Authors : Glenda Gallardo, Joel Muzima
The sharp and long-lasting decline in oil prices has derailed Angola’s economic performance. GDP growth slowed to 1.1% in 2016, driven by a slowdown in non-oil activity as the industrial, construction, and services sectors adjusted to cuts in private consumption and public investment amid more limited availability of foreign exchange. This has highlighted the need to more forcefully address the dependence on oil, diversify the economy, and reduce vulnerabilities. In 2017 and 2018, GDP growth is projected to rise to 2.3% and 3.2%, respectively, mainly due to planned increases in public spending and improved terms of trade.
The government has taken steps to mitigate the impact of the oil price shock on the economy, and these included: the rationalisation of public expenditure through the elimination of fuel subsidies, significant increase in mobilising non-oil revenues, and allowing the exchange rate to depreciate to preserve export competitiveness and reduce the imports trend of the country. However, additional policy actions are needed to stabilise macroeconomic conditions, enhance equitable distribution of wealth and better service delivery. One priority will be to invest in human capital, accelerate economic diversification, and reduce economic vulnerability as the country graduates from Less Developed Country (LDC) status in 2021. Regarding human capital, higher investments in health and education are crucial. Investment in agricultural transformation and value chains is needed to diversify exports in order to increase revenue sources and reduce dependence on oil. The expansion of economic infrastructure and more importantly electricity access, roads and transportation, water supply and sanitation and skills development is critical to improve the business environment and enhance the private sector’s role in economic growth. The country should also foster regional integration in order to unlock the potential of local manufacturing and boost trade.
Angola should enhance its support to entrepreneurship and industrialisation. Angolan industry is at an early stage, with food and beverages as key sectors. The National Industrialisation Programme 2013-17 defines seven key sub-sectors, e.g. textiles and clothing, chemical and paper products, and ornamental rocks. Nevertheless, the share of manufacturing value added in GDP in Angola remains low at 8.6%. The entrepreneurial activity rate also stands low at 21.5%, hindered by infrastructure deficiencies, difficulties in access to credit, low managerial skills and lack of integrated strategies to foster entrepreneurship. Addressing these structural bottlenecks is critical if economic diversification and wellbeing are to be achieved.
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