Previous Quarterly Editions
Expropriation Risk: 49 54 58 63 Political Violence Risk: 52 60 64 67 Terrorism Risk: 60 59 58 58 Exchange Transfer and Trade Sanction Risk: 49 53 54 57 Sovereign Default Risk: 47 48 50 52
TREND ▲ OUTLOOK ▲
The army and the interim administration chose to press ahead with a controversial presidential election in December, despite continued large-scale protests calling for constitutional reform to come first. As a result, even before voting took place on December 12, it was clear that, whatever the outcome, the election would not resolve Algeria’s deep political crisis. As expected, the winner was Abdelmadjid Tebboune, a 74-year-old former prime minister widely seen as having the blessing of the army. Official results gave him a first-round victory with 58% of the vote, defeating four other candidates all of whom also had ties to deposed President Abdelaziz Bouteflika. Opposition groups rejected the election as a sham and turnout was low, but polling day demonstrations in Algiers mainly saw scuffles with police rather than violence. Tebboune argues that his association with Bouteflika was merely from serving briefly as prime minister in 2017, having been sacked after three months of starting an anti-corruption drive targeting businessmen close to the administration, but the widespread sense that Tebboune was the candidate of army chief Ahmed Gaid Salah undermined his claims of independence. This may change following Gaid Salah’s death from a heart attack on December 23, just days after Tebboune’s inauguration, and could ultimately allow him to engage meaningfully with the opposition on constitutional reform. At present, however, he has little chance of addressing the protests and strikes that marked the election process, and which have continued despite army-backed efforts to control the country’s major unions. Among the more intractable problems he faces, unemployment is above 30% among the young, and even higher for university graduates, while the IMF expects real GDP growth to slow steadily over the next five years. More immediately, government administration has deteriorated as civil servants stop coming to work. The Hirak opposition movement, which has managed to maintain momentum for its protests since the start of 2019, looks capable of extending its pressure for change well into 2020. Meanwhile, the continuing political uncertainty, coupled with the haphazard arrest of prominent businessmen on corruption charges, has hampered commercial activity and will undermine steps to encourage foreign investment outlined in the 2020 budget, which parliament approved in November. This lifts the limit of 49% on foreign ownership of Algerian companies to make majority ownership possible in non-strategic sectors, which in effect means most of the economy other than oil and gas. The change is an encouraging development for prospective foreign investors, but they are likely to wait until political conditions stabilise before seeking to take advantage of it. There is a strong nationalist strain to the opposition Hirak movement, and the crackdown on Bouteflika-era business leaders has created a climate of fear in the private sector.
The new hydrocarbons law, which was also passed in November, maintains the foreign ownership cap in the sector. However, it offers international oil companies a wider choice of contract terms, which includes production-sharing agreements for the first time in Algeria. Although the Hirak movement opposes the new law as too generous, the interim government argues that it is necessary to stimulate much-needed upstream investment. While there is wide recognition within government ministries that encouraging investment in the energy sector is vital, there remains a risk that political leaders might take a populist line against foreign companies under pressure from protesters. In December, Volkswagen announced that it would suspend production after the head of its local partner was charged with corruption, while Hyundai and several other companies are looking for new partners.
Since the mass protests started in early 2019 against the Bouteflika regime and then continued against the interim administration, there has been remarkably little violence. This reflects self-discipline among the protesters and a measure of restraint on the part of the security services. The risk of violence rose with the army’s insistence on holding the presidential election in December, and security forces arrested increasing numbers of protesters from mid-November onwards. However, demonstrations around election day were relatively peaceful in the capital, although in the predominantly Berber Kabylie region several polling stations were overrun. The additional risks associated with a second round were avoided, but the election has done little to defuse tensions. The possibility of a clash between security forces and protesters that inadvertently escalates remains significant.
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 central bank got a new governor with close ties to the finance ministry at the end of 2019 after his predecessor had alarmed the business community by requiring a declaration of origin for any foreign exchange deposit of one thousand euros or more. Although it was quickly made clear that the declaration did not apply to Algerian citizens, the move shows the extent to which the bank may be influenced by the direction of the new Tebboune administration in areas such as capital controls and trade restrictions. The current finance minister has indicated that he is against such controls, but it is not clear that his tenure will be extended.
Algeria’s foreign exchange reserves have dwindled to around 70 billion dollars from almost 200 billion dollars in 2014 as a result of the fall in oil and gas export revenue. Since the end of 2017, the government has been making up budget revenue shortfalls by borrowing from the central bank, and by early 2019 these liabilities had reached about 55 billion dollars. 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 both the establishment and the opposition to accepting the unpopular measures involved. With external debt now close to zero, Algeria does have some leeway for foreign borrowing.
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