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Angola
June 2016
Angola – Adjusting swiftly to a new normal
 For the second time in the span of a decade, the Angolan economy faces the challenge of a drastic drop in oil
prices in the international markets. Despite adopting a proactive attitude in implementing economic policies better
suited to this new scenario, the Angolan authorities have not been fully capable of shielding the economy, which
has intensified social pressures and renewed calls for urgent economic diversification.
 According to estimates by the International Monetary Fund, average nominal GDP, per capita and measured in
USD, is expected to record a 36% drop from 2014 figures. The same source places its 2016 GDP forecast for
Angola at USD 81 billion, down from USD 127 billion only two years prior. Given the sizable weight of imports in
all components of aggregate expenditure, this variable, more than any other, reflects the true state of the Angolan
economy, particularly from a development perspective. Despite this significant challenge, the adjustment process
remains on track and is probably approaching a plateau of stability, towards a new normal, a scenario that will
probably be smoothed by additional funding by the IMF, through an Extended Fund Facility (EFF) supported program currently under discussion and whose details and conditions are likely to be published in the near future.
 The country’s extensive dependence on oil-sector revenues, the subdued degree of diversification still observable
in the economy, as well as the adverse effects caused by external economic constraints, all affected the Angolan
economy negatively in 2015. Although preliminary data findings are yet to be published by the country’s statistics
office, the Angolan Executive estimates a 2.8% GDP growth rate for 2015, primarily spurred by the oil sector.
This estimated growth rate is starkly below not only the estimate placed on the Amended State Budget for 2015
(6.6%), but also the State Budget 2016 estimate (4%), as well as the growth rate recorded in 2014 (4.8%).
 2015 featured an increase in oil production, which helped offset some of the deceleration observed in the remaining
sectors. In 2016, we expect a continuation of these trends. Beyond the behaviour of oil prices and production
(the Executive expects production to reach 1.89 mbpd), the economic performance will be primarily dependent
on the State’s ability to secure additional external funding (both bilateral and multilateral), as well as its ability
to implement additional restrictive economic policies, such as tightening the budgetary policy, depreciating the
currency and increasing interest rates – which will inevitably impact internal demand.
 The inflation rate for the city of Luanda stood at 29.2% in May, this following a return to double-digits figures in
July 2015. The currency devaluation of about 54% in real, average terms, since 2014 (according to our calculations), an increased tax on consumption and selected imports, as well as the slashing of fuel subsidies, together
with constraints on the supply side, all contributed towards this development. We expect to see the current
trajectory staying throughout the year, blurred during the second quarter by the one-off nature of some of the
factors mentioned, while the average inflation rate is expected to near 30% by the year’s end.
 The economic policy is expected to maintain a restrictive stance and remain aimed at stimulating the adjustment
process of internal demand to the new context of significantly lower oil prices, this while efforts towards the
diversification of the economic activity continue.
 The execution of the 2016 State Budget during the early months of the year suggests the possibility that revenue may fall short of the Executive’s goals. The Government aims to reach a deficit of 5.5% of GDP, a goal that,
given the estimates for capital expenditure, depends extensively on the future trajectory of the oil production
and prices, as well as the country’s ability to secure additional external funding. Meanwhile, according to IMF
projections, government debt levels for Angola are near the sustainability threshold, with the Fund estimating
that the ratio in relation to GDP for the current year will exceed 70% of GDP (including the Sonangol debt).
 According to recently-published Census results, the Angolan population increased nearly five-fold between 1970
and 2014, standing near 25.8 million inhabitants by the end of 2014. Of all provinces, Luanda remains the most
populous, with nearly a fourth of the total population (nearly 7 million), while Bengo is the least populous province
in the country. It is also worth noting that, according to the released figures, a large percentage of the population
is 18 years old or under (55% in 2014).
Paula Gonçalves Carvalho
[email protected]
José Miguel Cerdeira
[email protected]
Vânia Patrícia Duarte
vania.patrí[email protected]
Sílvio Bernardo Magalhães*
[email protected]
Note: * this report was made in collaboration with Sílvio Bernardo Magalhães, a BFA analyst, currently a trainee at BPI.
Research Department
Paula Gonçalves Carvalho
Teresa Gil Pinheiro
José Miguel Cerdeira
Vânia Patrícia Duarte
Chief Economist
Technical Analysis
Agostinho Leal Alves
Tel.: 351 21 310 11 86
Fax: 351 21 353 56 94
Email: [email protected] www.bancobpi.pt
www.bpiinvestimentos.pt/Research
Index Angola
Economic Activity
Global and Regional Economic Context
Economic Activity in Angola
Other economic activity indicators and perspectives for 2016
Developments in the oil and natural gas markets
Oil
Natural Gas
05
05
06
07
08
08
09
Public Finances
Budget implementation in 2015
State Budget for 2016
Government Debt
10
10
11
12
Angola assessment by the Rating Agencies 14
Finantial and Monetary Sector
Exchange Policy and Inflation
Possible effects on inflation of a prolonged devaluation of the kwanza
Monetary Policy
16
16
17
18
Banking situation in Angola
Balance 2015
Financial sector in a regional context
20
20
21
External Sector
Goods and Services Account vas Oil Prices Diversification of the economy and import replacement
International Competitiveness
23
23
25
26
Social Context
Caracteristics of the angolan population – 2014 Census (final data)
27
27
Main Indicators
Main economic indicators
Gross domestic product
Oil sector
Growth forecasts for Angola (real GDP, % change)
29
Consumer price index
External sector
Public accounts
Key financial variables
30
E.E.F.
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Angola

June 2016
4
E.E.F.
Angola


June 2016
Economic Activity
Global and Regional Economic Context
The recent IMF’s forecasts suggest a fragile economic Growth among importers is likely to surpass exporters
growth for the world economy in 2016. Economic growth is in Subsaharan Africa
expected to remain moderate among the developed economies,
(real GDP growth rate, %)
reflecting unfavorable demographic trends, timid production
9.0
growth and lingering effects from the 2008/09 financial
8.0
crisis. Although the expansionist monetary policies (in the
7.0
Eurozone and Japan) and the low oil prices both spur internal
6.0
demand, weak external demand, the currency valuation in
5.0
some cases and some restrictions in financial conditions, all
4.0
may weight down the pace of the economic recovery. Among
3.0
2.0
the emerging and developing economies, growth rates should
1.0
remain substantial, although disappointing given the historical
0.0
background, a path that is particularly linked to low commodity
2009 2010 2011 2012 2013 2014 2015 2016 2017
prices and the deceleration of the Chinese economy.
Oil-exporting countries
Oil-importing countries
Source: IMF
The economic activity in Sub-Saharan Africa decelerated in 2015, in line with the drop in commodity prices, the
adjustment of the economic growth model in China and the increased cost of funding. Additionally, several countries
faced adverse domestic events, which exacerbated the direct impact of the lower commodity prices, including, among others,
adverse climate events and the Ebola outbreak. The drop in commodity prices represented a significant shock to the region,
given its extensive weight on total exports. This performance resulted in the deterioration of the trade balances, which in turns
impacted the local currencies and increased inflation rates. In order to contain this situation, the Central Banks throughout the
region adopted restrictive monetary policy measures, while governments slashed expenditures. In some cases, the decision
to increase tax rates further hindered private consumption. Oil exporting countries were among the hardest-hit, given the
particularly steep drop in oil prices and the larger levels of dependence in comparison to other commodity-exporting countries.
Among importing countries, growth remained robust, if subdued in comparison to the preceding year. Although the lower oil
prices have benefitted these countries, such benefits have been partially mitigated by the currency depreciation and the lower
prices recorded in other commodities. This adverse economic context hindered the challenge of combating poverty levels,
which remains high throughout the region.
Although commodity prices have now recovered from
the low figures recorded at the start of the year, the
expectations are the maintenance of relatively low
and volatile prices through the year, which is likely to
hinder the economic activity in the region to recover to
previously recorded levels. Further constraints may lie in
factors such as depreciation of the local currencies, increased
inflation rates and the subsequent reduction of purchasing
power, high unemployment figures, restrictive monetary
policies and a constraining external financial situation. Much
of Southern and Eastern Africa face severe droughts, which
are likely to impact the price and the availability of food. Such
factors will affect the countries in different ways, according to
their specific features.
Real GDP growth rate
%
2015
2016
2017
3.4
3.0
4.0
Oil-importing countries
4.0
3.6
4.4
Oil-exporting countries
Sub-Saharan Africa
2.6
2.2
3.4
Angola
3.0
2.5
2.7
Cameroon
5.9
4.9
4.6
Rep. Congo
2.5
4.4
4.3
Nigeria
2.7
2.3
3.5
Source: IMF (Regional Economic Outlook April 2016)
We identify both external and internal risks to the economic activity in Sub-Saharan Africa. Concerning external
risks, we highlight a potentially steeper economic deceleration in China than expected, a more fragile economic recovery
in Europe, increased volatility in the global financial markets (Brexit possibility) and restrictive global financial conditions
(for example, in the USA). On the domestic front, delays in adjusting to external shocks may create political uncertainty
and impact confidence levels among investors and local agents, which would impact the economic recovery; adverse
climate conditions (increasing the inflationary pressures), as well as terrorist threats and/or political unrest, all could
negatively impact the economic activity.
5
E.E.F.
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Angola

June 2016
Economic Activity
Economic Activity in Angola
2016F
2015E
2014Pr.
2013
2012
2011
2010
The reliance on oil sector revenues, the insufficient Growth in the oil sector (by volume) should surpass
degree of diversification of the economic activity and non-oil growth in 2016
the negative effects caused by the external economic (growth rate, %)
context, all hindered the Angolan economy in 2015.
12
Although the preliminary data from the Angolan Statistics
10
8
Office has not been published, the Executive estimates that
6
the economy expanded 2.8%1 during the preceding year, a
4
result primarily driven by oil sector. This result stands not only
2
as a sharp drop from the figure placed on the Amending State
0
Budget for 2015 (ASB 2015), when the Executive expected
-2
-4
a 6.6% growth rate, but also to the growth rate recorded in
-6
2014 (4.8%).
Growth in the oil sector, estimated at 6.3%, was driven
Oil Sector
Non-oil Sector
GDP
by expanded oil production, whose daily average rose
Source: Government
7.6% from 2014 figures and helped offset a 49% drop in
oil prices during the same period. This sector’s performance IMF is more pessimistic on the economic activity
was a clear departure from the decreasing trajectory recorded growth than the Government
in the previous years, when production was hindered by
(real GDP growth rate, %)
several technical and operational problems in some oil fields,
8
as well as by the delays in initiating some projects. Despite
7
the recorded growth figures, this result is still well below the
6
Executive expectations, as recorded in the ASB 2015 (9.8%),
5
a discrepancy explained by weaker-than-forecasted production
3.3
4
(the Executive predicted an average daily production of 1.83
2.8
3
million barrels, but according to the Ministry of Finance, this
2
figure stood at 1.76 mbd). Production restrictions, technical
1
problems, delays in the start of new projects and instability
0
in new wells at Bloc 17 may have also contributed to these
2009 2010 2011 2012 2013 2014 2015E 2016F
results.
IMF
Government
Source: IMF; Government
The moderate growth recorded by the Angolan
economic activity is linked with the poor performance
of the non-oil sector, which decelerated significantly IMF revised downward its forecasts for the Angolan
from its 2014 result. Indeed, according to the most recent economic growth
government estimates, the “new economy” is expected to (real GDP growth rate, %)
have expanded 1.3%, reflecting the deceleration in agriculture,
6.0
fishing, construction and services. More so, it is expected that
5.0
the manufacturing industry contributed negatively to GDP
growth. Non-oil industries were hindered by the fall in private
4.0
consumption and public investment, as well as a currency
3.0
shortage. Concerning this point, it is important to highlight the
import-focused nature of the Angolan economy, which makes
2.0
the shortage of foreign currency have a stronger impact on
1.0
the country’s ability to obtain consumption goods, industrial
0.0
raw materials, intermediate goods, services and capital goods,
2015E
2016F
2017F
2018F
2019F
2020F
which places restrictions on the non-oil sector’s capacity to
WEO Oct.2015
WEO Apr.2016
function properly.
Source: IMF
Taking into account the latest forecasts by the Angolan Executive, the non-oil sector is likely to have accounted
for nearly 75% of the domestic output in 2015, with the remainder representing the oil sector. The non-oil sector
has, over the past few years, had an increasingly larger contribution to GDP, but this process of diversification has not yet
translated into the establishment of activities with exporting potential, capable of generating foreign reserves and reduce the
country’s exposure to fluctuations in its oil-related revenues. While some degree of replacement of imports has been recorded,
namely in food items, both private consumption and services sector growth generated larger import requirements, without a
manufacturing sector capable of offsetting this lack.
1
Linhas Mestras para a Definição de uma Estratégia para a Saída da Crise Derivada da Queda do Preço do Petróleo No Mercado Internacional”, Angolan Republic (January 2016).
6
E.E.F.

Angola

June 2016
Economic Activity
Other economic activity indicators and perspectives for 2016
Q116
Q315
Q115
Q314
Q114
Q313
Q113
Q312
Q112
Q311
Q111
Q310
Q110
Along with the adverse economic environment and The economic climate, as measured by the OECI,
subsequent limitations related to the deceleration of deteriorated significantly in 2015
the economy, confidence indicators have registered
(points)
an unfavorable trajectory through 2015. By the
30
end of the year, the general economic climate indicator
20
dropped significantly below its historical average, a result
shared by the sub-indexes related with the manufacturing
10
industry, construction, trade, transports, tourism, mining
0
industry and communication. We highlight three sectors:
-10
manufacturing, construction and trade, by the negative
-20
results recorded in the last three months of 2015. In
-30
manufacturing industry, the businessman revealed a
deterioration in financial conditions and shortage of raw
materials. In construction, the main restrictive factors were
Overall Economic Climate Indicator
difficulties in securing credit and lack of demand. In trade,
Historical Average
Source: INE
the business owners cited the excessive bureaucracy and
state regulations, as well as financial difficulties and the
shortage of stocks.
The Angolan economic environment is likely to remain challenging in 2016, given the unlikely possibility that oil
prices can return to previous high levels, this while the world economic environment is likely to remain unfavorable.
Still, the Executive expects an acceleration of the economic activity for the current year, calling for a GDP expansion
of 3.3%, a result primarily driven by increasing dynamism in the non-oil sector.
According to the State Budget for 2016 (SB 2016), the Government expects to see the oil sector decelerating to 4.8% in the
current year, anticipating an 7.0% increase in oil production to 1.89 mbd, but, in contrast, anticipate a 13% drop in average
oil prices in comparison to 2015 (USD 52), to USD 45. Despite this, data published by the Ministry of Finance for the first
five months of 2016 note that the average price dropped to USD 34.6, lower than the Executive’s expectations, while oil
production, although expanding (1.76 mbd between January and May), is still far from the Executive’s goal. Maintaining
this trend, the Government’s forecast for the oil-sector may be overvalued and the overall economic growth may be below
the expectation.
On the other hand, the Executive expects the non-oil sector to accelerate to 2.7%, boosted by energy and agriculture.
Nevertheless, if confirmed this performance, the growth rate should represent a decrease from past growth rates for the sector
(between 2008 and 2014, average growth stood above 9%). In agriculture, the sector is likely to benefit from the aids granted
and by the beginning of an extensive reform process, which may boost the agricultural production, as well as the reassessment
of the production expected in irrigation perimeters in Caxito Rega, Bom Jesus, Calenga e Mucosso. Despite this, agricultural
production may still be hard-hit by the droughts currently plaguing several parts of Africa.
The latest IMF forecasts are substantially below
Government expectation. Indeed, the fund expects GDP
growth to decelerate to 2.5% in the current year, from 3.0% in
2015, below the forecasted average growth for the Sub-Saharan
Africa region and slightly above the forecasted average growth
for the oil exporting countries of the region (2.2%).
Real Growth Rates - Angola
2015
2016
2017
IMF
3.0%
2.5%
2.7%
Government
2.8%
3.3%
-
BPI
2.8%
1.2%
2.1%
EIU
2.7%
1.1%
3.0%
The BPI forecasts for the Angolan economy are more Moody's
3.0%
3.5%
4.0%
conservative than the Government and the main S&P
3.5%
3.3%
4.0%
international institutions. The drop in oil prices, which has
featured prominently since mid-2014, is likely to continue to hinder the Angolan economy, which is adjusting to a “new normal”.
Our Brent forecast for 2016 is USD 44 per barrel (on average), close but down from the USD 45 expected by the Executive.
More so, oil production, while up during the first four months of the year in comparison to the same period of 2015, remains
short of governmental expectations, which may imply that the sector will also fail to meet its production goals for the year.
Foreign currency shortages, together with the country’s large import needs, may hinder investment and further delay the
diversification process for exports. Even with the IMF support, already requested by the Angolan Government, it’s unlikely
that any significant effects from this program will already be noticeable this year, given the sizable challenges the country
7
E.E.F.
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Angola

June 2016
Economic Activity
faces, together with the adverse economic climate. Lower oil revenues may also limit the Government’s ability to prop up the
economic activity, including the promotion of public investment in infrastructures, restraining the potential of non-oil sector.
Lastly, the ongoing adjustment of the Chinese economic growth model is likely to impact Angolan exports for that country, as
well as the anemic global economic growth.
Main risk factors for economic growth in Angola
Internal
-
External
- Maintaining or further decrease of oil prices in the international markets
- Steeper economic deceleration in China
- Uncertain and volatile global economic and financial background
Technical issues related to oil production and LNG
Slow implementation of structural reforms
Maintaining the downward trend of international reserves
Disordely implementation of public expenditure cuts
Difficulties in replacing imports
Disturbances caused by rapid increase in prices of essential goods
Developments in the oil and natural gas markets
Oil
Production costs per barrel of oil
Oil prices have plummeted since mid-2014, dropping to 2003
minimums in the beginning of this year. This development has
placed problems for oil-exporting countries, especially those
that are most heavily reliant on fiscal and export revenues
from the oil sector. These financial woes become even more
prominent in countries where the costs of production per
barrel of oil are higher. As such, Middle Eastern countries
benefit from lower operational and capital expenses, helping
to compensate the current downturn in prices.
9.9
8.5
12.3
10.7
17.3
12.6
23.5
20.4
27.8
23.8
29.9
29
35.3
31.5
36.1
35.4
41.1
36.3
52.5
55
50
45
40
35
30
25
20
15
10
5
0
48.8
(USD per barrel)
Oil prices have been recovering gradually in recent
months
Angola - Exports and oil prices
(USD per barrel)
(billion USD; USD)
120
110
100
90
80
70
60
50
40
30
20
Jun-14
WTI
Oct-15
Feb-16
KUW
ASAU
IRA
EAU
IRA
RUS
120.0
6.0
100.0
80.0
60.0
3.0
Jun-15
ARG
140.0
7.0
4.0
Feb-15
VENEZ
8.0
5.0
Oct-14
LIB
CASAQ
CHI
MEX
NIG
COL
ANG
NOR
EUA
CAN
RU
BRA
Nevertheless, since mid-February this year, Brent prices
have recorded a gradual recovery, supported in part by
expectations of a deal between the main exporting countries
to control production and thus reduce supply and raise prices.
Source: Rystad Energy
Still, the lack of such a deal in the latest Doha meeting casts a shadow over this strategy. In fact, Russia has constantly
surprised the market with successive production increases, coming from the minimum of 6 mbd in the turn of the millennium
for almost 11 mbd in 2015. Recently, the country revealed that production would reach 12/13 mbd. It is known that Saudi
Arabia has capacity to increase the current production level of 10 mbd to 12 mbd, a level never checked. Additionally,
Iran has reaffirmed its intention to expand the oil production and recover the market share lost following the lifting of the
sanctions applied by the West. Meanwhile, such concerns have apparently not given pause to investors, with current prices
hovering around USD 48/50.
2.0
40.0
1.0
20.0
0.0
0.0
May-12 Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16
Jun-16
Export Revenues
Average price per barrel (RHS)
Brent Angola (15-45 Day Forward Strip Price)
Source: Bloomberg
8
Source: Ministry of Finance
E.E.F.
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Angola
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June 2016
Economic Activity
According to the International Energy Agency (IEA), global demand growth for oil is expected to recede to 1.3 mbd during
2016, down from the 1.8 mbd figure recorded in 2015. Data released by the agency notes that demand for this commodity
during the first quarter of the year stood at 1.6 mbd, while global supply in May decreased by 0.8 mbd, in comparison to
the preceding month, reflecting outages in OPEC and non-OPEC countries. OPEC crude output fell by 110,000 barrels per
day, explained by big losses in Nigeria. Additionally, output stood 590,000 barrels per day below a year earlier, the first
substantial drop since 2013, according to the IEA. Regard to the non-OPEC countries, the IEA expects that oil supply stood
at 56.8 mbd in 2016, 0.9 mbd less than the average recorded in 2015.
Plummeting oil prices hindered investment in the sector. According to IEA, investment in the sector dropped 40%
during the last two years, with the most expressive reductions occurring in the USA, Canada, Latin America and Russia.
According to the International Energy Agency, the oil market is expected to rebalance during the next year, assuming
that no new market shocks occur. Production cuts are likely to allow for a gradual recovery of oil prices over the next
few years, aided by subdued fears related to deceleration in the Chinese economy and stronger investor confidence.
Data released by the Angolan Ministry of Finance notes that oil production for the first five months of the year rose 2% to
1.76 mbd, in comparison to the same period of 2015. On the other hand, the average price for Angolan oil during the same
period dropped to roughly USD 34.6, down 35% from the figure for the same period of the previous year.
Natural Gas
A report by the World Bank notes that natural gas prices
dropped 15% during the first quarter of the year, primarily
due to weaker demand and the high amount of stocks. The
institution expects this trend to continue throughout the
remainder of 2016, boosted by the significant expected drop
in prices in Europe (-38%) and Japan (-23%), maintaining
the context of a lower demand for the great amount of
available supply. It also expects that growth in the energy
sector, export growth and the deceleration of supply growth
may support the prices throughout the year.
Natural gas prices have followed a downward trend
(USD per MMBTU)
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
May-16
Nov-15
May-15
Nov-14
May-14
Nov-13
May-13
Nov-12
May-12
In Angola, Sonangol and other associated companies
developed a liquefied natural gas (LNG) project, which aims
to harvest the natural gas resulting from oil production and
Russian Natural Gas border price in Germany
reduce emissions and the greenhouse effect. The factory
Source: IMF
installed in the Soyo region for this effect begun operations
in 2013, stopping in April 2014 following technical issues. Recently, the firm resumed the export of liquefied natural gas
shipments. Moreover, an agreement was struck with French energy company EDF to sell and deliver natural gas on destination,
starting this year and lasting until 2018. This project has the participation of Sonangol (22.8%), Chevron (36.4%), Eni
(13.6%), Total (13.6%) and BP (13.6%).
According to statements by the oil Ministry, regular gas prospecting is scheduled to start in July this year, with
the latest estimates pointing towards a production capacity of 5.2 million tons per year. According to the World
Bank, the estimated economic impact for this project is substantial, possibly adding 2 percentage points on
GDP during its debut year, if the project reach the maximum production capacity.
Vânia Patrícia Duarte
9
E.E.F.
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Angola
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June 2016
Public Finances
Budget implementation in 2015
Considering the Angolan State Budget, the oil sector
retains a sizeable weight on the revenue side. As such,
given the low oil prices in the international markets throughout
2015, total tax revenue recorded a 26% drop in comparison
to 2014, in line with a 46% drop in oil revenues, according
to the figures inscribed in the State Budget for 2016 (SB
2016). Considering the historical trend, oil tax revenues
has accounted for roughly 70% of all collected revenue
during the past six years. On the other hand, non-oil tax
revenue improved in comparison to 2014, a result driven by
the Government’s efforts to consolidate the non-oil tax base,
with measures which include the expansion of tax base,
the increase in tax inspections, improvement in housing
taxation and the creation of the General Tax Administration.
Nevertheless, implementation failed to meet the Executive’s
goals, highlighting the difficulty to diversify the Government’s
revenue sources. The two main reasons include the weaker tax
collection on sales of goods & services (53% implementation)
and on international trade (57% implementation), according
to the figures in SB 2016.
The level of reliance on oil tax revenue limited the
Executive’s spending capacity, which explains a spending
cut of about 27%. On current expenditure, a substantial
drop in spending on goods & services and current transfers are
likely to offset increases in spending for salaries and interest
payments, according to the figures inscribed in the SB 2016.
Regarding current transfers, this decrease is mainly explained
by a reduction in subsidies, due to the gradual phasing out of
the fuel subsidies, ongoing since September 2014, with this
item dropping from 13% of total expenditure in 2014 to only
6% in 2015. Increasing interest payments, on the other hand,
is mainly related to growing government debt, together with the
devaluation of the domestic currency. The noticeable disparity
between budgeted and implemented capital expenditure (the
degree of implementation reached 170%) is evidence not only
of the exchange rate adjustments that followed the Amending
Budget publication in 2015 , but also the additional budgetary
slack granted by funding agreements for infrastructural projects
secured throughout the year.
The Budget implementation for 2015 reveals an
undervaluation of public revenue, as has been the case
in previous years. Considering the already conservative
average oil price assumed by the Executive, one could likely
expect that implemented revenue for 2015 would surpass
those forecasted in the Amending State Budget. Indeed, the
average oil barrel price was 30% above the USD 40 assumed
for the ASB for 2015, which translates into an oil revenue 56%
above budget estimates. This result also reflects an excessively
cautious approach to the marginal tax collection rate per unit
of oil. Expenditure surpassed budgeted expectations, namely
due to interest payments and current expenditure. On the same
note, capital expenditure rose well above expectations, likely
due to additional spending following the Government securing
additional loans with multiple international institutions during
10
Lower oil prices represent a challenge to Angolan
public finances
(fiscal balance, % GDP)
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
8.1%
10.3%
6.7%
0.3%
-4.5%
-6.6%
2010
Budgeted
2011
2012
2013
Executed
2014 Pr
2015
ASB
Source: Ministry of Finance
Breakdown of total revenues
(% total revenues)
7%
2014
2015
13%
50%
26%
37%
67%
Oil
Non-oil
Other
Source: Ministry of Finance
Phasing out fuel subsidies has lead to a reduction of
the weight of subsidies in fiscal expenditure
(% total expenditure; % GDP)
16%
7%
14%
6%
12%
5%
10%
4%
8%
3%
6%
4%
2%
2%
1%
0%
2012
2013
2014
Weight on total expenditure
Weight on GDP (RHS)
2015
0%
Source: Ministry of Finance; BPI cal.
E.E.F.

Angola

June 2016
Public Finances
the second half of the year. Given this results, the fiscal deficit Revenue path signals weak diversification of the tax
ratio in percentage of GDP is expected to stand at 4.5%, base; expenditure adjusts to the context
down from the 7.0% forecasted by the ASB for 2015. This (% GDP)
represents a 2.1 percentage points (p.p.) improvement
60%
from the 2014 result, when the declining trend for oil
prices first started, with the global balance receding by
50%
30%, reflecting a more restrictive fiscal policy than in the
40%
preceding year, in line with the global goals of economic
policies in this phase, aiming to adjust demand to a more
30%
adverse global background.
20%
State Budget for 2016
10%
0%
The State Budget for 2016 assumes an average oil price
2010
2011
2012
2013
2014
2015
of USD 45 per barrel, down from the USD 52 recorded
Revenue Expenditure
Source: Ministry of Finance; BPI cal.
in 2015. The Executive expect oil production to expand to
1.89 mbd during the year, while oil tax revenue is expected
to grow 5% in comparison to 2015, this while non-oil revenue
is expected to expand 28%. Despite this, analysis of the data Macroeconomic assumptions
regarding oil revenue during the first five months of 2015, and
2013
2014
2015
2015
2016
assuming this pace of production for the remainder of the year,
Exec.
Prel.
SB
ASB
SB
107.7
96.9
81.0
40.0
45.0
makes it likely that the degree of revenue implementation will Oil price per barrel (USD)
107.5
100.7
51.7
33.3
fall significantly short of the Executive’s goals (according to Average price recorded
Average daily oil production (mbd)
1.72
1.67
1.83
1.83
1.89
our calculations, the implementation rate should be around
Real GDP growth rate (%)
6.8%
4.8%
9.7%
6.6%
3.3%
70%). Still, it is worth noting that the first two months of the Oil Sector
-0.9%
-2.6%
10.7%
9.8%
4.8%
year saw what are likely to be the lowest oil prices for 2016 Non-Oil Sector
10.9%
8.2%
9.2%
5.3%
2.7%
7.7%
7.5%
7.0%
9.0% 11-13%
and, as such, oil revenue is likely to surpass our estimates. Inflation – end of period (%)
Ministry of Finance.
Concerning non-oil tax revenue, the figure forecasted by the Source:
Notes: Reference price for State Budget deliberation; Average price for a barrel of Angolan oil;
Executive is possibly too optimistic, given a likely cool down Average price for the first quarter of 2016
of the economic activity in 2016. This significant improvement
expected by the Executive may be related to an overvaluation
of taxes collected on goods & services and international trade,
as was the case in 2015.
1)
2)
1)
3)
2)
3)
Heavy reliance on the oil sector impacts the
performance of public finances
On the expenditure side, the Executive expects to see
an increase from the previous year’s implementation. (% GDP; USD per barrel)
Nevertheless, as was the case in previous years, the degree 12%
120
of expenditure implementation could be limited, which would 10%
100
8%
drive expenditure below budgeted. This is a likely scenario as
6%
80
some of the implementation at least partially depend on the
4%
Government’s ability to secure external funding, particularly in
60
2%
the case of capital expenditure. The Executive expects interest
0%
40
payments to continue to expand due to the devaluation of the
-2%
20
Kwanza and increasing government debt. As such, the fiscal
-4%
deficit is expected to reach Kz 781 billion, or -5.5% of -6%
0
GDP, which would represent a deterioration of the budget
Fiscal Balance
Oil price (RHS)
Source: Ministry of Finance
balance in comparison to the preceding year. The non-oil
fiscal deficit is expected to be even more significant, with the
current forecast placing it at -23% of non-oil GDP, which calls for further diversification of the revenue sources and the need
for tighter expenditure policies and monitoring. The deterioration of the public finances is also forecasted by the IMF.
Indeed, this institution wrote in its most recent Regional Economic Outlook (April 2016) that it expects a deterioration of the
fiscal balance to -7.1% of GDP in 2016, from -4.1% of GDP in 2015, while the following year should see a 1 p.p. reduction.
Oil prices are expected to remain subdued throughout the year, thus continuing to pressure the Angolan public finances. This
environment will force the Executive to prioritize public investment and highlight the need for tighter monitoring of the investment
projects. More so, we note the Government’s intention to follow through with phasing out all fuel subsidies and use the low oil
prices currently in practice to soften the impact of these measure on the lower classes. In this case, it is central the need to
improve the social assistance for the most disadvantaged, the more affected by the increase in fuels prices.
11
E.E.F.

Angola

June 2016
Public Finances
The significant drop in oil prices has driven a sizeable
reduction of collected tax revenue
Budget Balance – Sub-Saharan Africa
(million USD)
(% GDP, including grants)
3,500
2015
2016
2017
3,000
Sub-Saharan Africa
-4.1
-4.6
-4.1
2,500
Oil-importing countries
-4.1
-3.9
-3.5
2,000
Oil-exporting countries
-4.1
-5.5
-4.7
Angola
-4.1
-7.1
-6.1
Cameroon
-5.7
-7.9
-6.5
-11.8
-12.6
-5.7
Equatorial Guinea
-3.0
-8.1
-10.3
Nigeria
-4.0
-4.7
-4.3
1,500
1,000
500
Rep. Congo
0
May-14
IRP
IPP
Nov-14
ITP
May-15
Nov-15
May-16
Revenues from concessionary
Source: IMF (Regional Economic Outlook April 2016).
Source: Ministry of Finance
Risk factors for the performance of public finances in 2016
Internal
- Economic activity slowdown
- Exchange rate behaviour
- Domestic oil market developments
External
- International oil market developments
- Volatility and uncertainty in the international financial markets
- Easiness to get external funding
Government Debt
The lower amount of taxes collected will increase
the Government’s reliance on debt to finance its
expenditure plans. According with the SB 2016, the deficit
will be entirely covered by external sources, a measure
justified by the need to safeguard the international reserves.
As stated in the SB for 2016, we are seeing a reduction
of funding secured through the use of credit lines, which
contrasts with increased disbursement associated with
projects. As such, it is likely that the Government expects to
secure funding from the international organizations, in order
to fulfil priority projects, namely those aimed at diversifying
the economic activity.
Public Debt
Public Debt (million USD)
% GDP
External (million USD)
% GDP
Internal (million USD)
% GDP
2013
Exec
2014
Prel
2015
Est.
2016
SB
30.6
39.3
41.0
49.2
24.5
31.0
40.5
49.7
15.7
20.2
23.4
30.8
12.6
15.9
23.2
31.1
14.9
19.1
17.6
18.4
12.0
15.1
17.4
18.6
Source: State Budget 2016.
12
2021F
2020F
2019F
2018F
2017F
2016F
2015
2014
2013
2012
2011
2010
The Executive expects government debt to reach USD
49 billion in 2016, nearing 50% of GDP (this excluding
debt owned by Sonangol, which, according to the IMF in IMF expects that public debt ratio should reach the
last November, amounted to 15% of GDP). This increase is sustainability threshold this year
caused, primarily, by increasing external debt, which is expected (gross public debt, % GDP)
to expand to 31.1% this year, from 23.2% of GDP in 2015,
80
according to the SB 2016 (domestic debt is also expected to
Public debt sustainability limit: 70%
70
expand to 18.6% in 2016, from 17.4% in 2015). Additionally,
60
the Executive is considering a return to the international markets
50
this year, aiming to diversify its sources of funding. At the time
40
of the SB 2016 draft, there was still no information regarding the
30
financial assistance programme requested by the Government
20
to the IMF and, as such, government debt is likely to expand
10
further due to the inclusion of any financial assistance granted
0
by the programme. Also worth noting is Angola’s debut on the
international securities markets last November, when it issued
sovereign debt under the form of Eurobonds, amounting to USD
Source: IMF
1.5 billion. Bonds issued have a 10-year maturity and a yield
of 9.5%, with demand exceeding supply five times. Issuing the
E.E.F.

Angola

June 2016
Public Finances
debt in dollars served as a natural protection against the risk Trajectory of public debt ratio in percentage of GDP
of exchange rate fluctuations, as oil revenues are denominated
using the North-American currency.
(% GDP)
IMF, on the other hand, performed a significant review
of its forecasts for the trend of government debt. In
November 2015, during its article IV review, the IMF expected
government debt to reach 57.4% of GDP in 2015, followed by
a reduction to 53% of GDP the following year. The more recent
Regional Economic Outlook for April this year tough, places
government debt at 62.3% of GDP in 2015, and expects this
figure to expand to 70.1% during 2016. Note that these figures
include both government debt and debt owed by state-owned
organizations and the country’s airline carrier (Sonangol and
TAAG, respectively). Note also that this reading far exceeds
forecasted debt levels for the rest of the region and, should
they come to pass, would place Angola at the sustainability
threshold for government debt in 2016, placed at 70%.
80
60
40
20
0
2013
2014
Sub-Sah. Africa.
Angola
2015
2016
2017
Sub-Sah.Africa Exporters
Source: IMF
The expansion of government debt recorded over the past few years is owed not only to the need to fund public deficits, but also
to the devaluation of the domestic currency, which impacts debt issued in foreign currency. Such debt is expected to amount to
63% of all government debt, representing a 5 p.p. increase from 2015 preliminary findings (according to the State Budget for
2016). Concerning domestic debt, the Executive expects the opposite, forecasting a 6 p.p. reduction to roughly 17% of GDP.
Government debt level remains susceptible to shocks, particularly those related to economic growth, exchange
rates and international oil prices. This calls for an urgent consolidation of the public finances, with measures aimed at the
non-oil sector, as well as the better rationing of Government expenditure, including the maintenance of the phase-out process
for fuel subsidies, improvements to capital investment and cost-cutting measures aimed at public service salaries.
More so, it is important to note that Angola owns a more comfortable financial buffer than during the 2009 oil shock, which
includes the Angolan Sovereign Fund (USD 5 billion). Moody’s notes that the full buffer should amount to USD 14/15 billion or
12% of the estimated GDP for 2015.
Sources: Relatório de Fundamentação do Orçamento Geral do Estado para 2016; Mnistry of Finance; Regional Economic Outlook – FMI (April 2016); Artigo IV – FMI (November 2015).
Vânia Patrícia Duarte
13
E.E.F.

Angola

June 2016
Angola assessment by the Rating Agencies
As expected, the constraints affecting the Angolan economy have weighted into the reviews performed by the
major rating agencies, particularly the low oil price environment and its consequences.
Standard & Poor’s, whose rating for Angola was reviewed down in February, has the most negative perspective of the big-three,
placing the rating at B, 5 degrees below the waterline between investment and speculative grades. The agency considers that
forecasts pointing to a longer period of low oil prices will further destabilize the country, on both the budget
front and the external balance and believes that public funding needs, together with the devaluation of the kwanza, will
increase the Angolan debt burden. Despite this, the outlook was determined “stable”, considering that the current account
deficit is expected to gradually decrease over the medium term, reducing risks associated with external funding, while expected
Government action could prevent further deterioration of the budget deficit and debt burden.
Fitch places its rating at B+, one grade above S&P’s, maintaining this rating at its March 25th review, although the outlook
was updated to “negative”. The agency also sees the large decrease in oil prices, together with the still-high dependency of the
Angolan economy on oil revenues, as catalysts for further deterioration to the country’s macroeconomic, budgetary and external
situation, increasing downward risks for the Angolan economy. Fitch also notes, positively, the adequate and expedient
response to the oil shock, which allowed to soften the decrease in international reserves, however it expects that
with oil prices remaining historically low, further erosion might be unavoidable, which would lead to a rating downgrade.
Lastly, Moody’s proceeded to downgrade its debt rating this
past April, going from Ba2 to B1, placing it on level with Fitch. Rating agencies' forecasts for 2016
Explaining this decision, Moody’s also noted the deterioration variable
Fitch
2.5
of the country’s financial and external situation due to the GDP Growth (%)
4.6
low oil prices. More so, Moody’s stressed the low forecasts for Fiscal Deficit (% do GDP)
57.0
economic growth in Angola, given that large growth rates had Public Debt (% GDP)
35.0
been one of the main supports for the country’s credit quality Oil price (USD)
Current account deficit (% GDP)
8.4*
in the recent past. Like Fitch, Moody’s also placed the outlook
Rating
B+
at “negative”, noting the devaluation pressures affecting the
Outlook
kwanza, which may create further difficulties to the country’s Date for the next review
23/09/2016
balance of payments. Nevertheless, Moody’s views the start Sources: Fitch, Moody's, S&P's
of negotiations with IMF as a positive step, given that these Note: *(incl. FDI)
may lead to a financial package that would not only support the
country’s foreign reserves, but also assist in the Government’s
efforts towards adjusting the economy to the new context and
Hydrocarbon Exports
solve structural problems affecting the Angolan economy.
In comparison to other African oil-producing countries,
and according to an evaluation conducted by Moody’s1,
the issues affecting Angola’s external equilibria and
real economy are the most worrisome, rather than the
Angolan public finances.
Moody's
S&P's
3.5
3.3
1.8
5.5
53.3
50.0
33.0
40.0
6.8
10.0
B1
B
-
=
05/08/2016
12/08/2016
(percentage of export of goods)
On one hand, Angola’s growth rate is expected to record a
steeper decline than other countries in similar situations,
given that natural gas and oil together represent 97% of all
exports and 45% of the GDP. More so, the goal of reaching a
production rate of 2 mbpd is likely out of reach until 2020 at the
earliest. Contrary to this, Nigeria is in a much more resilient
position, with 90% of its economy relating to the non-oil
sector, while the Rep. of Congo, facing similar constraints as
Angola due to low diversification, is succeeding (for the time
being) in increasing its oil production.
100
95
90
85
80
75
70
65
60
2015
Angola
2016
Nigeria
Rep.Congo
2017
Gabon
Source: IMF, BPI cal.
With that said, Angola’s most pressing matter in comparison with similar countries relates to its external position:
although its export revenues denominated in USD, along with the currency buffer, provide a good guarantee of solvency, the
devaluation pressures impacting the kwanza make it so that the weight of the country’s debt denominated in USD (which should
reach 59% of GDP in 2016) may increase significantly. More so, external imbalances also impact the current account
balance, which decreased from a 6.8% of GDP surplus in 2013 to a 5.7% deficit last year. Nigeria faces somewhat
similar problems, with devaluation pressures on the Naira straining the country’s foreign reserves and its economy posting the
Key drivers of rating actions on four African sovereigns, concluding reviews for downgrade, Moody’s Investor Service
1
14
E.E.F.

Angola

June 2016
Angola assessment by the Rating Agencies
first current account deficit in 10 years in 2015 (3% of the GDP). Meanwhile, regarding the Rep. of Congo, despite also being
affected in its current account balance by the low oil prices, the consequences for this country are lessened, mainly because
it benefits from the protection from devaluation pressures granted by being a member of the Central African Economic and
Monetary Community and sharing the Franc CFA with several countries.
International Reserves
Current Account Balance
(months of imports)
(% GDP)
10
0
8
-5
6
-10
4
-15
2
-20
0
2015
2016
Angola
Nigeria
-25
2015
2017
Rep.Congo
2016
Angola
Gabon
Nigeria
2017
Rep.Congo
Source: IMF
Gabon
Fonte: FMI
On the other hand, when comparing the situation in public finances, Angola compares favourably with these two
economies. While it is true that 2015 recorded a budget deficit, it is important to note that this follows a string of surpluses
lasting until 2013. As such, Moody’s notes that despise subdued non-oil revenue (non-oil tax revenue on the non-oil GDP
amounted only to 13%, according to latest budget execution data), the rapid adjustment of the Angolan Executive in
terms of spending cuts should allow for only small deficits to be recorded during the next few years. Inversely, the
Rep. of Congo is likely to have its debt increase significantly (from 20.9% of GDP in 2013 to 54.5% in 2016), primarily due to
the lower oil revenues which will drive budget deficits upwards (16% in 2016, 11% in 2017). Concerning the scenario for the
Nigerian economy, despite an expansionist budget for the current year, which will see the deficit reach 3.7% of GDP, the low
levels of debt (16% of GDP) will continue to justify rating stability, with Nigeria being the only of these 3 economies to retain
a “stable” outlook by Moody’s.
Regarding the implicit spread on debt issued with a Spread on 10-year debt*
10-year maturity, we note that the risk premium for
Angola rose until February this year, before adopting a (basis points)
downward trajectory. This trajectory is particularly related
to the oil price’s fluctuations towards a base level that brought 1,200
1,100
risk premiums closer to those reported for Nigeria, although
1,000
Angola retains the largest risk premium for countries with similar
900
characteristics (around 800 basis points).
800
700
600
500
400
Nov-15 Dec-15
Angola
Jan-16
Nigeria
Feb-16 Mar-16
Apr-16
May-16
Gabon
* Implicit spread on 10-year debt denominated in USD traded in the
Source: Bloomberg, BPI cal.
José Miguel Cerdeira
15
E.E.F.

Angola

June 2016
Finantial and Monetary Sector
Exchange Policy and Inflation
Inflation
For this year, and keeping with the trend observed since
the second half of 2015, the year-on-year inflation rate
kept at double-digit figures, with monthly changes of
the annual inflation rate (as measured by the Luanda
CPI) averaging 300 basis points (b.p.). Indeed, inflation
has expanded from 12.4% last October to 29.2% in May. Note
that the inflation rate for Angola had not surpassed the 20%
mark since September 2005, back when the normalization
process was still underway, following the end of the civil war
in 2002.
One of the main reasons behind these inflationary
pressures relates to the gradual devaluation of the
Angolan currency against the US Dollar, which started
discreetly between September and October last year, picking
up the pace last January (see box). Also contributing to this
effect was a new round of fuel subsidy cuts at the end of the
year, which impacted not only fuel prices, but several other
goods, due to higher transportation costs. Domestic gas prices
were also raised during this period, as well as fees for water
and electricity in Luanda and Benguela. Another reason lies in
the increase of the consumption tax in September, which
affected several domestic goods, including water (to 65%, from
20%), beer (to 60%, from 20%) and cigarettes (to 65% from
30%), along with the introduction of a 5% levy on gasoline
and diesel. Additionally, it was recorded a slight increase to
the import tax, which increased, in the cases of water, beer
and cigarettes, to 40%, 60% and 80%, from 10%, 20% and
30%, respectively. We note a certain degree of protectionist
bias applied to these taxation changes, which clearly favours
goods produced domestically, something in line with the general
strategy of economic diversification. As such, prices for food
& non-alcoholic beverages (which have a high import
percentage) have contributed substantially to inflation
growth: over the past 12 months, this category has
been responsible for an average of 45.1% of inflation in
the country, with fuel, housing and utilities accounting
for 11.4% of price growth. It is also worth noting that the
Executive’s strategy of restricting import activity as a way to
halt the loss of foreign reserves has led to scarcity for select
products with little to no domestic production, which in turn
drove prices upwards.
(yoy%; mom%)
35.0%
4.0%
30.0%
3.2%
25.0%
20.0%
2.4%
15.0%
1.6%
10.0%
0.8%
5.0%
0.0%
May-14
Nov-14
Monthly (RHS)
May-15
Nov-15
0.0%
May-16
Annual
Source: INE
Changes in consumption tax rates
Assets
Domestic production
Imports
Before
After
Before
After
Water
10%
40%
10%
30%
Juice
10%
40%
10%
20%
Beer
20%
60%
20%
60%
Whisky
30%
70%
30%
45%
Champagne
30%
55%
30%
45%
Cigarettes
30%
80%
30%
65%
Perfumes
30%
40%
-
-
Petrol
-
-
-
5%
Diesel
-
-
-
5%
Source: KPMG Angola.
Inflation by class of goods (May)
Class
Average Weight in inflation
in last 12 months
Annual
Inflation
45.1%
26.6%
Alcoholic Beverages & Tobacco
3.6%
37.9%
Clothing & Footwear
6.1%
19.3%
11.4%
31.6%
Furnit. & Household equip.
6.9%
26.4%
Health
5.4%
56.6%
Transports
5.8%
28.6%
Communication
0.1%
1.0%
Leisure & Culture
1.6%
21.6%
Education
1.4%
33.6%
Restaurants & Hotels
3.3%
26.2%
Other goods & services
9.1%
38.3%
Food & non-alcoholic beverages
Hous., Water, Elect., Fuel
Source: INE, BPI calc.
During 2016, we expect inflation growth to remain high, with the possibility of a downward trajectory starting
during the second half of the year. It is somewhat possible that the average price growth for the whole year
may be around 30%. The one-off nature of some taxes, as well as the end of the phase-out process for the subsidies, lends
credence to the notion that some of the strongest inflationary pressures may diminish in the next months. Nevertheless, the
role of fuel as a raw material means that its impact on inflation growth will be prolonged by secondary effects.
More so, the trend adopted by the inflation rate in the long term will depend on multiple factors, namely the value of the
Kwanza, as a large devaluation will increase inflation due to pricier imports. Even so, recent policies adopted by the BNA
allows us to predict that, on one hand, currency fluctuations will be more gradual and, on the other hand, these pressures will
be offset by probable new increases in the BNA interest rate (the last increase took place in April, to 14%, from 12%),
in an attempt to discourage consumption and foster savings. Also, several measures undertaken by the Executive may also
16
E.E.F.

Angola

June 2016
Finantial and Monetary Sector
have positive results, namely its program aimed at combating price speculation. The main aim of such policies is to avoid the
sale at higher prices in the informal market. One of the requirements for traders is that prices are available and public before
sale, something which still does not occur.
Possible effects on inflation of a prolonged devaluation of the kwanza
Inflation in Angola has adopted an upward trend in Inflation
recent months, with one of the main reasons being the
devaluation of the kwanza against other currencies: (yoy%; average annual inflation rate, forecast after May)
given the sizeable component of imports in multiple kinds of
70%
35.0%
goods, any currency devaluation will lead to pricier imports,
60%
30.0%
which will impact the inflation rate both directly and through
50%
secondary effects, mainly when the imported goods are raw
25.0%
40%
30%
materials or equipment, which entry in the production costs
20.0%
20%
of firms. The so-called exchange rate “pass-through” is a
15.0%
10%
ratio that determines how a currency’s valuation/depreciation
0%
10.0%
impacts the domestic price’s variation, as a percentage of
BPI Forecast
-10%
5.0%
-20%
the currency fluctuation. Pass-through estimates for African
0.0%
-30%
countries tend to hover around 40%1 , which means that
Mar-13 Dec-13 Sep-14 Jun-15 Mar-16 Dec-16
a 10% devaluation will reflect in a 4% change in domestic
Effective Exchange rate devaluation
prices. In Angola, the devaluation of the kwanza translated
12-month average of inflation
into a 10% devaluation of the effective exchange rate in 2015,
Source: INE, Bloomberg, BPI cal.
and, according to preliminary BPI calculations (which assume
a distribution of international trade by partners similar to the
end of 2015), this figure has now expanded to 26% during
this year and until May.
Beyond the influence of the effective exchange rate, Angolan prices are most likely being impacted by spillovers
from the parallel exchange market, which must also be taken into account. Note that this exchange rate has also
evidenced the devaluation of the kwanza, which may have lost 15% of its value during the first quarter.
kwanzas per USD
The ongoing shortage of foreign currency, due to lower Kwanza Exchange Rate
oil export revenues, has driven much of the pressure for
the devaluation of the kwanza, with the BNA performing (USD/AOA; EUR/AOA)
several discrete devaluations of the Angolan currency
(32% devaluation in 2015, 23% since the beginning of
180
this year and until June). By January 4th, the BNA fixed
170
the exchange rate against the US Dollar at 156.36 USD/AOA,
160
150
a 15% devaluation which followed other, less pronounced,
140
devaluations. The current exchange rate against the US
130
Dollar is now at its lowest reading ever recorded: USD/
120
AOA 166.71.
110
Considering that the Angolan economy is still significantly
reliant on the use of USD (and, more recently, the euro),
together with the ongoing difficulties in securing foreign
reserves and the need to further adjust internal demand
to the scenario of lower oil revenues, it is likely that
the trend of currency devaluation will continue: pointing
to this scenario, the spread between the official and parallel
exchange rates for the USD (in percentage of the official rate),
has fluctuated between 73.0% and 171.7% between November
100
90
Jun-14
USD/AOA
Dec-14
Jun-15
EUR/AOA (RHS)
Dec-15
200
190
180
170
160
150
140
130
120
110
100
Jun-16
kwanzas per EUR
Our calculations, assuming a possible devaluation of the Angolan currency, indicate that average price fluctuation for 2016
may be close to 30%, with the possibility of some deceleration towards the end of the year.
Source: Bloomberg, BNA
Razafimahefa (2012) indica este valor como a média para várias economias da África subsariana, mas outros estudos indicam valores relativamente próximos. De acordo com o nosso
estudo econométrico, o pass-through do câmbio efectivo (excluindo o câmbio paralelo) será de 38%.
1
17
E.E.F.

Angola

June 2016
Finantial and Monetary Sector
2015 and last March, this while the spread stood at a mere 25% in 2014. Also pointing to this scenario is the fact that for
multiple weeks in 2016, the BNA has refrained from conducting any foreign currency auctions for commercial banks.
Still, it is likely that these devaluations will proceed in a gradual manner and in combination with reference rate
increases, as a way to diminish the impact on the inflation rate. This was one of recommendations made by the IMF in
its Article IV review, last November. Also, we can expect the moderate use of foreign reserves to soften the devaluation
of the kwanza, as such reserves have been gradually reduced, with the latest readings recording a stabilization around USD
24 billion (in May, the net international reserves stood at USD 24.4 bn). In an economic strategy planning document dated on
February 20162, the Executive noted that it expects the difference between foreign currency bought by the BNA and foreign
currency sold to the banks will reach USD 4.6 billion, a difference that will be compensated through the use of reserves in
equal amount. Also, in order to soften the social impact of foreign currency shortages, Angola has adopted several priority
criteria in obtaining foreign currency, giving preference to food, medicine, agricultural and industrial imports, along with the
oil sector. Also, the Government has placed restrictions on the amount of currency allowed to move out of the country. We
note that despite the Government’s intentions of guaranteeing crucial imports, such measures may also hinder the economy’s
ability to function properly.
Gap between official and informal exchange rates
Net International Reserves
(USD/AOA; % of official exchange rate)
(million USD)
40,000
200%
180
180%
170
160%
160
140%
150
120%
140
100%
130
80%
120
60%
110
40%
100
20%
0%
90
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Spread in percentage of exchange rate (RHS)
kwanzas per USD
35,000
USD/AOA
30,000
25,000
20,000
15,000
10,000
5,000
0
May-13
Feb-14
Nov-14
Aug-15
May-16
Source: BNA
Source: Bloomberg, BNA
Monetary Policy
The BNA has adopted a restrictive monetary policy since Monetary policy reference rates
the second half of 2015, in order to moderate inflation
growth, which surpassed significantly the 7%-9% range (percentage)
defined by the Central Bank. Aiming for a holistic monetary
and exchange policy that combats the issue of foreign currency 18.0%
scarcity, while at the same time preventing unrestrained 16.0%
14.0%
inflation, the BNA has performed 5 increases to the BNA rate 12.0%
(the reference rate for Angola) in 2015, from 9% to 11%. 10.0%
8.0%
This followed two subsequent increases in February and March
6.0%
2016, to 12% and 14%, respectively. The marginal lending
4.0%
rate has also been raised, being placed at a fixed 200 basis
2.0%
points from the BNA rate and following the latter’s trajectory
0.0%
May-14
Nov-14
May-15
Nov-15
since September. On the other hand, the mandatory reserves
Benchmark rate (BNA rate)
coefficient has remained stable at 25% since June 2015. For
Standing liquidity absorption facility rate
the remainder of the year, we expect the monetary
Standing lending facility rate
LUIBOR Overnight
policy to remain restrictive, given the adverse scenario
caused by the low oil prices still in effect, as well as the
need to contain aggregate demand and halt the climb
of the inflation rate. Following the agreement for the IMF
May-16
Source: BNA
“Linhas Mestras para a Definição de uma Estratégia para a Saída da Crise Derivada da Queda do Preço do Petróleo No Mercado Internacional”, República de Angola (Janeiro de 2016).
2
18
E.E.F.

Angola

June 2016
Finantial and Monetary Sector
intervention, we expect the Executive to follow these guidelines, along with the fund’s recommendations to raise transparency
standards for the country’s monetary policy: the international institution stressed the need for anchors that guide monetary policy.
Angola has also implemented additional measures, such as the prioritization of key sectors and needs, which will
be granted priority in currency auctions. According to the Executive, its intention is to rationalize the distribution of foreign
currency in order to maximize several factors: employment (primarily in the oil sector), inflation control (to guarantee the
viability of food imports), healthcare, education and key public expenses. This strategy has, nevertheless, resulted in deeper
scarcity of foreign currency for commercial bank operations, with some of the latest auctions seeing the vast majority of the
auctioned currency being secured by state-owned companies, including the Angolan airline company TAAG and the public TV
station TPA. In the future, according to the Executive’s planning, we are likely to see the introduction of incentives
aimed at fostering credit granted to the manufacturing sector by the commercial banks, although details of such
measures are still unknown.
In the interbank market, LUIBOR rates have remained high, with the overnight rate recording an increase of 300
basis points since last April, which drove subsequent increases in all other rates. The multiple rates have climbed
upwards since 2015, particularly following a large and abrupt increase of the overnight rate in June 2015. Last May, the overnight
rate stood at 14%, with the remaining rates all recording larger readings and adopting growth trajectories.
In April 2016, the M1, M2 and M3 monetary aggregates recorded year-on-year increases between 25% and 26%,
a result in line with the annual inflation for the month (26.3%). Credit granted to the economy (in kwanzas) rose 25.5%
yoy in the same month, while deposits rose 26.4% yoy. Circulation in USD remains an important part of the Angolan economy,
as evidenced by the fact that even following significant reductions until 2014, in the last months, the percentage of deposits
and credit granted to the economy in foreign currencies has kept between 33-36% and 27-29%, respectively.
Deposits and Credit
(million AOA)
2011
2012
2013
2014
2015
Jan-2016
Monetary Base
1,275,119
1,323,583
1,392,045
1,580,641
1,675,454
1,807,230
M1
2,155,799
2,271,912
2,584,637
3,096,862
3,419,821
3,616,645
M2-M1
1,365,085
1,477,106
1,810,107
2,006,621
2,283,924
2,327,026
M3-M2
152,227
134,019
1,936
6,633
8,155
9,829
2.88
2.93
3.16
3.23
3.41
3.29
2,136,279
2,647,774
2,926,430
2,946,702
3,469,354
3,573,845
-
23.9%
10.5%
0.7%
17.7%
20.1%
Money Multiplier (M3/BM)
Credit to the economy
Change rate
% GDP
Deposits
Change rate
% GDP
20.5
22.1
21.2
19.3
28.2
25.9
3,312,486
3,504,768
4,119,193
4,763,815
5,323,043
5,604,962
-
5.8%
17.5%
15.6%
11.7%
18.7%
31.8
29.3
29.9
31.2
43.2
40.7
Source: BNA
Note: Nominal GDP - INE until 2013 and IMF's forecasts for 2014-2016.
José Miguel Cerdeira
19
E.E.F.

Angola

June 2016
Banking situation in Angola
Balance 2015
The structure of assets in the banking sector underlines
a trajectory of credit replacement for the last three
years (whose weight on total assets has dropped 12 p.p. to
45.7%), contrarily to government bonds, whose weight rose
8 p.p. to 26% of all assets. This situation reflects not only the
high risks associated with private sector credit, the lack of
transparency and judicial protection, but also the high degree
of attractiveness generated by the Treasury Bonds, whose
yields to maturities of 91, 181 and 364 days have all recorded
increases in 2015, of 7.46 p.p., 7.84 p.p. and 5.12 p.p.,
respectively. This development, together with the existence
of some default risk in the interbank money market (IMM),
have also caused sizeable drops in the volume of interbank
transactions, with the indicator for Liquidity Swap Operations
dropping roughly 57% in 2015.
The tendency towards a large concentration of the
banking sector has decreased moderately. Until late 2014,
the 5 major banks accounted for over 70% of total assets and
credit granted. In 2015 though, despite some efforts towards
reducing concentration, this figure is still above 60%. The
degree of deposit concentration also receded, dropping 3.8 p.p.
to 67.6%, while the drop in credit granted was less pronounced
(1.5 p.p. to 68.7%). The same course was observed in the
bonds market (own and client portfolio), with the 5 major banks
concentrating 74% of the market in 2015 (80% in 2014).
Deposits, credit and loan-to-deposit ratio
(mil milhões de Kwanzas; %)
6,000
80%
5,000
60%
4,000
3,000
40%
2,000
20%
1,000
0%
0
Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15
Deposits
Credit to non-financial sector
Loan-to-deposit ratio
Source: BNA
Banking Structure - Assets
(billion AOA)
10,000
On an annual basis, deposits and credit recorded growth
rates of 14% and 2% in 2015, respectively. Deposits in
the domestic currency expanded 16.2% during the year,
against a 9.1% increase in deposits denominated in foreign
currency. The rate of change in credit recorded a curious
decrease of 5.2% in its domestic currency section, against
an 18.7% rise in credit granted in foreign currency. This
behaviour is primarily explained by the currency exchange
effect, particularly the devaluation of the domestic currency
observed in the preceding year.
The credit/deposits ratio, whose reading recorded a high of
65.5% in late 2012, has adopted a downward trajectory,
ending 2015 at 59% (-6.5p.p.). Despite this low reading, the
ratio for credit in default remains above 15%, which, according
to Moody’s methodology, is considered “weak”. The high
degree of sectorial concentration in the credit market and the
subsequent effects on the reduction of public expenditure for
2015 may partially explain this degree of exposure. Merely 4
sectors (Trade, Private, Housing and Construction) concentrate
over 64% of all credit granted to the economy in 2015, 0.5
p.p. above the figure for 2014 (and 7.3 p.p. above the level
recorded in 2011).
The main indicators for the financial system published by the
BNA (see table) sugest some caution. The solvency ratio, while
above the legal minimum of 10%, dropped to 19.8% in last
December, this following a 22% high recorded in February.
Despite this, the excessive exposure of the economy to the oil
20
8,000
6,000
4,000
2,000
0
Dec-14
Apr-15
Aug-15
Loans
Bonds
Deposits
Other assets
Dep.Non-resid.
Currency
Equity & other part.
Dec-15
Source: BNA
Banking Structure - Liabilities
(billion AOA)
6,500
5,500
4,500
3,500
2,500
1,500
500
-500
Dec-14
Mar-15
Jun-15
Sep-15
Transf.Dep.
Oth. Dep
Bonds
Repurc.Agreem.
Reserves & Capital
Other
Dec-15
Source: BNA
E.E.F.

Angola

June 2016
Banking situation in Angola
sector (who is primarily responsible for slowing the growth rate for long term deposits and increasing the probability of default
by the bank’s debtors) may have effects on the decreasing capital base, due to the deterioration of the quality of assets.
The asset liquidity ratio dropped to 39.7% in December, this after reaching 42.4% in July 2015 (a 5-year high). This scenario
may lead to a reduced capacity by the banks to honour their commitments in the short term, given that the ratio for liquid
assets over short term demands dropped 5.6p.p. during the final quarter of 2015. On the other hand, the profitability of assets
and equity recorded significant improvements in 2015, increasing 1.1 p.p. and 8.0 p.p. to 1.7% and 12.9%, respectively. This
result is clearly linked to efficiency gains recorded in the sector, with the cost-to-income ratio dropping 11.4p.p. to 47.4%.
The trend of increasing currency positions by the banks, mainly through the purchase of securities indexed to the US dollar,
reached a peak at September 2015, when the bank’s net open currency position reached 41% of equity. This scenario mainly
relates to the situation faced by the oil sector and is a consequence of the major reductions in available foreign currency, along
with the fragility of the financial system, as evidenced by cases of money laundering, which impacted the relationship between
the domestic banks and their correspondents.
Considering only direct effects, it is estimated that the banking system has a low degree of exposure to the oil
sector (less than 5% of all credit). Nevertheless, oil price volatility, due to the undiversified nature of the Angolan
exports (which constrain the availability of foreign currency), remains an important mechanism for the transmission
of imbalances in the banking system. Among the main consequences resulting from the current low oil prices, we highlight
the devaluation pressures on the kwanza and the negative impact it has on capital compliance (along with its loss in case of
default), the lower investment in public projects, payment delays and higher chances of defaulting (particularly relevant for the
construction sector), lower deposits from both the oil sector and the Government and increased profitability for Government
bonds due to funding needs, which may lead to capital losses by the banks.
Some of the imbalances recorded are deeply related to the Angolan banks’ ability to maintain their foreign currency accounts
and perform external payments. This is related to Angola’s position on the grey list of Financial Action Task Force on Money
Laundering until 2016, which signals lack of compliance on all regulations for money laundering and terrorism funding, thus
straining the relation with banking correspondents (North American). While Angola has since been removed from the list due
to tighter supervision standards by the BNA, the banking sector is still hindered by lower levels of trust in international circles.
The pace at which the BNA injects foreign currency towards the commercial banks has been insufficient to compensate the
extra commitments assumed by the banks. Negative impacts from this scenario are as large as the commitments assumed by
the bank (on behalf of their clients), primarily in operations of trade finance, letters of credit, stand-by letters of credit, etc..
In a report by Moody’s titled “Banking – Africa 2016”, Angola is described as owning the most vulnerable banking system in
Africa. The report notes that the main reasons for the surge in the risk on the quality of assets are weak economic growth,
currency devaluation and exit of capitals. Also relevant are the scenario for risk management, loss coverage and the stilldeveloping supervision capacity.
This is certainly a challenging scenario for the country’s monetary authority, which must seek to mitigate the sizable effects
of the lower oil prices and simultaneously correct the major imbalances present in the banking system. A clear path to this
effect is to adopt internationally recognized accounting and management standards, consolidate the sector, restructure the
business fabric and adopt efficient standards for risk management. Such actions will contribute towards sectorial stability,
reduced risks of default and a more efficient allocation of bank resources. We highlight that the desired robustness, efficiency
and competitiveness of the financial system primarily depends on improved macroeconomic fundamentals for the country,
namely higher oil prices and success on the country’s economic diversification efforts.
Financial sector in a regional context
For most of Sub-Saharan Africa, despite recent improvements, the banking sector continues to perform below the standards
set by developed countries. In order to measure the financial system’s performance in Sub-Saharan Countries (SSA), the IMF
used the Financial Development Index in its most recent Regional Economic Outlook. This index measures the depth, access
and efficiency of the markets and financial institutions.
According to this indicator, the performance of the SSA region has accelerated moderately over the past 15 years. Among oilproducing countries, Angola recorded the best performance, also scoring above-average for SSA countries. Angola developed
particularly fast in banking deposits, which grew from 21% to 49% of GDP, while banking loans expanded from 5% to 24% of
GDP between 2005 and 2013, thus becoming the reference levels for the region.
21
E.E.F.

Angola

June 2016
Banking situation in Angola
The main findings for the SSA region note that the financial system has recorded solid improvements, even if it remains below
developed-country standards. Financial inclusion has also shown progress, benefiting from innovations in the field of financial
services, namely in payments by phone. Nevertheless, there is still ample room for improvement.
Angolan Financial Sector Indicators
dec-14
mar-15
jun-15
sep-15
dec-15
Solvency = FPR/APR+ (ECRC/0.10))
19.8
21.2
19.7
18.8
19.8
Basic capital (Level 1)/(Risk-weighted assets)
13.9
15.2
14.3
13.7
13.8
Credit Foreign Currency/Total Credit
27.4
27.7
31.0
32.8
30.8
NPL/Total Credit
11.7
13.0
13.8
13.2
11.6
(NPL -provisions for NPL)/FPR
32.8
34.3
26.8
24.0
19.6
Credit to Public Sector/ Total Credit
10.6
10.7
7.5
7.2
7.3
Credit to Private Sector/ Total Credit
89.4
89.3
92.5
92.8
92.7
Return on Assets (ROA)
0.6
0.6
1.1
1.6
1.7
Return on Equity (ROE)
4.9
4.1
8.8
12.6
12.9
Total costs/Total gains
99.9
99.9
99.7
99.8
99.8
Cost-to-income=Administrative & Commercialization Cost/ Operating Income
58.8
48.9
42.9
43.8
47.4
Net Assets/ Total Assets
33.9
39.3
42.3
40.4
39.7
Net Assets/ Short-Term Liabilities
43.2
50.4
54.1
52.5
50.6
Total Credit/Total Deposits
59.9
58.8
56.0
58.4
59.0
Liabilities Foreign Currency/Total Liabilities
33.1
32.2
33.0
34.7
33.5
23.7
21.9
32.2
40.8
34.4
23
24
25
28
28
Capital Adequacy
Quality of Assets
Distribution of credit by activity sector
Profitability & Returns
Liquidity
Sensitivity & Market Change
Net Open Exchange Exposure /Capital
Number of banks reporting for the period
Source: BNA/DSI
Another important conclusion relates to the fact that the banking system continues to dominate the financial environment in
multiple countries. In the case of Angola, the financial system is almost fully controlled by the banking sector, whose weight
amounts to 95% (domestic banks having the largest weight). The remaining 5% is split between pension funds and National
Development Banks.
Concerning the recent financial developments for the region, the macroeconomic fundamentals provide the main drivers for
development. Still, negative current developments, due to the recent crisis faced by the commodity market (mainly in oilexporting countries, like Angola and Nigeria), provide weak perspectives for growth in these countries.
In order to fully reap the benefits of financial development and secure macroeconomic stability, the IMF stresses the importance
of creating and implementing proper policies aimed at the financial sector. Such policies are expected to further the goals of
creating stronger institutions, promote sturdier regulations and increase the financial inclusion.
Sílvio Bernardo Magalhães
22
E.E.F.

Angola

June 2016
External Sector
Goods and Services Account vs oil prices
Goods and Services Balance
60,000
50%
40,000
40%
30%
20,000
20%
0
10%
2014
2013
2015 F
Services (Net)
Goods
Goods & services (% GDP) - RHS
2012
2011
2010
2009
2008
2007
2006
-10%
2005
0%
-40,000
2004
-20,000
2003
Since the Angolan economy is characterized by its high
concentration of exports on the oil sector, any variations in its
price or production will have a direct impact on the balance of
goods and services. Indeed, oil sector exports represent 95% of
all Angolan exports. On the other hand, we note that import
activity behaves on a time delay to these commodity
price cycles, which drives a temporary worsening of
the foreign trade balance during oil price drops, as is
currently the case.
(million USD; % GDP)
2002
Since 2004, the Balance of Goods and Services recorded an
average surplus of 23% of GDP. The years 2009 and 2015
though, stood as clear exceptions, with falling oil prices
triggering a worsening of the balance to deficits of 0.5% and
2.1% (estimate) of GDP, respectively.
Source: BNA, IMF, BPI
Note: F - forecast
On one hand, imports of capital goods – machinery – and some Exports and imports of goods & services
services both reveal a high elasticity degree to the performance
of the oil sector, as measured by production or sectorial revenue; (million USD)
on the other hand, imports of goods and services reflect internal
80,000.0
demand behaviour, which are indirectly affected by oil sector
70,000.0
revenues (through multiple transmission channels, including
60,000.0
the private and public sectors, via Government’s investment
50,000.0
and expenditure), along with the stance of economic policies.
40,000.0
30,000.0
20,000.0
10,000.0
2014
2013
2012
2011
2010
2008
2009
Imports of Goods (fob)
2015 F
Imports of Services
2007
2006
0.0
2005
Thus, in a context where oil sector revenues have dropped 50%
since 2013, and given the need to halt (or, at least, control)
the decrease of foreign reserves, the application of restrictive
monetary and fiscal policies stimulates the adjustment of
internal demand with a lagged effect on imports.
Observing the goods and services external account and its main
Source: BNA, IMF, BPI
Total Exports (fob)
Note: F - forecast
components, we note that exports dropped over 50% since
2013; this while imports rose 9% in 2014, followed by a 30%
drop in 2015 (see table). This trajectory is expected to continue Exports and imports of goods & services
throughout 2016, even if in a less pronounced manner, as was
(index - base 100=2013)
the case during the 2008-2009 crisis.
In 2015, assuming a ceteris paribus scenario (meaning
equal oil production and non-oil GDP growth) an oil
price of 57 USD/barrel would be enough to eliminate
the goods and services deficit (average oil price stood at
53 USD). For 2016, this breakeven price will probably
be lower, as we expect to see further adjustments of
internal demand, meaning that import activity is likely
to maintain a trajectory of soft decline. The G&S oil-price
equilibrium probably in the 45 to 50 USD range. Nevertheless,
this price will still be insufficient to drive the Current Account
to surplus, given the significant imbalance in the so-called
Primary Incomes (net), which include external flows related to
Salaries, Interest and Dividends, which are expected to record
a deficit of 5% of GDP.
120
110
100
90
80
70
60
50
40
2005 2006 2007 2008 2009 2010 2011 2012 2013
Imports of Services
Imports of Goods (fob)
Total Exports (fob)
Source: BNA, IMF, BPI
Goods and Services Balance
2014E
2015E
Exports change
-13%
-43%
Imports change
9%
-30%
2016F
-13%
Note: 2014 and 2015, assuming provisional figures of BNA; 2016: forecast
assuming BPI scenario.
E - estimate
F - forecast
Paula Gonçalves Carvalho
23
E.E.F.

Angola

June 2016
External Sector
In 2015, according to data released by the Government, Quarterly International Trade
the Angolan trade balance of goods recorded a Kz 2.574
billion surplus, which represents a 12% yoy drop, with (yoy%; million USD)
both exports and imports receding, 20.6 and 29.5%,
100%
respectively.
80%
Recently-published data for external trade during the final
quarter of 2015 also recorded a similar trajectory, with exports
and imports decreasing 21.5% yoy and 34.5% yoy, respectively.
This trend is also observable in the export activity on a quarteron-quarter basis, where a 12% drop was recorded, while
import activity posted a residual growth of 0.3%. Overall, the
trade balance recorded a surplus of Kz 425 billion, a 1.5%
improvement from the 2014 result.
60%
40%
20%
0%
-20%
-40%
-60%
-80%
14000
12000
10000
8000
6000
4000
2000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2013
2014
0
2015
The current structure for Angolan international trade
Trade Balance (RHS)
Imports
reflects a narrowing of its degree of openness, which
resulted in foreign trade losing some relevance to the national
economy. The degree of economic openness, as measured
by the trade balance, stood at 20.2% in 2015 (-3.3 p.p.
from 2014). This behaviour is deeply linked to the high level
of dependency on the oil sector (both in exports and the
structure of GDP), and the resulting vulnerability to the oil Destination of exports, by country
price shock.
Exports
Source: BNA
(% total)
The structural coefficients of Angolan external trade
underline the low level of diversification, both in terms
of product categories and trade partners. Concerning the
composition of trade, this degree of concentration is evidenced
by the weight of oil exports, which accounted for 96.6% of
all exports in 2015 (97.9% in 2014). For imports, a group of
4 categories (Machinery and Equipment; Agriculture items;
Common Metals; Food) account for 56.9% of total imports in
the preceding year (56.8% in 2014). Concerning the direction
of trade1, this indicator shows that the top 5 destinations for
Angolan exports account for 66.2% of the total (66.8% in 2014),
while the top 5 sources of imported goods account for 49.3%
of total imports (47.2% in 2014).
100%
China
USA
80%
India
60%
Spain
Taiwan
40%
Canada
Netherlands
20%
France
South Africa
0%
1998
2002
2006
2010
2014
Portugal
Other
Source: BNA
Angola has gradually lost the ability to sustain its
import activity with export revenues. Over the last 3
years, the global coverage rate recorded a 48.4 p.p. drop,
standing at 197% in 2015. While this reading appears to be a
broadly positive sign of commercial competitiveness, this rate
does not hold much significance for the Angolan economy,
given the unsatisfactory levels of foreign trade and the low Imports source (2014)
levels of sectorial competitiveness (due to low technical
progress implementation and weak industrial dynamism and (% total)
productivity).
The downward performance of the coverage rate2 of imports by
exports over the last few years has been explained by successive
drops in exports and imports levels, which amounted to 43.6%
and 41.5% in 2015, respectively. On one hand, excessive supply
of oil in the international markets and the subsequent drop in its
price have driven lower export activity. On the other hand, the
deterioration of the terms of trade, due to an exchange
policy aimed at maintaining foreign currency reserves at
comfortable levels, together with the restrictive stance
adopted by the remaining economic policies (monetary
and fiscal) have been pointed as the main factors behind
the lower import activity.
Portugal
15%
25%
Singapure
China
USA
14%
Belgium
UAE
3%
Brazil
4%
UK
4%
12%
4%
6%
6%
7%
South Africa
France
Others
Source: BNA
The main trading partner in the Q4 2015 was China, being the destination for 45% of the Angolan exports and the source of 16.8% of imports.
In the last quarter of 2015, the Angolan coverage rate improved in comparison with the same period of 2014, now being 187.1% (156.2% in the Q4 2014). Nevertheless, a year-on-year
comparison showed a 16.2 p.p. drop in the coverage rate.
1
2
24
E.E.F.

Angola

June 2016
External Sector
Structure of Exports
Structure of Imports
(million USD)
(million USD)
80000
80,000
70000
60,000
60000
50000
40,000
40000
30000
20,000
20000
10000
0
Oil
0
2000
Non-oil
2002
2004
2006
2008
2010
2012
2005
2007
2009
Capital Goods
Intermediate Consumption Goods
Current Consumption Goods
Merchandise
2014
Source: BNA
2011
2013
Source: BNA
An analysis of the Revealed Comparative Advantages , which Terms of Trade
aims at an attempt to normalize the coverage rate, (which is
important, given the weight of hydrocarbon exports on the (Index, 2000 = 100)
behaviour of hydrocarbon imports), shows a stabilization
in the degree of competitiveness for the hydrocarbon
200
sector, in comparison to the remaining sectors of the
150
economy, some of which have recorded drops. Such decreases
result from both structural and conjuncture problems of the
100
economy as a whole.
40
30
20
10
0
-10
-20
-30
-40
-50
50
0
Terms of Trade
2016F
2015E
2014
2013
2012
2011
2010
2009
-50
Terms of Trade - % change
Source: IMF - Regional Economic Outlook
Diversification of the economy and import replacement
As a direct consequence of the weight of the oil sector on the national economy, the trade balance and net
foreign reserves (NFR) have been affected by lower oil prices in the international markets and the subsequent
lower oil export revenues. The budget deficit for the current account (USD 8.748,1 million) and the subsequent 10.7%
drop in NFR to USD 24.550,2 million in 2015 (according to the BNA) have hindered the performance of the economy as
a whole. The real sector of the economy recorded an estimated 2.8% growth rate for 2015, with the oil sector expanding
roughly 6.3%, this while non-oil grew 1.3%.
In 2014, foreign reserves sold to commercial banks covered 107% of all imports of goods and services. For 2015 tough,
this indicator recorded a 39 p.p. drop, standing at 68%. Forecasts for 2016, according to the Executive, point to a 5 p.p.
decrease to 63%. Such tight management of the exchange market has led the exchange rate to devaluate 32% in 2015,
allowing for a reduction of 29.9% in imports of goods, which raised the coverage ratio of imports with international reserves
to 7.72 months.
Such results, while still modest, are in line with the strategy of import substitution evidenced by the new customs
tariffs, which raised taxes on imported goods that can, according to the Government, be produced domestically. One previously
quoted Governmental strategy document explicitly states the goal of propping up the non-oil sector by increasing internal
production (primarily in basic products), promoting exports of products that attract foreign reserves towards the country.
Still, this strategy may have negative consequences for the economy. If on one hand, larger protectionism may
lead the Executive to work towards raising production levels and competitiveness, on the other hand, such measures
also tend to hinder the access to cheaper productions goods and raw materials, given the economy’s low levels of
competitiveness. Currently, with an economic environment adverse to investment and maintenance of past production levels
3
RCA links the sectorial coverage rate (of different sectors of the economy) with the global coverage rate.
25
E.E.F.

Angola

June 2016
External Sector
(lack of production equipment and intermediate goods, infrastructural issues related to the energy sector and communications,
water shortages, etc), we note that the industrial activity appears to be weakening, as is evident in several indicators: the
industrial production index decreased 2.7% during the 3Q2015; the Overall Economic Climate Indicator notes unfavourable
growth for the final quarter of last year (decreasing from 9 points to -27), with all sub-indexes standing below the historical
average.
Thus, on one hand, the current external macroeconomic balance for the Angolan economy demands (and taking into account
the perception of the international investors, rating agencies…) a policy of currency devaluation, which enhances the impact
on the terms of trade, given that the two behave inversely. Despite this, the prioritization granted to macroeconomic
balance (foreign reserve stabilization) may difficult or even delay the process of diversification and import
replacement, should this measures impede the flow imports beyond what is strictly necessary. In other words, protecting
the reserves will itself lead to greater currency devaluation. Subsequently, further devaluation may, in a context of excessively
fast adjustment, lead to significant price increases for imported goods and services, which will hinder the Angolan economy’s
ability to secure much needed equipment and raw materials.
International competitiveness
Doing Business 2016
(Points)
Total Ranking
Protect.
minority inv.
Paying taxes
Starting
business
Getting
electricity
Trad. across
borders
Getting Credit
Const. permits
2015
Regist.property
2016
Enforcing
contracts
200
180
160
140
120
100
80
60
40
20
0
Resolving
insolvency
Concerning Angola’s competitiveness, several
international organizations continue to identify
extensive room for improvement. In the recent Doing
Business 2016 report, which measures and tracks changes
to regulations applicable to small and medium businesses in
189 countries, Angola was ranked 181st (39.64/100 points), 2
places above its result for the previous year. This improvement,
according to the World Bank, particularly refers to a more
streamlined process to open a business, improvements to
the electricity coverage and tax payments. As in the previous
report, Angola remains at the very bottom of the ranking for
governance in cases of insolvency and near the bottom for the
compliance of contracts. The poor results obtained in this last
category relate to property records and construction licenses,
for whose rankings Angola dropped 3 places this year (to 169th
and 108th, respectively).
Source: World Bank
Serious hurdles remain for businesses in obtaining credit and facilities in internal trade (108th place). On the
other hand, despite the loss of 2 places, investor protection remains Angola’s best category. With a score of 39.6 points,
Angola is 60.4 points short of the “frontier”. The latest report saw a 2.18% increase in the distance-to-frontier indicator, a
result driven by a 19.6% improvement in the ease to start a business and a 1.9% for the payment of taxes. Note that such
constraints are fairly common among African Nations.
On its meeting in Kigali, Rwanda, the World Economic Forum addressed the latest economic developments in the
African continent, taking into account the adverse global economic conjuncture, especially the drop in commodity
prices, the lower growth in Europe and the strength of USD. The WEF considers that several factors which have been
relevant for growth in Africa over the past few years, such as strong external demand, reasonable access to funding and
macroeconomic reforms, have been negatively affected by low competitiveness across the region in the last years, particularly
in terms of productivity.
According to the Global Competitiveness Index 2015-2016, Africa has performed poorly in comparison to other
regions, particularly in matters of infrastructure, human resources, technological readiness, business sophistication
and innovation. Such lower competitiveness raises a bigger challenge in terms of economic diversification for the region. As
such, and aiming at raising competitiveness in Africa, WEC, the World Bank and the OECD jointly introduced a recommendation
package with two main focuses: public-private cooperation and regional integration. According to the recommendations,
the private sector must lead the way in striving for higher competitiveness standards, supporting better policies and its
consequent implementation, while regional integration constitutes an important element in raising competitiveness through
trade and diversification.
As such, the main recommendations relate to the need to improve labour market efficiency and the development of
skills, support small and medium businesses, increase productivity and profitability for the agricultural sector
and reinforcing governance institutions and structures. The establishment of a joint infrastructural strategy was also
recommended, as well as improvements towards a more streamlined circulation of goods, services and people, the promotion
of regional trade through regional and global value chains and an easier access to credit, as well as the integration in financial
markets.
Sílvio Bernardo Magalhães
26
E.E.F.

Angola

June 2016
Social Context
Characteristics of the angolan population – 2014 Census (final data)
The Angolan population increased nearly fivefold between 1970 and 2014, according to the Censos in the corresponding years,
currently standing around 25.8 million inhabitants, of which 48% are male. The population of Angola is expected to continue
increasing over the following years, as noted in forecasts by the Population Reference Bureau, an organization which develop
studies about population, health and environment, who considers that, by mid-2030, the Angolan population will reach,
approximately, 39.4 million inhabitants (65.5 million by 2050). Of all provinces, Luanda is the most populous, with nearly a
quarter of the total population (nearly 7 million), while Bengo is the least populous province. Luanda also has the country’s
largest population density (368 inhabitants/km2), clearly above that recorded for the country (20.7 inhabitants/km2). Also
note that the percentage of the population at or under 18 is 55%, according to the 2014 Census. For Luanda, 63% of the
population is at or under 24 years of age (65% nationwide).
Performing regular census allows for a deeper understanding of the Angolan population and its needs. Deeper understanding
of the social and housing conditions of the population allows the Government to better pursue the desired standards for
the infrastructural network, healthcare, education, among others. This data is also crucial to facilitate public expenditure
management and resource allocation, in order to develop policies in a more rigorous and adaptive manner for the socioeconomic
background.
Characterization of the angolan population in graphics
Angolan population, by province
Urban and Rural Population Split
(% of total population)
(% of total population)
Bengo
Cuanza Norte
Namibe
Cuando Cubango
Lunda Sul
Zaire
Cabinda
Moxico
Lunda Norte
Malanje
Cunene
Bié
Uíge
Cuanza Sul
Huambo
Benguela
Huíla
Luanda
37.36%
62.64%
0
0.05
0.1
0.15
0.2
0.25
0.3
Urban
Source: INE
Rural
Source: INE
Angolan Age Pyramid
Population with over 5 years, by level of education
(million)
(% of total population)
90-94Y
11.9%
Mulheres
Homens
1.2%
0.8%
80-84Y
70-74Y
60-64Y
18.8%
50-54Y
40-44Y
30-34Y
67.2%
20-24Y
No education level
Primary Education
Secondary Education, 1st cycle
Secondary Education, 2nd cycle
Higher Education
10-14Y
0-4Y
-3
-2
-1
0
1
2
3
Source: INE
27
Source: INE
E.E.F.

Angola

June 2016
Social Context
Literacy rate of the Angolan population, by province
Employed Population, by main economic activity
(percentage)
(% of total employed population)
24%
Literacy Rate Angola:
65.6%
44%
Agric.&Fish.
2%
Industry
6%
Constr.
Trade;auto repair
4%
Transp.,stor.&com.
3%
6%
Adm.activ.
Public Adm.&defense; social sec.
Education
Other act.&serv.
Not expressed
Source: INE
Employed Population, by sex
Unemployment Rate, by province
(% of total employed population)
(percentage)
Female
Source: INE
Bengo
Lunda Sul
Huíla
Cunene
Namibe
Bié
Huambo
Benguela
Malanje
Lunda Norte
Cuanza Sul
Uíge
Cuanza Norte
Male
Luanda
55.23%
Zaire
44.77%
Unemployment Rate
Angola: 24.2%
Cabinda
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Cuando Cubango
Source: INE
4% 2%
Moxico
Bié
Moxico
Malanje
Huíla
Lunda Norte
Cunene
Lunda Sul
Cuanza Sul
Uíge
Cuando…
Huambo
Benguela
Cuanza Norte
Bengo
Namibe
Zaire
Cabinda
5%
Luanda
100.0
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
Source: INE
Vânia Patrícia Duarte
28
E.E.F.

Angola

June 2016
Main Indicators
Main economic indicators
2010
Population (million)
GDP per capita (USD PPP)
2011
2012
2013
2014P
2015F
2016F
21.7
22.3
23.0
23.7
24.4*
25.1
25.9
6,230
6,416
6,671
7,030
7,271
7,344
7,381
Source: IMF WEO Apr 2016
Notes: P - Preliminary; F - Forecast
* The figures of the last Censos revealed that population was 25.8 million; the later publication of this indicator is not reflected in the IMF's forecasts"
Gross domestic product
2010
2011
2012
2013
2014P
2015F
2016F
Nominal GDP (billion AOA)
7,579.5
9,780.1
10,876.0
12,056.3
12,462.3
12,475.6
14,218.1
Nominal GDP (billion USD)
82.5
104.1
115.3
124.9
126.8
103.0
81.5
Real GDP (% change)
Oil
Non-oil
3.4
3.9
5.2
6.8
4.8
2.8
3.3
-3.0
-5.6
4.3
-0.9
-2.6
6.3
4.8
7.8
9.7
5.6
10.9
8.2
1.3
2.7
Composition of GDP (by sector)
Agriculture
6.0
9.2
-22.5
42.3
11.9
0.8
4.6
Fishing
1.3
17.2
9.7
2.4
19.1
5.8
0.2
Diamonds and Other
-10.3
-0.7
0.3
3.3
1.0
2.2
1.0
Manufacturing
10.7
13.0
14.0
8.6
8.1
-4.0
3.1
Electricity
16.1
12.0
11.7
8.1
8.0
3.5
3.1
Construction
10.9
3.5
10.4
34.4
17.3
2.5
20.0
Trade
8.7
9.5
13.4
7.0
8.0
2.2
2.4
Other
4.7
9.6
8.3
0.7
6.0
-
0.0
Source: Ministério Planeamento
Note: P - Preliminary; F - Forecast
Oil sector
2010
2011
2012
2013
2014
2015
2016F
Oil production (millions of barrels per day)
1.76
1.63
1.72
1.73
1.63
1.76
1.89
Angolan oil price (average, USD per barrel)
77.8
108.7
111.0
107.5
100.7
51.7
45.0
Source: Ministry of Finance, State Budget 2016.
Note: F - Forecast
Growth forecasts for Angola (real GDP, % change)
2014
2015
2016
BPI (May 16)
4.8
2.8
1.2
Amend.SB 2016/Linhas Mestras
4.8
2.8
3.3
IMF (Apr 16)
4.8
3.0
2.5
AfDB/OECD/UNDP (May 2016)
4.8
3.8
3.3
EIU (Apr 16)
3.9
2.7
1.1
29
E.E.F.

Angola

June 2016
Main Indicators
Consumer price index
2010
2011
2012
2013
2014
2015
2016F
15.3
11.4
9.0
7.7
7.5
14.3
19.2
Consumer prices (end of period, %)
Source: INE; IMF WEO Apr 2016.
Note: F - Forecast
External sector
2010
2011
2012
2013
2014P
2015F
2016F
61.3
64.6
61.6
55.0
45.8
36.3
39.0
of which: oil
59.8
63.0
60.4
53.9
44.6
34.7
37.2
Imports (% GDP)
20.2
19.4
20.6
21.2
22.1
20.6
21.4
9.1
12.6
12.0
6.7
-1.5
-7.6
-5.6
19.7
27.5
32.2
32.2
27.8
22.3
18.6
5.4
7.2
7.8
7.5
8.6
7.1
5.7
Exports (% GDP)
Current account balance (% GDP)
Gross foreign reserves (USD billion)
month of imports
Source: IMF Article IV (Nov. 2015).
Note: P - Preliminary; F - Forecast
Public accounts
Total Revenue (% GDP)
of which: oil
Total Expenditure (% GDP)
2010
2011
2012
2013
2014P
2015P
2016F
43.5
48.8
45.9
40.4
34.6
27.4
27.6
33.0
39.0
37.3
30.3
23.4
14.6
15.6
40.0
40.2
41.3
40.8
41.1
30.9
29.0
Fiscal Balance (% GDP)
Non-oil primary balance (% GDP)
Gross Public Debt (% GDP)
of which: external
3.4
8.7
4.6
-0.3
-6.4
-3.5
-1.4
-26.2
-26.9
-29.2
-38.4
-27.5
-15.8
-14.3
44.3
33.8
29.5
32.9
40.7
62.3
70.1
20.6
19.5
18.8
23.6
27.4
33.1
46.8
Source: IMF Article IV (Nov. 2015)
Note: P - Preliminary; F - Forecast
Key financial variables
2010
2011
2012
2013
2014
2015
2016*
USD/AOA (end of period)
92.6
95.5
96.0
97.8
102.1
136.0
-
USD/AOA (average)
91.9
94.0
95.6
96.9
98.5
121.0
160.7
180 days
19.0%
18.1%
15.3%
15.1%
17.4%
15.4%
15.7%
181 days - 1 year
18.2%
16.0%
14.4%
13.9%
13.9%
15.2%
15.2%
> 1 year
23.7%
17.7%
15.1%
13.1%
13.7%
14.8%
14.3%
2.4%
5.8%
0.0%
0.0%
0.0%
0.0%
0.0%
Exchange Rate
Nominal Interest Rates (AOA, end of period)
Active interest rates (to non-financial institutions) 1)
Passive interest rates
Demand deposits
90 days
8.2%
4.3%
3.1%
3.3%
4.0%
5.0%
5.5%
10.0%
6.7%
4.7%
3.9%
4.3%
5.2%
5.1%
181 days - 1 year
6.8%
5.6%
4.9%
5.1%
5.6%
3.9%
3.9%
> 1 year
1.6%
8.6%
7.0%
5.6%
4.9%
4.6%
4.6%
91 - 180 days
Source: BNA, Bloomberg
Note: * Based on data available as of June 17; 1) interest rates verified in April 2016 (last figures available).
30
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