Behind Angola's wayward "withdrawal from the group": OPEC needs to modernize?

21st Century Business Herald reporter Zheng Qingting reported from Beijing

Angola, Africa's second-largest oil producer, recently announced its withdrawal from the Organization of the Petroleum Exporting Countries (OPEC). As soon as the news came out, one stone stirred up a thousand waves. According to the analysis, although some members have opted out before, at a time when the global economic and trade pattern is undergoing profound changes, Angola's "withdrawal from the group" may have an impact on this organization.

Angola's decision to withdraw from OPEC was announced on 21 November by Angola's Minister of Mineral Resources, Oil and Gas, Diamantino Azevedo, in the capital Luanda. This decision has been duly entered into force by a presidential decree signed by President Lourenço of Angola.

Last month, OPEC's decision to cut production further next year to boost oil prices was the last straw that broke Angola's back. Azevedo said that the Angolan government did not agree with this decision and that Angola had decided to withdraw from OPEC in order to protect its own interests.

"If we stay at OPEC, we will be forced to cut production, which is contrary to our policy of avoiding production cuts and respecting contracts. He added that Angola had previously worked to "modernize" OPEC but had failed to gain any benefits from OPEC.

Angola's "exodus" is not capricious?

Political coercion, economic interests, or the struggle for the right to speak? The outside world has various interpretations of Angola's exodus. However, Yang Baorong, director of the Economic Research Office of the Institute of West Asian and African Studies of the Chinese Academy of Social Sciences, said in an interview with the reporter of the 21st Century Business Herald that its own development interests are the most critical reason.

On November 30, Angola's Ministry of Mineral Resources, Oil and Gas issued a statement saying that OPEC had set Angola's crude oil production quota at 1.11 million barrels per day, which was not in line with the 1.18 million barrels per day proposed by Angola. Angola submitted a letter of protest to the OPEC Secretariat in this regard.

Angola, which joined OPEC in 2007, produced 1.08 million barrels of crude oil per day in November, with proven recoverable oil reserves exceeding 12.6 billion barrels.

"As a sovereign country, how to achieve national economic development through resource development is the most important thing for Angola to consider. Yang Baorong believes that on this basis, Angola may also consider some other factors, such as oil price fluctuations, oil supply and demand, and the influence of major powers.

He pointed out that compared to many Middle Eastern countries, Angola is at a disadvantage in terms of geographical location, ease of trade, shipping costs and trading relations between major powers. In this context, how Angola expands its interests is a fundamental consideration for whether or not it will remain with OPEC.

At the same time, Angola's "withdrawal from the group" is also politically motivated. Yang Baorong said that at present, Angola's overall oil and gas equity and exploitation rights are still in the hands of Western multinational oil and gas companies, and Angola's withdrawal from OPEC may also have certain factors in this regard.

In addition, heightened geopolitical risks and changes in the global macroeconomic situation have added to the complexity of Angola's decision.

"Currently, with the Suez Canal route blocked, the possibility of a detour to the Cape of Good Hope route has increased. Next year, the long-term economic cycle dominated by developed countries may enter a new cycle, and expectations for an accommodative shift in dollar monetary policy are also increasing. As a result of these factors, there may be more options for traditional energy sales channels in Angola. Yang Baorong said.

Angola's economic outlook

Angola is very rich in oil and gas resources. As of 2021, Angola has proven recoverable oil reserves of about 7.23 billion barrels, and there are still a large number of unexplored areas in the country. This makes Angola the second largest oil producer in Africa and the largest source of Chinese oil imports in Africa.

Regarding Angola's economic situation, Yang Baorong pointed out that during the new crown epidemic, under the double blow of the epidemic and Western closure restrictions, Angola's economy once suffered a heavy setback, but in the past two years, thanks to the rise in crude oil prices in the international market, the leading role of the oil and gas and petrochemical industries is very obvious, the economy has stopped falling and rebounded, and the debt pressure has also been reduced.

According to the International Monetary Fund (IMF), Angola's economic growth in 2024 will exceed the level of 2023, reaching around 3%.

Angola is one of the least developed countries, but it has a clear competitive advantage in the market. First, the political situation is stable, and the continuity of policy stability is good. The second is to open up the market and encourage foreign investment to enter the fields of industry, agriculture, energy and minerals, infrastructure, and service industries. Third, it is rich in resources, has a variety of mineral products with exploration and mining value, and has sufficient arable land for agricultural development, and has broad prospects for development. Fourth, the market scale is large, which can radiate neighboring countries such as the Democratic Republic of the Congo (DRC).

Yang Baorong pointed out that in the 20 or 30 years after the end of the Cold War, Angola was once plunged into civil war and turmoil, and the national economy was very fragile, and it was difficult for the government to allocate sufficient resources to invest in the development of the national economy. It was not until the end of the civil war in 2002 that political stability was restored in Angola. Since then, the government has put forward a clear direction of development, relying on resource advantages to strive to achieve economic diversification, and in recent years, economic and social development has achieved positive results, becoming the fourth largest economy in sub-Saharan Africa and a major foreign investment absorber.

However, he also said that outside of the oil and gas industry, the development of other industries in Angola is still relatively slow, and the upstream and downstream industrial chains are still not perfect. At present, Angola as a whole is still heavily dependent on oil and gas resources. "In the short term, the necessary condition for the transformation of the resource economy is a large amount of capital and technology injection. As a result, Angola has to face a dilemma: it wants to get rid of its over-dependence on oil and gas resources, and at the same time has to rely on this industry to attract foreign investment. ”

China-Angola economic and trade cooperation is expected to be further strengthened

"China has played an active role in Angola's resource development, infrastructure construction and industrial upgrading, and has been recognized by all sectors in Angola. Yang Baorong said.

Angola is China's second largest trading partner in Africa. In 2022, the bilateral trade volume between China and Angola was US$27.34 billion, a year-on-year increase of 16.3%. Among them, China's exports to Angola amounted to US$4.09 billion and imports from Angola amounted to US$23.25 billion, up 65.0% and 10.6% year-on-year respectively. China mainly imports crude oil from Angola and exports mechanical and electrical products, steel and its products, footwear and so on to Angola. In April 2015, China and Angola signed an exchange of notes granting tariff-free treatment to 97% of Angolan products exported to China.

In the oil and gas sector, Yang Baorong said that objectively speaking, the participation of Chinese companies in the property rights structure of Angolan oil fields is very limited. "Angola used to be China's third largest source of oil, and China and Argentina have also carried out a lot of cooperation in the field of oil, gas and petrochemicals. However, as a latecomer, Chinese companies have only participated in the production of a limited number of blocks locally. ”

At present, the world's major oil companies that invest and operate in the industrial and mining sector in Angola include: Total of France, British Petroleum, Chevron of the United States, Eni Petroleum of Italy, Petrobras, Angolan National Oil Company, Sinopec Corporation, etc.

In recent years, the economic cooperation between China and Angola has inevitably been affected by the pandemic. Yang Baorong pointed out that subjectively, China has always attached great importance to economic and trade cooperation with Africa, but objectively, during the epidemic, transportation and logistics have been seriously disrupted, which has forced the interruption of business inspections, capital exchanges, and employee deployment, which has reduced the activity of Chinese-funded enterprises in Angola.

In addition, Yang Baorong pointed out that as the United States attempts to curb China's economic development through trade decoupling, the United States continues to attract allies to adjust the industrial chain on a global scale, which has led to some countries, especially small and medium-sized countries, having to adjust their foreign cooperation, which objectively affects the breadth of China's participation in foreign cooperation.

In the territory of China's foreign cooperation, Yang Baorong said that compared with ASEAN and other regions, Africa's inland transportation conditions are very poor, and if goods from China are transferred from East African ports to Angola, the logistics cost in Africa's inland is very high. As a result, after the outbreak of the pandemic, many Chinese companies are more inclined to do business in regions with a more stable business environment, such as ASEAN.

"From this point of view, we are currently facing a new trend in cooperation among the countries of the South that has not been seen since the 21st century under the new pattern of international relations, that is, the pluralism of interests among the countries of the South. Some countries, in order to achieve greater benefits in cooperation, may choose a tendency to behave contrary to the collective interests of the countries of the South, and this trend will continue. ”

Does OPEC need to "modernize"?

In the past, some members withdrew from OPEC for various reasons, including Qatar, Indonesia, and Ecuador, but Indonesia chose to return after many years. In addition, there are also major oil-producing countries to join. In November, OPEC+ announced that Brazil would join OPEC+ as an observer.

Some analysts have pointed out that in OPEC, Angola is not a major oil producer, and its withdrawal will not have a great impact on the size of this organization. However, some analysts say that Angola's choice to leave at this time is not good for OPEC, which is convincing member countries to voluntarily cut production to support oil prices.

In Yang Baorong's view, as an important oil producer in Africa, Angola's withdrawal from the group has caused a major impact on the stability of the mechanism, the current distribution policy and the coordination of the interests of internal members, in particular, "under the repeated interpretation of this incident by the outside world, everyone will definitely reconsider the influence of this mechanism".

"The OPEC mechanism itself is a product of a specific historical period, and it is an industrial organization formed in the process of international political evolution. This organization has long been dominated by individual large countries, and has sometimes even played the role of a regulator of the economic cycle dominated by developed countries. Yang Baorong said.

He further explained that when the economy of developed countries is overheated, it may be necessary to reduce production to control the economy, and when the economy is sluggish, it may be necessary to increase production to boost economic vitality. "Although the control of the control valve is partly in the hands of the oil-producing countries, the decision is not necessarily in the oil-producing countries. ”

This year, as an important representative of South-South cooperation, the BRICS cooperation mechanism has been expanded to include six new members, including Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates. Among them, the participation of Iran, Saudi Arabia and the United Arab Emirates has raised expectations for the cooperation of this mechanism in the energy field.

Yang Baorong believes that in the future, under the BRICS+ mechanism, the countries of the South are expected to promote cooperation in a wider range of areas such as infrastructure, production capacity and financing on the basis of resource cooperation. As an important oil country, it cannot be ruled out that Angola will also consider participating in the new mechanism of cooperation among countries in the Global South, so as to get rid of the excessive influence of developed countries in the country's oil and gas industry in the past and improve the diversified development level of the domestic economy.

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