Economic Diversification Progress

Economic Diversification Progress

Angola’s economic diversification is simultaneously the country’s most significant achievement and its most pressing unfinished agenda. Non-oil sectors now account for more than 70% of GDP, a structural shift from the mid-2000s when oil dominated output. Yet this headline progress obscures a fundamental reality: oil still generates over 90% of export earnings and 50-60% of government revenue, leaving Angola acutely vulnerable to commodity price shocks.

The Diversification Scorecard

Government Strategy: PRODESI and Beyond

The government’s primary diversification vehicle is PRODESI (Programa de Apoio a Producao, Diversificacao das Exportacoes e Substituicao das Importacoes), which targets:

• Agriculture: Expanding commercial production of cassava, maize, soybeans, rice, coffee, and livestock to reduce food import dependency (currently ~80%)
• Fisheries: Developing Angola’s Atlantic coast fisheries for domestic consumption and export
• Manufacturing: Import substitution in beverages, cement, steel, packaging, and food processing
• Mining: Expanding diamond production and developing iron ore, phosphate, and other mineral resources
• Tourism: Leveraging Angola’s 1,650 km coastline, national parks, and cultural heritage

Where Diversification Is Working

Services sector growth: The services sector (41.1% of GDP) has expanded consistently, driven by telecommunications, retail, financial services, and logistics. Mobile money and digital platforms are creating new economic activity outside the oil economy.

VAT revenue broadening: The introduction of VAT in 2019 has been the most tangible fiscal diversification success, progressively widening the non-oil tax base and reducing the budget’s oil dependency from approximately 75% to 50-60%.

Construction recovery: Non-oil construction activity has recovered from the 2016-2020 collapse, driven by public infrastructure projects and private real estate development in Luanda.

Where Diversification Is Lagging

Export concentration: This is the most critical failure point. Non-oil exports remain negligible – Angola cannot sustain FX reserves, service external debt, or maintain the kwanza without oil export earnings. Until non-oil exports reach meaningful scale ($5B+ annually), diversification remains incomplete.

Agricultural productivity: Despite employing the majority of the rural labor force, agriculture (22.1% of GDP) operates far below potential. Yields per hectare are among the lowest in Africa, constrained by poor infrastructure, limited mechanization, inadequate credit access, and the legacy of landmine contamination from the civil war.

Manufacturing base: Angola’s manufacturing sector remains tiny, limited to beverages (Cuca beer, Coca-Cola bottling), cement (Secil, Cimangola), and basic food processing. High energy costs, port inefficiencies, and a challenging business environment discourage investment in export-oriented manufacturing.

Human capital: Youth unemployment above 40% reflects a skills mismatch between the labor force (median age 16.7) and the requirements of a diversifying economy. Education system reform is essential but operates on generational timescales.

The Dutch Disease Legacy

Angola’s diversification challenge is a textbook case of Dutch Disease: decades of oil wealth appreciated the real exchange rate, raised domestic costs, made non-oil sectors uncompetitive, and concentrated economic talent in the extractive sector. Reversing this requires sustained, multi-dimensional reform across:

• Monetary policy (competitive exchange rate without inflationary excess)
• Fiscal policy (investment in infrastructure and education over consumption)
• Financial sector (credit allocation to productive non-oil sectors)
• Trade policy (export incentives, SEZ development, logistics reform)
• FDI attraction (non-oil sector investment promotion through AIPEX)

Outlook

Diversification is a multi-decade project. The progress on GDP composition is real but insufficient – the transformation must extend to exports and fiscal revenue to be considered successful. The next five years will be pivotal: if Angola can build non-oil export capacity in agriculture, fisheries, mining, and manufacturing while maintaining fiscal discipline and debt sustainability, it can establish a virtuous cycle. Failure to diversify exports will leave the economy perpetually vulnerable to the next oil price shock.