Chinese involvement in Angola

Financial relations between China and Angola grew in late 2003, when a framework agreement for new economic and commercial co-operation was formally signed by the Angolan Ministry of Finance and the Chinese Ministry of Trade. Chinese financial assistance to Angola is reserved for key public investment projects in infrastructure, telecommunications, and agro-businesses under the Angolan government’s national reconstruction programme. The China Construction Bank (CCB) and the Export-Import Bank of China (EximBank) provided the first funding for infrastructure development in 2002.

Director of the Southern Africa Resource Watch (SARW)

October 4th, 2012

Financial relations between China and Angola grew in late 2003, when a framework agreement for new economic and commercial co-operation was formally signed by the Angolan Ministry of Finance and the Chinese Ministry of Trade. Chinese financial assistance to Angola is reserved for key public investment projects in infrastructure, telecommunications, and agro-businesses under the Angolan government’s national reconstruction programme. The China Construction Bank (CCB) and the Export-Import Bank of China (EximBank) provided the first funding for infrastructure development in 2002. The Angolan Ministry of Finance had little input in these arrangements since CCB and EximBank funding was provided directly to Chinese firms.

In March 2004, EximBank pledged the first US$2-billion oil-backed loan to Angola to fund the reconstruction of shattered infrastructure throughout the country. The loan is payable over 12 years at a concessional interest rate, Libor plus a spread of 1,5 percent, with a grace period of up to three years. It is divided into two phases, with US$1 billon assigned to each. The first tranche was released in December 2004, and by the end of 2007 nearly US$837 million had been utilised. In March 2007, the second half was made available, with the majority as yet unused. As of December 2007, only US$237 million of the second phase had been disbursed, according to the Angolan Ministry of Finance. The first phase of this credit line involved 31 contracts concerned with energy, water, health, education, communication, and public works. This corresponds to 50 projects, valued at US$1,1 billion. Seven Chinese firms are engaged in this initial phase, and the largest project is the rehabilitation of 371 kilometres of road between Luanda and Uíge, valued at US$211 million. In the health sector, the priority has been the rehabilitation and enlargement of provincial and municipal hospitals and district health centres. In the education sector, the focus is rehabilitation of secondary schools and polytechnics. In agriculture, US$149 million permitted the acquisition of new machinery as well as the rehabilitation of irrigation systems in Luena, Caxito, Gandjelas, and Waco-Kungo.

The second phase of this loan was to fund the implementation of 17 contracts, involving over 52 projects, some of which are unfinished first phase projects. Although education remains a priority, the second phase also supports fisheries and telecommunications projects. In fisheries, the contract signed with China National Machinery Equipment Import Export Corporation will finance the acquisition of 36 large fishing trawlers and 3 000 boats for industrial and artisanal use, as well as 10 coastguard vessels. This investment of US$267 million envisages the creation of employment for 20 000 people directly (and a further 100 000 indirectly). In telecommunications, approximately US$276 million was allocated for the construction of next-generation networks, including optical transmission networks, Internet protocol, very small aperture terminals, and intelligent networks across 13 provinces. In May 2007, an extension of US$500 million was negotiated with EximBank to finance ‘complementary actions’ to first phase projects which had not been budgeted. Under this new financial facility, priority projects include water and energy networks for newly built institutes and schools, the construction of new telecommunication lines, and water treatment plants. To date, no disbursement has been made under this line of credit.

In March 2011, the Chinese Ambassador in Angola, Zhang Bolun, indicated that three of China’s state-owned banks (EximBank, the China Development Bank and the Industrial and Commercial Bank of China) have collectively provided approximately US$14,5 billion in credit to Angola since 2002. Loans have been made mainly for construction and infrastructure projects. The assistance provided by China has made a major positive contribution to road and rail networks, while new schools, hospitals and houses have been built. The China-Angola relationship is based on Chinese assistance to Angola for economic development in exchange for oil supplies. Angola now competes with Nigeria for the title of Africa’s main oil supplier, with much of it going to China.

Projects financed by the China Construction Bank and EximBank have included the rehabilitation of the Luanda railway system (the 371 km stretch between the capital Luanda and the northern agricultural and mining province of Uige, and repairs to 1 300 km of the Lobito railway line ) and road networks (mostly being done by The China Road and Bridge Corporation). The major one is the construction of national road and bridges in Bengo province and the Lobito oil refinery, expansion of Luanda’s electrical network, rehabilitation of Lubango’s electricity network and networks in Namibe and Tombowa, along with building telecommunications networks. Close to 100 projects financed and implemented by Chinese companies have contributed to socially-relevant infrastructure in Angola. Besides trade, Chinese FDI has seen a major increase in recent years. The focus remains on oil and construction, but other sectors of the economy have also been targeted. Post-conflict economic growth and relative stability have reduced investment risks and offer a good return. New laws have been promulgated to promote foreign investment and encourage broader foreign involvement in the economy.

China has shown great interest in Angola’s extractive industries, but has not yet been able to extract oil in Angola. According to a working paper presented at the Center for Strategic and International Studies (CSIS) conference in March of 2008, after the opening of China’s first credit line to Angola in March 2004, Sinopec Group acquired its first stake in Angola’s oil industry (50 percent of the BP-operated block 18). They also created a partnership with Sonangol, the Sonangol Sinopec International (SSI), to explore the stake on the block.

Sinopec Group was holding a 55 percent stake in the joint venture, and Sonangol the remaining 45 percent. Although BP’s former license partner (Shell) had agreed to sell its stake to India’s state-owned Oil and Natural Gas Corporation (ONGC), the Chinese on their first involvement in the Angolan oil industry sidelined ONGC with an offer that media sources estimate at US$725 million. The company reportedly spent an additional US$1,5 billion dollars for the development and exploration of the block.

In March 2005, nine co-operation agreements were signed, most related to energy. Sonangol also entered into a long-term agreement to supply oil to China’s Sinopec. A year later, SSI acquired three new Angolan offshore oil blocks with proven reserves of 3,2 billion barrels. It offered US$750 million for 20 percent of ENI-operated block 15 and made a record bid of US$1,1 billion as a signature bonus payment for each of the offshore blocks 17/06 (27 percent) and 18/06 (40 percent). In addition to the bids for the rights to prospect for oil, the joint venture earmarked US$200 million for social projects. The companies also agreed to jointly study plans for a US$3-billion loan to the oil refinery in Lobito with a capacity of 240 thousand barrels per day.

The negotiations collapsed in early 2007 with Sonangol declaring it would manage the project on its own. According to Manuel Vicente, president of Sonangol, ‘we can’t construct a refinery just to make products for China.’ This would suggest some resistance to the strategy of locking in supplies through long-term contracts, which China has applied elsewhere. Later, SSI also renounced its stake on the three newly acquired concessions.

Chevron has contracted the South Korea Daewoo Shipbuilding and Marine Engineering Co Ltd (DSME) to build a US$510 million offshore production platform to be installed in Angolan deep waters. The turnkey platform is expected to be delivered in the fourth quarter of 2013. The 18 758-ton platform will be designed to boost the exploration and processing capacity of the existing facility in block 0 of the Cabinda offshore deep waters region, which produces 100 000 b/d and 4 MMcf/d of natural gas. The massive exploration of oil in the deep waters of Cabinda has become the main economic development strategy of the Angolan government, which is finding it difficult to diversify its economy (particularly the development of the agricultural and industrial sectors). Dependence on oil and gas, as non-renewable resources, poses a major threat to Angola’s sustainable long-term economic development.

According to the CSIS, in April 2005 the Angolan Council of Ministers accepted a joint venture agreement between Angola’s state-owned diamond company (Endiama) and a private Hong Kong-based company, China International Fund (CIF). It also approved Endiama’s participation in the creation of Endiama China International Holding Ltd. (Endiama China) to prospect, produce, and market diamonds, including diamond cutting and production of jewellery in Hong Kong. In September 2005, Angola’s Ministry of Geology and Mining authorised a joint venture between Miracel and Endiama China and approved a prospecting, research, and diamond recognition contract between them. In March 2007, the Angolan media reported that the joint venture agreement between Endiama, EP, and CIF had been annulled by the Council of Ministers. No explanation was given.

China’s involvement in Angola (as in the rest of Africa) is three-fold: direct investments, financing, and commerce. China’s ambassador to Angola has indicated that approximately 50 Chinese state-owned companies and 400 privately owned companies are now active in Angola, covering a wide range of commercial activity.  It also currently imports two main products from Angola, petroleum and diamonds. In 2008, it became the biggest importer of Angolan petroleum, and in 2010 (given the financial crises) it exceeded the US. China also became the largest importer of Angolan diamonds, and is consequently Angola’s primary commercial partner. Exports from Angola to China have increased substantially, with the period from 2000 to 2008 seeing an increase of more than 1266 percent. In 2007 petroleum exports to China exceeded that of the US by a million dollars, and the following year China absorbed 2,.3 percent of Angola’s crude oil exports. It must, however, be emphasised that although China is Angola’s primary commercial partner, the commercial weight in oil has diminished consecutively in the last two years.

CIF, is backing the construction of over 200 000 low-cost houses in Luanda. It is also involved in building an international airport, 2600 kilometres of rail tracks, and over 1000 kilometres of roads. These projects are directly assisting the government in promoting economic development across the country and helping to uplift impoverished communities. Given that Angola’s economy is based on oil and diamonds, there is little else that it can offer China in exchange for these construction projects. The limitations of the Angolan economy mean that the country’s trade with China is no different to its trade with the west, except for the reluctance of European companies to become involved in major construction projects. China clearly has a competitive advantage in being well-positioned to boost the Angolan economy through construction, while accessing oil and diamonds in return.

In May 2011, China and Angola concluded new co-operation agreements including municipal construction programmes, technical co-operation, and the establishment of an anti-malaria centre and the supply of anti-malaria medication. The Chinese telecommunications company ZTE has also expanded its operations in Angola and set up a staff training programme. The agreements suggest a broadening of relations and confirm that China-Angolan links are expanding into new areas of co-operation. In 2010, Angola’s exports to China totalled US$21 billion, a significant increase on the US$1 billion in exports recorded in 2002 at the end of Angola’s civil war. An improvement in Angola’s economic stability and continued good economic growth is expected to lead to a further significant expansion of China-Angola commercial relationship – with the exception of 2009, the last five years have seen Angola’s economy grow above that of all countries in the Southern Africa Development Community (SADC).

There was a significant increase in Chinese investments in Angola from 2005 to 2009. In 2005 it was only US$17 million, which then increased to US$166 million (an increase of 832 percent). The bulk is committed to the civil construction sector. Considering China’s increased investment in the civil construction sector, it is possible to project a rise in its involvement within the extraction industry, particularly in the exploration of minerals necessary for civil construction (such as grit, sand, gravel stone, limestone, plaster and chalk). In 2007, Chinese investment in the extractive industry (extraction and preparation of minerals) was registered in the Kwanza-Norte province with a value of US$0.5 million. It is evident from data supplied by Angola’s national investment agency ANIP that Chinese investments are distributed among the nine provinces (Bengo, Benguela, Bié, Huambo, Huila, Kwanza-Norte, Kwanza-Sul, Luanda and Namibe). The province with the most investment is Luanda, where more than 96 percent of the Chinese investment was allocated in 2009.

In 2010, government officials indicated that an additional US$6,6 billion had been negotiated with the Chinese government under the credit line to support the Angolan government’s efforts for national reconstruction and infrastructure development, which suffered some setbacks due to the lack of liquidity following the financial crisis. According to Chinese Vice-President, Xi Jinping, who visited Angola in November 2010, China has already given loans to Angola of about US$10 billion, and business between the two countries amounts to almost US$20 billion (an increase of about 80.8 percent compared to 2009). The numbers clearly show the increasing dependence of Angola on China for development of its devastated infrastructure.

President Eduardo dos Santos has inaugurated a new city (called Kilamba) on the outskirts of Luanda, which aims to house more than 120 000 inhabitants. It is still under construction and is being financed by a Chinese loan and built by Chinese companies. The initiative is seen by many citizens as great and timely but the issue is the cost, which common citizens will not be able to afford.

Despite this substantial role, Chinese investment (as opposed to loans and trade) remains limited. This may be attributed to the language barrier, since this is a constraint in terms of attracting direct foreign investment. Another factor to consider is that although it is known that Angola is potentially a rich country, most of the studies conducted in this regard are based on deductions and estimates. In reality, it is still impossible to know how rich the country is, which is a limitation in the extraction industry’s investment (not to mention the state’s concession allowing national companies to be both referees and players).

About the author(s)

Claude Kabemba is the Director of the Southern Africa Resource Watch (SARW). In 2006, the Open Society Initiative for Southern Africa (OSISA) asked him to spearhead the formation of SARW. He holds a PhD in International Relations (Political economy) at the University of the Witwatersrand (Thesis: Democratisation and the Political Economy of a Dysfunctional State: The Case of the Democratic Republic of Congo). Before joining SARW, he worked at the Human Sciences Research Council and the Electoral institute of Southern Africa as a Chief Research Manager and Research Manager respectively. He has also worked at the Development Bank of Southern Africa and the Centre for Policy Studies as Policy Analyst. Dr. Kabemba’s main areas of research interest include: Political economy of Sub Saharan Africa with focus on Southern and Central Africa looking specifically on issues of democratization and governance, natural resources governance, election politics, citizen participation, conflicts, media, political parties, civil society and social policies. He has consulted for international organizations such Oxfam, UNHCR, The Norwegian People’s Aid, Electoral Commissions and the African Union. He has undertaken various evaluations related to the work of Electoral Commissions and civil society groups interventions in the electoral process in many African countries. He is regularly approached by both local and international media for comments on political and social issues on the continent. His publication record spans from books (as editor), book chapters, journal articles, monographs, research reports, and newspaper articles.


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