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The end of Algeria’s Gerontocracy
In the past few weeks, Algeria has been shaken by large-scale protests against the decision by President Abdelaziz Bouteflika to run for a fifth term. But apart from the immediate political reasons, the manifestations look like the symptom of deeper social strain caused by the country’s economic problems.
Considering the challenges that Algeria is already facing in the form of terrorism and illicit traffic and that neighbouring Libya is still in chaos, a destabilization of Algeria would seriously impact the region and Europe alike.
The recent wave of popular unrest has started in late February, when incumbent President Abdelaziz Bouteflika announced that he would seek re-election for the fifth time.
He has been uninterruptedly in power since 1999, when he managed to put an end to the bloody civil war that had ravaged Algeria during the so-called “Black Decade” of the 90s.
Bouteflika systematically won all the subsequent elections, including the last one held in 2014; even though he did not campaign personally since he had suffered a stroke one year before.
As a matter of fact, he has rarely appeared in public since then. Now aged 82, Bouteflika remains officially in power and has decided to run again for the Presidency.
Of course, many are sceptic about his ability to continue leading the country; and some suspect that he is actually just a façade President that the de facto rulers of Algeria exploit to dominate the country.
In this sense, the dynamic of the recent electoral bid is notable. Bouteflika did not submit is candidature in person, since he is currently in Switzerland for medical treatment; and following the protests he explained in a letter read on the national TV that he is going to run again, but just to preside an "inclusive national conference" before calling for anticipated elections to choose a new President.
So, Bouteflika never appeared personally during the whole issue, letting his spokesmen to act on his behalf and raising doubts about who actually took these decisions.
Several important figures of the opposition did not submit their bid and various key political forces announced that they will boycott the election. In this context, Bouteflika was expected to win another term, and many are protesting against what they consider an unfair and not transparent election. In the wake of popular unrest, he decided to step down and withdrew his candidature.
Yet, protests have continued going on. The fact is that the issueis more complex than it might seem at first sight, and go beyond purely political issues. The wave on social unrest looks like the result of the strained conditions of Algeria’s economy, itself a direct result of Bouteflika’s policies over the years.
ALGERIA’S SOCIAL CONTRACT
When Bouteflika took power in 1999, Algeria was just coming out of years of civil war that had caused more than 100,000 casualties and had left the country socially divided. It was therefore imperative to bring better economic conditions to the Algerian people in order to restore social cohesion.
To achieve this goal, Bouteflika exploited the country’s main resources: oil and gas. Under this particular kind of “social contract”, he collected the revenues from the state-owned energy firm and redistributed them to the population in the form of generous subsidies.
From a social point of view, this policy was successful in improving the people’s life conditions and in tackling the economic problems that had fomented the civil war; but from an economic perspective it has resulted into a typical state-dominated, hydrocarbon-centred and export-dependent economy marked by inefficiency, lack of competitiveness, corruption, inequality and high-public expenditures to sustain the subsidy system.
But like in similar cases like Venezuela this socio-economic model is very vulnerable to the fluctuations of oil & gas prices and is not sustainable in the long term.
As of today, hydrocarbons continue to play a fundamental role in Algeria’s economy. At the end of 2010, the country hosted 12.2 Thousand Million Barrels of oil, meaning the 16th largest proven reserves in the world.
But Algeria’s real strength is gas. In the same year, its stock amounted to 159.1 Trillion Cubic Feet of natural gas, which translates in the world’s 10th largest. Most notably, Algeria ranks 3rd in the globe in terms of shale gas reserves; which is significant considering how US shale gas have deeply changed the global energy market – even though the American shale miracle is unlikely to repeat elsewhere due to various factors. Looking at Algeria’s macroeconomic outlook, hydrocarbons revenues account for more than 90% of exports, 30% of the GDP and 60% of the government’s budget.
This economic model functioned as long as the price of oil and gas was high: the state could collect revenues from energy exports and redistribute them to the population in the form of subsidies on basic goods and services.
But following the fall of global hydrocarbon prices in 2014, Algeria was put under significant stress. Once positive, its trade balance turned to a 9.5 billion dollars deficit in 2017. Algeria’s GDP grew of 3.7% in 2015, but two years later the figure shrunk to 1.4%. Public debt increased from 20.4% of the economy’s size in 2016 to 27.5% one year later, and external debt rose as well. But the most notable figure is probably the one about the government’s budget, whose deficit amounted to almost 10% of the GDP in 2017. These figures reflect the executive’s reaction to the declining hydrocarbon prices. Since the income was no longer sufficient to cover the country’s high public expenditures, the government was forced to take emergency measures.
In the immediate, it countered the problem by borrowing money and by using the considerable foreign currency reserves accumulated when the price of oil and gas was high. However, this approach can only work in the short term, as the foreign currency stock will erode with time and debt will risk becoming too high; and the country’s economic fundamentals – especially in this difficult moment of low energy prices – do not allow to easily repay debts.
As such, the Algerian authorities have also recurred to other measures to stabilize the public finances, notably by gradually increasing taxes to bring more money in the state’s coffers and compensate the losses deriving from declining hydrocarbon revenues. However, this move was obviously unpopular, even more because it breaks Algeria’s longstanding social contract. Before, it was the state who paid for the subsidies; now, it is the citizens who pay for them.
But this means that what Algerians receive from the state is largely given back to the government, thus diminishing the people’s purchasing power in real terms. The other possible solution, namely reducing the subsidies, would also have negative effects on the standard of living of Algerians and would be even more unpopular since it is immediately felt in everyday life; so, the government has unsurprisingly refrained from lowering them.
The recent social unrest in Algeria is to be interpreted in the context of these complicated economic conditions, which include an unemployment rate of almost 12% in 2017. The people’s anger is not only driven by merely political reasons linked with Bouteflika’s bid for re-election and to the opposition to the de facto leaders of the country, but is also the result of economic problems.
Solving them demands careful yet resolute reforms to diversify the economy, attract investments and develop the private sector; but all this takes time, notably in a country like Algeria where decisions are slowly taken by consensus between the various stakeholders like the Presidency, the Armed Forces, the public energy company and the local oligarchs. This raises the risk of political instability in the country in the immediate future, which would have consequences for the whole region and for neighbouring Europe.
ALGERIA AND STABILITY
In geopolitical terms, Algeria is a vast country with a population of 42 million people that connects the Sahara-Sahel region with the Mediterranean. This has important implications.
If social unrest became common and especially if the situation degenerated into another civil war, then a new hotbed of instability would appear in North Africa just next to Libya.
Apart from the possible flow of refugees from its crowded coastal cities where most of the population is concentrated, having two intertwined conflict zones would be the ideal terrain for illicit activities. It should not be forgotten that North African states like Algeria and especially war-torn Libya are the crossroad for the illegal flow of goods to Europe as well as for the migration routes originating from Sub-Saharan Africa.
In addition, several terrorist groups operate in the Sahara-Sahel region and in Algeria, but the country is also an important partner for Americans and Europeans in fighting Islamist groups. As such, stability in the country is essential to avoid it becoming a safe haven for terrorist organizations.
For all these reasons, the evolution of the situation in Algeria is to be monitored in the coming weeks but also in the longer-term future. Even if the current wave of protests produces no negative effect, the economic problems at their base will not be solved anytime soon, meaning that the potential for instability will persist in the country for the years to come.
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