Download The Structure of Angola`s economy

The Asian Drivers and
Angola
Renato Aguilar
Gothenburg University, Sweden
[email protected]
Understanding a relationship
Several different approaches are important
for understanding the relationship between
Angola, on the one side, and China and
India, on the other side.
–The structure of Angola’s economy.
–The impact of oil markets.
–The evolution of trade.
–Angola’s financial problem.
–The political economy of this relation.
March, 2006
R. Aguilar
2
The Structure of Angola’s
economy
A number of features of Angola’s economy
are crucial for understanding the new
relationship with Angola and India.
–
–
–
–
March, 2006
Oil specialization.
Macroeconomic instability.
Financial problems.
Relationship with the IMF.
R. Aguilar
3
Oil Specialization
• Angola’s economy is mostly oil
6.3
51.7
48.3
93.7
Oil
Non-oil
Oil
GDP
March, 2006
Non-oil
Exports
R. Aguilar
4
Oil Markets
Three Different perspectives on Oil.
• China and Oil.
• India and Oil.
• Angola and Oil.
March, 2006
R. Aguilar
5
China and Oil
• Increasing energy demand because of
rapid GDP growth.
• Strongly biased towards coal.
• Environmental considerations and
international pressure to move towards oil
and gas.
• In spite of improvements in the efficiency
of use of energy and oil, demand is
expected to grow at 4.5 percent annually.
March, 2006
R. Aguilar
6
Angola and Oil
• Already the second largest African
producer.
• Reserves: 5.4 billion barrels.
• Reserves increasing faster than depletion.
• A rather well managed sector.
• A large state-owned firm, SONANGOL, a
main player in this market and the
regulator.
March, 2006
R. Aguilar
7
The Asian Drivers in
Angola’s Oil.
• China is already Angola’s second
customer, and Angola a large provider for
China.
• India has no significant imports from
Angola.
• China is a junior partner in two blocks.
• India failed to acquire a participation in a
block.
March, 2006
R. Aguilar
8
Trade
• Angola’s exports are almost exclusively oil, diamonds, and gas.
• The main customer is the U.S. (decreasing followed by China
(increasing) and the EU (decreasing).
• An increased diversification in exports
Other
Other
Korea
Korea
South Africa
South Africa
US
EU
EU
China
US
China
1977
March, 2006
2004
R. Aguilar
9
• Imports are also increasing rapidly.
• China and India have increased their shares. But also
Brazil. The EU has a decreasing share (exception
Portugal) and more recently South Africa.
• An increased diversification.
Brazil
South Africa
China
Brazil
US
China
US
South Africa
India
India
Other
Other
EU
EU
1997
March, 2006
2004
R. Aguilar
10
Financial Problems
• External Debt.
– Not too large (less than GDP).
– Short Profile. Mostly arrears and short-term
loans.
– Unable too reach an agreement with the Paris
Club.
• Angola is excluded from concessional
financing. It has to borrow expensively in
secondary markets, against oil.
March, 2006
R. Aguilar
11
Chinese Finance and Investments
• A 2.billion credit with a 17-year maturity,
including a 5-year period of grace, and a
1.5 percent interest rate per annum.
• This is an Eximbank credit that excludes
non-Chinese providers. Thus, the real cost
is bit higher, but still much cheaper than
usual financing to Angola.
• A few direct investments, mostly in trade
and industry.
March, 2006
R. Aguilar
12
Conclusions
• The empirical evidence suggest that India
and, especially, China are rapidly
increasing their shares in Angola’s
markets.
• To some extent this is a natural
consequence of the rapid growth of two
quite large economies.
• This is also happening in other markets
around the world.
March, 2006
R. Aguilar
13
Especial features of this process.
• This process is faster in Angola than
elsewhere. But Angola is through a period
of rapid growth and structural change).
• Especially in the case of China it has a
strong financial dimension. But Angola has
serious financial problems.
• There is an investment dimension.
March, 2006
R. Aguilar
14
How important is this for Angola?
• Both China and India provide financing for a
strategically important purpose: infrastructure
recovery and agricultural development.
• This financing was provided when most of the
concessional financial sources were closed.
• Increased trade with China and India has led to
a more diversified trade.
• The losers have been mostly the EU (exception:
Portugal) and, possibly, South Africa and other
African partners.
March, 2006
R. Aguilar
15
Are China and India playing an
important role in Angola?
• China has only a junior position in two blocks
and India a minor position in the diamonds
sector. This is unlikely to increase to significant
positions.
• Angola’s economic leadership has a decreasing
interest in reaching a agreement with the IMF
and the Paris Club, because the financing
sources found in China and India, but also in
Brazil and other non Paris Club countries.
March, 2006
R. Aguilar
16
Possible risks
• The conditionality is different with the new
partners.
– There is “some” conditionality: Clear rules and
controls for payments and use of the funds.
– Conditionality with the older partners was not unique
and not necessarily consistent. Monitoring was poor
and unsystematic.
– The leverage was small because the funds were
small as compared to the needs.
• Effect on poverty unknown but possibly positive.
March, 2006
R. Aguilar
17