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Chinese investments in Angola PDF

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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. 3 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. 4 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. 5 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). 7 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

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National Union for Total Independence of Angola initial year of China's open door policy, China opened its economy to the world 3 Dao TuanHiep, 'Chinese investment in Angola', Baltic business school . In the third section of the chapter criticism on the approach . Literature (2002) 837–880, 837
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Most books are stored in the elastic cloud where traffic is expensive. For this reason, we have a limit on daily download.