latest country update...22 jan 08

Angola: Country forecast summary

January 22nd 2008


COUNTRY VIEW

FROM THE ECONOMIST INTELLIGENCE UNIT


Country forecast overview: Highlights

Angola is about to enter a pre-election period, with the legislative election scheduled to be held in September 2008 and the presidential election in 2009. Delays in the fragmented electoral process, logistical constraints and political obstruction could all delay the elections further, although the Economist Intelligence Unit expects them to take place before the end of the forecast period.
We expect the ruling party, Movimento Popular de Libertação de Angola (MPLA), to win the elections, although it may lose ground to the União Nacional para a Independência Total de Angola (UNITA) and a host of smaller parties in their core areas of support. We expect the incumbent president, José Eduardo dos Santos, who has yet to make a formal decision on his future, to stand again and win the presidential election. The future of UNITA will depend heavily on its ability to win a sufficiently large proportion of the vote to maintain its position as the country's main opposition party.
The government has formally broken off negotiations with the IMF on an economic programme, as it considers its own "home-grown" programme to be sufficient to maintain macroeconomic stability, stimulate private-sector growth and reduce poverty. However, the Fund will continue to monitor economic developments as part of its regular Article IV consultations. In the absence of an IMF programme, the government will continue to contract oil-backed loans, as well as further extending its existing credit lines with China, Brazil, Portugal and other partners, and contracting new export credits from Paris Club members in order to invest heavily in the rehabilitation of infrastructure.
We expect the oil boom of recent years to continue in 2008-09, with rising production, high prices and ongoing investment in the sector driving real GDP growth, which will average 15.3% per year in 2008-09. Oil production growth should slacken in 2010 (reducing real GDP growth to 5.7%) once the current wave of new oilfields has come on stream, before rising again in 2011-12 as the next generation of ultra-deepwater oilfields starts production.
Even with only moderate increases in food prices, the Banco Nacional de Angola (BNA, the central bank) will struggle to reduce annual consumer price inflation below double digits in 2008-12, owing to relatively loose monetary policy, strong economic growth and continuing growth in money supply.
Exceptionally high export earnings will result in large current-account surpluses in 2008-09. Despite rising oil and gas production, strong growth in imports and services debits will gradually reduce the current-account surplus to 14.4% of GDP in 2012. Driven by investment in the energy sector, foreign direct investment inflows will average US$1.8bn per year over the forecast period.


Policy towards private enterprise and competition

2008-09: Opportunities for private enterprise will be limited as government contracts dominate economic activity and the bulk of private-sector investment is channelled through the development bank, Banco de Desenvolvimento de Angola.

2010-12: The full establishment of Angola's stock exchange could provide a vehicle for restarting the stalled privatisation process, with 77 out of 216 state-owned companies earmarked for potential privatisation.


Policy towards foreign investment

2008-09: Oil and gas will continue to attract high levels of investment, as will the diamond sector and new mining projects, notably iron. Heavy investment in infrastructure under Chinese credit lines will continue.

2010-12: Credit lines from new sources, notably Russia, Brazil and Israel, should boost the diversity of investments as the government seeks to move away from dependence on Chinese credit and loans.


Foreign trade and exchange controls

2008-09: Exchange-rate policy will remain highly politicised. The Banco Nacional de Angola (BNA, the central bank) will have little trouble in supporting the kwanza as long as oil prices remain high.

2010-12: Given the ongoing strength of oil prices, there will be little pressure to alter exchange-rate policy.


Taxes

2008-09: Tax reform aimed at widening the net will remain on the agenda, although reform is likely to focus on amending the existing tax regime for the oil and diamond sectors in order to increase government revenue.

2010-12 Tax reform may move up the agenda in order to attract new foreign investment into the country.


Financing

2008-09: Domestic banks will increase funding to the private sector, mostly raising the money offshore. Angola's new development bank will start to provide financing for private-sector projects that fit the government's development plan.

2010-12: Funding for non-oil sector projects, particularly from domestic sources, will become increasingly available.


The labour market

2008-09: Employers will face major problems owing to the high cost or unavailability of local managers, a lack of skilled manual workers, and a lack of basic maths and literacy skills among school leavers.

2010-12: Employers will continue to struggle to find suitably qualified staff across all sectors.


Infrastructure

2008-09: Increased government spending on roads, bridges and railways will continue, although the positive effects will not be felt until the end of this period.

2010-12: Heavy expenditure on infrastructure will continue, and business will begin to feel positive results with the completion of the rehabilitation of the country's basic road and rail infrastructure.

Cheers!