Re-evaluating the China-Angola Investment Model
The aftermath of the disastrous Angolan Civil War brought about immense damage to the country’s economy. This slowly began to change in the mid-2000s, when the country experienced record economic growth rates of 11 percent, largely due to the abundance of oil deposits and natural resources. Economic growth was largely propagated by the rise in foreign investment, namely from China. However, recent years have highlighted certain shortcomings and future limitations of being a resource-dependent state. This has prompted questions regarding the future fiscal relationship with China and addressing its potential drawbacks.
The resource-rich Southern African country has experienced significantly high levels of economic growth during the 2000s which has largely been contributed by the boom in oil prices. In 2017, 64 percent of the government revenues stemmed from the oil industry, accounting for 90 percent of exports. Unfortunately, this growth did not translate into equitable growth as inequality was still rife within the society as a result of endemic corruption throughout the country’s bureaucratic institutions
A boom in post-war reconstruction efforts, coupled with high rates of refugee resettlements has led to growth in the construction and agricultural sectors. Infrastructure redevelopment, however, came at a significant cost, mostly from billions of dollars in credit from China, which has played a critical role in the major development witnessed in the country.
In the case of Chinese investments, the bilateral nature of trade relations has revolved around an infrastructure-for-petroleum partnership between these two countries. Chinese monetary aid into the country has resulted in thousands of barrels of petroleum being imported daily from Angola. Diplomatic relations have existed since 1983, however, only after the conclusion of the civil war in 2002, tangible development initiated have only been able to manifest since.
Fundamental assumptions posed in the infrastructure-for-petroleum partnership assume a mutually beneficial agreement. This reflects macroeconomic complementarities between the two countries; China, with an abundance in capital and fewer natural resources, and Angola which has an infrastructure deficit and a wealth of resources. The allure of large loans with low-interest rates and non-conditional in terms of domestic reform is politically advantageous to a country such as Angola. This factor has played to the advantage of Chinese Investments becoming an increasingly popular option for financial sourcing. The loans acquired from Chinese-backed institutions such as the Asian Infrastructure Development Bank (AIIB) are subject to significantly less conditionality which does not infringe upon domestic economic policy.
However, with the nature of the oil industry becoming ever increasingly volatile, the question of sustainability arises. With the end of the oil boom in 2015, Angola entered a period of economic contraction. This followed by the onset of the COVID-19 pandemic; has highlighted the volatility of the resource as well as placed the country in a major economic crisis, posing significant threats to Chinese oil exports which hinder the recovery of loans and ultimately influence the rate of economic growth.
Adding to the current economic downturn, significant sums of petro-revenue are lost from illicit transitions due to chronic corruption. The actual sums of revenue do not accurately reflect the amounts of money received and invested by the Angolan government abating the funds available for the betterment of social services and facilities. Furthermore, financial aid received by Chinese authorities has predominantly been allocated towards the development of infrastructure such as mines and oil refineries throughout the country. China has also been extensively involved in urban development projects, particularly around Luanda, and has contributed to limited economic diversification with significant investments in real estate. Significant portions of the funds have not been made accessible for the development of better educational and health infrastructure, adding to the rising inequality.
In addition to the nature of the trade agreements between the two countries, there is a growing sense of animosity toward Chinese Investments. This is largely due in part because the oil repayments for loans leave Angola with relatively little crude oil to sell on the world market — a significant reason behind the country’s liquidity crisis.
This poses the question of whether Beijing promotes a journey to Chinese dependence in the case of Angola. With the COVID 19 pandemic decimating the oil sectors of many countries due to the severe decrease in demand, Angola’s economy was forecast to contract by more than 5 percent, a stark contrast to prior estimates of 1.2 percent growth. Inflation is also expected to go increase by 24 percent with a further devaluation of the Kwanza expected this year.
The potential long-term weakening of Angola’s vital oil sector means that diversification is no longer just a necessary economic policy but a critical and urgent intervention. This can provide an opportunity for China to help combat Angola’s grips with the resource curse as well as an opportunity for both countries to revise their longstanding economic agreements to promote non-monetary means of trade. Expertise in developing technological infrastructure and helping bolster Angolan tech start-up companies could signal a shift in the dynamic of the Chinese Angolan investment model.
Opportunities for new urbanism within Angola could follow suit in this post-socialist state. Conversion of land formerly held by state monopolies for urban use can serve as a unique opportunity and trigger a wave of investments. The Chinese experience of urban development and housing can prove to be a valuable asset for the developing nation as this could potentially serve as an additional medium of diversification.
Angola needs to find new ways to diversify and grow its economy in today’s new climate of low oil processes and cheaper raw materials. China’s existing provision of financial assistance, guaranteed by oil exports, for infrastructure projects, may not be a viable long-term option considering the current global geo-economic predicament. These issue needs to be addressed to ensure that Angola remains solvent in the post-pandemic world.
