Previous Quarterly Editions
Expropriation Risk: 67 67 68 68 ►Political Violence Risk:48 48 51 48 ▼Terrorism Risk:52 50 48 42 ▼Exchange Transfer and Trade Sanction Risk: 64 63 63 63 ►Sovereign Default Risk:66 56 56 56 ►
TREND ►
Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Low LowAll protest: Low Low
Cost-of-living protest risk in 2023*Wage protest: - Food/fuel policy protests: High
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
The surge in Algeria’s oil and gas revenue during 2021 and 2022 has enabled the government to soften the impact of rising inflation through increasing wages and subsidies. However, as export revenue starts to decline, the government’s ability to continue with such poorly targeted interventions will come into question. There are long-standing plans to reform the subsidy system and to iron out distortions in monetary and exchange rate policy, but carrying out such structural changes would entail adjustments that would increase hardship in the short term. This, in turn, would risk triggering social unrest.
The extensive cabinet reshuffle enacted by President Abdelmadjid Tebboune in mid-March appeared partly to be prompted by popular discontent at the rise in the cost of living. Among the ten ministers replaced was Kamel Rezig. He had held the trade and export promotion portfolio for three years, benefitting from his close personal relationship with the President’s family.
Rezig was widely blamed for shop shortages of basic food items. He was also known for trivial interventions, such as penalising shops that had signs in languages other than Arabic. He has been replaced by Tayeb Zitouni, the head of the RND (the French acronym for the Democratic National Rally), one of the two main establishment political parties. The reshuffle also
saw the appointment of a new finance minister. Brahim Djamel Kassali, who had only been in office for nine months, was replaced by Abdelaziz Fayed, who had headed the ministry’s budget department.
The inflation rate rose to 10% by mid-2022, reflecting the impact of both a poor harvest and the rise in imported commodities after the Russian invasion of Ukraine in February 2022. The rate has remained at about 9% since then, as the government has boosted subsidy spending and the exchange rate has appreciated by about 7% since mid-2022 (although the differential between the official and parallel market rates has increased to more than 30%).
Government and oil industry circles recognise closer co-operation with, and better commercial terms for, foreign companies is essential for investment. The positive turnaround in Algeria’s financial position because of the surge in energy prices following Russia’s Ukraine invasion provides added incentive to lock in new investment, in oil and gas and in sectors geared towards economic diversification.
To this end, a new investment law was passed in July 2022, with the implementing regulations published in September. The law re-affirms previous guarantees allowing the transfer of invested capital and income, although such guarantees have not always been respected in the past. The law also provides a range of incentives in the form of tax breaks, oriented towards certain sectors and regions of the country. The law has created a new dedicated investment agency, the Algerian Investment Promotion Agency (AAPI), which reports to the prime minister (the previous iteration of the body operated under the umbrella of the industry ministry). One of the first major deals announced by the AAPI was an agreement with the Italian-French-U.S. Stellantis Group to produce Fiat vehicles in Oran.
Spanish companies are facing increased difficulty operating in Algeria, owing to the perception Spain’s policy on the Western Sahara dispute has tilted in favour of Morocco. Relations have worsened since Spain has started providing electricity and gas to Morocco to compensate for the October 2021 closure of the pipeline running to Spain via Morocco.
The central bank (Banque d’Algérie) has yet to take any other significant steps to control inflation. The bank has left its benchmark interest rate at 3%, to which it was lowered in 2020 in response to the COVID-19 pandemic, and it has also retained a statutory reserve ratio of just 2%. The government has drawn up a new law on monetary policy and credit, which is likely to give the central bank enhanced powers.
After both the current account and the budget showed surpluses in 2022 for the first time since 2014, the government approved an expansionary budget for 2023, including significant increases in public sector salaries. However, with oil and gas revenue falling, the external and fiscal accounts
are likely to slip back into deficit. The windfall gains from the Russia/Ukraine crisis will be quickly swallowed up, and the government will face the same structural economic problems that have beset Algeria for decades.
The risk of a revival of Hirak Protests remains high. The main focus of the original protests, which started in 2019, was political, related to the refusal of Abdelaziz Bouteflika to relinquish the presidency. The protests also reflected deep-seated economic grievances that have by no means been addressed. If inflation remains high in 2024, there could be a similar combination of issues prompting protests as Tebboune’s presidential term draws to a close.
TREND ▼
Political tensions will remain high, reflecting deep-seated economic grievances, widespread resentment at the nature of Algeria’s power structure, and the Kabyle minority’s frustrations. However, the political violence risk is mitigated by the government and opposition’s wishes to avoid returning to Algeria’s bloody 1990s conflict.
Meanwhile, the risk of tensions with Morocco escalating into armed conflict have increased, although international diplomatic intervention would most likely prevent the outbreak of war. Algerian politicians and generals have grown increasingly frustrated at the political gains that Morocco has made in advancing its interests in the Western Sahara. The recently appointed new UN envoy on Western Sahara, Staffan de Mistura, is seeking to convene a round of talks on the issue, including Moroccan and Algerian officials and representatives of the Polisario Front.
Tebboune’s decision to remove Ramtane Lamamra from the post of foreign minister in the March reshuffle appears to have stemmed from domestic political rivalry rather than reflecting any dispute over foreign policy. Lamamra had been side-lined, apparently because Tebboune suspected him of preparing to stand for president in 2024. The new foreign minister, Ahmed Attaf, is a veteran diplomat, who served in this post in the three years before Bouteflika’s election. He has previously taken strong positions on Morocco, but he has also advocated efforts to resolve the conflict.
The security forces have largely succeeded in countering armed Islamist groups. Extreme Islamism also has diminished appeal for younger Algerians today. Together, these point to a low risk of terrorism within and facing Algeria.
Foreign exchange risk has diminished because of the increase in Algeria’s oil and gas export revenue since mid-2021. This has made minimal the risk of further restrictions on trade, in the short term at least. Algeria’s oil and gas revenue rose 70% year-on-year in 2021, reaching about USD34.5 billion, thanks to higher prices and increased volumes. There was a further increase of about 60% in 2022, despite lower volumes of natural gas sales.
The central bank has used its stronger reserve position to engineer an appreciation of the dinar against the U.S. dollar and, even more so, against the euro since mid-2022. This marks a shift from a policy of gradual depreciation since 2020. The revaluation provides a means for the central bank to control imported inflation. The gap between the official and black-market rate increased to more than 30%. The shift came after the end-May appointment of a new central bank governor, Salah Eddine Taleb, who had been head of the monetary and credit council. As the current account slips back into deficit, pressure on the overvalued official exchange rate will mount.
TREND ►With external debt now near zero, the government has some leeway for foreign borrowing, but the government has opted over the past few years to draw down reserves to cover its external deficit. Reserves peaked at almost USD200 billion in 2014, before falling rapidly to about USD48 billion by end-2020. There was a small dip in 2021, but reserves have since risen to about USD65 billion.
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