“The New Algeria” and China

This piece is part of the series “All About China”—a journey into the history and diverse culture of China through short articles that shed light on the lasting imprint of China’s past encounters with the Islamic world as well as an exploration of the increasingly vibrant and complex dynamics of contemporary Sino-Middle Eastern relations. Read more ...

Algeria, North Africa’s “sleeping giant,”[1] is the region’s largest economy and an important gas- and oil-exporting country.[2] But the popular discontent which ignited weekly demonstrations, shaking the country for more than a year and toppling four-term President Abdelaziz Bouteflika, remains at a slow boil. The sharp contraction of the economy in 2020 as a result of the coronavirus lockdown and declining oil and gas revenues have hobbled the government’s ability to create jobs and spend on services.[3] These woes were reflected in the World Bank’s official downgrading of Algeria to lower-middle income status.[4] In a speech delivered on the eve of a constitutional referendum last November that drew a dismal turnout, President Abdelmadjid Tebboune vowed to “lay the foundations of a new Algeria.”[5] Yet, some observers see Algeria as a “ticking time bomb” and as “the most unstable country in North Africa after Libya.”[6]

As Algeria’s multiple crises and the political pressures stemming from them continue to mount, the regime is reassessing its relationships with foreign partners and the roles they might play in moving the country forward. The European Union (EU) has declared its interest in strengthening its relationship with Algeria. In December, High Representative and Vice President Josep Borrell expressed “a firm intention to step up relations.”[7] However, from the Agerian perspective the relationship with Europe is one of “structural asymmetry.” Algerians are dissatisfied with the “unbalanced terms” of the 2005 Assocation Agreement; and the long awaited Algeria-European Union Free Trade Agreement (FTA), due to have entered force last September, has again been postponed.[8]

Given these circumstances and consistent with past efforts to diversify its foreign relations, Algeria could seek to deepen its relationship with China — a rising global power with deep pockets and an expanding footprint in the Middle East and North Africa (MENA) region and a country with which Algeria has already established a comprehensive strategic partnership. Yet, even under a scenario in which Beijing answers the call, it should not be assumed that the scale and contours of Chinese engagement will fundamentally change, will consist mainly of predatory economic activities and malign influences, or can rescue Algeria from structural problems of its own making.

The “New Algeria” in the Grip of Old and Familiar Hands

It is far too soon to proclaim that the New Algeria is at hand given that the country appears to have retained all the features of self-reproducing “electoral authoritarianism” and remains the captive of rent-seeking behavior.

Freedom House’s annual survey of political rights and civil liberties has consistently rated Algeria “not free.”[9] Algeria’s ruling caste of decisionmakers (décideurs[10]) consist mainly of senior members of the People’s National Army (PNA) and political parties with close ties to the military, such as the National Liberation Front (FLN) and the National Rally for Democracy (RND) party. Allied to them are a network of business tycoons. The primary purpose of state institutions has not been to represent the interests of civil society but to provide the illusion of legitimacy and to prolong the power of the “l’Etat-clan.[11]

Over the years, this ruling establishment, known colloquially as “le pouvoir,” has deployed a variety of control strategies, ranging from co-optive and repressive measures to selective economic liberalization.[12] The regime has been buttressed not only by the backing of the security services but by two additional factors: 1) the longlasting impact of the Dark Decade (1991-2002), a period of horrific civil conflict that traumatized society and left in its wake a fragmented and distrustful political community[13] incapable or unwilling to forge cross-ideological alliances;[14] and 2) a patronage system that ensures dependence of the population and local elites upon the state’s redistribution of oil and gas rents.[15]

For decades, political liberalization from above has essentially functioned as a means of system maintenance.[16] The political openings of the mid-1980s, the introduction of a pluralist constitution in 1989, and the holding of the first free local and national elections in 1990 and 1992, respectively, marked the beginning of a political transition from one form of authoritarian regime to another.[17] As a result, Algeria has been beset by a chonically weak bicameral legislature and repeated reshuffling of key posts within the presidency.[18] Algeria’s rich tradition of public protesting has been offset by regime resistance and largely symbolic concessions[19] while the country’s numerous local civic associations have either been been co-opted or are hamstrung by laws that allow the government to block registration, dissolve existing organizations, and restrict funding.[20]

Most recently, Algeria’s political dynamics have been shaped primarily by the emergence of the Hirak protest movement and by the persistence of elite infighting and reorganization of le pouvoir.[21] Although since the protests began in February 2019, four-term President Bouteflika was forced to resign and the long-serving Chief of Staff of the National People’s Army (ANP) Ahmed Gaïd Salah died of a heart attack, both have been replaced by regime insiders. Former prime minister Abdelmajid Tebboune acceded to the presidency following an election in December 2019 ordered by the military command — an election staged above all to ensure intra-regime stability[22] in a political setting that has long been marked by complex, opaque, and intense factionalism.[23]

The mass popular mobilization sparked by the ruling elites’ bungled effort to renew its legitimacy by deciding to grant a fifth term in office to President Bouteflika[24] has failed to coalesce around leaders and agree on goals. Hirak has thus been limited in its ability to push forward systemic political reform. In the face of the COVID-19 pandemic, Hirak has shifted away from in-person protests to social media.[25] Meanwhile, the regime has largely treated the COVID-19 pandemic as a security crisis; that is, as an opportunity to step up repression against its critics[26] and mount a new campaign of censorship targeting online media.[27] With détente between the regime and Hirak having waned, divisions within the ruling establishment having hampered any consensual alternative, and the protest movement highly decentralized,[28] the New Algeria seems stuck in the old politics of intra-elite competition. 

The main arena for intra-elite power struggles has long been the economic domain wherein state bureaucrats, business leaders and politico-military leaders constitute “three circles of corruption.”[29] [30] The large hydrocarbons revenues accrued from Algeria’s rentier economy[31] have for decades financed a redistribution system that has bought the regime quiescence and loyalty from key constituencies. The national hydrocarbon company, Sonatrach, ironically called a “state within a state,”[32] has been the principal instrument of state power. Due to its strategic importance for the regime’s rent-seeking, Sonatrach “has remained above supervision, regulation and accountability.”[33] As one observer put it, “opacity is the rule at Sonatrach.”[34] Recurring allegations and investigations into Sonatrach’s direct award of contracts and illicit self-enrichment practices[35] have laid bare the fact that corruption and cronyism in Algeria is endemic and have fueled popular resentment against a system that enables a small network of insiders to act with impunity to divert public resources to their own private gain.[36]

Transparency International’s Transparency Perceptions Index 2019, ranks Algeria 106 of 180.[37] Algeria’s Open Budget Survey (OBS) score for transparency is 2 (out of 100).[38] The World Bank’s Doing Business Report 2019 ranks Algeria 157 of 190.[39] Algeria is not a participant in regional or international anti-corruption initiatives. The Algerian government does not require private companies to establish internal codes of conduct that prohibit bribery of public officials. The use of internal controls against bribery of government officials varies by company, with some upholding those standards and others rumored to offer bribes.[40]

Lately, though, the system of competing clans involved in theft on a grand scale has come under especially heavy pressure. Persistent low prices[41] have resulted in a widening budget deficit[42] and dwindling foreign exchange reserves.[43] Whereas in years past, currency reserves had shielded the country from the global decline of oil prices, that is no longer the case. The IMF calculates the breakeven fiscal oil price for Algeria in 2021 to be $135.20 per barrel — a figure that seems far beyond reach given the state of the global market.[44] With the country still in the hands of a sclerotic ruling elite, an economy in dire need of diversification, the Sahelian security situation worsening, and Morocco’s power growing, Algeria has arrived at a critical juncture. Who might lend a hand?

Algeria: China’s Oldest and Closest Maghreb Partner

Chinese and Algerian officials seldom miss an opportunity to celebrate the goodwill and longevity of the bilateral relationship.[45] Yet, while acknowledging that cordiality and continuity have proven useful in nurturing fruitful bilateral ties, it is nonetheless important to clarify and perhaps correct some misimpressions about the trajectory that the Sino-Algerian relationship has followed and what the partnership actually comprises.

China and Algeria are indeed old friends. China was the first non-Arab country to recognize the Algerian provisional government, in December 1958.[46] China under Mao regarded Algeria as the linchpin of the anti-colonial and anti-imperialist struggle in Africa, as a means of validating the CCP’s own revolutionary-ideological claims, and as a prize in the inter-communist rivalry with the Soviet Union.[47] Throughout the Cold War, the China-Algeria relationship was “a marriage of convenience … based more on symbolism than on any concrete connection.”[48]

Not until the 1990s, after Algeria abandoned official references to socialism and by which point Chinese economy was booming, did commercial relations between the two countries begin to expand.[49] Yet, progress was hindered by the Algerian civil war (1992-2002). It is only since the end of that conflict that China’s economic presence in Algeria has increased, much as it has throughout the wider Middle East and the continent of Africa.[50]

In the Xi Jinping era, the Forum on China-Africa Cooperation (FOCAC) and the China-Arab States Cooperation Forum (CASCF) have been the principal multilateral fora for Sino-Algerian engagement.[51] However, economic and commercial exchanges as well as other substantive aspects of their relationship have been conducted primarily through bilateral channels. The progressive development of the bilateral relationship is anchored in three documents: the Declaration on Strategic Partnership and Cooperation (2006),[52] the Five-Year Plan for China-Algeria Comprehensive Strategic Cooperation (2014),[53] and the Memorandum of Understanding (MoU) on cooperation under the BRI framework (2018).[54]

Under Xi Jinping, Beijing’s “partnership diplomacy”[55] applied to Algeria is part and parcel of the refashioning of its approach to the Middle East and North Africa (MENA) region in support of the Belt and Road Initiative (BRI).[56] That approach is outlined in the 2016 Arab Policy Paper,[57] which sets guiding principles for and describes a “1+2+3 pattern” of bilateral relations featuring closer cooperation in the energy sector; intensified infrastructure-building and trade and investment; and expansion into the three high-technology fields of nuclear energy, space satellites, and renewable energy.[58]

The level of importance and role assigned by Beijing to its strategic partnership with Algeria should therefore be viewed in the context of the recasting of Sino-MENA relations within the Belt and Road framework and the Maghreb’s position in it. Beijing tends to regard the Maghreb not as a mere extension of the Middle East but as a distinct sub-region with its own characteristics.[59] Beijing has come to view the Maghreb countries not only as sources of natural resources but as attractive markets for Chinese companies and investors; as valuable strategic assets given their location at the crossroads of the Arab world, Africa and the Mediterranean; and as vehicles for promoting the success of the “China model” in its normative battle with Western democracies.[60]

To be sure, Algeria is Beijing’s oldest and closest partner in the Maghreb. But it is important to emphasize that Algeria is not China’s only partner in the region. The PRC has also made notable overtures to Morocco, Algeria’s neighbor and rival. Sino-Moroccan ties in the areas of trade, tourism, and cultural exchange have progressed in recent years.[61] Chinese firms have undertaken several major development projects in Morocco, including the Noor 2 and Noor 3 solar parks.[62] Libya, Morocco, and Tunisia have all signed BRI partnership agreements. China’s exports to the Maghreb as a whole — and not exclusively with Algeria — have increased significantly since the early 2000s.[63] Furthermore, it should be noted, these changes are as much a reflection of efforts by all the Maghreb countries to diversify their economic relations as they are of China’s growing power and ambition.

Sino-Algerian Trade, Investment, and Financing in Perspective

It is not unusual to read accounts that describe China-Algeria trade to have risen “dramatically”[64] and bilateral relations to have experienced “exponential growth.”[65] There is some truth to these claims. China’s engagement with Algeria is multidimensional — encompassing the political, economic, diplomatic, energy, military, and cultural spheres. Within the span of a decade, China rose to become Algeria’s top trade partner in 2013, surpassing France, and has held that position ever since. Nevertheless, it is useful to take a closer, more critical look at the reasons for and substance of the rapid progress in the commercial aspect of the bilateral relationship.  

To begin, it is worth noting that the sharp increase in the trade volume started from a low base and resulted from Algeria’s economic opening, which benefited not just China but all Algeria’s partners. It is also important to point out that whereas crude oil and petroleum products dominate Algeria’s exports to China, European countries have been, and remain by far the top destinations for the country’s hydrocarbons.[66] Moreover, notwithstanding the fact China derives more than a quarter of its imported oil and gas from Africa,[67] Algeria is a marginal supplier. In 2019, 15 countries collectively generated 90.1% of Chinese crude oil imports. Algeria was not one of them.[68]

Since 1995 Chinese exports to Algeria have increased at an annualized rate of over 16%, contributing to a large and growing trade imbalance in China’s favor. Yet, contrary to what one might assume, Algerian imports from China are weighted heavily toward capital goods, machinery and electronics, as opposed to cheap, poorly made consumer products. Moreover, to reduce the trade deficit, the Algerian government has set volume restrictions on electronic products and household appliances,[69] resulting in a sharp decline in imports from China.

Chinese businesses are well-established in Algeria, especially in the construction and energy sectors. Over the past two decades, Chinese enterprises were granted various public development projects valued at more than $70 billion.[70] Chinese companies have built the new Ministry of Foreign Affairs building, the Algiers Opera House, the Sheraton hotels in Algiers and Oran, the Great Mosque of Algiers, the East-West Highway, a new terminal at Houari Boumediene Airport, and a clutch of low-cost housing complexes that dot the landscape. However, Chinese companies undertook these projects on a service-provision contractual basis; that is, they do not hold ownership, are not involved in long-term management, and thus technically cannot be considered “investors.” In fact, whereas since the mid-2000s Algeria has been among the top countries for Chinese construction activities, it has not been a major destination for Chinese overseas investment.

According to the China Global Investment Tracker (CGIT),[71] China’s documented combined construction and investment activities in Algeria during the period 2005-2020 were heavily concentrated in the transport and real estate sectors and totaled $23.85 billion. Nearly three-quarters of that amount was accumulated prior to the launching of the BRI in 2013. The roughly $9 billion of Chinese construction and investment transactions in Algeria since then is but a small fraction of the value of these activities in the Arab Middle East and North Africa (5%) and Sub-Saharan Africa (7%).

As for the role of Chinese energy companies in Algeria, it is important to provide some context. Africa is of strategic interest as an international development field for Chinese oil companies seeking to become global players and compete with the biggest international oil majors. Heeding Beijing’s call to “go out,” all three giant state energy enterprises — the China National Petroleum Corporation (CNPC), the China Petroleum & Chemical Corporation (SINOPEC) and the China National Offshore Oil Corporation (CNOOC) — have been active in Algeria for nearly two decades. However, they do not dominate the Algerian market. More than two dozen international E&P firms are currently present in Algeria, partnering with Sonatrach to execute more than 30 major projects. CNOOC is just one of them. And of the nearly 60 international oil and gas service companies providing Sonatrach and its affiliates with oil and gas services, none are Chinese.[72] 

To date, China’s “overseas lending boom” has not included Algeria. This is primarily due to Algeria’s emphasis on “economic nationalism” and “financial sovereignty,” and a ban on foreign borrowing since 2005.[73] According to data gathered by the SAIS-CARI project, between 2000 and 2018, Algeria was the recipient of just two of 24 loans made by Chinese to the five Maghreb countries ($9 million of nearly $2 billion) — out of a total of 1,076 loans valued at $148 billion.[74] Of the 40 or so projects in which the Chinese-African Development Fund (CAD) has engaged, most are concentrated in a handful of countries, and none are in Algeria.[75] Of course, this picture might be incomplete. Not only is the process of Chinese official lending opaque, there is a dearth of systematic reporting by Beijing.[76] Thus, it is possible that Chinese state-owned policy banks might have financed projects in Algeria by disbursing money directly to Chinese contractors.

New Openings for China in the New Algeria?

Algeria’s financial situation is precarious. Once-substantial savings in the oil stabilization fund (Fonds de Régulation des Recettes, or FRR) — a key source of financing in recent years — have been almost completely depleted, at the very time when fiscal and current account deficits are sharply rising. This raises the question of how the government intends to cover the country’s ballooning budget deficit.

To meet these challenges, Algeria has lately loosened restrictions on foreign direct investment (FDI). The Supplemental 2020 Finance Law promulgated on June 4, 2020 includes several incentive measures aimed at boosting FDI: 1) removal of the 51/49 rule that caps foreign ownership of a company incorporated under Algerian law for non-strategic sectors, 2), repeal of the state’s right of pre-emption “over all sales of shares or shares in the capital of the company carried out by or for foreign entities,”and 3) reintroduction of the right to use foreign financing.

The new law authorizes the financing by international development institutions of “strategic projects” deemed to be key to the national economy, subject to a prior review by the relevant authorities. Five strategic sectors remain “guarded” by the state: mining, upstream energy, miltary industry, transportation infrastructure (i.e., railways, ports and airports), and pharmaceuticals. But presumably all other sectors, notably telecommunications, banking and insurance, construction and manufacturing and possibly renewables will now be open to 100% foreign shareholding. Thus far, however, there are few signs of Chinese companies or their foreign competitors rushing to seize first-mover advantage.

Algeria’s draft budget for 2020 proposed “recourse to external finances.”[77] Finance Minister Mohamed Loukal signalled that Algeria might return to foreign borrowing, though strictly for the financing of “strategic projects.”[78] Yet, despite the pressure on Algeria’s external accounts, President Tebboune ruled out approaching the IMF, international institutions, and foreign banks for loans, insisting that, “[a]ccumulating debt harms national sovereignty.”[79] Nevertheless, the regime has not forsworn borrowing from “friendly countries.” Were China to qualify as a “friendly” source, as seems likely, loans would almost certainly come without conditions such as new taxes, energy pricing reforms, currency depreciation, or rights-related discourse.

In the energy sector, Sonatrach and regulator Alnaft have been working on securing more business from international oil companies (IOCs). However, initial bidding tenders failed to attract interest.[80] The leadership turnover and corruption scandals that have plagued Sonatrach could be responsible for the lackluster response. In April 2017, Amine Mazouzi, who had been leading efforts to engage foreign partners, became the sixth CEO of Sonatrach to be dismissed — suddenly and without explanation[81] — in the span of less than a decade. Indeed, the prospects for new borrowing and investment, expansion of manufacturing, and infrastructure development are clouded by intra-elite factionalism and state-societal tension.

The political turmoil in Algeria has hampered efforts to implement mega-projects to which the Algerian government has assigned high priority and in which Chinese companies had been expected to play major roles. For example, plans were approved in 2017 for the construction of a new deep-water port at El Hamdania in Cherchell, with some $900 million of the financing expected to come from a 20-year soft loan from the African Development Bank and much of the rest from a consortium of Chinese banks in exchange for handing the port’s operations to China Harbour Engineering for the first 25 years. However, work on the project was suspended in April 2019 — at the start of the Hirak protests.[82] Last July, following the change in government and arrest of “unscrupulous investors,” the decision was taken to try to relaunch the project and reach out again to Chinese partners.[83] Yet, when or if such efforts will bear fruit remains to be seen. Meanwhile, Chinese companies reportedly have refocused their attention elsewhere, notably to Morocco, where their interests already include investments in the Kenitra Atlantic Free Zone, Casablanca Finance City, and Tanger Med Port Complex as well as new partnership agreements relating to the development of the Mohammed VI Tangier Tech City.[84]

A second ambitious project to have experienced interminable delays is the joint venture led by Sonatrach to build a phosphate plant in the Tebessa region, which was awarded to Chinese multinational CITIC Construction in November 2018. Two years later, however, the Kouninef brothers — Bouteflika allies who reportedly were responsible for having brought CITIC into the project — were jailed, and the project was shelved.[85] Last June, Ferhat Ounoughi, the phosphates project’s director and principal interlocutor with Chinese partners, was replaced by Fethi Arabi, a “friend” and “confidant” of Sonatrach CEO Toufik Hakkar.[86] Although President Tebboune attributed the freezing of the project to the COVID-19 pandemic,[87] the scent of intra-regime maneuvering is unmistakable. Initial efforts to relaunch the project have sputtered, as no candidates responded to the first call for tenders.[88]

The struggle to get these projects off the ground, it must be emphasized, has occurred in the context of a high-profile anti-corruption campaign that is arguably mere camouflage for ongoing “graft wars” between regime clans.[89] Over the past two years, there have been numerous arrests and convictions of business tycoons closely tied to deposed president Bouteflika[90] as well as of two former prime ministers (Ahmed Ouyahia and his predecessor Abdelmalek Sellal).[91] Sonatrach CEO Abdelmoumene Ould Kaddour was sacked in April 2019.[92] Senior officials from the gendarmerie and military have likewise been removed without explanations — dismissals that bear the hallmarks of a purge though justified as actions taken to combat corruption.[93]

It must be acknowledged that Chinese companies with a presence in Algeria have not always operated with clean hands. Bribery and corruption charges have been levied against executives of Chinese firms seeking market access.[94] There have been instances in which Chinese company executives or managers have been implicated in kickbacks and illegal commissions.[95] Furthermore, statements by prominent Chinese companies on anti-corruption and on anti-bribery compliance[96] are difficult to reconcile with dishonest practices they have sometimes used to gain advantage in Africa and elsewhere.[97] Furthermore, anti-bribery enforcement of Chinese companies doing business in Algeria and across the African continent is almost non-existent. That said, it is instructive to point out that Korean, Italian, and other foreign companies operating in Algeria also have been found to have engaged in improper payment schemes and other corrupt practices.[98] Above all, though, it is important to recognize that Algeria has provided the enabling environment for such practices to flourish, and it is in Algeria where primary responsibility lies to ensure the integrity of its own market.

Like the invitation to corruption, the deployment of surveillance is largely a demand-driven phenomenon.[99] Still, China’s export of its “techno-authoritarian” model runs the risk of supplying a cover for enablers of corruption and perpetrators of repression.[100] Even before the rollout of the Digital Silk Road (DSR) in 2015, major Chinese tech firms such as Huawei, ZTE, China Telecom, Hikvision, and Yitu had made inroads into the Middle Eastern and African digital economies, including in the Maghreb.[101] These partially state-backed businesses, which are global leaders in the provision of ICT infrastructure and smart devices, are also at the forefront of developing and equipping their clients with sophisticated surveillance systems.[102] In the Xi era and under the auspices of the BRI, information technology a strategic tool to support ruling regimes and generate leverage vis-à-vis the West.[103] Algeria is one of just over a dozen African countries to have deployed Huawei’s surveillance technology.[104] China has also hosted sessions on its system of censorship and surveillance for media officials from Morocco, Egypt, and Libya.[105] While it is important to acknowledge China’s positive role in sharing the dividends of digital innovation, it is equally important not to downplay its role in strengthening the architectures of oppression in Algeria and elsewhere.

Conclusion

Algeria faces a knot of intractable problems that have been exacerbated by the Coronavirus pandemic and its adverse socioeconomic impacts. In the face of an acute fiscal crisis, a sharp economic slowdown, and widespread social discontent, the country continues to be ruled by a caste of establishment insiders.[106] Divisions within the ruling elite hamper any consensual alternative to the political status quo. The loosely organized Hirak protest movement remains leaderless and lacks a political platform.[107] The combination of the pandemic and the arrest of hundreds of journalists and other activists has further sapped the movement’s potential to evolve into a genuine opposition force.[108] The transition to a New Algeria appears to have stalled.

The economic dimension of Algeria’s relationship with China has yielded modest contributions to the country’s progress. But as previously mentioned, the trade balance has long been tilted heavily in China’s favor. The Algerian state has funded most of the projects undertaken by Chinese companies. There has been little transfer of technology or expertise. Furthermore, despite the growing need for foreign investment, Algeria only recently took steps to relax the restrictions that had discouraged it. In economic terms, the Sino-Algerian relationship has not (yet) become as extensive as officials of the two countries describe or that has made officials in Western capitals uneasy. Neither has the relationship paid the dividends that the Algerian leadership presumably had hoped or expected.

During the pandemic, China has offered Algeria a helping hand in the form of the dispatch of medical personnel and the donation of supplies.[109] Yet, repeated pledges by both sides to strengthen the relationship have yet to result in any major material breakthroughs. Especially given the political tumult and fiscal belt-tightening in Algeria of the past two years and in light of more selective Chinese overseas lending and investment practices, perhaps that is not surprising. At the same time, though, Chinese companies and state-owned policy banks appear to be placing their bets and expanding their economic presence elsewhere in North Africa — especially in Egypt, but also in Morocco, to a lesser extent in Tunisia, and likely will do so at some point in the future in Libya as well.

Meanwhile, Beijing has continued to scrupulously adhere to a policy of non-interference in Algeria’s domestic affairs. Though this approach has kept China in good standing with Algeria’s shadow decision-makers, indirectly it has impeded the country’s democratic transformation. However, the project of building a New Algeria has been thwarted not by China’s predatory behavior and malign influence but above all by the pathologies and the resilience of Algeria’s distinctive brand of authoritarian governance.