An assessment of China’s role in South-South development cooperation (SSDC), examining investments and projects in Angola’s electricity sector

       eca86bd9ddb416e1d74b06Background

Several contemporary and historical developments have pushed developing countries in the global South, and particularly in sub-Saharan Africa, to seek new alternatives to traditional cooperation schemes. The now widely-embraced rejection of the Washington consensus, the issue of falling aid to development, the uncertainty engendered by transnational economic forces, combined with the fall in commodity prices and the tumbling price of crude oil, are just some of the factors compelling low-income countries like Angola to embrace new innovations hailing from the Orient, or indeed to jump ship entirely. And if one thing has become clear over the last century, it is that structural transformation is a condition sine qua non for economic development. What’s more, such transformation is by all means attainable, with the right mechanisms in place. But although dozens of countries have made serious and laudable attempts to catch up with higher income countries, only a small number have “made it”, and among this canny bunch, a select few have managed to secure growth at a truly vertiginous pace. The South Korean experience offers an interesting comparison with Angola, as in less than four decades, the former country went from an agrarian economy clobbered by war to an industrial frontrunner by the early 1990s.[i] China, with a hand today in the development process of many emerging economies (the focus of this essay), founded its own transformation in geographically diversified strategies to attain average annual growth rates just shy of 10% between 1978 and 2013, and has become a manufacturing superpower.[ii] Such a tour de force achieved in the absence of any significant international aid contributions does confer on China something of an a priori legitimacy in helping shape the future development strategies of countries most in need. At the very least, the country’s elixir-like ascent could surely offer some insights to long-struggling Angola, if not offer an altogether more attractive alternative to the tried, tested and often ineffectual North-South development model.

The aim of this article is to venture an analysis of China’s role, ‘using what it knows best’, in contributing to development of the electricity sector in Angola. A particular attention will be paid to: its investment in the electricity sector; the results obtained therefrom; how the schemes are financed; what the positive and negative implications are for Angola; and, what this all means for the country’s ongoing development.

  1. Context and overview of Angolan-Chinese development

Given that some 37 per cent of the Angolan population has access to electricity[iii] (compared to 40 per cent in other non-sub Saharan low income countries)[iv], there is still great potential for progress. By way of comparison, however, it was estimated in 2002, as Angola’s civil war was coming to an end, that only 15 per cent of the country’s 11 million citizens had access to electricity.[v] Today, the population has increased more than two-fold to over 24 million,[vi] but roughly 9 million of those have access to electricity. Chinese cooperation has undoubtedly made important contributions in Angola, and in Africa as a whole; a 2013 study showed that half of all Chinese commitment to infrastructure is earmarked for electricity.[vii] This is so in a context of other donors and development partners “neglect[ing] power since the 1990s” (Foster and Briceno- Garmendia, the World Bank).[viii] Another 2013 study showed that China has contributed to the production of 9 gigawatts of electricity generating capacity, the transformative capacity of which is evident when one considers that the cumulative power of 47 sub-Saharan African countries (excluding South Africa) amounts to 28 gigawatts (about the same figure as Argentina).[ix]

Between 2002 and 2014, Chinese loans to Angola amounted to 14.5 billion US dollars in total, spread across various economic and technical cooperation agreements, including hydroelectric projects led by companies such as Sinohydro.[x] Such contracts mostly involved improving or introducing the supply of electricity to various districts of the capital city, and generally speaking, the relationship between the two countries in such processes can be presented as follows:

Figure 1: The Angolan-Chinese development cooperation model[xi]

Capture d’écran 2016-05-30 à 20.29.04

  1. Chinese-Angolan electricity sector development cooperation since 2002

2.1 Emphasis on urban electrification

Chinese-Angolan development cooperation in the electricity sector intensified considerably from 2002 onwards (the year in which the civil war officially ended).[xii] In that year, China’s Exim Bank and the Chinese Construction Bank (CCB) indeed invested close to US$ 145 million into the expansion and rehabilitation of electricity networks in the capital, Luanda, and in three other cities (Lubango, Namibe and Tombowa), with a significant portion of the investment also going towards the rehabilitation of the 444km Luanda Railway. Although arranged through the government of Angola’s National Reconstruction Program, the Ministry of Finance is believed to have had very little input into the arrangement of these investments, particularly because the funding from CCB and Exim Bank was provided directly to Chinese firms.[xiii] Moreover, true to the Chinese South-South development cooperation model based on the idea of exchanges (hutong youwu: exchanging something I have for what the other has), the aforementioned projects were the result of “several rounds of oil-backed infrastructure loans”[xiv] financed at non-concessional rates (LIBOR plus a margin of roughly 1.5 per cent). Such loans did, however, help to finance imports of important machinery (mostly from China!) but, more importantly, they also helped the country rebuild its electrical infrastructure following decades of war. Indeed, China has further stepped up its commitment to electricity sector improvements, especially since 2009, in the southern suburbs of Luanda through the signing of a US$ 298 million contract, which has boosted electricity supply in areas previously suffering from chronic power shortages, in some cases up to four times a day.[xv] The installation of power distribution facilities, substations and transmission lines, initiated by the China National Machinery and Equipment Import and Export Corporation (CMEC), has also built on previous years of cooperation in the electrification process involving the rehabilitation of the grid system and installation of transmission lines.[xvi]

2.2 Diversification of electricity projects

Following an emphasis during the early years on electricity projects concentrated in and around the capital, the Angola-Chinese electrification projects gradually began to diversify. In 2006, Sinohydro – a Chinese state-owned hydropower engineering company – completed a US$ 5 million project, funded through a credit line from China, which saw the construction of a hydroelectric dam and irrigation channel in Gangelas and Chibia respectively, both over 700km south of the capital Luanda. The impact in the region was significant, with small farming communities in the Chibia municipality benefitting from increased access to water and electricity, thereby allowing for wider scale farming opportunities, notably in the cultivation of maize, massango, massambala, in addition to citrus fruits, leguminous plants, and vegetables.[xvii] Indeed, the Chinese investment helped turn a once remote area into a high production agricultural region, while benefitting close to 116,000 rural workers represented by 60 farming associations and cooperatives. By 2009, in the even more remote region of Dundo in the far north-east of the country, the installation of a hydroelectric dam in the early 2000s had had significant spill over effects; the growing demand for housing led Pan-China Construction Ltd to commence building works on a project that would see the development of a new city, with over 200,000 residences built.[xviii] More recently, in 2014, the inhabitants of Gangelas were reportedly overjoyed at the construction of a mini hydroelectric dam, alongside the previously installed larger one, in order to revive agro-industrial production in the communes that had not previously benefitted from electrification schemes. The mini barrage, capable of producing 1.8 megawatts of electricity, therefore supported the irrigation system to the benefit of local farmers and supplied the township with electricity for the first time.[xix]

Capture d’écran 2016-05-30 à 20.28.07In July 2015, it was announced that a consortium of the Chinese Gezhouba Group Corporation (CGGC) and the Portuguese Niara Holding had been hired to construct the Caculo Cabaça dam in the middle Cuanza basin (see Figure 2), funded through a US$ 4 billion loan from the Industrial and Commercial Bank of China.[xx] Projected to last just over six and a half years (80 months), the specifications of the work “provide for construction of tunnels, civil works, supply, installation and testing of electromechanical equipment.”[xxi] In conjunction with four other hydroelectric projects (Zenzo 1, Zenzo 2, Tumulo do Cacador and Luime), the overall program is set to bring total hydropower electricity generation to 7,000 megawatts, and represents a serious effort to develop the long-neglected Middle Cuanza region.[xxii]

 

  1. Measuring the impact of Chinese-Angolan electricity projects

3.1 Increased effectiveness and opportunities

The impact of Chinese-Angolan development cooperation in the electricity sector has been positive in many respects. With electrification projects and the advent of hydroelectric power in Angola, China has contributed not just finances, but ideas, knowledge and implementation capacity. As has been mentioned, this South-South development cooperation model is largely based on “Resource for infrastructure” (RFI) deals, where loans for electricity projects are repaid with natural resources. The concomitant increase in oil exports to China have therefore allowed Angola in turn to increase its revenue, and gain access to relatively low-priced Chinese manufactured goods. Moreover, in its 2014 study reviewing the approach of RFI deals, the World Bank found such deals to be more effective than the conventional North-South aid approaches in that they can advance the development impact “years ahead of what would have been possible under any other model”.[xxiii] The authors did point out, however, that the real success of the RFI model depends largely on whether the projects themselves are properly structured and implemented. The aforementioned electricity projects have the advantage of being implemented over quite a short space of time, generally over a time span of between three and five years. Many African leaders have commended such an approach for leading to “inexpensive and tangible results”, often capable of coinciding with the political cycle in a democracy.[xxiv] More directly, Angolan citizens have benefitted from improved services and vastly improved power supply systems. The spill over effects of such a cooperation tool on local economic development, and on improved social stability, are not to be underestimated.

 

3.2 Inequitable distribution of benefits, corruption, poverty and unemployment

Notwithstanding increased opportunities and a demonstrable increase in access in many areas of Angola, the country’s government should remain wary of how the benefits of this new development model are being distributed. Indeed, about 66 per cent of Angola’s urban population currently has access to electricity, compared to 8.6 per cent of those living in rural areas[xxv]; the latter figure having scarcely changed in the past few decades, notwithstanding Chinese cooperation. The aforementioned electrification projects, building of dams and so on, are all positive developments, especially where they benefit rural populations, or areas very far from the capital (Gangelas, Chibia, Dundo, for example), but they have not yet been applied on a wide enough scale to significantly alter the urban/rural electrification disparity. It is also worth mentioning some stubborn features of the Angolan state that have scarcely improved since the intensification of Chinese investment in Africa from 2002 onwards.

For one, the country is still one of the world’s most corrupt and least attractive places in the world to do business; the World Bank’s Ease of Doing Business report ranks it 179 out of 189 countries[xxvi], while Transparency International’s most recent corruption assessment placed the country at 163 out of 168.[xxvii] By way of comparison, China holds a ranking of 27 out of 28 on Transparency International’s Bribe Payer Index, meaning that in this group of the world’s 28 wealthiest and most influential economies, firms coming from China are the second most likely to bribe when abroad.[xxviii] In the face of such statistics, it is hard to believe that the Chinese investment in electricity projects in Angola has not had some negative impact on the state of corruption in the latter. Since 2006, Angola’s corruption ranking has dropped 21 places.[xxix] The evidence surrounding corruption in electricity projects is meagre, and the aim of this essay is not to suggest that the illustrated correlation necessarily implies causality; nevertheless, the corruption culture potentially fostered between the two countries is reason enough to worry. Moreover, in October 2015, Xu Jinghua, the former co-chairman of the Chinese government-owned oil company, Sinopec, was arrested on corruption charges, on the same day that an investigation was launched into corruption allegations against Su Shulin, the former Sinopec chairman. The charges against Jinghua concerned inter alia bribing African officials and trafficking illegal arms during his time as a middle man between Sinopec International and its Angolan operations.[xxx] Such reports, that are by no means isolated, do beg questions about the propriety of historical and ongoing electricity cooperation schemes in which China is involved. Nevertheless, the current regime’s crackdown on corruption, spearheaded by President Xi Jinping, could augur well for Chinese-Angola relations, provided measures extend beyond the Asian country’s borders. The aforementioned investigations, and many others underway, are steps in the right direction.

It is difficult to directly measure the impact on poverty reduction of Chinese investment in the Angolan electricity sector, but a number of indicators paint a positive picture. By 2007, the construction and rehabilitation of both electrical and hydro-electrical infrastructure – initiated in 2002, as previously stated – had increased electricity access to more than 60,000 new users in Luanda alone,[xxxi] in addition to facilitating commercial activities and reconnecting regions of a country ravaged by decades of war. In the southern regions, the rehabilitation of electricity networks by Xangai Bell in Namibe and Tomboa, and the improved access to electricity and rehabilitation of rail systems in Lubango and Benguela, have shortened commuting times and facilitated the transport of goods.[xxxii] However, the working conditions in many of these sites have been the subject of investigations.[xxxiii] Nationwide, however, the gap between the rich and poor is getting worse, as a “yachts of rich elite” benefit, while the rural and urban poor suffer from the halving of oil prices in one year.[xxxiv]

Lastly, there is cause for concern about whether Chinese electricity projects are actually generating any local employment opportunities. On the contrary, many commentators believe that China uses its electricity and construction projects in Angola to tackle some of its own unemployment problems at home.[xxxv] Between 2004 and 2007, Angola issued 38,000 working visas to Chinese citizens, and by 2009, the number of skilled Chinese workers in Angola exceed the combined number of the Brazilian and Portuguese foreign workforce.[xxxvi] So, while one argument holds that Chinese firms, with their expatriate workforce, are more productive and perform longer hours than those that hire local staff, and the statistics suggest that there are over 100,000 Chinese workers in Angola,[xxxvii] one must ask the question about the state of unemployment among Angolans. The figures are calamitous. Angola’s official unemployment rate hit a nine-year high of 26 per cent in 2014, and is forecast to grow between now and 2016 to hit an all-time high of over 36 per cent in 2018.[xxxviii] Although the issue of indirect employment generated by Chinese electricity projects is as yet very under researched, Chinese scholars have pointed out the need for “better education and better training” among Chinese companies so that they abide by regulations on labour, social and environmental standards.[xxxix] Indeed, a stronger emphasis on training and development of capacities of African workers and/or managers would ensure the timely completion of projects that are currently dominated by Chinese workers.

 

3.3 The folly of oil-backed development projects

Finally, an improved electricity supply will over time allow Angola to diversify its economy away from the overwhelming emphasis on petroleum exports. Indeed, in 2014 non-oil sectors expanded by 9.7 per cent, whereas the oil sector expanded by 4.5 per cent.[xl] That said, the fact that so many Chinese-Angolan electricity projects are financed on the back of oil exports is proving something of a drag on the economy. GDP growth decelerated in 2015 to 3.8 per cent (down from 4.2 per cent in 2014[xli]), resulting in part from lower oil prices. The need to produce yet more and more oil to compensate for the loss engendered by these lower oil prices risks threatening Angola’s prospects for economic diversification. Moreover, the “Angola Model” of receiving massive lines of credit to fund electricity grid improvements and other projects seems inextricably linked to China, but with important conditions. Indeed, payment is “specified in oil with the requirement that that 70 per cent of project inputs be sourced in China”.[xlii] Furthermore, it was reported in March 2016 that Angola’s oil-backed debts to China have climbed to US$ 25 billion as the country struggles to make up money lost due to the 70 per cent fall in oil prices since the fourth quarter of 2014.[xliii] The real problem here is that no clauses were stipulated in the contracts of electricity and infrastructure development programmes for what happens when oil prices fall so low. Indeed, five years ago, few observers would have been able to predict such a tremendous drop. More worrying still, experts predict that the current rout of low priced oil barrels (fluctuating between as little as $27.12 and $45.19 since February 2016[xliv]) is expected to “continue until at least next year”.[xlv]

 

Conclusion

       Chinese investment in the Angolan electricity sector has been a force for good in many respects. Today, less than fifteen years after the end of a destructive thirty-year war, the electrical infrastructure has been rebuilt and upgraded, over a third of the country has reliable access to electricity, transport is better, and the Human Development Index (HDI) value and rank have both risen.[xlvi] China has made demonstrable contributions to such progress through its electricity sector investments. Simultaneously, however, the gap between the rich and poor in Angola has widened, the country has become more corrupt and less attractive to businesses, and unemployment there is on course to reach an historic high (while many claim the Chinese are using Angolan projects to solve their own employment issues). Indeed, at the crux of the problem seems to be the inequitable conditions of the Angolan-Chinese exchange. The so-called “Angolan model” is in fact cinching Angola to China because mounting debt and tumbling oil prices mean the former is now dependent on agreements that are looking increasingly one-sided. It remains to be seen whether Angola can succeed in bucking this trend, within or beyond its electricity sector.

 

 

[i] Andrea Matles Savada and William Shaw, US Country Studies, South Korea: Industry, 1990 http://countrystudies.us/south-korea/50.htm

[ii] Boussichas & Patrick Guillaumont, ‘Financer le développement durable – Réduire les vulnérabilités’, (2015) found on pp. 104

[iii] Angola, World Bank site, Access to electricity (% of population)

[iv] Fact Sheet : The World Bank and Energy in Africa, http://go.worldbank.org/8VI6E7MRU0

[v] Special Country Report, Forbes Global Magazine, Angola’s tormented path to petro-diamond led growth, 18 February 2002

[vi] The World Bank, Data: Angola, most recent figures from 2014

[vii] Boussichas & Patrick Guillaumont, ‘Financer le développement durable – Réduire les vulnérabilités’, (2015) found on pp. 107

[viii] Foster, Vivien, and Cecillia Briceno- Garmendia, (2010), Africa’s Infrastructure: A time for

transformation, The World Bank, Washington DC, 2010, pp. 25

[ix] Fact Sheet : The World Bank and Energy in Africa, http://go.worldbank.org/8VI6E7MRU0

[x] Nzimbu-Makamu, B. (2015). L’impact socio-économique et environnemental de l’exploitation des ressources naturelles en Afrique et le rôle de la Chine: Cas de la RDC et de l’Angola., found on pp. 58

[xi] Thompson, R. (2012). Assessing the Chinese Influence in Ghana, Angola. And Zimbabwe: The Impact of Politics, Partners, and Petro. Stanford University Center for International Security and Cooperation, pp. 74

[xii] Kiala, C. (2010). China–Angola aid relations: strategic cooperation for development?. South African Journal of International Affairs17(3), pp. 4

[xiii] Campos, I., & Vines, A. (2007). Angola and China: A Paradigmatic Relationship. Working Paper Presented at a CSIS Conference,“Prospects for Improving US-China-Africa Cooperation”, Washington DC, pp. 5

[xiv] Schiere, Richard. China and Africa: An Emerging Partnership for Development?–an overview of issues. No. 125. Working Paper, 2011, AfDB, pp. 121

[xv] Sinomach (2009). ‘CMEC successfully signed electrification project for southern suburbs of Luanda in

Angola’, http://www.sinomach.com.cn/en/MediaCenter/News/201412/t20141209_21758.html

[xvi] Hon, T., Jansson, J., Shelton, G., Liu, H., Burke, C., & Kiala, C. (2010). Evaluating China’s FOCAC commitments to Africa and mapping the way ahead: Centre for Chinese Studies, Stellenbosch University, pp. 27

[xvii] MacauHub ‘Angola: Chinese company builds Gangelas dam in Huila province’, 22 May 2008

[xviii] Hon, T., Jansson, J., Shelton, G., Liu, H., Burke, C., & Kiala, C. (2010). Évaluation des engagements de la Chine en Afrique dans le cadre du FOCAC et cartographie des perspectives d’avenir, Stellenbosch University, pp. 37

[xix] ANGOP, Installation d’un mimi-barrage hydroélectrique à Gangelas réjouit la population locale, 13 July 2014

[xx] Macauhub, Angola hires Chinese company to build hydroelectric plant, 1 July 2015

[xxi] Ibid

[xxii] Hydroworld.com, Angola plans five hydroelectric projects on middle Cuanza River, 9 November 2014

[xxiii] World Bank. 2014. Resource Financed Infrastructure: A discussion on a new form of infrastructure

financing. World Bank, Washington DC. Available here and found on pp. 14+ 75

[xxiv] Boussichas, Matthieu, and Patrick Guillaumont. “Financing Sustainable Development: Addressing Vulnerabilities.” (2015). Available here.

[xxv] Nzimbu-Makamu, B. (2015). L’impact socio-économique et environnemental de l’exploitation des ressources naturelles en Afrique et le rôle de la Chine: Cas de la RDC et de l’Angola., found on pp. 55

[xxvi] Nirit Ben-Ari, Africa Renewal, “Inequality clouds growing economy”, August 2014

[xxvii] Angola, Transparency International website

[xxviii] China, Transparency International website

[xxix] Perspectives économiques en Afrique 2007, OECD Publishing, 2007, pp. 146

[xxx] Reuters Africa, Hong Kong businessman under investigation amid Sinopec probe –Caixin, 15 October 2015,

[xxxi] Campos, I., & Vines, A. (2007). Angola and China: A Paradigmatic Relationship. Working Paper Presented at a CSIS Conference,“Prospects for Improving US-China-Africa Cooperation”, December 5, Washington DC, pp. 19

[xxxii] Baah, A. Y., & Jauch, H. (2009). Chinese investments in Africa: A labour perspective. African Labour Research Network. pp. 370

[xxxiii] Claude Kabemba, Open Society Initiative for Southern Africa, Chapter 5 – Working conditions and corporate social responsibility in Chinese-owned companies, 10 October 2012

[xxxiv] Joe Brook, Reuters, “Amid yachts of rich elite, Angola’s poor crushed by oil price drop”, 20 May 2015

[xxxv] Power, M., & Cristina, A. A. (2012). China and Angola: A Marriage of Convenience, Fahamu/Pambazuka. Pp.76

[xxxvi] Baah, A. Y., & Jauch, H. (2009). Chinese investments in Africa: A labour perspective. African Labour Research Network. pp. 367

[xxxvii] Rafael Marques de Morais, World Affairs Journal, The New Imperialism: China in Angola, March/April 2011

[xxxviii] IEconomics, Angola Unemployment Rate – Forecast, 2016

[xxxix] LIN, Justin Yifu et WANG, Yan. China’s Contribution to Development Cooperation: Ideas, Opportunities and Finances. Development, 2015, vol. 119. pp. 21

[xl] Mazivila and Muzima, African Economic Outlook 2014: Angola

[xli] African Development Bank Group website: Angola Economic Outlook

[xlii] Robert Looney, Angola Awaits is Arab Spring, Foreign Policy, 3 September 2015

[xliii] Reuters, Growing Chinese debt leaves Angola with little spare oil, 14 March 2016

[xliv] Ibid, and Prix du Baril, http://prixdubaril.com/

[xlv] Reuters, Growing Chinese debt leaves Angola with little spare oil, 14 March 2016

[xlvi] United Nations Development Programme, Human Development Report 2015: Briefing note for Angola, 2015

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s