Momentous change in Africa’s fifth economy

The new administration of President Lourenço is setting the records straight and opening up a new era

Over the past two decades, Angola has transformed from a poor, war-torn country into sub-Saharan Africa’s third-largest economy and its second-largest oil exporter. Since the end of a 27-year civil war in 2002, the country has used its oil wealth to develop, modernize and build its infrastructure, while Luanda morphed from a sleepy provincial town into a thriving, skyscraper-lined modern capital. Indeed, Luanda, which sits on one of Africa’s most spectacular bays, has become a magnet for foreign companies and expats, earning in the process the improbable distinction of most expensive city in the world alongside Hong Kong.

Now a soft revolution is taking place. After 38 years in power, President José Eduardo dos Santos stepped down in 2017, paving the way for João Lourenço to be elected in September that year. A retired general who fought for the independence from Portugal and later in the People’s Movement for the Liberation of Angola (MPLA) during the civil war, Lourenço was the chosen candidate of his predecessor.

Up to here, nothing unusual in Africa. But the way Lourenço has framed his presidency as soon as he came to power has stunned Angolans and the international community alike. In his inaugural speech, the president, known as JLo in the country, announced sweeping changes to an economic system that had become over the years tightly controlled by a small group of presidential favorites. Moreover, he declared war on corruption, which has been endemic for years. Indeed, according to the international NGO Transparency International, Angola is ranked 167 out of 180 countries.

President Lourenço is well aware his country is at a crossroads. His most pressing task is to steer the economy away from a model based almost exclusively on oil, which accounts for 95% of exports. Another priority is to reduce its dependence to Chinese investment. Lourenço is determined to step up cooperation with western companies, in particular but not only in the oil sector, and has sought help from the International Monetary Fund (IMF). In June, the latter commended Angola for having made “strides in setting a reform agenda geared towards macroeconomic stability and growth that benefits all its people.”

In his 2018 State of the Nation address, President Lourenço announced a series of measures to balance the books and offset the drop in oil prices, which has had a huge impact on the economy since 2014. He said the first results of the Macroeconomic Stabilization Program, launched in early January 2018, were “encouraging.” The plan envisages fiscal consolidation, greater exchange rate flexibility, reducing the public debt-to-GDP ratio to 60% over the medium term, improving the profile of debt through liability management, settling domestic payment arrears, and implementing anti-money laundering legislation.

President Lourenço announced that the deficit, which reached 5.6% of the GDP last year, was forecast at “less than 1% of the GDP for 2019, with an estimated increase of 9.8% in tax revenue.”

He also noted that inflation dropped from 42% in 2016 to 23% last year and is forecast to reach 19% this year, while the spread between the official and parallel exchange rates went from 150% to about 20%. And although the relatively sluggish oil prices continue to weigh heavily on Angola’s GDP growth, it is forecast to grow slightly this year and next. But, “while macroeconomic stability is important for the performance of the economy, it is not an end in itself,” said Lourenço in his presidential address. “It is a necessary means to achieve our major goal of increasing domestic production, making the private business sector stronger and more competitive, promoting exports from the non-oil sector of the economy, and reducing imports of essential consumer goods.” In other words, diversification and opening up the economy are top priorities. This opens new opportunities for foreign investors. It is also undoubtedly the beginning of a new era for resource-rich but until now governance-poor Angola.

Facts and figures

Situated in southern Africa on the South Atlantic Ocean, between Namibia and the Democratic Republic of the Congo, Angola has an area of 1,246,700 sq km comparable to that of South Africa, or twice the state of Texas. Its population is estimated at just over 30 million (28.4 million according to the national statistics agency’s 2017 data), with 45% being under the age of 15 and about 40% living below the poverty line. Angola has a wealth of resources, the two main ones being oil and diamonds.

The Catoca diamond mine is one of the largest in the world. Oil production and its supporting activities contribute about 50% of GDP, more than 70% of government revenue, and more than 90% of the country’s exports. Angola is an OPEC member and subject to its direction regarding oil production levels. Diamonds contribute an additional 5% to exports. Subsistence agriculture provides the main livelihood for most of the people, but half of the country’s food is still imported.

• GDP purchasing power parity: $193.6 billion (2017 est.)
• GDP real growth rate: — 2.5% (2017 est.)
• GDP per capita (PPP): $6,800 (2017 est.)
• GDP composition (2011 est.): agriculture: 10.2%; industry: 61.4%; services: 28.4%
• Source: CIA World Factbook