Chinese Loans To Angola: How Big Are They?

Angola has borrowed around $42.6 billion from China between 2000 and 2019, with the highest volume of loans in 2016, at $19 billion. The African country has relied on 256 Chinese loans as a source of funding in this period, with the state-owned oil company Sonangol also borrowing from China. Angola's debt to China is around a third of China's total lending to African countries between 2000 and 2020. This has raised questions about the nature of Chinese loans and infrastructure aid to African nations, as well as the consequences for their relations with the US.

Angola's debt reliance on China

Angola's reliance on Chinese loans to support its economy is a complex issue with significant implications for the country's future. Between 2000 and 2019, Angola borrowed approximately $42.6 billion from China, with the state-owned oil company Sonangol also borrowing from Chinese financiers. This amount accounts for around a third of China's total lending to African countries between 2000 and 2020. Angola's debt to China peaked in 2016, with loan commitments reaching $19 billion.

The country's dependence on oil revenue, which makes up 90% of its exports, has been a critical factor in its debt situation. When oil prices plummeted in 2020, Angola faced financial difficulties, and China agreed to a debt payment freeze until the second quarter of 2023. This moratorium provided much-needed financial relief, and Angola has since resumed debt repayments as oil prices have risen. However, the reliance on oil exports remains a vulnerability, and efforts to diversify the economy are lacking.

Angola's debt to China has been linked to corruption and state capture, with unscrupulous officials and businessmen in both countries diverting funds for personal gain. This has resulted in a lack of trust from Western lenders and has complicated Angola's relationship with the United States. The country's total debt to Beijing stands at a staggering $21 billion, consuming nearly half of its annual budget.

Despite the challenges, China has played a crucial role in Angola's reconstruction after the civil war, with Chinese workers building roads, bridges, and other infrastructure. However, the quality of some of these projects has been called into question, with a hospital in Luanda abandoned soon after completion due to structural concerns.

In conclusion, Angola's debt reliance on China is a double-edged sword. While Chinese loans have provided much-needed financial support for infrastructure development, they have also contributed to economic vulnerability, corruption, and complicated international relations. To reduce its debt burden, Angola may need to consider alternative sources of financing and address the lack of economic diversification.

Oil-backed loans from Beijing

Angola has received around $5 billion in oil-backed loans from Beijing to rebuild its infrastructure after its civil war. This is part of what has been called the "Angola model", which involves oil-backed loans to access Chinese funding for infrastructure development.

In 2008, Angolan President Jose Eduardo dos Santos travelled to China to seek new loans as tumbling world oil prices threatened the African country's plans for increased spending on infrastructure. Angola is China's biggest source of oil imports, and it has historically been easier for the country to borrow from China than from Western institutions.

In 2020, Angola cut the number of oil cargoes it shipped to Chinese state firms as it sought to renegotiate repayment terms to deal with the impact of the coronavirus pandemic. The pandemic, along with a global oil output cut deal led by OPEC, put the heavily indebted country in a fragile state, as it derives a third of its state revenues from oil. Angola's biggest creditor is China, with analysts saying the country has over $20 billion in bilateral debt, most of it owed to China.

In 2024, Angola's president Joao Lourenco travelled to Beijing for bilateral talks with Chinese President Xi Jinping. Lourenco appealed to China to help ease its debt troubles, saying:

> We addressed the problem of Angola’s debt to China, our desire to continue honouring our commitments and obligations as a debtor, but also the need for the creditor to help us get out of the suffocating situation.

Xi Jinping said China would help Angola "achieve agricultural modernisation, industrialisation and economic diversification".

Angola's debt servicing obligations

The country's heavy reliance on oil as its main source of income has made it vulnerable to fluctuations in oil prices. In 2008, Angola sought new loans from China as tumbling world oil prices threatened its plans for increased infrastructure spending. This dependence on oil has also impacted its ability to service its debt, as seen in 2024 when a decline in oil prices led to a funding gap that delayed wage payments to state workers for two consecutive months.

Angola's debt burden rose to 90% of GDP in 2023, up from 65% in 2022, and is expected to moderate to 70% by 2027. The country's interest cost is forecast to rise to 30% of revenue by 2027, one of the highest in the S&P Global Ratings portfolio of rated sovereigns globally. Most of Angola's debt-service payments in the coming years relate to debts owed to China, particularly oil-backed loans.

To manage its debt, the Angolan government has taken several steps. Firstly, they have increased prepayments on loans to China and hold liquid assets of $3.3 billion (4.7% of GDP) for debt-service repayments. Additionally, they maintain escrow accounts in China, estimated at $2.5 billion, specifically intended to repay Chinese creditors. The government is also in discussions with external banks to secure liquidity facilities to assist in meeting its repayment obligations.

Despite these efforts, high debt-servicing costs will keep Angola's reserve-coverage ratio lower than in the past decade. The country's foreign exchange reserves are forecast to cover an average of 4.4 months of current account payments from 2024 to 2027, down from an average of 6.6 months in the previous decade. This highlights the ongoing challenge Angola faces in managing its debt servicing obligations.

China's role in Angola's reconstruction

Angola's civil war, which lasted from 1975 until 2002, left the country in a state of ruin. The conflict, which was fuelled by the Cold War, natural resource rents, and ethnic tensions, resulted in the deaths of nearly 1.5 million people, the displacement of 4 million, and the destruction of infrastructure, agriculture, and essential services.

In the aftermath of the war, Angola approached the International Monetary Fund (IMF) for financial assistance but was denied due to its poor track record in economic governance. It was at this juncture that China stepped in, offering loans with "no strings attached" in terms of restructuring demands. Angola negotiated three credits from the China Eximbank totalling 4.5 billion USD, all used to pay for infrastructure guaranteed by Angola's oil production. This early interaction set a precedent for China's engagement in Angola and more broadly on the African continent.

Between 2000 and 2020, Chinese lenders provided 254 loans to Angola worth 42.6 billion USD, constituting over a quarter of China's total lending to African countries. This influx of capital, particularly in the construction sector, played a significant role in Angola's post-war reconstruction and solidified the ruling party, the Movimento Popular de LibertaCao de Angola (MPLA), and President Jose Eduardo dos Santos' power.

The credit line between China and Angola has facilitated over 100 projects in various sectors, including public works, fishing, agriculture, and transportation. One of the most ambitious projects was the rehabilitation of the road between Luanda and Uige, a 317-kilometre road valued at 211 million USD. While some criticise these deals as exploitative of Angola's vulnerable position and natural resources, China has nonetheless provided essential infrastructure for the country's development.

However, ordinary Angolans have largely been excluded from the benefits of this growth. Most government projects were concentrated in the capital city of Luanda, and efforts to decentralise the population and invest in rural areas and agriculture failed. The construction boom primarily benefited Chinese companies, and high rates of economic growth did not lead to a significant reduction in poverty.

In recent years, Angola's relationship with China has shifted. Angola, once a primary source of Chinese oil exports, has been overtaken by Russia and Iraq as China diversifies its sources of fossil fuels. Additionally, China has become more cautious in its lending due to debt troubles in several African countries. Angola's current president, Joao Lourenco, has been attempting to diversify the country's economy away from oil and reduce its dependence on China, seeking investors from the West.

Despite these changes, China and Angola remain partners. China continues to invest in strategic sectors such as technology, communication, and green energy. The Export-Import Bank of China, for example, is providing funding for Angola's national broadband network project. While the future of their relationship is uncertain, China has undoubtedly played a significant role in Angola's reconstruction, even as questions arise about the sustainability and impact of these projects.

The impact of Chinese loans on Angola's relations with the US

Angola's relations with China and the US have been complex and dynamic, with shifting alliances and competing interests. The country's dependence on Chinese loans has had significant implications for its relationship with the US.

During Angola's war of independence against Portugal in the 1960s and 1970s, China provided military aid and supported the nationalist movements, including the MPLA, FNLA, and UNITA. However, as China's relationship with the Soviet Union deteriorated, it withdrew its support for the MPLA, which was backed by the Soviets. Meanwhile, the US, concerned about the influence of external forces in Angola, continued to support the FNLA and UNITA through South Africa. Despite tensions between China and the US over their respective support for different factions, they shared a common interest in countering Soviet influence in the region.

Following Angola's independence, China struggled to normalize relations with the MPLA government, which remained closely aligned with the Soviet Union. In the 1980s, however, China announced its desire to improve relations with Angola, and formal diplomatic ties were established in 1983.

Since the end of Angola's civil war in 2002, China has become a significant economic partner for Angola, providing much-needed investment and development finance. Between 2000 and 2019, Angola borrowed approximately $42.6 billion from China, with the peak lending year being 2016. These loans have been primarily in the form of resource-backed loans, with Angola's state-owned oil company, Sonangol, guaranteeing repayment through oil sales. This has given China a strategic foothold in Angola's oil industry, with Angola becoming China's top oil supplier in 2006.

In recent years, Angola has sought to diversify its economy and reduce its dependence on China. Under President João Lourenço, relations between the two countries have cooled, with Lourenço promising to lessen Angola's reliance on Chinese investment. This shift could potentially create opportunities for the US to strengthen its ties with Angola, particularly in the economic and energy sectors. However, the complex historical dynamics and competing geopolitical interests continue to shape the relationships between these countries.

Frequently asked questions