Investing & Day Trading Education:  Day Trading Academy

Algeria: Economic Crisis and Political Stagnation As An Era Draws To A Close

Abdelaziz Bouteflika
عبد العزيز بوتفليقة‎ 5th President of Algeria.

National Assembly elections will be held this week in Algeria. The electorate of 22 million, are somewhat apathetic to the prospect. This is because many Algerians assume the polls are fixed and the ruling party will continue to win by a large margin. As the economic crisis mounts, the frustration of the populace will intensify.

Despite Algeria being the 6th largest gas exporter globally, the economy is slowing, given the over- reliance on the energy sector for growth. 

In 2016, revisions were made to the constitution that enhances the power of the legislature. However up to this point, the National Assembly has continued to endorse governmental policies with little debate.

Some 12,000 candidates are competing for 462 seats, but the expectation is that the National Liberation Front (FNL) and its allies, will win the majority of them. The party has dominated the legislature, since independence was won from France in 1962.

National Liberation Front Logo

The only electoral exception, was in 1991. When the Islamists won an election that year, the army moved to invalidate the results. This subsequently led to a brutal civil war, that lasted for the rest of the decade.

The conflict ended as Mr. Bouteflika became president of the country, at the invitation of the army.

Bouteflika has held the position since 1999. A stroke in 2013, and declining health have plagued the President over the last few years. He won re-election in 2014, his fourth consecutive win. This was despite, the lack of any real personal campaigning.

There were allegations of massive fraud, as in the preceding election.  Now at 80, it is unclear whether he is in full control of his faculties.

The President in a more recent photo.

Bouteflika had the constitution amended in 2008, removing the two-term limit for presidential tenure. It effectively gives Bouteflika and his supporters, the option of keeping him, the head of state indefinitely.

President Bouteflika has remained in power despite his incapacity, because the elite of society known as the le pouvoir, are loathe to replace him. He is seen as a force of stability, in a region of chaos.

To the east, neighboring Libya remains at civil war, since the overthrow Muammar Gaddafi in 2011. To the southwest, Mali saw two military coups in 2012, a rebellion in the north and armed intervention by France, the following year.

View of the oil port of Béjaïa, Algeria.

Algeria is dealing with an economy that is slowly grinding to a halt, despite a growth rate of 4% last year. The excessive reliance on gas and oil exports, to generate revenue for government expenditures, is difficult to handle in an era of low international energy prices.

Oil and natural gas account for 90% of exports. Together they comprise 40% of GDP (Gross Domestic Product).

The national budget is dependent on fuel exports, to finance some 60% of outlays. Receipts from this source, have fallen by more than 50% since 2014.  

In addition, as a member of OPEC (Organization of the Petroleum Exporting Countries), Algeria is obliged to reduce energy exports as part of an organizational agreement made in 2016.

New bridge construction near Aïn Turk in Algeria.

Government leaders have been forced to economize, by reducing the subsidies for fuel and electricity. This has led to substantial energy price increases.

At the same time, taxes have been raised in order to help narrow the budget deficit. The value added taxes on fuel and electricity for example, were also hiked. Despite these efforts, there was still a budgetary shortfall of 12% of GDP in 2016.

Despite the unpopularity of ongoing reductions in government outlays, these have become necessary in the present fiscal circumstances. Overall spending was trimmed by 9% last year and will be cut another 14% in 2017.

Algeria on a global map.

Foreign reserves have been plummeting. In 2014, they were listed at $196 billion USD (United States Dollars). In 2016, they had dipped to a low of $114 billion USD. This rapid depletion is simply not sustainable.

Algerians are growing impatient and angry, as the cost of living rises rapidly. Inflation which had been 4.8% last year, surged to a high 7.6% as of February.

The government continues to scale back subsidies. To save hard currency, government restrictions on imports are increasing. Prices for necessities, especially food are accelerating ever higher.

Official unemployment stands at 10.5%. Since there is now a freeze in hiring for the public sector, the jobless rate, is unlikely to be reduced in the near future.

The People’s National Assembly in Algeria.

Past governmental efforts to reduce youthful unemployment, have largely failed. It remains above 20%. As a result, the younger segment of the population, have few viable economic prospects.

There also remains an ongoing housing shortage,which officials have recently done little to alleviate.

In the past, the Algerian government became accustomed to buying stability among the populace, with additional subsidies in foodstuffs, fuels, electricity, healthcare and housing. As these continue to taper off, economic difficulties will increasingly become important electoral issues.

When there was a wave of economic protests in February and March of 2011, the government responded with an infusion of over $23 billion USD, in public grants and benefit increases. These previous commitments, have put an even greater strain on present financial resources.

Algiers, capital of Algeria

The Algerian government would like to see a higher turnout in the upcoming election, than was the case in 2012, when only 43% of eligible voters cast ballots. This will be difficult, given that several opposition parties are boycotting the election.

The governmental demand that the national press ignore these malcontents, does not help the legitimacy of the process, among those who criticize the system. The corruption is hard to ignore. In fact, some of the candidates that are running for office, are doing so to gain immunity from possible prosecutions.

As in the past, a large number of the candidates continue to have connections to le pouvoir. Those that are from political parties that decide to participate, will surely be allowed a number of seats. It helps the government gain greater legitimacy and political cover, for the harsh austerity measures already passed, and those that are now in the pipeline.

Graphical depiction of the country’s exports in 28 color-coded categories.

The Algerian economy remains too dependent on gas and oil, especially in an environment of lower international prices. The over centralization of the factors of production, discourage innovation and productivity.

The legacy of the country’s socialist past for development, has left the state in a dominant role, despite some reforms. The needed move away from hydrocarbon based industries, will not be easily accomplished.

The Algerian government has in fact, done the opposite of what is needed for greater economic growth. In the interest of domestic politics, the privatization of state owned industries has been all but halted.

Algeria has the 10th biggest world reserves of gas and the 16th largest in oil reserves. This has made the country quite attractive, to many leading international energy companies.

Gas and oil pipelines running through Algeria.

Still, foreign firms particularly in energy, are hampered by excessive legal constraints and regulations. It makes additional investments difficult to justify. The restrictions on imports and outside involvement in the economy, have shackled overall foreign investment for years.

The present challenge facing the government is to indeed, attract more international investment. It is the only sustainable way, to provide more jobs for younger Algerians.

Despite the growing discontent, most Algerians seem to be reluctant, to openly challenge the government. Order and stability, remain the overarching concern for most of the citizenry.

The allies of FLN, continue to play up the military’s fight against Islamic extremists as well as other groups, that are attempting to undermine the country’s security.

The port city of Oran, Algeria.

The longer the economic crisis lingers, the harder it will be for the government to resist fundamental change. The elites of society have yet to deal with the immediate consequences, that will come with the death of President Bouteflika. On the contrary, his political allies have instead purged powerful individuals in recent years, who might have had challenged the presidential hold on power.

The problem of presidential succession, leaves genuine reform on hold for now. The lack of real change at the political level, will likely stymie much needed economic reforms, in the quest to maintain growth. Without a growing economy, the challenges now facing Algeria will only escalate.

Post a Comment

Your email address will not be published. Required fields are marked *

Call Now ButtonCall Now