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Following five consecutive years of double-digit growth the Angolan economy exhibited flat growth in 2009, with authorities putting growth at a rather optimistic estimate of 1.3% as a result of a global economic meltdown.
With recovery prospects bright globally, Africa’s new investment frontier looks to bounce back in 2010 with an expected 8.5 percent growth.
If anything, 2009 showed Angola’s over-reliance on petroleum earnings and therefore its unhealthy exposure to the vagaries of the global factors as a sharp drop in international oil prices and a decrease in production left the economy on the back foot.
The International Monetary Fund says Angola was simply not prepared for the impact of the global crisis and was poorly prepared for the oil prices plunge.
With the sharp drop in oil prices and export revenues the economy slowed sharply, while fiscal and external positions turned from large surpluses to deficits.
In the years preceding the global economic crisis the oil and gas sector constituted 55-60% of gross domestic product (GDP), and as such the price and output dynamics in the oil industry have considerable implications for the economy.
According to Standard Bank’s Yvonne Mhango, the decline in commodity prices during 2009’s global demand slump, including that of oil, was compounded by the mandatory cut in OPEC’s production quotas. The price of Angola’s oil is estimated to have dropped to an average of US$53.5 per barrel in 2009 from US$89.9 in 2008, while production decreased by an estimated 5.8% to 1.79 million barrels per day.
Angola’s large petroleum sector thus shrank by an estimated 7.5% in 2009. Conversely, the non-petroleum sector grew by an estimated 4.1% in 2009.
Mhango said the concurrent contraction of the petroleum sector and expansion of the non-petroleum sector in 2009 implies that the petroleum sector’s contribution to GDP declined to 40%, from 59% in 2008.
“There was thus a structural change in Angola’s economy in 2009; however, it was largely due to the fall in the international oil price.”
Angola’s economy is dominated by the primary sector which in 2009 made up almost 55% of the economy. This implies that the economy is mainly a producer of unprocessed output. The largest constituent of the primary sector is the oil and gas industry, followed by agriculture and livestock,” said Mhango.
The secondary sector constitutes at least 15% of GDP and mainly comprises the manufacturing and construction sectors.
Strong construction activity has improved the secondary sector’s contribution to GDP in recent years. However, manufacturing activity remains tepid owing to limited electricity supply and weak infrastructure. The services sector, which produced almost 25% of GDP in 2009, is dominated by the commerce industry.
The outlook for 2010 looks promising, however. Stronger international oil prices and an improvement in oil production are expected to spur a rebound in economic activity in 2010 with the economy seen growing by 8.5% on the back of a recovery in the petroleum sector that will stimulate faster growth in the non-petroleum industry, particularly in the construction and services sectors. “An improvement in fiscal revenue performance will enable the government to continue with its reconstruction drive, which will be supported by a recovery in investor confidence and strong investment inflows,” said Mhango.
Strengthening export revenue on the back of the global economic recovery is also expected to be favourable for real GDP growth.
The emergence of the global economy from the recession will significantly improve conditions in Angola’s external sector. A recovery in export earnings is expected to restore a positive balance in the current account that is equivalent to 4.2% of GDP.
Subsiding risk aversion and an improvement in fiscal transparency, which is expected to slow state-backed investments, will improve net FDI. That coupled with the subsequent disbursements under the 27-month stand-by arrangement with the IMF will narrow the deficit in the financial and capital account.
The IMF approved a US$1.4 billion loan to Angola in November 2009 to help the country combat the adverse effects of the global economic crisis, the largest IMF financing package to date for a sub-Saharan African country during the global crisis.
The stand-by arrangement supports orderly policy adjustments that aim to restore macroeconomic balances and rebuild international reserves. The programme also includes a focused reform agenda aimed at medium-term structural issues on which long-term non-oil sector growth will ultimately depend.
The government plans to release a revised 2010 budget in mid-year that will assign financial resources to clear most of the current stock of domestic arrears, which amount to US$4.5 billion. The revised budget will include plans to phase out Sonangol’s quasi-fiscal activities and gradually remove the fuel subsidies.
Mhango says the expenditure-cutting measures and improvement in oil revenue are likely to allow for a small fiscal surplus of 0.5% of GDP in 2010.
Over the medium-term, government plans to reduce the non-oil fiscal balance by mobilising new streams of non-oil revenue, which will reduce the fiscal authority’s dependence on petroleum tax revenue.
The country’s oil sector is projected to rebound in 2010 on the back of higher international oil prices and an improvement in production. The oil price is projected to rise to an annual average of US$75 per barrel in 2010 from US$53.5 in 2009, and production to 1.90 million barrels per day from 1.79 million. As the oil sector is more responsive to changes in global economic growth than the non-oil sector, the former’s contribution to GDP is expected to return to above 50% of GDP in 2010.
The recovery of Angola’s core sector, oil, is expected to spur a pick-up of activity in the rest of the economy, including the largest non-oil sector, commerce.
PULL-QUOTE
The recovery of Angola’s core sector, oil, is expected to spur a pick-up in activity in the rest of the economy, including the largest non-oil sector, commerce.
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