China leads by example in the cooperation with Angola

25 May 2012

Chi Xu Fah is an agricultural businessman. He has recently set up a business project in Angola. Like so many other businessmen, he aims to take advantage of the abundance of resources and the economic opportunities that Angola has to offer. His plan is for his company, Cheang Su Chuimen Silk, to produce cotton, rice and other grains in Angola. He has “vast experience” in the sector and, as he told Angolan National Radio, he is available to transfer that experience to Angola.

By setting up a project such as this, Chi Xu Fah is tapping into a new phase in China and Angola’s economic relations, in which businessmen like him are increasingly important.

A decade of ‘pragmatic partnership’

Ten years have gone by since Angola achieved peace in February 2002. When the guns were laid down, Luanda found it had an urgent need to rebuild roads, railways, schools, and hospitals. The historic effort to rebuild the country, dubbed the ‘national reconstruction’, would cost tens of billions of dollars. Whilst Western governments were too mistrustful to get involved, China embraced its involvement enthusiastically and became a natural partner.

In the article ‘Angola and China: A Pragmatic Partnership’, researchers Indira Campos and Alex Vines describe how the focus of the relationship between the two countries rapidly changed from defence to the economy. In March 2004, two years after the arrival of peace in Angola, a funding agreement was signed, worth US$2 billion, by the Export Import Bank of China (Eximbank), underwritten by oil exports. “Since then, cooperation between the two countries has been characterised by frequent two-way visits by important officials, with a view to boosting the relationship further,” the article asserts. These frequent meetings have resulted in numerous political, economic, social, and cultural agreements.

“China needs natural resources and Angola wants development,” President José Eduardo dos Santos said later on a visit to Beijing in November 2007. That statement sums up the Angola-China relationship, that is, oil for funding offered with attractive conditions – a mutually beneficial transaction.

In a recent article in Angolan newspaper Jornal de Angola on relations between the two countries, Angolan journalist Paulo Quaresma noted that when reconstruction began, “Beijing emerged as a privileged and unconditional partner for Angola… This cooperation is a new model based not only on lines of credit, but also on trade. If the West was reducing its aid to Angolan institutions then why not turn to China, a country with high economic growth and attractive financial resources? Why not partner with the Chinese, who need raw materials to continue with their rapid industrialisation and development in exchange for knowledge and financial resources?” The resources, says Qauaresma, are making it possible to re-launch the economy, boost industrialisation, and build infrastructure such as hospitals, schools, universities, housing, bridges, roads, ports, and airports. “It was in this scenario that the strategic alliance between Angola and China was born…

“What is true, visible and interesting to Angolans is that thanks to that precious help, the government has been able to manage its funds. The results are there for everyone to see. The industrial sector is being launched with visible results. Dams, power supply systems, water systems, and social housing for young people are being built,” he says. Not only will the partnership between the two countries continue, but it is also “precious”.

Vasco Martins, of the Portuguese Institute for International Relations and Security (IPRIS) explains in a recent article that funding from Beijing was provided at times when the International Monetary Fund (IMF) was imposing heavy conditions on Luanda, and Western powers considered it “too risky” to loan the country money. “At a time when international financial institutions were reluctant to provide Angola with the necessary funding, the Chinese system made use of its natural pragmatism to generate profitable deals and secure access to oil reserves,” he said in an article entitled ‘Angola and China: Building Friendship Through Infrastructure’.

Years later, the “success of Chinese investments” has made it possible to attract investment from other countries. Nowadays, Angola “feels comfortable cooperating politically with China, without fear of giving up its economic, political and cultural autonomy. China’s involvement in Angola has largely favoured the population and the government in general,” the Portuguese researcher says.

Great trading partners

In the first phase of Chinese funding for reconstruction, US$423 million was applied to health and education, as compared to US$243 for energy and water, “where China’s interests lie”. “These figures alone point to the immense benefits that Angolans in general have been experiencing by dealing directly with China, thus bypassing international conditions for funding, and challenging the view of the realists that Angola is becoming a client state,” the Portuguese analyst says.

According to official Angolan figures, public works, education and transport projects have benefitted the most from credit concession agreements between the Eximbank and Angola. Chinese funding was increased by US$500 million in July 2007, via a credit line for complementary projects, and a further US$2 billion in September of the same year. Selection of the projects is the responsibility of the Angolan side. Via ministerial departments they identify and put forward the proposals for consideration by China’s Trade Ministry.

About a year ago, the Chinese ambassador in Luanda, Zhang Bolun, announced that the lines of credit provided by China to Angola since 2004, through a number of state banks, had totalled an impressive US$15 billion.

Sofia Fernandes, a researcher from Portugal’s ISCTE Business School, estimated at a conference in Luanda in 2011 that China had thus far provided Angola with funding of US$14.5 billion. “In the last two years alone, according to figures from the African Development Bank, an aid package of US$10 billion has been agreed via three banks: US$1.5 billion from the China Development Bank, US$2.5 billion from the Industrial and Commercial Bank of China and US$6 billion from the Eximbank,” she said, as quoted by Angolan magazine Exame.

As well as the impressive figures, Ricardo Soares de Oliveira, a professor and researcher from Oxford University, described what he called the end of the “paternalistic attitude” that Western countries had towards Africa. Financial aid was conditional upon political reforms related to promoting democracy and transparency. In the beginning, the vision for Angola was based on supporting micro-credit and inspired by headline-grabbing humanitarian activities such as the Live Aid concert organised by Bono and Geldof. China, however, had a completely different approach that was much more pragmatic. It focused on a macro view, aimed at large construction projects and modernity, whilst keeping to the principles of non-interference and respect for national sovereignty.

Trade has continued to grow and, a decade later, Angola has become China’s largest African trading partner. China imports around 40 percent of Angola’s total crude oil exports, which account for 16 percent of China’s total oil imports, according to a supplement on Angola published in Beijing by English-language newspaper China Daily. Angola has become “one of the most important sources of oil for China, and its biggest economic partner in Africa,” it said. Angolan exports to China totalled over US$20 billion in 2011 and “are expected to grow in 2012,” it added.

Trade between China and Angola, according to information from the Chinese Customs Service published by the Forum for Economic and Trade Cooperation between China and Portuguese-speaking Countries (Macao), totalled US$27 billion in 2011, or 11.5 percent more than in 2010.

New roads

The economic and financial crisis of 2008 was perhaps Angola’s most difficult period over the last decade. The drop in the price of oil affected the country’s liquidity. Some construction projects came to a standstill due to lack of contractor payments. The Angolan State accumulated debts to its suppliers, which have only been fully paid off in the last few months.

Investors from the Western countries most affected by the crisis retreated. This resulted in China becoming even more important to Angola, as the Economist Intelligence Unit noted recently. “Given the continuing volatility on international capital markets, reflecting the crisis in the euro zone (…) the government will seek to expand existing financing and credit lines from its partners, notably China and Brazil,” it said in one of its latest reports on Angola.

The relationship has got to the point where Angola and other African countries “catch a cold” if China “sneezes”. “Specific risk factors include a drying up of trade credit, declining commodity prices and contracting foreign demand for the region’s exports, as well as falling remittances, aid, foreign direct investments (FDI) and tourist receipts,” the EIU economists said. At this stage the relationship between China and Angola continues to become closer.

This trajectory of closeness and growing economic interdependence between the two countries, as well as new roads opening up in two-way relations, is clear from the cooperation agreements signed by Angola and China in May of last year in Luanda, during a visit by the leader of the Chinese parliament, Wu Bangguo.

Joint agreements

One of the documents was signed by the government of Luanda province and the consortium made up of CITIC Construction Co., Ltd. and the Urban Planning and Design Academy, both from China, to draw up the inter-municipal plan for the municipal areas of Quilamba Quiaxi and Belas.

The Angolan secretary of state for Cooperation, Exalgina Olavo Gâmboa, and the deputy Chinese trade minister, Fu Ziying, signed an agreement for economic and technical cooperation as well as a separate document for China to donate 50 million yuan (around US$7.7 million). Documents were also signed involving donations from the Chinese government of anti-malaria medication and equipment and materials to the anti-malaria centre.

The director of the Angolan National Telecommunications Institute (Itel), Américo António dos Santos, and the vice president of telecommunications group ZTE, Zhang Renjun, signed a memorandum of understanding to donate equipment to a centre for staff training.

According to the EIU, despite these agreements being “relatively modest (…) they are symptomatic of a much larger trend” of expansion of China-Angola economic relations.

A clear sign of the importance given by Beijing to Angola was a visit to the country by Xi Jinping, China’s vice president, who is seen as the likely successor to the current president. The “future leader”, as he has been called by some Western publications, visited the Kilamba Kiaxi housing project in the south of Luanda, where Chinese construction group CITIC is building 20,000 apartments. New cooperation agreements focused on the transport, mining and construction sectors were also signed. According to figures published at the time, the number of Chinese companies operating in Angola total 450, of which 400 are private and the remainder are state-owned.

Win-win relations

A recent text published by the Chinese embassy in Luanda noted that common interests and the mutual needs of China and Africa were increasing further due to global economic difficulties. The two sides were “facing complex global challenges, [but] also a rare opportunity to accelerate development”. “The economies of China and the African countries are highly complementary, and cooperation between the two sides looks very promising,” it concludes.

In terms of development aid, “effectiveness is high”, whether that be in the construction of “schools, hospitals, roads, bridges or water supplies”, or training of “specialists in agriculture, medical teams and young volunteers”.

“China, as one of the biggest developing countries, and Africa, as the continent with the most developing countries,” have followed “a common and highly effective path” says the document issued by the Embassy of the People’s Republic of China in Angola’s Economic and Commercial Advisory Section. Investment by China in Africa currently totals US$40 billion, of which US$14.7 billion was in direct investment. Over 2000 Chinese companies are investing in Africa. And Angola is one of the most sought-after countries to invest in, because of its stability and its welcoming attitude.

Trade rose from US$129.6 billion in 2010 to US$160 billion last year, making China “the biggest trading partner in Africa”.

One of the noteworthy aspects of the document is the projection given for the next few years, perhaps even decades, which sees Angola as a partner par excellence for Beijing.

The aims for trade include “promoting balance and improving quality”, opening up the markets in China to African products, and “actively applying a policy of tax exemption on products exported by Africa to China” to encourage these exports, “especially those with more added value”.

“At the same time, China is considering carrying out exhibitions of products of Chinese brands in Africa to promote exports of more high-quality products, in order to make ‘Made in China’ a designation of origin in the minds of African people,” it said.

A second aim is to “expand investment in Africa and improve industrial capacity”, transferring “more technology and management experience to Africa to alter ‘Made in China’ to African manufacturing thus helping African countries to increase the added value of products, train technical staff and promote local jobs”.

Chinese cooperation will continue to expand in the agriculture, education, health and human resources sectors.

In terms of infrastructure, the aim is to encourage “financial institutions and companies from China to take part in the construction of electricity, telecommunications, transport and other projects”, to gradually improve investment, trade and the environment”, and also to promote the process of regional and economic integration.

Agriculture sector

Ten years ago in Angola, economic discussion focused on how to find funding, but increasingly the focus is shifting to concerns about the time “after the oil”. The drive of agriculture, in a country with hundreds of thousands of hectares of uncultivated fertile land, is seen as fundamental to offset the future drop in oil reserves as well as having strategic importance in order for the country to become a food exporter par excellence.

According to Africa Monitor, which is published in Lisbon, President José Eduardo dos Santos is heading a commission recently set up to outline the agricultural development strategy, which involves the minister of state and the head of Angola’s Civil House of the Presidency, Carlos Feijó, agronomist  Carlos Alberto and jurist Ngunu Tiny.

The need for an effort by the state to place sufficient value on the agricultural and agri-industrial sector was important for prioritising the primary sector in the Angolan economy, the newsletter said. Amongst the countries that have been instrumental in persuading the Angolan authorities to focus on the importance of the agricultural sector are China and the United States. Both of these countries have also provided Angola with support to develop agriculture. In China’s case, this has involved credit lines.

The agricultural sector was the economy’s most dynamic during the period of Portuguese administration, until 1974, and accounted for half of the country’s exports. It also employed 40 percent of the working population, in 6500 large agricultural companies. The country was at one time the world’s third largest coffee producer, as well as a significant producer of maize, cotton, sugar cane and sisal.

In an interview with Angolan newspaper Jornal de Angola in 2011, the Chinese ambassador in Luanda, Zhang Bolun, set helping Angola to become “self-sufficient in terms of food” as one of the aims of future cooperation. Chris Alden, professor and researcher at the London School of Economics and the South African Institute for International Relations (SAIIA) believes that going forward, agriculture and industry will be priority areas for cooperation, as will financial services. China already has a stake in South Africa’s Standard Bank.

The China Development Bank has shown it is available to open up a credit line of over US$1 billion for Angolan agriculture. “We are ready to provide a credit line worth over US$1 billion, but we think the amount is insufficient and that it could be increased to meet Angola’s concrete needs in the areas of agriculture, grain production, and processing agricultural products,” noted the chairman of the bank, Chen Yuan, after a meeting with the Angolan head of state, José Eduardo dos Santos in 2009.

Plans for tourism

Another area of diversification in which Chinese and Angolan paths seem to cross is tourism, where Angola also has great potential. The recent Tourism Master Plan shows that Portugal (24 percent), China (14 percent) and Brazil (13 percent), are the countries accounting for most of the tourism in the country in economic terms. The document aims to change the sector’s current framework, as it has a deficit of qualified staff and outdated laws, and needs to increase its efficiency, as well as carry out an inventory and describe its tourist assets.

Angola plans to welcome around 4.7 million tourists a year by 2020, according to Carlos Borges, consultant for the Hotels and Tourism Ministry, noting that the target would represent growth of over 1000 percent on current tourist numbers. That number of tourists would provide US$5.5 billion, accounting for 7 percent of Gross Domestic Product (GDP). The Angolan government plans to put the country on the map of main international tourism destinations by 2015.

According to Borges, Angolans account for two thirds of the country’s tourism, which is why the strategic plan for the sector focuses firstly on domestic tourism, followed by regional and then international tourism.

The strategy, according to the plan, also includes increasing the number of flights to priority markets, reducing the price of aeroplane tickets and improving roads, railways and ports.

In March, Angolan airline Linhas Aéreas de Angola (Taag) launched a second weekly flight between Luanda and the Chinese capital. Until January Taag had been the only airline with a direct flight from Africa to the capital of China, a route it had offered since November 2007 and operated using a 254-seat Boeing 777-200 ER. This flight served as a vital link between Africa and China.

Large housing projects

Now that many large road and rail projects funded by the Chinese credit lines have been finished or are in their concluding stages, housing is the main focus of Chinese-Angolan cooperation, and is the sector of work most visible to Angolans. Housing projects have recently been launched on a grand scale, to respond to the lack of accommodation that Angola is facing, increasingly outside of Luanda.

One of the latest projects involves building 3000 houses in the city of Lobito, Benguela province. It is in the hands of the China International Trust and Investment Corporation (CITIC), according to information from Angolan news agency Angop.

In Dondo, in Angola’s Lunda Norte province, contractor Pan-China Construction Group has given assurances that it will finish building 419 new buildings by September. In May the first 1600 apartments will be delivered for the new city of Dundo, in the Samakaka neighbourhood, completing the first of a total of 5004 apartments outlined for the project. As well as residential buildings and a hospital containing 95 beds, plans include a nursery with 24 rooms, and a school for 1300 pupils. It will have the capacity to house 30,000 people in a 500-hectare area. The project, which began in 2009, has provided work for over 2300 Chinese workers and 1900 Angolans.

Near Luanda, in the new urban area of the city of Kilamba, thanks to a partnership between the government and China International Fund Limited (CIF), 5000 new houses are scheduled to be built by 2013. This project, which was launched by President José Eduardo dos Santos in 2011, is part of the Master Plan for the City of Kilamba and will be developed in an area of 250 hectares.

Joint ventures

On his visit to Angola in 2011, Chinese Vice President Xi Jinping pointed to the focus of Angolan companies on his country as a new chapter in Chinese-Angolan relations. Angolan state oil company Sonangol has become a vehicle for the internationalisation of the Angolan economy and has investment all over the world. In this area, China is a partner with strong business links and acts as a model for funding infrastructure used in Angola that is ripe for being implemented in other developing countries.

China Sonangol International Holding Limited, which has its headquarters in Hong Kong, focuses on investment in and exploration of oil, gas and mining products, crude oil trading and even “large-scale national reconstruction projects”, according to official information from the company. It has offices in China, Singapore, Indonesia, Africa and Latin America. Its ambitious mission is to promote “South-South cooperation, consider mutually beneficial situations as the key criteria for making profits, share experiences and the results of economic reform in China with developing countries, explore a new framework for Chinese companies to expand abroad”, as well as bring to China ideas and concepts from the countries in which it is involved. It has provided other countries with the most visible aspect of the expansion of Chinese-Angolan partnerships, based on the model of mineral resources in exchange for infrastructure. Guinea Conakry was the first step in this direction, although the projects fell by the wayside due to political turbulence in the country. Zimbabwe soon followed and, by 2009, it was present in Tanzania, the Ivory Coast, Russia, North Korea, Indonesia, Malaysia, and the United States. In New York it bought a building owned by the bank JP Morgan Chase on Wall Street.

In Luanda and Beijing, the cooperation model tested in Angola is seen as being ready for export, and many countries in the southern hemisphere, which have a wealth of mineral resources, have ambitions rapidly to expand their infrastructure, thereby preventing their economies from being held back. For Angola, it is a way of affirming itself on the continent and in the region, as well as a way of taking advantage of its business experience with China and moving towards the partnership with the Asian giant being increasingly one between of equals.

In a 2011 article about Angola, researcher Loro Horta said it was “unlikely that Angola would accept a position of dependence on China”, pointing to the efforts to diversify its economic partners. He cited East Timor diplomat Roque Rodrigues, who holds the record for being the longest-serving diplomat in Luanda, as talking of “the pride and independence of Angolans” in the way foreign policy has been implemented since independence. “Through history they have learned to balance the foreign powers who were eyeing up their rich country. To say that Angola is in Chinese hands is really to know nothing about Angola and its people.” (By António Escobar  from Macao Magazine)