Previous Quarterly Editions
Expropriation Risk: 58 63 66 67 Political Violence Risk: 64 67 64 65 Terrorism Risk: 58 58 54 52 Exchange Transfer and Trade Sanction Risk: 54 57 60 58 Sovereign Default Risk: 50 52 56 56
TREND ► OUTLOOK ▲
After barely six months in office, the administration of President Abdelmadjid Tebboune is facing multiple crises. The coronavirus pandemic has hit Algeria relatively hard, with 23,500 registered cases by mid-July 2020 and more than a thousand deaths. A deeper concern is the unresolved political conflict over the fundamental nature of the Algerian state, but both are taking place against a growing economic crisis arising from the collapse in oil and gas revenue. At the end of June 2020, the government started to relax some of the restrictions that were in place since mid-March 2020, with public transport resuming in most cities and more businesses allowed to reopen. However, a night-time curfew remained in place, with land borders closed and air and maritime travel restricted to cargo. Although Tebboune pledged before last December’s (2019) elections that he would press ahead with political reform, the constitutional changes he unveiled in May 2020 fell far short of opposition demands for a transformation of the system. Although they include a two-term limit for the president and legislators, the dominant role of the presidency is preserved and even extended in some areas, notably in making judicial appointments. The most controversial item was a proposal to allow the armed forces to operate outside Algeria’s borders, modifying a principle of non-interference that was enshrined in the original constitution of 1962. On one level, this can be seen as a pragmatic response to potential security threats emanating from Libya and the Sahel, but it also served to highlight the importance of the military. The political establishment broadly welcomed the proposals, but they prompted a hostile response from the Hirak opposition movement. As the COVID-19 restrictions eased, protesters returned to the streets but met a heavier response from security forces than in the past, with several hundred activists arrested in June 2020. The amendments are due to be put to a referendum, although probably not this year, and in the meantime Tebboune will try to exhaust the opposition by dividing them on particular issues while increasing the level of repression. The government produced a revised budget in June 2020 in response to the economic impact of the virus and the related drop in energy prices. These factors are expected to mean revenues of around 20 billion dollars this year compared to 34 billion in 2019, but the budget only cut spending by 6%. As a result, the actual deficit is likely to be considerably higher than the revised target of 10.4%. Domestic energy prices were increased, but only marginally, and fuel and electricity remain heavily subsidised. Within weeks of the revised budget being passed, Tebboune enacted a cabinet reshuffle that included the unexplained departure of the finance minister, Abderrahmane Raouya, who was replaced by Aymen Benabderrahmane, who had only been appointed governor of the central bank in November 2019. Another important change was the replacement of Mohamed Arkab as energy minister by Abdelmadjid Attar, a former head of Sonatrach, the national oil company. The changes suggest that Tebboune is struggling to come up with an effective strategy for dealing with Algeria’s economic difficulties. However, one option that continues to remain off the table is seeking financial assistance from the IMF, of which both the establishment and the opposition remain deeply suspicious.
TREND ▲ OUTLOOK ▲
The Algerian authorities have sought to improve the business environment for foreign investors by passing a new hydrocarbons law in 2019. However, the credibility of those reforms has been compromised by the turmoil at the top of the Algerian oil and gas sector and the vindictive judicial pursuit of ministers and business leaders who were prominent in the Bouteflika era. There is hope that some of that credibility may be restored by Abdelmadjid Attar, the new energy minister appointed in June 2020, who has made clear that he fully appreciates the gravity of Algeria’s oil and gas challenges, and that these cannot realistically be met without close co-operation with international companies. However, the government’s confirmation in May 2020 that it will prevent Total from acquiring Anadarko's assets in Algeria (as part of a side-deal to Occidental's takeover of Anadarko last year) indicates that it intends to keep close control over the sector. On the broader investment front, the politicised and wide-ranging anti-graft campaign against officials and businessmen from the Bouteflika era has caused serious damage to Algeria’s already weak industrial sector and deterred new investment.
Algerians have largely accepted the need for social isolation as part of the moves to combat COVID-19 and the Hirak movement which was initially abided by the ban of demonstrations as a social distancing measure. However, as protests resumed in June 2020 there were met with large-scale arrests. Increased tensions have also been reported in the Kabyle region to the east of Algiers, as well as in some remote communities in the Sahara Desert. With economic conditions worsening and political grievances remaining unresolved, there is a significant risk that the face-off between the state and civil society could develop over the coming months into widespread rioting that would trigger a heavy security crackdown that then starts a new cycle of violence.
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The death of Abdelmalek Droukdel, leader of Al-Qaida in the Islamic Maghreb (AQIM), during a French-US operation in Mali in early June 2020, will have further weakened the group’s regional operations. Droukdel was a leader of one of Algeria’s Islamist armed groups during the 1990s civil war, and he established the link with Al-Qaida in 2005. His presence in Mali reflected the difficulty that the group has faced in maintaining its operational presence within Algeria itself. 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.
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The government and the central bank have given no sign of considering capital controls on the financial sector or implementing new trade restrictions. However, as foreign exchange reserves continue to dwindle, such measures cannot be ruled out. The reasoning behind the June (2020) cabinet reshuffle, in which the relatively new head of the central bank became finance minister, remains unclear. Critical issues facing the government include how to manage the exchange rate in the context of falling reserves and a rising current account deficit, and whether to revive the quantitative easing programme which raised the equivalent of 55 billion US dollars through the central bank subscribing to government bonds between late-2017 and January 2019.
TREND► OUTLOOK ▲
Despite the legacy concerns about IMF conditionalities, Algeria has little choice but to turn to the Fund at some stage. With external debt now close to zero, the government does have some leeway for foreign borrowing but this is rapidly being reduced by the additional impact of the pandemic on already weak energy prices. Foreign exchange reserves have dwindled to around 60 billion US dollars from almost 200 billion US dollars in 2014 and could end the year below 40 billion US dollars.
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