Algeria’s economy deteriorates amid political impasse

While Algeria’s investigation into Sonatrach for corruption is popular with protesters, it is likely to undermine reform efforts launched by Ould Kaddour.
Sunday 02/06/2019
Critical juncture. A view of Algerian state energy firm Sonatrach’s solar plant in Bir Rebaa oil field in southern Algeria.(Reuters)
Critical juncture. A view of Algerian state energy firm Sonatrach’s solar plant in Bir Rebaa oil field in southern Algeria.(Reuters)

TUNIS - Millions of protesters have marched in cities across Algeria each Friday for months, calling for a complete political overhaul.

However, the largest protest movement in 57 years has moved the country no closer to prosperity and stability, economists warned, with political deadlock causing layoffs, lower investment and concerns about the future of Algeria’s state-owned oil company Sonatrach.

Economists and political analysts worry that a worsening economic crisis could turn the largely peaceful protests violent, driving further instability.

“If the political stalemate continues, with time, the claims of the protesters will broaden and the solutions will become more difficult and economic suffering will become more severe, with higher inflation and shortage of foodstuffs early in 2021,” said former Prime Minister Ahmed Benbitour, pointing to the country’s shrinking foreign currency reserves.

Algeria’s reserves fell from $193 billion in 2014 to $75 billion in March 2019 and are expected to drop to $60 billion by end of the year, official figures showed. Algeria earns almost all its foreign currency revenues from oil and gas exports.

Experts said Algeria’s hydrocarbon sector has been hard hit by the political crisis, with Sonatrach embroiled in corruption scandals related to the former regime.

Algerian Interim President Abdelkader Bensalah, who replaced long-time President Abdelaziz Bouteflika, fired Sonatrach CEO Abdelmoumen Ould Kaddour in April. Bensalah gave no reason for sacking Ould Kaddour, who was close to Bouteflika.

Prosecutors said they were reopening corruption cases relating to Sonatrach after military Chief-of-Staff General Ahmed Gaid Salah announced there were serious “cases of corruption that must be probed quickly.”

John Hamilton, who directs the UK-based energy consultancy Cross Border Information, told the Petroleum Economist that “the military prosecutor’s announcement to re-open the Sonatrach investigation has put the cat among the pigeons.”

“Sonatrach was only just getting its act together after a rolling witch hunt,” Hamilton added. “If you are an [international oil company] looking at this, you are thinking, ‘I thought there was going to be a law with better terms and a more conducive business environment and stability. None of this has happened.’”

Algeria is in dire need of technology and expertise from international oil companies to keep its oil and gas exports steady at a time when ageing oil fields’ lower productivity and higher domestic gas needs, growing 4.5% a year, are eating away at potential exports.

Ageing oil wells, meanwhile, have caused output to decline from 1.7 million barrels per day (bpd) in 2018 to 1.1 million bpd this year, World Bank data indicate.

While Algeria’s investigation into Sonatrach for corruption is popular with protesters, it is likely to undermine reform efforts launched by Ould Kaddour.

Under Ould Kaddour, Sonatrach announced a “2030 strategy” to invest $9 billion in 400 oil and gas wells to expand oil and gas earnings by $67 billion per year by 2030.

Algerian and foreign analysts said the ambitious plan would require a new generation of technology and expertise from abroad. They warn that political instability and the corruption investigation into Sonatrach’s past management could cause international oil companies to stay away in the short term.

Algeria’s gas production rose from 132.2 billion cubic metres annually to 141 billion cubic metres per year under Ould Kaddour’s tenure, which began in March 2017.

The Sonatrach corruption investigation spans three continents and has implicated numerous former leading officials, led to the jailing of a former CEO, three former vice-presidents and more than a dozen top managers.

US prosecutors seized luxury apartments in New York and Italy imprisoned a top official of oil and gas contractor Saipem on charges relating to an alleged multimillion-dollar bribery arrangement with Sonatrach.

Analysts in Algiers said reopening the investigation into Sonatrach is a way for the country’s generals, who are hoping to escape the overarching political purge, to improve ties between protesters and the military.

The effects could extend far beyond the country’s oil industry, however, bringing widespread economic instability if no solution is forged.

“It is the crisis. Even the cyclically defensive agribusiness is hit by the slowdown,” said economist Smail Lalmas. “No one is in charge at the top. No one is taking decisions. The banks are giving no loans. Even the loans already decided are frozen.”

He and other experts said there could be mass layoffs, including some 200,000 jobs lost in the subsidy-dependent construction sector.

“Investors and business are waiting for a strong signal about a consensus solution to jump-start production and give an impetus to reforms,” said former Finance Minister Abderrahmane Benkhalfa.

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