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Angola Country Risk Report Q1 2016

  • September 2016
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views

Angola will continue to struggle with slow economic growth over the next two years, as high inflation replaces low oil revenues as the economy’s main headwind. While macroeconomic fundamentals will begin to improve from H216 as prices begin to stabilise and investment returns to the oil sector, we highlight the potentially destabilising effect of elevated political risk in the approach to 2017 presidential election and President José Eduardo Dos Santos’ planned succession in 2018. Significant devaluations made to the local currency will see Angola’s fiscal deficit narrow dramatically over 2016, particularly given the government’s efforts to curtail spending in the wake of the oil price collapse. While this will deny the economy a useful macroeconomic buffer in the form of fiscal stimulus during a period of weak growth, it will alleviate pressure on the government’s debt burden. Angola’s balance of payments will show signs of improving health over the coming quarters as a recovery in the country’s oil sector returns greater flows of foreign capital into the economy via both the financial and current accounts. However, we see little sign of progress towards reducing the country’s dependence on this sector over our short-term outlook. Angola’s central bank will enact further hikes over 2016 in a bid to bolster real interest rates and temper inflation. However, a more stable currency will see inflation slow by 2017, prompting no further hikes, but historically high rates of inflation will similarly prevent against the beginning of looser monetary policy until 2018. The recovery in oil prices portends a more stable period for the Angolan kwanza over coming months, despite the persistence of a wide disparity between the official and black market exchange rate. High inflation and ample foreign reserves will encourage the central bank to maintain consistent intervention in the exchange rate. While Angola faces elevated political uncertainty in the years ahead due to the forthcoming departure of long-time president José Eduardo Dos Santos, we continue to expect a managed succession whereby power is kept within his own party’s elites. Although this will ensure broad policy continuity, it also means the prospects for political and economic reform are limited and raises the likelihood of increased political unrest.

Table Of Contents

Angola Country Risk Report Q1 2016
Executive Summary.................................................................................................................................. 5
Core Views.......................................................................................................................................................................................5
Key Risks.........................................................................................................................................................................................5
Chapter 1: Economic Outlook.................................................................................................................. 7
SWOT Analysis........................................................................................................................................................... 7
BMI Economic Risk Index.......................................................................................................................................... 7
Economic Growth Outlook........................................................................................................................................ 8
Legacy Of Oil Collapse Offers New Headwinds To Growth........................................................................................................8
Angola will continue to struggle with slow economic growth over the next two years, as high inflation replaces low oil revenues as
the economy's main headwind. While macroeconomic fundamentals will begin to improve from H216 as prices begin to stabilise and
investment returns to the oil sector, we highlight the potentially destabilising effect of elevated political risk in the approach to 2017
presidential election and President Jose Eduardo Dos Santos' planned succession in 2018.
GDP By Expenditure Outlook.................................................................................................................................... 9
TABLE: GDP GROWTH FORECASTS......................................................................................................................................................................9
TABLE: PRIVATE CONSUMPTION FORECASTS....................................................................................................................................................9
TABLE: GOVERNMENT CONSUMPTION FORECASTS....................................................................................................................................... 10
TABLE: FIXED INVESTMENT FORECASTS.......................................................................................................................................................... 10
TABLE: NET EXPORTS FORECASTS.................................................................................................................................................................... 10
Fiscal Policy And Public Debt Outlook.................................................................................................................. 11
Painful Reforms Yield Fiscal Recovery.......................................................................................................................................11
Significant devaluations made to the local currency will see Angola's fiscal deficit narrow dramatically over 2016, particularly given the
government's efforts to curtail spending in the wake of the oil price collapse. While this will deny the economy a useful macroeconomic
buffer in the form of fiscal stimulus during a period of weak growth, it will alleviate pressure on the government's debt burden.
Structural Fiscal Position........................................................................................................................................ 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES............................................................................................................................. 12
TABLE: FISCAL AND PUBLIC DEBT FORECASTS............................................................................................................................................... 12
External Trade And Investment Outlook ............................................................................................................... 13
Oil Recovery Will Lead External Account Improvement...........................................................................................................13
Angola's balance of payments will show signs of improving health over the coming quarters as a recovery in the country's oil sector
returns greater flows of foreign capital into the economy via both the financial and current accounts. However, we see little sign of
progress towards reducing the country's dependence on this sector over our short-term outlook.
Outlook On External Position.................................................................................................................................. 14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE......................................................................................................................................... 14
TABLE: CURRENT ACCOUNT BALANCE FORECASTS....................................................................................................................................... 15
TABLE: TOP 5 GOODS IMPORTS IN 2015............................................................................................................................................................ 15
TABLE: TOP 5 GOODS EXPORTS IN 2015........................................................................................................................................................... 16
Monetary Policy........................................................................................................................................................ 16
BNA Nearing End Of Hiking Cycle...............................................................................................................................................16
Angola's central bank will enact further hikes over the course of 2016 in a bid to bolster real interest rates and temper inflation. However,
a more stable currency will see inflation slow by 2017, prompting no further hikes, but historically high rates of inflation will similarly
prevent against the beginning of looser monetary policy until 2018.
Monetary Policy Framework ................................................................................................................................... 17
TABLE: MONETARY POLICY FORECASTS.......................................................................................................................................................... 18
Currency Forecast.................................................................................................................................................... 18
AOA: Beyond The Worst Of Central Bank Devaluations...........................................................................................................18
The recovery in oil prices portends a more stable period for the Angolan kwanza over the coming months, despite the persistence of a
wide disparity between the official and black market exchange rate. High inflation and ample foreign reserves will encourage the central
bank to maintain consistent intervention in the exchange rate.
TABLE: BMI CURRENCY FORECAST.................................................................................................................................................................... 19
Chapter 2: 10-Year Forecast................................................................................................................... 21
The Angolan Economy To 2025.............................................................................................................................. 21
Opportunities On Offer After Years Of Pain................................................................................................................................21
Slow economic growth will become the new normal in Angola over the next three to five years as oil prices experience only a gradual
recovery and the economy is punished for decades of commodity dependence. This will force structural changes onto the economy that
will yield a mild uptick in GDP growth beyond 2020.
TABLE: LONG-TERM MACROECONOMIC FORECASTS..................................................................................................................................... 21
Chapter 3: Political Outlook................................................................................................................... 25
SWOT Analysis......................................................................................................................................................... 25
BMI Political Risk Index........................................................................................................................................... 25
Domestic Politics..................................................................................................................................................... 26
Cabinda Attacks Symptomatic Of Government's Growing Challenges...................................................................................26
The increase in violence in the secessionist province of Cabinda is symptomatic of the pressure President Jose Eduardo Dos Santos
will face over the coming quarters as various factions across Angola compete to secure their interests at a time of potential political
upheaval. The concentration of oil wealth in Cabinda will facilitate a strong crackdown from the government, but rebel attacks will
continue regardless.
Long-Term Political Outlook................................................................................................................................... 27
Business As Usual Promises An Uncertain Future...................................................................................................................27
While Angola faces elevated political uncertainty in the years ahead due to the forthcoming departure of long-time president Jose
Eduardo Dos Santos, we continue to expect a managed succession whereby power is kept within his own party's elites. Although this
will ensure broad policy continuity, it also means that the prospects for political and economic reform are limited and raises the likelihood
of increased political unrest.
Chapter 4: Operational Risk................................................................................................................... 29
SWOT Analysis......................................................................................................................................................... 29
Operational Risk Index............................................................................................................................................ 29
Operational Risk....................................................................................................................................................... 30
TABLE: OPERATIONAL RISK................................................................................................................................................................................. 30
Market Size And Utilities.......................................................................................................................................... 31
TABLE: SUB-SAHARAN AFRICA - MARKET SIZE AND UTILITIES RISK ........................................................................................................... 32
Labour Costs............................................................................................................................................................ 35
TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE............................................................................................... 35
Chapter 5: BMI Global Macro Outlook................................................................................................... 39
Global Macro Outlook.............................................................................................................................................. 39
EMs Past The Worst, But Structural Problems Persist.............................................................................................................39
TABLE: GLOBAL ASSUMPTIONS..........................................................................................................................................................................39
TABLE: DEVELOPED STATES - REAL GDP GROWTH, %.................................................................................................................................. 40
TABLE: EMERGING MARKETS - REAL GDP GROWTH, %................................................................................................................................. 41
TABLE: MACROECONOMIC DATA and FORECASTS.............................................................................................................................................. 43

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