NS3040 Fall Term 2015

Algeria and Falling Oil Prices

Algeria Case Study: Overview• Oxford Analytica: Algeria: Youth Generation Could Test

Regime Transition, September 11, 2015• Decline in oil prices and reduced government revenues

has brought uncertainty about the country’s future back to the surface.

• Algerian media has been reporting daily on the economic effects of decreased oil and gas revenues• These have averaged roughly 60% of the budget revenue in the

past three years• Coupled with instability in neighboring Libya and Mali

and rare domestic unrest in southern Algeria, the government wants to give impression it is addressing the nation’s problems

• However it has struggled to respond to these pressures as the country’s underlying fundamentals are changing.

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Algeria I

• Shifting Legitimacy• Since Algeria gained independence from France in 1962 the

political legitimacy of the country’s ruling class has been based on their participation in the War for Liberation (1954-62) either as a• Combatant (mujahid) or as

• A militant in the National Liberation Front (FLN) which became the single party in independent Algeria until 1989

• Association with the national liberation movement has been an essential qualification for political careers at the highest level

• Combatant status brought with it many entitlements – access to scarce housing , early retirement with pensions etc

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Algeria II

• However the war of iberation has faded into history with majority of Algerians being too young to have known war for independende

• Despite this the FLN has retained majority-party status, largely as a result of patronage netwowrks.

• This practice and its widespread abuses have created considerable bitterness

• Country's youthful population is resentful of a political system with which it does not identify and which it sees as divorced from its its needs and priorities

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Algeria III

• National identity• As the national narrative of the war for liberation recedes

into the past other aspects of Algerian identity have received greater emphasis

• Arabism• Widespread programs of Arabization introduced to

counteract the cultural legacy of the 132 years of French colonial rule

• Islam was a central feature of the new national ideology• However the brutal civil war of the 1990s between the

armed forces and militant Islamists forced a re-examination of Algerian identity and social relations

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Algeria I

Algeria IV

• From 2006 the government embarked on a policy of national reconciliation with Islamists who had been involved in the 1990s civil war.

• Large numbers were re-integrated into society with financial assistance

• Many small businesses throughout country are now controlled by Algerians who retain Islamist sympathies

• The authorities insist that Islam in Algeria has little or nothing in common with the Wahhabi Salafism which is common in he gulf and inspires the Islamic State group.

• However Islam will remain the predominant cultural reality in society and may follow regional trends which have seen increasing religious conservatism, instead of continuing secularism

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Algeria V

• Algerian Capitalism• The political elite also faces fundamental changes in the

state-dominated hydrocarbon-dependent economy• Reform efforts have been hampered by

• Heavy regulation,

• Restrictions on foreign ownership, and

• State-driven rather than entrepreneurial growth• Yet change is taking place, albeit gradually• Algeria introduced a series of measures designed to allow

domestic companies to set up or buy companies abroad• Privilege previously enjoyed only by the national oil company

Sonatrach

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Algeria VI

• Also a growing number of businessmen who have kept their distance from Algeria's political and military leaders and who are well placed to take advantage of these measures

• The most prominent example is billionaire entrepreneur Issad Rebrab, head of Cevital, one of Algeria’s largest private companies.

• As the economy faces challenges of diversification and liberalization, Rebrab may be the most prominent example of a new breed on Algerian entrepreneurs who are more independent from the state and who could alter the balance of power within the existing politico-military governance structure

• Currently in Brazil, fearing arrest if he returns to Algeria

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Algeria VII

• Outlook• The acute generational divisions between Algeria’s youthful

population and its political elite mean that the transition from Bouteflika and his circle is likely to be problematic

• Localized violence is likely, although this is not expected to spread nation wide due to government subsidies and other benefits to appease the population, and a fear of a return to the civil strife

• Another transition risk – a military coup – is unlikely• The military leaders of the 1990s for whom a coup was a ready

response to a political impasse are largely no longer active• In addition the professional army is focused on border

security from Libya, across the Sahel to Morocco

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Algeria VIII

• For those military leaders engaged in active service either along the border regions or in domestic trouble areas such as Ghardaia, their professional challenges are the priority rather than political plotting

• Conclusion the ruling party’s legitimacy is eroding among the younger generation

• This will alter the social contract and make it more difficult for subsequent governments to stay in power without improving government performance

• Furthermore although economic liberalization is likely to be patchy at best the rising need to stimulate domestic production in the face of low oil prices could give more power to the business community that are not necessarily beholden to the political or military elite.

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