Funding from China supports smaller projects

21 March 2016

With the downturn in tax revenue, funding from China has become even more important to Angola and is being implemented in smaller key projects better suited to local needs, according to the Economist Intelligence Unit (EIU).

Of the US$6 billion in Chinese funding provided, according to information released by the Angolan Ministry of Finance, 5.3 billion will be used to finance 155 public projects across the country, including a dam in Kwanza Norte province, new roads and industrial centres, as well as social facilities such as hospitals, medical centres, schools, universities, water, electricity and irrigation networks.

These options represent a change from past financing packages, focused mainly on large projects such as roads, railways, stadiums or airports, which, according to the EIU report on Angola have mainly led to “visibility. ”

“To target these Chinese funds to smaller critical infrastructure projects that are part of the public investment programme is a wise use of money, at a time when public investment is being crushed by the low price of oil,” said the EIU .

EIU forecasts point to economic growth of 1.1 percent in 2016, less than half the figure for last year, but that should accelerate to 3.5 percent next year and 3.8 percent in 2018.

According to the Reuters news agency, Chinese financing to Angola so far totals around US$25 billion.

The projects funded by the new package will be awarded to Chinese companies, as in previous funding packages, but some changes were made to the procurement rules to increase involvement of local businesses and workforce.

At least 20 percent of the work must be subcontracted to Angolan companies and local building materials should be used whenever possible, which should result in greater local wealth creation and employment, which the government estimates at 365,000 jobs .

“A more open approach in contracts and a focus on best value and quality is a positive sign. The emphasis on presenting more transparent proposals and a business forum in March, to identify new areas of private sector cooperation, reflect a greater maturity in the economic relationship between Angola and China,” said the EIU.

The analysts’ forecast is that Angola will continue to give priority to its relations with China, which has established itself as a major economic partner.

The private sector forum was held last week in Beijing, attended by leaders of the Technical Unit for Private Investment (UTIP) and the Angolan Agency for Investment and Export Promotion (Apiex), plus about 3,000 potential investors, according to newspaper Jornal de Angola.

The new law, which aims to channel investments into diversifying the Angolan economy has tax benefits for investments of over 1 million euros.

Figures presented at the conference indicate that the share of manufacturing in total investments fell from 45 percent in 2009 to 32 percent in 2015 and Luanda continues to receive about two-thirds of the investment, followed by Benguela (7 percent) and Kwanza Sul (6 percent). (macauhub/AO/CN)