Angola is in a severe financial predicament. As Africa’s biggest crude producer, a halving in oil prices put Angola’s government revenues and economic growth into a tailspin, prompting drastic government-spending cuts in 2016. Then, on 6 April, the country’s Finance Ministry announced it had to seek international financial support.
Two months later, the International Monetary Fund (IMF) mission chief to Angola, Ricardo Velloso, embarked on a two-week visit to the capital, Luanda, and offered US$4.5 billion in loans to help mitigate its budgetary shortfall.
On 1 July, Angola’s long-serving autocrat President Jose Eduardo dos Santos informed the US-based lender he was not interested in the loan and was walking away from negotiations. The question now is which sources the country will rely upon for desperately needed financial support.
Angolan government officials flew to London July 14th for a four-day road show. Goldman Sachs and Deutsche Banks organized meetings for them with a variety of financial institutions, investment funds and credit agencies. The Angolan Ministry of Finance should certainly be able to set up credit facilities for itself from a handful of these Western institutions to use as temporary relief.
Gemcorp Capital, a firm founded by former Goldman Sachs executive, already provided Angola a $300 million loan in May 2015, and is said to now be negotiating a loan for another $500 million. However, these amounts are a fraction of the nation’s financial requirements, and all indicators as to where to shortfall will be met point East.
Data published by the Angolan Finance Ministry shows that between November 2015 and June 2016 the state took on new loans worth US$7 billion from the Industrial and Commercial Bank of China, Export-Import Bank of China and the China Development Bank.
This helped them battle through the painful readjustments of dialing down their $100-a-barrel crude annual budgets. However, going forward, Angola is not betting on a rally. In fact, they’re gearing up for a third year, as it is believed that the abovementioned US$7 billion in loans were just the beginning, with recent guarantees from China of even more money likely on the way.
Looking back on the past few decades, this is far from unexpected. President Santos has cultivated close ties with China since taking office in 1979. According to the China Africa Research Initiative (CARI) of US John Hopkins University, Angola received US$21.2 billion between 2000 and 2014, which equates to a quarter of all loans China granted African countries in that time period.
Indeed, China’s hallmark in Africa of providing low-interest loans to commodity rich nations is often times referred to as the ‘Angola Model’. In light of recent events, it appears that for better or for worse, Angola is now set to remain the anchor of Sino-African relations for years to come.