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JULY 2024
by Zine M. Barka
Abstract
Algeria and China have long maintained a close relationship, dating back to before Algeria's independence in 1962. This relationship was founded on mutual support in combating colonialism and imperialism. Following independence, Algeria adopted a socialist development model, leveraging oil revenues to establish a significant public sector, particularly after the first oil shock in 1973 and the nationalisation of foreign oil companies in 1971. In the 1990s, Algeria began liberalising its economy, lifting trade restrictions and state monopolies, which led to increased imports of competitive Chinese products. This economic engagement was reinforced by high-level visits, including the exchange of visits between Chinese President Hu Jintao and Algerian President Bouteflika in 2000, establishing strategic cooperation relations (Bustos, 2021; El Kadi, 2023). Currently, President Tebboune seeks to revive and strengthen economic cooperation with China, exemplified by his official visit to China in July 2023, during which several memoranda were signed to expand cooperation across various fields (Djebril, 2023). This paper is structured as follows: a brief history of Algerian-Chinese relations, the opening of the Algerian economy and the increase in trade with China, the legal framework of the strategic partnership, and an analysis of the real and potential benefits of this partnership for both economies. The conclusion offers remarks on the partnership's impact on Algeria's structural reforms needed to reduce its reliance on hydrocarbon exports.
Keywords: Algeria, China, independence, colonialism, socialism, oil revenues, liberalisation, trade, strategic cooperation, economic cooperation
A Brief History of the Strong Relationship between China and Algeria
The relations between China and Algeria are considered the strongest of all Arab-Chinese relations, rooted in diplomatic, commercial, and socio-cultural ties (El Kadi, 2023). The starting point was Algeria's struggle for independence from France in the 1950s. China supported the Front de Libération Nationale (FLN) – the socialist revolutionary party – and was the first non-Arab country to recognise the FLN as the Algerian provisional government in December 1958 (Leopardi, 2022). Between 1958 and 1962, China assisted the Armée de Libération Nationale (ALN) – the armed wing of the FLN – with funds, arms, and training for Algerian officers (Calabrese, 2021).
After Algeria gained independence in 1962, China continued to provide support, including sending a medical team, donating wheat and school equipment, and offering a $50 million low-interest loan (El Kadi, 2023). This phase was crucial in establishing the partnership between the two countries.
The Opening of the Algerian Economy and the Trade Boom with China
In the early 1990s, Algeria undertook structural reforms to transition from a command economy to a market economy, characterised by privatisation and reduced state intervention (Bustos, 2021). This period saw a decline in hydrocarbon prices from 1985 to 1987, impacting Algeria's social and economic stability. Algeria sought financial assistance from the IMF, leading to structural adjustment plans and debt rescheduling (Leopardi, 2022).
In 1993, over 98% of Algeria's exports were hydrocarbons, and the country was heavily dependent on foreign imports for food and medicines. Debt servicing absorbed more than 70% of Algeria's resources during 1989-1993, exceeding 80% in 1993 (El Kadi, 2023). Attempts at economic liberalisation in 1990 under Prime Minister Mouloud Hamrouche were reversed by his successors, hindering foreign investment and the return of emigrant capital (Sahbani, 2020).
By 1994, the transition to a market economy was reinforced through currency devaluation, trade liberalisation, price freedom, and debt rescheduling. Despite these efforts, 30 years later, the Algerian economy remains under-industrialised, with the industrial sector contributing about 5% to GDP. The energy sector still accounts for over 93% of foreign revenues and 60% of the state budget, with oil and gas comprising 19% of GDP (Sahbani, 2020).
With economic liberalisation, Algeria turned to China in the early 2000s to import essential goods. Bilateral economic and political relations boomed, driven by high oil prices in 2003, enabling Algeria to fund major infrastructure projects, including low-cost housing, the East-West highway, and the largest mosque in Algeria (Bustos, 2021). Numerous projects were signed with China, particularly in the oil sector and low-cost car imports. By 2023, annual bilateral trade volume reached approximately $7 billion (El Kadi, 2023).
China primarily imports mineral fuels from Algeria. In 2021, Algeria exported $961 million to China, mainly refined petroleum ($702 million), petroleum gas ($176 million), and semi-finished iron ($51.5 million). China exported $6.34 billion to Algeria, including iron pipes ($312 million), vaccines and medical supplies ($288 million), and passenger and cargo ships ($211 million). China has become Algeria's largest trade partner, surpassing France (El Kadi, 2023).
Formalising and Deepening a Strategic Partnership
Algeria is the only Maghreb country with a comprehensive strategic partnership (CSP) with China, the highest level of Chinese diplomatic partnership (El Kadi, 2023). This CSP reflects Beijing's commitment to a significant multi-level engagement. With China’s accession to the World Trade Organisation (WTO) in 2001, the creation of the Forum on China-Africa Cooperation (FOCAC) in 2000, and the China-Arab States Cooperation Forum (CASCF) in 2004, relations between China and the Maghreb, including Algeria, grew stronger (El Kadi, 2023).
Several cooperation and partnership contracts have been signed between Algeria and China, aiming to reinforce their relations. Algeria joined the Belt and Road Initiative in 2018, and the "Three-Year Plan 2022-2024 for Cooperation in Strategic Areas" was signed, alongside the second Five-Year Plan for Comprehensive Strategic Cooperation 2022-2026 (Djebril, 2023). These agreements underscore the desire to enhance Algerian-Chinese relations and promote them at the highest levels.
Through these agreements, the two countries committed to intensifying political consultation, consolidating security cooperation, deepening economic partnerships, and expanding cooperation across various fields. Key areas targeted include the automotive industry, space sciences, agriculture, tourism, port construction, logistics services, water desalination, infrastructure, manufacturing, metallurgy, finance, the digital economy, energy, and mining (Djebril, 2023).
An ambitious economic programme includes establishing a large lithium battery factory in Algeria, reflecting the global shift towards electric vehicles. China also aims to support Algeria in developing hydrogen production capacities, anticipating significant global demand (Djebril, 2023).
Algeria's commitments to the African Union's Agenda 2063, particularly in economic integration and the African Continental Free Trade Area, highlight its efforts to promote intra-African trade (El Kadi, 2023).
In July 2023, President Tebboune's official visit to Beijing elevated the partnership to a more strategic level. The two countries signed 19 cooperation agreements and memoranda across sectors such as rail transport, technology transfer, agricultural cooperation, communications, sports, investment, trade, urban planning, scientific research, justice, social development, renewable energy, and hydrogen (Djebril, 2023). This visit was seen by Chinese authorities as an opportunity to deepen mutual trust, further solidifying the comprehensive strategic partnership established in 2014 (El Kadi, 2023).
Concluding Remarks
The various partnership agreements have raised concerns about the competitiveness of local Algerian industries against Chinese products. Increased Chinese involvement has been perceived as potentially detrimental to North Africa's development aspirations due to its impact on local industries and employment (Calabrese, 2021). Assessing China's investment sectors and job creation is crucial to understanding the benefits of South-South cooperation (El Kadi, 2023).
While the economic dimension of the Sino-Algerian relationship has yielded modest contributions to Algeria's progress, the trade balance remains heavily tilted in China's favour. Most projects undertaken by Chinese companies have been state-funded, with limited technology or expertise transfer. Despite efforts to attract foreign investment, Algeria's economic relationship with China has not met the expectations of the Algerian leadership or caused significant unease in Western capitals (El Kadi, 2023).
To achieve better economic growth, Algeria needs to diversify its economy, implement economic and financial reforms, and improve the business climate. Energy and mining sectors are key levers for reducing food dependence and supporting industry (Sahbani, 2020). The World Bank recognises the positive steps taken by Algeria, including the 2022 investment law, the abolition of the 51/49 rule for non-strategic sectors in 2020, and the 2019 hydrocarbons law. However, bureaucratic challenges continue to hinder progress (Sahbani, 2020).
Recommendations
To advance mutually beneficial outcomes, the following recommendations are proposed:
Reduce barriers to foreign investment to attract more investors and diversify the economy.
Ensure Chinese investments create quality jobs to address Algeria's unemployment challenges.
Address the trade deficit in China's favour.
Facilitate training for young Algerians in Chinese vocational schools and universities to enhance their understanding of Chinese culture and improve employment opportunities in Chinese companies operating in Algeria.
Publish data on contracts and trade between the two countries to enable empirical studies and inform policy adjustments.
References
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