The decline in oil revenues that occurred in 2023 “underscores the critical need for economic diversification in Angola”, highlight economists Carmen Yiptong and Zviad Zedginidze, in an analysis released to coincide with a Fund mission to the country, which ended on Tuesday, recalling that “currently, 25 percent of GDP and 60 percent of its tax revenues come from the oil sector”.
To highlight this urgency, they mention that among oil exporters in sub-Saharan Africa, Angola has “the third place among countries with the largest share of oil exports in total exports of goods (94 percent)”.
“In addition, Angola’s performance in governance and key logistics processes is below the sub-Saharan African average, with results in the fight against poverty and human capital development also lagging behind”, and there are sectors whose development is affected by the economy’s concentration in the oil sector, such as transport, mining and construction, the economists write.
On the other hand, the analysis shows, for example, “growth in the agricultural sector” and points to the potential it has for diversifying the economy.
There are four areas that the experts delve into in the document because they believe they will “promote economic diversification in the specific context of Angola, simultaneously boosting growth and resilience”.
“Reforms to improve human capital, respond to critical infrastructure needs, promote a business environment conducive to growth and improve access to credit will reduce structural barriers and market bottlenecks, promoting diversification”, the economists write, making recommendations for each of these four areas.
One of the highlights is measures to improve education and fill the skills gap, for results that "can translate into a more productive workforce that meets the needs of higher value-added sectors and can attract foreign investment".
Another recommendation is to "respond to the needs of critical infrastructure". By investing, "a path to diversification" is opened, "the productive capacity and output of the economy" are increased, they argue.
The economists warn that the lack of infrastructure poses challenges to productivity and to companies, as "a large part of the Angolan population does not have access to basic infrastructure services" and 36 percent of companies in Angola consider that electricity, for example, "constitutes a serious obstacle".
Access to credit is another obstacle, with the IMF suggesting greater facilitation, and pointing to the informality rate, inflation and high interest rates as damaging to the non-oil economy, and to the relationship between the State and banks.
“A favourable environment for credit growth could bring tangible benefits for economic diversification”, the experts stress, highlighting the expansion of credit bureau coverage, the improvement of technological access to information and the improvement of the monetary policy implementation framework to control inflation.
The authorities have implemented a National Development Plan (PDN 2023-27), focused on “regional economic integration, human capital development, food security and socioeconomic progress (…) and which also emphasizes governance reforms, infrastructure modernization and environmental preservation”, the economists acknowledge.
However, despite the focus “on promoting growth in the non-oil sector, several obstacles persist” and a recent UN report (2024) highlighted that, with the current public spending plans, “only 47 percent of the Sustainable Development Goals (SDGs) will be achieved in Angola by 2030”, they warn.
