End of 'Angola model' sees number of Chinese in oil-rich African country plummet

·6 min read

The number of Chinese people living in Angola is estimated to have dropped from a peak of more than 300,000 during a post-civil war construction boom to less than 20,000 as a new president recalibrates the African country's relationship with China.

When the Angolan civil war ended in 2002 after 27 years of destruction, it was China rather than the West that agreed to fund the country's reconstruction. That coincided with the Chinese government's going-out strategy, which encouraged state-owned or private companies to venture overseas.

The resulting infrastructure boom, especially in housing, roads and power plants, attracted several Chinese companies, and in 2004 Export-Import Bank of China pledged US$2 billion in oil-backed loans to fund reconstruction.

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In what came to be known as the Angola model, Luanda pioneered the concept of oil-backed loans as an easy way to access Chinese funding for the building of roads, hydroelectric dams and railways. It was successful until oil prices fell, forcing the country to pump more oil to service its debts.

In the interim, Angola became a star performer in sub-Saharan Africa, with its economy growing by an average of 11 per cent a year between 2001 and 2010 under president Jose Eduardo dos Santos, who stepped down in 2017 after 38 years in power.

In the early 2000s, Angola became Africa's biggest destination for Chinese capital, receiving US$42.6 billion from Chinese lenders - more than a quarter of China's total lending to African countries between 2000 and 2020.

But the boom was short-lived. When global oil prices plummeted to below US$50 a barrel in mid-2014 from a high of US$115 per barrel, the Angolan economy suffered. It fell into recession in 2016 and contracted for five consecutive years. The Covid-19 pandemic exacerbated the problem, and the country only narrowly avoided a debt default recently.

Joao Lourenco - also known as JLo - who replaced dos Santos as president in 2017, promised to reverse the nation's dwindling fortunes, diversify the oil-dependent economy and reduce its excessive reliance on China, describing economic diversification as "a matter of life or death" for Angola's long-term prospects.

In 2019, he admitted the concept behind the oil-backed loans the country had signed with China was not working.

"The thing is that such kinds of credit lines had a condition that the debt would be switched out with oil as a collateral," he said. "But today we are discontinuing such a practice ... advised by the IMF and the World Bank."

As president, Lourenco, a former defence minister and freedom fighter, has led an anti-corruption campaign targeting his predecessor's family and close associates that has seen a number of them charged, including Isabel dos Santos, the ex-president's eldest daughter, who stands accused of money laundering and mismanagement while head of state-owned oil firm Sonangol.

Researchers say the new government's change in attitude towards Chinese credit has contributed to a decline in the country's Chinese population, now estimated to have been reduced to less than 20,000.

"There are fewer and fewer Chinese citizens on the streets of Luanda," said Gilson Lazaro, an associate professor in the sociology department at Agostinho Neto University and an investigator at the Centre for African Studies at the Catholic University of Angola.

However, he said a few Chinese workers could be seen around some commercial projects, mainly outside the city centre.

"Most Chinese citizens in the city are outside the urban centre, in peripheral areas, in business or commercial projects," Lazaro said. "In some places you can say they are part of the Chinese trading community."

He attributed the exit of Chinese from Luanda to the end of employment contracts related to major construction projects. He said Chinese construction companies had maintained a notable presence in Angola during the past decade, with a particular focus on the construction of housing.

"Due to the end of contracts and changes in the priorities of the Angolan government, the Chinese presence has been substantially reduced to residual levels," Lazaro said.

Analysts say Angola's relationship with China has changed dramatically under the new government.

A 2021 study co-authored by Dominik Kopinski, an associate professor at the University of Wroclaw in Poland, said interviews had revealed "a great deal of uncertainty among the Chinese business community, who fear the cosy relations guaranteed by the dos Santos clique may prove to be a thing of the past given the volatility of oil prices and the allegedly corrupt nature of many of the deals in place".

"The so-called Angola model is now regarded not only as unsustainable, but as posing an existential threat to the stability of the Angolan economy," it said.

Kopinski, who is also a co-founder of the Polish Centre for African Studies, said Lourenco had made it clear that "the relationship with China got to the point where it was too cosy, too pricey and thus politically risky for the regime".

"There was some serious rethinking on the Chinese part too at roughly the same time, and the realisation came that China might have become simply overexposed in Angola, and debt sustainability might be an issue," he said.

"There are, for instance, rumours that when JLo made a trip to China in October 2018 asking for loans, the Chinese said that the lending spree was no more. Most importantly, the pandemic came and did the rest of the decoupling."

Kopinski, who has done extensive field studies in Angola, said that as loans ground to a halt, Chinese state-owned enterprises were cut off from financing and most had left or drastically curtailed their operations in Angola.

"Nowadays, maybe 10,000 to 20,000 Chinese are living in Angola, compared with 300,000 at the peak," he said. "But the truth is that you can barely see Chinese on the streets of Luanda these days, so the honeymoon is over, and the Sino-Angolan marriage of convenience has reached a turning point."

Marisa Lourenco, an analyst at Control Risks, a global risk consultancy, who focuses on southern Africa, said that as Chinese investors fled to other markets and workers left, "we are seeing the return of old partners to Angola", like Brazilian conglomerate Novonor, formerly Odebrecht, and Mitrelli from Israel.

She said no new Chinese projects had been announced under President Lourenco, and only Huawei, in the telecoms sector, was active.

"Lourenco has fostered strong ties to the United States and Germany as well as strengthening existing ties with old partners France and Portugal," she said.

However, Lazaro said Angola was still a long way from substantively reducing its dependence on China. "There has been movement in this direction, but there is still a long way to go before this can become a reality," he said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.