Algeria on the brink as pandemic and low oil prices wreak havoc

Standing outside a bank in Algiers, Slimane pulled out necklaces and gold rings from a bag, his wife’s jewelry, which he hoped to use as collateral for a loan.

During the pandemic, the 46-year-old businessman had to shut down his small advertising design and production company and lay off his four full-time employees.

“It was very hard. I felt like the sky was falling on my head, “said Slimane, who did not want his full name released.” The pandemic has forced businesses to scale down or shut down altogether, particularly in the travel industry I relied on for clients My wife asked me to pawn her gold jewelry so we could open a grocery store in our neighborhood.

The coronavirus pandemic has hit Algerians hard, exacerbating the woes of a state-dominated economy already marked by years of falling oil prices and brakes on local and foreign investment.

Even before the pandemic, just under a third of young Algerians were unemployed and many were hoping for change after the huge protests that led to the overthrow of President Abdelaziz Bouteflika in 2019.

But with an undiversified economy, which relies solely on oil and gas exports, and the depletion of foreign exchange reserves, Algeria could soon face an economic catastrophe, analysts warn. Few believe politicians can make a meaningful change, a fact evidenced by the low turnout in last weekend’s election. For the army-backed regime, analysts say, the parliamentary poll, the first since the protests, allowed it to project a democratic renewal, while it is unlikely that a coalition government of independents and The resulting pro-regime parties do not upset the status quo.

“The economic trend is extremely negative,” said Riccardo Fabiani, director of North Africa at the International Crisis Group, a conflict resolution organization. “There is a liquidity crisis in banks and local businesses. In construction, the first sector after oil, there has been a record number of bankruptcies. The country could be heading towards an economic catastrophe with a heavy social cost.

Volunteers serve meals to poor families at a charity center in Algiers © Ryad Kramdi / AFP via Getty Images

The economy shrank by 6% last year, according to the IMF which forecasts growth of 2.9% in 2021 due to rising oil prices. It projects a budget deficit of 18.4% of gross domestic product in 2021. To balance its budget, the lender said Algeria needs an oil price of $ 169.6 per barrel, more than double the price. current price of 72 dollars. However, according to analysts, there is no clarity on how the regime plans to prevent a potential economic disaster.

“Politicians say they want to open the economy and diversify,” said Mabrouk Aib, university professor and public policy analyst in Algeria. “They want a lot of things. This is what they claim, but in reality we don’t know if they have a clear strategy on how they are going to implement this. ”

Even as the fall in oil prices in recent years has weighed on public finances and limited its ability to offer aid and create jobs for its predominantly young population, Algerian military decision-makers, or decision makers as they are called, have failed to diversify the economy. Instead, successive governments have depleted their foreign exchange reserves, which fell from $ 200 billion in 2014 to $ 47 billion in 2020.

The military, which traditionally controls key decisions for independence from France in 1962, was reluctant to introduce reforms that would liberate the private sector, encourage investment and bring transparency to an economic system built on a network of vested interests and clientelism fueled by petrodollars. Under Bouteflika, a friend of the capitalist private sector was allowed to prosper who benefited from political patronage and government largesse. Many of these businessmen are now in prison for corruption and some of their businesses have been taken over by the state.

Given its lack of external debt and the rise in the price of oil, the Algerian regime could still buy “a year or two,” noted Fabiani. It could resort to bilateral loans from China or the Gulf. Abdelmadjid Tebboune, the president, ruled out an IMF loan last year, suggesting it would limit the country’s ability to have an independent foreign policy. “The big question remains, what will the new government do,” Fabiani said. “Will they come up with new ideas? “

Already, the rise in prices has triggered repeated demands for wage increases and strikes in various sectors of society, from teachers and doctors to postal workers. Firefighters demonstrated in uniform last month and were dispersed by police using tear gas.

Wary of the protests, the authorities cracked down on the approach of the elections, preventing the marches of the pro-democracy movement in the country which overthrew Bouteflika in 2019 and flooding the center of Algiers with police cars. More than 200 people are in prison in connection with the protests.

The authorities can stifle dissent but they are well aware that living conditions are increasingly harsh for Algerians who are suffering under the combined impact of lockdowns, business closures and inflation.

“I have a family of seven to support, but the construction company I worked for has closed,” said Samir Yefsa, a 50-year-old unemployed. “The state was our only client, but the government now has no construction program. I do not know what to do. I have problems feeding my family. I can only borrow from family and friends who are retired and live on pensions, as other younger people are in a similar situation to mine.

In a market in Algiers, Naima, a primary school teacher complained about rising prices and the erosion of her purchasing power. “I swear to you I haven’t bought fruit for my children for two months,” she said. “There are now some items that are just too expensive for those with a middle or lower income.”

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