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Hit by Oil Price Drop, Algeria Turns to China for Funds

FILE – A collapse in oil prices has pushed Algeria to look to China to finance several infrastructure projects. Pictured is the In Amenas gas field in Algeria, Jan. 17, 2013.

Algeria is turning to China to finance several infrastructure projects, including a new $3.2 billion port, as the North African OPEC member looks for ways to weather the collapse in global oil prices.

Algeria, where oil and gas production account for 60 percent of the state budget, saw energy earnings collapse 40 percent last year, forcing the government to slash spending, raise some subsidized fuel prices and freeze major projects.

With little foreign debt and more than $130 billion in reserves, Algeria's government says its economy can manage the fall in crude prices. Nevertheless, it appears Algiers is willing to move out of its comfort zone to help it cope. The Chinese funding represents the first time it has sought external funding in a decade.

Chinese businesses are already well-established in Algeria, especially in housing and construction. In one flagship project, Chinese firms are helping to build a huge new mosque worth $5 billion in the capital Algiers.

Now Chinese banks will fund the port in Cherchell, east of Algiers, for a megaport of 23 docks capable of processing 26 million tons of goods per year, according to a source at the transport ministry.

"The port will be funded by China," the official told Reuters.

China's Shanghai Ports Group will manage the project, he said. Another source at the Algerian trade ministry confirmed this.

"This is an important and strategic project [port] not only for Algeria, but for Africa," China's ambassador in Algeria told reporters Monday.

China is Africa's largest trading partner and its investments in the continent amounted to $32 billion at the end of 2014, according to London-based BMI Research.

Chinese workers are seen at the construction site of the new Great Mosque, which is being built by the China State Construction Engineering Corporation (CSCEC), in Algiers, Algeria, Jan. 20, 2016.
Chinese workers are seen at the construction site of the new Great Mosque, which is being built by the China State Construction Engineering Corporation (CSCEC), in Algiers, Algeria, Jan. 20, 2016.

China has offered loans totaling $32 billion to African nations in the past two years and investments range from Zambian power plants, cobalt mines in Congo, rail links in East Africa and other infrastructure in Equatorial Guinea.

"We have $60 billion available for projects in Africa in the next three years, and Algeria is in a good position to take advantage of this amount," the ambassador said.

Positive view of China

The total amount of the loans requested by Algeria from China is not known, but a vehicle and trucks assembly plant and thousands of houses are among the Chinese-funded projects planned for the next couple of years.

In one sign of the growing trade between the two countries, Algeria uses the yuan in exchanges with China instead of the dollar. As a result, traders on the black currency market in Algiers have begun to make the yuan available to clients.

"There is a big demand over the yuan," Salim, a young trader at Algiers Port Said Square, told Reuters.

For Algeria, the Chinese funding may also be more politically palatable than multilateral lenders such as the International Monetary Fund (IMF), analysts said.

After it signed a debt restructuring agreement with the IMF in 1994, Algeria saw social tensions rocket as a result of a raft of unpopular measures such as closing state firms, sacking thousands of workers and lifting subsidies on primary consumption items. It also devaluated its currency by 40 percent.

Many Algerians blamed the IMF, seeing it as a foreign tool that created poverty.

But the presence of China is widely seen as beneficial for Algeria and its economy. There are 35,000 to 40,000 Chinese workers in Algeria, according to the Chinese ambassador.

Algeria, a key U.S. ally in its fight against Islamist insurgency and a top gas supplier for Europe, avoided the upheaval of the 2011 Arab Spring revolts that toppled leaders in neighboring Tunisia, Egypt and Libya.

Tapping its energy wealth, the government increased handouts, subsidies and cheap loans to help ease protests calling for reforms. Memories of the country's 1990s war with Islamist militants in which 200,000 people died also keeps many Algerians wary of turmoil.