Previous Quarterly Editions
Expropriation Risk: 44 46 45 45 Political Violence Risk: 50 48 46 48 Terrorism Risk: 68 66 64 61 Exchange Transfer and Trade Sanction Risk: 50 48 48 49 Sovereign Default Risk: 52 50 48 48
TREND ► OUTLOOK ▲
In an apparent move to curb the power of the army, President Abdelaziz Bouteflika dismissed two top generals in August, each of whom commanded one of the country’s six military regions. Their commands have been transferred to Bouteflika's long-time ally, General Gaed Salah, making him one of the country's most powerful men. Other generals were also dismissed earlier in the summer. The desire of those around the president for more independence from the military suggests plans for a longer stay in office, with a consensus building within ruling circles that Bouteflika, now 81, should stand for a fifth term in April 2019 despite his frail health.
The key figures in these deliberations include General Saleh, the president’s younger brother Said, and the head of the intelligence service, Athmane Tartag, together with the heads of the governing FLN party and the Algerian business forum. There is little scope for rival politicians to challenge Bouteflika as long as the president continues to function, albeit at a minimal level, because this inner circle holds a tight grip on power. One possible successor is Ahmed Ouyahia, who has been prime minister since August 2017. However, as head of a rival pro-government party, the RND, he is distrusted by the dominant party, the FLN, and recently displeased those close to the president with a new privatisation policy.
Ouyahia’s political prospects are clouded by his identification with economic policies that are unpopular at home and that have been criticised abroad, notability his strategy of borrowing funds from the central bank in order to finance the deficit and pay off public sector banks.
Beyond Ouyahia, there are few credible candidates. Abdelghani Hamel, the former head of the police force, had been seen as a potential succession candidate until his dismissal in June, apparently in connection with the seizure of a large quantity of cocaine at the port of Oran. Despite Saudi pressure on Maghreb countries to back its boycott against Qatar, Algeria has maintained its neutral position in the dispute. Qatar has invested more than two billion dollars in steel manufacturing in Algeria and an additional 600 million dollars in real estate, tourism and banking.
TREND ► OUTLOOK ▼
Algeria has been making a concerted effort to attract more foreign investment to its energy sector since 2017 but has suffered the twin frustrations of low energy prices and the impact of lower revenues on the domestic economy. However, Algeria was able to announce new gas supply agreements with Spain and Italy in August.
It also hopes to sign a major development deal with Shell before the end of the year now that companies developing new fields will be able to market gas themselves rather than having to sell to the state company, Sonatrach. Less encouragingly, Prime Mininister Ouyahia’s efforts to encourage privatisation have stalled, and new entrants to the Algerian market continue to face bureaucratic and political obstacles.
Rules that limit the stake of a foreign company to 49% and give the state the right of first refusal in the event of a divestment are likely to remain in place for the time being.
TREND ▲ OUTLOOK ▲
Since May, unemployed youths have been organising protests in the gas-producing regions of southern Algeria over poor living conditions, unemployment and economic marginalisation. Although new deals to develop gas fields in the south should help to bring jobs and investment in the medium-term, frequent public sector strikes and localised protests at economic conditions are likely to persist for now. In the run-up to the presidential election due next spring, there is a risk that such protests against falling living standards could become more sharply political. Events like the outbreak of disease from contaminated tap water that left 700 people, mostly children and the elderly, ill in Blida this summer are seen as government failures. However, while resentment at corruption within a privileged elite runs deep, there is little sign that Algerians are prepared to take to the streets to challenge the system. Their own experience in the 1990s and the damaging legacy of the 2011 Arab Spring elsewhere in the region continue to act as powerful disincentives against such activism.
TREND ▼ OUTLOOK ►
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. However, in February five soldiers were killed in a roadside bomb attack in the Tebessa region near the border with Tunisia.
This incident came after Algerian and Tunisian forces had attacked the main jihadist group active in the area, Al-Qaida in the Islamic Maghreb (AQIM). A senior aide to the AQIM leader, Abdelmalek Droukdel, had been killed by Tunisian forces close to the border, most likely on the basis of Algerian intelligence.
TREND ▲ OUTLOOK ►
During 2017, the Algerian dinar remained steady against the dollar but started a gradual depreciation against the euro in the second half of 2017. In the first half of 2018, this situation was reversed, with the dinar firmer against the euro but losing ground to a resurgent dollar. The cost of buying foreign exchange on the black market is about 50% higher than through the banking system but the IMF’s recommendation that the authorities adopt a more flexible exchange rate system is likely to be ignored.
TREND ► OUTLOOK ►
Although foreign exchange reserves have halved since the oil price fall of 2014, the current level of 90 billion dollars is sufficient to cover more than two years of imports. 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 half of 2018 was 2.9 billion dollars, compared with 5.6 billion dollars in January-June 2017. The government is thus in a good position to borrow abroad to cover its fiscal and current account deficits.
Return to contents Next Chapter