China-Angola 30 years on

16 August 2013

Time to “have no doubts”

By António Escobar and Ana Correia da Silva

At a time when China and Angola are celebrating the 30th anniversary of their diplomatic relations, the two countries are now preparing to start a new phase in their relationship that will undoubtedly be of great benefit to both Beijing and Luanda.

The People’s Republic of China and Angola are undergoing a transformation, and new routes for cooperation are opening up. These include more direct action by large Chinese companies in Angola – in the oil production sector and growing food, for export and domestic consumption. But there are also more opportunities for joint involvement in new international markets. And to give culture a greater role to play in two-way relations.

“Chinese development” for Angola

These days it is undeniable that China is changing the entire Angolan ‘landscape’, via the large construction projects such as railways, roads, and large housing areas like the city of Kilamba Kiaxi. But it is also apparent in schools, hospitals and other aspects of Angolan daily life.

In every corner of the cities, towns and villages across Angola’s 18 provinces there are now Chinese companies and products, as well as small Chinese factories, Chinese restaurants and Chinese shops.

“The Chinese in the interior speak the national languages, they are living as part of the neighbourhoods and communities, and they are the country that offers the second-largest number of scholarships,” said Ana Alves, a researcher at the South African Institute of International Affairs (SAIIA), for the Portuguese-speaking countries and China. “They want to take root and to get to know the Angolans so they can focus their strategy in the country.” The Chinese have brought competition to the retail sector and in the job market, but they have also brought new schools, roads, trains, cheap construction and opportunities for importing and exporting products.

The focus of the Angolan economic model in the post civil war era has been ‘Chinese development’. As Ana Alves explained, “It is the same system: solve infrastructure problems, macroeconomic problems and then solve social problems. First you feed people, and then you give them rights.”

According to Ana Alves, “the President (José Eduardo dos Santos), wants to leave a legacy to history, he wants to be seen as the President who did something for Angola. The plan for reconstruction and development of the country follows the Chinese model.”

From a social point of view, the most important projects for Chinese diplomacy are in the Education sector. An example of its influence is the Escola Amizade Angola-China (Angola-China Friendship School), the first stone of which was laid on 2 February in Huambo province. On that occasion, the Chinese ambassador to Angola, Gao Kexiang, noted that Beijing “has always given great importance to the development of an amicable relationship with Angola”.

“Although it is still a developing country, China has done everything possible to assist Angola, particularly in the areas of construction of infrastructure and training Angolan staff, with a view to helping Angola to increase its capacity for self-development.”

Via the Forum on China-Africa Cooperation, China has exempted the Angolan government from paying back interest-free loans, has offered Zero Tariff Treatment to 95 percent of Angolan goods exported to China, has gifted construction of a rural primary school and a National Centre for Malaria Control, has donated anti-malarial medication on six occasions, has sent three agricultural specialists and a total of 35 Chinese doctors to provide free medical assistance to the Angolan population, and has trained 682 Angolans in China in a variety of areas. It also plans to build a pilot agricultural centre.

“Angola-China friendship is already deeply rooted between the two populations and two-way cooperation has had fruitful results,” said Gao Kexiang. In the 30 years since diplomatic relations were established between China and Angola there have been many and frequent high level visits between the two countries as well as economic and trade cooperation. “We hope and believe that in the near future, the two governments and populations will continue to make efforts to promote two-way cooperation in all areas to a greater degree, injecting new vitality into developing a greater friendship between the two countries,” the ambassador said.

“The dynamics of China’s presence in Angola are changing,” said an Angolan professor of political science who asked not to be named. “The Chinese want to ensure a long-term presence in Angola, so they have a ‘soft power’ approach, which is attractive not only from a commercial point of view, but also in terms of culture, education, and in living alongside and interpreting the way of life of the populations.”

Funding reconstruction and development

On 12th January 1983 China and Angola signed the Joint Statement on establishing diplomatic relations. In the 1980s, the People’s Republic of China redesigned its political strategy by prioritising trade relations rather than ideological relations, recognising the Angolan government, which at that time was led by the MPLA party.

However, it was at the end of the armed conflict in Angola, in 2002, that Beijing had the opportunity to enter the Angolan market thanks to its ‘non interference’ policy and based on pragmatic and strategic cooperation.

Months after the peace agreements were signed in April 2002, ending 27 years of fighting, the Angolan government organised a donor conference to collect funds to finance its national reconstruction programme. At the time Luanda considered the demands being made in terms of governance to be excessive.

These were the circumstances under which China approached the Angolan government. “The launch of the Chinese expansion policy coincided with the end of the war in Angola, allowing China-Angola economic relations to expand in the years that followed,” said Ana Alves.

Following the end of the civil war, reconstruction of infrastructure became the government’s first priority. The national reconstruction programme, which was implemented in 2003, was designed to rebuild roads, railways, hospitals and schools as quickly as possible.

Beijing provided funds for strategic infrastructure projects in the post-conflict phase that Western donors would not finance without conditions. The Chinese funding proposals offered better commercial loans at lower rates of interest and longer repayment periods, without imposing conditions of a political nature.

According to the Angolan ambassador to the People’s Republic of China, João Garcia Bires, this cooperation allowed Angola to become a more modern country. Speaking at the official reception of the Angolan embassy to celebrate 30 years of China-Angola cooperation, on 12 January, Bires said that loans provided to Angola without conditions and repayable over long periods, kick-started a vast programme of reconstruction that allowed the country to overcome the effects of the war. “Other loans were provided by the Exim Bank and later by the Development Bank of China and by the China International Fund, and the results are plain to see,” the ambassador noted.

The dynamics of the China-Angola relationship are driven by trade, particularly exchanging products for services, as President José Eduardo dos Santos said during a visit by Chinese Prime Minister Wen Jiabao to Angola in 2006, “China needs natural resources and Angola wants development.”

“In the post-conflict period a platform of complementarities appeared; a Chinese thirst for oil, its gigantic financial capacity, the Angolan government’s need to implement a national reconstruction programme and an increase in oil production undoubtedly brought the two nations together,” said Ana Alves.

In 2003 the Chinese government proposed a loan, without any conditions attached, based on principles of non-interference in state affairs, directed at infrastructure projects and repaid in oil. In 2004 the China Exim Bank opened up a line of credit worth US$2 billion to the Angolan Finance Ministry for over 150 construction projects in the Health, Education, Energy and Roads sectors. In 2007 two more agreements worth U$500 million and US$2 billion were signed.

The China-Angola Strategic Partnership established in November 2010 led to new dynamics and expanded cooperation. In 2011 a fourth agreement worth US$3 billion were signed and is due to be implemented this year.

In 2011 the China Development Bank opened up a commercial credit line, without oil guarantees, worth US$1.5 billion, focused on development projects, particularly in the agricultural sector and with programmes in Malanje and Lubango provinces.

In total China has loaned the Republic of Angola over US$9 billion to fund large infrastructure projects. Funds are released on a project by project basis in a relatively transparent way between the bank and the Angolan Finance Ministry.

This year Angolan oil company Sociedade Nacional de Combustíveis de Angola (Sonangol) took out a 1 billion euro loan from the China Development Bank. The loan, which was taken on via Sonangol Finance Limited, will be repaid over a period of 10 years at an agreed interest rate of 3.5 percentage points on Libor (London Interbank Offered Rate). “This is a demonstration of the robustness of Sonangol’s long-term financing model, which over the last seven years has allowed it to take on loans of around 18 billion euros, of which 50 percent have already been repaid,” the oil company said.

China at the oil industry’s door

According to the Chinese embassy in Angola, there are currently over 450 state and private companies involved in the construction or reconstruction of housing, ports, railways, roads and other facilities. These include large Chinese multinational companies such as CITIC, the China Railway Corporation, Huawei and Camac. Between 60,000 and 70,000 Chinese expatriates live in Angola.

China may currently be considered to be the biggest player in the global market, both in terms of production and in demand for raw materials to support its economy and Africa, in which Angola is increasingly a key country, and one of the markets into which China is thirsting to expand.

China, which is the world’s most powerful emerging economy, with a yearly rate of growth ranging between 8 and 10 percent per year, has become one of the biggest importers of energy. China’s demand for oil has risen so suddenly that in 2004 the country became the world’s second-largest importer of oil, after the USA. According to the International Energy Agency, in 2030 China’s demand for oil is expected to exceed that of the United States. With 58 percent of its imports coming from the volatile Middle East market, China has focused on Africa to diversify its list of suppliers.

At that time, the relative social and political stability of Angola, which is Africa’s third-largest oil producer, after Nigeria and Libya, attracted Beijing. In the first half of 2010 Angola overtook Saudi Arabia to become China’s main supplier of oil.

According to Ana Alves, at a time when it is already buying one third of Angola’s total oil production, “China’s main interest is to explore its own blocks that will allow it to control exploration and ensure a supply of Angolan oil in the long and medium terms.”

In 2004 Chinese state oil company, the China Petroleum and Chemical Corporation (Sinopec), was granted exploration of half of Block 18, which it shares with BP. At the time Shell had agreed to sell its stake to Chinese state company ONGC Videsh, but Sonangol, as the concessionaire, blocked the transaction and established a joint venture with Sinopec, called Sinopec-Sonangol Internacional (SSI), to explore its part of the block.

In 2006 Sinopec secured funding of US$1.4 billion from several Chinese banks to develop its part of block 18 on SSI’s behalf. In May the joint venture was awarded three stakes in ultra deep water blocks operated in partnership with Italy’s AGIP/ Eni, France’s Total, and Brazil’s Petrobrás. The proposals were the highest ever made for oil blocks. China dominated the negotiations and is believed to have paid around US$2.2 billion for two blocks.

Despite these steps forward, China has not made a significant move into the Angolan oil industry, the main reason being its lack of technology for and experience of ultra deep waters, in which most Angolan oil is found.

Since 2002 trade between the two countries has risen by 2,500 percent from US$1 billion to US$25.3 billion in 2008 and since then China has become Angola’s largest training partner, overtaking the US, which had been the biggest partner for practically the entire post-independence period.

From 2006 Angola became one of China’s biggest trading partners in Africa. However, the China-Angola balance of trade continued to grow and in November 2012 it had already exceeded the figure for the previous year, with a record of US$34.5 billion, or almost 1,000 times more than 30 years ago.

In 2012 Angola became one of China’s biggest trade partners, vying with Saudi Arabia for the role of biggest supplier of oil to the Chinese market. In November 2012, Gao Kexiang, the Chinese ambassador in Luanda, said at the end of a meeting with the Angolan vice president, Manuel Domingos Vicente, that, “cooperation has reached its best point because there is mutual political trust, with notable economic and trade development, including personal exchange.” The diplomat also said that there were, “other great business opportunities” that are being assessed by both sides.

According to Flávio Inocêncio, a lawyer with Angola’s investment agency ANIP, China-Angola relations still have potential to grow due to synergies between the two countries and the fact that Angola needs Chinese know-how and access to capital, whilst China needs Angolan oil. “The city of Kilamba Kiaxi, in Luanda, built and funded by the Chinese, is an example of a project that the Angolan government hopes to replicate in different provinces,” he said.

Chinese private investment in Angola reached a peak in 2009 when the Angolan National Private Investment Agency (ANIP) approved 66 projects worth 16.373 billion kwanzas (UDS$170 million), mostly focused on the civil construction sector, according to a recent presentation in Beijing.

The figures, which were included in a document drawn up by ANIP economist Lello Francisco and lawyer Flávio Inocêncio, showed that out of a total of 56 projects focused on construction, six were for the industrial sector and the remainder were for retail, agriculture and telecommunications.

According to the same figures, which were presented at a conference to commemorate the 30th anniversary of diplomatic relations, between 2008 and 2012 foreign direct investment (FDI) in Angola was led by Portugal with a total of 739 projects, followed by China with 180, Lebanon with 99 projects, and Germany with eight.

Open to new exports

Reconstruction of Angola’s infrastructure has brought an end to the isolation of vast tracts of the country. New roads and railways now provide access from the rural interior, where there is a wealth of land for agriculture or mining, to the main cities, and from there for export. Large Chinese companies are showing signs of being particularly interested in agricultural potential, whilst new public projects are being launched in this area.

After finishing work to repair the Benguela Railroads, construction company China Ferrovia (CR20) plans to implement agricultural projects in Moxico province in 2013, according to the Angolan press.

Two technicians from the company, including a prospecting engineer, travelled to site of the future Camaiangala agricultural project, over 70 kilometres north of the city of Luena, where they collected soil samples. The soil samples will be analysed in Chinese laboratories and a contract is due to be signed with the Ministry for Agriculture and Rural Development in the next few months, outlining production of rice, potatoes, beans and other products that are essential to the local population.

China Ferrovia CR20 built the Luanda Railroad. At the moment it is refurbishing and modernising the Benguela Railroad and has carried out a number of building projects in the country, including multipurpose pavilions, swimming pools and other facilities.

The China CAMC Engineering Co., Ltd. (CAMCE) is also carrying out the Longo agro-industrial project in Angola’s Kuando Kubango province, which aims initially to produce 15,000 tons of rice per year, according to the Angolan press. The project, which is estimated to cost 7.66 billion kwanzas (US$61.5 million), is being carried out as part of an agreement signed in 2010 with the Ministry for Agriculture and Rural Development and is funded by a credit line from the China Development Bank. It has created 800 direct jobs and will produce almost 15,000 tons of rice a year. This amount may be tripled as new fields are worked on in the Longa and Masseca region, in the Kuito Kuanavale municipality. As well as large scale rice production, the Longa agro-industrial project also involves construction in the same location as a centre for training local rural workers in agro-livestock techniques, as well as building a weather station, services to supply mechanised agricultural methods and other services for the workers and the population in surrounding areas.

Chinese business group CITIC is also supporting agricultural development in the Angolan provinces of Uíge and Malanje by setting up agricultural study and research centres, according to the chairman of the group, Chang Zhenming. In the case of Malanje province the project is at a more advanced stage, as a modern agricultural research centre has already been built, which is being run by Chinese technical staff. The chairman of the CITIC group also said that a group of 28 Angolan technicians, who had already been selected, would travel to China for training over a period of two years.

At government level, Angola and China have signed a cooperation deal for construction of an agricultural research centre in Mazozo, Luanda province, around 40 kilometres from the centre of the Angolan capital.

The Angolan Secretary of State for Agriculture, Amaro Tati, and China’s deputy Trade Minister, Li Jinzao, signed the agreement, which will make it possible to test rice and wheat varieties in different regions of Angola.

Tati said the agreement was very important as the agricultural testing and research centre is essential for agricultural growth.

Angola plans to produce 25 million tons of food including grains, cereals and tubers, said the director of the Angolan Office for Studies and Analysis of the Foreign Relations Ministry, Francisco da Cruz. At the conference to commemorate the 30th anniversary of diplomatic relations between Angola and China, ambassador Francisco da Cruz said that the figure included 20 million tons of cassava, 2.5 million tons of grains, 1.5 million tons of potatoes and 1 million tons of legumes (beans, peanuts and soy).

The ambassador said that agricultural production would be based on boosting public-private partnerships for projects that have already been identified, such as the Capanda, Cubal and Quizenga agro-industrial projects. He mentioned the Camabatela development plan, the agricultural projects of Cacanda, in Lunda Norte province, Cangandala and Pedras Negras, as well as the Agricultural Project for Cereal Production in Vale do Longa, Malanje province, and the second phase of refurbishment of the Cotton Project.

According to the secretary of state for the Foreign Affairs Ministry, Manuel Augusto, there is currently a “diversification of cooperation mainly in technology transfer”, which “will benefit not only Angola and China but also the whole of southern Africa … such as the Benguela Railroad, for example, built with Angola-china aid, and which will benefit several countries near Angola, like Zambia and the DRC”.

According to the Angolan ambassador to China, João Garcia Bires, the Angolan government is analysing, along with the Chinese government, the possibility of exporting Angolan mining products, which could “increase and diversify” trade between the two countries. Angola is also looking into exporting iron and copper ore, amongst other mining products, and in exchange will receive from China machinery and other instruments useful for “carrying on with Angola’s development programme”.

The ambassador noted that as Angola was undergoing reconstruction, there was a need for cooperation both with China and with other countries, adding that Luanda would “very soon” focus its attention on developing agriculture, which would help to make use of a lot of the available workforce in this area, in the agro-industrial and mining sectors.

A place for culture

The new phase in the relationship between Angola and China is not limited to the economy. In 2008 when Angola’s president, José Eduardo dos Santos, visited China, the two governments signed an agreement to outline China-Angola cultural cooperation. In 2012 the implementation programme for 2012 to 2014 was signed. It outlines an exchange of cultural and artistic delegations, holding art and writing exhibitions, training qualified staff, cooperation in terms of heritage preservation and management and cooperation in the editorial and intellectual property sector.

According to the Chinese ambassador to Luanda, China and Angola “are human and cultural cooperation partners. “Continued development of two-way relations has made our communications popular.”

The Chinese government offers scholarships to hundreds of Angolan students to study in China. At Expo Shanghai 2010, Angola’s presence was notable, and the Angolan capital is soon expected to become home to a Confucius Institute, which will promote Chinese language and culture in Angola. “Human and cultural exchanges between China and Angola are increasingly improving contact between the two populations, boosting friendship, and are the most valuable part of developing China-Angola relations,” said Kexiang. “Angola and China have become goods friends, good brothers and good partners,” the diplomat said at the 30th anniversary Reception Dinner.

The two countries have achieved “excellent results in decisive areas such as trade, finance, energy, and construction projects” and relations “are at a new historical starting point, and facing future opportunities and challenges”.

“China is willing to expand its cooperation in all areas, to incessantly explore new areas for growth in cooperation, in order to offer benefits to the two populations and make way, hand in hand, for a new and more exuberant chapter in China-Angola relations in the next 30 years,” said Kexiang.

On 12 January 2013, the President of the People’s Republic of China, Hu Jintao, and the President of the Republic of Angola, José Eduardo dos Santos, exchanged congratulatory messages about the 30th Anniversary of Establishment of Diplomatic Relations between the two countries.

According to Hu Jintao, there has been a rapid rise “in the level of reciprocal political trust, fruitful results in all areas, such as the economy and trade, culture and education, and health, and close-knit coordination in international affairs”. Beijing has offered to “drive the China-Angola strategic partnership towards increasingly stronger development”.

In the letter from Angola, President José Eduardo dos Santos said that, based on the principles of respect for sovereignty, territorial integrity and non-interference in internal affairs, “Two-way relations have seen growth to higher levels in a variety of sectors.” He went on to say: “Angola and China converge in their points of view and in the complementary nature of their economies. We are certain that all of this will increase two-way relations, to work towards the development and the wellbeing of our respective Peoples.”