Algeria on the brink as pandemic and low oil price take their toll

Standing in front of a bank in Algiers, Slimane pulled out gold necklaces and rings from a bag, his wife’s jewellery, which he hoped to use as collateral for a loan.

During the pandemic, the 46-year-old businessman had to shut down his small company designing and producing publicity material and let go of his four full-time workers.

“It was very hard. It felt like the sky fell on my head,” said Slimane, who did not want his full name to be published. “The pandemic has forced companies to reduce business or shut down completely especially in the travel sector on which I relied for clients. My wife asked me to pawn her gold jewellery so we can start a grocery shop in our neighbourhood.”

The coronavirus pandemic has hit Algerians hard, exacerbating the woes of a state-dominated economy already scarred by years of falling oil prices and curbs on local and foreign investment.

Even before the pandemic, just under a third of Algerian youth were unemployed and many had hoped for change after the huge protests that led to the overthrow of President Abdelaziz Bouteflika in 2019.

But with an undiversified economy, which relies solely on oil and gas exports, and depleting foreign currency reserves, Algeria could soon face economic disaster, analysts warn. Few believe politicians can deliver meaningful change, a fact made clear by the low turnout at last weekend’s elections. For the military-backed regime, analysts say, the parliamentary poll, the first since the protests, allowed it to project democratic renewal, while any resulting coalition government of independents and pro-regime parties is unlikely to rock the status quo.

“The economic trend is extremely negative,” said Riccardo Fabiani, north Africa director at the International Crisis Group, a conflict resolution organisation. “There is a liquidity crisis at banks and local companies. In construction, the biggest sector after oil, there has been a record number of bankruptcies. The country could be heading towards economic disaster with a heavy social cost.”

The economy shrank 6 per cent last year, according to the IMF which projects 2.9 per cent growth in 2021 on the back of higher oil prices. It forecasts a budget deficit of 18.4 per cent of gross domestic product in 2021. To balance its budget, the lender said Algeria needed an oil price of $169.6 per barrel, more than twice the current price of $72. However, analysts say, there is no clarity on how the regime plans to pre-empt a potential economic catastrophe.

“Politicians say they want to open up the economy and to diversify,” said Mabrouk Aib, a university lecturer and public policy analyst in Algeria. “They want a lot of things. That is what they claim, but actually we do not know if they have a clear strategy of how they are going to implement this.” 

Even as falling oil prices in recent years have squeezed government finances and limited its ability to offer handouts and create jobs for its predominantly young population, Algeria’s military decision makers, or decideurs as they are known, have failed to diversify the economy. Instead, successive governments have been burning through foreign currency reserves, which sank from $200bn in 2014 to $47bn in 2020. 

The military, which has traditionally controlled key decisions since independence from France in 1962, has been reluctant to introduce reforms that would unshackle the private sector, incentivise investments and bring transparency to an economic system built on a web of vested interests and clientelism fuelled by petrodollars. Under Bouteflika, a crony capitalist private-sector was allowed to thrive that benefited from political patronage and government largesse. Many of these businessmen are now in prison on corruption charges and some of their companies have been taken over by the state. 

Given its lack of foreign debt and a rising oil price, the Algerian regime could still buy “a year or two”, Fabiani noted. It could resort to bilateral borrowing from China or the Gulf. Abdelmadjid Tebboune, the president, last year ruled out a loan from the IMF, suggesting it would constrain the country’s ability to have an independent foreign policy. “The big question remains, what is the new government going to do,” said Fabiani. “Will they come up with any new ideas?”

Already, rising prices have sparked repeated demands for salary increases and strikes by different sectors of society, from teachers to doctors to postal workers. Firefighters protested in full uniform last month and were dispersed by police using tear gas.

Wary of protests, authorities cracked down in the run-up to the election, preventing marches by the country’s pro-democracy movement that ousted Bouteflika in 2019 and flooding central Algiers with police cars. More than 200 people are in prison in connection with protests.

The authorities may stifle dissent but they are well aware that living conditions are increasingly harsh for Algerians suffering under the combined impact of lockdowns, business closures and inflation.

“I have a family of seven to support, but the construction company for which I worked has shut down,” said Samir Yefsa, an unemployed 50-year-old. “The state was our only client, but the government now has no construction programme. I don’t know what to do. I have problems feeding my family. I can only borrow from family and friends who are retired and live on pensions, because others who are younger are in a situation similar to mine.”

At a market in Algiers, Naima, a primary school teacher complained of price increases and the erosion of her purchasing power. “I swear to you I have not bought fruit for my children for two months,” she said. “There are certain items now that are just too expensive for those on middle or small incomes.”