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. The importance of this resource can be clearly noticed by the fact that oil proceeds alone accounted for around 95% of foreign exchange revenues in 2014. Oil exports brought in US$ 60.2 billion in revenues to the country that year. In 2015, foreign currency inflow generated by oil exports was at US$ 33.4 billion, a 44.5% decline, a result of the drop in the oil price.
Diamonds account for a sizeable amount of revenues as well, 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 diamonds in 2014, generating earnings 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 to 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.
China – Angola Partnership
In the last decade, China became one of the main drivers of infrastructure development in Africa. From the continent, Angola is the country that built the closest ties with the Asian power. According to the Chinese Africa Research Initiative, between 2000 and 2014, China lent over US$ 90 billion to Africa. The Export-Import Bank of China (Exim Bank) is the main investor in the continent, summing US$ 62 billion of investment over the same period. The three sectors that received most funding were transport (US$ 24.2 billion), energy (US$ 17.6 billion) and the extractive industry (US$ 9 billion) .
Angola was China’s main destiny for loans in the continent, accumulating US$ 21.2 billion, or 23.1% of all Chinese investments in the region. The largest financier of Angola was the China Development Bank (US$ 11.3 billion), followed by the Exim Bank (US$ 7.4 billion) and an additional US$ 2.5 billion provided by other institutions.
Data published by the Angolan Finance Ministry shows that between November 2015 and June 2016, the state took on new loans worth US$ 7 billion from the Industrial and Commercial Bank of China, Exim Bank and the China Development Bank.
The Chinese loans to Africa are usually different from those provided by global financial institutions such as the IMF and World Bank. The former holds low interest rates and relies on commodities, such as oil or mineral resources, as collateral. This form of transaction got the name of the “Angola Model”, since that country is the favourite in Africa for Chinese capital inflows. However, Chinese loans backed by natural resources cover not only Angola, but a range of countries that suffer from low credit ratings and have great difficulty obtaining funding from the international financial market.
Half of the Chinese financing received by Angola was employed in transport infrastructure and agriculture-related projects. The remaining loans are made up of commercial loans to the Angolan state oil enterprise, Sonangol. The state company has received 84% of all the loans granted to the extractive industries.
In the past 5 years, loans from China to Angola have significantly increased (see Figure 2) and, consequently, the Chinese presence in the country became noticeable. In 2015, there were around 50 Chinese state companies and 400 private businesses operating in Angola. A total workforce of between 60,000 and 70,000 Chinese citizens are employed in these companies, despite the bilateral agreements demanding that at least 30% of the workforce be Angolan. This restriction is not fully satisfied as China alleges there are not enough Angolan citizens with the skills to perform top quality work on construction projects, most of which have to be accomplished within a tight execution period.
Figure 2 – Chinese Loans to Angola – 2000 to 2014 
Angola used the Chinese loans to greatly improve infrastructure nationwide. In the past years, a total of 56 schools were built, benefitting a student population of more than 150,000. Besides this, the investments on infrastructure included: 24 hospitals with 3,340 beds, 10 water treatment plants benefiting over 1 million people, a television station with an audience of 9 million, 830 kilometres of roads, 3,200 kilometres of telecommunications cables and 9 power transmission stations.
In 2014, the Exim Bank provided US$170 million in loans to Angola to carry out three projects: funding the Chiumbedala hydroelectric facility and the Luena sub-station in Moxico province; sponsoring the Cuimba agro-industrial project in Zaire province; and supporting the Institution for Economic and Commercial Management of the Portuguese-speaking African Countries (PALOP), in Huíla province.
In 2016, Chinese investments totalling US$ 5.2 billion will finance 155 projects in Angola and, at the end of May, the Angolan government authorised hiring Chinese companies to carry out 23 infrastructure projects, which include supply of water and road repairs in 8 provinces, at an estimated cost of US$ 550 million.
Angola is not solely betting on Chinese loans as foreign investment. The country is focusing on seriously improving the business environment and making the process easier for any private company willing to invest in Angola. In 2015, the government 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.
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 restraints 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 bananas to Europe. The growth of banana production in Angola was fuelled by Chinese investments under the “Angola-Model”, 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 frequently 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 involving the state-oil company Sonangol, the government investment fund Cochan, and Brazil’s construction company 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, providing 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 3). 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 3 – Current Account Balance – Historical and Forecast – Angola
Angola has implemented some expenditure measures that reduced the deficits, which include ending fuel subsidies in early 2016 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. 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 a weak local currency.
Angola’s new law for foreign investment is an important step towards 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