Previous Quarterly Editions
Expropriation Risk: 46 45 45 49 Political Violence Risk: 48 46 48 52 Terrorism Risk: 66 64 61 60 Exchange Transfer and Trade Sanction Risk: 48 48 49 49 Sovereign Default Risk: 50 48 48 47
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The approaching presidential election, which is supposed to take place before the end of April, has stirred up tensions within the Algerian establishment between those keen for President Abdelaziz Bouteflika to remain in power and those who are convinced that an alternative must be found. Bouteflika, in office since 1999 and now 81, has barely been capable of functioning since suffering a stroke in 2013. His entourage and powerful interests in the military, business and the trade unions are heavily invested in seeing him remain in place, not least because there is no consensus within these circles on an acceptable successor. The country’s two main political parties, the FLN and the RND, are also supporting a fifth term for the president. Bouteflika himself has remained silent, but he will have to clarify his intentions once the constitutionally required 90-day countdown to polling day has started. The leaders of two smaller parties have urged a pause to allow for greater national consultation on the country’s future, but there is no constitutional provision for postponing a presidential election other than in time of war. There have also been calls for the commander of the army, General Ahmed Gaid Salah, to intervene and use the armed forces to prevent those around the president from using unconstitutional means to prolong Bouteflika’s tenure. So far, the army has responded by underlining its neutrality but tensions between its leadership and the president’s inner circle are growing. If Bouteflika can be prevailed upon to register his candidacy, the political machines of the FLN, the RND and the trade unions will work together with the patronage networks of provincial governors and prominent business figures to ensure his election. However, this will not lay to rest the conflict over the eventual succession, and there is a risk that the power struggles among the elites will spill over into much broader street protests. More encouragingly, the pragmatic performance of Abdelmoumen Ould Kaddour, who has headed Sonatrach, the national oil and gas corporation, since March 2017 has been welcomed by the major international oil companies. His flexibility in negotiations has produced new long-term agreements with both Eni and Total. In addition, Total as also committed itself to a significant petrochemicals project in western Algeria that will process surplus propane to produce polypropylene. Total’s stake is 49%, in line with the limits still in place on foreign ownership that require Algerian investors to hold a majority stake.
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The state’s right of first refusal when a foreign company seeks to sell its stake was put to the test in September when Spain’s Villar Mir group sought to sell its 49% shareholding in Fertial, a fertiliser producer. A private Algerian company agreed to buy Villar Mir’s shares, thereby building up its stake in Fertial to 66%. However, after protests by trade unions, the government ruled that the stake should be acquired by an affiliate of Sonatrach. Meanwhile, authorities continue to obstruct new projects being undertaken by Cevital, a large private corporation. Port authorities in Bejaia are still denying entry to equipment ordered for a soybean crushing plant two years ago. The company and its supporters allege that the reasons for the delay are spurious and that it is designed to favour a similar project being undertaken by a rival business group with connections to the centre of power.
Protests and demonstrations are frequent but tend to be focused on local issues. A recent example has been the marches in Bejaia province in support of Cevital, which is a major employer there, to protest its unfair treatment by government authorities. The Bejaia protests were also supported by groups associated with campaigns for more rights for the Kabyle minority. But a mishandling of the upcoming election has the potential to produce more widespread and coordinated protests about the state of the country’s governance as well as its economy. There is also a risk of social upheavals if the government is forced to cut back spending to address chronic deficits in its fiscal and external accounts.
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The security forces have been largely successful in containing the threat posed by armed Islamist groups, and efforts by the Islamic State to establish a foothold in Algeria have gained little traction. After five soldiers were killed in a roadside bomb attack in the Tebessa region early in 2018, there were no further serious incidents during the year. There has not been a major terrorist attack in Algeria since the assault on the In Amenas gas complex close to the Libyan border in January 2013, in which some 40 foreign workers were killed.
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The central bank was able to hold the dinar steady against the euro during 2018, although there was a modest depreciation against the US dollar. However, pressure on the dinar is likely to mount as foreign exchange reserves continue to be depleted. Moreover, if the government eventually decides that it needs to borrow externally to finance its fiscal deficit, creditors are likely to insist on devaluation. The difference in cost between buying foreign exchange on the black market or through the official banking system is still about 50%, but the IMF’s recommendation that the authorities adopt a more flexible exchange rate system has so far been ignored.
Algeria has been helped by the rise in oil and gas prices since mid-2017 and by new gas fields coming on stream, as well as by its efforts to curb imports. The merchandise trade deficit in the first nine months of 2018 was 3.7 billion dollars, compared with 8.5 billion dollars in January-September 2017. The government is thus in a good position to borrow abroad to cover its fiscal and current account deficits, but this option has so far been vetoed by Bouteflika in favour of borrowing from the central bank. Since a law was passed in September 2017 allowing such borrowing, the central bank has issued the equivalent of 34 billion dollars in securities to the government.
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