Tuesday, 28 July 2009

REVISITING ANGOLA AT A TIME OF ECONOMIC CHANGE

A perennial concern of economists and, prominently among them, economic historians, is the process of economic change. As North put it, “understanding economic change including everything from the rise of the Western world to the demise of the Soviet Union requires that we cast a net much broader than purely economic change because it is a result of changes (1) in the quantity and quality of human beings; (2) in the stock of human knowledge particularly as applied to the human command over nature; and (3) in the institutional framework that defines the deliberate incentive structure of a society.”

The expansion of China’s economic involvement in Africa, and especially in Angola, in recent years, provides a particularly interesting research field where changes in all three vectors underlined by North are taking place at an extraordinary pace. It was thus to investigate the role of China as a driver of economic change in Angola and to understand the process underlying it, through empirical research based on primary sources, that I recently traveled to Luanda.

I arrived in Luanda, my hometown, on the eve of Pope Bento XVI’s first visit to the country. On my way from the airport to where I would be accommodated, I couldn’t avoid to notice the relative cleanliness of the streets, in sharp contrast with the sighting of piles of rubbish everywhere for which the city was still unfortunately known at the last time I was there six years ago. The first sign of change, or just because the city is expecting the Pope’s visit? – That is a question that does not stay in my mind for long, as I am assured by permanent residents that Luanda’s sanitation and rubbish collection services have significantly improved in the last few years.

Making our way through the traffic jams that have now replaced the rubbish as the city’s most vivid nuisance, and as we climb Morro da Samba, just before arriving at Cidade Alta, I had my second striking encounter with the signs of change noticeable everywhere in Luanda: the unexpected imposing view of a brand new building, just close to completion. It is the new Palacio da Justica, which will serve as the headquarters for the country’s judicial institutions. The building, valued at about USD 42 million, was erected over a basic engineering structure left incomplete by the Portuguese at the time of Angola’s independence in 1975, having remained untouched until the Chinese constructor Jiangsu International was awarded its completion work in June 2007, as part of the current massive construction drive radically transforming the city’s landscape.

For that reason, I believe that, encompassing the oil industry’s boom fuelling the country’s recent economic growth rates, the highest in the continent, averaging 20% annually in the last few years, and over and above the currently observed decline of those rates as a result of the global economic downturn, this building will stand as a symbol of the changing times brought about by the, seemingly unparalleled on the continent, China’s footprint in Angola – even more so than the brand new headquarters of the state’s oil company, Sonangol, built between 2004 and 2007 by a consortium of South-African, Portuguese and South-Korean firms and currently being heralded as Luanda’s new ex libris.

These first observations were to remain on the back of my mind as I proceeded with the investigation of China-Angola economic relations, from an Angolan perspective, focusing specifically on the impacts of those relations, through the main channels of Trade, Investment and Development Aid, on Angola’s long-term economic development prospects.

However, one prior caveat imposes itself over my specific research concerns: in the case of Angola, it is extremely difficult to measure and forecast separately the expected developmental impacts through each of the selected economic channels to be investigated, due to the observed high level of bundling between trade, investment and aid flows within the existing institutional framework of the country’s economic relations with China.

That particular feature arises from the fact that economic relations between the two parties are shaped around a series of bilateral agreements, involving successive credit lines extended by China to Angola since 2004, mainly to finance reconstruction projects included in Angola’s Public Investments Programme (PIP) in exchange for oil and other mineral exports and requiring that 70% of all inputs to be used in the projects under these credit lines are sourced from China, in what has become known in some quarters as the “Angolan Model”.

The existing credit lines, currently amounting to an estimated USD 8 billion, with a further USD 1 billion pledged during President Eduardo Dos Santos most recent visit to China in December 2008, are managed in China by the Exim Bank, a government policy bank under the direct control of the China State Council and solely owned by the Chinese central government, and in Angola by the Gabinete de Reconstrucao Nacional (Cabinet of National Reconstruction - GRN), a body led by the Chief of the Presidential Military House, an army General, which is only accountable to the President.

With some provisional answers to some of my main research issues and questions, and still with a few others unanswered, I end my visit inclined to subscribe to my last interviewee’s point of view: “Given some political and institutional conditions yet to be fully met, China, alongside other international partners, can act as a positive driver for economic change in Angola.

I am also convinced, more than ever before, that in order to fully understand that process, it is always advisable to bear in mind, again resorting to North, that it is the admixture of formal rules, informal norms, and enforcement characteristics that shapes economic performance. While the rules may be changed overnight, the informal norms usually change only gradually. Since it is the norms that provide "legitimacy" to a set of rules, revolutionary change is never as revolutionary as its supporters desire and performance will be different than anticipated. And economies that adopt the formal rules of another economy will have very different performance characteristics than the first economy because of different informal norms and enforcement. The implication is that transferring the formal political and economic rules of successful western market economies to Third World economies is not a sufficient condition for good economic performance (...) It is culture that provides the key to path dependence - a term used to describe the powerful influence of the past on the present and future.

In particular, it ensues from that formulation that it is the formal rules and enforcement mechanisms to be enacted within the confines of the brand new Palacio da Justica in Luanda, alongside the informal norms embodied in the culture prevailing in the broader Angolan society, that will ultimately shape the economic performance brought about by the current process of economic change fuelled by the finance and investment flows from China.

Indeed, it is within the prevailing admixture of formal rules, informal norms, and enforcement characteristics particular to the Angolan state (let us not forget: a self-proclaimed ‘Marxist state’ until not that long ago) that both the Pope’s visit and the long strides the country still has to make towards long-term sustainable development ought to be contextualised. This is partially revealed in one of President Eduardo dos Santos’ addresses to Pope Bento XVI:

“We have tremendous challenges to surmount, such as poverty and unemployment, affecting respectively about 40 and 28 percent of the population; about 60 and 50 percent of people, respectively, don’t have access to clean water and energy and more than 50 percent don’t have proper housing. (...)The Roman Catholic Apostolic Church, that Your Sanctity highly governs, is the best positioned institution to help us in this task of educating the new man that Angola needs. A man with a solid moral and civic foundation, law-abiding and responsible for his actions, working consciously for the common good, in solidarity with the neediest and participating actively in the construction of a more just, dignified and equilibrated society.”

On his part, the Pope left this message to Angolans, an estimated 70% of whom are declared Catholics:

“My friends, armed with a heart filled with integrity, magnanimity and compassion, you can transform this continent, freeing your people from the scourge of greed, violence and disorder and guiding it through the path of those principles which are indispensable in any modern civil democratic society: the respect and promotion of human rights, a transparent government, an independent judiciary, a free media, an honest public administration, a network of schools and hospitals that function adequately and a firm determination, rooted in the conversion of the hearts, to end corruption once and for all.”

In spite of not professing any religion, I cannot but say: Amen.


[Full Article Here]


Echoed here and here.
A perennial concern of economists and, prominently among them, economic historians, is the process of economic change. As North put it, “understanding economic change including everything from the rise of the Western world to the demise of the Soviet Union requires that we cast a net much broader than purely economic change because it is a result of changes (1) in the quantity and quality of human beings; (2) in the stock of human knowledge particularly as applied to the human command over nature; and (3) in the institutional framework that defines the deliberate incentive structure of a society.”

The expansion of China’s economic involvement in Africa, and especially in Angola, in recent years, provides a particularly interesting research field where changes in all three vectors underlined by North are taking place at an extraordinary pace. It was thus to investigate the role of China as a driver of economic change in Angola and to understand the process underlying it, through empirical research based on primary sources, that I recently traveled to Luanda.

I arrived in Luanda, my hometown, on the eve of Pope Bento XVI’s first visit to the country. On my way from the airport to where I would be accommodated, I couldn’t avoid to notice the relative cleanliness of the streets, in sharp contrast with the sighting of piles of rubbish everywhere for which the city was still unfortunately known at the last time I was there six years ago. The first sign of change, or just because the city is expecting the Pope’s visit? – That is a question that does not stay in my mind for long, as I am assured by permanent residents that Luanda’s sanitation and rubbish collection services have significantly improved in the last few years.

Making our way through the traffic jams that have now replaced the rubbish as the city’s most vivid nuisance, and as we climb Morro da Samba, just before arriving at Cidade Alta, I had my second striking encounter with the signs of change noticeable everywhere in Luanda: the unexpected imposing view of a brand new building, just close to completion. It is the new Palacio da Justica, which will serve as the headquarters for the country’s judicial institutions. The building, valued at about USD 42 million, was erected over a basic engineering structure left incomplete by the Portuguese at the time of Angola’s independence in 1975, having remained untouched until the Chinese constructor Jiangsu International was awarded its completion work in June 2007, as part of the current massive construction drive radically transforming the city’s landscape.

For that reason, I believe that, encompassing the oil industry’s boom fuelling the country’s recent economic growth rates, the highest in the continent, averaging 20% annually in the last few years, and over and above the currently observed decline of those rates as a result of the global economic downturn, this building will stand as a symbol of the changing times brought about by the, seemingly unparalleled on the continent, China’s footprint in Angola – even more so than the brand new headquarters of the state’s oil company, Sonangol, built between 2004 and 2007 by a consortium of South-African, Portuguese and South-Korean firms and currently being heralded as Luanda’s new ex libris.

These first observations were to remain on the back of my mind as I proceeded with the investigation of China-Angola economic relations, from an Angolan perspective, focusing specifically on the impacts of those relations, through the main channels of Trade, Investment and Development Aid, on Angola’s long-term economic development prospects.

However, one prior caveat imposes itself over my specific research concerns: in the case of Angola, it is extremely difficult to measure and forecast separately the expected developmental impacts through each of the selected economic channels to be investigated, due to the observed high level of bundling between trade, investment and aid flows within the existing institutional framework of the country’s economic relations with China.

That particular feature arises from the fact that economic relations between the two parties are shaped around a series of bilateral agreements, involving successive credit lines extended by China to Angola since 2004, mainly to finance reconstruction projects included in Angola’s Public Investments Programme (PIP) in exchange for oil and other mineral exports and requiring that 70% of all inputs to be used in the projects under these credit lines are sourced from China, in what has become known in some quarters as the “Angolan Model”.

The existing credit lines, currently amounting to an estimated USD 8 billion, with a further USD 1 billion pledged during President Eduardo Dos Santos most recent visit to China in December 2008, are managed in China by the Exim Bank, a government policy bank under the direct control of the China State Council and solely owned by the Chinese central government, and in Angola by the Gabinete de Reconstrucao Nacional (Cabinet of National Reconstruction - GRN), a body led by the Chief of the Presidential Military House, an army General, which is only accountable to the President.

With some provisional answers to some of my main research issues and questions, and still with a few others unanswered, I end my visit inclined to subscribe to my last interviewee’s point of view: “Given some political and institutional conditions yet to be fully met, China, alongside other international partners, can act as a positive driver for economic change in Angola.

I am also convinced, more than ever before, that in order to fully understand that process, it is always advisable to bear in mind, again resorting to North, that it is the admixture of formal rules, informal norms, and enforcement characteristics that shapes economic performance. While the rules may be changed overnight, the informal norms usually change only gradually. Since it is the norms that provide "legitimacy" to a set of rules, revolutionary change is never as revolutionary as its supporters desire and performance will be different than anticipated. And economies that adopt the formal rules of another economy will have very different performance characteristics than the first economy because of different informal norms and enforcement. The implication is that transferring the formal political and economic rules of successful western market economies to Third World economies is not a sufficient condition for good economic performance (...) It is culture that provides the key to path dependence - a term used to describe the powerful influence of the past on the present and future.

In particular, it ensues from that formulation that it is the formal rules and enforcement mechanisms to be enacted within the confines of the brand new Palacio da Justica in Luanda, alongside the informal norms embodied in the culture prevailing in the broader Angolan society, that will ultimately shape the economic performance brought about by the current process of economic change fuelled by the finance and investment flows from China.

Indeed, it is within the prevailing admixture of formal rules, informal norms, and enforcement characteristics particular to the Angolan state (let us not forget: a self-proclaimed ‘Marxist state’ until not that long ago) that both the Pope’s visit and the long strides the country still has to make towards long-term sustainable development ought to be contextualised. This is partially revealed in one of President Eduardo dos Santos’ addresses to Pope Bento XVI:

“We have tremendous challenges to surmount, such as poverty and unemployment, affecting respectively about 40 and 28 percent of the population; about 60 and 50 percent of people, respectively, don’t have access to clean water and energy and more than 50 percent don’t have proper housing. (...)The Roman Catholic Apostolic Church, that Your Sanctity highly governs, is the best positioned institution to help us in this task of educating the new man that Angola needs. A man with a solid moral and civic foundation, law-abiding and responsible for his actions, working consciously for the common good, in solidarity with the neediest and participating actively in the construction of a more just, dignified and equilibrated society.”

On his part, the Pope left this message to Angolans, an estimated 70% of whom are declared Catholics:

“My friends, armed with a heart filled with integrity, magnanimity and compassion, you can transform this continent, freeing your people from the scourge of greed, violence and disorder and guiding it through the path of those principles which are indispensable in any modern civil democratic society: the respect and promotion of human rights, a transparent government, an independent judiciary, a free media, an honest public administration, a network of schools and hospitals that function adequately and a firm determination, rooted in the conversion of the hearts, to end corruption once and for all.”

In spite of not professing any religion, I cannot but say: Amen.


[Full Article Here]


Echoed here and here.

5 comments:

Cho said...

Very interesting piece!

I like the redesign of your site too!

I was struck by how positive your assessment was. From previous exchanges you have come across as slightly skeptical of the Angolan resurgence. As you know I have had nothing but praise.

I obviously agree with the North formulation, though I use much a different framework or justification for what constitutes a progressive or resilient society, perhaps largely due to my own Christian worldview. I think a strong society is essentially built on a tripod : strong markets, strong democracy and strong religious or cultural institutions. Its the final aspect that provides those informal rules, though trade-offs natural emerge across the three. The key is balance.

Anyway, in terms of Angola, I was surprise you didn't say much on the infrastructural and agricultural approach. In my view this is what sets Angola apart. Both have huge catalytic as well as direct benefits.

Good piece!

Koluki said...

Hi Cho,

Nice to hear from you on this.
I don't think that your framework is that far apart from mine or North's: markets and democracy all stem from institutions and they can only come as strong as those are. As for religion, in my view, it is part of culture, so it all fits within the same, or very similar, formulation, except that I or North might not necessarily restrict institutions to markets, democracy and religion - above all, the formulation is that whatever the institutional setup underlying economic performance and economic change, it must stem from each society, its culture, its religion(s) or lack thereof, and its history.

Now, my friend, if I ever came across to you as skeptical about economic development(s) in Angola... I haven't changed. If you read the full article, you will notice a number of issues and problems with the "China-Angola Model", key among them the lack of positive spillover effects to the economy in terms of technology transfer, local employment creation and generally national capacity-building.
The problem gets worse when we take into account that the "assault" on the already scarce economic opportunities for nationals doesn't come exclusively from the Chinese, but also from other "more traditional partners", such as the Portuguese and the Brazilians...

When you say "this is what sets Angola apart" in relation to infrastruture and agriculture, I'm not sure if you're referring to the economic structure generally or to Chinese investment. In any case, this was just an article that I wrote on my first impressions of Luanda this time and the most striking points from the interviews I made there. My visit, however, was part of a much broader research project which also involves sectoral analysis and that certainly includes the sectors you mention.

But you might like to know that this work is part of a continent-wide project being carried out by the African Economic Research Consortium (AERC), involving 12 countries, including Zambia. So, you may hear later in the year something more about it and specifically on your own country, as far as the involvement of China is concerned.

Cheers!

Nick said...

Can't really figure out wheather China's a blessing or a curse to Angola... just like oil?

Koluki said...

I wish I had a clear-cut answer to that one, Nick...

Koluki said...

Specially for Cho and anyone else interested, here's a little article by North on "Markets and Other Allocation Systems in History":

http://docs.google.com/Doc?id=dgkm3zmv_94fqkv85