The Angola-mode: China in Africa - Resources for Infrastructure

In 2002, after the cessation of Angola’s civil war and proclamation of independence, its government approached various financial institutions in search of credit by which the country could be rebuilt.

Deterred by the prerequisites for credit required by the International Monetary Fund (IMF), the Angolan government turned to China to fund its post-war reconstruction process. Subsequent to 2002, until today, the People’s Republic of China has been one of Angola’s biggest sources for external finance.

Between 2004 and 2011, three banks financed Angolan infrastructure projects, the majority of which were undertaken by Chinese (State Owned Enterprises) SOEs: The China Export Import Bank (Exim), the China Development Bank (CDB), and the China International Fund Ltd.

China employs several different financing mechanisms, which provide resource-rich African countries (at least in the short term) with an attractive alternative to traditional Western financing options:

1) Export credits to support national exporters.

2) Natural resources-backed lines of credit (i.e., “Angola-mode”).

3) Mixed credits, where financing packages combine concessional and market- rate loans (i.e., a mixture of FDI and export credit).

These different credit extension mechanisms give Chinese SOEs and National Oil Companies (NOCs) leverage in resource ventures in Africa not typically utilized by Western corporations that are vying for the same exploration, extraction, and export rights.

China Exim Bank is the largest state-controlled, infrastructure financier of Chinese state-owned enterprises in Africa, in addition to being the third largest export credit agency in the world.

African countries, which do not have the financial means to back the loans they receive from China, utilize their resources as a guarantee through the Angola-mode. In turn, the China Exim Bank underwrites and services loans to both Chinese SOEs and African countries, which enter into infrastructure-for-resource contracts.

While the Angola-mode concept originated as a post-2002 moniker for China’s loans-for-resources subsidization model employed in post-war Angola, the term is now utilized in a blanket fashion for all the countries that enter into similar credit-for-resources programs with the Chinese government.

Since many African states such as Angola, have experienced issues with graft and corruption, the impact on the host countries is vigorously debated, especially because China supposedly maintains a “non-interference” policy with foreign governments.

The Angola production-sharing model acts as one of the support systems for the Chinese government’s Go Global strategy. The China Exim Bank creates credit lines for both Chinese SOEs and the governments of African host countries in which they are operating. The credit lines serve to pay for project overhead for the SOEs and provide a mechanism by which the African governments can purchase Chinese goods. In turn, the SOEs and NOCs simultaneously secure access to exploration and extraction rights to valuable natural resources, which include but are not limited to oil, timber, precious and non-precious metals

A more detailed explanation of the Angola-mode is as follows:

Subsequent to the host country’s determination of which infrastructure projects it feels are the most pivotal, its ministry of finance or a similar state apparatus will work in conjunction with the Chinese Ministry of Commerce (MOFCOM) to establish a framework agreement in which the terms of project development, loans (credit lines), and repayment terms can be established through the China Exim Bank in a fashion, which, at the outset, appears to be equitable to both states.

However it should be noted that frequently the African states that opt for PRC-backed infrastructure development lose a lot of their autonomy once the credit has been extended by the financial institution.

While African host countries “oversee” the project implementation in a limited fashion, the Chinese government “suggests” which Chinese SOEs are best suited for the proposed projects subsidized by the credit extension.

Creating a cost breakdown of specific infrastructure project types is difficult, since neither China nor the African countries they have collaborated with provide comprehensive data, which in turn paves the way for speculative deductions, versus allowing for the establishment of solid conclusions deriving from financial analyses.

In many cases China actually has more control over infrastructure projects than the African host countries themselves. It is also apparent that China profits in several different ways from the Angola-mode:

1) The credit lines they extend to African countries are utilized by those countries to purchase Chinese-manufactured goods

2) the repayment schedules often include interest structuring which is favorable to the Chinese lender

3) Repayment is made to China through exploration rights and natural resource concessions.

While China undoubtedly contributed to Angola’s post-war infrastructure development, the overall opinion among Angolans is far from positive, as may be reflected from journalist Rafael Marques de Morais’ experiences. He stated that more than 500 km of recently tarred, Chinese-built roadway, which he traversed, had totally decomposed in less than a year, and that this “was typical of China’s projects in Angola.”

With respect to China’s credit extensions to Angola, it is apparent that the benefits reaped by China far outweigh any socio-political or economic gains made by the West African state and the general population.

Thus in the case of China’s resources-for-infrastructure development projects in Angola, they have actually served to increase tension among the local population, and these dynamics have become more prevalent across the continent over the past decade as China’s presence increases.

While the Angola-mode does allow for superficial infrastructure creation, the collateral aspects of Chinese operations in LDCs such as Angola are questionable at best, and seem to indicate a one-step-forward, two-steps back devolution of Sino-African SOE operations, which are tightly bundled with resource-for-infrastructure financing packages.?

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