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World > Africa > Angola > Economy (Notes)

Angola - Economy (Notes)


ECONOMY
Angola has a fast-growing economy largely due to a major oil boom, but it also ranks in the bottom 10% of most socioeconomic indicators. The International Monetary Fund (IMF) projects that Angola's real GDP will increase by 31.4% in 2007, although the Angolan Government in July reduced its own projection for 2007 real GDP growth to 19.8%. Aside from the oil sector and diamonds, Angola is recovering from 27 years of nearly continuous warfare, corruption, and economic mismanagement. Despite abundant natural resources, and rising per capita GDP, it was ranked 161 out of 177 countries on the 2006 UN Development Program's (UNDP) Human Development Index. Subsistence agriculture sustains one-third of the population.

By contrast, the rapidly expanding petroleum industry--now producing approximately 1.7 million barrels per day (bpd), behind only Nigeria in Africa--accounts for 51.7% of GNP, 95% of exports, and 80% of government revenues. Production is expected to reach 1.8 million barrels per day by the end of 2007. Angola also produces 40,000 bpd of locally refined oil. Oil production remains largely offshore and has few linkages with other sectors of the economy, though a local content initiative promulgated by the Angolan Government is pressuring oil companies to source from local businesses.

Block 15, located offshore of the enclave of Cabinda, currently provides 40% of Angola's crude oil production. ExxonMobil, through its subsidiary Esso, is the operator with a 40% share. In 2005, Block 15's second major sub-field, Kizomba B, came online producing at about 250,000 bpd. BP, ENI-Agip, and Statoil are partners in the concession. Chevron operates Block 0, also in offshore Cabinda, which provides one-quarter of Angola's crude oil production. Its partners in Block 0 are Sonangol (the Angolan state oil company), TotalFinaElf, and ENI-Agip. In 2006, Block 0 had a total production of 400,000 bpd, and drilling activity continues at a high level. Chevron also operates Angola's first producing deepwater section, Block 14, which started pumping in January 2000 and produced 105,000 bpd in 2006.

TotalFinaElf brought the first Kwanza Basin deepwater blocks on-line with production from its Block 17 concession that began in February 2002. Inauguration of the Dalia oilfield in December 2006 combined with the Girassol field already in operation brought Block 17's total production to approximately 500,000 bpd as of July 2007. Exploration is ongoing in ultra-deep water concessions and in deepwater and shallow concessions in the Namibe Basin. BP made the first significant ultra-deepwater find in its Block 31 concession in 2002 and had reached nine significant discoveries by the end of 2005. BP expects to ship its first crude from the Plutonio oilfied in Block 18 in September 2007 and expects Plutonio to average 200,000 bpd in full production. Marathon also drilled a successful well in its Block 32 ultra-deep water concession. TotalFinaElf operates Angola's one refinery (in Luanda) as a joint venture with Sonangol; plans for a second refinery in Lobito with projected production of 200,000 bpd are moving forward. There are plans to increase capacity of the Luanda refinery from 40,000 bpd to 100,000 bpd. Chevron, Sonangol, BP, Total, and Eni are developing a $4-5 billion liquefied natural gas plant at Soyo.

Exports to Asian countries have grown rapidly in recent years, particularly China. In late 2004, China's state oil company Sinopec bought into Block 18, securing the deal by offering a $2 billion signing bonus to Sonangol, the national oil company. Sinopec has also formed a partnership with Sonangol to operate Block 3/05 (formerly Block 3/80), whose operation was transferred from Total to Sonangol. Sonangol will seek to expand its operation of onshore and shallow water blocks. This includes the northern block of Cabinda's onshore concessions, which since the reduction in hostilities with separatist forces is now open to exploration. Sonangol and Sinopec will also be eyeing future concession rounds, particularly for 23 blocks in the Kwanza Basin onshore area and the relinquished parts of Blocks 15, 17, and 18, currently operated by Exxon, Total, and BP. During 2006, Angola was the leading source country in terms of dollar value for the crude oil China imported, importing U.S. $10.928 billion, up 16.5% year on year.

Diamonds make up most of Angola's remaining exports, with yearly production at 6 million carats. Diamond sales reached approximately $1.1 billion in 2006. Despite increased corporate ownership of diamond fields, much production is currently in the hands of small-scale prospectors, often operating illegally. Only eight formal sector mines are operating out of a total of 145 concessions. In June 2005, De Beers signed a $10 million prospecting contract with the government's diamond parastatal, ending a 4-year investment dispute between De Beers and the government. The government is making an increased effort to register and license prospectors. Legal sales of rough diamonds may occur only through the government's diamond-buying parastatal, although many producers continue to bypass the system to obtain higher prices. The government has established an export certification scheme consistent with the 'Kimberley Process' to identify legitimate production and sales. Other mineral resources, including gold, remain largely undeveloped, though granite and marble quarrying have begun.

In the last decade of the colonial period, Angola was a major African agricultural exporter. Because of severe wartime conditions, including extensive laying of landmines throughout the countryside, agricultural activities were brought to a near standstill, and the country now imports about half of its food. Small-scale agricultural production has increased dramatically over the last 3 years as internally displaced persons (IDPs) are returning to the land. Some efforts at commercial agricultural recovery have gone forward, notably in fisheries and tropical fruits, but most of the country's vast potential remains untapped. Coffee production, though a fraction of its pre-1975 level, is sufficient for domestic needs and some exports. Recently passed land reform laws will attempt to reconcile overlapping traditional land use rights, colonial-era land claims, and recent land grants to facilitate significant commercial agricultural development.

An economic reform effort launched in 1998 was only marginally successful in addressing persistent fiscal mismanagement and corruption. In April 2000, Angola started an IMF staff-monitored program (SMP). The program lapsed in June 2001 over IMF concerns about lack of adequate Angolan progress. Under the program, the Government of Angola did succeed in unifying exchange rates and moving fuel, electricity, and water prices closer to market rates. In March 2007, the government announced it was not interested in a formally-structured IMF program, but would continue to participate in Article IV consultations and other technical assistance on an ad hoc basis.

In December 2002 President dos Santos named a new economic team to oversee homegrown reform efforts. The new team succeeded in decreasing overall government spending, rationalizing the Kwanza exchange rate, closing regulatory loopholes allowing off-budget expenditures, and capturing all revenues in the state budget. New procedures were implemented to track the flow of funds between the Treasury, Banco Nacional de Angola (the central bank), and the state-owned Banco de Poupanca e Credito, which operates the budget. The Angolan Government adopted a new investment code. Concerns remain about quasi-fiscal operations by the state oil company Sonangol, continued oil-backed commercial borrowing by the Angolan Government, and inadequate transparency and oversight in the management of public accounts. The Angolan commercial code, financial sector law, and telecommunications law all require substantial revision.

Angola is the second-largest trading partner of the United States in sub-Saharan Africa, largely because of its petroleum exports. U.S. exports to Angola primarily consist of industrial goods and services--such as oilfield equipment, mining equipment, chemicals, aircraft, and food. On December 30, 2003, President Bush approved the designation of Angola as eligible for tariff preferences under the African Growth and Opportunity Act (AGOA).


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