Angola: China's Complex Connections

Copyright © 2021 Energy Intelligence Group

Of all the Asian courtships in Africa this decade, China's relationship with Angola stands out by a mile, with two-way trade dominated by oil and construction totaling more than $25 billion last year. This wasn't obvious at the start: Beijing refused to recognize the ruling MPLA at independence in 1975, trailed India in establishing diplomatic relations, and moved into the upstream sector two decades after Japan. And for all its reliance on China, Angola's government is determined to diversify its trade and diplomatic partners (EC Dec.14'07,p7). Angola exports some 800,000 barrels per day -- half its crude production -- to Chinese refineries, and was China's largest source of oil in June. Chinese entities have lent Angola more than $7.5 billion in oil-backed loans and credits since 2002, and while Western companies still dominate oil production, Chinese companies lead in the construction sector. Forget stereotypes -- especially that of resource-hungry tiger ruthlessly exploiting a weak African state. While China has deep pockets, its loans and project pipelines would not have functioned without state Sonangol's efficient crude trading and financial machine (EC Sep.12,p2). Moreover, Angolan President Eduardo dos Santos, who has controlled key business decisions since taking power in 1979, provides a stable investment climate, says a new report by the UK's Chatham House, A Thirst for Oil: Asian National Oil Companies in Angola and Nigeria. Private Angolan-Chinese business networks operating on parallel tracks have injected momentum and investment in Angola and abroad. While China supplied arms for years, the oil relationship took off when Angola's civil war ended in 2002. Beijing quickly recognized that the government needed reconstruction and development to maintain power, but was constrained by a bad debt record and rejection of Western governance conditions. The Chinese government cut its teeth in 2002 with a $150 million loan from China Construction Bank and China Eximbank. It then provided a $2 billion oil-backed loan in 2004 for energy, health, education, water and infrastructure (EC May31'02,p6). This helped oil company Sinopec secure a 50% stake in Block 18. Beijing extended the loan by a further $500 million, before signing another $2 billion facility in 2007. In sharp contrast to the many failed Asian oil-for-infrastructure agreements with Nigeria, China's deals with Angola have been implemented. Despite delays and arguments over quality and local content, they operated according to planned procedures and made a visible impact on development, analysts say. At the same time, other interests nurtured in the background between Chinese and Angolan elites extended borrowing -- and business -- into new realms. When Angola and Sonangol sought to tap commercial markets for additional funds in 2005, their hands were tied by commitments to other loans. Sinopec's banker, France's Calyon, circumvented this problem by using an intermediary company, China Sonangol (CS), as the borrower. This, and Unipec's debut as offtaker, enabled Sonangol to raise an unprecedented $3 billion (EC Aug.26'05,p9). In fact, Sonangol's equity in CS was limited to 30%, with the remaining 70% held by private Chinese investors through Beiya International Development. This loan paved the way for a $1.6 billion project finance deal in 2006 that enabled another joint venture, Sonangol Sinopec International (SSI), to develop Block 18. The same group of private investors featured in SSI. While Sinopec owns 55% of the venture, Beiya (subsequently renamed Dayuan) and CS control 31.5% and 13.5%, respectively. SSI went on to secure stakes in the relinquished parts of three choice deepwater tracts -- Blocks 15, 17 and 18 -- in 2006. It renounced them in 2007, transferring the assets first to CS International Holding, and then three new companies: SSI Fifteen, SSI Seventeen and SSI Eighteen. CS also took stakes in Blocks 3/05 and 3/05(a). The private group's influence is also evident in a $2.9 billion oil-backed credit package set up in 2005 to fund Chinese construction projects through China International Fund (CIF) -- believed to be an arm of Beiya International. In contrast to government loans managed by joint committees and ministries, this was coordinated by Angola's reconstruction office GRN, headed by the president's military intelligence adviser, Gen. Helder Vieira Dias Kopelipa. CS and CIF now form part of a bigger network of at least 40 companies amassing assets around the world. A US investigation, prompted by the acquisition of $700 million of real estate in Manhattan, tagged the network as "The 88 Queensway Group," as most of the firms are registered at the same Hong Kong address -- in the same building as the local headquarters of Calyon. The group includes China Angola Stock Holding, which trades Angolan oil and is linked to CS; Dayuan International Development; New Bright International Development, a shareholder in Beiya; China Sonangol Asset Management; and China Beiya Escom. The report, by the US-China Economic and Security Review Commission, cites potential links with Chinese military intelligence and state security offices, as well as to Algerian-born intermediary Pierre Falcone. Other notable directors include Sonangol President Manuel Vicente and Portuguese and Israeli businessmen. All have personal relationships with dos Santos. Chinese officials distance CIF from the government and describe it as purely private. Others say the relationships are too complex to reach such clear-cut conclusions, and hint that some private interests could be front companies. Christina Katsouris, London Compass Points • SIGNIFICANCE: China has built a dominant position in Angola by recognizing and servicing Luanda's needs for finance and construction -- areas in which China itself excels. The relationship has been oiled and diversified abroad by a shadowy group of people operating in a private capacity. • CONNECTION: Riding on the back of government business, private Angolan-Chinese networks have spread their investments well beyond Africa to the US -- where Chinese business expansion is viewed with concern -- and even Venezuela. • NEXT: For all its high profile and importance, the China-Angola relationship could be downgraded in the future given Luanda's strategy of diversification, and its move beyond post-conflict reconstruction into more sophisticated economic development. Here, India's strengths in information technology could prove more attractive.

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