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Algeria’s rulers consolidate grip as economy falters

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When people started dying of Covid-19 in Algeria in March, protesters called a halt to the weekly demonstrations that had rocked the country for more than a year and toppled President Abdelaziz Bouteflika.

With the streets cleared of protesters demanding democratic change, the military-backed authorities seized the opportunity to crack down on dissent, arresting dozens of opposition activists and questioning hundreds more about their Facebook posts.

“They want to rebuild the wall of fear to stop the protests from coming back after the virus has ended,” said Zaki Hannache, a human rights activist. 

The coronavirus threat may be receding, with the death toll at fewer than 1,000 people, but the anger against the government is still raw, and the disease has exacerbated the economic malaise that fuelled the unrest.

In April 2019 the army removed Mr Bouteflika in an attempt to quell popular anger. But it was not enough to appease protesters who continued to call for an end to the military-controlled system they accuse of repression, corruption and economic mismanagement.

Algeria relies heavily on oil and gas exports, and as the pandemic struck across the globe the demand for hydrocarbons fell and prices plummeted, dealing a blow to the fragile state-dominated economy.

Even before the virus, declining oil and gas revenues had hobbled the government’s ability to create jobs and to spend on services. Unemployment hit 11.5 per cent last year, according to World Bank figures.

The authorities had been promising to diversify the economy but critics say the regime is balking at reforms that would loosen its grip and empower Algeria’s weak private sector.

“Control of the economy is in their DNA,” said Mabrouk Aib, public policy analyst at Nabni, an Algerian think-tank. “There are no new policies to open up the market or make business easier. They are doing the same thing and waiting for the price of oil to go up again.”

Demonstrators take to the streets of Algiers in February © Ryad Kramdi/AFP

Algeria is the third-biggest natural gas exporter to Europe and derives more than 93 per cent of its foreign currency receipts from oil and gas exports. For years hydrocarbons sustained the unwritten bargain underpinning the country’s political system: the state poured billions of petrodollars into subsidies and handouts and in return the people accepted autocratic rule.

When oil prices began to slide in 2014 the social contract frayed amid accusations of corruption and economic mismanagement. Analysts fear Algeria faces a serious crisis as it empties its foreign currency coffers, which have fallen from nearly $200bn in 2014 to $62bn just before the coronavirus outbreak. The concern is that reserves could run out within two years, delivering a shock to an economy where almost a quarter of youths are jobless.

The IMF expects Algeria’s economy to shrink 5.2 per cent in 2020 and its fiscal deficit to rise to 20 per cent of gross domestic product. Last month the government cut its spending by half, but promised it would not touch the extensive subsidy regime that covers food, energy and housing.

Abdelmadjid Tebboune, the former prime minister who became president in December after an election marred by a low turnout and boycotts, has ruled out borrowing from the IMF, arguing that it would restrict Algeria’s ability to pursue an independent foreign policy. “I would rather borrow from Algerians than from the IMF or other foreign banks” because “when we borrow from foreign banks, we can’t discuss Palestine or the Western Sahara”, Mr Tebboune said. 

Jihad Azour, head of the Middle East and Central Asia department at the IMF, suggests that, instead of borrowing, Algeria should adopt economic reforms to boost private and foreign investment to narrow the current account deficit and create jobs. 

“For a country that before the crisis had a certain number of economic vulnerabilities, it’s the right time and I would say it is urgent for them to accelerate their reforms,” said Mr Azour. “Algeria has great potential.”

To encourage foreign investors — who mostly shun Algeria beyond the oil and gas sector — the government has announced a list of non-strategic industries in which it will let foreigners hold majority ownership.

But analysts warn that it will be even more difficult to launch reforms once reserves are further depleted. Tin Hinane el Kadi, researcher at Chatham House in London said: “Algeria’s financial resources are melting like snow under the sun. It is time for the government to adopt a long-term vision and invest in industries like solar energy, digital technology, agriculture and tourism.”

She said Algeria’s rulers were wary of the private sector because its growth could challenge their control: “The legitimacy of the regime is linked to its ability to distribute rents and not to a dynamic private sector that creates added value.”

High oil prices allowed Mr Bouteflika to lavish subsidies on his people, helping him fend off the uprisings that engulfed the region in 2011. During his rule, however, only politically connected private entrepreneurs were allowed to benefit from state contracts. As protests erupted last year, dozens of business people who prospered under Mr Bouteflika were jailed on corruption charges.

But Algeria’s rulers cannot bank on hydrocarbons to save the day again. Anthony Skinner, north Africa director at Verisk Maplecroft, said the global difficulties faced by the oil and gas sector made it unlikely that foreign companies would flock to Algeria soon. “Bureaucracy, red tape and tough fiscal terms have conventionally discouraged investment,” he said. “Now investors have to contend with a really tough price environment.” 

Meanwhile, protesters have begun returning to the streets, even if some influential voices urge caution because of the virus. Mr Hannache, the human rights activist, said he had no doubt that the demonstrations would resume “with vigour” after the pandemic. 

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