Strategic Analysis: Russian Business Activity in Angola (Abstract)

Angola is one of Russias strongest partners in sub-Saharan Africa, with a relationship formed during the Cold War. The legacy of Soviet military provisions to the country has helped Angola remain a reliable market for Russian weapons exports. In the economic and financial domain, however, it is Alrosa, Russias state-owned diamond mining company, that forms the most significant strategic between the two countries.

Alrosa has established a robust presence in the country via a subsidiary, Sociedade Mineira de Catoca (Catoca). The Catoca mine at the center of this firms operations in Angola is the fourth largest in the world. Alrosa has signed a number of recent deals signaling its intention to strengthen its position within the Angolan diamond industry. Angola is the worlds fourth largest producer of rough diamonds, accounting for 5% of the countrys GDP and now the countrys second largest export.[1]

Oil accounts for 85% or the remainder of the countrys exports, with Angola turning out 1.87 million barrels per day.[2], [3] The majority of Angolas known oil and gas reserves (some 75%) are in offshore fields, often at depths of over 4,000 feet. This has proven to be a difficult barrier to sector entry for Russian SOEs, since Western firms have more technologically advanced drilling capabilities that can reach deeper fields than their Russian counterparts.

Nevertheless, legacy Soviet relationships and Russias presence in the mining sector provide Russia a strong partner in sub-Saharan Africa that gives Russia a base from which to expand its operations to other countries in the region. Moscow has pursued this strategy, not only in its diamond mining activities, but also in the establishment of a Kamaz truck service center and assembly facility as well as a Uralvagonzavod railcar manufacturing factory. They both reportedly plan to use their hub in Angola to establish a presence regionally.

Excerpted Deals & Transactions:

  • During the period between the fall of the Soviet Union and 1999, Russias most significant transaction with Angola was a debt deal in which Russia forgave the bulk of $3.5 billion in Angolan debt incurred during its civil war and agreed that Angola would have to pay only $1.5 billion. The remaining debt was completely settled in November 2007. This deal was marred with controversy, with the funds funneled through a company called Abalone Investments.[5]
  • A Gazprom subsidiary, Serbian-based Naftna Industre Sarbji (NIS), operates production facilities in Angola (and has had a presence in the country since 1985), although Gazprom itself does not directly operate any projects in Angola.
  • VTB is the primary Russian bank active in Angola (and the foreign bank with the largest footprint in the country). The bank has been essential in funding Angolas ANGOSAT satellite and in raising over $1 billion for reconstruction and development programs.[6] VTBs Angolan subsidiary, VTB Africa, has acted as a direct conduit between the Russian bank and the Angolan government since it began operations in 2006.
  • Russian companies have been involved in the construction and repair of certain hydropower facilities, notably the Chicapa and Capanda Dams. These hydropower projects are vital to their surrounding regions and nearby industrial areas. Seventy percent of Angolas total power generation comes from hydroelectric sources, with the vast majority of that coming from the Capanda hydroelectric project.[7] Indeed, the capital city of Luanda largely owes its electricity production to the Capanda dam.