Since its devastating civil war ended in 2002, Angola’s economy has made remarkable progress. Ten years ago, the south-west African country had a GDP of less than $10bn, according to the World Bank. Today, that figure stands at $110bn, making it the third largest economy in sub-Saharan Africa, after South Africa and Nigeria. And this figure is still rising quickly, thanks to GDP growth that is expected to remain between 6% and 8% over the next two years.

Angola has oil to thank for this growth. Production of its vast offshore reserves increased at an average of almost 9% between 2000 and 2012. As of August 2012, the country was pumping 1.75 million barrels per day (bpd), more than any other African country except Nigeria. Almost 40% of its crude exports goes to China, while about 15% is shipped to the US.

Fuelling the economy

Oil dominates the Angolan economy to a greater extent than anywhere else in Africa. It accounts for about 45% of GDP, 75% of government revenues and 90% of export earnings. The country’s vulnerability to the whims of the oil market was clearly demonstrated during the global crisis of 2008 and 2009, which saw prices fall from $140 a barrel to $40.

Angola suffered badly. Its economy, which had grown 13% in 2008, was flat in 2009, while its hefty current account surplus of 8.5% in 2008 turned into a deficit of 10% just a year later. Precisely because of this glaring susceptibility, Angola’s policymakers are attempting to diversify its economy and are making efforts to attract more FDI in industries such as mining, manufacturing and agriculture.

For the time being, however, oil will reign supreme. David Thomson, a sub-Saharan analyst at Wood Mackenzie, an energy and metals consultancy, predicts that Angola’s production, most of it coming from known reserves, will rise to about 2.5 million bpd by 2019. “There is going to be a slow and steady rise, rather than a dramatic one, between now and the turn of the decade,” he says.

Out of the blue

After 2020, production could rise dramatically, should the most optimistic forecasts on Angola’s so called pre-salt reserves in ultra-deep water prove correct. The first significant discovery of these was made early in 2012, when US mining firm Cobalt confirmed the existence of large quantities of crude in one of its blocs, sparking renewed hopes that Angola’s pre-salt reserves will be as plentiful as those off Brazil’s coast.

Analysts caution that it is too early to estimate with any accuracy the extent of Angola’s pre-salt oil reserves, but most think it is likely they will be economically viable to drill should prices stay above $100 a barrel, despite the complexities involved with operating in deep water.

“While it is not the most straightforward of drilling, the technology and knowledge are improving all the time,” says Mr Thomson. “Three or four years ago, it was absolutely at the limit of what could be done. Now, while it is not for every company, it is not by any means impossible.”

Paul Wallace is Africa editor of The Banker magazine, a sister publication to fDi.