One country, two partners
GlobalMarkets, is part of the Delinian Group, DELINIAN (GLOBALCAPITAL) LIMITED, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 15236213
Copyright © DELINIAN (GLOBALCAPITAL) LIMITED and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement
Emerging Markets

One country, two partners

Massive Chinese financial involvement in the Angolan oil industry has provoked fears of oil dependency and poor governance, but China’s dominance should not be taken for granted

It is only 32 years since Angola was a Portuguese colony, and only five years since the end of a bitter 27-year-long civil war. Little wonder then that China’s growing involvement in the economy should provoke strong reactions. Critics say Chinese workers now populate garrison-like compounds in the country, segregated from the local population, answerable only to their government’s all-powerful embassy in the capital. This threatens Angolan national sovereignty, the argument goes, as well as undermining efforts to improve transparency and governance in the chronically underdeveloped nation.

But, say the government and the supporters of China’s role, the oil-hungry Asian giant has also provided valuable investment and technical expertise, helping to turn Angola into Africa’s second-largest oil producer and China’s largest single oil supplier, potentially offering a vast increase in national wealth. Standard Chartered predicts that by the end of last year, the Chinese government had loaned Angola $9 billion, although less than that is likely to have been invested due to infrastructure bottlenecks and deficiencies in public sector planning. In February this year, Angola stunned energy analysts by joining the Organization of the Petroleum Exporting Countries (Opec). The cartel’s production quotas could have implications for Angolan output, but by joining a small club of huge oil producers, Angola is increasing its foreign policy options, winning new friends and increasing its international exposure. China’s role as Angola’s new leading development partner is unlikely to remain unchallenged for long.

The first significant breakdown in Sino-Angolan cooperation took place in March this year, after talks over the construction of a $3 billion refinery in Lobito collapsed. No further details were released, but Lucy Corkin, projects director at South African-based Centre for Chinese Studies, believes this indicates that Angola recognizes its interest lies in nimbly balancing its external relations, derailing China’s quest for preferential access to its oil. “The fact this project was subsequently taken over by oil parastatal Sonangol means Angola does not want to put all its eggs in one basket. After all, [President] dos Santos has dealt with oil companies for 30 years, and is aware of the dangers of being completely dependent on relations with just one country,” she tells Emerging Markets.

Under wraps
Still, the vast low-interest loans will continue to give China a strong position in vying for economic influence in Angola. They lock in oil supplies in a way that runs counter to western preferences for market supply and demand mechanisms. “No one knows the extent and nature of the loans. Angola is open for business, but investors want to know they are on a level playing field,” argues Jamie Ekern, assistant director of a Center for Preventive Action project on closer US-Angolan ties at the Council on Foreign Relations in Washington.

What’s also unclear is how the money is being invested and how contracts are awarded. President Jose Eduardo dos Santos, who has been in power since 1979, directly controls Chinese low-cost loans without disclosure, through the office for national reconstruction. Cheap, convenient loans untied to environmental safeguards, human rights and transparency in oil practices “provide Angola with leverage to ignore development instruments that most African countries need to use. These loans are a fundamentally dangerous counterweight to IMF pressure,” says Ekern.

In February 2007, buoyed by a red-hot economy that is projected to grow by 31% this year, Angola decided not to revive its interest in an IMF relationship, rejecting a precautionary stand-by arrangement. Gavin Macdonald, head of the IMF mission to the country, conceded this emasculated his pleas for reform. “Clearly, if you don’t have a formal Fund arrangement, you have less leverage in terms of influencing policies taken by the government,” Macdonald tells Emerging Markets. He argues that economic policy-making is too short-termist, geared to exports of raw materials without addressing the limitations of this productive model. The Fund is anxious that time is running out for Angola to diversify its economy and reduce budgetary dependence on hydrocarbons, since oil production is expected to peak in the next six years. He is concerned that the 2007 budget, if fully implemented, will see the non-oil primary deficit ballooning at over 60% of non-oil GDP. “The significant scaling up of spending needs to be put in medium-term perspective. The country’s debt strategy needs to focus on when oil sector revenues will begin to decline and plan spending for this,” warns Macdonald.

Call for transparency

He also calls on the authorities to make clear how public funds ae distributed and spent, and crucially appeals to the government to refrain from using Sonangol’s revenues to fund its poverty reduction programme. “Sonangol engages in lots of quasi-fiscal activities, which are not well documented or transparent. Furthermore, it provides many subsidies to the petroleum market: these activities should be on-budget and gradually eliminated,” Macdonald says. Clearly, Angola’s public finances would be better adjusted to these challenges without Chinese aid and under IMF pressure. Indeed, exclusive specialization on resource-based exports will make the country vulnerable to a potential slowdown in China and oil price volatility. Macdonald acknowledges that Asia’s fastest-growing nation is providing indispensable infrastructure investment contributing to Angola’s growth potential, but he urges a sustainable long-term partnership. “China has provided Angola with additional sources of finance beyond traditional donor commitments, which would have been unable to provide enough for the country anyway. But we do need to make sure China engages in a transparent and accountable way – this is clearly a challenge as a non-traditional creditor.”

But the counterpoint comes from Mo Ibrahim, telecom pioneer and campaigner for good governance in Africa. He argues western pressure is hypocritical, given historic injustices in the continent. “The West has been extracting resources in Angola and the rest of Africa for a century. Where was the governance and transparency then? Now suddenly, when Chinese come, they complain about governance,” he tells Emerging Markets. He also cited the soaring valuations of oil projects in the country as evidence that China was being a fair partner. “Chinese involvement is wonderful because now the price of commodities is booming, giving Angolans and the whole of Africa an opportunity to get better prices for its materials, rather than the West’s historic price-fixing.”

Gift this article