U.S. State Department Geographic Bureaus: Africa Bureau

U.S. DEPARTMENT OF STATE
ANGOLA: 1995 COUNTRY REPORTS ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS
RELEASED MAY 1996

                             ANGOLA

                    Key Economic Indicators

       (Millions of U.S. dollars unless otherwise noted)

                                    1993    1994      1995
Income, Production and Employment

Nominal GDP                      7,218     7,920       N/A
Real GDP Growth (percent)          -23         9.7     N/A
GDP by Sector:
  Agriculture and Fisheries         19.7      12.0     N/A
  Extractive                     3,540    50,900       N/A
    Oil and LPG                  3,440    49,900       N/A
    Diamonds                       100     1,000       N/A
  Manufacturing                      4.6       3.4     N/A
  Construction                       1.9       1.6     N/A
  Services                          19.7      18.3     N/A
  Trade                             13.6      10.1     N/A
  Transport/Communications           2.9       2.2     N/A
  Import Duties                      2.1       1.5     N/A
  Net Exports of Goods
    and Services                  -636      -980       N/A
Nominal GDP Per Capita (US$)       756       810       N/A
Population (000s)                9,545     9,780    10,070

Money and Prices

Money Supply (M2)                  359       336       253  1/
Base Interest Rate 2/               16        16       120
Retail Inflation Rate (Luanda)   1,840       972       444  3/
Consumer Price Index (Luanda)   31,834   341,218 1,855,500  3/
Exchange Rate (NKZ/US$) (end-of-period)
  Official-Primary               6,500   493,484     5,920  4/
  Parallel                     106,000   996,129    10,000  4/
  Informal                         N/A       N/A    14,000  4/

Balance of Payments and Trade
Total Exports FOB                2,901     3,001       N/A
  Exports to U.S.                2,090     2,061       488.7
1/
Total Imports CIF                1,463     1,633       N/A
  Imports from U.S. FAS            168       197        40.6
1/
AID from U.S.                       56        87        93
AID from other countries           160       163       100  5/
External Public Debt 6/          9,927    11,050       N/A
Debt Service Payments (paid)       583       N/A       N/A
Debt Rescheduled                    46       161       N/A
Foreign Exchange Reserves          206       192       180  1/
Trade Balance                    1,438     1,368       N/A
  Balance with U.S.              1,921     1,864       448  1/

1/ January to March 1995.
2/  Active operations: 180-360 day credit.
3/  January to August 1995.
4/ KZR rate on November 15, 1995.  The KZR replaced the NKZ in
  July 1995 dropping three 0's from values expressed in NKZ.



                           Angola -   2

5/  January to October 20, 1995.
6/ Long, medium, and short term debt plus arrears.


1.  General Policy Framework

    The Republic of Angola is potentially one of Africa's
wealthiest countries.  Relatively sparsely populated, it has
great hydrocarbon and mineral resources, huge hydroelectric
potential, and ample arable land.  Civil war between the
Government of Angola and the National Union for the Total
Independence of Angola (UNITA) from 1975 until November 1994
wreaked havoc and prevented the country from realizing its
economic potential.  In addition to extreme disruptions caused
by conflict, a severe lack of managerial and technical talent
has hampered economic performance.  Misguided and ineffective
attempts at socialist economic planning and centralized
decision-making further hindered development.  Administrative
chaos, corruption, and hyperinflation have vitiated normal
economic activity and attempts at reform.  Urban populations
swollen by internally-displaced persons have subsisted largely
on humanitarian food aid or parallel market activity.  The
rural population carves out a living in marginal security,
surviving by subsistence farming.  As a result of the near
total absence of domestic production outside the oil sector
most food and other consumer items are imported.  Of the
country's productive sectors, only the oil sector, jointly run
by foreign oil companies and the state oil firm Sonangol, has
remained well-managed and prosperous.  Angola currently
produces about 660,000 barrels per day of crude, accounting
for the majority of GDP, over 90 percent of exports, and
nearly 90 percent of government revenues.

    The signing of the Lusaka Protocol peace accord in
November 1994 provides hope for economic recovery.  The
Protocol provides for a ceasefire, the creation of unified
armed forces, and a government of national reconciliation. 
The peace process is being implemented under the supervision
of a United Nations Peacekeeping Mission with the assistance
of three observer nations, the United States, Portugal, and
Russia.  The long-term effects of the war, the destruction of
infrastructure, and years of economic mismanagement remain to
be addressed.  The end of the conflict should portend economic
stabilization and growth, with some "peace dividend." 
Nevertheless, reconstruction is likely to be a long and
arduous process.  Considerable expense will be required for
the creation of the unified army, reintegration into civilian
society of demobilized soldiers, disarmament, de-mining,
reconstruction of roads and other infrastructure, resettlement
of dislocated populations, and rehabilitation of essential
services.

    Beginning in 1987, the government has launched various
programs aimed at privatization, liberalization, devaluation










                           Angola -   3

of the Kwanza, and new rigor in financial management.  Most of
these programs have enjoyed little success in implementation. 
A poorly thought-out liberalization of the diamond-mining
industry resulted in official diamond exports declining from
$286 million in 1992 to $31 million in 1993.  Official diamond
exports climbed back to about $75 million in 1995, but the
major part of the estimated $800-900 million production of
diamonds left the country through unofficial channels.  The
government's 1994 and 1995 Economic and Social Programs have
been favorably received by donor nations and financial
institutions, but their execution remains disappointing. 
Angola is a contracting party to the GATT and is seeking
accession to the WTO.

    The government budget, perpetually in deficit from heavy
military expenditures, price controls, and other
non-productive spending, ballooned to 38 percent of GDP in
1992 and 32 percent of GDP in 1993.  The budget remained at 34
percent of GDP and the deficit alone reached 22 percent of GDP
in 1994.  The deficit has been financed by increasing the
money supply and resorting to very expensive, oil-backed,
short-term lending from commercial banks.  Shortages, price
controls, hyperinflation, and continuing erosion of confidence
in the national currency encourage parallel market activity
and widespread dependence on barter or dollar transactions.

    The oil sector, the only functional part of the Angolan
economy managed by the government and largely isolated from
the civil war because of off-shore production, has been the
focus of U.S.-Angolan trade and investment.  The U.S. buys
about 75 percent of Angola's petroleum exports (accounting for
7 percent of U.S. petroleum imports) and equipment for the oil
sector accounts for much of U.S. sales to Angola.  Angola is
the United States' third largest trading partner in
Sub-Saharan Africa.  Given the country's huge potential,
lasting peace and genuine economic liberalization could
provide substantial opportunities for U.S. trade and
investment, particularly in communications, energy, and
transportation sectors.


2.  Exchange Rate Policy

    From 1978 to September 1990, the government maintained the
official exchange rate for the Kwanza, a non-convertible
currency, at 29 Kwanzas to the dollar.  The New Kwanza (NKZ)
replaced the Kwanza at par in September 1990 and was gradually
devalued to NKZ 550 to the dollar by April 1992.  To narrow
the gap between the official rate and a parallel market rate
still several times higher, the government adopted a program
of auctions in late 1992 and early 1993 that led to the
further devaluation of the currency to NKZ 7,000 to the
dollar.  In 1994, the government began a program of foreign
exchange selling at "fixing" sessions in which the central 










                           Angola -   4

bank and commercial banks participate.  The "official-primary"
rate which results is used for interbank operations.  A
slightly higher "official-secondary" rate is earmarked for
transactions between commercial banks and the public, but in
general this rate is available only to people with privileged
access to government officials.  By early 1995, the official
rate reached NKZ 500,000 to the dollar.  Meanwhile, the
parallel market rate rose to over NKZ 1,500,000 to the dollar.

    In late May 1995 the government moved the official
exchange rate to within 95 percent of the parallel market rate
at NKZ 2,200,000 to the dollar, and in July 1995 the
Readjusted Kwanza (KZR) replaced the New Kwanza dropping three
zero's from the prices, wages, accounts, and notes denominated
in New Kwanza.  Exchange rates thus changed from approximately
NKZ 2,200,000 to the dollar to KZR 2,200 to the dollar.  Due
to continued hyperinflation the parallel exchange rate rose to
over KZR 10,000 to the dollar by November, while the official
rate remained at KZR 5,920.  Foreign exchange can be obtained
at the parallel rate from commercial banks and licensed
exchange houses.  Rates up to 40 percent higher than the
parallel rate can be obtained in the widespread informal
market.  The government continues to declare its intention to
bridge the gap between official and parallel rates through
further devaluations.


3.  Structural Policies

    Angola's economic potential remained in flux in 1995. 
Consolidation of the peace process and rising oil revenues are
giving the government the chance to change its priorities from
the civil war to social and economic reforms.  During 1995 the
government continued to focus on bringing down inflation and
taking measures to stabilize the budget deficit.  It also
continued to make the same commitments for economic reform
that it periodically has made since 1986: to converge official
and parallel currency rates; make transparent the transactions
which take place between parastatal oil company Sonangol, the
Ministry of Finance, and the National Bank of Angola; phase
out subsidies on petroleum products and other goods; and have
the national bank cease credit operations and become a true
central bank.

    The government continued to take steps to reduce its role
in the economy in 1995 and did reduce massive subsidies on
fuels.  However, after the threat of a general strike in
September the government reintroduced subsidies and price
controls on 15 essential foodstuffs and consumer products.  It
also continues to subsidize heavily public transport,
electricity and other utilities, and to regulate profit
margins on the sale of numerous products.  While the
government has publicly declared its desire for IMF balance of
payments assistance, in December 1995 the IMF cancelled a
monitoring program because of Angolan non-performance.









                           Angola -   5

4.  Debt Management Policies

    The government began substantial foreign borrowing in the
early 1980's, principally to finance large oil sector
investments.  Prior to the 1986 slump in international oil
prices, the government scrupulously met its foreign debt
commitments, even those contracted prior to independence. 
However, subsequent large payment arrears have forced major
western export credit agencies to suspend or highly restrict
cover to the country.  The government continues to finance
part of its fiscal deficit through oil-backed, short-term
commercial borrowings, but pays interest rates up to three
times normal rates for such financing.

    Total foreign debt is estimated at over $10 billion,
significantly higher than GDP and more than three times annual
exports.  Debt arrears are estimated at over $4.2 billion of
which a little over $1 billion were accumulated in 1994 alone;
$1.3 billion is owed to Paris Club creditors.  Approximately
half of the debt is owed to the former Soviet Union and its
former satellites for military purchases between 1975 and
1991.  In 1989, Angola joined the IMF and the World Bank, and
was able to secure the rescheduling of over $1.8 billion in
Paris Club and other debt.  Creditors rescheduled $669 million
of Angola's debt in 1990, but only about $40 million in each
of 1991, 1992, and 1993, and another $161 million in 1994. 
The government has admitted that it will be unable to lighten
its debt burden further failing an agreement with the IMF on
structural adjustment of the economy.  The lack of adequate
information about petroleum-backed borrowing continues to be
an obstacle to further discussions on renegotiating Paris Club
debt.


5.  Significant Barriers to U.S. Exports

    Since the sharp decline of its coffee and diamond sectors,
Angola's ability to import has depended entirely on oil
earnings and has been severely constrained by the diversion of
resources to military spending.  The lack of customers with
access to foreign exchange, together with Angola's poor
international financial reputation, presents sizable
challenges for U.S. suppliers of goods and services.

    All imports are subject to licensing.  In October 1995,
the government announced that import licenses would no longer
routinely be granted after the fact.  All imported merchandise
worth $5,000 or more -- whether paid for in foreign currency
or not -- must now be inspected by Societe Generale de
Surveillance (SGS) before the goods can be offloaded in
Angola.  Import licenses are granted only to registered
enterprises of proven technical, commercial, and financial
capacity, are issued on the basis of a foreign exchange
allocation and are restricted to imports of goods for which 










                           Angola -   6

the enterprise is registered.  To obtain a license,
enterprises must present offers of three foreign suppliers to
the sectoral ministries and to the Ministry of Commerce.  The
approved offer may be considered for an import license
application which, in turn, must be approved by the same
ministries.  Export of certain goods are prohibited and
special export regimes apply to several others.  Re-exports of
goods other than capital goods and personal belongings are
also prohibited.  Restrictions apply to the exportation of
products that are in short domestic supply.  All other exports
are subject to prior licensing.

    State-owned firms in some service industries have in the
recent past attempted to keep out foreign competition,
sometimes with success.  Foreign investment regulations
enacted since the late 1980's have aimed at opening more
sectors to foreign investment and at simplifying the process
for potential investors.  However, under the Foreign
Investment Law of September 1994, foreign investment is still
prohibited or limited in defense, law and order, banking,
public telecommunications, energy, media, education, health,
and transport.  Direct investments in the oil sector are
encouraged.  All capital transfers are subject to licensing
and control.  Dividends and capital may be repatriated upon
liquidation with the prior approval of the Ministry of Finance.

    Angola is "off cover" for trade finance from the
Export-Import Bank of the U.S. (Ex-Im) because of the
country's outstanding arrears of about $16 million and the
elevated business risk in Angola.  However, specific projects
in the oil sector in Cabinda will be considered on a
project-by-project basis by Ex-Im for support.  The Overseas
Private Investment Corporation (OPIC) signed an investment
incentive agreement with Angola in 1994.  OPIC lists Angola
among the countries where its investment finance and insurance
programs are generally available.  The U.S. Department of
Agriculture made $12 million in agricultural export loan
guarantees available to Angola for the purchase of U.S.
agricultural products under the P.L. 480 Title I Program in
1995.

    The U.S. government continues to prohibit the transfer of
U.S.-origin lethal material to all entities in Angola, and to
prohibit by executive order the transfer of all defense
articles and petroleum products to UNITA.  The U.S. has lifted
the restriction on the private transfer of U.S.-origin
non-lethal defense articles to the Government of Angola, with
a presumption of approval of applications for export licenses
for such transfers.


6.  Export Subsidies Policies

    No export subsidy schemes currently exist.










                           Angola -   7

7.  Protection of U.S. Intellectual Property

    Legislation passed in 1992 provides for patents,
trademarks, and copyrights, but the government does not have
the resources to enforce these laws.  The small-scale sale of
counterfeited and pirated consumer goods does not
significantly impact on U.S. trade.  The Republic of Angola
joined the World Intellectual Property Organization in 1985.


8.  Worker Rights

    a. The Right of Association:  The constitution provides
for the right to form and join trade unions, but the
government does not respect this right in practice.  The law
requires labor unions to be recognized by the government. 
Government dominates the labor movement through the National
Union of Angolan Workers (UNTA), the labor organ of the ruling
MPLA.  Restrictions on civil liberties effectively restrict
labor activity against the will of the government.

    b. The Right to Organize and Bargain Collectively:  The
constitution provides workers the right to organize and to
strike, and the law provides for collective bargaining, but
the government does not respect these rights in practice. 
Despite stated commitments to decentralization and
privatization the government continues to dominate the economy
through state-run enterprises.  The Ministry of Public
Administration, Employment and Social Security sets wages and
benefits.  Salaries for public servants are set at the
Minister's discretion.  Salaries of parastatal employees are
based on profits of the previous year and loans available from
the central bank.  The law prohibits lockouts and worker
occupation of places of employment and provides protection for
nonstriking workers.  It prohibits strikes by military and
police personnel, prison workers, and firemen.  The law does
not effectively prohibit retribution against strikers.

    c. Prohibition of Forced or Compulsory Labor:  Current law
authorizing forced labor for breaches of worker discipline and
participation in strikes has been cited by the ILO as a
violation of Convention 105.  The government indicated in 1993
that it planned to introduce legislation that would prohibit
forced labor, but it had not done so by November 1995.

    d. Minimum Age for Employment of Children:  The legal
minimum age for employment is 14.  However, many younger
children work on family farms, as domestic servants and in the
informal economy.  Thousands more young children have been
conscripted into the Angolan Armed Forces and UNITA's
guerrilla army.

    e. Acceptable Conditions of Work:  The minimum wage is
equivalent to less than $1.00 per month and the average salary










                           Angola -   8

is the equivalent of approximately $6.00 per month.  As a
result, many wage-earners depend on the thriving informal
sector, subsistence farming, theft, corruption, or support
from relatives abroad in order to survive.  A 1994 government
decree established a 37-hour workweek.  However, inadequate
resources prevented the government from enforcing this
standard and other occupational health and safety standards. 
Workers cannot remove themselves from dangerous work
situations without jeopardy to continued employment.

    f. Rights in Sectors with U.S. Investment:  U.S.
investment in Angola is concentrated in the petroleum sector. 
Workers in the oil sector earn salaries far greater than those
in almost every other sector of the Angolan economy.  Workers
in the petroleum sector have the same limitations on the
rights of association, organization, and collective bargaining
as workers in other sectors of the economy.  The petroleum
industry does not employ under-age children.


Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1994

                   (Millions of U.S. dollars)
                                                               
              Category                         Amount          

Petroleum                                               (1)
Total Manufacturing                                      0 
  Food & Kindred Products                     0 
  Chemicals and Allied Products               0 
  Metals, Primary & Fabricated                0 
  Machinery, except Electrical                0 
  Electric & Electronic Equipment             0 
  Transportation Equipment                    0 
  Other Manufacturing                         0 
Wholesale Trade                                          0 
Banking                                                  0 
Finance/Insurance/Real Estate                           (1)
Services                                                (2)
Other Industries                                         0 
TOTAL ALL INDUSTRIES                                    576    

(1) Suppressed to avoid disclosing data of individual
companies.
(2) Indicates a value between $-500,000 and $500,000.
Source: U.S. Department of Commerce, Bureau of Economic
Analysis



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