Chinese investments in Angola,

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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

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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

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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

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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 TuanHiep, ‘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

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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.

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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.

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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.

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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.

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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 19}th_{and 20}th_{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

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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

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

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Embedded Liberalism brought high growth rates to capitalistic economies after the Second World War.44 The Keynesian approach was no longer successful and the Bretton Woods system of fixed exchange rates was abolished, which caused a boost of monetarist ideas like the containment of inflation.45 Several new theories began to develop varying from social democratic planning on the one hand, to liberating business power and restoring Liberal market freedoms on the other hand. The promoters of Liberal market freedoms and business power emerged as the leaders during the 1980s, and became the founders of the economic system called Neo-Liberalism.46

The shift toward Neo-Liberalism has been very important according to Harvey: “Future historians may well look upon the years 1978-80 as a revolutionary turning-point in the world’s social and economic history”.47 A small exclusive group of academic economists, historians and

philosophers worked together with Friedrich von Hayek (1899-1992), an Austrian political philosopher, and created the ‘Mont Pelerin Society’. This society wanted to displace the Classical Liberal theories of English political economists like David Ricardo (1722-1823) and Smith, but wished to maintain the importance of Smith’s view of the ‘hidden hand’ concept including taxation and regulation.48 In Hayek’s view, the increased role of government to provide economic security was the first step in the right direction.49 The American economist Milton Friedman (1912-2006), built upon Hayek’s foundation. His vision was that a government is supposed to preserve our freedom, however concentrating power in governmental hands, might cause a great threat to freedom.50 Neo-Liberals are opposed to Keynesian theories of state intervention; they believe that state decisions automatically serve the government and its politics.51 The Classical Liberal ideas like the ones from Hayek and Friedman, became increasingly popular after the break down of the Keynesian theory in the 1970s.52 In essence the new approach, Neo-Liberalism is a theoretical framework that refers to political, social and economic ideas. It is about simplifying trade between nations; Free movement of goods, resources and enterprises are important in order to find cheap resources and to maximize profits.53 Neo-Liberals argue that the explanation for why a nation fails to develop lays with the state as a result of irresponsible (corrupt) governmental policies.54 Burchill illustrates that markets rather than governments know what is in the best interest of people when it comes to the allocation of

Gamble, ‘Neo-Liberalism’, 129.

46

Harvey, A Brief History of Neoliberalism, 13.

47

Ibidem, 1.

48

Ibidem, 20.

49

50

Idem.

53

Anup Shah, ‘A primer on Neoliberalism’, Global issues (2010).

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resources.55 This is why in Neo-Liberalism, state intervention in already established markets, must be kept to an absolute minimum. A state should never be allowed to second guess market signals (like prices). Neo-Liberals favor the free play of market forces and a minimal role of the state in the economy.56 Gavin Kendall states in his paper ‘From Liberalism to Neo-Liberalism’ that Neo-Liberalism is closely related to theoretical models of the past 30 years. Neo-Liberals advocate wealth creation for material prosperity, and their policies support economic deregulation, privatization of government enterprises, low inflation, low government debt and open domestic and international markets.57

The introduction of Neo-Liberalism as a new economic regulatory public policy would not be united in the advanced capitalist world until 1979, when prime minister Margaret Thatcher of Great Brittan and USA president Ronald Reagan were elected. Both were chief practitioners of Neo-Conservative Liberalism and promoted free markets on an international level with minimal state interference except when security issues were involved.58 The movement was called Neo-Conservatism because in Great Brittan, this movement was related to the Conservative political party, nevertheless around the 1990s Neo-Conservatism became worldwide known as Neo-Liberalism.59 Thatcher, a disciple of Hayek, accepted the abandonment of Keynesianism and agreed that monetarist policies were needed in order to cure the stagflation England experienced during the 1970s.60 Deregulation combined with privatization were supposed to reduce the amount of state owned businesses and assets. Competition was the central value of Thatcher’s policy, it was supposed to allocate all various available resources.61 In the USA Reagan introduced tax cuts and focused on deregulation of markets in order to allow greater competition and freedom to determine prices.62 As a result of the widespread acceptance of deregulation and privatization in the 1990s, Reagan’s and Thatcher’s Neo-Liberal influence is visible all over the world. In the 1990, when the American economy revived, the Neo-Liberal thought was stimulated, it became incorporated with globalization and the policies of international agencies like the IMF and WB.63 Concluding can be said that Liberalism emerged slowly toward Neo-Liberalism. It transformed from Classical Liberalism to Keynesian Social Liberalism, to Embedded Liberalism and eventually to Neo-Liberalism with the acceptance of Liberal market freedoms and business power. In the early 1990s the IMF and WB

55

56

57

58

Ibidem, 63.

59

Idem.

60_{Harvey, A Brief History of Neoiberalism, 22.} 61

Shah, ‘A primer on Neoliberalism’.

62

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arrived at a consensus, Neo-Liberal policies were needed in order to develop less developed emerging market economies.64 The WC is one approach that tells us what policy needs to be followed in order to introduce Neo-Liberal policy options; Neo-Liberalism has been incorporated in the WC.

1.2 The Washington Consensus

Prior to the 1980s many developing countries were in favor of a strong governmental role in development policies. This was caused by the fear that world markets, ruled by strong economic powers, would put them in a disadvantaged position.65 Consequently, trade barriers were common and national investments were preferred over international investments. In the beginning of 1982 many developing countries lost substantial control over their economic development, when high interest rates caused a tremendous increase in their foreign debts.66 The governments of wealthy countries decided not to grand new loans until the receiving developing countries transformed toward the ideology of the free market.67 Mainstream politicians, economists and institutions like the WB and IMF agreed that Neo-Liberal reforms were crucial in the developing process of less developed economies.68 A consensus became generally accepted that free markets would provide the ability for poor states to develop, and exactly this became the main characteristic of the WC.69 The concept would be imposed upon developing countries in the form of Structural Adjustment Programs (SAP)70 which would be funded by the IMF and the WB.71

In 1989 the American economist John Williamson (1937) introduced the WC and became known as the founding father. The WC focuses severely on achieving economic growth by means of economic liberalization, macroeconomic stabilization, privatization, deregulation and several other institutional reforms.72 An American economist, Joseph Stiglitz (1943), states as well that macroeconomic stability, liberalization and privatization are the key features for a successful economic improvement in developing countries.73 The WC facilitates free trade and capital mobility, and it contributes to an increase in transnational corporate investments as well. Globalization, the process of liberalization and the integration of markets consequently caused the development of one

64

65_{Robin Broad, ‘The death of the Washington Consensus?’ World Policy Journal 16 (1999) 78-88, 79.} 66

Broad, ‘The death of the Washington Consensus?’, 80.

67

Idem.

68

69

Broad, ‘The death of the Washington Consensus?’, 79.

70

A SAP introduces changes to the economy of a state through liberalizations, by for instance promoting exports, reducing government subsidies, privatization of the public sector and controlling inflation.

71_{Walden Bello, ‘The Post Washington Dissensus’, Foreign Policy in Focus (2007) 1-6, 1.} 72

Richard Sandbrook, ‘Africa’s Great Transformation’, The Journal of Development Studies 41 (2005) 1118-1125, 1118.

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integrated world market, which can partially be accounted to the WC.74 The general ideas of the WC had tremendous impacts on the economic reforms of states. Williamson was convinced that debtor states needed to be helped to change their economy by overcoming their debt burden. However, decided was there would be preconditions, in the form of the introduction of several adjustments toward a market oriented economy, before the debtor states were granted aid and loans.75 The IMF was assigned to enforce the policies and the WB insisted on the implementation of similar reforms through its structural adjustment loans.76 Political and technocratic Washington of international financial institutions like the IMF and WB and senior members of the administration were able to form a consensus about the topics on development in Washington, this is why Williamson’s initiative is known as ‘The Washington Consensus’.77

The WC was initially developed for Latin America. After the Second World War, Latin America has been dominated by import substitution industrialization (ISI). ISI protected the emerging industrial sector and the state was responsible for the allocation of modern resources.78 The debt crisis of the 1980s showed the exhaustion of the ISI strategy, many Latin American countries experienced severe economic problems and the policy descriptions of the WC became very attractive in order to boost their economy.79 Structural reforms related to the WC were implemented based on deregulation, openness, privatization and minimizing the role of the government in the economy.80 According to Gregory Gleason, structural reforms are reforms with: “The goal to create a favorable policy environment for accountable, transparent government with a well-defined private and public sector working in mutual reinforcing ways to promote prosperity and sustainable development”.81 With the introduction of the WC Williamson introduced a list consisting of ten policy instruments a developing country needs to implement if it desires to reform economically.82 Even though the ten principles were foremost focused on Latin America, Williamson believes that they were generally applicable.83 Williamson noted that his ten points did not include all potential development policies; If there was no widespread support for policies he decided not to include them.84 All ten policy instruments will be discussed briefly and categorized by group. After the introduction of the first six

74

John Williamson, ‘Differing Interpretations of the Washington Consensus’, (2005) 1-29, 1.

75

John Williamson, ‘A Short History of the Washington Consensus’, (2004) 1-14, 1.

76_{Broad, ‘The death of the Washington Consensus?’, 80.} 77

Williamson, ‘A short history of the Washington Consensus’, 2.

78

Rafeal Correa, ‘The Washington Consensus in Latin America: A Quantitative Evaluation’, (2002) 1-36, 2.

79

John Williamson, ‘Differing interpretations of the Washington Consensus’, (2005) 4.

80

Correa, ‘The Washington Consensus in Latin America’, 2.

81

Gregory Gleason, ‘What is Structural Reform?’.

82

Moises Naim, ‘Fads and Fashion in Economic Reforms’, Third World Quarterly 21 (2000) 505-528, 505.

83_{John Williamson, ‘Democracy and the Washington Consensus’, World Development 21 (1993) 1329-1336,}

1322.

84

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reform measures, special attention will be paid to the final four policy reforms, privatization, protection of property rights and liberalization of trade and FDI. In this thesis they will be used as the major characteristics of the WC. The four features combined have a large impact on the investment climate of a country and on the amounts of inward FDI, therefore they will be reflected upon further on in this thesis as well when investing to what extent the Angolan development experienced Neo-Liberal reforms.

The first three reforms, fiscal discipline, reordering pubic expenditures, and tax reforms, all contribute to a decline in the fiscal deficit of a government. The features show that a balanced governmental budget is crucial for a strong economic development. The government needs to decide which expenditures gain priority and what the most effective way to receive money is; An effective government is necessary for a solid fiscal policy. The first policy reform of the WC is Fiscal Discipline. According to Williamson “Budget deficits should be small enough to be financed without resource to the inflation tax”.85 There is agreement in Washington that large and sustained fiscal deficits cause macroeconomic dislocation in the form of capital flight, BOP crisis and high inflation.86 Growing deficits and accumulation of debts cause macroeconomic volatility and costs. Macroeconomic volatility affects the long term growth of a state in a negative way. Confidence needs to be maximized and macroeconomic performances need to be boosted in order to develop. According to the WB, restoration of the fiscal discipline is crucial when preventing inflating taxes.87 Fiscal policy in developing countries is often associated with government failure to accomplish economic reforms.88 Williamson adds to this point that a small fiscal deficit is not necessarily the result of fiscal discipline, attention needs to be given as well to the demand and availability of private savings.89

Reordering Public Expenditure Priorities, the second policy recommendation of the WC, advices developing countries to redirect expenditure from political sensitive topics like defense and administration to previous ‘neglected’ areas with high economic profits.90 In order to cut a fiscal deficit the preference in Washington has been created to reduce public spending rather than to increase taxes.91 Investments are needed and subsidies are supposed to be granted to areas regarded as appropriate for government spending, like health care, education and infrastructure. As a result of an increase in public expenditure in the right sectors income distribution might improve, benefitting the economic ‘disadvantaged’.92

85

Williamson, ‘Democracy and the Washington Consensus’, 1332.

86

John Williamson, ‘What Washington Means by Policy Reform’, Institute for International Economics (2002).

87

The World Bank Group, ‘John Williamson The Washington Consensus as Policy Prescription for Development’.

88

Antonio Fatás and Ilian Mihov, ‘Fiscal Discipline, Volatility and Growth’, 1-34, 2.

89_{John Williamson, ‘What Washington Means by Policy Reform’.} 90

91

Williamson, ‘What Washington Means by Policy Reform’.

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Tax Reform the third policy reform introduced by Williamson, is the alternative to the decrease in public expenditure as a remedy to reduce the fiscal deficit. If taxes are used to finance public expenditures, tax reforms should be raised in a way that distortions are minimized. The WC supported the initiative to create a tax system that is able to unite a broad tax base93 with moderate marginal tax rates94. It is important to keep marginal tax rates low, because a high marginal tax rate might remove the willingness of employees to work harder, which might endanger and discourage business investments in the economy.95

The next three reforms all focus on the stabilization of prices, which can be done by deregulation, liberalizing interest rates and by creating a competitive exchange rate. The promotion of export is very important, whereby the removal of trade barriers and preventing capital flight are crucial. Liberalizing Interest Rates, the fourth policy perspective, suggests that interest rates should be market-determined and that real interest rates should be positive. As a result of positive interest rates, capital flight can be prevented and savings are able to increase.96 When interest rates are market-determined, they are set by markets in order to influence the amounts of investments. Changes in interest rates can create rapid shifts in investments, which on its turn affects the levels of output, unemployment and national income.

A Competitive Exchange Rate is the fifth feature. Just like interest rates, exchange rates can be determined by market forces. In Washington a consensus has been established that the actual achievement of a ‘competitive’ exchange rate is of greater importance than how the rate has been determined.97 In a developing country the exchange rate needs to be competitive enough to promote export growth, while keeping the current account deficit on a level low enough that it can still be financed.98 If the exchange rate is more competitive, it might cause unnecessary inflationary pressures negatively influencing the economic growth. Williamson believed that a competitive exchange rate is an important element of an outward oriented economy. The focus on export instead of import substitution contributes to the vision of the WC that export growth leads to growth in general.99

Deregulation, the sixth policy perspective illustrates that it is vital for a developing country’s economic development to ease trade barriers.100 Regulations restricting competition or slowing down the entry of new firms should be abolished in order to promote competition. The regulations

93

Tax base is a large sum of taxable activities, real estate and assets in a community that are subjected to tax

94

Marginal tax is the amount of tax paid on every additional dollar of income

95

96

Williamson, ‘What Washington means by Policy Reform’.

97_Idem. 98

Idem.

99

The World Bank Group, ‘John Williamson The Washington Consensus as Policy Prescription for Development’.

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designated for environmental protection and stability to govern prices in non competitive industries were not included in the deregulation process, the focus was on barriers influencing the entry and exit of markets.101

As I have mentioned previously in this section, the concept of the WC will be narrowed down by focusing primarily on four policy reforms of the concept: ‘privatization’, ‘property rights’, ‘trade liberalization’ and ‘liberalization of inward FDI’. According to Williamson privatization is a of major importance for the launch toward a Neo-Liberal transition process.102 When government power has been diminished as a result of privatization, the informal sector will be allowed to gain property rights if they are protected. Without the liberalization of trade and inward FDI, free trade would not have been possible. If all features are implemented consistently after each other, combined they will contribute to an increase in FDI inflow and a more stable path of economic development. All four characteristics affect the inflow of foreign investments in a positive way. Privatization, the seventh policy recommendation focuses on privatization of state owned enterprises and assets. Privatization is about transferring ownership of an enterprise or service from the public sector, to the private sector. The private sector exists of non-profit organizations and organizations that may operate for a private profit. Williamson argued that the private market is more successful and efficiently managed when producing and delivering goods and services. Managers in private enterprises are eager to gain profits, and the threat for bankruptcy prevents managers from initiating inefficient practices. Public owned enterprises for instance do not fear for bankruptcy as much, since they seem to have access to an unlimited quantity of government subsidies during heavy economic times.103 In the long run, privatization can lead to a decline in prices, improved quality, less corruption and more choices. Research on the topic described that privatization contributes to an increase in economic efficiency and profitability.104 Privatization has is dangers as well, it can result in a corrupt process when public assets are transferred to a privileged elite; However in general when privatization is performed correctly it brings economic benefits.105

The Protection of Property Rights, the eighths policy reform is strongly related to the previous one. It describes that the legal system of a developing country should provide the ability to secure and protect property rights at acceptable costs. This way, the ability is created for the informal sector to gain property rights as well.106 This reform recommendation has been inspired on Hernando de Soto (1941), a Peruvian economist, who based his developing program for the third

101

102

Williamson, ‘Differing Interpretations of the Washington Consensus’, 10.

103

The World Bank Group,‘John Williamson The Washington Consensus as Policy Prescription for Development’.

104_Idem. 105

Williamson, ‘A Short History of the Washington Consensus’, 3.

106

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world on property rights.107 Property rights are laws created by the government that describe how individuals can transfer and control their private property. A foreign enterprise for instance, will not invest in a country when they face the risk of losing their entire enterprise. Only when property rights have been established, implemented and protected, stating that the government is not allowed to expropriate foreign enterprises, a country will attract foreign enterprises. Protection of property contributes to the attraction of FDI and contributes to economic development of a developing country. Investments in private businesses will definitely be more likely when property rights are indeed protected.

The final two policy recommendations, trade liberalization and liberalization of FDI both have a strong influence on the trading position of a nation. If trade is not liberalized, it will automatically be less attractive for foreign investors to invest over there. Trade Liberalization is the ninth policy recommendation of the WC. Liberalization of trade is the proper development for the economic transformation of a less developed country. Williamson states that Washington achieved a consensus on the necessity of trade liberalization.108 A characteristic is the removal or reduction of various barriers that interrupt in the free flow of goods and services between nations.109 Tariff barriers like export subsidies and non-tariff barriers like quotas and licensing regulations, are supposed to be dismantled under trade liberalization. Privileged imports will disappear gradually causing an increase or decline in import quantities, in response to shocks that influence imports.110 Williamson states as well that quantitative trade restrictions should be substituted for tariffs, and that these tariffs should be reduced until a rate in the range of 10-20 percent is accomplished. Trade Liberalization is usually subjected to two prerequisites. The first complication concerns the ‘infant industries’, because they temporarily depend on a certain amount of strict government protection. The second complication concerns the amount of time a country needs to implement trade liberalizations.111 A highly protected economy needs more time to dismantle its protective measures than a slightly protected economy. The discussion remains whether the past of liberal development depends on how much the BOP can deal with, or whether a developing country needs to follow a prearranged program in order to develop.112

The final policy reform of the WC is liberalization of inward FDI. There are several definitions of FDI, however they do not differ much from each other. According to Anabela de Gama FDI subsidiaries are set up overseas as a result of the possession of know-how combined with the

107

Williamson, ‘A Short History of the Washington Consensus’, 3.

108

Idem.

109_{Business Dictionary, ‘Definition Trade Liberalization’.} 110

111

Williamson, ‘What Washington means by Policy Reform’.

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development of technology and organizational elements.113 This policy recommendation supports states to abolish barriers that restrict FDI from flowing into the country. Williamson states that by making intellectual property rights available for developing countries, their developing process will be influenced in a positive way.114 Gordon Hanson, a professor of economics, states that the amount of inward FDI depends upon characteristics of the host country. When high taxes are implemented inward FDI is discouraged, while on the contrary FDI is attracted if host countries offer a high educated working force and bigger consumer and industrial markets.115 It can be considered foolish of a country willing to reform, to restrict the entrance of FDI. Investments can bring flows of capital, modern skills and technological know-how, which can be used to expand their exports or to produce new goods for the domestic market, all contributing to their development.116 The WC disapproves of economic nationalism, since it causes a restriction with regard to the inflow of FDI. Instead it is important for developing countries to receive high amounts of FDI in order to establish more real income.117 Barriers hindering the entry of inward FDI need to be abolished, domestic and foreign firms should be allowed to compete equally.118

The ten mentioned recommended policy recommendations will in general contribute to outward oriented and free-market capitalism in the long run as stated by Williamson. He argues that the WC is a reform agenda for developing countries willing to transform their economy.119 Implementation of the concept went furthest in Latin America, and spread throughout the world. However the WC was not everywhere implemented with the same positive outcomes as in Latin America. Nevertheless, the concept has been successful for several developing countries. The timing of the introduction of the WC was very fortunate and contributed to its success. During the late 1980s Williamson introduced the necessity of the WC coinciding with the collapse of the Soviet Union and its ideological communist apparatus.120 With the collapse an urgent and widespread need for an alternative vision on how to organize economic and political life was created. Williamson’s concept of the WC was an excellent alternative.121 The need for market oriented economic reforms and the lack of decent alternatives offered by opponents of the concept, contributed to the success of the WC. Eventually, the strong pressure of the IMF and WB to only supply conditional loans when

113_{Anabela De Gama, ‘FDI in Angola: Constraints Encountered By Investors in the Angolan Territory’, (2005) 1-}

73, 5.

114

115

Gordon Hanson, ‘Should Countries Promote FDI’, (2000) 1-67, 1.

116

117

Steven Globerman, ‘Canadian Government Policies Toward Inward Foreign Direct Investment’, 24 (1998) 1-98, 7.

118_{Williamson, ‘Democracy and the Washington Consensus’, 1333.} 119

120

Naim, ‘Fads and Fashion in Economic Reforms’, 509.

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the receiving country agreed upon adopting policy reforms connected to the WC, contributed to the introduction of the WC by many countries in need for reforms. However, not everyone was very keen on the concept and there were some downsides to it as well.

Despite the successful introduction of the WC, the concept received some criticism. Moises Naim (1952), an international acknowledged columnist and commentator on globalization, states in his article ‘Fads and Fashion in economic reforms, Washington Consensus or Washington Confusion’, that the concept of the WC was too simplistic. Usually an incomplete version of the model is executed and the outcome of the economic reforms differed too much from the general expectations, the promised outcomes of the WB and IMF models and the guarantees of politicians.122 Naim also states that despite the popularity of the concept, some disagreement exists about the implementation of the ten policy prescriptions.123 One of the most profound discussions emerged about the need for the application of ‘shock therapy’ in order to implement the policy reforms. This therapy, also known as the ‘big bang’ theory, was in favor of implementing as many reforms as possible during the reform process. Opposites of this approach prefer a slower, more sequenced approach.124 Broad gave another point of critique in his article ‘The death of the Washington Consensus’, he states that widespread legitimacy on the concept of the WC in the developing world has never existed.125 One aspect of his critique was that the consensus exclusively focused on economic growth, whereby social and environmental issues were almost entirely excluded. 126 The countries implementing the WC experienced that the free-market reforms of the WC did not only have economic effects but also had social consequences. Robin Broad, an American professor of International Development, states that the imposed reforms caused negative social effects on workers, the environment and equality.127 Research done by the United Nations shows that economic liberalization is often accompanied with inequality. The export led growth of the WC depends largely upon the availability and plundering of natural resources in developing countries, causing a destruction in the natural resource system. Another negative effect of the WC was that the drive for foreign investment caused a ‘race to the bottom’ effect, resulting in underpayment of workers in third world factories. A denial in fundamental rights, like the right to a safe working environment and the right to strike and organize, were visible throughout countries with a reforming economy as well.128 According to Broad, people criticizing the WC do not only undermine the legitimacy and credibility of the concept, they also contribute to mass-based criticism focused on

122

Naim, ‘Fads and Fashion in Economic Reforms’, 509.

123

Ibidem, 506.

124

Idem.

125_{Broad, ‘The Death of the Washington Consensus’, 80.} 126

Ibidem, 81.

127

Idem.

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It can be concluded that in time the concept of the WC has been able to develop into an almost worldwide accepted liberal strategy for economic development, which supports developing countries in their modernization process. The WC consists of ten policy reforms of which four are of major importance during this thesis. Privatization, protection of property rights and liberalization of trade and FDI are all specifically important because they directly influence the inflow of FDI. Due to the criticism on the concept a discussion arose on what goals economic policies should serve and by whom they should be determined. Joseph Stiglitz tried to implement the concept of the Post-WC, focusing not only on economic growth, but also on sustainability, equitable and democratic development.129 In the following section the concept of the Post-WC will be clarified.

1.3 The Post-Washington Consensus

Stiglitz, a former WB senior vice-president, was an opponent of quickly opening up financial markets in developing countries, instead he preferred to rely upon trustworthy financial facts and bankruptcy laws. Stiglitz is in favor of democratizing the debate on national economic policies and the global economy, this way workers are able to represent the broader national interest and to participate in the debate.130 The East-Asian successful development contributed to the shift toward the WC. However not all prescriptions of the WC have been followed during their developing process, nevertheless East-Asia managed to experience a very successful economic development. Some of their policies were in line with the WC, like fiscal discipline and low inflation. Other aspects of their strategy, like the focus on equitable development to ensure that less privileged in society would benefit from the economic development as well, did not.131 Criticism on the WC contributed to the development of the Post-WC.132

Grzegorz Kolodko (1949), an economist associated with Poland’s economic reform process, states that the Post-WC does not only focus on the necessity of liberal markets and open economies, but also addresses the need for equitable growth, a new role for the state, the meaning of market organizations and institutional links between them.133 As a result of the East-Asian development, stimulation for rethinking of the role of the state in economic development emerged.134 There is a

129

Broad, ‘The Death of the Washington Consensus’, 85.

130

Idem.

131

Joseph Stiglitz, ‘More Instruments and Broader Goals, Moving Toward the Post-Washington Consensus’, (1998) 1-46, 2.

132

World Health Organization, ‘Post Washington Consensus’, Glossary of Globalziation, Trade and Health Terms (2011).

133

Grzegorz Kolodko, ‘Transition to a Market Economy and Sustained Growth’, Communist and Post-

Communist studies 32 (1999) 233-261, 236.

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fundamental difference between the WC and the Post-WC. The WC uses a small set of instruments, like trade liberalization, privatization and macroeconomic stability, all in order to achieve a single goal: economic growth. The Post-WC, on the contrary, redirects from the market-friendly Neo-Liberal approach by focusing on sustainable democratic development by preserving natural resources. It also agrees that the goals of developing countries are broader than just an increase in the gross domestic product (GDP).135_{Attention is paid on a poverty reduction approach to protect and support the more} disadvantaged, and special attention is paid to social spending on education and health.136 According to the Post-WC, economic development, participation, equity and democracy can be created by the promotion of human capital. Education creates a more equal society and supports citizens to participate effectively, contributing to a successful economic development. Another feature contributing to the development of a country is the environment. The set up of a carbon investment fund by the WB in order to reduce the production of carbon dioxide in developing countries is a good example. The marginal costs to reduce carbon dioxide is usually lower in developing countries than in the ones with advanced industries. Enterprises that need to reduce their emissions invest in associated projects in developing countries, contributing to an increase in investment and (pro-environmental) technology and knowledge transfers over there. This strategy is beneficial for the economic development of a country and protects the global environment at the same time.137 Liberalization and privatization can only lead emerging economies to sustainable growth if strong institutions are created. The early WC did not pay as much attention to the aspect of institution building, the reform process was aimed at countries with an already existing market economy. However, many countries willing to transform did not have a market oriented economy. This is why the WC was difficult for them to implement. Williamson himself agreed afterwards that a weakness of the WC was that there was too little attention for building institutions.138 It turned out, based on the progress of economic thought, that institution building nowadays is by far more important in economic processes that it was several decades ago. The government is not supposed to withdraw from economic activities, instead it is supposed to support the reform and integration into the world economy.139 The WB acknowledges that if a government is supposed to promote economic and social welfare, three institutional mechanism might help to reinforce the state’s competence. The first mechanism is to enforce rules and restriction within the state as well as within society. The second one is to promote competition from inside and outside the state, and the final

135

Stiglitz, ‘More Instruments and Broader Goals, Moving Toward the Post-Washington Consensus’, 30.

136_{World Health Organization, ‘Post Washington Consensus’.} 137

Stiglitz, ‘More Instruments and Broader Goals, Moving Toward the Post-Washington Consensus’, 31.

138

Williamson, ‘Differing interpretations of the Washington Consensus’, 19.

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mechanism introduced by the WB was to create partnerships inside and outside the state.140 This way, the state was granted new opportunities under the Post-WC by controlling the enforcement of the new regulations.

In order to conclude this chapter, it can be said that throughout the years the economic reform process shifted from Classical Liberalism toward Neo-Liberalism, and eventually to the WC and Post-WC. Classical Liberals argue that free trade is a peaceful way to bind states together and to achieve national wealth. Classic Liberalism was replaced in the 20th century by the Keynesian approach, as a result of the exploitation of the working-class and great depression of the 1930s. Keynes provided the basis for Social Liberalism, by granting the government the task to protect common goods and to create full employment. After the Second World War, Embedded Liberalism flourished and free trade was regulated under a fixed exchange rate. The state was supposed to create and maintain economic welfare for its citizens and market activities were influenced by social and political constraints. Embedded Liberalism was soon replaced as a consequence of high numbers of unemployment, inflation and financial crisis during the 1960s-1970s. In the 1980’s Neo-Liberals, the promoters of Liberal market freedoms, emerged as the new leaders. The role of the government would be reduced and international trade would be simplified, including the free movement of goods. During the 1990s Thatcher’ and Reagan’ Neo-Liberalism is visible throughout the world as a result of the widespread acceptance of deregulation and privatization. The IMF and WB agreed that Neo-Liberal policies were indeed needed in order to develop emerging market economies. The WC was born and showed that developing countries, willing to boost their economy with loans of the IMF and WB, were forced to transform toward a free market economy. Williamson, the founder of the WC introduced ten policy reforms in order to experience a successful development; macroeconomic stability, liberalization and privatization were the key factors of the concept. The WC has been developed in particular for Latin American countries that experienced severe economic problems, in order to boost their economy. Although the WC provided several basics for a well-functioning market, the concept turned out be somewhat incomplete. Criticism arose on the concept stating that the WC was too simplistic and only focused on economic growth without focusing on social and environmental issues. The East Asian miracle was a turning point and illustrated that economic development depended not only on macroeconomic stability and privatization. Stiglitz introduced the concept of the Post-WC, focusing not only on economic growth, but also on sustainability, equitable and democratic development. Now that the theoretical concept of Neo-Liberalism and the WC in specific have been introduced and clarified, the four main elements of the concept will be used in the following chapters. The four policy reforms provide us the opportunity to link the strategy of the WC on the case of

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Chapter 2: The Angolan Economic Policy and Development

Now that it is clear what Neo-Liberalism is, this chapter will elaborate on the four characteristics in combination with the Angolan economic development. The eventual aim of this chapter is to understand and inspect the presence of FDI in Angola. In order to investigate the current FDI inflows in Angola it is essential to elaborate on its historical and economic development. A general introduction on Angola will show how Angola’s political strategies might have influenced its economic strategy. A description of the economic transformation processes from independence in 1975 until the end of the first decade of the 21st century will contribute to the understanding of the FDI inflows. In order to decide to what extent Neo-Liberal reforms influenced the presence of Chinese FDI in Angola, we will need to investigate if Angola actually introduced characteristics of the Neo-Liberal WC at all. To get a better understanding of the inflow of FDI and economic liberalizations in Angola the chapter will be subdivided as follows: The first section gives a historical introduction about Angola, illustrating the shift in political leadership and policy from the Portuguese colonial period until the end of the civil war in 2002. It is important to describe Angola’s historical development in order to get a better understanding of the economic decisions that have been made. In the second section Angola’s economic reform processes will be described individually. The reform processes give us information on what policies have been introduced and what role the government had in these processes. In the third section the four elements of the WC, privatization, protection of property rights, liberalization of FDI and trade liberalization will be compared separately with regard to the imposed reforms in Angola. It is necessary to do so in order to conclude whether and to what extent Angola experienced Neo-Liberal reforms at all. Considered will be as well if the Angolan reforms can be linked to the WC or Post-WC. The final section of this chapter describes Angola’s specific interest for Chinese FDI and economic interference. This way it will become clear why Angola is eager to accept Chinese loans and FDI. The chapter contributes to the final answer of the research question. It is crucial to understand the Angolan economic development and the imposed reform measures in order to understand to what extent economic reforms introduced by Angola influenced China to invest over there.

2.1 Angola’s historical background

Angola is a Sub-Saharan country in the South-Western region of Africa, with a territory that covers 1.1246.700 square kilometers.141 Angola shares borders with DR Congo to the north, Zambia to the east, Namibia to the South and it is bordered by the Atlantic Ocean on the west, which is visible in Appendix 1: Angola. Angola has been discovered by Portuguese explorers in 1482 and remained