Algeria’s oil sales soften blow but economic crisis looms

Economists expect the average price of crude oil to remain $60-$70 for the rest of the year. However, that price is far below the $116 a barrel Algeria needs to balance its budget for 2019.
Saturday 17/08/2019
A general view shows an oil installation on the outskirts of In Amenas in Algeria.(AFP)
Vital lifeline. A general view shows an oil installation on the outskirts of In Amenas in Algeria.(AFP)

TUNIS - Algeria’s Saharan Blend crude oil provided a cushion for the country’s rapidly deteriorating economy but a political standstill continues to hinder reforms.

Millions of Algerians have taken to the streets each Friday for almost six months asking for a sweeping overhaul of the government.

The protesters forced long-time President Abdelaziz Bouteflika out of office April 2. Street pressure pushed the country’s de facto military rulers, led by Algerian Army General Ahmed Gaid Salah, to arrest key members of Bouteflika’s regime, including two former prime ministers. Many prominent businessmen have been jailed on suspicion of corruption.

The peaceful Friday demonstrations are no hindrance to an economy that depends on oil and gas exports but the economic slump, which is tracking the lowest economic growth rate in 20 years, has left Algeria with few options to finance investment spending and subsidies from reserves.

Hopes for reform seem to have been dashed as the country’s economic situation worsened. Even moderate figures backing the protests warned that political paralysis could have dire repercussions.

The departure of Bouteflika and his entourage showed that Algeria’s military command was the real power centre.

Gaid Salah pressed for elections to replace Bouteflika but demonstrators feared a hurried process would favour the establishment and fail to bring about reform.

Protest leaders have been unable to select mediators to engage with the government and articulate their perspective. The standstill stopped Algeria from agreeing to an electoral plan within constitutionally mandated timeframes.

Algeria’s economy took a hit when business figures linked to Bouteflika’s regime were jailed on charges of corruption and their assets, including bank accounts, frozen, leaving enterprises that employed thousands at risk of bankruptcy.

Workers at many of the businesses, including automobile assembly plants and sugar refineries, have been without pay since June.

“This operation against these businesspeople is inflicting real carnage against the private sector,” said political writer Makhlouf Mehheni. “It is continuing with no one able to say when it will stop.”

Gaid Salah vowed to press in his crackdown on corruption but his critics say he is using the anti-corruption campaign to purge the system of his rivals before presidential elections.

Gaid Salah has pushed opposition leaders and civic associations to reach consensus on how to move forward with elections as soon as possible. Other leaders have spoken about the need for a clear agenda before action is taken.

“We learnt from the experience of Egypt and Tunisia that, when the protesters occupy the strategic areas of the capital, they can force out of power the head of the state even when the protesters have no programme and leader,” said former Prime Minister Ahmed Benbitour.

“In Algeria, the president had gone but we did not achieve the desired change because there is no programme and no leadership.”

Benbitour cast doubt about whether conflicting parties could come together for productive dialogue.

“We hail all the initiatives seeking to end the impasse but most of these initiatives are within the framework of dialogue but the question is dialogue over what issue,” he said.

“The stands are clear. We have the rulers in one side and the dissent movement in the opposite side demanding the departure of the rulers. Thus, negotiations are needed to change the system.”

Economists predicted that protesters will list new economic demands by September, when many workers return from summer holidays and schools and universities begin a new academic year.

They said any delay in ending the political deadlock would further harm the country’s economy, leading to an increase in imports and lowering the foreign currency reserves.

Increasing oil prices have helped soften the blow of Algeria’s economic morass. From February 22-August 15, Algeria’s Saharan Blend crude oil sold at an average of $67.12 per barrel, more than $17 above the average of $50 budgeted by the government for 2019.

Economists expect the average price of crude oil to remain $60-$70 for the rest of the year. However, that price is far below the $116 a barrel Algeria needs to balance its budget for 2019.

Algeria’s economy grew 1.5% during the first quarter of this year, the lowest such growth rate in 20 years, official figures indicate. Official data gave another alarm by showing that the country’s oil and gas sector had declined 7.7% during the period.

Algeria is in dire need of foreign investment in its oil and gas sector to upgrade its ageing fields but political turbulence is an obstacle for foreign investors.

As oil prices surged from 2003-13, Algeria accumulated foreign currency reserves of approximately $200 billion. In mid-2014, it was the eighth largest state holder of such reserves in the world.

However, the decline of oil prices since June 2014 pushed the government to use reserves to finance huge public projects and provide large subsidies to maintain social peace.

The International Monetary Fund predicted that Algeria’s reserves could slump to $64 billion by next December and drop as low as $47 billion by the end of 2020. Algeria imports 70% of what its population of 42 million consumes.