2009 Index of Economic Freedom

Quick Facts

Population:

• 16.6 million

GDP (PPP):

• $73.4 billion
• 18.6% growth
• 13.5% 5-year compound annual growth
• $4435 per capita

Unemployment:

• 27.1%

Inflation (CPI):

• 12.2%

FDI Inflow:

• $-1100.0 million

Angola's economic freedom score is 47, making its economy the 162nd freest in the 2009 Index. Its overall score remains almost the same as last year. Angola is ranked 39th out of 46 countries in the Sub-Saharan Africa region.

Despite war-devastated infrastructure and a fledgling government, Angola has been able to attain a moderate degree of economic freedom in a few areas. A relatively low individual income tax rate and tax burden lead to a fairly high fiscal freedom score, and there has been noticeable progress in liberalizing the trade regime, although the presence of non-tariff barriers remains considerable.

Angola receives low scores for most indicators. The transparency of the government's fiscal accounts needs to be strengthened. Inflation is high, regulation chokes business, corruption is crippling, and political influence mars the judiciary. Commercial regulations are a severe hindrance to opening and closing a business. Inconsistent and confusing regulations make it costly and difficult for ordinary people to engage in more dynamic entrepreneurial activity.

Background Back to the top

Despite extensive oil and gas resources, diamonds, hydroelectric potential, and rich agricultural land, many Angolans remain poor, with a third of the population relying on subsistence agriculture. High international oil prices and rising oil production have led to strong economic growth in recent years, but the economy is rife with corruption and public-sector mismanagement, particularly in the oil sector, which accounts for over 50 percent of GDP, 95 percent of exports, and 80 percent of government revenue. Since 2002, when a 27-year civil war ended, the government has focused on repairing and improving ravaged infrastructure and weakened political and social institutions. Political power is concentrated in the presidency, and President José Eduardo dos Santos has ruled since 1979.

Business Freedom 43.6 Back to the top

The overall freedom to start, operate, and close a business is constrained by Angola's regulatory environment. Starting a business takes an average of 68 days, compared to the world average of 38 days. Obtaining a business license requires more than the global average of 18 procedures and 225 days.

Trade Freedom 72.0 Back to the top

Angola's weighted average tariff rate was 6.5 percent in 2006. Despite progress in reforming the trade regime, various subsidies, import restrictions, variable and high import taxes, inadequate customs capacity, prohibitive regulations and standards, non-transparent government procurement procedures, import substitution policies, and issues involving the enforcement and protection of intellectual property rights still add to the cost of trade. Fifteen points were deducted from Angola's trade freedom score to account for these non-tariff barriers.

Fiscal Freedom 85.2 Back to the top

Angola has a low income tax rate but a burdensome corporate tax rate. The top income tax rate is 15 percent, and the top corporate tax rate is 35 percent. Other taxes include a fuel tax and a consumption tax. In the most recent year, overall tax revenue as a percentage of GDP was 5.7 percent.

Government Size 62.2 Back to the top

Total government expenditures, including consumption and transfer payments, are high. In the most recent year, government spending equaled 35.5 percent of GDP. The government needs to strengthen the transparency of its fiscal accounts, improve budgetary management, and continue to promote private-sector development.

Monetary Freedom61.8 Back to the top

Inflation, though still high at an average rate of 13.5 percent between 2005 and 2007, has been decreasing, primarily because of a vigorous anti-inflation campaign. Increased oil revenues have helped to stabilize the nominal exchange rate, which, along with increasing dollarization, has contributed to price stability. Privatization has progressed, but key sectors remain government-owned, and price controls are pervasive in many sectors, including fuel and electricity. Fifteen points were deducted from Angola's monetary freedom score to adjust for price-control measures.

Investment Freedom20.0 Back to the top

Angola's Law on Private Investment (LPI) provides equal treatment to foreign investors, but investment in certain sectors is subject to specific legislation and decrees, and ministry regulations can take precedence over the LPI. The regulatory system is non-transparent, lacks capacity, and is subject to corruption. There are few specific performance requirements on foreign investments, but the "Angolanization" of companies and greater use of Angolan suppliers are encouraged. Reform measures have improved local access to foreign exchange, and Investment Law 11/03 guarantees the repatriation of profits for officially approved foreign investment, subject to some restrictions. All land is ultimately under state ownership but can be leased to private entities. Direct expropriation of foreign investors' assets is unlikely, but changes in legislation and enforcement of existing laws can be subject to interpretation.

Financial Freedom40.0 Back to the top

Angola's small financial system has grown rapidly over the past five years. Liberalization and privatization of the previously state-controlled system has been in progress. The banking system is relatively well capitalized, in part due to foreign banks, which have driven banking-sector growth. As of mid-2008, there were 18 commercial banks. Private-sector development has long been dampened by the lack of bank credit or long-term loans available to the private sector, but the granting of credit to the private sector has sharply increased in recent years. In December 2006, Angola inaugurated a new development bank aimed at infrastructure development and private-sector credits. The government has been liberalizing banking and insurance, but financial governance remains poor. The state remains involved in the insurance sector. A stock exchange was formally constituted in 2006 and is expected to become fully operational in the coming years.

Property Rights20.0 Back to the top

The rule of law cannot be guaranteed by Angola's legal system, which is inefficient, corrupt, and subject to executive influence. Statutes are weak, and the judicial system does not handle commercial disputes efficiently. Legal fees are high, and most businesses avoid taking disputes to court.

Freedom From Corruption22.0 Back to the top

Corruption is perceived as pervasive, especially among government officials at all levels in this oil-rich nation, and blights all other economic freedoms. Angola ranks 147th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007.

Labor Freedom43.5 Back to the top

Angola's restrictive labor regulations hinder employment opportunities and productivity growth. The non-salary cost of employing a worker is low, but dismissing a redundant employee is relatively costly. The high cost of laying off workers creates a disincentive for companies that would otherwise hire more people.