Algeria, Dependent on Oil, Feels Pinch as Prices Decline By THE ASSOCIATED PRESS DECEMBER 20, 2014 ALGIERS — With oil prices at their lowest in five years and showing few signs of hitting bottom, Algeria is feeling the pinch. Though its problems are dwarfed by the impact on Russia, for example, Algeria may have to rein back many of the policies it has held dear over many years. Generous subsidies, for one, may have to be scaled back despite the potential risk of social unrest. Oil revenues make up 97 percent of the country’s hard currency earnings and 60 percent of the government’s budget. Like Russia, which has seen a full-scale run on its currency, Algeria has made little effort to diversify the economy away from oil and gas. The governor of the central bank, Mohammed Laksaci, has warned that the oil and gas dividend will not last forever, though nearly $200 billion of foreign reserves can help cushion the blow in the short term. “This capacity to resist such shocks will disappear quickly if the price of oil stays at a low level for a long time,” Mr. Laksaci said recently, deploring the economy’s dependence on oil. In many ways, the administration of President Abdelaziz Bouteflika has echoes with that of his counterpart in Russia, Vladimir V. Putin. Both have seen their long tenures buttressed by oil-driven economic growth. There has been little impetus for change at the highest levels, with much of the work of the government stalled because of Mr. Bouteflika’s fragile health. Since suffering a stroke in 2013, he has rarely appeared in public. “This is the system that he built, as long as he is in power he’s going to keep it that way,” said Geoff Porter, a North Africa analyst. “The risks that come with market reform and privatization are too daunting for Algeria right now.” According to the International Monetary Fund’s latest report on Algeria, growth for 2014 is estimated to be a decent 4 percent. However, it cautioned that with declining oil production and lower prices, Algeria’s imports will exceed its exports this year for the first time in 15 years. Subsidies, which amount to 21 percent of the country’s annual economic output, cover electricity and many foodstuffs, and the country’s gasoline is the cheapest in North Africa. Some 60 percent of the jobs in the country are on the government payroll and nearly everything is imported. The government also subsidizes education and provides housing. Social unrest was effectively bought off with higher wages and promises of housing — all funded by the bountiful oil receipts. Now, however, falling prices have thrown this model into question. “Algerians will not find anything to eat if the price of oil continues to fall,” warned Habib Zegad, an independent lawmaker, during the debate over the latest central bank figures. Algeria is still flush and can continue spending at its current rate for the next few years. But Mohammed Sghir Babes, an economist, said the country needed to make changes now to rein in spending and cut subsidies. But social peace depends on continued spending. On Tuesday, hundreds of young people demonstrated in the desert oil city of Hassi Messaoud, calling for jobs and housing, and in October there were demonstrations by the police for higher salaries.
Posted on: Sun, 21 Dec 2014 12:50:19 +0000
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