The role of energy

Energy lies at the heart of Angola's exports to the BRICs. The energy needs for domestic industrialization and urbanization in the BRICs have created a convergence of commercial interests with Africa. Unsurprisingly, given that it holds the third largest proven reserves of crude oil on the continent (behind Libya and Nigeria), Angola's importance has been elevated.

Angola's energy reserves have proven particularly attractive to the BRICs given the manner in which the countries' emergence has coincided with the resurgence of the BRICs on the global stage. As such, unlike the case of Nigeria, for instance, where Western oil companies had established a mature position by the early 2000s, Angola's energy supply offered opportunities at the source. Subsequently, as both a cause and consequence of BRIC interest, Angola's proven oil reserves have surged from 5.1 billion barrels in 1999 to 13.5 billion barrels. Yet, interest in Angola's oil bounty has not been limited to these new emerging partners; the United States, facing real and perceived constraints with its oil supplies from the Middle East, has actively prioritized countries such as Angola in order to ensure medium-term energy security since the turn of the century.

Special partnership

China's trade has grown the fastest, is the largest and has proven far more stable than Angola's other partnerships. Of the BRICs (and for all of Angola's trade partners for that matter), China has undeniably made the most pervasive commercial inroads in Angola. Indicatively, Sino-Angolan trade expanded from $750 million in 2001 to a peak of $25 billion in 2008. In 2009, despite falling to $16.9 billion, China accounted for a truly remarkable 30 percent of Angola's total trade with the world – an increase from less than 1 percent in 1995. Importantly, last year, trade expanded to reach $24.8 billion. Thus, unlike other large trade partnerships (with both advanced and emerging partners), Angola's trade with China has proven relatively resilient, debunking views that Chinese engagements would be transitory.

China gained a first-mover advantage in the post-war years. At the time, the leadership in Angola needed to rebuild the country, preferring highly visible projects, which added to their political legitimacy. However, Angolan public and private sector funding was short. In addition, a poor record with international donors and multilateral organizations made avenues for funding elusive. China, behind the protection of non-interference in others' sovereign affairs that exemplifies its foreign policy, was equipped to find areas of mutual benefit where others couldn't.

Bilateral loans for Angola's infrastructure paid for through energy have spearheaded China's progress. According to the Chinese Ambassador to Angola, Zhang Bolun, three state banks (the Export-Import Bank of China, the Industrial and Commercial Bank of China, and the China Development Bank) have extended a staggering $14.5 billion in credit to Angola. These loans have largely been structured in the by now well-known "Angola Mode," whereby repayment is effected through access to Angola's oil exports.

Angola is China's second largest energy supplier behind Saudi Arabia. Over the past decade, Angola's exports to China have grown rapidly, from $700 million to $22.4 billion in 2008. In 2008, China usurped the United States as Angola's dominant export market. Subsequently, Angola's exports to China fell to $14.7 billion before returning to $22.8 billion in 2010. As such, Angola's exports to China have become Africa's second largest individual bilateral relationship.

Of China's three oil majors, Sinopec enjoys by far the most profound access to the Angolan market. Supplementing its already formidable presence in Angola, in March last year, Sinopec's Hong Kong unit agreed to purchase 55 percent of Sonangol Sinopec International Ltd. (SSI) from its parent company China Petrochemical Corp. Sinopec would then move to acquire a 50 percent stake in deepwater assets in Angola's Block 18 at a cost of $2.46 billion. SSI was established in 2004 following the acquisition by Sinopec of 50 percent of the BP-operated Block 18 in Angola.

More than oil

The relationship between China and Angola is more than simply about Angolan exports of oil. Consider that there are around 150 Chinese companies in Angola. It is believed that around 40 are state-owned, and the rest are private companies seeking commercial opportunities. As of December 2007, 51 Chinese firms were registered with the Angolan national investment agency ANIP. Over 50 percent of these firms were engaged in construction, and others involved retail trade of foodstuff products, manufacturing of rubber products, mineral water bottling and other light industries (Campo and Vines, 2007).

Between 2003 and 2007 ANIP was involved in the launch of over 1,000 Chinese projects, totaling more than $4 billion in investment capital. Chinese state-owned energy companies, and a host of private and state-owned construction, engineering, light industry and other firms, have gained significant traction in the Angolan market.

Construction is used as an entry point for international firms. Many firms involved in the national reconstruction program are now vying for private sector, World Bank and other government projects. Already, firms such as China Road and Bridge Corp. (CRBC), China Jiangsu, China Harbor and Sinohydro are dominant market players. According to Campo and Vines (2007), China Jiangsu and CRBC pledged $5 million and $1.1 billion of their own assets respectively for private sector projects in Angola. Sinohydro was also contracted by the World Bank to build a $20 million water supply network. The CITIC Group has made strong inroads into the low-cost housing market, securing the contract to construct the 20,000 unit Kilamba Kiaxi housing project (which includes 710 apartment buildings, 24 schools, a hospital a host of other facilities), costing some $3.5 billion. However, profits from the Kilamba Kiaxi project have not materialized according to CITIC's projections and the firm is looking to diversify into more lucrative areas, including agriculture. To this end, CITIC and China Development Bank are undertaking a $100 million agriculture project, which aims to produce food for local consumption.

China is Angola's dominant source of goods. Angola's imports from China have surged from just 45 million in 2001 to $2.9 billion in 2008, then falling to $2 billion in 2010. Nevertheless, the list of the main supplying countries in 2010 was headed by China, with 15 percent of the total, followed by the United States, Portugal, India, Brazil and Belgium, with the largest African partner being South Africa. Major imports from China are: electronic equipment ($340 million); machinery – connected to mining and construction – ($250 million); trucks, motor cycles and other vehicles ($215 million); iron and steel products ($250 million); cement ($150 million) and footwear ($100 million).

Chinese presence

The presence of Chinese nationals in Angola is not uncontroversial. China's economic integration has influenced a wide range of aspects of Angolan life. Quite clearly, the dearth of local capacity and skills in Angola as a result of the civil war has created opportunities for enterprising expatriates from a host of regional and international countries.

Unsurprisingly, given the speed and depth of China's immersion in the market, a sizeable expatriate community has emerged. Some estimates place the number of Chinese migrants in Angola at around 100,000. However, the manner in which the Chinese presence in Angola has mushroomed is creating frictions, particularly as many of the Chinese migrants are engaging in work which does not necessarily require the skills, which Angola is perceived to lack.

Given that the unemployment rate in the country stands at around 25 percent, and 45 percent of the population are under the age of 24, concerns that Chinese nationals could become the scapegoats for an absence of meaningful opportunity are real. In response, Chinese companies will increasingly look to invest in the development of local skills. Chinese telecommunications company Huawei, for example, set up a training center in Angola in 2008 for local sector professionals.

Quite clearly, despite rising competition, China's role and status in Angola's modern economic transformation remains prominent. For many, the manner in which China has prioritized commercial and diplomatic relations with Angola since 2002 has been emblematic of its grander African strategy. For its part, the Angolan Government has actively sought Chinese support for its ambitious, and ongoing, reconstruction agenda. The ability of Chinese companies to effectively transfer knowledge and skills to the local Angolan population will be crucial.

 (The authors are researchers with the Standard Bank)