Engagement in Angola

The global economic crisis underscored the need for a G20 – not just a "G8" Group of Eight – and the growing significance of emerging powers in the global economy. Debates about the implications of these power shifts for global governance structures often overshadow the fact that diversification of international cooperation is also taking place at the country level. These power shifts are particularly evident in Angola.

Angola is one of the most important countries in Africa – not only for Western governments and companies, but also for China and Brazil. After the end of Angola's civil war in 2002, the government started to actively promote the diversification of its external relations. Today, China and Brazil are among the country's biggest trading partners, providers of loans, investments and development assistance alongside traditional actors such as the United States and European countries. China also overtook the United States as the biggest export market for Angola’s oil.

Supporting development in Angola: International actors, not aid, make the difference

From a development perspective, the biggest challenge Angola faces concerns the oil sector, which has little forward or backward linkages with the onshore economy. If oil revenues were invested in the domestic economy to foster more diverse economic and social development, Angola could emerge as a more prosperous nation.

Instead of funding investment in Angola, money is largely deposited in foreign bank accounts, where it remains within the hands of a small elite. In this respect, actions by financial and economic insitutions and a lack of financial transparency stand as the main obstacles impeding sustainable development in Angola.

For Western countries, Angola is a particularly difficult place to promote sustainable economic, social and political development: The country ranks at the bottom of human development indices. Meanwhile, revenues from the tremendous oil resources remain in the hands of the small elite, and corruption is widespread. Since development assistance accounts for less than 1 percent of Angola’s GDP, it is obviously not aid that can – and will – make a difference.

Due to Angola's oil wealth, the country’s elite class is also closely linked to the international economy and financial markets. International actors – states, banks and oil companies – therefore can and should play a key role in fostering more sustainable and equal development in the country.

New actors, old problems for development

In this regard, Brazil or China arguably do not create additional problems for sustainable development. Rather, their engagement poses problems for development in Angola similar to those of traditional actors’ policies. The interest of international companies and governments in Angolan oil resources reinforces existing state-society relations and exclusive political and economic structures.

In particular, financial transactions from commercial banks to Angola as well as the flow of capital from Angolan elites to foreign countries lack transparency. Both the West and emerging powers like China and Brazil are entangled in Angolan affairs.

Western countries provide loans to the Angolan government, while Western banks and an increasing number of Chinese commercial banks provide oil-backed loans to the national oil company, Sonangol. China and to a lesser extent, Brazil, provide package deals consisting of oil-backed financing and infrastructure investments to the Angolan government.

Though the level of transparency surrounding oil revenues has improved slightly in recent years and Sonangol’s revenues now figure into the budget, more must be done to clarify the relationship between Sonangol and the state and to track financial transactions.

Effective standards needed – for all actors

In this context, there is growing concern about a clash of norms and standards when it comes to the engagement of emerging powers, since these countries do not (fully) adhere to global governance structures that aim to regulate financial and economic transactions.

Growing competition between energy and business interests has also been a source of concern, and there are calls for more effective implementation of these standards. Existing standards and regulations, as well as global efforts, like the Extractive Industries Transparency Initiative (EITI), or the recent G20 initiative on tax havens, seek to address some of the problems.

China is often quite reluctant to join these efforts, while Brazil is an "easier" partner, whose policies are more in line with Western standards. Yet Western countries, for their part, struggle to agree on and effectively implement soft standards and regulations and to push the Angolan government to increase transparency.

The case of Angola reveals the close link between national development challenges and global governance issues. Western countries should therefore seek to develop common standards with emerging powers such as Brazil and China. At the same time, they should make progress in more effectively implementing existing soft standards, particularly those related to the transparency of financial transactions. In this sense, Brazil and China do not create new challenges for development; instead, old problems become more obvious.

Authors: C. Hackenesch/ Sarah-Lea John de Sousa

Christine Hackenesch is a researcher on bi- and multilateral development cooperation at the German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE). Sarah-Lea John de Sousa is an independent consultant.

The German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) is one of the leading think tanks for development policy worldwide. DIE draws together the knowledge of development research available worldwide, dedicating its work to key issues facing the future of development policy. The unique research profile of the DIE is the result of the cooperation between research, consulting and professional training. DIE is building bridges between theory and practice and works within international research networks.