1. Angola’s Economy: Past, Present and Future Ricardo Gazel, World Bank Senior Economist and Acting Country Manager Viking Club August 27, 2009

2. 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

3. I. Recent Past: High Rates of Growth 1.1 Economic Growth 1.2 Inflation 1.3External Sector 1.4Public Sector 1.5Social Gains

4. Nominal and Real Economic Growth

5. I. Recent Past: High Rates of Growth 1.1 Economic Growth 1.2 Inflation 1.3External Sector 1.4Public Sector 1.5Social Gains

6. Inflation

7. I. Recent Past: High Rates of Growth 1.1 Economic Growth 1.2 Inflation 1.3External Sector 1.4Public Sector 1.5Social Gains

8. Trade Balance – US$ billions

9. Oil Exports (Volume and Price)

10. Net International Reserves (US$ Millions)

11. External Debt including Arrears

12. External Debt / GDP

13. I. Recent Past: High Rates of Growth 1.1 Economic Growth 1.2 Inflation 1.3External Sector 1.4Public Sector 1.5Social Gains

14. Fiscal Revenues (Billions of Kwanzas)

15. Fiscal Results (Billions of Kwanzas)

16. Composition of Public Expenditures

17. I. Recent Past: High Rates of Growth 1.1 Economic Growth 1.2 Inflation 1.3External Sector 1.4Public Sector 1.5Social Gains

18. Social Gains in the Last Years Reduction of Poverty Improved Human Development Indicators Gains in the fight agains HIV/AIDS, malaria, etc.

19. 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

20. 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

21. The Mother of all Crisis Growth Rates Estimates (IMF – April 2009) 200820092010 World 3,2-1,31,9 Advanced Economies 0,9-3,80,0 USA 1,1-2,80,0 EURO Area 0,9-4,2-0,4 Emergency Markets and Developing Economies 6,11,64,0 Africa 5,22,03,9 Sub-Saharian Africa 5,51,73,8

22. Impacts in Angola Financial Market and Foreign Investment Remitances and Foreign Aid Real Economy – Prices of Primary Products

23. 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

24. Impacts in Angola Financial Market and Foreign Investment Remitances and Foreign Aid Real Economy – Prices of Primary Products

25. 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

26. Impacts in Angola Financial Market and Foreign Investment Remitances and Foreign Aid Real Economy – Prices of Primary Products

27. Real Economy Economic Growth Inflation External Sector Public Sector Risks

28. Different Estimates of GDP Real Growth Rate for 2009

29. Oil Production Million Barrels per Day OPEC Monthly Oil Market Report

30. Oil Production Million Barrels Day OPEC Monthly Oil Market Report

31. Others Sectors SectorPositiveNegative Agriculture and FishingHigh Extractive Industries Low –Oil and Gas Low –Diamants e other extractives High ManufacturingLow Construction Low Services Medium

32. Real Economy Economic Growth Inflation External Sector Public Sector Risks

33. Yearly Inflation

35. Inflation In favor of a decline: –Decline in International Prices –Domestic Economic Slowdown In favor of an increase: –Devaluation of the Kwanza –Supply Constraints

36. Real Economy Economic Growth Inflation External Sector Public Sector Risks

37. 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

39. Net International Reserves (US$ millions)

40. External Debt / GDP

41. Real Economy Economic Growth Inflation External Sector Public Sector Risks

42. Public Sector Lower Revenues Drastic Cuts in Spending How to Finance the Deficit? –High Cost, low demand for government bonds

43. Exports, Price and Oil Taxes

44. Real Economy Economic Growth Inflation External Sector Public Sector Risks

45. 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

46. Increase in Poverty Worsening of Human Development Indicators Potential increase in hunger Infant Mortality Political and Social Stress

47. 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

48. 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

49. Growth by Sector

50. Diversification Why? Where is Angola? How to Diversify? Challenges: How to surpass them

51. 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

52. Diversification Why? Where is Angola? How to Diversify? Challenges: How to surpass them

53. 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

54. Diversification Why? Where is Angola? How to Diversify? Challenges: How to surpass them

55. How to Deversify? Identification of Sector with Comparative Advantages Identification of Barriers Incentives and Reforms

56. Setores com Vantagens Comparativas Agriculture Construction: Infrastructure and housing Light Manufacturing: Plastic, agrobusiness Manufacturing: Cement, Construction materials, etc. Services in general

57. 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.

58. How to Deversify? Identification of Sector with Comparative Advantages Identification of Barriers Incentives and Reforms

59. Barriers Infrastructure: Energy and Water Labor Force Transportation Ports Low Institucional Capacity Limited Credit Limited Domestic Comsumption Markets

60. How to Deversify? Identification of Sector with Comparative Advantages Identification of Barriers Incentives and Reforms

61. Incentives –Fiscal –Credit –Joinventures –PPPs

62. Reforms –Fiscal –Labor –Regulations –Public Sector: More Efficiency

63. Diversification Why? Where is Angola? How to Diversify? Challenges: How to surpass them

64. 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

65. 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

66. 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

67. Angola in 2020 - C omposition of GDP

68. Angola 2020 How 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