US commitments to Angola highlight shifting strategies

13 Jun 2023- By Jon Marks , Marc Howard

Not since the Cold War have countries in the Global South featured so prominently in the thinking of the world’s major powers – something clearly visible in the shifting patterns in energy markets and renewable investments.

For many, that presents an opportunity. Angola’s President Jo?o Louren?o has sought to position his country as an investor-friendly environment and to convince critics he is serious about tackling corruption and other ills that flourished under his predecessor José Eduardo dos Santos (AE 484/7). This is a calculated effort to win support from donors and has already received a positive response in Washington and other capitals (AE 484/1).

In the latest sign of western support, the Export-Import Bank of the United States (Exim) approved a loan of more than $900m to Angola’s Ministry of Energy and Water for two solar PV projects with an aggregate capacity of some 500MW.

The funding was announced at the mid-May summit of the G7 – a club of major western economies – along with a $250m commitment from the US Development Finance Corporation (DFC) for the Lobito transport corridor linking Angola and Democratic Republic of Congo. Meeting in Hiroshima, Japan, the G7 also endorsed the Biden administration’s Partnership for Global Infrastructure and Investment (PGII) initiative – a potential counterweight to China’s One Belt, One Road initiative (BRI).

As its rivalry with Beijing continues to develop, Washington is painfully aware of the need to rekindle somewhat dormant friendships in Africa. It has some catching up to do, given the way China’s resource-oriented foreign policy has seen it provide extensive loans over the past two decades and become heavily involved in infrastructure development and military commitments (AE 481/26, 448/5).?

Beijing’s strategy has allowed it to secure a dominant position in key parts of the renewable energy (RE) and electric vehicle (EV) industries. It now controls a significant proportion of the world’s critical transition minerals and, perhaps even more importantly, more than 50% of global processing capacity for vital inputs such as lithium, graphite and copper.

Some in the West may view the provision of official finance to strategically important countries as harking back to a previous age, but it may be a necessary foreign policy tool if Chinese influence is to be successfully countered. It can also play well in the domestic arena – in the increasingly polarised world of US politics, the idea of helping American firms deal with Chinese competition is one of the few things that has bipartisan support in Congress.

Through policies such as the Inflation Reduction Act – a $370bn green subsidy package which is a flagship piece of legislation for the White House – the Biden administration has sought to take a lead. The European Union also has big plans to bolster its position in the EV market and other industries.

Countries in the Global South are not bystanders in this process. Heightened competition among the world’s most powerful blocs means countries with significant critical mineral resources can play the superpowers off against each other.

Debts and gratitude

The two recent US agreements in Angola show how Luanda might be able to use its non-aligned status to its advantage during what some have termed the ‘new Cold War’. In office since 2017, Louren?o has sought closer ties to the US to reduce Angola’s reliance on China, its principal patron since the civil war ended in 2002 (AE 484/8).

Debt looms large in this equation. Although China has greatly reduced its provision of bilateral loans to Africa, its previously formidable risk appetite has left countries with large debts which are not always sustainable – not least in relation to Angola (AE 431/3). US-based William & Mary College’s AidData programme has estimated that ‘hidden’ Chinese debt – under-reported bilateral loans – could account for up to 12% of Angolan GDP (AE 448/3).

According to?London think tank Chatham House, Luanda took on $42.6bn of Chinese debt in the two decades to 2020, making it the African country most indebted to Beijing. Some have heavily criticised the opacity of these loans.

In an article published by hawkish Washington think tank the Hudson Institute in February, senior fellow Thomas Duesterberg and Angolan journalist Rafael Marques de Morais said they “suspect odious debt from the previous highly corrupt Angolan regime” accounted for at least some of the debt burden.?

Much of this debt was structured under pre-export finance terms in exchange for crude produced by national oil company Sonangol. It is not known how much of Angola’s crude is involved, nor whether it includes discounts on market prices. China remains by far the leading offtaker for Angolan oil, even though Beijing has increasingly turned to bargain-basement Russian crude following the latter’s invasion of Ukraine.

A paper released in March by AidData and the World Bank Group included details of a $6.1bn, 12-year ‘rescue loan’ – debt characterised by opacity and high interest rates – from China Development Bank to Sonangol in 2016. This was collateralised against oil exports, the paper said.

Louren?o’s pivot towards the US likely signals an intent to reduce its exposure to China. But it should not be mistaken for Angola choosing sides – ties with Beijing will still be important. That was highlighted in January by a $249m concessional commitment from Export-Import Bank of China for internet infrastructure. Now, though, Beijing is once more no longer Luanda’s only significant strategic partner.?

Set up news alerts to benefit from our latest insights