China's Strategic Investment In Angola: Understanding Motives

China has been investing in Angola since the end of the Angolan civil war in 2002. Angola's former president Jose Eduardo dos Santos invited China to invest in the country after Western governments declined to help with reconstruction. Angola's economy is heavily dependent on raw commodity exports, particularly oil and related products, and China has been its biggest trading partner in Africa. In 2010, China and Angola established a strategic partnership, and Angola joined the Belt and Road Initiative in 2014. Since then, Chinese firms have invested close to $12 billion in Angola, with just under half of that going into the country's energy sector. Angola owes Chinese creditors about $21 billion, and China has a vested interest in Angola's quest to diversify its economy.

Angola's OPEC exit

Angola's exit from OPEC, effective 1 January 2024, was primarily driven by the country's desire to leverage its oil resources for economic growth and its disagreement with the organization's production quotas. Angola has been a member of OPEC since 2007 and produces about 1.1 million barrels of oil per day. However, in recent years, the country has struggled to meet its output quota due to declining investment.

In November 2023, OPEC+ members, including Saudi-led OPEC and Russia-led non-OPEC nations, agreed to cut oil production by 2.2 million barrels per day starting in 2024. Angola's quota for 2024 was reduced by 350,000 barrels per day, which was below the country's November production level. This decision put Angola's goal of boosting and stabilizing crude production above 1 million barrels per day in conflict with OPEC's production quotas.

Diamantino Azevedo, Angola's Minister for Mineral Resources, Petroleum and Gas, stated that the cartel's quota system to control global oil prices "no longer aligns with the country's values and interests" and its "capabilities and needs." Angola's departure from OPEC is expected to reduce the organization's market share, which has already been impacted by the exits of other members and decisions to cut production.

Following its exit from OPEC, Angola has sought to attract investment and diversify its economy beyond oil. In December 2023, Angola signed an investment protection agreement with China and granted tariff-free access to its goods in the Chinese market. Angola owes Chinese creditors just under $21 billion, and Chinese firms have invested close to $12 billion in the country since it joined the Belt and Road Initiative in 2014. Angola's President Joao Lourenco has expressed interest in agricultural modernization and industrialization, and China has shown support for these initiatives.

Angola's debt to China

Angola's heavy reliance on oil exports and the need to diversify its economy have been key factors in its growing debt to China. In March 2024, Angola negotiated lower monthly debt payments with its biggest Chinese creditor, the China Development Bank. This came after a three-year debt payment freeze during the COVID-19 pandemic, which ended in May 2023.

The high levels of debt have led to concerns about debt-trap diplomacy, with critics arguing that China is using loans to gain influence over Angola and other countries. However, supporters of China's investment in Angola argue that it has helped enhance the country's fiscal capacity and triggered investment and growth in domestic sectors.

The relationship between Angola and China is complex and evolving, with Angola seeking to balance its economic interests with managing its debt burden. As of 2024, Angola was China's third-largest trading partner in Africa, and the two countries have continued to upgrade their bilateral relationship, indicating a desire to maintain strong economic ties.

Angola's desire to diversify its economy

To address this issue, Angola has implemented policies to foster entrepreneurship and diversify its economy. The country has invested much of its oil export earnings into infrastructure development through natural resource-based loans with China. Now that the infrastructure has been built, Angola is focusing on diversifying its economy away from oil. This strategy is evident in President João Lourenço's recent visit to China, where he secured support for agricultural modernisation, industrialisation, and economic diversification. Angola has also signed an investment protection agreement with China, and Angolan firms have gained tariff-free access to China's consumer market.

In addition to its efforts with China, Angola has worked with the European Union (EU) and the United Nations Conference on Trade and Development (UNCTAD) through the Joint Programme for Angola: Train for Trade II. This programme takes a holistic approach to economic development, aiming to diversify exports and the economy by linking Angola to regional and global value chains. The programme has trained over 3,300 Angolans, boosted non-oil exports, and contributed to a positive diversification trend in the country's economy.

Angola's diversification efforts are also influenced by the impacts of climate change, which threaten the country's economy and people. The World Bank's Country Climate and Development Report (CCDR) for Angola highlights the need to invest in climate resilience and intensify economic diversification. Angola has renewable resources, such as water, fertile land, solar, and wind potential, which can be leveraged to boost productivity in agriculture and fisheries, as well as increase renewable energy production.

China's interest in Angola's economy

China has a vested interest in Angola's economy, as Luanda owes Chinese creditors just under $21 billion. China has been a key partner in Angola's post-civil war reconstruction, providing loans for infrastructure projects in exchange for oil exports. Angola has been heavily dependent on raw commodity exports, particularly oil, and has sought to invest its returns in infrastructure projects through well-negotiated natural resource-based loans with China.

In recent years, Angola has been trying to diversify its economy and reduce its reliance on oil. In 2024, Angola left OPEC, signalling its intention to move away from oil as its primary source of revenue. China has supported this transition, with President Xi Jinping stating that Chinese firms could "help Angola achieve agricultural modernisation, industrialisation and economic diversification". Angola has plentiful reserves of base metals and ample agricultural resources, such as sugarcane, coffee, cotton and livestock, which have been neglected in favour of oil exports.

Chinese firms have invested close to $12 billion in Angola since it joined the Belt and Road Initiative in 2014, with just under half of this investment going into the country's energy sector. China has also provided tariff-free access to its consumer market for 98% of Angolan goods. Angola is one of the few African countries with a trade surplus with China, with a ratio of almost 6:1.

In addition to economic ties, China and Angola have a long history of diplomatic relations, which were established in 1983. Angola has been a key partner for China in Africa, and the two countries have continued to strengthen their strategic partnership over the years.

Angola-China relations

The history of Angola-China relations predates Angola's independence. During Angola's war of independence against Portugal in the 1960s and 1970s, China provided military aid and supported nationalist movements. Diplomatic relations were established in 1983, and since then, Angola's presidents have made several visits to China. In 2010, the two countries established a strategic partnership, and Angola joined China's Belt and Road Initiative in 2014.

Angola has received significant investment and loans from China, particularly for infrastructure development. Between 2000 and 2022, Angola borrowed approximately $45 billion from China, with a large portion going into the energy sector. This has helped enhance Angola's fiscal capacity and triggered investment and growth in other sectors. In recent years, Angola has attracted Chinese private investment in sectors such as mining, agriculture, and manufacturing.

During the COVID-19 pandemic, China provided debt relief to Angola, freezing loan payments for three years. Additionally, Chinese firms have been involved in several major infrastructure projects in Angola, including the construction of the Caculo-Cabaca Hydropower Station and the Dr. Antonio Agostinho Neto (Luanda) International Airport.

The relationship between the two countries has experienced some challenges, with Angola's desire to reduce its dependence on China and diversify its economy. However, China remains a crucial partner for Angola, and the two countries continue to work together to strengthen their strategic partnership.

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