Angola: Risk Assessment
Country Risk Rating
Business Climate Rating
- Significant oil production and liquefied natural gas producer
- Significant economic potential: diamonds, iron, gold, leather, agriculture, fisheries, hydropower
- International financial support
- Very high public debt (55% commercial, with interests absorbing one-third of revenues)
- Vulnerable to an oil price reversal
- High unemployment, high 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
Recovery is mainly driven by hydrocarbons, despite diversification efforts
The Angolan economy recorded a recession for the sixth consecutive year in 2020 because of the COVID-19 crisis. Highly dependent on the hydrocarbon sector (40% of GDP and 96% of exports), the country had to contend with the collapse of oil prices and restrictions under the OPEC+ production agreement. In 2021, Angola's economic growth should gradually resume in line with the recovery in oil demand and the modest increase in its production quotas. However, production will continue to be constrained by the underinvestment of recent years and OPEC+ restrictions. The government is trying to diversify the economy by developing other sectors such as agriculture (11% of GDP but 50% of the labor force). This sector has great potential and has been underdeveloped for years (just five out of 53 million hectares of arable land in use). Accordingly, it could attract a lot of foreign investment.
Household consumption (58% of GDP) declined sharply because of high inflation driven by kwanza depreciation and the lack of foreign exchange, falling incomes, and rising unemployment (more than 30% in 2020 against 20% in 2018). To limit the impact on people, the government implemented social assistance measures as part of a stimulus plan, which also included health spending (worth USD 120 million). This plan, coupled with milder inflationary pressures and increased agricultural incomes linked to the good harvest in 2020, will enable domestic demand to recover in 2021. Foreign investment, which had been negative for several years due to the lack of economic diversification, endemic corruption, and the difficult business climate, remained negative in 2020 and is not expected to pick up again in 2021, with privatizations on hold given the economic situation. Back in 2018, to attract FDI, the government implemented a privatization program covering many oil and diamond companies, including Sonangol and Endiama. Public investment will continue to be constrained by the resumption of fiscal consolidation.
Recovery of current account and public balances
The current account balance, which had been in surplus since 2018, went into deficit in 2020 because of the fall in oil exports, which was not offset by the decline in imports linked to weaker domestic demand. The services and income deficits, which are largely related to oil activity, shrank in line with the significant decline in activity in the sector. In 2021, a small surplus is expected due to the modest upturn in oil exports. However, with imports also recovering, the current account will not return to pre-crisis levels.
The public balance also showed a deficit in 2020 due to the decline in revenues, which was cushioned by the introduction of VAT in October 2019, and increased spending in response to the pandemic. However, the government slashed non-essential spending, which limited the deficit. In 2021, the deficit is expected to shrink as government revenues recover and budget cuts continue. Furthermore, Angola is covered until the end-2021 by an IMF program, through which it obtained, under an Extended Credit Facility, a loan of USD 3.7 billion, which was increased in September to USD 4.5 billion to enable the country to cope with the pandemic and finance a portion of its large deficit. After soaring in 2020, public debt, which is more than 80% denominated in foreign currency, is expected to decline in 2021. Nevertheless, the risk of default remains substantial, as the debt is highly vulnerable to currency depreciation and oil price fluctuations. The external portion benefited from the G20 debt service suspension initiative (2% of GDP) as well as from the restructuring of the portion owed to China (45%). Finally, the kwanza depreciated sharply in 2020, falling by 33% over the first 11 months against the dollar. In 2021, pressure on the kwanza will ease as exports make a partial recovery.
Despite reforms, socio-economic challenges have been exacerbated by COVID-19
Since taking office in 2017, President João Lourenço has initiated numerous reforms (National Development Program 2018-2022) aimed at erasing his predecessor’s influence. 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. Tensions came to head in October 2020 as demonstrations were held to protest the government’s failure to curb corruption and revive the economy. These demonstrations were violently repressed by the government, which will increase social and political instability in 2021.
On the external front, the president is seeking to maintain Angola's position as a regional power and to strengthen its ties with neighboring countries through the African Continental Free Trade Area agreement, which was supposed to come into force in July 2020, but which was postponed due to the health crisis and the protectionist policies of many signatory countries. Relations with China are also expected to remain strong.