## The decline of oil revenues in 2023 underscore the critical need for economic diversification in Angola

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### Macro context and recent shock
- Oil exports fell by 22 percent in 2023 due to lower oil production (prolonged maintenance at key fields) and a drop in global oil prices in the first half of the year.
- The end of a debt moratorium from bilateral creditors increased external financing needs, contributing to:
  - a weaker external and fiscal position,
  - exchange rate depreciation,
  - higher inflation,
  - slower economic growth.
- The episode underscores recurring risks from oil dependency and the urgency of diversification.

### Measured dependence on oil and spillovers
- Current economy composition:
  - 25 percent of GDP is attributable to the oil sector.
  - 60 percent of fiscal revenues are attributable to the oil sector.
  - Amongst oil exporters in sub-Saharan Africa (SSA), Angola ranks third with oil exports equal to 94 percent of total goods exports.
- Staff estimates and elasticities:
  - Using quarterly GDP growth data 2014–2024, staff estimate that 83 percent of Angola’s GDP benefits from higher oil prices.
  - Correlation between non-oil GDP growth and oil prices is 47 percent.
  - Transportation, mining, public administration, and construction have average elasticity to oil price changes of 22 percent.
  - Agricultural sector growth does not move in tandem with oil prices, highlighting its potential role in diversification.

### National Development Plan (NDP 2023–27) objectives and targets
- NDP focus areas: regional economic integration, human capital development, food security, socio-economic progress, governance reforms, infrastructure modernization, environmental preservation.
- NDP growth targets:
  - long-term annual overall GDP growth of 3.0 percent.
  - 5.0 percent annual growth in non-oil GDP.
- Emphasis on private sector-led diversification, food security, agriculture, livestock, and industry; policies include production, export diversification, import substitution, and economic stability.

### Structural obstacles to diversification
- UN report (2024) finding: with current public spending plans in the NDP, only 47 percent of the Sustainable Development Goals (SDGs) will be attained by 2030; several goals related to economic growth, industrialization, infrastructure, poverty, and financial access are “off track.”
- Four key obstacles identified:
  - (i) access to credit,
  - (ii) mismatch in workforce skills,
  - (iii) inadequate infrastructure stock,
  - (iv) challenges in the broader business environment.
- Recent surge in import substitution measures (e.g., Presidential Decree 213/23 and programs such as PRODESI and PLANAPECUARIA) poses risks: reduced access to raw materials, increased consumer prices, and heightened regulatory hurdles.
- IMF research (IMF, 2024b) notes that industrial (vertical) policies can work but the bar for success is high; broad-based (horizontal) policies—macroeconomic stability, infrastructure, human capital, competition—are crucial.

### Human capital and labor market constraints
- Employment and sectoral structure:
  - Employment remains concentrated in non-oil sectors despite oil expansion; agriculture employment has steadily increased and now represents almost half of total employment.
  - The industry sector includes mining and quarrying, manufacturing, construction, and public utilities.
- Informality and education metrics:
  - Informal sector estimated at around 80 percent (Instituto Nacional de Estatística, 2024).
  - Average years of schooling: 5.8 years.
  - Secondary school enrollment: 54 percent.
  - Less than a quarter of the population above 25 years old has completed upper secondary school.
  - World Bank Enterprise Survey (2010): 26 percent of surveyed firms identify an “inadequately educated workforce” as a severe business constraint (SSA average is 15 percent).
  - Demographics: 65 percent of the population is between the ages of 0 and 24 years old; 45 percent of the population is between the ages of 0 and 14.
- Implications: large share of under-skilled workers constrains ability to harness non-oil opportunities; resource-intensive growth has generated limited employment.

### Education and human capital policy lessons and targets
- NDP education commitments and budget:
  - 2025 General State Budget allocates 2.2 trillion Kwanzas to education-related expenditures (2 percent of GDP in 2025).
  - This allocation is a modest increase relative to 2024 but below the SSA average of 5.8 percent of GDP.
- International examples and policy lessons:
  - India: targeted tertiary education investments helped shift toward services exports, increasing services export value-added as a share of GDP by more than 20 percentage points since 1990.
  - Vietnam: TVET expansion under Doi Moi supported manufacturing export growth; manufacturing exports as a share of merchandise exports grew by 40 percentage points, reaching 86 percent from the 1990s to 2022.
  - Korea: coordination of education objectives with national development plans via inter-ministerial committees supported structural transformation.
  - Private sector coordination can improve curriculum relevance, delivery efficiency, and mobilize funding (example: Mauritius).
- Recommended human capital approaches in Angola:
  - Investigate and execute targeted policies to address skills gaps in high-priority emerging sectors, improve public investment efficiency, and develop job-relevant and innovative education curricula and vocational training aligned with private sector needs.
  - Boost coordination among government actors executing the NDP and consult private sector stakeholders to support development and delivery of human capital policies.
- Broader structural reforms:
  - “First generation reforms” (governance, business regulation, external sector reforms) raise secondary and tertiary enrollment and support human capital formation via competition, foreign firm entry, and technology adoption.

### Social infrastructure and long-run resilience
- Health and early childhood outcomes matter for long-term diversification:
  - High share of young population (45 percent aged 0–14) presents a potential demographic dividend.
  - Without policies addressing malnourishment, stunting, poor vaccine access, and inadequate water and sanitation, the productivity of the next generation could be limited.
  - NDP emphasis on human capital is positive; reallocating budget resources to social infrastructure is crucial.

### Infrastructure, total factor productivity, and diversification
- Role of public infrastructure:
  - Infrastructure investment raises output by increasing aggregate demand in the short run (fiscal multiplier and potential crowding in) and by expanding total factor productivity in the long run through a larger infrastructure stock.
  - High-quality, efficient infrastructure reduces business costs, improves movement of goods/services/labor, facilitates business operations, and, together with macroeconomic stability, enhances productivity and the ability to diversify.

### Infrastructure access and constraints
- A large share of the Angolan population still does not have access to basic infrastructure services.
- 36 percent of firms in Angola note electricity as a severe constraint on their business operations.
- Infrastructure quality in Angola is consistently below its SSA and emerging market peers across multiple metrics.

### Public investment levels, effectiveness, and PIM
- Public capital expenditure has averaged 7 percent of GDP over the last two decades, yet a significant infrastructure deficit persists.
- Public investments seem to have had a limited impact on improving coverage and quality of infrastructure.
- Improving public investment efficiency (PIE) is necessary to boost the stock and quality of infrastructure per unit of government spending.
- Public investment management (PIM) and governance:
  - Countries with better PIM tend to have greater infrastructure quality and economic growth (IMF, 2015).
  - Transparent and well-governed practices in planning, allocation, and implementation of public investment projects are essential for realizing productivity enhancements and growth benefits.
  - Ongoing institutional reforms under the Ministry of Planning aim to update and streamline rules for approval of public investment projects and align the public investment framework with the NDP.
  - Authorities are encouraged to align reforms with recommendations from the IMF’s 2019 Public Investment Management Assessment (PIMA).
- Capacity development priorities:
  - Boost capacity in project appraisal and monitoring to minimize leakages and cost overruns.
  - Review institutional and legal frameworks for public private partnerships (PPPs) to reduce fiscal risks and increase the “payoff” of such investments.

### Macroeconomic stability and fiscal frameworks
- Strengthening macroeconomic stability is a prerequisite for advancing diversification plans; it creates fiscal space and reduces debt financing costs for infrastructure spending.
- Important policy priorities: reduce inflation, improve local currency debt markets, maintain fiscal discipline, ensure debt sustainability, and adhere to the Fiscal Sustainability Law.
- Angola’s Fiscal Sustainability Law sets:
  - a government debt target of 60 percent of GDP and
  - non-oil primary deficit target of 5 percent of GDP.
- Recommendations:
  - Align the medium-term fiscal framework with infrastructure development and maintenance needs.
  - Ease pro-cyclical fiscal policies and re-prioritize public capital expenditures toward critical infrastructure projects to support diversification without compromising debt sustainability or investor interest.

### Business environment and market regulation (Fostering a Growth Friendly Environment)
- Business Enabling Environment (BEE) assesses:
  - (i) the regulatory framework,
  - (ii) the provision of related public services affecting firms,
  - (iii) the efficiency with which the regulatory framework and public services are combined in practice.
- Key regulatory and market bottlenecks and recommended actions:
  - Business entry:
    - Burdensome rules and procedures deter startups and formalization; simplification of business licensing has begun.
    - Recommendations: continue streamlining business entry rules, offer digital services for business information and firm registration, reduce time to register a new firm.
  - Property administration and construction permits:
    - Constraints in real estate and land registration and barriers to transparent, timely construction permits hinder firm setup and expansion.
    - Recommendations: boost communication and technology use to increase property registration; improve efficiency of property and building transactions.
  - Taxes and dispute resolution:
    - Cumbersome tax rules, unclear tax system, and slow tax administration stunt business activity and engender tax evasion.
    - Recommendations: streamline and modernize tax filings and collection, enhance tax predictability, offer digital taxpayer services, improve efficiency and timeliness of dispute resolution, enforceability of contracts, and access to credible complaint mechanisms.
  - Trade restrictions:
    - Import substitution measures intended to increase food security should consider cost-push inflation effects.
    - Recommendations: reduce non-tariff trade barriers, ease business restrictions (e.g., simplify visa procedures), modernize customs management.
  - Financial openness:
    - Sound exchange rate policies and FX market efficiency attract FDI and facilitate international transactions.
    - Recommendations: eliminate exchange restrictions, improve currency convertibility, and address challenges leading to recent grey listing to avoid undue financing constraints for creditworthy firms.

### Financial intermediation and access to credit
- Credit to the private sector as a share of GDP has been below the SSA average since 2000.
- Credit-to-GDP reached 6 percent in 2023 and has been on a downward trend over the last decade, challenging private sector-led non-oil growth.
- Angola lags behind SSA peers on the IMF Financial Development Index (Financial Institutions) depth metric despite relatively stronger performance in financial access and efficiency.
- Barriers to private sector credit:
  - High informality rate, causing information asymmetries and low ability of firms to present bankable projects.
  - Limited collateral availability due to property registration challenges.
  - High inflation and elevated nominal interest rates, constraining long-term lending in kwanzas.
  - Sovereign-bank nexus: high government borrowing at high nominal rates has increased banks’ holdings of public debt, potentially crowding out private lending.
- NDP target: private credit stock of 12.5 percent of non-oil GDP by 2027 (almost double the 2023 stock).
- NDP measures to expand credit: streamline documentation for loan applications, investigate alternative collateral, increase credit risk management training, microcredit and international credit lines.
- Recommended strategies to expand credit and financial development:
  - Advance property registration efforts to enable real estate as collateral.
  - Continue refining monetary policy framework to rein in inflation and provide room to lower domestic currency lending rates.
  - Expand credit bureau coverage and enhance technological access to borrowers’ credit information.
  - Boost supervisory efforts to enhance banks’ credit risk assessment and management practices, and streamline documentation requirements for MSMEs.
- Caution: lending schemes at interest rates below market rates and/or the BNA policy rate should be avoided.

### Expected gains from a coordinated reform package (The Way Forward)
- Accelerating diversification will support growth, reduce poverty and inequality, and boost resilience to external shocks given Angola’s dependence on crude oil.
- Political and fiscal constraints (including planned 2027 presidential elections) make implementation challenging.
- A well-designed package and sequencing of reforms is essential. Bundling “first-generation reforms” (governance, market regulations, external sector policies) amplifies gains:
  - Output gains are estimated to reach 4 percent in the first two years and increase to 7.6 percent after four years when these first-order reforms are combined.
- Policy priorities:
  - Implement broad-based “first-generation reforms” to frontload output gains by eliminating restrictive market bottlenecks and structural barriers.
  - Ensure strong policy coordination and political will to balance fiscal sustainability with diversification needs.

*Source: sipea2025059 — The decline of oil revenues in 2023 underscore the critical need for economic diversification in Angola; Infrastructure development in Angola lags behind its peers thus presenting challenges to productivity and business investment.*

### 1.      The decline of oil revenues in 2023 underscore the critical need for economic

### 1.      The decline of oil revenues in 2023 underscore the critical need for economic diversification in Angola

### Macro context and recent shock
- Oil exports fell by 22 percent in 2023 due to lower oil production (prolonged maintenance at key fields) and a drop in global oil prices in the first half of the year.
- The end of a debt moratorium from bilateral creditors increased external financing needs, contributing to a weaker external and fiscal position, exchange rate depreciation, higher inflation, and slower economic growth.
- The episode underscores recurring risks from oil dependency and the urgency of diversification.

### Measured dependence on oil and spillovers
- Current economy composition:
  - 25 percent of GDP is attributable to the oil sector.
  - 60 percent of fiscal revenues are attributable to the oil sector.
  - Amongst oil exporters in sub-Saharan Africa (SSA), Angola ranks third with oil exports equal to 94 percent of total goods exports.
- Staff estimates and elasticities:
  - Using quarterly GDP growth data 2014–2024, staff estimate that 83 percent of Angola’s GDP benefits from higher oil prices.
  - Correlation between non-oil GDP growth and oil prices is 47 percent.
  - Transportation, mining, public administration, and construction have average elasticity to oil price changes of 22 percent.
  - Agricultural sector growth does not move in tandem with oil prices, highlighting its potential role in diversification.

### National Development Plan (NDP 2023–27) objectives and targets
- NDP focus areas: regional economic integration, human capital development, food security, socio-economic progress, governance reforms, infrastructure modernization, environmental preservation.
- NDP growth targets:
  - long-term annual overall GDP growth of 3.0 percent.
  - 5.0 percent annual growth in non-oil GDP.
- Emphasis on private sector-led diversification, food security, agriculture, livestock, and industry; policies include production, export diversification, import substitution, and economic stability.

### Structural obstacles to diversification
- UN report (2024) finding: with current public spending plans in the NDP, only 47 percent of the Sustainable Development Goals (SDGs) will be attained by 2030; several goals related to economic growth, industrialization, infrastructure, poverty, and financial access are “off track.”
- Four key obstacles identified:
  - (i) access to credit,
  - (ii) mismatch in workforce skills,
  - (iii) inadequate infrastructure stock,
  - (iv) challenges in the broader business environment.
- Recent surge in import substitution measures (e.g., Presidential Decree 213/23 and programs such as PRODESI and PLANAPECUARIA) poses risks: reduced access to raw materials, increased consumer prices, and heightened regulatory hurdles.
- IMF research (IMF, 2024b) notes that industrial (vertical) policies can work but the bar for success is high; broad-based (horizontal) policies—macroeconomic stability, infrastructure, human capital, competition—are crucial.

### Human capital and labor market constraints
- Employment and sectoral structure:
  - Employment remains concentrated in non-oil sectors despite oil expansion; agriculture employment has steadily increased and now represents almost half of total employment.
  - The industry sector includes mining and quarrying, manufacturing, construction, and public utilities.
- Informality and education metrics:
  - Informal sector estimated at around 80 percent (Instituto Nacional de Estatística, 2024).
  - Average years of schooling: 5.8 years.
  - Secondary school enrollment: 54 percent.
  - Less than a quarter of the population above 25 years old has completed upper secondary school.
  - World Bank Enterprise Survey (2010): 26 percent of surveyed firms identify an “inadequately educated workforce” as a severe business constraint (SSA average is 15 percent).
  - Demographics: 65 percent of the population is between the ages of 0 and 24 years old; 45 percent of the population is between the ages of 0 and 14.
- Implications: large share of under-skilled workers constrains ability to harness non-oil opportunities; resource-intensive growth has generated limited employment.

### Education and human capital policy lessons and targets
- NDP education commitments and budget:
  - 2025 General State Budget allocates 2.2 trillion Kwanzas to education-related expenditures (2 percent of GDP in 2025).
  - This allocation is a modest increase relative to 2024 but below the SSA average of 5.8 percent of GDP.
- International examples and policy lessons:
  - India: targeted tertiary education investments helped shift toward services exports, increasing services export value-added as a share of GDP by more than 20 percentage points since 1990.
  - Vietnam: TVET expansion under Doi Moi supported manufacturing export growth; manufacturing exports as a share of merchandise exports grew by 40 percentage points, reaching 86 percent from the 1990s to 2022.
  - Korea: coordination of education objectives with national development plans via inter-ministerial committees supported structural transformation.
  - Private sector coordination can improve curriculum relevance, delivery efficiency, and mobilize funding (example: Mauritius).
- Recommended human capital approaches in Angola:
  - Investigate and execute targeted policies to address skills gaps in high-priority emerging sectors, improve public investment efficiency, and develop job-relevant and innovative education curricula and vocational training aligned with private sector needs.
  - Boost coordination among government actors executing the NDP and consult private sector stakeholders to support development and delivery of human capital policies.
- Broader structural reforms:
  - “First generation reforms” (governance, business regulation, external sector reforms) raise secondary and tertiary enrollment and support human capital formation via competition, foreign firm entry, and technology adoption.

### Social infrastructure and long-run resilience
- Health and early childhood outcomes matter for long-term diversification:
  - High share of young population (45 percent aged 0–14) presents a potential demographic dividend.
  - Without policies addressing malnourishment, stunting, poor vaccine access, and inadequate water and sanitation, the productivity of the next generation could be limited.
  - NDP emphasis on human capital is positive; reallocating budget resources to social infrastructure is crucial.

### Infrastructure, total factor productivity, and diversification
- Role of public infrastructure:
  - Infrastructure investment raises output by increasing aggregate demand in the short run (fiscal multiplier and potential crowding in) and by expanding total factor productivity in the long run through a larger infrastructure stock.
  - High-quality, efficient infrastructure reduces business costs, improves movement of goods/services/labor, facilitates business operations, and, together with macroeconomic stability, enhances productivity and the ability to diversify.

*Source: sipea2025059 — The decline of oil revenues in 2023 underscore the critical need for economic diversification in Angola*

### 17.      Infrastructure development in Angola lags behind its peers thus presenting challenges

### 17.      Infrastructure development in Angola lags behind its peers thus presenting challenges to productivity and business investment

### Infrastructure access and constraints
- A large share of the Angolan population still does not have access to basic infrastructure services.
- 36 percent of firms in Angola note electricity as a severe constraint on their business operations.
- Infrastructure quality in Angola is consistently below its SSA and emerging market peers across multiple metrics.

### Public investment levels and effectiveness
- Public capital expenditure has averaged 7 percent of GDP over the last two decades, yet a significant infrastructure deficit persists.
- Public investments seem to have had a limited impact on improving coverage and quality of infrastructure.
- Improving public investment efficiency (PIE) is necessary to boost the stock and quality of infrastructure per unit of government spending.

### Public investment management (PIM) and governance
- Countries with better public investment management (PIM) tend to have greater infrastructure quality and economic growth (IMF, 2015).
- Transparent and well-governed practices in planning, allocation, and implementation of public investment projects are essential for realizing productivity enhancements and growth benefits.
- Ongoing institutional reforms under the Ministry of Planning aim to update and streamline rules for approval of public investment projects and align the public investment framework with the NDP.
- Authorities are encouraged to align reforms with recommendations from the IMF’s 2019 Public Investment Management Assessment (PIMA).
- Capacity development priorities:
  - Boost capacity in project appraisal and monitoring to minimize leakages and cost overruns.
  - Review institutional and legal frameworks for public private partnerships (PPPs) to reduce fiscal risks and increase the “payoff” of such investments.

### Macroeconomic stability and fiscal frameworks
- Strengthening macroeconomic stability is a prerequisite for advancing diversification plans; it creates fiscal space and reduces debt financing costs for infrastructure spending.
- Important policy priorities: reduce inflation, improve local currency debt markets, maintain fiscal discipline, ensure debt sustainability, and adhere to the Fiscal Sustainability Law.
- Angola’s Fiscal Sustainability Law sets a government debt target of 60 percent of GDP and non-oil primary deficit target of 5 percent of GDP.
- Recommendations:
  - Align the medium-term fiscal framework with infrastructure development and maintenance needs.
  - Ease pro-cyclical fiscal policies and re-prioritize public capital expenditures toward critical infrastructure projects to support diversification without compromising debt sustainability or investor interest.

### Business environment and market regulation (Fostering a Growth Friendly Environment)
- A favorable business environment can revitalize foreign investment and foster domestic firm growth. The Business Enabling Environment (BEE) assesses:
  - (i) the regulatory framework,
  - (ii) the provision of related public services affecting firms,
  - (iii) the efficiency with which the regulatory framework and public services are combined in practice.
- Key regulatory and market bottlenecks and recommended actions:
  - Business entry:
    - Burdensome rules and procedures deter startups and formalization; simplification of business licensing has begun.
    - Recommendations: continue streamlining business entry rules, offer digital services for business information and firm registration, reduce time to register a new firm.
  - Property administration and construction permits:
    - Constraints in real estate and land registration and barriers to transparent, timely construction permits hinder firm setup and expansion.
    - Recommendations: boost communication and technology use to increase property registration; improve efficiency of property and building transactions.
  - Taxes and dispute resolution:
    - Cumbersome tax rules, unclear tax system, and slow tax administration stunt business activity and engender tax evasion.
    - Recommendations: streamline and modernize tax filings and collection, enhance tax predictability, offer digital taxpayer services, improve efficiency and timeliness of dispute resolution, enforceability of contracts, and access to credible complaint mechanisms.
  - Trade restrictions:
    - Import substitution measures intended to increase food security should consider cost-push inflation effects.
    - Recommendations: reduce non-tariff trade barriers, ease business restrictions (e.g., simplify visa procedures), modernize customs management.
  - Financial openness:
    - Sound exchange rate policies and FX market efficiency attract FDI and facilitate international transactions.
    - Recommendations: eliminate exchange restrictions, improve currency convertibility, and address challenges leading to recent grey listing to avoid undue financing constraints for creditworthy firms.

### Financial intermediation and access to credit
- Credit to the private sector as a share of GDP has been below the SSA average since 2000.
- Credit-to-GDP reached 6 percent in 2023 and has been on a downward trend over the last decade, challenging private sector-led non-oil growth.
- Angola lags behind SSA peers on the IMF Financial Development Index (Financial Institutions) depth metric despite relatively stronger performance in financial access and efficiency.
- Barriers to private sector credit:
  - High informality rate, causing information asymmetries and low ability of firms to present bankable projects.
  - Limited collateral availability due to property registration challenges.
  - High inflation and elevated nominal interest rates, constraining long-term lending in kwanzas.
  - Sovereign-bank nexus: high government borrowing at high nominal rates has increased banks’ holdings of public debt, potentially crowding out private lending.
- NDP target: private credit stock of 12.5 percent of non-oil GDP by 2027 (almost double the 2023 stock).
- NDP measures to expand credit: streamline documentation for loan applications, investigate alternative collateral, increase credit risk management training, microcredit and international credit lines.
- Recommended strategies to expand credit and financial development:
  - Advance property registration efforts to enable real estate as collateral.
  - Continue refining monetary policy framework to rein in inflation and provide room to lower domestic currency lending rates.
  - Expand credit bureau coverage and enhance technological access to borrowers’ credit information.
  - Boost supervisory efforts to enhance banks’ credit risk assessment and management practices, and streamline documentation requirements for MSMEs.
- Caution: lending schemes at interest rates below market rates and/or the BNA policy rate should be avoided.

### Expected gains from a coordinated reform package (The Way Forward)
- Accelerating diversification will support growth, reduce poverty and inequality, and boost resilience to external shocks given Angola’s dependence on crude oil.
- Political and fiscal constraints (including planned 2027 presidential elections) make implementation challenging.
- A well-designed package and sequencing of reforms is essential. Bundling “first-generation reforms” (governance, market regulations, external sector policies) amplifies gains:
  - Output gains are estimated to reach 4 percent in the first two years and increase to 7.6 percent after four years when these first-order reforms are combined.
- Policy priorities:
  - Implement broad-based “first-generation reforms” to frontload output gains by eliminating restrictive market bottlenecks and structural barriers.
  - Ensure strong policy coordination and political will to balance fiscal sustainability with diversification needs.

*Source: IMF Selected Issues Paper — sipea2025059, "Infrastructure development in Angola lags behind its peers thus presenting challenges to productivity and business investment."*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025059.pdf_