JUNE 2013 | ISSUE 1 - World Bank

1 THE World bank | BANCO MUNDIAL Working for a World Free of Poverty economic developments and issues shaping Angola s future After being hit hard by the global financial crisis, Angola s economy is now gathering momentum, with robust GDP growth supported by strong fiscal and external balances, a stable exchange rate and moderate inflation. Enhanced fiscal controls and tighter public financial management would enable the government to accelerate public investment to support broad economic diversification and more rapid job creation, while reducing Angola s considerable vulnerability to external shocks.

2 Improvements in the investment climate and in the financial regulatory structure have enabled the rapid expansion of the banking sector, though systemic constraints in credit access significantly impair the efficiency of the economy as a whole. ` JUNE 2013 | ISSUE 1 ANGOLA economic UPDATE | June 2013 i Preface The Angola economic Update analyzes recent economic developments in Angola and situates them in a medium-term global context. It evaluates the implications of macroeconomic trends and policy reforms in terms of the government s stated development objectives.

3 Each edition covers a selected topic and includes a Special Focus Section highlighting a subject area of particular importance. The Angola economic Update is intended for a wide audience, including policymakers, business leaders, international organizations, and the community of analysts and professionals engaged in Angola s evolving economy. This First Edition of the Angola economic Update was prepared by the World bank s Poverty Reduction and economic Management Unit in the Africa Region. The team was led by Marco Antonio Hernandez (Country Economist) under the supervision of Julio Revilla (Lead Economist).

4 The team consisted of Sean Lothrop, Jorge Loyola, Andrew Blackman, David Stephan, Vasco Molini, Anna Kochanova and Roger Sullivan. John Panzer (Sector Manager) and Laurence Clarke (Country Director) provided overall guidance. Partnership with key Angolan policy makers was instrumental in the production of this report. The findings, interpretations, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the World bank s Board of Executive Directors or the countries they represent. The World bank does not guarantee the accuracy of the data included in this report, nor does it endorse the boundaries, titles or other information shown on any map in this report.

5 For more information about the World bank and its activities in Angola please visit If you would like to be included in an email distribution list for the Angola economic Update series and related publications please contact For questions and comments relating to this publication, please contact Marco Antonio Hernandez at ii World bank | BANCO MUNDIAL Abbreviations and Acronyms ACR Africa Competitiveness Report AfDB African Development bank BoP Balance of Payments BNA Banco Nacional de Angola (National bank of Angola) BUE Balc o nico do Empreendedor (Single Desk for Entrepreneurs) CIRC Central de Informa o de Riscos de Credito (Central Credit-Risk Information Registry)

6 COMEF Financial Stability Committee CPI Consumer Prices Index DB Doing Business EU European Union FDI Foreign Direct Investment FSC Financial Stability Committee FSDEA Fundo Soberano de Angola (Angolan Sovereign Fund) FY Fiscal Year GDP Gross Domestic Product HDI Human Development Index HHI Herfindahl-Hirshman Index ICT Information and Communication Technologies IFC International Finance Corporation IMF International Monetary Fund INE Instituto Nacional de Estat stica (National Statistics Institute) LMIC Lower Middle-Income Country LNG Liquid Natural Gas MBPD Million Barrels Per Day MPC Monetary Policy Committee MTFF Medium-Term Fiscal Framework OECD Organization for economic Cooperation and Development OPEC Organization of Petroleum Exporting Countries PIM Public Investment Management QFO Quasi-Fiscal Operation REER Real Effective Exchange Rate SMEs Small and Medium Enterprises SSA Sub-Saharan Africa SWF Sovereign Wealth Fund TFP Total Factor Productivity US United States of America WEF World economic Forum WBES World bank Enterprise Surveys WDI World Development

7 Indicators ANGOLA economic UPDATE | June 2013 iii ANGOLA economic UPDATE Angola s economic Recovery and Challenges Ahead June 2013 | ISSUE 1 Contents i Preface ii Abbreviations and AcronymsContents iii List of Figures iv List of Tables v vi SUMMARYA Strong Recovery, but the Economy Remains Vulnerable to External Shocks vii 1 II. RECENT economic DEVELOPMENTSA ngola s Economy: Regaining Momentum 1 Inflation is Declining, but Structural Issues Remain 7 Fiscal Policy: Challenges and Opportunities 8 Balance of Payments: A Comfortable yet Vulnerable Surplus 14 Monetary and Exchange Rate Policy: A Focus on Stabilization and Resilience 16 III.

8 economic OUTLOOK AND RISKS 19 The Global Outlook: Gathering steam? 19 Angola s Outlook: Solid Growth despite an Uncertain Global Environment 22 Risk Scenarios: Angola s Sensitivity to Global Shocks 25 IV. SPECIAL FOCUS SECTION: THE RAPID GROWTH OF ANGOLA S FINANCIAL SECTOR IN A CONTEXT OF STRUCTURAL CHALLENGES 29 Introduction 29 The Angolan Financial Sector 31 Credit Access and Its Impact on Firms 36 Financial Regulations and Related Institutions 43 Conclusion 47 V. ANNEXES 48 VI. BIBLIOGRAPHY 54 iv World bank | BANCO MUNDIAL List of Figures Figure 1: Angola s economy expanded strongly in.

9 1 Figure 2: ..supported by rising oil production and prices ..1 Figure 3: The global economic recovery slowed in Figure 4: But global economic activity may be picking up ..2 Figure 5: Strong gains in cement production point to robust construction activity ..3 Figure 6: The recovery in oil production and prices, and rising incomes provided stimulus across the economy ..3 Figure 7: Sustainable economic Development Requires Comprehensive Natural-Resource Management ..6 Figure 8: Headline and core inflation are decreasing ..7 Figure 9: Volatile foodstuffs dominate the consumer basket, and food price fluctuations drive changes in consumer-price inflation.

10 8 Figure 10: Angola s inflation rate remains high by regional standards ..8 Figure 11: Angola s reliance on non-renewable resource revenues combined with a relatively low reserve horizon leaves the economy in a vulnerable position to improve its weak human development indicators ..10 Figure 12: Oil prices remain pivotal to Angola s external accounts, with changes in prices driving changes in the trade balance and current ..15 Figure 13: ..which in turn drive fluctuations in the BoP, while financial account flows remain much smaller than trade flows..15 Figure 14: The real effective appreciation of Angola s kwanza is eroding the competitiveness of the economy.