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Expropriation Risk: 45 49 54 58 Political Violence Risk: 48 52 60 64 Terrorism Risk: 61 60 59 58 Exchange Transfer and Trade Sanction Risk: 49 49 53 54 Sovereign Default Risk: 48 47 48 50
TREND ▲ OUTLOOK ▲
There is little sign of a quick end to the political crisis triggered by the mass protests ahead of the presidential election due in April but then suspended. After attempts to arrange a fresh election in July were abandoned, the acting president, Abdelkader Bensalah, launched an initiative for dialogue between the political establishment and the broad opposition movement, known as Hirak. As speaker of the upper house of parliament, Bensalah became acting head of state on the basis of a 90-day mandate provided for in the constitution. That mandate has now, in effect, been extended indefinitely, with the approval of the supreme constitutional court. Behind these constitutional niceties, General Ahmed Gaid Salah, the commander of the army, continues to wield decisive power. The opposition has set several conditions for talking to the government about political reform. These include the release of political detainees, the lifting of restrictions on the media, allowing protests to take place in public spaces, and the replacement of the government that was appointed by former president Abdelaziz Bouteflika at the end of March, just before his resignation. Bensalah has indicated that he is prepared to consider these demands, but Gaid Salah insists that the next step can only be the election of a new president in line with the existing constitutional arrangements. The official dialogue panel is regarded with suspicion by the opposition movement, and a wide range of political parties and civil society groups have set up a separate framework for discussing reforms. This includes leaders of Islamist parties that, despite holding a relatively small share of the seats in parliament, have benefited from the cloud of collaboration hanging over the traditional parties, the FLN and the RND. Gaid Salah’s strategy appears to be to grind down the resolve of the Hirak while co-opting some opposition political figures into the establishment camp to allow for the presidential election to go ahead. At the start of September, he said that the election should be held on December 15, apparently calculating that Bensalah’s dialogue forum and an anti-corruption campaign aimed at Bouteflika’s allies will have satisfied enough of the opposition to enable the military to complete the election process. The police and judiciary have maintained pressure on the protest movement but have held back from any concentrated use of force.
Foreign oil companies were concerned by the dismissal of Abdelmoumen Ould Kaddour as head of Sonatrach, the national oil company that supplies more than 90% of the country’s export revenue. Before his removal in April, apparently instigated by Gaid Salah, Ould Kaddour had been improving Sonatrach’s relations with international oil companies, which had been responding with increased investment. They may now be more cautious in the short term as the risk of operational disruption increases. In the longer term, however, any new administration will have to consider a radical overhaul of the rules that currently constrain investment in the oil and gas sector. The next government is also likely to face a revival of claims against the Algerian state by companies like Egypt’s Orascom Telecom for previous instances of expropriation. More broadly, there is a risk that perfectly legitimate businesses may get caught up in the zeal to tackle the corruption of the Bouteflika years. Already, several major companies in sensitive sectors such as autos and engineering have been disrupted as the arrest of senior officials on corruption charges paralyses operations.
The mass protests against the Bouteflika regime began peacefully in February, thanks to the discipline of the protesters and the relatively light security measures taken by the police. By mid-May, however, clashes at a protest rally against unemployment left twenty policemen and dozens of protesters injured. Since then, the army has remained reluctant to jeopardise its legitimacy by firing in crowds, and the protesters have largely managed to abide by their own commitment to non-violence. However, the military leadership is clearly prepared to increase its use of repression to protect its own position and there has been a constant risk of escalation. Bensalah’s decision in July to replace the Bouteflika-era justice minister by a noted anti-corruption campaigner was another move to appease the opposition.
TREND ▼ OUTLOOK ►
While Islamist parties are actively engaged in the political opposition, they include leaders who are prepared to work with the military establishment. These groups act as a buffer between the state and Islamist extremism. Although there remains a risk that marginal elements will gravitate towards violence if the political crisis appears intractable, the security forces have largely succeeded in countering the threat posed by armed Islamist groups since the assault on the In Amenas gas complex in 2013.
The exchange rate has remained remarkably stable on both the official and parallel markets despite the recent political turbulence, with the gap between the rates remaining at about 30%. Amar Hiouani, appointed as interim governor of the central bank in April, may have to deal with mounting pressure on the currency if the political situation deteriorates, however, and he could be forced to consider capital controls. In an effort to dissuade individuals with reason to fear corruption proceedings from seeking to move funds abroad, the income tax authority has been warning banks to be vigilant with respect to foreign transfers.
After years of hydrocarbons sales, Algeria has little external debt. However, in the first half of 2019, export revenue fell marginally as a result of lower natural gas prices, and foreign reserves are likely to continue falling despite the imposition of fresh restrictions on imports of both goods and services. Since the end of 2017, the government has been making up revenue shortfalls by borrowing from the central bank, and by early 2019 these liabilities had reached about 55 billion dollars. The Bensalah government has said that it will end this mode of deficit financing but has not offered any alternative. Ultimately, Algeria will have little option but to resort to external borrowing, most likely via a conditional programme with the IMF, despite the deep aversion in the both the establishment and the opposition to taking such a course.
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