New dawn for Algeria after Bouteflika steps down

Algeria’s government has been replaced, but mass protests continue as demonstrators push for real change in a country still dominated by the old guard.

 The Friday after the resignation of Algeria’s president, Abdelaziz Bouteflika, the street outside the capital’s Grand Post Office heaved with thousands of protesters for the seventh consecutive week. 

The decision of the 82-year-old president, who had been in power for 20 years, to run in the elections scheduled for 18 April had sparked the biggest protests in the country’s history. 

But on 2 April, and without a drop of blood shed, the president stepped down and his administration was replaced by a caretaker government under the former president of the upper house of parliament, Abdelkader Bensalah. 

The street protesters had thus become a major player in a political system paralysed by corruption, high unemployment and lack of opportunities. But for Algeria’s youth, who make up the majority of the country’s 43m population, the standoff is far from over.

Emboldened by their victory, their calls for new institutions to implement much-needed reforms and organise free elections are growing even louder.

“What Algerians seek right now is a really radical change. They want the departure of the clan of Bouteflika, the removal of the supporters of Bouteflika, of the old guard and the departure of [army chief of staff] Ahmed Gaïd Salah, as well,” says Dalia Ghanem, a resident scholar at the Carnegie Middle East Centre who focuses on Algeria. 

With elections scheduled for 18 April now cancelled, the constitution states that new elections must be organised within 90 days. 

Who will win the race is “the billion-dollar question” according to Ghanem, who sees Liamine Zerouai, a former president and member of the military whose name has stood out at protests, as a potential candidate.

“It seems that part of the population is eager to let him move Algeria towards a transition phase. He has good popularity, he is seen as having a good level of integrity and might be a good fit in that he has a good relationship with the political and military establishment, being himself a former general.”

That said, Zerouai, who led the country from 1994 to 1999, reportedly declined to lead the country through the transitional period. 

Anxiety in Algiers

The country faces ferocious fiscal challenges and may not have the resources to fund the ambitious reforms needed to diversify the economy and improve the investment climate, analysts say.

As a leading gas supplier to Europe, Algeria’s rent-based economy depends on hydrocarbon exports to bring in more than 95% of foreign currency receipts.

But a downturn in crude prices since 2014 plunged the economy into crisis, with revenues from energy exports continuing to fall short of Algeria’s expanding needs.

“In order for reforms to take shape, the country needs resources, but it doesn’t have any,” says Ghanem.

“Today we are faced with a dire economic situation. We have a high level of unemployment, the social disparities are more and more obvious, and we have a country in which the Algerian dinar has been devaluated.”

In 2018 revenues from oil and gas exports accounted for 40% of the national budget. From this, $30bn a year is funnelled into subsidies for cheap fuel and housing in a welfare bargain between the government and the people that has helped quell social unrest in the past.

Today inflation is rising, and the country’s foreign reserves are projected to plummet to $67bn this year from $177bn in 2014.

“We are talking about a country which prior to 2014 was one of the biggest countries in terms of exchange reserves,” Ghanem says.

“Back then it ranked eighth in the world and had almost $200bn of exchange reserves. Unfortunately the drop in oil prices in mid-2014 had a terrible impact on the [central bank’s assets].”

Efforts by the government to diversify revenue streams and wean the country off cheap oil have had limited results. 

In recent years the government has attempted to overhaul the economic model that emerged in the 1990s by shrinking the budget deficit, squeezing social spending and boosting the role of the private sector.

But progress has been blocked by political paralysis and the vested interests of influential regime officials, who have sought to protect the status quo.

Threats to oil sector recovery

As unrest in the OPEC country continues, fears are mounting that strikes could spread to the country’s vital energy sector.

Foreign investors also fear that a potential reshuffle of energy officials could compromise deals with international companies.

As African Business went to press, talks between ExxonMobil and Algeria to develop a natural gas field were suspended, with the deal becoming the first casualty of the unrest.

The main concern of the government will be ensuring the continuity of oil and gas operations and keeping production as high as possible to guarantee its income in the coming months.

“We’ve seen some protests and strikes in oil and gas facilities in the last six weeks. Employees of the state-owned company Sonatrach joined the protest movement that pushed Bouteflika to resign.

However, we didn’t see any interruption of oil and gas production or even in transport and commercialisation,” Walid Namane, a political risk analyst at Control Risk tells African Business. 

But ageing oilfields and a rising domestic demand for natural gas also make continuity in the oil and gas sector seem like a pipe dream.

In 2018 Algeria produced more than 1m barrels per day of oil and 135bn cubic metres of gas per year, but growing volumes are siphoned off to meet domestic demands.

In 2017 the government laid the groundwork for changes to the country’s energy law to lure foreign investors who shunned exploration and production due to bureaucracy and tough terms.

These amendments, which included important profit-sharing terms and new incentives to court investors, along with other economic reforms, are likely to be stalled, according to Namane.

This is because the caretaker government lacks the legitimacy to enact critical changes in the oil sector, resources long seen as sacred symbols of Algeria’s national sovereignty.

Citizens have also grown weary of the ruling elite’s inability to oversee fair and transparent elections. 

“The main task of the government for the next three months will be to maintain stability and organise presidential elections in good conditions,” says Namane.

“I don’t expect the government to discuss any drastic regulatory changes to investment laws, or any other legislation that could have an impact on the economy. Now is not the right time.”