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1Estimated and/or based on incomplete data.

Estimate based on January-June data.

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1993 1













- 1,211














1994 2













106,000 610,000























"Data for Luanda only.

See Section 2 for exchange rate info; data as of 10/25.

*Medium- and long-term debt; excludes a portion of the oil companies' debt and short-term commitments.


1. General Policy Framework

The Republic of Angola is potentially one of Africa's wealthiest countries. Relatively sparsely populated, it has large 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 May 1991, and again from November 1992 until November 1994, has wreaked havoc.

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 decisionmaking further hindered development. Of the country's productive sectors, only the oil sector, jointly run by foreign oil companies and the state oil firm Sonangol, has remained wellmanaged and prosperous. Angola currently produces over 580,000 barrels per day of crude, accounting for the majority of GDP, over 90 percent of exports, and over 80 percent of government revenues. The softening of world oil prices after the Gulf War, and especially in late 1993 and early 1994, has served to erode government export earnings at the same time production has been increasing.

Urban populations swollen by internally-displaced refugees have subsisted largely on food aid or parallel markets. The rural population often carves out a living in marginal security, surviving by subsistence farming. Administrative chaos, corruption, hyperinflation, and war have vitiated normal economic activity and attempts at reform. As a result of the near-total absence of domestic production of nonoil products, importation of food and other consumer items is lucrative enough to attract traders from abroad.

The government budget, perpetually in deficit from heavy military and other nonproductive spending, ballooned to 38 percent of GDP in 1992 and 32 percent in 1993. The deficit has been financed by increasing the money supply and resorting to expensive, oil-backed short-term lending. Shortages, price controls, hyperinflation, and erosion of confidence in the national currency encourage parallel markets and widespread dependence on barter or dollar transactions.

The signature of the Lusaka Protocol on November 20, 1994 provides a hope that Angola may finally end the destructive civil war and embark on the road to economic development. The Protocol calls for a UN-monitored cease-fire, the formation of a unified army, and the demilitarization of UNITA forces. In return, UNITA will be given representation at every level of government, from the local "commune" to the national Cabinet. Both the Angolan government and UNITA have asked for a strong UN presence to oversee the implementation of the Protocol.

The long-term effects of the war, the destruction of infrastructure, and years of economic mismanagement remain to be addressed. The end of conflict should portend economic stabilization and growth, but there appears to be little hope for an immediate "peace dividend." Reconstruction is likely to be a long and arduous process, requiring significant inflows of foreign assistance and investment.

Since 1987, the government has launched various programs aimed at privatization, liberalization, devaluation of the kwanza, and new rigor in financial management. Most of these programs have enjoyed little implementation. The government's 1994 Economic and Social Program has been favorably received by donor nations and financial institutions, but its execution remains largely undone.

The oil sector, the only functional part of the Angolan economy managed by the government and largely isolated from the civil war, has been the focus of U.S.-Angolan trade and investment. The U.S. bought about 74 percent of Angola's oil exports in the first quarter of 1994, while equipment for the sector accounts for much of U.S. sales to Angola. Given the country's huge potential, lasting peace and genuine economic liberalization could provide substantial opportunities for U.S. trade and investment in Angola, 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/$. The new kwanza (NKz) replaced the kwanza at par in September 1990, and in March 1991, the government devalued the new kwanza by 50 percent; further devaluations brought the official rate to NKz550/$ by April 1992. To narrow the gap between that and a parallel market rate several times higher, the government adopted a program of auctions in late 1992 and early 1993 that led to the devaluation of the currency to NKz7000/$. In March 1993, the government revalued the new kwanza to NKZ4000/ $, but in October devalued to NKZ6500/$.

In 1994, the government began a program of foreign exchange selling in which the Central Bank and commercial banks participate. The rate which results from

"fixing" sessions is utilized as a floating official rate. By late October 1994, that rate reached 410,000 kwanzas per dollar. The parallel rate, meanwhile, has risen to over 600,000 kwanzas per dollar. Exchange houses operate legally in Luanda and other cities. Rates close to the parallel rate can be obtained both in exchange houses and in some banks in limited amounts. The government continues to declare its intention to bridge the gap between official and parallel rates via further devaluations. 3. Structural Policies

Angola's economic policy remained in flux in 1994. The government has taken steps to reduce its role in the economy, and has reduced or eliminated subsidies and controls of some foodstuffs and other consumer products. Nevertheless, it continues to heavily subsidize fuel, public transport, electricity and other utilities, and to regulate profit margins on the sale of numerous products.

During 1994, the government has focused on bringing down inflation and taking measures to stabilize the budget deficit. While the government has publicly declared its desire for IMF balance of payments assistance, the IMF has only agreed to begin a monitoring program of Angolan performance.

4. Debt Management Policies

The government began substantial foreign borrowing only 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. Subsequently, however, large payment arrears, estimated by the IMF to be over $4.2 billion at the end of 1993, have forced major Western export credit agencies to suspend or highly restrict cover to the country.

Total foreign debt is now probably between $9 and $10 billion, and at the end of 1993 was 119 percent of GDP and 293 percent of exports, according to the IMF. 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 Angolan debt in 1990, but only about $17 million in 1993. 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.

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 defense spending since the return of hostilities in late 1992. 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.

Import licenses are now routinely granted after the fact, and are more casily obtained if no government allocation of foreign exchange is involved. Most products require import licenses, but enforcement is lax. State-owned firms in some service industries have in the recent past attempted to keep out foreign competition, sometimes with success.

Angola is "off cover" for trade finance from the Export-Import Bank of the U.S. (EXIM) because of the elevated business risk in Angola and the country's extensive outstanding arrears. It is possible, however, that EXIM will consider supporting specific projects. 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 (USDA) made $8 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 1994.

The U.S.government continues to prohibit the transfer of U.S.-origin lethal material to all entities in Angola under the "Triple Zero Clause" of the Bicesse Peace Accords and the International Traffic in Arms Regulations, and to prohibit by Executive Order, in accordance with UN sanctions enacted in September, 1993, the transfer of all defense articles and petroleum products to UNITÀ. The U.S. government has lifted the restriction on the private transfer of U.S.-origin nonlethal defense articles to the Government of Angola, with a presumption of approval of applications for export licenses for such transfers.

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. Regulations and the lack of execution of reforms continue to prohibit or

limit foreign investment in defense, banking, public telecommunications, media, energy, and transport.

6. Export Subsidies Policies

No export subsidy schemes currently exist, although among the measures proposed but not yet implemented is a foreign exchange retention scheme as an incentive for nonoil export industries.

7. Protection of U.S. Intellectual Property

The Republic of Angola joined the World Intellectual Property Organization in 1985, and acceded to the GATT in 1994. To date, Angola has not adhered to any of the principal international intellectual property rights conventions.

8. Worker Rights

a. The Right of Association.-The 1991 constitution recognizes the right of Angolans to form trade unions and to bargain collectively. The law governing unions has yet to be passed; free labor organizations cannot yet affiliate with international labor bodies. The National Union of Angolan Workers (UNTA), the former official union of the ruling MPLA, remains the principal worker organization. UNTA is affiliated with the Organization of African Trade Union Unity and the formerly communist-dominated World Federation of Trade Unions.

b. The Right to Organize and Bargain Collectively.-The constitution provides for the right to strike. Legislation passed in 1991 provides the legal framework to strike, including prohibition of lockouts, protection of nonstriking workers, and prohibition of worker occupation of places of employment. Strikes by military and police personnel, prison workers, and firemen are prohibited. The Ministry of Labor and Social Security continues to set wages and benefits on an annual basis. Salaries for public servants are set at the minister's discretion; salaries of parastatal employees are based on profits of the previous year and available loans from the Central Bank. Angola has no export processing zones.

c. Prohibition of Forced or Compulsory Labor.-New legislation is still pending which prohibits forced labor, reversing previous laws and provisions which had been cited by the International Labor Organization (ILO) for violation of Convention 105. The previous legislation permitted forced labor for breaches of discipline and participation in strikes.

d. Minimum Age of Employment of Children.-The legal minimum age for employment in Angola is 14. The Inspector General of the Ministry of Labor is responsible for enforcing labor laws. Labor Ministry registration centers screen out applicants under the age of 14. However, children at a much younger age work throughout the informal sector.

e. Acceptable Conditions of Work.-Formal wages in the state and private sector rarely surpass the equivalent of $10 per month on the parallel market; many workers earn less than $5 per month. Most workers depend on the informal sector, second jobs at night, subsistence farming, theft, corruption, or overseas remittances to maintain an acceptable standard of living. The normal workweek is 37 hours. There is no information on adequacy of work conditions or health standards, but they are in most cases assumed not to approach Western standards, given the extreme underdevelopment of the Angolan economy and lack of enforcement mechanisms.

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 enjoy the same rights as those in other sectors of the Angolan econ


Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993

[Millions of U.S. dollars]

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