Angola Business Forecast Report

Economic Outlook Brightening The outlook for growth in Angola has improved markedly in recent months. The country's key export, oil, has been trading higher and foreign investment has picked up, in tandem with the tentative recovery of the global economy. However, this is not enough to allow Angola to escape a recession in 2009, in our view, and we expect the economy to contract by 0.8% in real terms, before enjoying a strong 'V-shaped' recovery to real GDP growth of 7.4% in 2010. On the political front, the presidential election is currently the leading issue. Originally scheduled to take place in September 2009, it has been repeatedly postponed, stoking criticism that incumbent President Eduardo Dos Santos is seeking to extend his decades-long rule.

Political risk is ticking up in Angola. Although the environment has been relatively calm since the end of the civil war, there are tentative signs that social tensions are rising, manifested in growing crime and public protests over poor housing. We see scope for further unrest taking place in the months to come, and believe that the African Cup of Nations 2010 football tournament - which Angola is hosting - could prove a flashpoint for confrontation. Meanwhile, question marks are forming over Angola's commitment to follow widely accepted democratic norms, due to the ongoing delay of the presidential election - which, if held, will be the first to be conducted successfully since 1992.

Although we expect Angola to experience a mild recession in 2009, it will not necessarily feel like a recession 'on the ground' since private consumption and investment are broadly holding up.

Instead, the pain will be concentrated in the oil sector, with production expected to fall by 4.3% year-on-year (y-o-y) in 2009 to an average 1.8mn barrels per day. Since our last quarterly Angola Business Forecast Report, the outlook has improved for the Angolan kwanza. While previously we expected a further devaluation to AOA80.00/US$ by end-09, we now believe the current AOA77.40/US$ will hold over the medium term, as oil prices have firmed and foreign investment is in the recovery mode.

Angola is a difficult place to do business, with corruption and bureaucracy posing considerable challenges for foreign businesses operating in the country. Nevertheless, the vast natural resource wealth continues to attract strong foreign interest. China has dominated the picture so far, but Russia and the US are becoming increasingly active in Angola, as signalled by recent visits from Russian President Dmitry Medvedev and US Secretary of State Hillary Clinton. Looking ahead, we expect foreign investors to become increasingly interested in Angola if transparency is improved - a development which looks likely given a recent rapprochement with the IMF.