Oil’s drop turns Algeria wealth source into stability threat

It withstood the political tumult that felled Arab leaders from Libya’s Muammar al-Qaddafi to Egypt’s Hosni Mubarak. Now Algeria’s leadership faces a graver threat from what was once its source of wealth: oil.

The global plunge in prices is making it harder to afford expensive subsidies that help fend off discontent, and coincides with mounting concern over the health of President Abdelaziz Bouteflika. If either the economy or a political succession is managed badly, the holder of Africa’s largest gas reserves and a key ally of the West in the battle with Islamist militancy could unravel.

The Algerian parliament on Sunday approved constitutional changes that offer more political rights to key constituencies, including the indigenous Amazigh community, women and businessmen.

Here, four leading analysts give their views on where the OPEC member is heading.

Succession Angst

The 78 year-old president, who came to power in 1999, is rarely seen in public following at least two strokes. Amid reports Bouteflika’s brother Said is actually in charge and cementing support for his own presidential ambitions, there’s been a purge of senior army officers and a shake-up of the intelligence agencies.

“This means that President Bouteflika and his clan have, for the moment, won the battle against the secret services,” said Rachid Grim, an independent political analyst in Algiers. “It remains to be seen if the other clan, led by former DRS head General Mediene, retains the ability to cause a nuisance,” he said, referring to the intelligence and security directorate.

The presidency says the overhaul of the security services represents a “civil transformation,” while it has described the changes to the charter as a compromise project. A total of 499 of 517 attending legislators approved the amendments.

“The constitutional amendments indicate the country is moving more toward democracy, though that remains on the theoretical level,” Grim said.

The steps are probably more “a way of maintaining the status quo without risking upsetting the people,” said Dalia Ghanem-Yazbeck, a political scientist at the Carnegie Middle East Center.

“It’s likely that the succession is going to happen behind closed doors, and that both the military and the political establishment will have a consensus on the candidate,” she added. “It is not in anyone’s interest to have a destabilized Algeria especially in the current geopolitical context.”

Buying Time

As the factions who play a role in running Algeria maneuver for an advantage in the tussle to replace Bouteflika, they’re also focused on trying to minimize the impact of the oil-price fall, according to Riccardo Fabiani, senior North Africa analyst at Eurasia Group. That’s no small task.

Since the first major discovery in the 1950s, oil and gas have built the Algerian state. They armed the security forces during 1990s war and paid for subsidies that curbed dissent over a stunted democracy during the Arab Spring. Yet the fossil-fuel bonanza led to a skewed economy that has been badly hit by the oil price drop. Income from oil and gas exports, which account for nearly 60 percent of the economy and 95 percent of foreign receipts, has plunged by nearly half as crude prices tumbled.

While the government is using its foreign reserves to maintain cheap credit, social housing and free healthcare, it won’t need to reduce spending significantly before 2018 or 2019 given the low levels of external debt, Fabiani said. It can tap the oil fund and has room to borrow more to fill the deficits temporarily, he said.

“As long as spending remains at the current levels, and the constitutional amendments go ahead, the risk of a major uprising is actually quite limited,” according to Fabiani. “Tensions could resurface within the new ruling bloc, for example between the presidency and the army. The economy though is the main variable.”

Grim says “a social explosion” can’t be excluded. “Everything depends on what they are going to do to avoid it.”

Algerians under the age of 30 account for about 70 percent of the unemployed. Protests over alleged nepotism and corruption during the awarding of public housing as well as unemployment and food prices have increased.

Civil War Memories

One major reason why dissatisfaction has failed to coalesce into a protest movement is the memory of a civil war that killed about 150,000 people.

The roots of the conflict can be traced back to the cutting of public spending amid the oil crash of 1986. Austerity generated widespread anger, which erupted into a week-long uprising and riots on Oct. 5, 1988. The violence spurred the introduction of democratic reforms and an end to one-party rule by Bouteflika’s FLN. In the increasingly bitter political climate that followed, the seeds of war were sown.

“The memory of the 1980s and the ‘black decade’ of the 1990s still lingers in the minds of the leadership as well as the majority of Algerians though it’s fading,” Ghanem-Yazbeck said.

Widespread violence is possible, says Louisa Ait Hamadouche, a professor of political science at the University of Algiers. “I don’t believe in absolute immunization. Even if you’ve been vaccinated, you can still catch a flu,” she said.