Page 5 - AfrOil Week 17 2020

AfrOil COMMENTARY AfrOil
 That is, they created a situation in which the oil and gas industry accounted for around 30% of Algeria’s total GDP, 60% of state budget revenues and 95% of export earnings.
This focus on a narrow range of economic activity may seem sustainable at times when fuel and energy markets are bullish and prices kept trending upwards. But the bulls tend not to stick around indefinitely, and when the bears take their place, they make the disadvantages of insufficient economic diversification painfully obvious.
This is the position in which Algeria finds itself in 2020. It remains strongly reliant on oil and gas revenues, and as a result it is vulnera- ble to the developments that have pushed crude prices down from the $55-60 per barrel range at the beginning of the year to unprecedented lows in negative territory as of last week. It is now hav- ing to contemplate tough decisions about how to rebuild its foreign exchange reserves, which it depleted in an attempt to cope with fallout from the 2014-2015 drop in oil prices, and whether to keep expensive subsidies for domestic fuel sales in place.
The political dimension
But the North African country’s vulnerability is not just economic in nature. It also has a political dimension.
Last year, many Algerian citizens began tak- ing to the streets to join public protests against then-President Abdelaziz Bouteflika. The demonstrations led to broader expressions of discontent with the government, and these in turn led Bouteflika to step down in April 2019. His place was taken by Abdelkader Bensalah, who served as caretaker president until a new government was elected later in the year. That government, headed by President Abdelmadjid Tebboune, took office in December 2019.
Tebboune’s election has not stopped the pro- tests. Instead, demonstrators – many of them involved in Hirak, the opposition movement that has led many of this year’s protests – are still critical of the new president’s policies. They have expressed concerns about the country’s econ- omy and have urged the government to plug holes in the budget by borrowing money from foreign lenders.
Additionally, they have blasted Tebboune’s positive response to proposals for seeking for- eign partners to facilitate the exploration and development of Algeria’s unconventional gas reserves. In late January, Asharq Al-Awsat reported that protesters had described this plan as a form of “selling the country’s wealth.”
Fewer options
In the past, Algerian authorities might have tried to blunt the impact of such criticism by spend- ing more oil and gas income on fuel subsidies and other social welfare measures. Now, though, they do not have that option.
They drew up this year’s budget, which has been widely described as an austerity pro- gramme, on the basis of the assumption that
crude oil prices would average $60 this year. Under current conditions, they have no hope of meeting that target – or of collecting enough oil revenue to cover expenses. The International Monetary Fund (IMF) has estimated that Alge- ria would need to earn at least $157 per barrel in order to break even.
Algiers has tried to stave off complaints by reducing its outlays and suspending work on some oil, gas, construction and infrastructure projects. But it does not seem to have placated demonstrators – or Hirak, the grass-roots move- ment that has played an integral role in organis- ing the protests.
And since Hirak remains active on the ground – or as active as it can be during the lockdown imposed to rein in the coronavirus (COVID-19) pandemic – it would probably have little difficulty ramping up its criticism of the Algerian government.
Riccardo Fabiani, the North Africa project director at the International Crisis Group, made this point last week. “It’s a more critical moment of reckoning than it was a year ago, because here we have three crises – economic, political and the virus – potentially converging at a time when the population is still highly mobilised and trust in the state is low,” he told Bloomberg.
In other words, Algeria may be heading for another wave of street protests once the lock- down is removed.
One employee of a state-owned company who was interviewed by Bloomberg last week certainly seems to think so.
“I am sure that Hirak will pick up again as soon as the containment ends. Nothing will be able to stop it,” said Mohammed, a 30-year- old engineer at a state-owned company who has regularly participated in demonstrations over the past year. He asked the news agency to identify him only by his first name, citing safety concerns. ™
“ estimated that
Algeria needs to earn at least $157 per barrel of crude oil to break even
The IMF has
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