Will upcoming election affect Algeria’s economic reforms?

Will upcoming election affect Algeria’s economic reforms?

The Algerian government has promised economic reform ahead of Abdelaziz Bouteflika’s fourth run for the presidency on April 17. Few doubt that Bouteflika will win the election, but what will that mean for the Algerian economy?

Former prime minister and Abdelaziz Boutefilka’s campaign chief, Abdelmalek Sellal, promised the Algerian business community that the president would fight “the dictatorship of bureaucracy” to encourage foreign investment and lessen the national economy’s reliance on oil production. Approximately 97% of Algeria’s export is oil, and the state’s monopoly on the energy industry has likened the Algerian government to a cartel. The state’s military intelligence agency, the Département du Renseignement et de la Sécurité (DRS) will essentially want to ensure this system of corruption remains in place.

Algeria has dramatically increased public spending from oil revenues to hold off social upheaval. General Electric has also signed a $400 million deal with the state-owned Sonelgaz to construct an industrial complex that would begin operation in 2017. The complex would house between six to eight generators with steam power that would produce 2,000 megawatts of power. However, an Algerian law that limits foreign direct investment (FDI) to 49% is a significant roadblock to increasing further capital inflow.

The Algerian government has also spent $286 billion on a five-year infrastructure development plan. Farouk Chiali, the Minister of Public Works, stated that Algeria will invest $55 billion on expanding roads, highways, bridges and other civil engineering projects. Chiali said that in the past decade $63.89 billion has been spent on public works and created over two million jobs. China is also interested in Algeria’s domestic development projects since Algerian banks can self-finance infrastructure projects. The two countries have also worked to grow Algeria’s research and development capabilities.

The need for economic diversification is even more apparent in the wake of declining global oil prices. Consumption growth in Europe, Algeria’s primary energy market, is slowing. In a shift, Algeria is trying to expand its manufacturing sector. Two German motor companies, DEUTZ and DEFGA, signed deals to supply 7,500 engines for construction and agriculture machinery. The sluggish rollout of Algeria’s telecom networks illustrates how bureaucratic inefficiency could hinder the government’s efforts to expand into new business ventures.

Algeria has also planned to strengthen its tourism sector. Anbees Hocine, an official with the Algerian Tourism Ministry, told Magharebia, “to us as Maghreb citizens, tourism is one of the important economic hubs in our countries.” In cooperation with Tunisia and Morocco, Algeria is encouraging desert tourism, which saw about 600,000 tourists in 2013. However, ethnic clashes in the picturesque Saharan city of Ghardaia may discourage tourism in Algeria.

Security concerns still plague companies such as Statoil, Norway’s state oil company. Since the terrorist attack at the gas installation in the Sahara desert, the foreign oil workers have been kept away until the Algerian government agrees to allow in private security firms. The Algerian military has stationed 20,000 troops to ensure security.

Uncertainty surrounding Bouteflika’s health and recently, former President Liamine Zéroual criticized his run for president. A 10% unemployment rate, poverty, and high levels of corruption all show that political and economic reform has fallen short of the promises made before the election. The slow pace of economic reform will likely guarantee a high level of political risk in Algeria for the foreseeable future.

About Author

Chris Solomon

Chris Solomon is the GRI Guest Post Editor and a Senior Analyst. He has supported several US government-funded international development programs in the Middle East and Africa throughout his professional career. He has also been a guest lecturer at the University of Maryland’s School of Public Policy on the U.S. strategy to combat ISIS. Christopher holds a master’s degree in Public and International Affairs from the Graduate School of Public and International Affairs (GSPIA) at the University of Pittsburgh. Follow him on Twitter @Solomon_Chris.