Angolas Economy: Past, Present and Future

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Angolas Economy Past, Present and Future

• Ricardo Gazel, World Bank
• Senior Economist and Acting Country Manager
• Viking Club
• August 27, 2009

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Angolas Economy Past, Present and Future

• Recent Past High Rates of Growth
• Present The Mother of all Crisis and the Impacts
  on Angolas Economy
• Future Medium and Long Runs

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I. Recent Past High Rates of Growth

• 1.1 Economic Growth
• 1.2 Inflation
• 1.3 External Sector
• 1.4 Public Sector
• 1.5 Social Gains

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Nominal and Real Economic Growth
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I. Recent Past High Rates of Growth

• 1.1 Economic Growth
• 1.2 Inflation
• 1.3 External Sector
• 1.4 Public Sector
• 1.5 Social Gains

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Inflation
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I. Recent Past High Rates of Growth

• 1.1 Economic Growth
• 1.2 Inflation
• 1.3 External Sector
• 1.4 Public Sector
• 1.5 Social Gains

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Trade Balance US billions
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Oil Exports (Volume and Price)
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Net International Reserves (US Millions)
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External Debt including Arrears
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External Debt / GDP
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I. Recent Past High Rates of Growth

• 1.1 Economic Growth
• 1.2 Inflation
• 1.3 External Sector
• 1.4 Public Sector
• 1.5 Social Gains

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Fiscal Revenues (Billions of Kwanzas)
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Fiscal Results (Billions of Kwanzas)
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Composition of Public Expenditures
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I. Recent Past High Rates of Growth

• 1.1 Economic Growth
• 1.2 Inflation
• 1.3 External Sector
• 1.4 Public Sector
• 1.5 Social Gains

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Social Gains in the Last Years

• Reduction of Poverty
• Improved Human Development Indicators
• Gains in the fight agains HIV/AIDS, malaria, etc.

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Angolas Economy Past, Present and Future

• Recent Past High Rates of Growth
• Present The Mother of all Crisis and the Impacts
  on Angolas Economy
• Future Medium and Long Runs

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The Mother of all Crisis

• Financial Crisis
• Stock Markets Collapsed in many Advanced and
  Developing Countries
• Nacionalization of Fannie Mae and Freddie Mac
• Bancrupcy of Banks and Insurance Companies
• Liquidity Crisis
• Others

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The Mother of all Crisis Growth Rates Estimates
(IMF April 2009)
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Impacts in Angola

• Financial Market and Foreign Investment
• Remitances and Foreign Aid
• Real Economy Prices of Primary Products

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Financial Market and Foreign Investment

• Likely small as
• No stock market
• No strong connection of domestic bank system with
  international financial markets (except via
  Portuguese banks)
• Small interbaking credit market
• Low loans to deposit ratios

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Impacts in Angola

• Financial Market and Foreign Investment
• Remitances and Foreign Aid
• Real Economy Prices of Primary Products

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Remessas e Ajuda Extrangeira

• Low Level os Remitances compared to other African
  Countries
• Outflow Remitances Larger than Inflow Remitances
• Foreign Aid share of Budget is Marginal

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Impacts in Angola

• Financial Market and Foreign Investment
• Remitances and Foreign Aid
• Real Economy Prices of Primary Products

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Real Economy

• Economic Growth
• Inflation
• External Sector
• Public Sector
• Risks

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Different Estimates of GDP Real Growth Rate for
2009
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Oil ProductionMillion Barrels per DayOPEC
Monthly Oil Market Report
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Oil ProductionMillion Barrels Day OPEC Monthly
Oil Market Report
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Others Sectors

• Sector Positive Negative
• Agriculture and Fishing High
• Extractive Industries Low
• Oil and Gas Low
• Diamants e other extractives High
• Manufacturing Low
• Construction Low
• Services Medium

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Real Economy

• Economic Growth
• Inflation
• External Sector
• Public Sector
• Risks

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Yearly Inflation
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Yearly Inflation
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Inflation

• In favor of a decline
• Decline in International Prices
• Domestic Economic Slowdown
• In favor of an increase
• Devaluation of the Kwanza
• Supply Constraints

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Real Economy

• Economic Growth
• Inflation
• External Sector
• Public Sector
• Risks

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External Sector

• Dramatic Decline of Export Revenues
• Limited Decline of Imports (Less elastic in the
  short run)
• Current Account Deficit
• Sharp Decline in International Reserves
• Cash Flow Problems with Balance of Payments
• Financing Needs

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Net International Reserves (US millions)
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External Debt / GDP
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Real Economy

• Economic Growth
• Inflation
• External Sector
• Public Sector
• Risks

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Public Sector

• Lower Revenues
• Drastic Cuts in Spending
• How to Finance the Deficit?
• High Cost, low demand for government bonds

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Exports, Price and Oil Taxes
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Real Economy

• Economic Growth
• Inflation
• External Sector
• Public Sector
• Risks

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Risks

• Global Recession
• Fiscal and Monetary Policies
• Fiscal Policy
• Budget Adjustments
• Payment Delays to Suppliers
• Financing the Fiscal Deficit (High Cost)
• Monetary and Exchange Rate Policies
• Required Reserves
• Exchange Rate policy
• Social Impacts

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Social Impacts

• Increase in Poverty
• Worsening of Human Development Indicators
• Potential increase in hunger
• Infant Mortality
• Political and Social Stress

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Angolas Economy Past, Present and Future

• Recent Past High Rates of Growth
• Present The Mother of all Crisis and the Impacts
  on Angolas Economy
• Future Medium and Long Runs

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Prespectives for the FuturoMedium Run

• At the Global Level
• Bad News Recession in 2009 and increased
  unemployment. Price of OIL?
• Good News Some indicators show improvements and
  that the crisis may have hit bottom, but recovery
  will be slow
• In Angola
• Prepare for the Future
• Diversification
• Reforms

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Growth by Sector
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Diversification

• Why?
• Where is Angola?
• How to Diversify?
• Challenges How to surpass them

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Why?

• High Dependency on Oil
• 56 dof GDP in 2007
• 97 of Exports in 2007
• 83 of Government Revenues in 2008
• Instability Price is very volatile
• Oil Sector is technology intensive and does not
  creat many jobs

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Diversification

• Why?
• Where is Angola?
• How to Diversify?
• Challenges How to surpass them

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Baixo Grau de Diversificação

• Composição () 2006 2007 2008
• Agriculture and Fishing 7,3 7,7 8,2
• Extractive Industries 58,0 57,6 59,4
• Oil and Gas 55,7 55,8 58,3
• Diamants and other extractives 2,3 1,8 1,2
• Manufacturing 4,8 5,3 6,6
• Electrical Energy 0,1 0,1 0,1
• Construction 4,3 4,9 4,4
• Services (Mercantil) 16,8 16,9 15,3
• Others 8,3 7,2 6,1

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Diversification

• Why?
• Where is Angola?
• How to Diversify?
• Challenges How to surpass them

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How to Deversify?

• Identification of Sector with Comparative
  Advantages
• Identification of Barriers
• Incentives and Reforms

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Setores com Vantagens Comparativas

• Agriculture
• Construction Infrastructure and housing
• Light Manufacturing Plastic, agrobusiness
• Manufacturing Cement, Construction materials,
  etc.
• Services in general

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Diversification is a Process

• Exemple Agriculture
• Steps
• Deminization
• Recuperation and construction of infrastructure
• Roads and bridges
• Water and electricity
• Others
• Realocation of Displaced rural population during
  the war
• Distribution and preparation of land
• Seed distribution
• Logistic Support Extention, Credit, distribution
  of production, etc.

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How to Deversify?

• Identification of Sector with Comparative
  Advantages
• Identification of Barriers
• Incentives and Reforms

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Barriers

• Infrastructure Energy and Water
• Labor Force
• Transportation
• Ports
• Low Institucional Capacity
• Limited Credit
• Limited Domestic Comsumption Markets

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How to Deversify?

• Identification of Sector with Comparative
  Advantages
• Identification of Barriers
• Incentives and Reforms

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Incentives

• Fiscal
• Credit
• Joinventures
• PPPs

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Reforms

• Fiscal
• Labor
• Regulations
• Public Sector More Efficiency

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Diversification

• Why?
• Where is Angola?
• How to Diversify?
• Challenges How to surpass them

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Challenges

• Short Run
• Maintain Macro Stability in a scenario of global
  crisis
• Medium and Long Run
• Increase Competitiveness
• Lower Cost of Production (transportation, credit)
• Increase Factor Productivity

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Angolas Economy Past, Present and Future

• Recent Past High Rates of Growth
• Present The Mother of all Crisis and the Impacts
  on Angolas Economy
• Future Medium and Long Runs

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Angola 2020

• Higher Participation of the Private Sector
• Labor Force with more skills
• Exports more diversified
• Agriculture Domestic and External Markets
• More sofisticated Syestem of Credit
• Public Sector more efficient
• Public Investment more selective and criterious

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Angola in 2020 - Composition of GDP
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Angola 2020How to get there

• Fiscal and Monetary Policies Consistent with
  Macro estability
• Investiment in Social Sectors education and
  Health
• Modern and Comprehensive Infrastructure
• Reforms implemented (labor, public sector,
  contracts, justice, etc.)
• Flexible Exchange Rate
• Expanded Domestic Market

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