The Republic of Angola is an African country that declared independence from Portugal in 1975. It has a population of over 30 million and relies heavily on its oil and diamond industries. The emergence of COVID-19 has negatively impacted Angola's economy by reducing oil prices and revenues, slowing other key sectors like construction, and increasing inflation. In response, Angola needs to implement an immediate action plan to prioritize health, support businesses, and diversify its economy in order to stabilize and promote recovery.
Chapter 2.ppt of macroeconomics by mankiw 9th edition
Angola's Economy Impacted by COVID-19 Pandemic
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Angola: context and economy
The Republic of Angola, which declared its independence from a
Portuguese colony in 1975, is a South African country which borders the
South Atlantic Ocean and shares its northern borders with the Democratic
Republic of Congo and its southern borders with Namibia. The seventh
largest African country, Angola has a total area of 1.247 million km2 and a
population of more than 30.5 million, distributed across eighteen different
provinces. Its capital of Luanda is its largest and most populous city. Angola
has an abundance of natural resources such as iron ores, diamonds,
phosphates, uranium, and petroleum. It is Africa’s second largest oil
producer and the continent’s third largest producer of diamonds.
Due to its reliance on the petroleum and diamond industries, Angola’s
economy depends heavily on the industrial sector.
That sector, and specifically the oil sector with its daily average production
rate of 1.39 million barrels, accounts for about 50% of the country’s Gross
Domestic Product (GDP) and is the country’s main source of revenue.1-2
Trailing after the industrial sector is the services sector (banking,
communication, taxation, etc.), a fast growing domain that accounts for
almost 40% of the GDP and employs approximately 43% of the population.
Finally and coming in last is the agricultural sector. While this sector does
not contribute much to the GDP as compared to the other two sectors,
it is nevertheless important in that it recruits around 50% of the Angolan
population.3
There were decades of conflict with the Portuguese colonies in the fight
for independence. These were followed by 27 years of civil war, which
raged from 1975 until 2002 when it finally ended. The years of fighting
and disorder took a bitter toll on the country, affecting its population,
infrastructure, and economy. However, after the civil war ended, the oil and
gas industry started flourishing in Angola. The country started recovering
COVID-19 in Angola:
ChartingaPathtoRecoveryandGrowth
Figure 1 Angola’s GDP over
the years.4
Figure 2 Angola’s economic
indicators (2019-2020).
1
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140
120
100
80
60
40
20
0
11.17
10.93
15.29 17.81
23.55
36.97
65.27
88.54
70.31
83.8
111.79
128.05
136.71
145.71
116.19
101.12
122.12
105.9
91.53
52.38
Gross Domestic Product in billion U.S. dollars
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Author
Elias Mrad
Expertise
Infrastructure
Engineer
Company
Dar
Location
Angola
2. 15
and enjoyed strong and rapid growth in its economy and its GDP, as shown in Figure 1.
At one point, Angola’s economy was among the fastest growing economies in the
world. However, the data from Figure 1 also indicates that Angola’s GDP is heavily
dependent on oil prices; therefore, the country has been facing a challenging
macroeconomics environment since the steep drop in oil prices in 2014.
The emergence of COVID-19
With global macro-models and analyst projections provided by sources such as
Trading Economics, a country’s GDP growth can be predicted for years to come,
with all the constraints or factors that can impact the economy taken into account.
However, these traditional projections were upended in 2020 with the emergence of
an unprecedented crisis that no one could have foreseen: the COVID-19 pandemic.
With the pace at which the pandemic is spreading around the world, it is causing
huge cuts to GDP forecasts. As countries were forced to introduce social distancing
measures and impose and sometimes re-impose quarantines and lockdowns to
contain the pandemic, the majority of the world’s economic sectors were impacted,
triggering a severe global recession.
Economic Indicators
GDP (2019) 91.53 Billion U.S dollars
Inflation rate (Expected 2020 compared to 2019) 20.72%
Deposit interest rate (expected 2020)
(According to Trading Economics global macro models
and analysts expectations)
6.88 %
Unemployment rate (end of 2019) 31.8%
Angola external debt $42.08 billion
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i19lDarMagazinelJuly2020COVID-19inAngola:ChartingaPathtoRecoveryandGrowth
3. A direct hit to the oil sector:
The UN Economic Commission for Africa (ECA) reported that the crisis could
‘seriously dent’ the continent’s already slow growth. As crude oil prices continue
to fall, oil exporting nations are losing revenues of up to USD 65 billion.6
As stated
earlier, Angola is currently the second-largest African crude oil producer, and
this resource accounts for 90% of its exports and over 50% of its government
revenues. The global drop in oil prices (almost 70% since early January) and the
decrease in Angola’s exports to China due to the lull in Chinese industry for the
first quarter of the year will lead to a significant drop in the sector’s revenues this
year. As a result, the price is likely to fall far below the estimate in the Angolan
State Budget 2020 (US$ 55), which puts the government’s projected 1.8 percent
GDP growth rate at risk, and contributes to a recession in Angola’s economy.
Positives and negatives for the mining sector:
Angola’s mining sector, the second most important foreign-exchange source for
the country, has shown signs of vitality. During April and May, demand for almost
all minerals (especially iron ore and the hardest hit copper) dropped significantly.
The stark exception was gold, which saw its price skyrocket with investors
pursuing it as a safe refuge.
A lull in the construction sector:
Construction firms have suffered from a lack of access to qualified workers
from affected countries. Many of these workers were unable to travel to project
sites due to travel restrictions, quarantines, and self-isolation requirements.
Additionally, a temporary shortage in the US dollar was projected to impact
the procurement of materials and equipment from abroad which will result in
delaying or suspending works.
Figure 3 Outlooks for world
growth as of late March 2020.
Source: UN DESA.
Figure 4 Expected drop
in growth for Africa due to
COVID-19.8
As outlined in AGI’s annual Foresight Africa
survey, Africa began 2020 with an optimistic
economic outlook.
5
However, COVID-19 is
drastically slowing down global economic
activity, impacting nearly all sectors everywhere.
3
Worst-case Best-case
Percentage
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
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4. Negative impacts on aviation and tourism:
The COVID-19 pandemic has had a devastating impact on the air transport
sector and on tourism worldwide. Considering that approximately
218,000 tourists visited Angola in 2018, the pandemic is likely to affect the
fledging Angolan tourism sector as well as the national airline TAAG.
Growing importance for agricultural and fishing sectors:
Despite the lockdown and the effects of COVID-19, the agricultural and
fishing sectors will be affected but to a lesser extent than other sectors, as
demand for local products would increase due to import restrictions. Farmers
producing for the market as well as for their own consumption could also
be in a strong position to survive the recession, both in terms of feeding
themselves and earning an income as other sources of jobs decline.
A depreciating currency:
Since the beginning of the year, the depreciation of the Kwanza has
accelerated and, at the time of this writing (May), the currency is trading
at around USD 1 = AOA 547. With the economic downturn triggered by
COVID-19, the Kwanza will be placed under more pressure against the
US dollar, and the debt service of the country (which is largely denominated in
USD) will rise exponentially, creating another challenge for Angola in managing
state debt.
Inflation:
Panic-based purchases (due to lockdowns) will increase the inflation that is
already high due to the depreciation of the Kwanza. Consequently, Angola will
face high inflation levels that will slow imports and hinder economic growth.
Lower foreign direct investment (FDI):
UNCTAD projected that in the period 2020-2021, COVID-19 could trigger up
to 40% reduction in foreign direct investment. This is mainly due to the oil
sector divestment, knowing that FDI inflows to the non-oil sector increased
from US$ 185 million in 2018 to US$ 461 million in 2019, but still remain limited
compared to FDI’s entry into the oil sector.7
4
4
3
2
1
0
2017
2018
2019
2020
1.4% age point decline expected from effects
of COVID-19 as of March 2020 (USD 29 Billion)
Percentage Change
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i19lDarMagazinelJuly2020COVID-19inAngola:ChartingaPathtoRecoveryandGrowth
5. Figure 5 2020 GDP and
projections according to
four COVID-19 transmission
scenarios.
Recovery period strategy
Based on a study by McKinsey Company, the GDP growth in the African
continent could decline by up to 8% in 2020, depending on global COVID-19
transmission.9
However, introducing urgent measures as part of a short-term
action plan can help Angola stabilise and protect its economy against the
ongoing impact of COVID-19, the worsening global economic environment,
uncertainty in oil prices, increasing fiscal and external vulnerability, rising
poverty and unemployment, and inadequate access to basic social services.
5
4
2
0
-2
-4
Pre-COVID
Scenario
Modelled 2
-5 pp
-1.4
Resurgent global outbreak,
Africa contained
Resurgent
Contained Widespread
4
2
0
-2
-4
Pre-COVID
Scenario
Modelled
-3 pp
0.4
Contained global
and Africa outbreak
4
2
0
-2
-4
Pre-COVID
Scenario
Modelled
~8 pp
-3.9
Resurgent global outbreak,
Africa widespread
4
2
0
-2
-4
Pre-COVID
Scenario
Modelled
-6 pp
-2.1
Contained global outbreak,
Africa widespread
2
1
4
3
Global
Transmission
Africa
transmission
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6. Immediate action plan
(recovery period – within six months)
1. Review the 2020 state budget in order to prioritise health and education
and support medium-sized businesses.
2. Improve the economic cycle by:
-- Advancing the PIIM programme towards more labour-intensive
activities, in order to guarantee employment;
-- Initiating the implementation of important social programmes such
as the Programa Integrado de Desenvolvimento Local e Combat à
Pobreza and the Plano de Acção e Promoção da Empregabilidade;
-- Reviewing the Plano de Desenvolvimento Nacional (PDN) 2018-2022
in order to give priority to sectors – such as agriculture, construction,
health, etc. – that will be affected by the recession; and
-- Starting a support programme for small- and medium-sized
businesses in all sectors to avoid increasing unemployment in
the country as well as increase local production to reduce the
need for imports. The programme should provide, but not be
limited to, measures such as subsidised loans, tax reductions
or postponements for six months, and special support for the
production of seeds, pesticides, and soil fertilisers.
Short-term action plan
(recovery period – within six months)
The unusual nature of the economic shock triggered by COVID-19 means
an effective response from the government is needed to try and ensure a
recovery. Such a response could include, but is not limited to, the below
actions:
1. Issue laws that strengthen and encourage economic diversification
and productivity in the non-oil market, which will ultimately be just as
important for boosting employment and income, reducing poverty, and
facilitating robust GDP growth;
2. Weigh investment promotion policies to encourage investors;
3. Elaborate employment retention schemes;
4. Support the construction, rehabilitation, or expansion of infrastructure,
including storing capacity, distribution, and refrigeration solutions;
5. Support the tourism sector so that it may be more productive and
effective;
6. Improve the agriculture sector, which is two or three times more
effective in reducing poverty and food insecurity than growth in other
sectors. Factors that could enhance this sector include providing
micro-credits, insurance against risks of natural disasters that affect
agriculture, and technology in irrigation, agricultural studies, and
research centres;
7. Encourage investment in rural farming programmes that can help
people become more self-reliant, reduce the effect of extreme events,
increase rural prosperity, ensure more sustainable food systems and
food security, and increase resilience in vulnerable states; and
8. Provide higher education formation.
In this way, the immediate action plan to combat this pandemic may
become a starting point for Angola to turn around its economy. Recovery
and growth is possible because Angola is a vast land with many resources.
The government should take advantage of what it has and work on
improving all of its economic sectors. Firstly, the agricultural sector
should be improved so it may bring in more revenue than it currently
does. Secondly, the service sector should provide more easily accessible
facilities to all of the public in order to liberate the economy from its
dependence on the oil sector. Finally, the plan to fight corruption should be
a cornerstone of the government’s policies, towards attracting investors
and gaining the confidence of donor countries.
1
https://www.verangola.net/
va/en/032020/Energy/18945/
National-oil-production-grew-
to-139-million-barrels-per-day-
in-February.htm
2
https://www.opec.org/
opec_web/en/about_us/147.
htm#:~:text=Angola%20
gained%20independence%20
from%20Portugal,89%20
per%20cent%20of%20exports.
3
https://import-export.
societegenerale.fr/en/country/
angola/market-sectors
4
https://data.worldbank.
org/indicator/NY.GDP.MKTP.
CD?locations=AO
5
UNDESA, MONTHLY BRIEFING
n.136, APRIL 2020
6
UNDP - UN HABITAT REPORT
POTECIAL IMPACTO
SOCIOECON]OMICO DA
PANDEMIA DO COVID-19
EM ANGOLA:UMA ANÁLISE
SINTÉTICA
7
UNDP - UN HABITAT REPORT
POTECIAL IMPACTO
SOCIOECON]OMICO DA
PANDEMIA DO COVID-19
EM ANGOLA:UMA ANÁLISE
SINTÉTICA
8
UNECA (2020)
9
https://www.mckinsey.com/
featured-insights/middle-east-
and-africa/tackling-covid-19-
in-africa
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i19lDarMagazinelJuly2020COVID-19inAngola:ChartingaPathtoRecoveryandGrowth