“China needs natural resources and Angola needs development.” (1) The words of President dos Santos, Angola’s dictator, perfectly describe the Sino-Angolan economic relationship. China’s economic involvement in Angola is multifaceted. Loans, trade agreements, and investment ventures are all being used in an effort to secure more oil concessions, and the vehicle of choice has been her numerous state-owned companies.

Oil Loans

In 2004, the Chinese Eximbank, China’s leading bank that was created to implement state policies and globally promote Chinese products and services, agreed to provide a low interest $2 billion development loan to the Angolan government.

Unlike the IMF, Eximbank didn’t make any requests for structural adjustment policies from Angola. But the funds had to be specifically used for infrastructural projects such as housing and transportation, and, here comes the good stuff, the Angolan government would have to reward 70% of the projects to Chinese firms and 50% of the procured materials would have to come from China (2).

With a five-year grace period, the loan was to be gradually repaid in barrels of oil over twelve-years. This is a familiar Chinese strategy that ensures a steady flow of oil regardless of any turbulent market behavior.

(In 2009, China reached a similar agreement with two Russian oil companies. The Chinese government provided a $25 billion loan and will receive in return 2.2 billion barrels of oil over the next 20 years at around $20 per barrel.)

The Sino-Angolan Political and Military Relationship

Read Next: The Sino-Angolan Political and Military Relationship

So, when China agreed to the $2 billion loan, Angola was in return obliged to hire Chinese companies, which would use Chinese materials. China, therefore, would get her promised oil barrels as a repayment for the loan plus the loan funds, while Angola would gain the promised infrastructural upgrade.

The arrangement might seem beneficial for Angola, for it ensured that the money would actually be spent on roads, houses, railroads and not stolen by corrupt Angolan bureaucrats, but, actually, it was detrimental for the local economy: Chinese companies notoriously employ their own workers in foreign projects, thus hurting both the local industry and labor force.

As a result, Angola received only finished projects; neither a domestic economic market boost, nor local employment opportunities. But the desperate-for-capital Angolan government had no other choice. China, who allegedly despises Western neocolonialism, is pursuing this exact same strategy in Angola.

All available evidence judges this to be correct.

The amount and value of the Chinese development projects which Angola has received in the last decade is grossly disproportional to the value of her oil exports to China. In 2005, for example, two Chinese companies signed agreements worth $169 million to upgrade the phone network and the health sector facilities of Angola. The previous year, however, Angola’s oil exports to China reached $3.9 billion. And this is just one example.

Although the Chinese development initiatives have helped the troubled infrastructure of Angola, pragmatically they have done little to help the two-thirds of Angolans who earn less than two dollars per day and live in ghastly urban slums. Projects such as the construction of stadiums for the 2010 African Cup of Nations do little to improve the welfare of the population. China is not helping Angola to build a sustainable economy—an economy with the potential to mature into self-sufficiency. On the contrary, she is acquiring as much oil as she can at the minimum cost.

After the 2004 loan, China has continued to provide the Angolan government with further low interest oil-tied-loans. It is estimated that the total value of the initial $2 billion loan has been extended to between $10 billion and $12 billion.

Trade and Investment

But the oil-loans are just a part of China’s scheme to secure a steady flow of oil. Trade and investment is another.

China in Angola: A quest for oil and legitimacy

Read Next: China in Angola: A quest for oil and legitimacy

China is Angola’s biggest trade partner, making up more than half of Angola’s global trade total. In recent years, the trade volume between the two countries has increased spectacularly. As of 2014, the Sino-Angolan bilateral trade stood at $34.1 billion, whereas in 2008 it was worth $25.3 billion (2).

Angola imports Chinese agricultural machinery, electrical equipment, vehicles, and military hardware, and predominately exports oil. In 2014, Angola imported close to $6 billion worth of goods from China and exported to China goods worth of $24 billion; approximately 99% of all her exports to China were oil commodities (3), notwithstanding a decline in her oil production output of about 4%, between 2010 and 2014.

Angola still remains the second largest exporter of oil to China after Saudi Arabia (4). Moreover, what makes Angola so strategically valuable to China, is the quality of her oil.

Most of Angolan oil is light, thus making the refining process simpler than if using heavier oil from elsewhere. And although many Western petroleum companies are active in Angola, the most energetic are Chinese. But what do we know about these companies?

In 1997, China’s Communist party decided to restructure the preexisting state oil companies in order to achieve her newfound “Going Abroad” strategy.

The result of this restructure were the China National Petroleum Corporation (CNPC) and the Chinese National Petrochemical Corporation (Sinopec).

Both companies are responsible for producing, trading, importing, and processing oil.

Although their roles frequently overlap, the former is more focused on exploration and production contracts, and the latter on refining foreign imports.

A third, smaller company, called The China Offshore Oil Corporation (CNOOC) specializes in offshore investments.

Sinopec and CNPC are currently the second and third largest corporations in the world, with a revenue amounting to almost $1 trillion. Although these companies are profit orientated, the fact that they are stated-owned essentially makes them enforcers of China’s foreign policy around the world.

From the two companies, Sinopec has been the more active in Angola.

In 2004, Sonangol, Angola’s national oil company, and Sinopec came together and created Sinopec International Ltd (SSI). In this joint venture Sinopec has a controlling share of 55%. And here the fun begins.

Although seemingly a private company, since 2004 SSI has received considerable oil-field concessions by the Angolan government—often in spite of better offers from other, less asian, companies.

An example of this preferential treatment is the sale of Block 18 in 2004. Block 18 is a considerable offshore oilfield that used to belong to Shell. In 2004, Shell wished to sell 50% of Block 18 to the Indian ONCC Videsh. The Indian firm was offering the Angolan government $200 million for the rebuilding of Angola’s railroad system, on top of the $620 million for the actual oilfield rights (5).

Shell’s wishes notwithstanding, Angola exercised her preferential rights and sold the shares to SSI.

Evidently, China’s no-questions- asked loans to the Angolan government are proving rather helpful.

However, the Sino-Angolan relationship hasn’t been all fun and games. Lately, the Angolan government seems to have come to the realization that it would be more profitable to diversify her investing portfolio, rather to solely depend on China.

But is that possible?

Unfortunately, no.

Angola’s recent request for a two-year suspension of payments on her $20 billion debt to China, a request that was mainly triggered by the falling oil prices, and the current unsustainable state of her economy, show such diversifications in the foreseeable future to be unlikely indeed.

Furthermore, China owns 41% of Angola’s external debt and the survival of the regime—whose leadership benefits financially from this relationship—largely relies on China’s continuous support (6). We now saw how China secures a steady flow of oil. But what about her other goal, i.e., international legitimacy?

 

 

Featured Image courtesy of Reuters

1) Hanson, Stephanie. “Angola’s Political and Economic Development,” cfr.org (21 July 2008).

2) Thompson, Reagan. “Assessing the Chinese Influence in Ghana, Angola, and Zimbabwe: The Impact of Politics, Partners, and Petro” (Honours Thesis, Stanford University, 2012).

3) European Commission, “European Union, Trade in Goods with Angola” (2015); Corkin, Lucy.

“Angola’s Relations with China in the Context of the Economic Crisis,” China monitor 38,

(2009).

4) Central Intelligence Agency, “The World Factbook: Angola,” CIA.gov; Thompson, Reagan.

“Assessing the Chinese Influence in Ghana, Angola, and Zimbabwe: The Impact of Politics,

Partners, and Petro” (Honours Thesis, Stanford University, 2012).

5) Rotberg, Robert. “China Into Africa,” (Washington, D.C., Brookings Institution Press, 2008).

6) Basu, Indrajit. ‘’India Discreet, China bold in oil hunt,” Asia Times (29 September 2005).

7) Muzima, Joel Daniel, “Angola2015” (2015).