Angola has borrowed US$42.6 billion from Chinese lenders – around a third of China’s total lending to African countries between 2000 and 2019 – which it repays in the form of oil shipments.
Oil makes up 90 per cent of the country’s exports, which leaves it vulnerable whenever oil prices fall.
Angola’s troubles can be traced to the deep economic crisis as a result of the downward cycle in oil prices since 2014 and Covid-19 has only exacerbated the problem.
At a 2019 event organised by the US-based think tank Council on Foreign Relations, Lourenço said the concept of oil-backed loans was not working and said: “Today we are discontinuing such a practice … advised by the IMF and the World Bank.”
Angola’s President João Lourenço. Photo: AFP
But observers said it would not be easy to shake this dependence.
Dr Ana Cristina Alves, an assistant professor at Nanyang Technological University in Singapore, said Luanda will still be looking to Beijing for capital injections, but to a much lesser extent than in the past.
“Chinese interest in the Angolan economy will continue albeit more moderate in its scope given the difficulties faced by many investors since the liquidity issues from 2014 onwards,” she said.
However, she said the biggest challenge for the Angolan economy will be ensuring China still wants its oil.
In recent years China has been buying more oil from the Middle East but less from Africa, and Angola has a lot to lose since 70 per cent of its oil exports currently go to China.
For many years Angola was neck to neck with Saudi Arabia as the main source of Chinese oil exports, but it has now been overtaken by Russia and Iraq and is now equal with Brazil, which Cristina Alves said was a relatively new source of imports.
Cristina Alves said that there is no replacement buyer – its second biggest market, India, only took 5 per cent of Angola’s oil exports last year – while oil still accounts for half the country’s GDP.
“So, Angola is not only highly reliant on China for development funding but also its whole economy depends on the stability of the current terms of the relationship. So, I’d say China will continue to play a major role in Angola’s economy for many years to come,” Cristina Alves said.
China has been willing to help Luanda, which received some debt relief from China Eximbank under the G20’s Debt Service Suspension Initiative.
It is also in line to receive at least US$6.2 billion in debt relief from China Development Bank and the Industrial and Commercial Bank of China over the next three years, according to the China Africa Research Initiative.
Meanwhile, the country has seen its oil production fall to 1.1 million barrels per day, from about 1.9 million barrels a day in 2008 and last month, Lourenço told the Financial Times that diversification was a matter of “life or death”.
China has helped rebuild the country’s infrastructure after a long civil war and has been a major creditor. Photo: Xinhua
Dominik Kopiński, an associate professor at the University of Wroclaw and the co-founder of the Polish Centre for African Studies, said: “The massive debt combined with the declining oil production and the new normal in the oil markets – all this has served as a watershed moment.
“China has acknowledged that it has become overexposed in Angola in this regard; Luanda, on the other hand, feels that with so much debt owed to China, betting on Beijing may be too risky for the regime’s longevity.”
He said Luanda desperately needs external financing but will opt for foreign direct investment rather than oil-backed loans.
“There are also clear indications that Angola will further move to diversify its international partners to avoid putting all eggs in the same basket; since the struggle for independence, diversification has always been the bread and butter of Luanda‘s calculations,” he said.
He said these efforts had yielded some results. The country is now working with the International Monetary Fund to rebuild the economy – after being at loggerheads for years – and Lourenço has instituted a series of reforms aimed at removing supporters of his predecessor Eduardo Dos Santos from government positions.
His anti-corruption crackdown has also seen Dos Santos’s son Jose Filomeno jailed for diverting money from the country’s sovereign wealth fund and his daughter Isabel sacked as chair of the state oil company Sonangol over claims she was siphoning off funds. She has denied the charges.
