Angola’s finance minister, Vera Daves de Sousa, has indicated that the removal of fuel subsidies may proceed at a slower pace. This decision comes in the wake of demonstrations that erupted when petrol prices nearly doubled, resulting in the loss of at least five lives. Daves de Sousa revealed in an interview on the sidelines of the International Monetary Fund and World Bank’s Annual Meetings that internal discussions are ongoing regarding the potential extension of the end-2025 deadline for phasing out these subsidies.
Governments throughout Africa are grappling with the daunting task of dismantling costly fuel subsidies, driven by soaring debt costs and high pump prices. However, these moves have met with resistance and sparked discontent in various nations, including Senegal and Nigeria.
Daves de Sousa emphasised, “We are learning the lessons from the first movement in fuel prices, where society reacted with shock.” In 2022, Angola allocated a substantial 1.9 trillion kwanza (equivalent to $2.3 billion) toward fuel subsidies, surpassing 40% of the IMF’s estimated expenditure on social programs.
The economic outlook for Angola remains challenging, with expected growth of just 1.09% for the current year—a significant drop from the 3.3% forecast in the 2023 budget. This decline is primarily attributed to dwindling oil production, which has caused the oil sector to contract. Projections for 2024 indicate a modest growth forecast of 1.5%.
The 2023 budget, initially formulated with an assumption of 1.1 million barrels per day in oil production, is currently averaging between 1 and 1.1 million barrels per day. Daves de Sousa anticipates that the assumption for the 2024 budget will be even more conservative.
To reduce its dependency on oil, Angola has set ambitious goals for diversifying its economy. The Minister of Economy and Planning, Mario Caetano Joao, aims to increase agriculture and agribusiness’ contribution to GDP from 8% to 14% by the end of 2027 and further to 19% by 2050. Additionally, the government seeks to lower oil’s share of GDP from approximately a quarter to 20% by the close of 2027 and ultimately to 10% by 2050, anticipating a decrease in oil output to 500,000 barrels per day.
Stabilizing oil production holds the key to improving Angola’s debt position. Approximately 20% of its debt is collateralized, with Chinese lenders accounting for around 80% of this portion. However, tapping into international capital markets is not on the immediate horizon, as most of Angola’s overseas dollar bonds currently yield over 13%. Daves de Sousa acknowledges that a more comfortable yield would be between 5 and 6%, but acknowledges the distance from this goal.
Regarding the privatization of state-oil firm Sonangol, Daves de Sousa cited ongoing corruption-related lawsuits aimed at asset recovery as a factor contributing to delays. The new target is to sell less than half of the company by 2025.
Angola faces multifaceted economic challenges and a delicate balancing act as it seeks to reform its subsidy system, diversify its economy, and stabilize oil production in the coming years. The nation’s decisions will undoubtedly have far-reaching implications, not only for its own citizens but also for international investors and observers closely monitoring Africa’s evolving economic landscape.
