## 1. Climate Change, Carbon Neutrality, and the Angolan Economy

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---

### A. Introduction and macroeconomic context
- Angola’s dependence on the oil sector:
  - Approximately 96 percent of Angola’s total exports over the last 5 years were crude oil and oil products.
  - Oil accounted for 56 percent of fiscal revenues.
  - Oil accounted for 34 percent of Angola’s total real gross domestic product.
- Recent policy steps:
  - Establishment of a VAT in 2019.
- Sectoral and social impacts:
  - Construction sector historically correlated with the oil sector with a correlation of up to 45 percent.
  - Poverty and inequality:
    - Poverty rate (combined rural and urban) was 32.3 percent as of 2019 (World Bank 2020).
    - Using the $1.90/day international poverty line, poverty was about 56 percent in 2020.
    - Gini coefficient was 0.51 in 2018.
- Climate and environmental context:
  - In 2015, land use and land use change contributed an estimated 70 percent of the total CO2 emissions in the country; the energy sector contributed 18 percent.
  - Over the last 20 years, government expenditure on environmental protection has been less than 0.6 percent of gross domestic product.
- Oil production outlook and risks:
  - Oil production has been declining since 2015 due to diminishing oil investment, recurring technical problems and the Covid-19 pandemic.
  - ANPG finds that, without new investment, there could be a further steady decline in oil production as existing oil fields mature.
- Opportunities from decarbonization:
  - Geography suitable for renewable energy: hydroelectric, solar, and wind.
  - Investment in clean energy and sustainable agricultural practices would promote environmental protection.

### B. Diversification rationale and projections
- Relationship between diversification and growth:
  - Evidence shows a robust relationship between stronger economic growth, lower output volatility, and diversification for low-income countries (IMF 2014).
- IMF staff macro projections and implications:
  - Fund staff projects overall GDP growth to gradually recover in the medium term and reach 4.0 percent by 2030.
  - This would imply real investment growth of about 3.8 percent per year for the rest of this decade (following six years of real investment contraction), and moderate productivity gains following a similar extended period of falling productivity.
  - With average GDP growth of 3.5 percent over 2022-30, this implies average capital, labor, and TFP contributions of 1.0, 2.0, and 0.6 percentage points, respectively, with a gradual increase in TFP’s contribution over this period.
- Financing constraints:
  - Fiscal space likely to remain limited as authorities continue to bring down the public debt ratio; much of needed investment will need to come from the private sector and improvements in public investment efficiency.

### C. Bottlenecks to diversification
- Broad enabling-environment shortcomings:
  - Angola ranks poorly across nearly all sub-rankings of the Global Competitiveness Index (GCI, 2019), including enabling environment and especially skills and innovation capability.
- PRODESI:
  - Since launch in 2018, PRODESI has helped create 66,878 jobs, and add an estimated 537.493 billion kwanzas to GDP, cumulatively around 2 percent of 2020 GDP.
- Key binding bottlenecks:
  - Governance (including anti-corruption framework and government effectiveness).
  - Business climate and regulatory environment.
  - Infrastructure and human capital.
- Quick-wins emphasis:
  - Focus on relatively easier reforms that yield rapid returns by relaxing bottlenecks.

### D. Macroeconomic stability
- Role of macro stability:
  - Macroeconomic stability is a prerequisite for economic diversification.
  - A pillar of the current IMF-supported program is preserving and reinforcing macroeconomic stability.
- Recent institutional and policy developments:
  - Strengthened fiscal and debt sustainability during the program period, although debt-to-GDP remains high.
  - Flexible exchange rate used as external shock absorber.
  - Recent efforts to tighten monetary policy and focus the BNA’s mandate on price stability.
  - Passage of the Public Finance Sustainability Law, Financial Institutions Law and new BNA Law.
- Fiscal policy stance:
  - Reducing pro-cyclical fiscal policy will be particularly important to non-oil sector development.

### E. Governance
- Recent improvements and remaining gaps:
  - Governance scores across most World Governance Indicators improved since reforms under President João Lourenço.
  - Progress in legislation, SOE reforms, Public Financial Management, MTFF and MTEF, AML/CFT, and fighting corruption.
  - Since late 2018, investigations and prosecutions of high-ranking officials; Attorney General’s Office reports recovery of an estimated $7 billion total in financial and real assets, as of September 2021.
  - Angola still lags far behind SSA and LMIC peers in all WGI categories.
- Specific weaknesses:
  - Fiscal governance: shortcomings in public investment management, project selection, procurement, SOE and PPP oversight, and funding availability.
  - Tax administration: needs strengthening in compliance risk management, audit function, e-filing for large and medium taxpayers, information management and IT governance.
  - Regulatory quality and rule of law: some progress on regulatory quality; implementation capacity for new laws (Insolvency Law, Competition Law, Private Investment Law) needs improvement.
- Corruption indicators:
  - Perceptions of corruption improved since 2017 per WGI control of corruption index and Transparency International’s CPI but remain relatively weak and behind SSA and LMIC averages.
- Growth sensitivity to governance:
  - IMF staff analysis: a worsening of corruption indicator from the 50th to the 25th percentile is associated with a 0.8 to 1.4 percentage point decline in GDP per capita and declines in investment, FDI, and tax-to-GDP ratios.
  - Separate analysis: a 10-point improvement in a country’s WGI is associated with a 1¼ percentage point increase in medium-term GDP growth; this implies a medium-term growth increase of 0.7 percentage points if governance in Angola improved to the SSA average.
  - 1.1 percentage points if governance in Angola were to improve to a level in line with the LMIC average.

### Business Climate — key findings
- General:
  - Business climate weak across most GCI sub-categories; financial markets and product markets show little visible improvement.
- Credit to private sector:
  - Credit to the private sector as a share of GDP has declined in recent years.
  - Private lending largely limited to trade financing and government-backed lines.
- Factors restricting private sector access to credit:
  - Enabling environment:
    - Credit infrastructure weak; progress underway to establish, expand, and upgrade a credit bureau and an electronic moveable property registry.
    - New corporate insolvency law recently passed; historical lack of insolvency framework and institutional capacity.
  - Supply:
    - Government fiscal financing needs offered banks a low-risk, relatively high-return alternative to private lending.
    - PRODESI supported credit to 848 projects since 2019; 530 projects received support through Covid-19 lines under Presidential Decree 98/20 managed by BDA.
    - Under Aviso 10 (BNA), banks were asked to provide a minimum of 2.5 percent of their net assets to finance domestic production.
    - As of September 2021, around 287 projects were supported and credit granted to the real economy within Aviso 10/20 was 528.99 billion kwanza, 1.5 percent of 2020 GDP.
  - Demand:
    - Many firms, particularly MSMEs and agricultural firms, lack capacity to prepare business cases, required documentation, and acceptable collateral.
    - PRODESI and government programs have assisted loan applications, but further efforts needed.
- Trade and competition:
  - Angola is relatively closed: prevalence of non-tariff barriers ranks 127 out of 141 in GCI.
  - Restrictions discourage regional and intra-continental trade; improvements needed in coordinated border management, risk management systems, automation, and elimination of licenses for every shipment.
- Regulatory landscape:
  - WGI regulatory sub-index lags SSA average; issues include lengthy bureaucratic processes, discretionary rule application, and barriers to entry.
  - AIPEX plans a new single window mechanism; recommendation to streamline licensing and consider a separate agency for investment licensing.

### Infrastructure and Human Capital — key findings
- Infrastructure and ICT adoption:
  - Ranked below SSA and LMIC averages; electricity and water provision are particular shortcomings.
- Causes:
  - Lack of planning capacity, insufficient concessional financing, and low public spending efficiency despite reasonable past public investment levels and execution.
- Human capital:
  - Angola scores worse than SSA and LMIC averages on skills in GCI.
  - Average number of school years in Angola is four.
  - Education spending is relatively low.
- Logistics and transport:
  - Significant upgrades required for ports, airports, and road networks.
- Electrification:
  - National Electrification Analysis identifies a plan blending grid and off-grid solutions to bring electricity to 80 percent of the population by 2030 optimally at least cost.

### Policy recommendations — horizontal policies (summarized)
- Macroeconomic stability:
  - Continue fiscal consolidation driven by non-oil revenues to keep the debt-to-GDP ratio on a downward, sustainable trajectory.
  - Monetary authorities should tackle inflation and achieve positive real interest rates.
  - Maintain a continued flexible exchange rate regime so the kwanza acts as a shock absorber and preserves international reserves.
  - Continue structural reforms aimed at preserving financial stability.
  - Implement supporting regulations and build human capacity (training judges, accountants, lawyers, and officials).
- Dutch disease and productivity:
  - Avoid exchange rate overvaluation and enhance productivity.
  - Promote non-oil industries with comparative advantage (e.g., agriculture).
  - Improve infrastructure and human capital.
- Near-term fiscal governance reform priorities:
  1. Update and reinforce legal requirements for investment project preparation and analysis.
  2. Strict implementation of the Law on Public Financial Stability to strengthen budget formulation and planning for public investment.
  3. Improve expenditure control and cash management procedures.
  4. Strengthen SOE and PPP oversight: publish audited financial reports of major SOEs, implement proper PPP processes, and improve transparency on contingent liabilities.
  5. Ensure efficient oversight of public contract awarding.
  6. Prioritize the investment project pipeline by favoring high returns.
- Governance, competition, and anti-corruption:
  - Fully implement competition law and associated decrees guaranteeing an autonomous Competition Authority.
  - Improve corporate insolvency framework and implementation capacity over the medium term.
  - Finalize and implement a comprehensive government anti-corruption strategy involving all agencies and strengthen partnerships with the UN system and civil society.
- Business environment and credit access:
  - Continue development of a credit bureau and an electronic moveable property registry.
  - Foster mobile money and broader financial access; opening the telecommunications sector would support mobile money development.
- Trade facilitation:
  - Fully implement AfCFTA and complement it with trade and transport network improvements.
  - Eliminate recently-imposed administrative import restrictions and avoid new quantitative import restrictions on certain goods in 2022.
- Infrastructure financing and sector opening:
  - Improve public investment management to raise returns on public investment.
  - Attract private financing by opening sectors (such as telecommunications) to foreign investment and improving the business environment.
- Human capital:
  - Increase investment in teacher training, expand vocational programs, tailor training to labor market needs, and consider alternative education delivery.
  - Implement an active jobs strategy focused on youth, women, and the informal sector.

### Agriculture sector — findings and recommendations
- Importance:
  - Agriculture accounts for around 8 percent of GDP and 50 percent of total employment.
  - Most rural Angolans rely on subsistence farming; smallholders represent over 80 percent of agricultural production and 92 percent of land under cultivation (IFC 2019; ILO data in 2020).
- Challenges:
  - Productivity hampered by lack of infrastructure (particularly water irrigation), research and information systems, and quality inputs (seeds, fertilizer).
  - Government support largely through border measures (non-tariff barriers) and some production-based subsidies; trade restrictions raise food prices and are regressive.
  - Climate change increases temperature and rainfall variability.
- Recommendations:
  - Shift support from price support and private subsidies toward provision of public goods: irrigation networks, weather information systems, and improved access to inputs.
  - Build a climate-resilient agricultural sector.
  - Continue PRODESI and capacity-building programs for farmers.

### ICT sector — findings and recommendations
- Current status:
  - Mobile phone penetration is 43.1 per 100 people versus 91 in SSA.
  - Internet access is 14.3 percent versus 22.9 percent in SSA.
  - Mobile money use is very low.
- Constraints:
  - Limited market competition; sector dominated by Unitel, largely state-owned.
  - Four operators hold global unified licenses but weak competition limits private investment and knowledge transfer.
  - Internet access is expensive (three times as much as in South Africa) and often low quality.
  - Weak regulation for infrastructure sharing inhibits smaller operators.
  - New Law on Independent Administrative Entities (October 2021) includes telecommunications regulator (INACOM); implementation ongoing.
- Recommendations:
  - Open the sector to private investment and reduce government cross-ownership in operators.
  - Implement infrastructure-sharing rules based on global best practices.
  - Reduce international wholesale bandwidth pricing.
  - Grant sufficient autonomy to INACOM to ensure a level playing field.

### Conclusions — summary
- Diversification away from oil is imperative for sustainable and inclusive growth due to vulnerability to global oil price swings and symptoms of Dutch disease.
- Authorities have taken positive steps (e.g., PRODESI, movement to a more flexible exchange rate, new laws), but implementation needs to be intensified and accelerated.
- Priority areas to enable non-oil growth:
  - Continue strengthening macroeconomic stability under the Fund-supported program.
  - Improve productivity through infrastructure and human capital investments.
  - Improve governance and business environment: expand access to credit for SMEs and individuals, reduce administrative burdens and price controls, and promote competition and entrepreneurship.
  - Focus on agriculture and telecommunications as sectors with strong potential to spur non-oil growth and employment.

### Box 1. Climate vulnerabilities, mitigation, and renewable potential
- Climate vulnerabilities and adaptation priorities:
  - Aquaculture and fisheries most vulnerable to rising sea levels; government promoting sustainable industrial and artisanal fisheries.
  - Agriculture and infrastructure require wide-ranging adaptation measures.
  - Suggested agricultural adaptations: conservation agriculture, diversify bean cultivation and legume species, pest protection, develop large-scale reliable irrigation for semi-arid coastal and southern provinces.
  - Urban/coastal infrastructure: upgrade standards, remap settlements along the coast to protect from rising sea levels and flooding.
  - Social and institutional measures: improve productivity, diversify rural opportunities, improve access to credit and market links, provide targeted training and climate awareness, organize communities for climate-resilient land use.
  - Recent local action: agropastoralists in Bie, Huambo and Malanje trained on soil fertility and sustainable land management.
- Sources and scale of emissions; national mitigation target:
  - In 2015, land use and land use change contributed an estimated 70 percent of total CO2 emissions; the energy sector contributed 18 percent.
  - Primary drivers include deforestation and forest degradation, including slash-and-burn agricultural practices.
  - Angola’s target: reduce its emissions by 14 percent by 2025.
  - Constraint: lack of adequate adaptive capacity and low government expenditures on environmental protection may hinder achievement.
- Recent climate impacts and priority mitigation measures:
  - Occasional droughts have led to high food inflation (that is currently above 30 percent y/y).
  - Since December 2020, episodes of drought with below average rainfall in Southern and South Western provinces.
  - Priority investments: water collection and storage systems, forestation, conservative agricultural practices to sequester carbon in soils, reduce gas flaring, eliminate fuel subsidies, reduce deforestation, and promote sustainable/intensive agriculture.
- Long-term structural implications and renewable energy potential:
  - Over the next 15–20 years, global oil demand may decline as global policies focus on climate change; this increases uncertainty and signals need for diversification.
  - Strategic priorities: promote growth in sectors that promote carbon neutrality, early adoption of environment-friendly technological innovation and renewable energy production.
  - Electricity access: in 2019, only 45.7 percent of Angola’s population had access to electricity.
  - As of 2017, hydropower was main renewable source with 70 percent of electricity generated from water sources.
  - Renewable opportunities: on-grid large-scale solar in drier South and South Eastern Angola, wind, and other green energy technologies; geolocation and diverse topography create three climatic zones increasing potential for renewable expansion.
- Policy framework and implementation challenges:
  - Since 2007, more than 10 legislative and executive policies geared towards environmental protection.
  - Angola ratified the 2015 Paris climate change accord and developed tools to monitor greenhouse gas emissions.
  - Nationally Determined Contribution released in 2021 lays out mitigation and adaptation plans.
  - Implementation delays persist, partly because decarbonization can be expensive; authorities should support environmental regulators and policymakers to reduce fossil fuel use and increase renewable uptake.

*Source: 1agoea2022002 - 1. Climate Change, Carbon Neutrality, and the Angolan Economy _____________________ 17*

### 1. Climate Change, Carbon Neutrality, and the Angolan Economy _____________________ 17

### 1. Climate Change, Carbon Neutrality, and the Angolan Economy _____________________ 17

### A. Introduction and macroeconomic context
- Angola’s dependence on the oil sector:
  - Approximately 96 percent of Angola’s total exports over the last 5 years were crude oil and oil products.
  - Oil accounted for 56 percent of fiscal revenues.
  - Oil accounted for 34 percent of Angola’s total real gross domestic product.
- Recent policy steps:
  - Establishment of a VAT in 2019.
- Sectoral and social impacts:
  - Construction sector historically correlated with the oil sector with a correlation of up to 45 percent.
  - World Bank (2020) reported poverty rate (combined rural and urban) based on a monetary measure of welfare in Angola was 32.3 percent as of 2019; rural poverty rate was almost three times higher than urban areas.
  - Using the $1.90/day international poverty line, poverty was about 56 percent in 2020.
  - Gini coefficient in Angola was 0.51 in 2018.
- Climate and environmental context:
  - In 2015, land use and land use change contributed an estimated 70 percent of the total CO2 emissions in the country; the energy sector contributed 18 percent.
  - Over the last 20 years, government expenditure on environmental protection has been less than 0.6 percent of gross domestic product.
- Oil production outlook and risks:
  - Oil production has been declining since 2015 due to diminishing oil investment, recurring technical problems and, more recently, the Covid-19 pandemic.
  - ANPG finds that, without new investment, there could be a further steady decline in oil production as existing oil fields mature.
- Opportunities from decarbonization:
  - Angola’s geography is well-suited to producing renewable energy: hydroelectric, solar, and wind power.
  - Investment in clean energy and sustainable agricultural practices would promote environmental protection.

### B. Diversification rationale and projections
- Relationship between diversification and growth:
  - Evidence shows a robust relationship between stronger economic growth, lower output volatility, and diversification for low-income countries (IMF 2014).
- IMF staff macro projections and implications:
  - Fund staff projects overall GDP growth to gradually recover in the medium term and reach 4.0 percent by 2030.
  - This would imply real investment growth of about 3.8 percent per year for the rest of this decade (following six years of real investment contraction), and moderate productivity gains following a similar extended period of falling productivity.
  - With average GDP growth of 3.5 percent over 2022-30, this implies average capital, labor, and TFP contributions of 1.0, 2.0, and 0.6 percentage points, respectively, with a gradual increase in TFP’s contribution over this period.
- Financing constraints:
  - Fiscal space likely to remain limited as authorities continue to bring down the public debt ratio; much of needed investment will need to come from the private sector and improvements in public investment efficiency.

### C. Bottlenecks to diversification
- Broad enabling-environment shortcomings:
  - Angola ranks poorly across nearly all sub-rankings of the Global Competitiveness Index (GCI, 2019), including enabling environment (macroeconomic stability and infrastructure) and especially skills and innovation capability.
- PRODESI (Programs for National Production Support, Exports Diversification and Import Substitution):
  - PRODESI reports that since its launch in 2018, it has helped create 66,878 jobs, and add an estimated 537.493 billion kwanzas to GDP, which cumulatively accounts for around 2 percent of 2020 GDP.
- Key areas identified as binding bottlenecks:
  - Governance (including anti-corruption framework and government effectiveness).
  - Business climate and regulatory environment.
  - Infrastructure and human capital.
- Quick-wins emphasis:
  - The paper stresses “quick wins” that are relatively easier to implement and yield more rapid returns by relaxing bottlenecks.

### D. Macroeconomic stability
- Role of macro stability:
  - Macroeconomic stability is a prerequisite for economic diversification.
  - A pillar of the current IMF-supported program is preserving and reinforcing macroeconomic stability.
- Recent institutional and policy developments:
  - Angola has strengthened fiscal and debt sustainability during the program period, although the debt to GDP level remains high.
  - Authorities have allowed for a flexible exchange rate to act as an external shock absorber.
  - Recent efforts to tighten monetary policy and focus the BNA’s mandate on price stability.
  - Passage of the Public Finance Sustainability Law, Financial Institutions Law and new BNA Law has helped create the legal and institutional basis for stability going forward.
- Fiscal policy stance:
  - Reducing the degree of pro-cyclical fiscal policy will be particularly important to non-oil sector development.

### E. Governance
- Recent improvements and remaining gaps:
  - Governance scores across most of the World Governance Indicators (WGIs) have improved since launch of reforms under President João Lourenço’s administration.
  - Progress in legislation, SOE reforms, Public Financial Management (PFM), Medium-Term Fiscal Framework and Medium-Term Expenditure Framework (MTFF and MTEF), AML/CFT, and fighting corruption.
  - Since late 2018, high-ranking officials have been investigated and prosecuted; the Attorney General’s Office reports it has recovered an estimated $7 billion total in financial and real assets, as of September 2021.
  - Angola still lags far behind SSA and LMIC peers in all WGI categories.
- Specific governance weaknesses:
  - Fiscal governance: shortcomings in public investment management around budgeting, project selection, procurement, SOE and PPP oversights, and availability of funding.
  - Tax administration: needs strengthening in compliance risk management, audit function, e-filing for large and medium sized taxpayers, information management and governance of the IT function.
  - Regulatory quality and rule of law: some progress since 2017 on regulatory quality; less headway on rule of law. Several new laws promulgated (Insolvency Law, Competition Law, Private Investment Law) but implementation capacity needs improvement.
- Corruption indicators:
  - Perceptions of corruption have improved since 2017 per WGI control of corruption index and Transparency International’s Corruption Perceptions Index (CPI) but remain relatively weak and well behind SSA and LMIC WGI averages.
- Growth sensitivity to governance:
  - IMF staff analysis: a worsening of a country’s corruption indicator from the 50th to the 25th percentile is associated with a 0.8 to 1.4 percentage point decline in GDP per capita, as well as declines in investment, FDI, and tax-to-GDP ratios.
  - Separate analysis estimates that a 10-point improvement in a country’s WGI is associated with a 1¼ percentage point increase in medium-term GDP growth. This relationship would imply a medium-term growth increase of 0.7 percentage points if governance in Angola were to improve to a level in line with the SSA average.

*Source: 1agoea2022002 - 1. Climate Change, Carbon Neutrality, and the Angolan Economy _____________________ 17*

### 1.1 percentage points if governance in Angola were to improve to a level in line with the LMIC

### 1agoea2022002 - 1.1 percentage points if governance in Angola were to improve to a level in line with the LMIC average.

### Business Climate — key findings
- Angola’s business climate is weak across most major sub-categories of the GCI; financial markets and product markets show little visible improvement.
- Credit to the private sector as a share of GDP has declined in recent years; private lending is largely limited to trade financing and government-backed lines that do not promote much domestic production.
- Main factors restricting private sector access to credit:
  - Enabling environment:
    - Credit infrastructure is weak; progress is underway to establish, expand, and upgrade a credit bureau and an electronic moveable property registry.
    - A new corporate insolvency law was recently passed, but Angola historically lacked a strong corporate insolvency framework and related institutional capacity.
  - Supply:
    - Government fiscal financing needs have offered banks a low-risk, relatively high-return alternative to private lending.
    - PRODESI supported credit to 848 projects since 2019, the majority in 2020–21; 530 projects received support through Covid-19 lines under Presidential Decree 98/20 managed by the Angolan Development Bank (BDA).
    - Under Aviso 10 (BNA), banks were asked to provide a minimum of 2.5 percent of their net assets to finance domestic production.
    - As of September 2021, around 287 projects were supported and credit granted to the real economy within Aviso 10/20 was 528.99 billion kwanza, 1.5 percent of 2020 GDP.
  - Demand:
    - Many firms, particularly MSMEs and agricultural firms, lack capacity to prepare business cases, required documentation, and acceptable collateral.
    - PRODESI and government programs have assisted loan applications, but further efforts are needed.
- Trade and competition:
  - Angola is relatively closed: prevalence of non-tariff barriers ranks 127 out of 141 in GCI.
  - Restrictions discourage regional and intra-continental trade; coordinated border management, risk management systems, automation, and elimination of licenses for every trade shipment are areas needing improvement.
- Regulatory landscape:
  - WGI regulatory sub-index lags SSA average; issues include lengthy bureaucratic processes, discretionary application of rules, and barriers to entry that hinder private investment and competition.
  - AIPEX plans a new single window mechanism; recommendation to streamline licensing and consider a separate agency for investment licensing.

### Infrastructure and Human Capital — key findings
- Infrastructure and ICT adoption are ranked below SSA and LMIC averages; electricity and water provision are particular shortcomings.
- Infrastructure gaps stem from lack of planning capacity, insufficient concessional financing, and low public spending efficiency despite reasonable past public investment levels and execution.
- Human capital:
  - Angola scores worse than SSA and LMIC averages on skills in GCI.
  - The average number of school years in Angola is four.
  - Education spending is relatively low.
- Logistics and transport require significant upgrades per World Bank study; improving ports, airports, and road networks is critical.
- National Electrification Analysis (Government of Angola with World Bank support) identifies a national plan blending grid and off-grid solutions to bring electricity to 80 percent of the population by 2030 optimally at least cost.

### Policy recommendations — horizontal policies (summarized)
- Macroeconomic stability:
  - Continue fiscal consolidation driven by non-oil revenues to keep the debt-to-GDP ratio on a downward, sustainable trajectory.
  - Monetary authorities should tackle inflation and achieve positive real interest rates.
  - Maintain a continued flexible exchange rate regime so the kwanza acts as a shock absorber and preserves international reserves.
  - Continue structural reforms aimed at preserving financial stability.
  - Implement supporting regulations and build human capacity (training judges, accountants, lawyers, and officials).
- Dutch disease and productivity:
  - Avoid exchange rate overvaluation and enhance productivity.
  - Promote non-oil industries with comparative advantage (e.g., agriculture).
  - Improve infrastructure and human capital.
- Near-term fiscal governance reform priorities:
  1. Update and reinforce legal requirements for investment project preparation and analysis.
  2. Strict implementation of the Law on Public Financial Stability to strengthen budget formulation and planning for public investment.
  3. Improve expenditure control and cash management procedures.
  4. Strengthen SOE and PPP oversight: publish audited financial reports of major SOEs, implement proper PPP processes, and improve transparency on contingent liabilities.
  5. Ensure efficient oversight of public contract awarding.
  6. Prioritize the investment project pipeline by favoring high returns.
- Governance, competition, and anti-corruption:
  - Fully implement competition law and associated decrees guaranteeing an autonomous Competition Authority.
  - Improve corporate insolvency framework and implementation capacity over the medium term.
  - Finalize and implement a comprehensive government anti-corruption strategy involving all agencies and strengthen partnerships with the UN system and civil society.
- Business environment and credit access:
  - Continue development of a credit bureau and an electronic moveable property registry.
  - Foster mobile money and broader financial access; opening the telecommunications sector would support mobile money development.
- Trade facilitation:
  - Fully implement AfCFTA and complement it with trade and transport network improvements.
  - Eliminate recently-imposed administrative import restrictions and avoid new quantitative import restrictions on certain goods in 2022.
- Infrastructure financing and sector opening:
  - Improve public investment management to raise returns on public investment.
  - Attract private financing by opening sectors (such as telecommunications) to foreign investment and improving the business environment.
- Human capital:
  - Increase investment in teacher training, expand vocational programs, tailor training to labor market needs, and consider alternative education delivery.
  - Implement an active jobs strategy focused on youth, women, and the informal sector.

### Agriculture sector — findings and recommendations
- Importance:
  - Agriculture accounts for around 8 percent of GDP and 50 percent of total employment.
  - Most rural Angolans rely on subsistence farming; smallholders represent over 80 percent of agricultural production and 92 percent of land under cultivation (IFC 2019; ILO data in 2020).
- Challenges:
  - Vast arable land and abundant water resources notwithstanding, productivity is hampered by lack of infrastructure (particularly water irrigation), research and information systems, and quality inputs (seeds, fertilizer).
  - Government support largely takes the form of border measures (non-tariff barriers) and some production-based subsidies; trade restrictions raise food prices and are regressive.
  - Climate change increases temperature and rainfall variability, harming productivity.
- Recommendations:
  - Shift government support from price support and private subsidies toward provision of public goods: irrigation networks, weather information systems, and improved access to inputs.
  - Build a climate-resilient agricultural sector.
  - Continue PRODESI and capacity-building programs for farmers.

### ICT sector — findings and recommendations
- Current status:
  - ICT sector underdeveloped relative to peers; mobile phone penetration is 43.1 per 100 people versus 91 in SSA.
  - Internet access is 14.3 percent versus 22.9 percent in SSA.
  - Mobile money use is very low.
- Constraints:
  - Limited market competition; sector dominated by Unitel, largely state-owned.
  - Four operators hold global unified licenses but weak competition limits private investment and knowledge transfer.
  - Internet access is expensive (three times as much as in South Africa) and often low quality.
  - Weak regulation for infrastructure sharing inhibits smaller operators.
  - New Law on Independent Administrative Entities (October 2021) includes telecommunications regulator (INACOM); implementation is ongoing.
- Recommendations:
  - Open the sector to private investment and reduce government cross-ownership in operators.
  - Implement infrastructure-sharing rules based on global best practices.
  - Reduce international wholesale bandwidth pricing.
  - Grant sufficient autonomy to INACOM to ensure a level playing field.

### Conclusions — summary
- Diversification away from oil is imperative for sustainable and inclusive growth due to vulnerability to global oil price swings and symptoms of Dutch disease.
- Authorities have taken positive steps (e.g., PRODESI, movement to a more flexible exchange rate, new laws), but implementation needs to be intensified and accelerated.
- Priority areas to enable non-oil growth:
  - Continue strengthening macroeconomic stability under the Fund-supported program.
  - Improve productivity through infrastructure and human capital investments.
  - Improve governance and business environment: expand access to credit for SMEs and individuals, reduce administrative burdens and price controls, and promote competition and entrepreneurship.
  - Focus on agriculture and telecommunications as sectors with strong potential to spur non-oil growth and employment.

*Source: IMF staff analysis drawn from the Angolan country chapter content provided in the source PDF.*

### Box 1. Angola: Climate Change, Carbon Neutrality, and the Angolan Economy

### Box 1. Angola: Climate Change, Carbon Neutrality, and the Angolan Economy

### Climate vulnerabilities and adaptation priorities
- Aquaculture and fisheries are the most vulnerable to rising sea levels; the government is promoting development of sustainable industrial and artisanal fisheries.
- Agriculture and infrastructure sectors require wide-ranging adaptation measures to strengthen climate resilience.
- Suggested agricultural adaptations:
  - Adopt climate-resilient techniques such as conservation agriculture to increase water holding capacity of soils.
  - Diversify bean cultivation and legume species.
  - Protect plants from pests.
  - Develop large-scale reliable irrigation to ensure stable production in semi-arid coastal and southern provinces.
- Urban and coastal infrastructure actions:
  - Upgrade standards for urban infrastructure; remap settlements, particularly housing along the coast, to protect population from rising sea levels and flooding.
  - Recognize that currently planned infrastructure will face long-term effects of climate change, making upgrading standards an urgent need.
- Social and institutional measures:
  - Improve productivity and diversify rural opportunities given agriculture employs more than half of the population.
  - Improve access to credit and streamline market links to create more income-generating options.
  - Provide targeted training, climate change awareness, and sensitization for local stakeholders and communities.
  - Organize communities to adopt climate-resilient land use practices to limit emissions and environmental disruptions.
- Recent local action: agropastoralists in drought-prone areas such as Bie, Huambo and Malanje have been trained on soil fertility and sustainable land management.

### Sources and scale of emissions; national mitigation target
- In 2015:
  - Land use and land use change contributed an estimated 70 percent of the total CO2 emissions in the country.
  - The energy sector contributed 18 percent.
- Primary drivers of these emissions include deforestation and forest degradation, including slash-and-burn agricultural practices.
- Angola’s target: reduce its emissions by 14 percent by 2025.
- Constraints: lack of adequate adaptive capacity and low government expenditures on environmental protection may hinder achievement of the target.

### Recent climate impacts and priority mitigation measures
- Recent climate shocks:
  - Occasional droughts have led to high food inflation (that is currently above 30 percent y/y).
  - Since December 2020, Angola has experienced episodes of drought with below average rainfall in Southern and South Western provinces.
- Priority investments and mitigation actions:
  - Construct water collection and storage systems to combat increased frequency of drought and unreliable rainfall.
  - Forestation and improved conservative agricultural practices that sequester carbon in soils (protection of forestry and waterways).
  - Reduce gas flaring in oil production.
  - Eliminate fuel subsidies.
  - Reduce deforestation and promote more sustainable and intensive agriculture.
  - Overall investment focus: reduce pollution, adopt clean technology, and ameliorate existing environmental damage.

### Long-term structural implications and renewable energy potential
- Global outlook: Over the next 15–20 years, global oil demand may decline as global policies focus on climate change; this creates uncertainty but signals the need for diversification.
- Strategic priorities to prepare for global shift:
  - Promote growth in sectors that promote carbon neutrality and rely less on fossil fuels.
  - Early adoption of environment-friendly technological innovation and renewable energy production.
- Electricity access and renewable mix:
  - In 2019, only 45.7 percent of Angola’s population had access to electricity.
  - As of 2017, Angola’s main renewable energy source was hydropower with 70 percent of electricity generated from water sources.
- Renewable opportunities:
  - On-grid large-scale solar panels in drier South and South Eastern Angola, wind, and other alternative green energy technologies have been effective in peer countries.
  - Angola’s geolocation and diversity of topography have resulted in three climatic zones which increases potential for expansion and diversification of renewable energy sources.

### Policy framework and implementation challenges
- Commitments and legal framework:
  - Since 2007, there have been more than 10 legislative and executive policies geared towards environmental protection.
  - Angola ratified the 2015 Paris climate change accord and developed tools to monitor its greenhouse gas emissions.
  - The Nationally Determined Contribution of Angola released in 2021 lays out plans to ensure climate change mitigation and adaptation in its key sectors.
- Implementation issues:
  - Effective implementation of laws and regulations has been delayed, in part because decarbonization can be expensive.
  - Authorities should provide leadership by supporting environmental regulators and policymakers to reduce fossil fuel use and increase renewable energy uptake.

*Source: Box 1. Angola: Climate Change, Carbon Neutrality, and the Angolan Economy.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1agoea2022002.pdf_