In terms of financial and
trade assistance, China was there when Angola needed it.
In late 2003, when the Angolans decided that they really needed to overcome
the end of the civil war, the country was still in a disastrous state and
they needed money, they were going to try to get money from the IMF,
from the International Monetary Fund.
But in return for
that the International Monetary Fund was going to demand high deal of transparency.
But China instead signed a deal and
in March 2004 the Export-Import Bank pledged $2
billion in what's called oil backed loans to
fund this reconstruction and this infrastructure development, and
it was payable over 12 years at very low loans.
At this time, estimates are that China kickstarted
over 100 projects in energy, water, health, education,
telecommunications, fisheries and in public works.
And more recently about 2014, the Export-Import Bank and
the China Development Bank have loaned Angola close to 16 billion dollars.
Let's take a look at this figure that I borrowed
from an article by Alex Vines in the book that I've edited.
Here you can see that the line here, the lines
represent the destination of Angolan exports where the Angolan exports go.
And here we can see that China's imports of Angolan oil have increased
by about 10 million metric tons between 2007 and 2012.
Ironically, in the same time,
the United States imports of Angolan, oil while back of 2007 about
the same as the Chinese imports, began to drop off dramatically.
And this is largely due to the production of shale,
gas and oil in the United States.
And in fact, the truth is that they import now by about 2014,
they import by about one half of what they were importing before.
So this should give China a nice advantage relative to the United States
in the Angolan oil economy.
Now, it's important to understand, I had mentioned before, one of the unique things
about the Chinese model was what's called the Angolan model.
And what this involves is resources for infrastructure, and
China's Export-Import Bank used this loan structure, the World Bank
calls it the Angolan model, others call it the resources for infrastructure model.
Where the repayment for roads or
railways or harbors is made in terms of natural resources.
And for China, it's broadly in terms of getting oil for these projects.
And this approach began with Japan,
Japan started to use it when it did business with China many years ago.
And it's particularly useful for countries that don't have adequate financial
guarantees, so the other states are hesitant to do the projects for them.
But in this sense they can put together a nice package and
use their resources to develop their infrastructure.
According to the World Bank the average interest rate for
these kinds of projects is about 3.6% and
the grace period is for 4 years and often can take up to 12 years.
The Chinese terms of the loan are what's called LIBOR,
the London interest offered rate, which about a year ago,
I looked on the list on the website and
it was about 1% for a one year loan, so
that plus a spread of about 1.5% with a grace period of up to three years.
China, despite these favors that
they did to Angola in coming up with these loans and making it so
they didn't have to borrow from the IMF, they've had their problems with Angola and
Angola is an excellent example of a resource rich state,
that protects its sovereignty and it's independence.
And as I said at the beginning, it can do this because it's really neutral in the,
sort of, the structure between or the struggle between the U.S. and China.
And despite getting key financial support from China in 2003,
2004, Angola does not favor China's national oil Companies.
We know that twice, Sinopec, which is a major Chinese oil company,
thought it had a deal, it had actually paid a signature bonus,
thought it had a deal with Sonangol,
which is the state the Angolan oil company, and the deals fell through.
So, the Chinese felt burned by this.
And if you look at some of the quotes, some of the articles where people have
written about Angola, one woman, Lucy Corkin, she argues that,
there is in fact little evidence to support continued preferential treatment
at the bidding table for Chinese oil companies due to extensive Chinese loans.
Political posturing indicates that both China and Angola see each other
as necessary strategic allies for the foreseeable future, but
this may mask an uneasy marriage of convenience, maybe a bit overstated.
In any case, another scholar, Horta, said that given the important loans,
one would expect that Angola would fall under greater Chinese control.
While China has gained an impressive economic presence in Angola,
its political and diplomatic influence is growing weaker by the day and
its soft power is rather weak, and that was written in 2011.
Recently, we've seen Angola,
borrowing more money maybe another $6 billion from Chinese sources.
The price of loan repayment unfortunately for Angola and for the 16 billion
that they had borrowed before, has probably gone up because the drop in
the price of oil so it's tougher for them to pay for those projects.
Angola there as I showed you that US, the market in the US has dropped dramatically,
in fact it's halved, so they need to be looking for other markets.
I'm sure the country is suffering quite badly because of this.
And China's share of oil exports has even dropped.
So President Dos Santos went to China in February this year 2016 to
renegotiate terms of a loan agreement in this new economic environment.
So I think, overall, the relationship remains robust.
China's Angolan model, from what we know, is now less popular in Angola,
especially as the price of oil drops, which increases the cost of those loans.
China has been very active in helping reconstruction,
reconstruct Angola through this energy for infrastructure.
And even though many people question this deep impact of Chinese investment
because of the corruption and the limited spillover of oil profits into society,
one would argue that at least China's footprint,
at least when China takes the oil, it leaves something behind,
roads, harbors and that's a benefit to the development of Angola.
While China has limited leverage, Angola does need money, and China is still
willing to loan it with very few questions about, where that money actually winds up.
But still in that environment,
Chinese oil companies have to fight really hard to succeed.
