Algeria’s Perfect Storm: COVID-19 and Its Fallout

Written by | Tuesday, May 26th, 2020
@Eubulletin

Coronavirus is a godsend for Algeria’s government to introduce restrictive measures beyond those needed to contain COVID-19. But its new leaders are missing a chance to gain legitimacy, which will offset the socio-economic fallout of the drop in oil prices.

Although protests successfully ended Abdelaziz Bouteflika’s 20-year sultanistic rule a little over one year ago, demands have been continuing to dismantle the system, get rid of the old personnel, and institute democracy. The controversial election in December of Abdelmadjid Tebboune — who has inherited a disastrous situation — has not tempered the determination of the Hirak protest movement. As a former minister and prime minister under Bouteflika, the new president has won little legitimacy, and protests have continued. Now COVID-19 is worsening already dire economic conditions, such as a sharp drop in oil prices. By the beginning of May, statistics showed 10% of confirmed cases have ended in fatality, the highest percentage in the region.

Hirak had already called for the suspension of the marches — mobilising online instead — before the government’s measures, which include curfews and lockdowns, demonstrating a high sense of duty. But instead of appeasing Hirak’s demands, the government has maintained the authoritarian style of its predecessors. Tebboune released more than 5,000 prisoners on 31 March but kept prisoners of conscience and leaders of the hirak imprisoned, then subsequently imprisoned journalists and activists. It even passed a controversial penal law, that also covers fake news, and may be used to justify actions against journalists. The regime wishes to see an end to the Hirak, and rejects accusations of totalitarianism by insisting freedom and a democratic climate exist in Algeria.

Tebboune’s actions contradict his praise for the ‘blessed’ hirak and his promises of instituting the rule of law. In proclaiming the measures, the government has shown disappointing leadership, acting in an authoritarian fashion. Tebboune also declared proudly that Algeria was fully prepared to fight the coronavirus epidemic, an optimistic claim given the country has only 400 intensive care unit (ICU) beds, or one per 100,000 people. Despite hundreds of billions of hydrocarbon dollars accumulating during the Bouteflika-era, Algeria’s health system ranks 173 out of 195 countries. Algerians often refer to hospitals as ‘mouroirs’, meaning ‘places for the dying’. Not only has the state failed to build modern hospitals but basic hygienic conditions are lacking, and government officials prefer being treated overseas. A 2014 project to build five university hospitals was abandoned, leaving the health sector in deplorable shape.

Before Chinese assistance arrived, the glaring lack of equipment to protect caregivers and care for the sick was evident. Prime Minister Abdelaziz Djerad admitted the health system required a ‘total overhaul’. The president recently stated Algeria’s doctors are among the ‘best in the world’ but didn’t address why almost 15,000 Algerian doctors practice in France. Strict containment measures are in sync with most countries but implementation is challenging when most people live in overcrowded urban dwellings. Water shortages in many areas makes good hygiene and decontamination impossible, while schools and universities find online teaching difficult when many students do not possess laptops or internet connections. And only 20% of Algerians have debit cards in a cash-dominated economy because of low trust in the public-dominated banking sector, making online shopping capability low.

An already declining macroeconomic situation is worsening due to COVID-19. The IMF revised its 2020 estimates for Algeria, forecasting a catastrophic contraction of -5.2% in a country where hydrocarbons account for 93% of export revenues and 60% of its budget. Foreign currency reserves are now an estimated $55 billion (expected to fall to $44billion by the end of 2020), down from $200 billion in 2014, and Algerian crude has recently traded close to production costs, with the fiscal breakeven oil price at $157. In line with its historic aversion to external borrowing, Tebboune recently ruled out seeking financial support from the ‘IMF or other foreign banks’, as he argued such borrowing undermines sovereign foreign policy because – when indebted – ‘we cannot talk about either Palestine or Western Sahara’, two causes dear to Algeria. ‘Friendly countries’ – most likely a reference to China – are said to have offered to grant loans which have been declined for now.

The government is forecasted to face a 20% budget shortfall this year, but Algeria’s fiscal response to COVID-19 is actually the largest among the regional hydrocarbon exporters at an estimated 8% of GDP, compared to an average of 3.2%. However, the government revised downwards its 2020 public spending by 50%, halting state projects and slashing its $41 billion import bill by 25% while expanding agricultural production. National oil company SONATRACH will also cut planned investment by half to $7 billion but plans have been revealed to develop other natural resources including gold, uranium and phosphates. But recent growth rates are insufficient to create jobs for those entering the labour market. Despite government attempts to support a rather anaemic ‘formal’ private sector, estimates are 700,000 jobs could be lost due to potential bankruptcies from reduced activity and a loss of markets abroad.

Facing potential social unrest and the quasi-preservation of a tired social contract, the government has committed to upholding public sector wages – including for 50% of the civil servants told to stay home – protecting sacrosanct, unsustainable subsidies, and increasing health expenditure to strengthen the capacity to combat COVID-19. A supplementary finance law will include various measures that support businesses and the economic fallout. However, while the government is to be commended for its efforts to aid businesses, supporting large swathes of the population is challenging as approximately 50% of the workforce operate in the informal economy. Weak administrative capacity and insufficient data to implement cash transfers makes the planned ‘solidarity allowance’ of 10,000 dinars ($80) for Ramadan difficult to allocate to those who most need it. Families, communities, and religious organisations continue to be a social safety net.

So COVID-19 has not created new problems, it has merely magnified and exacerbated the numerous inequalities and failures of the Bouteflika regime to sufficiently invest in human security. Typically, whenever oil prices and related earnings dwindle, the political system promises to reform and diversify the economy. Tebboune is repeating this same old tune. There are positive elements, such as the government’s realization it must initiate genuine reforms. And local enterprises have been successfully producing artificial respirators, surgical masks, and other materials. Algerians, including the Hirak, are showing great social solidarity. But the government must capitalize on these positive actions by introducing real change. Because, if not, Hirak will certainly be back in force once the crisis is over, and operating in an environment of worsening socioeconomic problems. The medicine of the past will not work.

‘Algeria’s Perfect Storm: COVID-19 and Its Fallout’ – Expert Comment by Adel Hamaizia and Yahia H. Zoubir – Chatham House / The Royal Institute of International Affairs.

The Expert Comment can be downloaded here

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