Angola has experienced rapid growth in the last decade, mostly propelled by the exploitation of its vast natural resources. Today, the country ranks as the third largest economy in Sub-Saharan Africa (see Figure 1). Its history, like that of many African nations, is characterised by struggle and battle. After its independence from Portugal in 1975, Angola entered into a 27-year long civil war, where two major opposition parties, MPLA and Unita, fought for supremacy. In 2002, the two parties finally agreed on a cease-fire and started to focus on rebuilding the country. The rebirth of Angola started in 2002.
Figure 1 – Top 10 Highest GDP Countries in Sub-Saharan Africa – 2015 
Oil and Diamonds
From 2002 until recently, Angola trusted on its natural resources as its main source of revenue. Oil constitutes most of the country’s earnings. Angola is Africa’s second-largest oil producer, with much of its proven reserves concentrated in Cabinda Province, a region plagued by a separatist conflict with no borders with the rest of Angola. Oil production has more than doubled from about 800,000 barrels a day in 2001 to about 1.8 million barrels a day in 2015. This resource alone accounted for around 95% of foreign exchange revenues in 2014. Oil exports brought in US$ 60.2 billion in revenues to the country in 2014. In 2015, foreign currency inflow generated by oil exports was at US$ 33.4 billion, a 44.5% decline relative to the same period the previous year, a result of the drop in the oil price.
Diamonds account for a sizeable amount of revenue, although much smaller than that generated from oil. Angola is Africa’s third largest diamond producer by quantity and value, only surpassed by Botswana, the world’s largest producer with about 38 million carats, and the Democratic Republic of Congo, with 30 million carats. The country mined 10 million carats of diamond in 2014, generating a revenue of US$ 1.6 billion. Angola’s production volume oscillated between 9.7 and 8.3 million carats per year since 2006. The new mining code introduced in 2011 attracted foreign investment and boosted exploration of the precious stone and other minerals.
The extensive natural resources gave Angolans both the possibility of rapid prosperity, but also the curse of trusting finite commodities for a continuous stream of revenue.
Similarly to Nigeria, investments in Angola’s oil industry grew constantly over the past decade, dwarfing other sectors of the economy. In the colonial era, Angola was a major exporter of coffee, sisal, sugar cane, banana and cotton, and self-sufficient in all food crops except wheat. The civil war disrupted all agricultural production and displaced millions of people. The discovery of large oil reserves shifted the focus of the economy from agriculture to oil exploration. The country ceased to invest in technology and the mechanisation of its agricultural sector. Agricultural productivity therefore decreased. The seemingly endless supply of oil money and the dismantled agricultural sector made it easier to import food, rather than invest in domestic production.
From being a net agricultural exporter in the 1970s, Angola now imports 90% of its food at a cost of US$ 5 billion a year. Of these, US$300 million worth of agricultural products were imported from the United States in 2014.
The sharp decline in commodity prices in the recent years has put severe strains on Angola’s economy. From an average GDP growth of 4.5% between 2010 and 2015, the country’s economy is expected to grow by only 2.5% in 2016 and 2.7% in 2017. The economy has recently undergone some structural changes to try to move away from its dependency on oil revenue. Time will tell whether it will be successful.
A lot to be fixed
Angola’s ranking as the third largest GDP in Sub-Saharan Africa is a testimony of its natural resources wealth. However, this prominent position masks the socio-economic imbalances the country experiences for decades. The drop in the oil prices resulted in a shortage of revenue that could only be balanced by a cut in public spending. Government spending was cut to US$24 billion from US$30 billion projected in the original 2016 budget as revenues were also slashed to US$18 billion from US$24.4 billion. The unfolding of this cut is palpable. Rubbish collection in Luanda has stopped, which helped spread an outbreak of yellow fever from the capital’s vast slums to the rest of the country.
Angola regime is considered a democracy. However, its current president is holding the office for the past 37 years. Mr. José Eduardo dos Santos was firstly elected in 1979 and since then managed to win the presidency in every single turn. More recently, amid the economic turmoil Angola is passing through, he announced he will not run for re-election in 2018 . During his turns, Dos Santos’ family raised to glory. His son is very likely to run for president when Dos Santos steps down and his daughter, Isabel, managed to become Africa’s richest woman, with assets summing US$ 3.2 billion. Dos Santos also appointed Isabel to head the Angolan state oil company, Sonangol.
Being home of the wealthiest woman in a continent makes an enormous contrast when Angola’s social and economy indicators are scrutinized. Angola ranks first in under 5 years old child mortality, with 157 deaths per 1,000 live births; 12% of children are born with low weight, 2.2% of adults live with HIV, adult illiteracy is still high and gender inequality in every aspect of the society is rampant.
Angola ranks 163 out of 167 in the Corruption Perception Index; has one of the most unfriendly business environments, scoring 182 out of 189 in the World Bank’s Ease of Doing Business; and is badly recognized in the innovation arena, ranking 120 of 141 in the Global Innovation Index. Innovation is essential in tailoring policies that promote long-term output growth, improve productivity, and create jobs.
Angola’s business environment remains one of the most difficult in the world. Investors must factor in pervasive corruption, an underdeveloped financial system, poor infrastructure, abundant but unskilled labour and extremely high on-the-ground costs. Surface transportation inside the country is slow and expensive, while bureaucracy and port inefficiencies complicate trade and raise costs. There is a lot to be fixed in this country of 25 million people and some measures are already being taken in this direction.
In 2015, the government of Angola enacted a new private investment law (no. 14/15) and created a National Agency for Promotion of Investment and Exportations of Angola (Agência para a Promoção de Investimento e Exportações de Angola – APIEX). The measures aim to stimulate economic growth, diversify the economy, expand the private sector, and foster greater private-sector participation in Angola’s economic development.
However, the new law has received a mixed reaction across the business community, as it raises taxes on the early repatriation of profits and dividends. For the first time, the law makes a clear distinction between foreign and domestic investors, and imposes local partnership requirements for foreign investment in key sectors that some fear could dissuade international investors. Corporate income taxes were also reduced from 35% to 30%.
APIEX is housed within the Ministry of Commerce. Its creation follows various changes in legislation that come with the objective of facilitating external and domestic investment and easing the access to loans for private investors. Besides this, Angola is making efforts to decrease the number of steps in the process of opening a business, and it is investing in the training of basic professional skills, providing guidance for new entrepreneurs and creating industrial centres with planned infrastructure and logistic connections.
The Angolan Ambassador to Singapore, Fidelino Loy de Jesus Figueiredo, looks at the recent changes in policy for foreign and national investment with great enthusiasm: “The new law creates an attractive framework for investors, protecting their interests, but without affecting the State’s welfare. The law also considers the need of having a local working force in the process of developing the economy”.
The ambassador also comments on the main doubts investors have in Law 14/15: “Some investors show concerns on the repatriation of profits. However, the law is clear and does not place restrains on it”. The law allows the repatriation of dividends, profits and royalties following the conclusion of the investment project. However, it will be subject to an additional tax. The new tax on dividends starts at 15%, and can rise to as high as 50%, depending on how much and how soon after the initial investment the repatriation takes place to encourage in-country reinvestments.
The new investment law sets a minimum of 35% local participation or partnership in foreign investments and focuses on 6 strategic sectors: 1) electricity and water, 2) tourism and hospitality, 3) transportation and logistics, 4) telecommunications and information technology, 5) construction, and 6) media.
The 35% minimum local participation requirement is likely to challenge foreign investors pursuing large investments projects to obtain qualifying local partners, especially due to local capital constraints, as well as the lack of technical capacity in certain industries.
Oil and mining, two vital sectors of the Angolan economy, are regimented by special and separate investment laws. The same is applied to the banking sector, which has a distinct law dictating how foreign investments can be assimilated.
For the sectors encompassed in the new law, there are fiscal incentives for investing in Angola’s less developed regions. Investing in less developed areas has twice the level of incentives as compared to investing in areas near Luanda or other major city centres. Additional tax breaks are available for investors who create more local jobs, generate higher export receipts, and source more local content in their operations.
Although the 6 strategic areas embraced by the law present decisive opportunities for Angola, there are two sectors that should receive broader attention: agriculture and fisheries. These areas have all the ingredients for much-needed economic diversification, a reduced dependency on imports and large-scale job creation.
Agriculture and Fishing
Angola’s agricultural sector accounts for only 11% of the country’s GDP. It grew by a negligible 0.2% in 2015, and only about a third of Angola’s arable land has been cultivated. The country was a net exporter of agricultural products in the colonial era. It certainly has the young working force, right climate and arable land to expand its agricultural and fishery sectors. Although some advances have been made in these areas, there is still a long way to go in order to alleviate Angola’s dependency on food imports.
Recently, Angola shipped, for the first time in more than 40 years, a lot of 17 tonnes of banana to Europe. The growth of banana production in Angola was fuelled by Chinese money after agreements exchanging oil for infrastructure development were signed between the two countries back in 2004. Banana production grew from 76,000 tonnes in 2012 to 247,000 tonnes in 2013, which not only ended banana imports, but also allowed exports to the neighbouring Democratic Republic of Congo.
Cash crops, such as sugar and coffee, once major Angolan exports, are now being produced again, albeit only on a small scale compared with the period before the country’s 1975‑2002 civil war. According to the Ministry of Agriculture, Angola produced 12,000 tonnes of coffee in 2014, its highest level for decades, but well below the colonial-period high of 200,000 tonnes. Most coffee growers are small-scale and struggle to market their crops and deal with pests and disease.
In May 2015, a Portuguese firm, Nabeiro, announced that it was buying out the Angolan state coffee firm, Liangol, whose operations it has been running for almost 15 years. Nabeiro paid US$ 1 billion for the company and has now taken over Angola’s Ginga coffee brand. That is the kind of private investment that Angola needs in its agribusiness. Privatisation always has its risks, but private companies have a clear monetary incentive to be efficient and profitable, while state companies many times run at a loss and provide room for corruption.
In the sugar and bio-fuel business, Biocom, a public-private partnership, has set a challenging target for the end of the decade. The company owns a 100,000-acre farm located 300km east of Luanda, in Melanje, and is due to produce 256,000 tonnes of sugar by 2020, which would secure 50% of Angola’s domestic consumption. Besides sugar, the company will produce 33,000 cubic meters of ethanol and generate 235,000 MW of electricity. In 2016, the company will produce 47,000 tonnes of sugar, 16,000 cubic meters of ethanol and 155,000 MW of electricity. Biocom is owned in a partnership between the state-oil company Sonangol, the government investment fund Cochan, and Brazil’s Odebrecht.
The fishing industry in Angola grew from 277,000 tonnes of fish and seafood in 2012 to 300,000 tonnes in 2013, of which 85% is consumed domestically. The country has a target to increase this output to 400,000 tonnes in the coming years. Angola has rich coastal waters and a well-watered interior. Its active fisheries also include rivers, freshwater lakes and reservoirs. The country’s coast is 1,600km long and its exclusive economic zone waters cover 330,000 km2. The country has plenty of potential to significantly increase the size of its fishing industry.
Developing aquaculture and expanding the fishing industry in Angola have the potential to generate jobs and to contribute to food security and poverty reduction, especially in rural and coastal areas. It is also a decisive subsector in Angola in terms of social impact. One-third of Angola’s animal protein come from fish, and artisan fishing represents 30% of the country’s total fishing activity countrywide. Many involved in the fishing industry are organised in co-operatives, and over 80% of their members are women.
Angola is also developing its fish-farming potential. Its first major initiative at the Mucoso centre near Dondo, Kwanza Norte province, opened in April 2014. Bengo province, near Luanda, has several large lakes, such as Nagume, and lagoons that support traditional artisan fisheries. The Kwanza river is also home to several existing and new dam projects. These dams can be stocked with additional fish from farms.
Current Account Deficit
The necessity for the diversification of the economy is not a surprise for Angolans; however, effective measures towards reaching this goal could have come earlier. The drop in oil revenue, coupled with an increase in expenditures, have led to a fiscal deficit in Angola’s current account not seen since 2009.
Starting in 2014 and forecasted to go through the next decade, Angola’s current account is expected to run on deficit (see Figure 2). The lower oil prices and higher imports have narrowed the resource-rich country’s current account surplus. Oil export revenues, which dominate foreign-exchange earnings, declined as global oil prices started falling in 2014, highlighting the necessity for the diversification of the economy and decoupling public finances from the oil sector.
Figure 2 – Current Account Balance – Historical and Forecast – Angola
Angola has implemented some expenditure measures that reduced the deficits, which include ending fuel subsidies and freezing public sector hiring. With oil prices projected to remain below their recent peaks, fiscal revenues are expected to continue to be low in Angola. As a result, fiscal deficits are likely to increase, despite efforts to restrain spending.
Inflation is still a problem. It spiked to 23% in the first quarter of 2016 from the 2015 annual rate of 14.3%, exceeding the central bank’s target. The high inflation is a result of currency devaluation and the cessation of the government’s fuel subsidies in early 2016. Concerns about inflation led the central bank to hike interest rates. Government spending remains constrained, and the elevated inflation has weakened consumer spending.
Diversification is the key
The shock of the lower oil prices to the economy makes any forecasts for the coming years filled with uncertainty. The strategy to mitigate this crisis is to move the economy towards diversification. Agriculture is expected to play a key role in boosting the country’s exports and generating foreign currency earnings.
Equally important is to foster investments in infrastructure, deepening financial sector reforms, developing professional skills and improving the business environment. Investing in the local industry will result in a gradual reduction of imports, which is essential in a scenario of weak local currency.
Angola’s new law for foreign investment is an important step to making the business environment clearer for the external investor. Reducing bureaucracy and facilitating credit are also part of the measures the government is trying to implement. Notwithstanding these reforms, the legal framework still needs adjustments to ease the business environment. Income inequality, unemployment and poverty remain a challenge in Angola. Regional economic imbalances also persist. Transformative investments are required to decongest large cities and reconnect them with major economic growth poles, particularly in rural areas.
“I see that the main sectors that will benefit from additional foreign investment in Angola are mining, fishing, agriculture and energy”, says Ambassador Fidelino Figueiredo. Besides mining and energy, which are already extensively explored, fishing and agriculture are two sectors the government of Angola wants to expand significantly. The Ambassador also believes that “developing the professional skills of the base worker, training managers to be efficient, investing in infrastructure and gradually increasing institutional capability are very important aspects that should be tackled in this process”.
Under its National Development Plan 2013-2017, the government is contemplating a territorial development strategy to create a network of development poles. The country has a National Urbanisation and Housing Programme, a 2015-2030 Metropolitan Plan for Luanda, and several ongoing urbanisation projects in other areas.
In a scenario where the oil price rises again and Angola is faced with another bonanza period, will the country follow the same path it did after the civil war and rely on the easy money rather than investing on the long term socio-economic development of Angola? Ambassador Fidelino Figueiredo emphatically replies: “The government decision of diversifying the economy and the reassessment of national development priorities have no come back. In an eventual rise of the oil price, the consequent availability of this extra income will be additional to the revenue sources from the new strategic areas defined by the government”.
The author, Otavio Veras, is a Research Associate of the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation. Otavio can be reached at firstname.lastname@example.org.
 IMF data