angola’s economy: past, present and future ricardo gazel, world bank senior economist and acting...
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Angola’s Economy: Past, Present and Future
Ricardo Gazel, World BankSenior Economist and Acting Country Manager
Viking Club August 27, 2009
Angola’s Economy: Past, Present and Future
I. Recent Past: High Rates of Growth
II. Present: The Mother of all Crisis and the Impacts on Angola’s Economy
III. Future: Medium and Long Runs
I. Recent Past: High Rates of Growth
• 1.1 Economic Growth
• 1.2 Inflation
• 1.3 External Sector
• 1.4 Public Sector
• 1.5 Social Gains
Nominal and Real Economic Growth
14.5
3.3
11.2
20.6
18.6
23.3
15.6
0
1000
2000
3000
4000
5000
6000
7000
2002 2003 2004 2005 2006 2007 2008
0
5
10
15
20
25
GDP at Current Prices GDP Real Growth Rate
I. Recent Past: High Rates of Growth
• 1.1 Economic Growth
• 1.2 Inflation
• 1.3 External Sector
• 1.4 Public Sector
• 1.5 Social Gains
Inflation
268.4
116.1105.6
76.7
3118.5 12.2 11.78
0
50
100
150
200
250
300
2000 2001 2002 2003 2004 2005 2006 2007
I. Recent Past: High Rates of Growth
• 1.1 Economic Growth
• 1.2 Inflation
• 1.3 External Sector
• 1.4 Public Sector
• 1.5 Social Gains
Trade Balance – US$ billions
0
10
20
30
40
50
60
70
2002 2003 2004 2005 2006 2007 2008
Exports (FOB) Imports (FOB) Trade Balance
Oil Exports (Volume and Price)
311 302345
439
495
600
674
23.728.2
36.1
50.0
61.4
67.0
90.9
0
100
200
300
400
500
600
700
2002 2003 2004 2005 2006 2007 200820
30
40
50
60
70
80
90
100
Volume (million barrels) Price (US$/barril)
Net International Reserves (US$ Millions)
323.7 623.31372.2
3189.4
8587.5
11191.0
19670.2
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2002 2003 2004 2005 2006 2007 2008
External Debt including Arrears
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
2003 2004 2005 2006 2007 2008
Banks Enterprises Bilateral Multirateral
External Debt / GDP
60.60%
45.50%
33.40%
18.50%16.20% 16.00%
10%
30%
50%
2003 2004 2005 2006 2007 2008
I. Recent Past: High Rates of Growth
• 1.1 Economic Growth
• 1.2 Inflation
• 1.3 External Sector
• 1.4 Public Sector
• 1.5 Social Gains
Fiscal Revenues (Billions of Kwanzas)
0
500
1000
1500
2000
2500
3000
3500
2003 2004 2005 2006 2007 2008
Oil Tax Revenues Non-Oil Tax Revenues
Fiscal Results (Billions of Kwanzas)
-66.6
-26 196 396.6 525.2 631.2
-3000
-2000
-1000
0
1000
2000
3000
4000
2003 2004 2005 2006 2007 2008
Revenues Expenses Net Results
Composition of Public Expenditures
0
200
400
600
800
1000
1200
1400
1600
1800
2003 2004 2005 2006 2007 2008
Current Expenditures Interests Capital Expenditures
I. Recent Past: High Rates of Growth
• 1.1 Economic Growth
• 1.2 Inflation
• 1.3 External Sector
• 1.4 Public Sector
• 1.5 Social Gains
Social Gains in the Last Years
• Reduction of Poverty
• Improved Human Development Indicators
• Gains in the fight agains HIV/AIDS, malaria, etc.
Angola’s Economy: Past, Present and Future
I. Recent Past: High Rates of Growth
II. Present: The Mother of all Crisis and the Impacts on Angola’s Economy
III. Future: Medium and Long Runs
The Mother of all Crisis
• Financial Crisis:– Stock Markets Collapsed in many Advanced and
Developing Countries– Nacionalization of Fannie Mae and Freddie Mac – Bancrupcy of Banks and Insurance Companies– Liquidity Crisis– Others
The Mother of all Crisis Growth Rates Estimates
(IMF – April 2009)
2008 2009 2010
World 3,2 -1,3 1,9Advanced Economies 0,9 -3,8 0,0USA 1,1 -2,8 0,0EURO Area 0,9 -4,2 -0,4Emergency Markets and Developing Economies
6,1 1,6 4,0
Africa 5,2 2,0 3,9Sub-Saharian Africa 5,5 1,7 3,8
Impacts in Angola
• Financial Market and Foreign Investment• Remitances and Foreign Aid• Real Economy – Prices of Primary
Products
Financial Market and Foreign Investment
• Likely small as:– No stock market– No strong connection of domestic bank
system with international financial markets (except via Portuguese banks)
– Small interbaking credit market– Low loans to deposit ratios
Impacts in Angola
• Financial Market and Foreign Investment• Remitances and Foreign Aid• Real Economy – Prices of Primary
Products
Remessas e Ajuda Extrangeira• Low Level os Remitances compared to
other African Countries• Outflow Remitances Larger than Inflow
Remitances• Foreign Aid share of Budget is Marginal
Impacts in Angola
• Financial Market and Foreign Investment• Remitances and Foreign Aid• Real Economy – Prices of Primary
Products
Different Estimates of GDP Real Growth Rate for 2009
-8.0
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Government TheEconomist
IMF OECD- BAfD WB
Oil ProductionMillion Barrels per Day
OPEC Monthly Oil Market Report
1.4
1.6
1.8
2.0
2.2
2007 2008 OPECQuota
OPECQuota withProduction
Cuts
OriginalBudget
AjustedBudget
Oil ProductionMillion Barrels Day OPEC Monthly Oil Market Report
1.6
1.7
1.8
1.9
2.0
200708-Jan08-Feb08-Mar08-Apr08-May08-Jun08-Jul08-Aug08-Sep08-Oct08-Nov08-Dec09-Jan09-Feb09-Mar09-Apr09-May09-Jun09-Jul
Others Sectors
• Sector Positive Negative• Agriculture and Fishing High • Extractive Industries Low
– Oil and Gas Low – Diamants e other extractives High
• Manufacturing Low• Construction Low • Services Medium
Yearly Inflation
5
7
9
11
13
15
17
19
21
Jan-08Feb-08Mar-08Apr-08May-08Jun-08Jul-08Aug-08Sep-08Oct-08Nov-08Dec-08Jan-09Feb-09Mar-09Apr-09May-09
CPI Food Inflation Core (excluding food)
Inflation
• In favor of a decline:– Decline in International Prices– Domestic Economic Slowdown
• In favor of an increase:– Devaluation of the Kwanza– Supply Constraints
External Sector
• Dramatic Decline of Export Revenues
• Limited Decline of Imports (Less elastic in the short run)
• Current Account Deficit
• Sharp Decline in International Reserves
• Cash Flow Problems with Balance of Payments
• Financing Needs
OPEC Reference Basket Daily Price - 2007, 2008, 2009US$
30
50
70
90
110
130
150
2-Jan 2-Feb 2-Mar 2-Apr 2-May 2-Jun 2-Jul2-Aug 2-Sep 2-Oct 2-Nov 2-Dec
2008
2009
2007
Net International Reserves (US$ millions)
10,000
13,000
16,000
19,000
22,000
200708-Jan08-Feb08-Mar08-Apr08-May08-Jun08-Jul08-Aug08-Sep08-Oct08-Nov08-Dec09-Jan09-Feb09-Mar09-Apr09-May09-Jun09-Jul
External Debt / GDP
60.60%
45.50%
33.40%
18.50% 16.20% 16.00%19.50%
0%
20%
40%
60%
2003 2004 2005 2006 2007 2008 2009
Public Sector
• Lower Revenues
• Drastic Cuts in Spending
• How to Finance the Deficit?– High Cost, low demand for government bonds
Exports, Price and Oil Taxes
0
20
40
60
80
100
120
140
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
050010001500200025003000350040004500
Receitas Fiscais do Petróleo (US$milhões) Exportaçoes (milhões de barris) Preço Médio (US$)
Risks
• Global Recession • Fiscal and Monetary Policies
– Fiscal Policy:• Budget Adjustments• Payment Delays to Suppliers• Financing the Fiscal Deficit (High Cost)
– Monetary and Exchange Rate Policies:• Required Reserves• Exchange Rate policy
• Social Impacts
Social Impacts
• Increase in Poverty• Worsening of Human Development
Indicators• Potential increase in hunger• Infant Mortality• Political and Social Stress
Angola’s Economy: Past, Present and Future
I. Recent Past: High Rates of Growth
II. Present: The Mother of all Crisis and the Impacts on Angola’s Economy
III. Future: Medium and Long Runs
Prespectives for the Futuro:Medium Run
• At the Global Level:• Bad News: Recession in 2009 and increased
unemployment. Price of OIL?• Good News: Some indicators show
improvements and that the crisis may have hit bottom, but recovery will be slow
• In Angola:• Prepare for the Future• Diversification • Reforms
Growth by Sector
10
76
0
2
4
6
8
10
12
14
16
2010 2011 2012
Agriculture and Fishing Oil ManufacturingEnergy Construction ServicesGDP
Why?
• High Dependency on Oil:– 56% dof GDP in 2007– 97% of Exports in 2007– 83% of Government Revenues in 2008
• Instability: Price is very volatile
• Oil Sector is technology intensive and does not creat many jobs
Baixo Grau de Diversificação
• Composição (%) 2006 2007 2008• Agriculture and Fishing 7,3 7,7 8,2• Extractive Industries 58,0 57,6 59,4
– Oil and Gas 55,7 55,8 58,3– Diamants and other extractives 2,3 1,8 1,2
• Manufacturing 4,8 5,3 6,6• Electrical Energy 0,1 0,1 0,1• Construction 4,3 4,9 4,4• Services (Mercantil) 16,8 16,9 15,3• Others 8,3 7,2 6,1
How to Deversify?
• Identification of Sector with Comparative Advantages
• Identification of Barriers
• Incentives and Reforms
Setores com Vantagens Comparativas
• Agriculture
• Construction: Infrastructure and housing
• Light Manufacturing: Plastic, agrobusiness
• Manufacturing: Cement, Construction materials, etc.
• Services in general
Diversification is a Process
• Exemple: Agriculture– Steps:
• Deminization• Recuperation and construction of infrastructure
– Roads and bridges
– Water and electricity
– Others
• Realocation of Displaced rural population during the war• Distribution and preparation of land• Seed distribution• Logistic Support: Extention, Credit, distribution of production,
etc.
How to Deversify?
• Identification of Sector with Comparative Advantages
• Identification of Barriers
• Incentives and Reforms
Barriers
• Infrastructure: Energy and Water
• Labor Force
• Transportation
• Ports
• Low Institucional Capacity
• Limited Credit
• Limited Domestic Comsumption Markets
How to Deversify?
• Identification of Sector with Comparative Advantages
• Identification of Barriers
• Incentives and Reforms
Challenges
• Short Run– Maintain Macro Stability in a scenario of
global crisis
• Medium and Long Run– Increase Competitiveness:
• Lower Cost of Production (transportation, credit)• Increase Factor Productivity
Angola’s Economy: Past, Present and Future
I. Recent Past: High Rates of Growth
II. Present: The Mother of all Crisis and the Impacts on Angola’s Economy
III. Future: Medium and Long Runs
Angola 2020
• Higher Participation of the Private Sector• Labor Force with more skills• Exports more diversified• Agriculture: Domestic and External Markets• More sofisticated Syestem of Credit• Public Sector more efficient• Public Investment more selective and criterious
Angola in 2020 - Composition of GDP
5 9 95
12 158
1518
24
28
28
58
3630
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2015 2020Construction Manufacturing Agriculture and Fishing Services Extractive
Angola 2020How to get there
• Fiscal and Monetary Policies Consistent with Macro estability
• Investiment in Social Sectors: education and Health
• Modern and Comprehensive Infrastructure• Reforms implemented (labor, public
sector, contracts, justice, etc.)• Flexible Exchange Rate• Expanded Domestic Market
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