Angola

Angola faced a trifecta of challenges in 2023 – currency woes, export struggles and moderate growth prospects. The impact of monetary tightening, coupled with a severe currency devaluation, led to a growth deceleration from +3.6% in 2022 to an expected 2.6% in 2023. Inflation, on a downward trend since early 2022, took a U-turn due to a reduction in fuel subsidies and a substantial devaluation of the kwanza in Q2 2023. In June, gasoline subsidies were partially removed, causing the price per liter to rise from 160 kwanzas to 300 kwanzas (USD0.36). Simultaneously, Banco Nacional de Angola (BNA) restricted USD transactions, resulting in a 62% drop in the kwanza by the end of June compared to January. As the government continues to reduce foreign debt exposure, reserves must not be dissipated to maintain an artificial peg to the USD.

In 2024, Angola will focus on the repayment of debt and spending on social programs while cutting other expenditures. Repayments of previously restructured external debt will increase from 2023 levels, accounting for 59% of the 2024 budget, according to the government. In 2023, sovereign debt repayments amounted to some USD9.9bn (around 14% of GDP and 20% of exports). Oil production is also slowing down, with oil exports reduced by one third y/y in the first quarter, the result of import restrictions in 2021-2022 affecting equipment procurement. An anticipated 5% pay increase for public-sector workers in 2024 may prove insufficient to match inflation.

Inflation is now expected to remain in double digits in the next 12 months. The BNA lacks an inflation-targeting framework but uses a flexible informal target set at 9–11%. Lower oil production and moderate oil prices may weigh on the current account surplus, which is estimated at 3.5% of GDP in 2023, thanks to non-oil sector support, especially diamonds, agriculture and natural gas, because of new EU investments. We also expect higher capital investment in mining and energy, which will increase imports of machinery and equipment and higher consumption on the back of stronger economic growth and contractor-associated spending.
With hydrocarbons and diamonds comprising 90% of exports, a devalued local currency enhances the role of commodities. However, output constraints and increased import costs may reduce the trade surplus to 7-8% of GDP.

Since President Joao Lourenço was elected in 2017, the administration has taken steps to tackle endemic corruption while also relaxing limitations on the press and civil society, although severe governance and human rights issues persist. Even though the opposition contested the results of the 2022 parliamentary election, the electoral process was conducted smoothly and there were only minor disturbances afterwards. The ruling Movimento Popular de Libertação de Angola (MPLA) did not receive the required two-thirds majority in parliament to modify the country’s constitution. Since the latter was already amended in 2021 to strengthen the president’s position by increasing forbearance, the current setting should be adequate to prevent turbulence in the medium term.

As a result of income inequality, both purchasing power and educational attainment are quite low in Angola. Despite government efforts to build more schools and educate more teachers, a recent census found that 24% of adults aged 18–24 and 54% of adults aged 25–64 did not complete high school. There are fewer than 3% of college graduates among these adults and only 16% have completed elementary school, which reduces productivity and the construction of local expertise. Since much of Angola’s oil and gas is in deep and ultra-deep water, drilling is a costly endeavor due to the requirement for specialized equipment and expert workers. Onshore costs (e.g., local services) can be significant and paperwork holdups are a constant source of frustration. Even though most contracts are predicated on cost recovery, the substantial upfront investment may still be prohibitive to some businesses. This means that Angola, despite its potential, is more likely to lose oil contracts to other countries due to their lower costs of operations and the greater efficiency of their procedures.