Algeria, serious risks to the economic and political stability

The legacy of the Arab Springs has cast a long shadow over the Middle East and North Africa. As events developed in Libya, Egypt and Syria, some regional States were less affected by the social and political turmoil. Although Algeria experienced many protests and demonstrations during that period, opposition forces did not manage to overthrow the regimes.

The country has managed to avert unrest primarily by redistributing its substantial oil revenues, but someone noted that this system cannot be sustained indefinitely. If left unaddressed, the social, economic and political resentment aggravating the underlying surface in Algeria could rapidly escalate into popular revolts that threaten the regime’s stability. It has to be noted that many of the social, economic and political challenges are deeply affecting the underlying structure of the Algerian country.

First, Algeria needs to face considerable security challenges from the volatile South. While traditionally the rivalry with Morocco has forced the Algiers to keep its eyes on the Western border, the Sahel and the southern States have increasingly required attention. Sure enough, the situation in the Sahel continues to be unstable and unpredictable. Its open borders and low level of state control seriously undermine the security situation in the whole region. In the light of the volatile security situation, Algeria’s primary security goals are to protect its borders and to contain sources of threat from outside its territory.

Because of this restless regional dynamic, Algeria has sought to maintain close cooperation with Western powers such as France, the U.S. and the European Union. If we analyze Algeria’s geographical size and its oil and gas wealth, we can easily understand how both the European Union and the U.S. see Algeria as a key player in the region. Economically, Algeria is the European Union’s fifth-largest energy provider. Several European States including Spain, Italy, France and Portugal, import a significant portion of their energy from Algeria. In addition, it ranks also among the top three U.S. trading partners in the Middle East and North Africa region.

Algeria is a rent-based economy based on gas and oil but also on import monopolies, and those rents obviously favor a small minority. This is problematic because most of the population does not have access to economic opportunities, which generate development issues despite all the revenues of the country itself. In Algeria, the hydrocarbon sector accounts for 97% of the country’s total exports and 58% of its total fiscal revenues, according to the IMF. While oil prices dipped below 50$ a barrel in January, Algeria needs the country’s main crude grade to be traded at 121$ a barrel in order to avoid a budget deficit. Consequently, Algeria slipped into the red in 2014, with a deficit reaching 18% of the GDP for the first time after 15 years.

When oil prices fell in 1986, Algeria was on the verge of bankruptcy, and protests exploded across the country. At the time, the slum in oil prices was among the factors leading to the “black decade”: Algeria’s civil war, which killed more than 200,000 civilians. However, governmental officials confirm history will not repeat itself this time, since the country’s foreign exchange reserves would be able to absorb any short-term shock.

Abdelaziz Bouteflika, Algeria’s current President, said the country will survive without major difficulties the serious disruptions in the oil markets. Last December, the state-owned energy giant Sonatrach started drilling pilot shale wells in Ain Salah, a city 1,300 km South of Algiers, but the local population organized several protests against the exploitation of the shale wells. Since then, hundreds of demonstrators have been staging general strikes to call on both Sonatrach and the government to stop the shale gas drilling operations, saying the exploitation of this non-conventional resource will damage local health and the surrounding environment.

Nevertheless, the new projects are important because Algeria is heavily dependent on its hydrocarbons sector for revenues, but its production and export earnings are dropping.

Therefore, there is the need for the country to reform in order to diversify its economy. Today, there is a real opportunity to reform because the oil price is going down, and is completely unsustainable for the Algerian government. Meanwhile, high youth unemployment and housing shortages keep driving hundreds of young people every month to cross the European borders in search of asylum status.

Moreover, recent protests have taken place against the backdrop of Algeria’s government introducing the “10 save-money measures”, including a public sector hiring-freeze and postponements in mega-projects funding.

Last April, U.S. Secretary of State John Kerry and Algerian Foreign Minister Ramtane Lamamra, concluded bilateral consultations that focused on regional security and Algerian economics.

The Algerian government so far has not faced gigantic demonstrations like those in Tunisia, Egypt, Syria and Bahrain. Nevertheless, both agreed, that while the country has not been disrupted by the revolutions of 2010-2011, it still faces big challenges. Economic austerity is threatening the country’s stability, which is reminiscent of the terrible troubles that started with the late 1980s austerity. In addition, the rule of law is still unequally applied across the country, and the private sector is still small and uncompetitive.

The 1986 oil price collapse put Algeria on the verge of bankruptcy, triggering also riots and instability. The question therefore is: could history repeat itself? Algeria has the 10th largest reserves of natural gas in the world and is the sixth largest gas exporter globally. Therefore, the decline in oil revenues is likely to cause difficulties for a country that is already experiencing economic and social tension. Oil reserves were crucial to help the Algerian government to avoid the worst effects of the 2011 uprisings by offering benefits to its citizens. However, the current slump in oil prices has complicated the situation. To sustain its revenues by arresting declining production, the Algerian government is encouraging investments in unconventional resources such as shale gas, despite serious skepticism from the civil society.

Political discontent is therefore being reinforced by deep economic, social and regional imbalances in the country. Most Algerians have now experienced a decline in the quality of basic social services, including education and healthcare. Unemployment is high and most jobs created during the past decade are still precarious and poorly paid. Yet, medium and long-term movements of hydrocarbon production and consumption in Algeria indicate that this revenue stream is diminishing quickly in proportion to GDP, and no new sources of economic opportunity are being created to fill the gap. In order to avert serious domestic instability, Algeria’s authorities need to conduct a deep political and economic transition before the country’s energy resources run out. If left untreated, latent outrages threaten to rapidly escalate into political demands and jeopardize the regime’s stability.

In the interest of long-term regional stability, Algeria’s key international partners – the U.S., the European Union, Russia, China, Turkey, and others – should avoid being distracted by a short-term focus on counterterrorism. Together they have a key role to play in helping the Algerian government understand that the only way to retain power is to share it.

Given Algeria’s size, its large population, its strategic location at the center of the Maghreb and neighboring fragile States in the Sahel, and its recent tumultuous history, Algeria’s partners have a great interest in avoiding chaos in Algeria by promoting real but orderly political and economic reforms.


Pilar Buzzetti

Master’s degree in Government and Policies (LUISS “Guido Carli”)

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