of privatizations launched in 2018, including those of diamond company Endima and oil company Sonangol, helping to attract investment. In addition, the investment could benefit from diversification projects, particularly in the agricultural sector (only 10% of the 60 million hectares of arable land is reportedly being used) and the mining sector. Diamond development projects, such as the Luaxe project, should help to sustain an increase in production. However, despite the government's efforts to fight corruption and make the business environment attractive, investment will still be constrained, as the public share will continue to be held back by the heavy debt burden, limiting opportunities for private investment.
Fragile public and external finances
In 2021, the current account showed a surplus thanks to higher oil prices and low imports. In 2022, the surplus is expected to narrow with the rebound in imports linked to the recovery in activity. In addition, importing engineering and logistics services for oil activities will continue to weigh on the services deficit. The primary income deficit will widen, reflecting the interest burden on the public debt and the repatriation of funds by foreign companies. With about 12 months of import coverage, foreign exchange reserves stabilized the kwanza thanks to an IMF special drawing rights allocation in mid-2021. In 2022, rising hydrocarbon exports should also support them.
After returning to a surplus in 2021 on higher oil revenues (over 60% of government revenues), the public balance is expected to stabilize. In 2022, oil and gas will drive revenues, but the planned reduction in VAT, which was introduced in 2019, could limit the increase. Expenditure will increase with the rise in spending on healthcare (construction of new hospitals) and debt servicing (25% of total expenditures, especially with the end of the Debt Service Suspension Initiative). Furthermore, given social pressures and the upcoming elections, fiscal consolidation efforts may slow. Although it will remain at worrying levels, the public debt, which is more than 80% denominated in foreign currency, is expected to decline in 2022 thanks to the primary budget surplus and stabilization of the exchange rate. The authorities have reached restructuring agreements with Chinese creditors, who hold about half of the external public debt (80% of the total). With the end of the IMF's Extended Fund Facility program in December 2021, the country may seek further financial support from the Bretton Woods institution in 2022.
Political and social tensions as elections approach
Since taking office in 2017, President João Lourenço has initiated numerous reforms, promising to fight corruption and diversify the economy. Nevertheless, significant socio-economic challenges remain, and multiple sources of tension persist for a population suffering from poverty, ongoing inequalities, and poor access to housing, education, and health services. Since 2020, protests against the government for failing to curb corruption and revive the economy have gathered momentum. Social tensions will fuel political instability as the August 2022 general election approaches. In October 2021, in the run-up to these elections, the three main opposition parties formed a coalition, the Frente Patriótico Unido (FPU), to channel dissatisfaction with the president and the Movimento Popular de Libertação de Angola (MPLA). This party has dominated Angola's political landscape since its independence in 1975. With the MPLA's vote share shrinking in the last two elections, this move could further erode its support, although the party is expected to hold power. Internationally, relations with China, the country's main creditor and trading partner, remain close.