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Expropriation Risk: 45 45 49 54 Political Violence Risk: 46 48 52 60 Terrorism Risk: 64 61 60 59 Exchange Transfer and Trade Sanction Risk: 48 49 49 53 Sovereign Default Risk: 48 48 47 48
TREND ▲ OUTLOOK ▲
The turbulence in Algerian politics will persist for some time. Protests began in February after it was announced that Bouteflika would seek a fifth presidential term in the elections scheduled for mid-April. The army commander, General Ahmed Gaid Salah, made the decisive intervention that eventually forced Bouteflika to resign at the start of April. Following the constitutional process, the speaker of the upper house, Abdelkader Bensalah, then took on the role of interim president and rescheduled elections for July 4. However, the protests have continued on the grounds that Bensalah and the new government appointed by Bouteflika before his resignation, as well as the parliament in general, are all tainted by their association with the Bouteflika regime. With no clear consensus among protesters and opposition politicians on how to resolve the crisis, the army is increasing its hold on power. General Gaid Salah made clear that the army intended to support the interim president in planning for the July elections, but these were postponed by the constitutional court in early June because of a lack of candidates. The army, which retains a large measure of legitimacy, could seek to impose its will through confronting the protesters, but it could also consider further concessions at Bensalah’s expense. These might include endorsing proposals for the formation of a broad-based government and for the election of an interim constituent assembly, as well as allowing the arrest of more individuals from Bouteflika’s inner circle following the detention of the president’s brother. Two former prime ministers have already been arrested on corruption charges, together with a handful of high-profile businessmen. However, the popular protest movement appears to have developed beyond consideration of constitutional reforms to demand a sweeping reconfiguration of government. Military hopes of containing the protests with a minimum of force while retaining Bensalah as interim president appear to be fading, although its strategy may still be to wait for the more radical demands to die down before attempting a political move. However, it is likely to have contingency plans for a form of military rule if other approaches fail, and these will be brought forward if calls for senior army figures to resign become louder.
There is a risk that perfectly legitimate businesses may get caught up in the zeal to tackle the corruption of the Bouteflika years. More positively, there is also a chance that some of the more restrictive investment policies of the Bouteflika era may be removed. These could include the 49% cap on foreign equity holdings, and the state’s right of first refusal in the event of a divestment. There is also likely to be a revival of claims against the Algerian state for previous expropriations. Egypt’s Orascom Telecom, which acquired a mobile phone licence in 2001 but later became embroiled in a dispute with the Bouteflika regime and was eventually forced out of the country, has already said that it will press for compensation. Foreign oil companies will be concerned at the implications of the dismissal of Abdelmoumen Ould Kaddour as head of Sonatrach, the national oil company, in late April. Ould Kaddour, a close Bouteflika ally, had been improving Sonatrach’s relations with international companies, which had been responding with increased investment but may now be more cautious in the short term as the risk of operational disruption increases.
TREND ▲ ▲ OUTLOOK ▲
The mass protests against the Bouteflika regime began peacefully in February, thanks both to the discipline of the protesters and the relatively light security measures taken by the police and the gendarmerie. By mid-May, however, clashes at a protest rally against unemployment in Tinerkouk left twenty policemen and dozens of protesters injured as a government building was set on fire. While the army remains reluctant to jeopardise its legitimacy by firing on crowds, the military leadership will increase its use of repressive tools to contain ongoing unrest that threatens its own position.
TREND ▼ OUTLOOK ►
There is little prospect of the protests against the Bouteflika regime being taken over by armed Islamist groups. Efforts by the Islamic State to establish a foothold in Algeria have gained little traction, and security forces have been largely successful in containing the threat posed by armed Islamist groups. 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. However, the situation in Libya remains a concern for Algiers.
The exchange rate has remained remarkably stable on both the official and parallel markets despite the recent political turbulence. The gap between the rates is about 30%. In April, in an effort to dissuade individuals with reason to fear corruption proceedings from seeking to move funds abroad, the income tax authority warned banks to be vigilant with respect to foreign transfers. The new cabinet formed at the end of March saw Mohamed Loukal move from central bank governor to finance minister. Amar Hiouani, a deputy to Loukal appointed as interim governor in April, may have to deal with mounting pressure on the currency if the political situation deteriorates, and could consider capital controls.
After years of hydrocarbons sales, Algeria has little external debt and its foreign exchange reserves of around 80 billion dollars are sufficient to cover at least 18 months of imports. However, reserves have fallen rapidly since their peak of 200 billion dollars in 2014 as a result of the fall in oil prices and reduced volumes of natural gas exports. Algeria will benefit from any further rise in oil prices during 2019, but its export revenue will be hit by the weakness of natural gas prices. The government has chosen to borrow from the central bank in order to cover its fiscal deficit following the depletion of its oil surplus fund. However, it will eventually have little option but to consider a resumption of external borrowing, possibly in the framework of an IMF agreement.
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