Home Analysis Algeria Needs a Post-Bouteflika Route

Algeria Needs a Post-Bouteflika Route

Stockholm (Ekonamik) – On Sunday, February 10, the official Algerian state news agency (APS) announced that Abdelaziz Bouteflika, Algeria’s president for the last twenty years, would seek a fifth mandate at the age of 81. The announcement was met by street protests in Algiers, the country’s capital.

Bouteflika came to power in 1999 following the resignation of his predecessor, Liamine Zéroual, who ruled the country for most of the 1991-2002 Algerian Civil War. Bouteflika, whose rise to power was supported by the army, oversaw the end of the civil war. He suffered a debilitating stroke in 2013 and has rarely been seen in public since then.

The political system in Algeria is perhaps best captured by a leaked 2008 report from the US Congressional Research Service (CRS) according to which “The situation in Algeria is fluid. President Abdelaziz Bouteflika was reelected in 2004 with some manipulation of the political process but without blatant fraud. The voice of the military, the most significant political force since independence, has been muted. Yet, low voter turnout in the May 2007 parliamentary election indicated lack of public faith in the political system.”

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Abdelaziz Bouteflika’s regime survives through a mix of corruption, political repression, support from the army, a carrot and stick approach to “economic barons” and a type of political competition between subordinates that eliminates any real presidential challenge. The political status quo is sustained by the revenues of Sonatrach, Algeria’s state-owned energy giant, the largest company in Africa and the fourth biggest liquefied natural gas (LNG) exporter in the world, accounting for 30% of GDP and 90% of export.

The Algerian economy has relatively low growth and high, but controlled, inflation. According to the IMF’s Article IV Consultation assessment in June 2018, “Algeria continues to face important challenges posed by the fall in oil prices four years ago. Despite a sizeable fiscal consolidation in 2017, the fiscal and current account deficits remain large.” As a result, IMF “Directors emphasised that increased fiscal spending in 2018 and monetary financing of the fiscal deficits will likely increase fiscal and external imbalances, raise inflation, accelerate the loss of international reserves, heighten financial stability risks and, eventually, lower growth.”  According to the IMF, real GDP growth has slowed down from 3.2% in 2016 to 1.4% in 2017 and is expected to have reached 2.7% in 2018, while average inflation is expected to have increased to 6.5% in 2018. External debt remains negligible, while domestic public debt has increased significantly since 2016 but remains moderate. This independence from international financial markets further shields it from the sort of pressure that has embarrassed Argentina.

While an imperfect match, the centrality, advanced age and ailing health of president Bouteflika bring to mind the situation of 19th century Mexico and the Porfiriato, the authoritarian regime led by Porfirio Dias that dominated the country between 1876 and 1911. The most worrying similarity between the two countries is the complete lack of a clear succession. Should he die in power,  chaos is likely to take over as the army, the security services, and the newly created oligarchs vie for power on a background of suppressed Islamic activism. In Mexico, the collapse of the Porfiriato led to ten years of civil war and the accompanying impoverishment of the country. The close ties between Said Bouteflika, the president’s influential brother, and Ali Haddad, a business magnate whose support for the regime has made him one of the richest man in Algeria, suggests the economic elites have their man. However, it is difficult to say whether the army and the security services are on board with this choice.

Instability in the region is unlikely to affect investors directly. The size of Sonatrach gives Algeria enough funding that foreign debt is not a concern. However, the country’s role as an energy supplier to Spain and Italy, it’s close ties with France and geographical proximity to Europe create important second-degree business and geopolitical risks. Given Europe’s dependence on external energy sources and its exhaustion from the Syrian refugee crisis, investors should keep a close eye on Algeria. Hopefully, nothing will come of it, but if something does happen, it is likely to be big.

Picture from Pixabay

Filipe Wallin Albuquerque
Filipe Wallin Albuquerque
Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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