Chinese investments in Angola

95 Pages·2011·1.37 MB·English

Chinese investments in Angola,
a Neo-Liberal approach

Marjolein de Lijster
Zwanestraat 47a
9712 CK Groningen
Student nr.: 1461125
Groningen, August 10th 2011

Master Thesis
International Relations & International Organization
Rijksuniversiteit Groningen, faculty of Arts
Specialization: International Political Economy
Supervisor: Prof. Dr. H.W. Hoen
Table of Content
Table of Content 1
Abbreviations 2
Introduction 3
Chapter 1: Theoretical framework: Neo-Liberalism and the Washington Consensus 7
1.1 From Liberalism to Neo-Liberalism 7
1.2 The Washington Consensus 12
1.3 The Post-Washington Consensus 20
Chapter 2: The Angolan Economic Policy and Development 24
2.1 Angola’s historical background 24
2.2 Angola’s economic reforms 28
2.2.1. Economic development 1975-2000 29
2.2.2. Economic development 2000-2008 39
2.3 The Washington Consensus and Angola 45
2.4 China’s presence in Angola 56
Chapter 3: China’s Investment Pattern 60
3.1 China’s focus on outward FDI? China’s outward FDI policy? 60
3.2 Development of Chinese FDI in Angola?? 71
Conclusion 81
Bibliography 86
Appendix 92

1
Abbreviations
ANIP : National Private Investment Agency
BC : Beijing Consensus
BOP : Balance of payments
CCP : Chinese Communist Party
EXIM-bank : Export-Import Bank
FDI : Foreign Direct Investment
FOCAC : Forum on Chinese-African Cooperation
FPO : Foreign Portfolio Investment
GARE : Cabinet of Enterprise Re-dimensioning
GDP : Gross Domestic Product
IMF : International Monetary Fund
ISI : Import Substitution Industrialization
MFN : Most Favorite Nation
MOA : Memorandum of Understanding
MPLA : Movement for the Liberation of Angola- Labor Party
NFLA : National Front for the Liberation of Angola
NSCBF : National Stakeholders Capacity Building Forum
PAG : Program for Government Action
PES : Economic and Social Program
PERE : Program of Stabilization and Economic Recovery
Post-WC : Post-Washington Consensus
PRA : People’s Republic of Angola
R&D : Resource and Development
SEF : Program of Economic and Financial Restructuring
SEZ : Special Economic Zones
SMP : Staff-Monitored-Program
TNC : Transnational Corporation
UN : United Nations
UNITA : National Union for Total Independence of Angola
UNTAD : United Nations Trade and Development
USA : United States of America
WB : World Bank
WC : Washington Consensus
WTO : World Trade Organization

2
Introduction
“In almost every corner of Africa there is something that interests China. The continent is rich in natural
resources that promise to keep China's booming, fuel-hungry economy on the road.” .1

This quote from BBC news illustrates China’s interest in the African region. Communist China, led by
Mao Zedong (Mao) preferred a self-sufficient inward focused economy. With the empowerment of
Deng Xiaoping (Xiaoping) as Mao’s successor in 1977, a new policy was introduced. In 1979, the
initial year of China’s open door policy, China opened its economy to the world and became the
largest recipient of Foreign Direct Investment (FDI) among developing countries. Outward Chinese
investments have been required to maintain its ever expanding economy and to meet its demand for
natural resources. The rapid development and expansion of the Chinese economy and its
governments ‘Going Global Strategy’ initiative for Chinese enterprises in 1998 contributed to the
strong growth of Chinese overseas investments.2 One of the outcomes of the new policy was an
explosive growth of China’s economic engagement in Africa. The shift in Chinese policy created new
opportunities for Chinese FDI in Africa, and China became an important trade partner of Africa.3
According to the United Nations Trade and Development (UNTAD), trade between the two increased
from 11 billion US$ in 2000 to almost 40 billion US$ in 2005 and to 160 billion US$ in 2008.
Investments from China in Africa reached a level of 1.6 billion US$ in 2005, with Chinese presence in
48 African countries.4 The wish for development made African countries a potential market for
investment and trade. According to several economists, China’s main reason to invest in Africa is the
availability of natural resources, which are needed to nourish China’s rapidly-growing economy.5
Chinese FDI is very welcome in Africa because it comes with no ties and conditions involving ideology
or governance, in contrary to FDI inflows from western countries.6 China follows a no-nonsense
investment style when granting investments, it does not expect countries to meet conditions set by
the International Monetary Fund (IMF) and the World Bank (WB) to curb corruption and improve
economic management.7
The Chinese attitude toward FDI policy in Africa plays a crucial role in this master thesis. The
fact that China’s investment policy differs so much from other (potential) investors is what makes
this research so appealing. To get a better understanding of why and how China invests in a

1 ‘China in Africa: Developing Ties’, BBC news November 2007.
2 Meine Pieter Van Dijk, The New Presence of China in Africa (Amsterdam 2009) 17.
3 Dao Tuan Hiep, ‘Chinese investment in Angola’, Baltic business school (2008) 1-83, 7.
4 UDNP, ‘Asian Foreign Direct Investment in Africa’, United Nations (2007) 1-212, 56.
5 ‘The new Chinese Wave’ African Business (2008).
6 Hiep, ‘Chinese investment in Angola, 8.
7 Ian Taylor, ‘Unpacking China’s Resource Diplomacy’, Centre on China’s Transnational Relations 19 (2006) 1-34,
16.
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particular African country, and in order to narrow down the topic of China in Africa I will focus on the
Chinese influence in Angola. Lately, China has been active in Angola by donating substantial amounts
of Chinese FDI, contributing to Angola’s (post-conflict) recovery and development.8 China’s economic
overseas expansion is an appealing topic to write about, since its development strategy cannot be
compared to that of other nations. China has been very successful and has been able to expand to
various regions in the world. I have decided to focus on Africa in general, since it is the poorest
continent in the world, while focusing on Angola in particular. There are four reasons why I have
chosen to do research on the Chinese influence in Angola. Firstly, according to the ‘Statistical Bulletin
of China’s Outward FDI’ in 2007, Angola is one of the six sub-Saharan African countries in which
China invests most.9 China offers an enormous trade opportunity to Angola with an outward FDI flow
of 41,19 million US$ in 2007.10 Secondly, China has a strong desire to access natural resources like
crude oil and copper since its national supply is not sufficient. Angola possesses both crude oil and
copper reserves and this is what makes Angola attractive to foreign Chinese investors.11 Considered
should be that without long term vision and strategies Angola might not benefit from the Chinese
relationship in the long run as a result of exploitation. Thirdly, the People’s Movement for the
Liberation of Angola-Labor Party (MPLA) ruled the country since Angola’s independence of Portugal
in 1975. In 1976 the MPLA adopted Marxist-Leninism as its party ideology and maintained strong ties
with the Communist (Cold War) bloc. In the 1990s, the central committee of the MPLA approved the
introduction of a multi-party system in Angola, constitutional changes were made and Marxist-
Leninism was abandoned in favor of ‘Democratic Socialism’, a mixed economy based on the laws of
the market.12 This shift from Communism toward a more democratic policy might be very appealing
when investigating the existence of Neo-Liberal reforms. Finally, Angola experienced a civil war
between 1975 and 2002 causing a deterioration in the economic situation of the country, since the
purchase of military equipment was given priority by the MPLA.13 All four reasons combined with
Angola’s pragmatic (non political) relationship with China, makes Angola an interesting case study.
In order to be able to address the topic, ‘The Chinese influence in Angola’, in an appropriate
theoretical manner, the theoretical framework of Neo-Liberalism will be used. Neo-Liberal reforms
can lead to free trade, causing an increase in inward FDI, as can be shown by reforms imposed by
several South and Latin American countries. As a result of the Chinese expansion toward Angola, this
master thesis will try to assess the impact of Neo-Liberal policymaking on China’s influence in

8 Taylor, ‘Unpacking China’s Resource Diplomacy’, 19.
9 Ministry of Commerce of PRC, ‘2007 Statistical bulletin of China’s outward Foreign Direct investment’ (2007)
53-80, 60/61.
10 Ibidem, 60.
11 Philippe Ata, ‘China-Angola Relationship with Reference to the Construction Sector’, (2009) 1-121, 46.
12 Inge Tvedten, Struggle for Peace and Reconstruction (Oxford 2007) 53.
13 Ibidem, 72.
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Angola’s economic development. The Neo-Conservatives connected with Ronald Reagan and
Margaret Thatcher evolved in the 1990s into the Neo-Liberal ideology. Neo-Liberalists argue that the
justification for why a nation fails to develop lays with government policy due to corrupt public
strategies.14 Neo-Liberals favor the free play of market forces and a minimal role of the state in the
economy.15 They also advocate wealth creation for material prosperity, and their policies support
economic deregulation, privatization of government enterprises, low inflation, low government debts
and open domestic and international markets.16 In the early 1990s the IMF and WB arrived at a
consensus, Neo-Liberal policies were needed in order to develop less developed and emerging
market economies.17 According to WB records, Angolan reforms started in 1987 after the balance of
payments (BOP) and current account shifted into major deficits due to the fall in oil prices.18 In this
context it will be interesting to investigate to what extent Neo-Liberal changes have been introduced
in Angola, how and if these reforms can be linked to the inflow of Chinese investments and what the
possible consequences of it are for Angola. This leads to the research question: “To what extent can
Neo-Liberal economic reforms explain China’s presence in Angola during the period from 1987 until
2008?” This research is important because it does not only contribute to our understanding of
Chinese investments in Africa, it also gives us insight in China’s expansionary policy throughout the
world. Liberal reforms can lead to the development of a free market and positive investment climate
for foreign countries and companies. It will be Interesting to see to what extent Angola implemented
Neo-Liberal reforms and whether the reforms indeed contributed to China’s presence in Angola. The
demarcated time period stretches from 1987 when Angola started its reform program, until 2008
when new parliamentary elections were held in Angola. As a result of the end of the civil war in 2002,
the years after the end of the civil war will be very important in Angola’s developing process.

In order to answer the research question the master thesis will be divided in several chapters
in which sub-questions are answered. In the first chapter the question: ‘What is Neo-Liberalism?’ will
be discussed. To narrow down the concept of Neo-Liberalism, John Williamson’s concept of the
Washington Consensus (WC) will be introduced and clarified. The WC can be combined with Neo-
Liberalism because it refers to economic reforms that were prescribed specifically for developing
nations. After a historical introduction of the WC and it characteristics, four very important principles
of the WC (privatization, protection of property rights, trade liberalization, and liberalization of
inward FDI), will be clarified individually. In the third section of the chapter criticism on the approach
of the WC will be discussed just as the aspects of the Post-Washington Consensus (Post-WC).

14 David N. Balaam and Michael Veseth, Introduction to International Political Economy, (New Jersey 2005) 64.
15 Scott Burchill e.d., Theories of international relations (London 2009) 74.
16 Balaam and Veseth, Introduction to International Political Economy, 64.
17 Idem.
18 World Bank, ‘Transitional support strategy for the republic of Angola’, (2003) 1-42, 11.
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The second chapter is about the Angolan economic development. An answer will be
formulated to the question: “What kind of market reforms did Angola practice?” and “To what extent
were the imposed market reforms Neo-Liberal?”. Investigated will be if the four elements of the WC
are actually visible in the reform process of Angola. This chapter will also examine in which period of
the WC Angola can be placed. The expected outcome will be that the IMF has never been allowed to
supervise the Angolan economy directly, therefore the WC cannot have been completely applicable
in Angola and the Post-WC would be more relevant. The final section of the second chapter will focus
on Angola’s reasons for accepting Chinese interference/ investments and what the consequences of
Chinese investments in Angola have been. It is most likely that if the Chinese government does not
impose rules on Angola’s for instance human rights treatment before granting FDI, Angola will
continue accepting and preferring Chinese FDI for its economic development above FDI from
Western countries and institutions.
The third chapter focuses on China’s concerns to invest in Angola. The first section of the
chapter will answer the question: ‘How come China is so interested in investing overseas in Africa?’.
The second part of the chapter discussed the question: ‘What are China’s considerations to invest
and do business in a developing country like Angola?’. The characteristics of the Neo-Liberal
expansion as described in chapter one will be compared to the Chinese-Angolan case. The expected
findings of this chapter will be that Chinese economic intervention in Angola depends on the
profitability China experiences. This research will most likely show that if the Chinese government is
able to enrich themselves by investing in Angola, it will continue in doing so.
Finally in the conclusion a brief summary of all chapters will be given, the hypothesis will be
rejected or approved. The identification, description and analysis of books, articles, year reports from
the WB and IMF, and documentation of the Chinese and Angolan governments will be used in order
to formulate an answer to the research question.
This master thesis will reflect upon China’s successful investment policy in Angola. It is
evident that there are more connections between China and Angola than the investigated FDI flows.
However, this research will not only give us information on Chinese FDI in Angola, it will also inform
us about the strategy countries can use in order to experience economic transformations, and about
China’s political strategy in general.

6
Chapter 1: Theoretical framework: Neo-Liberalism and the Washington
Consensus.
In order to investigate to what extent Angola has experienced Neo-Liberal reforms, it is crucial to
have a proper understanding of Neo-Liberalism, what its characteristics are and where it comes from.
This way the features can be linked to the Angolan development process. In order to formulate an
answer to the question “What is Neo-Liberalism?”, the chapter will be divided in several sections.
First a historical introduction on the concept illustrates the shift from Liberalism toward Neo-
Liberalism, where after a general introduction on Neo-Liberalism and its characteristics is given. The
second section of the chapter will introduce, describe and criticize the WC. The same will be done
with the Post-WC in the final section of the chapter.
1.1 From Liberalism to Neo-Liberalism
According to Emanuel Kant (1724-1804), a German philosopher, commerce would unite
world citizens in a common, peaceful enterprise. He stated that: “Trade... would increase the wealth
and power of the peace-loving, productive sections of the population at the expense of the war-
oriented aristocracy, and… would bring men of different nations into constant contact with one
another; contact which would make clear to all of them their fundamental community of interests”19.
Liberals also argued that free trade is a more peaceful way to achieve national wealth and binds
states together in a diplomatic way.20 John Locke (1632-1704) an English philosopher and
enlightenment thinker, David Hume (1711-1776) a Scottish philosopher and enlightenment thinker as
well and Adam Smith (1723-1790) a Scottish social philosopher and one of the key figures in the
Scottish enlightenment, are some of the most important founding fathers of liberalism in the 17th
and 18th century. David Lock believed that the government was obligated to look after its citizens,
and Hume believed that human rationality contributed to the shift from small scale cooperation
toward the development of an international trade community.21 Adam Smith was in favor of
abolishing economic government intervention and commerce- and tariffs barriers by introducing the
concept of the ‘invisible hand’22. Liberals like Smith and Locke believed that free trade and the
division of labor contributes most to the economic development of a nation and gives capitalists the
opportunity to experience high profits.23 Locke and Hume believed as well that private property
contributes to economic prosperity and development. In Classical Liberalism civil society stimulated

19 M. Howard, War and the Liberal Conscience (Oxford 1978), 20.
20 Burchill, Theories of International Relations, 65.
21 Barry Stocker, ‘David Hume (1711-1776), Essays, Moral, Political and Literary (1758)’, Liberal Vision.
22 The concept of the invisible hand stands for the natural forces like competition that are able to guide free
markets.
23 Elizabeth Martinez, ‘What is Neoliberalism?’ CorpWatch (1996).
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the state and free markets, civil liberties were of major importance, and foreign trade supported
economic growth. During the 18th and 19th century, the separation of state and society and the
introduction of the laissez-faire24 approach were very important in liberal political beliefs.25 As a
result of the industrial revolution in the late 19th and early 20th century a new working class emerged.
Exploitation of this class became a widespread phenomenon since the political system did not bother
to intervene.26 Classical Liberalism triumphed during the 19th and 20th century, however this would
soon come to an end. During the first three decades of the 20th century, several Classical Liberal
thinkers like John Hobson (1858-1940), an economist, and Leonard Hobhouse (1864-1929), a British
Liberal politician, were proponents of forms of state-intervention in order to protect the unemployed
and homeless.27 Hobhouse introduced that ‘the right to work’ and ‘the right to a living wage’ were
equally important to ‘the rights of property’.28 This development combined with the impact of the
great depression in 1930 led to the development of a new era of Liberalism.
The British economist John Maynard Keynes (1883-1946) provided the economic basis for a
‘new’ form of Liberalism and challenged the ‘old’ approach of Classical Liberalism which became
threatened by the decline in economic growth.29 According to the British author and academic
Andrew Gamble, Keynesianism is regarded as the most effective economic and political strategy to
achieve and maintain capitalism.30 Keynes supported the idea of a mixed economy by letting go of
the laissez-faire approach, consequently a government’s move toward supporting common goods
became widely accepted in the world; Keynes provided the basis for Social Liberalism.31 Demand
needed to be stabilized and full employment needed to be maintained by using stabilizers and high
levels of public spending on welfare and defense programs.32 Social Liberalism was the result of the
shortcomings of Classical Liberalism to deal with development of the working class.33 According to
Social Liberalists, Liberalism needed to include social justice and it is the task of the state to look after
social characteristics like unemployment, individual liberties, health care, civil rights, support for
constitution and the welfare state.34 Keynes stated that full employment was necessary to develop a
capitalist economy, which could only be achieved with the support of the state. Not only Keynes was

24 The economic doctrine of Laissez faire is opposed to government regulation and intervention in economic
processes.
25 Gavin Kendall, ‘From Liberalism to Neoliberalism’, Centre for social change research (2003) 1-14, 4.
26 ‘The Intellectual History of Social Liberalism: The Properties of Life and Liberty in Industrial Society’,
Associated Content, (2007) 1-5, 3.
27 ‘The Intellectual History of Social Liberalism, 4.
28 Idem.
29 Martinez, ‘What is Neoliberalism?’.
30 Andrew Gamble, ‘Neo-Liberalism’, Capital and Class 75 (2001) 127-134, 129.
31 Martinez, ‘What is Neoliberalism?’
32 Gamble, ‘Neo-Liberalism’, 129.
33 ‘The Intellectual History of Social Liberalism, 5.
34 Keith Fauks, Political Sociology: A Critical Introduction (Edinburgh 1999) 73.
8
fond of full employment, also the British economist and social reformer William Beveridge (1879-
1963) was a proponent. In the ‘Beveridge report’ of 1942, he stated that full employment was crucial
for the funding of a social welfare program.35 Beveridge’ social program combined with the
Keynesian economic theory of fiscal regulation, state control of the means of production and direct
control over manpower, were the main characteristics of Social Liberalism. Government intervention
could mediate in the case of a future major depression and could control the economic trend of rapid
development.36 Scott Burchill states in his book ‘Theories of International Relations’ as well that state
intervention in the economy is crucial for markets to function; free trade, commercial exchanges and
liberal markets can only be the result of state policy and cannot emerge independently.37
Social Liberalism took a new turn after the Second World War. The main goal after the war
was to prevent an economic situation similar to the great depression of the 1930s. David Harvey
(1935), professor of anthropology and leading social theorist, was in favor of developing a new
economic plan in order to ensure peace and tranquility, since capitalism and communism both
failed.38 Free trade needed to be regulated under a fixed exchange rate (anchored by the US$) which
could be converted to gold at a fixed price.39 Internationally, the Bretton Woods40 agreements led to
the construction of a new world order, several institutions like the IMF and WB were set up in order
to stabilize international relations.41 Harvey described that worldwide acceptance needed to be
created, that it is a state’ responsibility to create economic wealth and to maintain welfare for its
citizens. According to Harvey, this new system of Liberalism could be referred to as ‘Embedded
Liberalism’, since it illustrates that market activities were influenced by social and political
constraints.42 Stanly Fischer, the author of the book ‘Modern Hyper- and High Inflations’, states that
while focusing on strong government interventionism during the 1950s and the 1960s, Embedded
Liberalism led to a stunning increase in economic prosperity.43 Nevertheless, Embedded Liberalism
soon would be replaced. As Harvey describes in his book ‘A Brief History of Neoliberalism’,
Embedded Liberalism started to show cracks in the beginning of the 1960s and became even worse
during the 1970s. Unemployment, inflation and several financial crisis, visible in North America,
Europe and Japan showed that the ‘new Liberal approach’ was no longer successful, even though

35 Liberal Democrat History Group, ‘Beveridge, Wiliam’.
36 ‘The Intellectual History of Social Liberalism, 4.
37 Burchill, Theories of International Relations 73.
38 David Harvey, A Brief History of Neoliberalism (Oxford 2005) 10.
39 Harvey, A Brief History of Neoliberalism, 10.
40 The Bretton Woods system was an international monetary policy of fixed exchange rates. It was initiated just
after the second world war and ended in 1971 when Nixon ended the trade of gold at a fixed price.
41 Harvey, A Brief History of Neoliberalism, 10.
42 Ibidem, 11.
43 Stanley Fischer, Ratna Sahay and Carlos Veigh, ‘Modern-Hyper- and High Inflations’, Journal of Economic
Literature (2002) 837–880, 837.
9