Chinese investments in Algeria: a vital asset that must be reviewed

Mona Sukkarieh.

Chinese presence in Africa, and particularly in sub-Saharan Africa, is well established and has been among the pillars of its “going abroad” policy for years. Growing at an equally rapid pace is Chinese presence in North Africa and particularly in Algeria. The country has enjoyed very good relations with China since it gained its independence in the 1960s and has traditionally been willing to open up to non-western powers, unconnected to its troubled history with colonialism and colonial powers. Still, trade relations between the two countries stood at a modest $200 million in 2001. A decade later, the volume of trade soared and reached $7 billion.

In the aftermath of a bloody civil war, Algeria embarked on a reconstruction program to revamp its old and outdated infrastructure, offering the traditional trade partner the opportunity to become an increasingly important investor in the country. Starting out with low-cost housing projects, Chinese companies quickly moved to secure major construction contracts: The new airport in Algiers, the Olympic Stadium of Oran, the bureaus of the ministry of foreign affairs and the Constitutional Court, the largest prison in the country and lately, two of Algeria’s biggest projects: Roughly two-thirds of the 1216-Km East-West highway, by far the biggest project underway in Algeria, estimated at over $11 billion, and what is expected to become the third largest mosque in the world, to be built in east Algiers by China State Construction Engineering Corporation (CSCEC).

China’s overseas contracting industry is expanding rapidly. In 2012, it is expected to register a 5 to 10 percent increase compared to 2011. Last year, the value of contracts signed abroad exceeded $142 billion, expanding rapidly in emerging economies, particularly in Africa and the Middle East, where many countries are engaging in vast infrastructure projects. In Algeria, and since the early 2000s, Beijing has won tens of billions of dollars worth of contracts. With these projects, Chinese started flocking to the country. With over 35,000 individuals, they now represent the largest foreign population in Algeria. The capital Algiers now hosts the Arab world’s first Chinatown, with inevitable, but still sporadic, incidents with the local population.

Despite its numerous advantages, the growing Chinese presence in Algeria raises a lot of questions. China’s status as an alternative to traditional western powers has helped it break into new markets, such as Algeria. In addition, no preconditions are imposed on host countries regarding their commitment (or lack-of) to human rights principles and corruption-free procedures, which removes potential obstacles that could have slowed down bilateral dealings. The drawback is that this could encourage corruption. CSCEC, which competed for the great Mosque project with a Lebanese-Italian company and an Algerian-Spanish company for the contract, is the same company that was banned from bidding for World Bank projects in 2009 (and until 2015) for corruption charges. The company is executing various projects all around the country. In addition, the Great Mosque project was supposed to create 17,000 new jobs, 10,000 of which reserved for Algerians. Latest reports are indicating that 10,000 Chinese workers are expected in the field, which limit employment opportunities for Algerians. The China Railway Construction Corporation (CRCC), which is executing, together with CITIC, the western part of the East-West Highway, is also confronting corruption charges and is accused of paying $200 million of bribes, including to high government officials, in order to secure the contract. Project deadlines are not respected. Payments for subcontracted Algerian companies are repeatedly delayed. At one point, a completed segment of the highway had to be closed off to circulation for repair just weeks after it was inaugurated. Recurring accidents in China, where six major bridges collapsed in the course of one year, the latest being the Yangmingtan bridge in northern China on August 24, demonstrate the extent of corruption and raise legitimate questions about the quality of project designs and material used by Chinese companies abroad, including in Algeria.

These incidents have tarnished the image of China and Chinese businesses among the Algerian population. Certainly, Chinese investments must still be encouraged but new grounds for cooperation must be established, ensuring mutual long-term benefits for both countries. They must be accompanied by a certain degree of transparency and significant job creation, one of the main motives behind the huge reconstruction efforts in Algeria. There is also a need to diversify investments in order to promote other sectors, in which the Chinese could provide their know-how, such as manufacturing, pharmaceutical industry etc…

The Algerian regime, which was not spared by the wave of Arab protests but managed so far to contain popular discontent and large-scale unrest, have announced massive budget spending increases since the beginning of Arab revolts. A large part of spending is going to infrastructure and reconstruction efforts. By inducing job creation, facilitating trade and contributing to economic diversification, it is hoped that these efforts would give a boost to the national economy. A single catastrophic incident, such as those occurring in China recently, would send shockwaves across the country and seriously threaten stability.