8.3. The dynamics of China- Angola economic affair in perspective
8.3.2. Rogue Donor: Myths and/or realities?
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Dos Santos who was the Angolan president for 36 years since the Angolan independence had requested China in 2015 for a freeze of debt repayment. This happened as the debt-to-GDP ratio hit around 46% when his government was negotiating a new loan with the World Bank. At the same time, spending was already 40% lower than in 2014 and 2013 respectively and did cut across the rubbish collection and water sanitation allowing the spread of diseases in a country ranking 6th from the World Bank’s inequality index. At the time, the Dos Santos government had forecasted a budget deficit of 5.5% of GDP in the year 2016, premised upon the prices of oil that stood at $45 per barrel. But this was also based upon the rating agency Moody’s which placed the African nation-state’s credit rating under extensive review, intimidating a downgrade further into junk territory. The oil woes of Angola will never be unique: Iraq had also constructed debts of above $2 billion to oil companies after encountering problems with budget needs; Venezuela also has billion-dollar oil-backed loans from China whilst Kazakhstan and Russia borrowed extensively from Glencore and Vitol oil traders. With only a little portion of the leverage assets, there is a tiny room for manoeuvre. “Probably, there is no way out of this dilemma for many countries, and that they should have to live with less oil to sell” (George, 2016: online).
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Some have tried to capture the government assets outside the African nation-state.
The Angolans considered the IMF’s Poverty Reduction Strategy Papers (PRSPs) in the period post-2004 that sought to clean Angola to open a space for improving oil revenue transparency. China entered in Angola in the last two decades and offered Angola billions of dollars in aid. Flushed with a lot of cash, Angola then turned its back on IMF and took the Chinese aid that came with no attached strings. The story of China in Africa does not often go to an end without narrating this cautionary tale. It is without a doubt who ends up playing the villain. The current researcher shall muddle through this story by explicitly summarising it.
In this story, Jose´ Eduardo dos Santos, Angola’s president since 1979, begins using the state-owned oil company Sonangol as a cash cow to finance the war, political payoffs, and other state expenses. By the end of the war, Angola has taken out an estimated forty-eight oil- backed loans, nearly all arranged, very profitably, by respectable Western banks: BNP Paribas of France, Standard Chartered of the UK, Commerzbank of Germany, and so on. The IMF tries to wean Angola off its risky diet of expensive short-term loans (Brautigam 2009: 273- 278).
The IMF then requested Angola to anchor several reforms. This included a reform program that contained 44 benchmarks and conditions with the inclusion of liberalisation of trade and raise of income taxes. Such implementation of SAPs would ensure the loan approval that was to make Angola eligible for continued debt- rescheduling amid the international aid and the Paris Club. The Angolan commitment of reform to the IMF lasted for some time and included various reform commitments such as to “create greater transparency in oil revenues, turn over customs management to a British firm (Crown Agents), reduce fuel subsidies, raise water rates, rein in borrowing, and privatise several money-losing enterprises” (Brautigam 2011:
online).
But such commitments have proven over time that Angola kept failing the IMF set test, especially in the condition of stopping to borrow. With such developments, China entered this contested territory with an oil-backed loan in the past two decades offered
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through the Exim Bank in the year 2004. As a remarkably high-risk nation-state, Angola has historically been borrowing at a considerable premium of 2.5% over the London Inter-Bank Offered Rate (LIBOR).20 The Chinese loans over time have been offered at LIBOR with an added 1.5% premium. This allowed for reimbursement over 17 years with the inclusion of a grace period, far prolonged than the normal 4/5 years of the European Banks without any considerable grace period (Brautigam, 2009).
The most unusual feature of this type of aid has been that it is interpreted as not foreign aid. This is despite it being a wonderful rate that is also a credit line utilised completely for infrastructural construction, similar to the oil-for-infrastructural Japanese model deployed in China 4 decades ago. Angola opened to China because of the decades of war that destructed the nation-state’s road systems leaving them in a desperate state, 300 bridges were destroyed by bombs, farming fields and rural roads were planted with landmines, the urban infrastructure was also exotically deteriorated and streets were mostly in a collapsed state; including the raw sewage that sprinkled out of the unbolted gutters during the period of heavy rains and scampered along the alleys of the tumultuous shanty towns (Brautigam, 2011).
An initial look at whether China is a rogue donor as depicted by Western media through their various attempts of pictorially be-devilling China might not necessarily be completely true; even though Chinese loans are questionable and seek to recolonize the continent. The most questionable part relates to why they should be repaid with oil from Angola. As such, this research argues that Western banks and media alike are not victims in Africa’s resource extraction and the total scramble for Africa as they were there in Angola before China, providing cash flows for the ruling elite to access Angola’s oil. For the first time, the Chinese deal has not been with any risk and can be interpreted with a revolutionary eye for the African nation-state; as Angola is now able to trade its richest trade earner and translate it into development projects.
What can be deduced from all of this would be that the story of China in Angola nor Western countries in Angola is neither white nor black, without a victim, villain and a
20 The benchmark interest rate for international finance.
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clear verdict of guilty. It is also wrong that the Western media have taken a front step in speaking largely for African scholars in their various media headlines such as:
(i)“European Investment Bank Accuses China of Unscrupulous Loans,” (ii) “Wolfowitz Slams China Banks on Africa Lending,” (iii)
“China’s Taking Over Africa, and Why the West Should Be VERY Worried.” and (iv) “Chinese Aid to Africa May do More Harm than Good, Warns Benn.” (Brautigam 2009: 273- 278).
Alternatively, all these accusations have often reappeared in various official platforms and reports including in the European Parliament.