Angola

As Africa’s largest oil producer from 2009, Angola’s growth is tightly connected to international oil prices. The country suffered the full impact of the drop in oil prices caused by the global financial crisis, which strongly affected government revenues and public investment.  The collapse in the price of oil caused growth to fall from 13.2% in 2008 to -0.6% in 2009.  Nevertheless, a fast recovery of oil prices through 2009 will help return the country to a strong 7.4% GDP growth in 2010.

Non-oil production has been slowly gaining importance in Angola’s economy. According to official estimates, the non-oil sector is expected to grow about twice as fast as the oil sector through 2011 with 8.8% growth already predicted for 2010. But the oil sector still dominates the economy, accounting for over 80% of the country’s total foreign exchange revenues.

Angola’s oil production fell from 1.88 million barrels per day (b/d) in 2008 to 1.80 million b/d in 2009. This drop of 4.3% was mostly due to a fall in production in February and March 2009 due to OPEC quotas. Production is concentrated in offshore oil fields, mostly situated off Cabinda province to the north of the country. Extraction is jointly controlled by foreign multinationals and Angola’s state-owned oil company, Sonangol. The largest oil multinationals that are involved are ChevronTexaco, ExxonMobil, Total, BP, Shell, and Agip/Eni. New discoveries continue to be made offshore with the major oil firms expanding investment and production capacity. The new finds in ultra-deepwater exploration may bring Angola’s total production back up: official estimates forecast output of 1.9 million b/d for 2010.

Angola’s national oil company, Sonangol, is set to go public in 2012. The company will list its exploration, production and aviation divisions on the Johannesburg and New York stock exchanges, as well as the Luanda stock exchange, should it be up and running by then. Sonangol has growing interests in foreign oil exploration and production, and has recently acquired exploration rights in Iraq, Ecuador and Iran, as well as a stake in a private Brazilian oil company.

Construction of Angola’s much anticipated oil refinery, Sonaref, is expected to commence in 2010. Having passed through different modes of partnership, notably with Sinopec, a Chinese oil firm, the refinery is now under the sole authority of Sonangol, which will undertake the USD 8 billion project alone. The plant will have a capacity of refining 200 000 barrels of crude oil per day.

In spite of being an oil producer, Angola is a net importer of refined oil. Fast economic growth has steadily increased energy bills in line with rising economic activity. Angola’s oil subsidies (keeping oil derivatives at about 50% below cost) amounted to more than USD 2 billion in 2008. Luanda alone consumed USD 2.5 million worth of gasoline daily in 2009. Angola’s only refinery, with a capacity of 37 500 b/d, is due to close temporarily in mid-2010. This will leave the country totally dependent on refined oil imports.

Natural gas production was estimated at 3.5 billion cubic metres (bcm) in 2008, rising to 4.0 bcm in 2009, an increase of 14.2%. According to industry analysis, gas production could reach 16.3 bcm by 2014. Consumption is expected to rise to 9.3 bcm by the end of 2010, providing export potential of around 7.0 bcm. Reserves are currently estimated at 270 million cubic meters. To capitalise on this resource, construction of the USD 8 billion Angola liquid natural gas plant (Angola LNG) is underway. The plant, situated in Soyo in the North of the country, is the government’s largest investment project ever, and will process 5.2 million tons of LNG per year, mainly destined for the US market. The plant is set for completion in 2012, with first shipments planned for 2013. The project is a consortium between Chevron (36.4%), Sonangol (22%) and BP/Total/Eni (13.6% each). A second LNG plant is planned, as a partnership involving Sonangol, Repsol and others. Although it is not set to become operational for another 5-6 years, this second project is an indication of the government’s long-term commitment to Angolan LNG production.

Angola is the fifth largest producer of diamonds in the world by value, supplying 7-9% of world diamond output. The country hosts large diamond reserves, principally in the provinces of Lunda Norte and Lunda Sul. However, Angola’s diamond industry was hit hard by the crisis, with low global demand causing a steep drop in prices. This caused a substantial slowdown in Angola’s diamond production and hurt employment in the sector. Angolan diamond mining was also rocked by the expulsion of Congolese diamond miners from Angola in October 2009. Official estimates for Angola’s diamond industry predict a contraction of 8.9% in 2010.

A plan to revive Angola’s iron mining industry, destroyed by the civil war, was announced at the end of 2009. It involves USD 1 billion in investments and plans for a new steelworks with production to begin within two years. Ferrangol, a state-owned mining company, is undertaking a USD 6 billion project to revive the Cassinga mine in Curene province. Production at Cassinga, containing huge reserves of iron ore, was interrupted by the civil war over 30 years ago.  

Agriculture accounts for half of total employment in Angola but only 6.8% of GDP. While the country was once one of Africa’s top agricultural exporters, the sector has yet to emerge from the losses caused by the civil war. According to Angola’s national plan for 2010-2011, Angola’s agricultural/fishing/forestry sector is projected to increase by 29.1% over 2009. This figure is backed by strong investment in agriculture over the course of 2009, though it is perceived to be optimistic, as constraints remain high. For 2010, official projections are for 10.7% growth in agriculture.

Agricultural investments are backed by international donors. Angola is one of 15 African countries to benefit from the G8’s USD 20 billion fund for investment in agriculture, nutrition and food security. The International Fund for Agricultural Development (IFAD) will extend USD 50 million for agricultural projects in the country between 2010 and 2012. The Banco de Desenvolvimento de Angola (BDA), Angola’s national development bank, intends to extend special credit lines for agriculture and provide credit facilities to small producers. A USD 30 million project funded by a World Bank facility will extend credit to 120 000 farming families and support agriculture in the provinces of Bié, Huambo and Malanje. Luanda will host the 2010 Food and Agriculture (FAO) regional Africa meeting. Brazil’s Agricultural Research Corporation, EMBRAPA, will provide technical assistance to the Ministry of Agriculture’s national programme for rural development. The plan will be supported with credit facilities to the private sector through the Angolan Development Bank (ADB).

Investments are being made to promote commercial agriculture. In partnership with Sonangol and local entrepreneurs, Odebrecht, a Brazilian construction firm, is investing USD 220 million in the development of Biocom, a sugar and ethanol production facility in Malange province. The plant is due to begin production at end-2010 and will farm sugarcane on over 30 000 hectares of land. The investment includes the construction of a processing plant capable of producing 260 000 tons of sugar and 30 million litres of ethanol a year. The plant will first produce sugar for the domestic market (Angola still imports sugar for all of its domestic consumption) before beginning ethanol production, initially for the domestic market but ultimately for export. Coffee production increased six-fold between 2006 and 2008, reaching 15 000 tons in 2008. Agricultural production remains constrained by a lack of qualified human resources, high production and transport costs tied to infrastructure constraints, and the need to import intermediary production goods. The continued presence of land mines remains a constraint, with only over half of the 4000 areas identified as containing mines cleared in mid-2009.

The national food distribution network, PRESILD, has succeeded in establishing the first country-wide system of distribution of goods, although the objective of promoting the distribution and sale of local agricultural production is proving challenging. The Nosso Super chain of supermarkets is managed by the Brazilian firm Odebrecht for the government.

According to official estimates, manufacturing grew by 9% in 2009, and is predicted to expand further by 20% in 2010. Special Economic Zones (SEZ) have been created to promote economic diversification and industrial output, such as in Viana to the north of Luanda (operational since 2008). Other industrial zones are in Futila, Catumbela, Caàla and Matala. The SEZ programme is managed by the Cabinete de reconstrução nacional, directly under the authority of the president.

While the crisis temporarily dampened Luanda’s hitherto buoyant housing market in 2009, prices remain very high and construction continues in the capital. Middle-income housing has made a recent appearance on Luanda’s real-estate market, a departure from the mostly high-end offer of recent years. The African football cup of January 2010 provided a boost to construction throughout the country; the government investing an estimated USD 1 billion in projects near the venue of the event. After being put on hold, the USD 2 billion refurbishment of the bay of Luanda is set to restart in 2010 and will include hotels and public parks. Rehabilitation of the main avenue on the Ilha de Luanda is planned for completion by 2012. Official figures are for 12.3% growth for construction in 2009 and 10% in 2010.

The sharp fall in oil revenues in 2009 led to an abrupt reduction of public investment and a slowdown in current government spending from the extremely high levels of the recent past. The 20% fall in public investment was the primary reason for the collapse of growth in 2009. Private investment, on the other hand, held up remarkably well, registering an increase of 15% over 2009. Public investment is expected to remain subdued, growing at a mild 3% in 2010 and 2011, while private investment will continue to grow strongly at 17 and 20% over the forecast period, boosted by the good prospects for the oil industry. Similarly, public consumption slowed dramatically in 2009, while private consumption held up exceptionally well, up nearly 10% on 2008, thanks to rising disposable incomes (especially in urban areas). This resilience is due to progress in agriculture, public works, new employment opportunities, and the African Nations Football Cup. Exports fell in 2009, but will pick up again in 2010, outpacing import growth. Growth is expected to return in 2010, though not to levels Angola experienced prior to the crisis. 

The crisis has exposed Angola’s continued dependency on oil revenues. 2009 was a particularly challenging year for Angola’s fiscal policy, with oil declining from 80% of total revenues in 2008 to 72.6%. Falling oil prices from the last quarter of 2008 extended into the second quarter of 2009, causing a negative shock in revenues, and strongly affecting the macroeconomic framework. Rising oil prices from March 2009 brought a steady rally in revenues which continued throughout the rest of the year and laid the foundations for economic recovery in 2010.

Although the original 2009 budget assumed a conservative oil price of USD 55 per barrel, the government was faced with a nearly 70% drop in oil revenues during the first quarter of 2009. To avoid an unmanageable fiscal deficit, severe fiscal tightening measures were enforced from the beginning of the year. Mid-year, the revised budget lowered assumptions to an even more conservative USD 37 per barrel, forecasting a 60% decrease in oil revenues from 2008 levels. On the expense side, the new budget included a 16.6% cut in expenditures, mostly through a 27% cut in capital expenditures. Current expenditures were cut just 9.6% in an attempt to mitigate the social impact on the population of such an extensive contraction in spending.

The fiscal tightening reduced overall expenditures by 12.4% in real terms. Even so, in 2009 Angola experienced a fiscal deficit of 7.7% of GDP, the first in five years. Despite these reductions, the share of wages in the budget has increased. Public administration expansion, through the enrolment of new staff in the education and health sectors, has pushed wages from 26.2 to 36% of GDP. Overall social sector expenditure in the budget increased to 31.6% from 28.8% in 2008, reflecting a government policy of increased social inclusion. The slump in public capital expenditure, coupled with governmental payment arrears, contributed significantly to curb the non-oil sector’s growth, which remains highly dependent on public sector demand.

To finance the mounting deficit, the government drew from foreign currency reserves, imposed payment arrears, and contracted domestic and external debt, leading to an increase in debt service costs to 6.4% of GDP. The limited ability to secure international financing forced the government to turn to the domestic bond market, issuing mid-term treasury bonds with USD coupons hedged against foreign exchange depreciation and later against inflation. These T-bonds met with limited success. Accumulated domestic arrears to the private sector peaked at USD 2.5 billion in September 2009, before the pick-up in oil revenues allowed repayment to slowly begin. At the end of 2009, government external debt stood at USD 10.8 billion, or 15.7% of GDP.

The external shock and subsequent liquidity crisis forced Angola into an unprecedented stand-by arrangement (SBA) support programme from the IMF. The agreement’s objectives were twofold: restore macroeconomic balances and rebuild international reserves; and implement structural reforms to attain sustainable and progressive reduction of the non-oil primary fiscal deficit. As part of the agreement, measures are to be implemented to improve fiscal transparency, including the activities of state-owned enterprises such as Sonangol. A Sovereign Wealth Fund to manage oil surpluses is also to be created.

While there is still no Medium Term Expenditure Framework in place, the 2010 budget proposal and the National Plan for 2010/11 were developed in accordance with IMF agreement policy recommendations, which call for continued fiscal tightening. In nominal terms, the 2010 budget forecasts an expenditure decrease of 6.4%. In compliance with the SBA’s criteria of a 30% floor on social spending, 30.5% of the budget will be allocated to the social sector. Capital expenditure will be increased by 13.5% with the resumption of the public investment programme, mostly in infrastructure rehabilitation, social sectors, water and sanitation, and education. Thus the burden of expenditure reduction will be supported by a decrease of 27.7% in current expenditures (excluding wages, which will continue to expand by 9.3%). In real terms, this would mean a contraction of 36%. Such a sharp decline is unlikely, enhancing the risks of fiscal deficit if revenues do not increase. 

On the revenue side, even considering the weak world economic recovery in 2010, international oil prices should reflect increasing oil demand, making the Angolan government’s assumption of USD 58 per barrel oil price excessively conservative (OECD forecasts an average of USD 77 for 2010). Oil and non-oil revenues are expected to grow by around 20%, but will remain 43% below 2008 levels in real terms, leading the government to anticipate a fiscal deficit of 2.9% in 2010, and a return to an 8% surplus only by 2011. If a higher than budgeted oil price is achieved, the increase in revenues could compensate for the forecast deficit in current expenditures, leading to a neutral balance or even a fiscal surplus as early as 2010. All this underscores once again that Angola’s excessive dependency on oil revenues remains its biggest macroeconomic challenge. 

 

Inflation remained on an upward trend in 2009, bolstered by continued strong domestic demand and the kwanza (AOA) devaluation of the second quarter. These inflationary pressures eased in the last quarter, mostly because of the economic slowdown, the appreciation of the dollar in relation to the euro, as well as international deflation bringing down the price of imports. Average annual inflation in 2009 was 14%. The government envisages a decrease to 13% in 2010 and 9% in 2011. But single digit inflation in the near future is optimistic, and a slower decrease more likely, given the structural macroeconomic adjustments that are still to be implemented.

The government's and the central bank’s “strong kwanza” policy was undermined by the abrupt drop in foreign currency inflows from oil exports. The central bank artificially maintained the kwanza pegged to the dollar, which led to foreign currency reserves being heavily drawn upon to support the currency. To sterilise excessive liquidity of the kwanza, the central bank then aggressively raised legal reserve requirements of bank deposits to 30%, limited credit concession and launched domestic bonds. The monetary supply growth slowed considerably. During the first nine months of 2009, money supply (M1 and M2), grew at a modest 13% and 34.3% respectively, after growth of 55.1% and 59.5% in 2008. In turn, M3 growth in 2009 was barely 5.3%, compared to 75.2% the previous year.

The economic crisis reversed the trend towards an increasing role for the kwanza in Angola’s domestic economy, with the number of foreign currency deposits leaping up to over four times local currency deposits in 2009. Strained by supporting the kwanza and the government drawdown to finance the fiscal deficit, foreign currency reserves eroded rapidly, decreasing by USD 6 billion in the first six months of 2009. The central bank was forced to suspend foreign exchange auctions and sold only limited amounts of USD at a fixed nominal rate. The government has sought to reinforce its cash position and has requested IMF support to rebuild foreign reserves and inject liquidity.

The situation gradually normalised towards the fourth quarter. The USD 1.4 billion injection by the IMF, together with increasing oil revenues from the third quarter, eased liquidity shortages and helped reserves slowly build up again. The central bank resumed foreign exchange auctions with an immediate negative adjustment in the exchange rate, but the spread to the informal market progressively reduced and currency stabilised towards the dollar. Despite the rebound in the economy, monetary policy is expected to continue to be tight in 2010 to control inflation and restore confidence to the financial system.

With exports dominated by oil (95%), Angola’s current account was severely impacted by slack demand for oil caused by the global economic crisis. While non-oil exports grew 10%, low oil prices and demand during the first six months of 2009 shrank the value of oil exports by 44.9%. Because of the economic recession, imports also declined. Public spending cuts reduced government demand for goods and services, which are still mostly imported.

Nevertheless, the 21.3% reduction in imports was not enough to offset the negative impact of falling oil revenues, resulting in the first current account deficit (3.8% of GDP) since the end of the war in 2002. The forecast world economic recovery and the associated increase in oil demand will bring the current account back to a surplus in 2010. The expected increase in oil revenues should push the balance of payments back to a surplus and, helped by the IMF's SBA, push up net foreign currency reserves to a projected USD 14.3 billion.

After the end of the war, Angola’s massive infrastructure investments were mostly funded through foreign credit lines, notably oil-backed loans from Brazil and China. Recently however, the Angolan government has been seeking to diversify its financing, with Germany, Portugal, Canada and Spain either opening new credit lines or increasing existing ones over 2009. Furthermore, with the clearance of debt arrears to the Paris Club, Angola is gaining access to international financial markets, notably through bond deals with JP Morgan (USD 4 billion dollars) and Goldman Sachs (USD 300 million). External debt has steadily risen since 2006, reaching in 2009 USD 15.6 billion, representing roughly 22% of GDP. Despite the overall GDP contraction, debt service stands at 6.41% of GDP.

The IMF arrangement signed in November establishes, as a debt sustainability measure, a cap on non-concessional borrowing of USD 1.4 billion over the course of the 27-month programme. Multi-lateral development banks are expected to make available additional concessional funds. Notwithstanding, the government still lacks the necessary funding for the continued financing of the Public Investment Plan for the reconstruction and development of the country. Prior to the signature in November of the IMF agreement, additional credit lines worth nearly USD 9 billion had been signed with several Chinese entities, namely China Eximbank (CE), Industrial and Commercial Bank of China (ICBC) and China Development Bank (CDB).

Angola is a member of the Economic Community of Central African States (ECCAS), and the Southern African Development Community (SADC). However, it has until now postponed the implementation of SADC’s free trade import tariffs exemption policy.

Net FDI flows increased in 2008 by 46%. China is now Angola’s largest trading partner. The bulk of trade is made up of oil exports, while Chinese imports remain low, consisting mostly of food products and consumer goods. Angola’s trade with China expanded at its fastest ever rate in 2008, with total bilateral trade reaching USD 25.3 billion, a 79% increase from 2007 (primarily driven by high oil prices, however). In 2008, Angola was China’s second largest source of crude oil. In 2009, according to Chinese officials, there were over 100 Chinese firms operating in Angola. Over 50 000 Chinese workers are currently in Angola. Since 2007, China has overtaken America as the largest importer of Angolan oil. After China, the main export destinations are the USA, South Africa, France and Canada. Portugal continues to be the largest source of imports to Angola, followed by China, US, Brazil, South Africa and France.

A small elite connected to the ruling party dominates the private sector in Angola, and the business environment remains dismal. According to the World Bank’s Doing Business 2010 report, Angola ranks 169^th out of 183 countries. While most sectors of the economy are controlled by monopolies or quasi-monopolies, there are signs of a private sector developing independently of the circles of power.

A new competition law is to be implemented in 2010. Angola is dependent on imports for 90% of its goods, and the law is intended to help bring the country’s inflated prices under control and stimulate domestic production. However, it is unclear whether the law will have a real impact in practice.

A report on Angola’s banking sector revealed a dramatic growth in credit by the banking sector prior to the crisis. In 2008, total deposits rose 57% (to AOA 4 trillion) with total credit to the economy rising by 137% to AOA 6 trillion. This fast growth, which raised the threat of potential non-performing loans, was put on hold for 2009.

No fundamental reforms were undertaken in the banking sector in 2009, nor are any planned for 2010.  The long called for review of leasing and factoring regulations has not materialised. Nevertheless, a much anticipated national credit risk database is set for completion in 2010, which should improve Angolan banks’ capacity for risk management.

After years of negotiation, the South African group Standard Bank, Africa’s largest bank, was granted a licence to operate as a full-service bank. The opening of the Luanda stock exchange was once more pushed back indefinitely.

The process of decentralisation continues but is running out of steam at lower levels of government. In 2009, the central government began disbursing directly to the provincial and municipal levels. However, inefficiency, weak absorptive capacity, and corruption all severely impacted the effectiveness of decentralisation. Severe limitations in human capacity constrain the effectiveness of using funds even once allocated. Reform of the property law, a severe bottleneck for credit to the private sector, is yet to be undertaken.

Together with the medium-term expenditure framework (MTEF), the government is preparing its Medium-Term Development Plan [2009-2013], which will include: promotion of sustainable human development, improvement of socio-economic conditions, promotion of good governance, developing the private sector and working towards sustainable use of environmental resources. The country also has a long-term development plan up to 2025.

A centralised procurement system, the Central de compras, originally created for the army, is being extended to all ministries. This should enhance efficiency and reduce costs in government procurement. Angola does not have a State Controller and Auditor General, and public expenditure is not subject to external audit by the accounts tribunal. There is therefore no way of auditing state expenditures in Angola today. While the Conta geral exists nominally in law, the first attempt to establish such an institution was only made in 2009, with no success. A state secretariat for public sector reforms, created in 2007, was dismantled in 2009, and its responsibilities transferred to the Ministry of Finance. All this indicates a lack of clear political will to create the means to fight corruption. On a positive note, the reporting constraints imposed by the IMF agreement may serve to improve public sector fiscal management.

Energy demand in Angola is rising rapidly in line with the strong growth of recent years.  Electric power production is insufficient and blackouts have led the city of Luanda to install a 60 megawatt generator offshore on a special ship. Other cities, such as Lobito, confronted by similar constraints, have set up expensive thermal power plants. Such quick fixes are expensive. The lack of integration of the three main energy networks compounds the problem. A critical infrastructure project for 2009-10 is the connection of the Luanda-Benguela/Lobito networks, set for completion by the end of 2010. This will allow the expansion of hydropower generation and cut some of the high costs associated with thermal power plants. Over the longer term, the connection of the power systems of central and south Angola is planned, as is connection with the Southern African Power Pool (SAPP). According to official projections, the energy sector is expected to show 10.9% growth in 2009, and 21.2% in 2010.

Angola has enormous hydro-power potential, which currently provides three-quarters of the country’s electricity. However, the civil war destroyed the existing capacity and the government has not succeeded in keeping supply in line with expanding demand. The main hydro power project is the rehabilitation and expansion of the Kambimbi dam, whose installed capacity of 180 megawatts is being upgraded to 250-300 megawatts. This will be complemented by a second dam downstream, resulting in a total capacity of 700 megawatts. Overall, government plans call for the construction of eight new dams, though details remain obscure. Two large dams are proposed on the Kwanza river, with a combined capacity of 1 000+ megawatts.

Angola has made impressive progress in rehabilitating its transport infrastructure. This effort has been financed by public funds. Foreign construction firms, notably Chinese and Brazilian, have been responsible for most of the country’s infrastructure reconstruction. Road rehabilitation has centred on roads connecting the main urban centres and on the roads around Luanda. The ring road (the Via peripherica) around Luanda is nearing completion, and two large roads are under construction to the south of the city, which should have a positive impact on the gridlocked capital. This is part of the continued development of southern Luanda as the main axis for the capital’s expansion.

With many large investments being made in transport and roads, significant gains could now be made from better management and co-ordination of the network. While steps are being made in this direction, there is still a complete absence of overall traffic planning. Mass transport systems, though developing, are still underfunded. 

Connecting Cabinda province, the oil-producing province to the north of the country, to the Angolan mainland has been the subject of much discussion. Separated from Angola by the Congo River and a sliver of Congolese land, connecting Cabinda to Angola would require a massive, multi-billion dollar bridge. Scepticism is widespread, notably in terms of the huge cost incurred at a time when relations with the Democratic Republic of Congo are at low ebb and the government would best be recalibrating its investments. But Cabinda is the source of Angola’s oil wealth and such a project could be a strong statement of national unity and Angolan ambition. Even in the best scenario, such a project will not begin before 2011-12.

The revitalisation of Angola’s rail infrastructure is ongoing, though progress has been slow. The rehabilitation of the country’s three main railroads, managed by a Chinese firm, will reopen large swathes of the country to trade. Notably, the historical Benguela railway through the centre of the country is currently being rehabilitated, and will reopen transport from the Atlantic coast through to Congo and Zambia. At the end of 2009 the Benguela line already reached 400 km inland, with 32 bridges and 74 rail stations built over the past three years, and is expected to reach the Zambian border by 2011. When complete, the railway will run 1 600 km across Angola.

The port of Luanda remains saturated, even though the global crisis has reduced waiting time somewhat. Although a new port facility is planned to the north of the city, the main focus is on improving existing facilities, notably in Benguela, Namibia and Cabinda. Increased efficiency is expected from outsourcing the management of Luanda port quays to private firms.

 

Luanda’s 4 de Fevereiro Airport is currently being extended and refurbished, at a cost of USD 153 million. Delays in the project have set back completion to the end of 2010. Today, Angola’s national airline, TAAG Angola Airlines, appears only on the European Union’s list of companies submitted to operational restrictions. It was put on the blacklist in 2007 following its failure to pass safety regulations. This company has now reopened flights to Lisbon, as well as extending flights to South Africa, Cape Verde and Cuba.

In January 2009, the Angolan government announced a package of investments worth USD 1 billion in preparation for the 2010 African Cup of Nations. Four new stadiums were built in Benguela, Lubango, Cabinda and Luanda by the Shanghai Urban Construction Group (SUCG).

The Angolan taxation system is divided into three basic categories: oil, diamond and non-oil (including customs and tariff revenues). While oil and diamond revenues formed the backbone of Angola’s revenues throughout the civil war period, non-oil tax revenue has been increasing over recent years. Fast rising imports have bolstered customs revenues, thanks to reconstruction and the strong growth of recent years. Tax rates (carga fiscal) are high, but this will drop as the tax base broadens.

While a broad tax reform is in the works, and a committee for reform has been in existence for three years, Angola’s tax system remains antiquated. The tax code currently in effect in Angola is over 30 years old, and predates the war. The document produced for reforming the tax system (Lineas geral da politica fiscal), may be implemented in 2010. A number of laws relative to tax reform are awaiting approval. Angola currently has no value added tax (VAT) but tax reform will see its implementation. The implementation of VAT should increase the tax base, and facilitate tax collection. The reform will restructure income tax as well as introduce a wealth tax.

There is no specific tax regime for multinationals, other than the tax category for the taxation of oil production. The Angolan tax system does not nominally discriminate between national and foreign firms. However, to operate in Angola, foreign firms are required to form joint ventures with national firms. In Angola, tax administration is an organ of the Finance Ministry, and participates in the design of tax policy. Taxation remains centralised, and there are no plans for decentralisation.

The tax service will complete a major project in 2010: simplifying the process of company registration and reducing it to a single administrative procedure. In this spirit, a one-stop shop for companies, Guiché unico, was established to facilitate business registration, but remains limited in scope.

Centro de atendimento, another one-stop shop destined to facilitate and streamline administrative requirements and the payment of taxes, opened in 2009. There is currently only one such facility, in the country’s only shopping centre, in Luanda Sul, but four more are planned for Luanda and the provinces. A pilot project in e-government system is being set up for 2010: Portal de servicios do contribuinte. There is a tax department for large taxpayers, the Repartição fiscal dos grandes contribuintes. But there is no other specific department for small-to-medium enterprises (SMEs). ANIP manages tax exemptions.

The tax authorities face the challenge, not only of reforming the tax code, but also recruiting staff to overcome human resource constraints. This should make it possible to broaden the tax base and bring down tax evasion. The informal economy expanded greatly after the war and remains very important. As such, a pressing structural challenge is to integrate informal economic activity back into the formal economy.

Taxation of oil and diamond revenues is made through a special department, le Departamento de regimes speciais de tributação dos petróleos e diamantes. Oil companies pay monthly on revenues of the previous month; payments are then analysed at the end of the year when the firms file their tax returns. Accounts are audited by independent auditors contracted by the Ministry of Finance (currently Deloitte), who then go to check firms’ accounts and finances. If firms do not agree with the conclusions, there is a review commission to which they can appeal. Sonangol, the state-owned oil firm, pays taxes as any firm in the oil tax category.

The MPLA’s landslide victory in the 2008 elections has led to a further concentration of power in the hands of President dos Santos, in charge since 1979. Angola’s new constitution, approved by the National Assembly on January 2010, abolishes presidential elections (the president instead being nominated as head of the ruling party) and replaces the prime minister with a vice-president directly under the president’s authority.

The opposition failed to influence the constitutional reform process with calls for limiting presidential power and greater accountability for the National Assembly. The opposition parties formed the Fórum de concertação política (FCP) at the end of 2009, though this action has not yet resulted in a well co-ordinated opposition party.

On the brink of the five-year MPLA congress in November 2009 President dos Santos launched a campaign against corruption, reviving a pledge made during the parliamentary election of 2008. While there have been no arrests so far, the heads of government agencies for roads (INEA) and electricity (ENE) were replaced in 2009, and criminal charges were brought against a former minister of finance, a minister of public works and former governor of Angolan national bank, accused of misusing public resources. While such signs can be read as encouraging, concrete actions against corruption are still to be made.

Internationally, Angola’s profile is rising, with Luanda hosting high-level diplomatic visits from US Secretary of State Hillary Clinton and Russian President Dmitry Medvedev during the course of 2009. Regionally, previously good relations with neighbouring Democratic Republic of Congo have been deteriorating as interests have diverged. Sources of tension include competition for oil-rich offshore resources and the large-scale reciprocal expulsions of nationals in October 2009. 

Economic growth has yet to make a significant impact on poverty and youth unemployment, which remain critical issues in the country. With around 46% of the population under 18, and the country’s population set to grow from around 18 million today to 24.5 million in 2020, Angola will face demographic challenges in the future. According to recent UNDP estimates, 35% of the population is undernourished.

Angola’s ranking in the UNDP Human Development Index (HDI) remains very low, at 143^rd in the overall ranking (Human Development Report 2009, latest figures from 2007). Life expectancy remains low, at 46.7 years, but has jumped by nearly five years since the previous report. Because of the lack of data, it is difficult to obtain Angola’s human development indicators. A national census announced by the national institute of statistics, the first since 1970, to be completed by 2014, should greatly improve data on the country. A Multiple Indicator Cluster Survey of poverty was carried out for Angola in 2008-09 but the results have not been published, prompting speculation on its potentially unsatisfactory results.

Human resources remain a key constraint in education and health. It is still very difficult to convince qualified teachers and health workers to practise in rural areas far from the capital, which itself suffers from a dearth of qualified personnel. The administration and implementation of government planning suffers from the same problem. The concentration of already scarce qualified workers in the main urban centres (especially Luanda) continues to hamper the implementation of ambitious government plans.

The government maintains an objective of a million new social homes by 2012. However, the Planning Ministry’s forecast that 80% of them will be built in 2010-2011 seems optimistic. In 2008, social housing and community services accounted for 2.9% of the state budget. From 2009, construction materials for social housing are exempt from customs charges and taxes. The Nossa Casa (our house) programme promotes the sale of low-cost construction materials and kits of ready-to-make dwellings in the Nosso Super chain of supermarkets. The government has also recently launched a Housing Development Fund (Fundo de fomento habitacional).

Access to clean water & sanitation remains very limited in the provinces. Access to improved sanitation and water sources stands at 31% and 53% respectively. Cholera outbreaks, directly linked to poor water, still occur in Angola and in the capital. The government has a programme (Agua para todos) to improve access to water to the country’s rural areas. The UN Human Development Report 2009 indicates that nearly 49% of the population did not have access to improved water sources, making recent official claims that nearly 80% of the rural population will have access to clean water by 2012 optimistic.

According to the Ministry of Education, primary education enrolment is set to grow by 5.6% between 2010 and 2011. The government’s goal is to have 90% of children completing primary education by 2015. With school results and attendance closely tied to nutrition, a project for free school lunches, ‘merenda escolar’, has been created. It is estimated that over 1 million children could benefit from it. Because of its cost, however, this project is on hold, awaiting donor support.

For tertiary education, in 2008 there were 70 000 students enrolled in universities, 80% of that figure being in public universities. Overall, the education sector employed 162 766 people in 2008. Central government manages less than 20% of the total education budget. The rest is managed by provincial government.

Investment in the health sector has been low compared to education and infrastructure, and the government goal of having three doctors for 10 000 inhabitants by 2012 appears ambitious in light of the current output of qualified medical personnel. But some 2008 health indicators are encouraging: according to official sources, malaria cases fell by 5.8%, tuberculosis by 17.5% and cholera by 42.7%.

HIV/AIDS prevalence remains low in Angola, a result of the isolation experienced during its long war. The official goal to keep HIV/AIDS prevalence below 3% of the population is officially on track, with government sources declaring a 35.3% drop in incidence in 2008. Frontier regions, however, have much higher levels, with prevalence in the region bordering Namibia reaching 9%. In 2008, there were 94 915 children infected with HIV/AIDS[1].

Unemployment is still very high at 25.2%. But massive government investment has injected a certain dynamism into the economy, even if the jobs created often are tied to government spending rather than private job creation. Public administration remains the largest formal employer, revealing the limited extent to which growth has stimulated the creation of jobs in the private sector. One encouraging sign is that employment as an issue is gaining traction in government with more job creation championed, notably, by the Ministry of Economy under Manuel Nunes Junior.