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Apr 15, 2018

China has loaned Angola an estimated $60 billion dollars since the two countries established diplomatic relations back in 1983, making it one of the top destinations for Chinese financing in Africa. Angola is especially attractive for the Chinese because of its abundant oil reserves that it uses to pay back all those loans. 

Under normal circumstances, Angola should be well-positioned to manage its finances: the money it earns from oil would be used to pay off its debts and the country's economic development. The problem is that Angola actually generates very little cash from its natural reserves because much of its oil is never sold on the open market and is instead used to pay off all the Chinese debt, prompting a severe liquidity crisis. That is, there just isn't enough actual cash circulating in the economy which also explains why Angola struggles with some of the highest inflation rates in the world.

The government then goes back to Beijing to borrow yet more money and the problem worsens. 

With oil prices now bubbling around their 12-month high, China's loans to Angola are probably quite secure... for now. The problem comes if oil prices fall sharply, as they did in 2015, which would make it much harder for Angola to repay its massive debts to all those Chinese banks. This would likely replay what happened to the Chinese in Venezuela.

Just as with Angola, Beijing loaned Caracas around $60 billion with guaranteed repayments in oil rather than cash. Deals like that made sense when the price of oil was at $100 a barrel, not at $50 and below. Since oil prices cratered a few years ago, the Venezuelan economy has since imploded and China is no doubt being forced to write off billions in losses.

Their experience in Venezuela should offer a cautionary lesson to the Chinese when considering the vast amounts of money they are continuing to lend to Angola under many of the same circumstances.

Ana Cristina Dias Alves is an assistant professor at Nanyang Technological University in Singapore where she is one of the world's leading experts on Sino-Angola relations. She joins Cobus to explain why this relationship is so important to China and how it might change under Angola's new president João Lourenço.

Join the discussion. Are you worried about Angola's massive indebtedness to China or do you think Luanda has now become 'too big to fail,' and as such, will ultimately be bailed out by the Chinese to avoid another fiasco like that in Venezuela? Let us know what you think.

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