“Angola” model of financing of China for infrastructure develops into “Ghana Model”

13 January 2020

Chinese financing on a large scale for the construction of infrastructure in exchange for natural resources, which became known as the “Angola Model” is now being developed into the “Ghana Model” according to researcher Eric Olander, founder of the “China Africa Project.”

Olander recalls in a recent article that, at the beginning of the 2000s, China signed an agreement with Angola worth US$2 billion for infrastructure financing, backed by oil, which was “at the time considered innovative for both its size and by its ability to consolidate large amounts of capital” for the construction of roads, bridges, railways and other infrastructure.

However, he said, Angola undertook to use its oil to pay for the infrastructure agreement with the Chinese, “which did not have enough to sell on the open market and generate the necessary liquidity to stimulate the economy,” and in addition, when the initial agreement was signed, oil prices were relatively high, but fell after the financial crisis of 2008,  meaning “that the Angolans had to sell much more oil to pay the debt in China.”

“At the end of 2010, a consensus began to emerge among economists that the development of so-called Model Angola may not be the scenario of mutual benefit that everyone expected,” said Olander.

Recent speculation about China giving up on models of financing based on exchange for resources, mainly due to the increase in loans to resource-poor countries, such as Ethiopia and Kenya, was set aside following a new agreement between China and Ghana, which provides for the exchange of part of the Africa country’s bauxite reserves for infrastructure.

But, according to Ghanaian researcher Kofi Gunu, at the University of Oxford, this agreement differs from the “Angola Model.”

“The government, through a new para-state (company), plans to sell bauxite/aluminium on the open market. This is not direct bauxite for infrastructure agreement, but the revenue from the sale of bauxite will be used to repay the loan,” said Gunu in a China-Africa Project article.

Another development in relation to the traditional model is that the bauxite agreement in Ghana is not with the Chinese government, but with Sinohydro, a state construction group.

“Ghana is one of a growing number of African countries to employ this method of exchange, so it will be very interesting to observe whether there are any unintended consequences, as was the case in Angola, in this new model of financing infrastructure, which is potentially very innovative,” said Olander.

“Although technically it still forms part of the broader Chinese political structure, there is a big distinction between a state company and the government itself. Although they have obedience in common, the Communist Party, they have a very different performance from one another,” he added. (macauhub)