Future Algeria president faces looming oil rent woes

Algeria’s hydrocarbons sector employs just 3 per cent of the active population but generated 40 per cent of GDP and 97 per cent of export earnings.

Algerians prepare to vote at a polling station in the Chanot Park on April 12 in Marseille, southern France. Algeria's Abdelaziz Bouteflika, who is running for a fourth term in Thursday's presidential vote, is widely expected to win despite his frail health preventing him from even campaigning. Bertand Langlois / AFP Photo
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ALGIERS // The winner of Algeria’s presidential election must tackle a major problem facing the country — its dependence on hydrocarbon revenues.

Oil and gas revenues are declining and have become a crutch used by the government to defuse social tensions.

Sporadic protests over poor living conditions came to a head in early 2011, as the uprising across the border in Tunisia toppled a decades-old dictatorship.

Abdelaziz Bouteflika, the president, responded by hiking public spending, raising wages and initiating a reform programme.

Mr Bouteflika, who is seeking a fourth term, is the favourite among six candidates running in Thursday’s election.

Discontent remains a real threat in the years to come, experts say, with official jobless figure of 9.8 per cent hiding a burgeoning informal sector, much higher youth unemployment and many people holding precarious, often illegal jobs.

“Despite high levels of spending in 2011 and 2012, and additional wage increases in 2013, social demands remain elevated and could further increase,” the International Monetary Fund said in February.

And a special committee of former colonial power France’s National Assembly said in December that Algeria’s hydrocarbons sector employed just 3 per cent of the active population but generated 40 per cent of GDP and 97 per cent of export earnings.

Since Mr Bouteflika came to power in 1999, Algeria has reaped vast revenues as oil prices have risen, enabling it to pay off its debts, amass $200 billion (Dh734bn) in foreign reserves and plough $500bn into social spending schemes.

“From 1999 to 2012, Algeria has earned more from its resources than in the 36 previous years. Hydrocarbons exports brought in $751 billion in 13 years,” said the economist Abderahmane Mebtoul.

But as the IMF warned that the windfall has brought problems of its own, creating vulnerability to price fluctuations and holding back Algeria’s fledgling non-energy sector.

“The economy’s vulnerability to developments in the hydrocarbon sector is worsening. Declining hydrocarbon production and surging domestic consumption are squeezing export volumes, compounding the long-standing risk of lower oil prices.”

Meanwhile, Algeria’s import bill reached almost $55bn last year.

Mr Bouteflika has launched huge spending programmes under each of his three five-year terms. There was one of $155bn between 2005 and 2009 and another $286bn between 2010 and 2014, of which $130 billion was earmarked for completing unfinished projects.

But the results have been mixed, at best.

“Tangible results have been registered in the social sector because of these public redistribution policies and from job creation, with a significant decline in unemployment,” said the economy expert Mustapha Mekideche.

But he also lamented the “extensive reliance on foreign capability, on the inexplicable extra costs and on the quality of work, which could have been better”.

A glaring example of the problems associated with major state-controlled projects in Algeria is the 1,200-kilometre East-West motorway, which has been dogged by allegations of corruption and extended delays.

Launched in 2007, it was originally due to cost less than half the current estimate of $13bn.

Another economist, Abdelatif Rebah, believes the “vulnerability and structural handicaps of the Algerian economy have got worse” and that the country’s dependence on energy exports has not changed, despite repeatedly announced plans to diversify.

“The share of industry in Gross Domestic Product has gone from 25 per cent to 5 per cent in 30 years,” he said.

The ruling elite is acutely aware of the need for structural change.

Abdelmalek Sellal, who resigned as prime minister to head Mr Bouteflika’s re-election campaign, said last year that boosting industry was the only way to “break out of this vicious circle of dependence on hydrocarbons”, create sustainable employment and drive healthy economic growth.

“Getting the economy on the path to re-industrialisation and reducing the power of the lobbies will be one of the key tasks awaiting the future president,” said the economist Mr Mekideche.

* Agence France-Presse