ANGOLA: China entrenches position in booming economy


LUANDA, 17 Apr 2006 (IRIN) - The announcement earlier this month that Angola had overtaken Saudi Arabia as China's premier supplier of crude oil has underlined the deepening ties between the two red-hot economies.

Angola is sub-Saharan Africa's second largest oil producer, after Nigeria, pumping 1.3 million barrels a day (b/d) – a figure the government expects to rise to 2 million b/d by 2008. Record oil prices are ensuring double-digit growth, and the country is in the middle of a reconstruction boom after a ruinous 27-year civil war ended in 2002.

China has a significant stake in the Angolan economy. Angola exported 456,000 barrels a day during both January and February this year - accounting for 15 percent of China's total oil imports - outstripping both Saudi Arabia and Iraq, according to figures from Switzerland-based energy analysts Petromix.

Beijing's imports from Angola represent a 42 percent increase on comparable figures in the same months of 2005. China is the second largest consumer of Angolan oil after the United States, and under the terms of a US $3 billion oil-backed loan made by China's state-owned Eximbank, the country will remain a long-term importer of Angolan crude.

Last month, a new consortium Sonangol-Sinopec International, an enterprise jointly controlled by the Angolan government-run Sonangol oil company and China's Sinopec, won a multi-billion dollar contract to build a 240,000 b/d oil refinery at the southern port of Lobito.

Chinese companies have been at the forefront of Angola's reconstruction bonanza. A new airport is being built at Viana, just outside the capital Luanda, one-third financed by the government, the rest by Chinese interests. The war-damaged Benguela railway, which stretches from the Democratic Republic of Congo to the coast, is being rebuilt as part of a Chinese deal worth US $200-300 million.

The Asian powerhouse has also procured lucrative contracts to rebuild the nation's roads and a rejuvenated Angola Airlines is considering opening a direct route to Beijing.

Although Angola still has $9.7 billion in external debt, finance minister Jose Pedro de Morais said that finance from foreign credit lines will rise from $800 million in 2005 to US $5 billion in 2006 – most of which is earmarked for rehabilitating the country's crumbling infrastructure.

Foreign credit and high oil prices has allowed Angola to double its budget spending in 2006 to over $23 billion, compared with just $13 billion in 2005. Alongside China, Brazil, Spain, Portugal and India are also major lenders.

But despite bulging government coffers, most people remained mired in poverty. The United Nations estimates that 70 percent of the population live on less than $1 a day, and nearly half of children are severely malnourished.

Angola's social spending is below the average for Southern Africa but, says de Morais, it's increasing year on year. This year it accounts for nearly 30 percent of the budget – the largest single portion – up from 25 percent in 2004 and just over 12 percent in 2003. However, de Morais conceded that improving social indicators would take many years.

Although much of Angola's cash is down to its business with China - in 2005 bilateral trade reportedly reached $6.95 billion, primarily in oil, an increase of 41.6 percent on the previous year - Beijing's involvement in the country has not been free of criticism.

Civil society organisations have accused China of turning a blind eye to graft. International corruption watchdog Transparency International rated Angola 151st out of 158 countries reviewed in its 2005 annual corruption index.

Eximbank's $3 billion loan was criticised by the International Monetary Fund (IMF) and non-governmental organisation Global Witness as lacking transparency.

Nicholas Shaxson, Africa fellow of the UK-based think-tank Chatham House explained: 'Chinese lending ... has allowed Angola's government to manage on its own without IMF backing. Angola has used its huge economic potential to secure a number of oil-backed bilateral credit agreements with foreign governments - which further weaken the IMF's leverage.'

Chinese loans have allowed Angola to forego IMF lending that would subject government finance to greater scrutiny. Nevertheless, Jon Shields, Angola head at the IMF, said that even with foreign loans Angola's economic and social challenges remain formidable: 'The biggest challenge is to ensure that the money goes where it needs to go.'