The Asian Drivers and Angola

1
The Asian Drivers and Angola

• Renato AguilarGothenburg University, Sweden
• Renato.Aguilar_at_economics.gu.se

2
Understanding a relationship

• Several different approaches are important for
  understanding the relationship between Angola,
  on the one side, and China and India, on the
  other side.
• The structure of Angolas economy.
• The impact of oil markets.
• The evolution of trade.
• Angolas financial problem.
• The political economy of this relation.

3
The Structure of Angolas economy

• A number of features of Angolas economy are
  crucial for understanding the new relationship
  with Angola and India.
• Oil specialization.
• Macroeconomic instability.
• Financial problems.
• Relationship with the IMF.

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Oil Specialization

• Angolas economy is mostly oil

5
Oil Markets

• Three Different perspectives on Oil.
• China and Oil.
• India and Oil.
• Angola and Oil.

6
China and Oil

• Increasing energy demand because of rapid GDP
  growth.
• Strongly biased towards coal.
• Environmental considerations and international
  pressure to move towards oil and gas.
• In spite of improvements in the efficiency of use
  of energy and oil, demand is expected to grow at
  4.5 percent annually.

7
Angola and Oil

• Already the second largest African producer.
• Reserves 5.4 billion barrels.
• Reserves increasing faster than depletion.
• A rather well managed sector.
• A large state-owned firm, SONANGOL, a main player
  in this market and the regulator.

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The Asian Drivers in Angolas Oil.

• China is already Angolas second customer, and
  Angola a large provider for China.
• India has no significant imports from Angola.
• China is a junior partner in two blocks.
• India failed to acquire a participation in a
  block.

9
Trade

• Angolas exports are almost exclusively oil,
  diamonds, and gas.
• The main customer is the U.S. (decreasing
  followed by China (increasing) and the EU
  (decreasing).
• An increased diversification in exports

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• Imports are also increasing rapidly.
• China and India have increased their shares. But
  also Brazil. The EU has a decreasing share
  (exception Portugal) and more recently South
  Africa.
• An increased diversification.

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Financial Problems

• External Debt.
• Not too large (less than GDP).
• Short Profile. Mostly arrears and short-term
  loans.
• Unable too reach an agreement with the Paris
  Club.
• Angola is excluded from concessional financing.
  It has to borrow expensively in secondary
  markets, against oil.

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Chinese Finance and Investments

• A 2.billion credit with a 17-year maturity,
  including a 5-year period of grace, and a 1.5
  percent interest rate per annum.
• This is an Eximbank credit that excludes
  non-Chinese providers. Thus, the real cost is bit
  higher, but still much cheaper than usual
  financing to Angola.
• A few direct investments, mostly in trade and
  industry.

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Conclusions

• The empirical evidence suggest that India and,
  especially, China are rapidly increasing their
  shares in Angolas markets.
• To some extent this is a natural consequence of
  the rapid growth of two quite large economies.
• This is also happening in other markets around
  the world.

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Especial features of this process.

• This process is faster in Angola than elsewhere.
  But Angola is through a period of rapid growth
  and structural change).
• Especially in the case of China it has a strong
  financial dimension. But Angola has serious
  financial problems.
• There is an investment dimension.

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How important is this for Angola?

• Both China and India provide financing for a
  strategically important purpose infrastructure
  recovery and agricultural development.
• This financing was provided when most of the
  concessional financial sources were closed.
• Increased trade with China and India has led to a
  more diversified trade.
• The losers have been mostly the EU (exception
  Portugal) and, possibly, South Africa and other
  African partners.

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Are China and India playing an important role in
Angola?

• China has only a junior position in two blocks
  and India a minor position in the diamonds
  sector. This is unlikely to increase to
  significant positions.
• Angolas economic leadership has a decreasing
  interest in reaching a agreement with the IMF and
  the Paris Club, because the financing sources
  found in China and India, but also in Brazil and
  other non Paris Club countries.

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Possible risks

• The conditionality is different with the new
  partners.
• There is some conditionality Clear rules and
  controls for payments and use of the funds.
• Conditionality with the older partners was not
  unique and not necessarily consistent. Monitoring
  was poor and unsystematic.
• The leverage was small because the funds were
  small as compared to the needs.
• Effect on poverty unknown but possibly positive.