Breaking the Impasse on Algeria’s Political and Economic Crises

On May 21, Algerian authorities arrested some 800 protesters who had gathered to decry continued economic hardship and political stagnation across the country. It was one of the regime’s most visible shows of force yet against the yearslong popular uprising—known as Hirak, Arabic for “movement”—which resumed weekly mass demonstrations in February after suspending activities for almost a year due to the coronavirus pandemic.

Hirak activists first began organizing in 2019 to demand the resignation of then-President Abdelaziz Bouteflika, but their demands quickly evolved to include calls for an overhaul of the political system. More recently, the protests have also been fueled by the twin shocks of COVID-19 and depressed oil prices that have exacerbated Algeria’s economic situation, resulting in soaring rates of unemployment, as well as a depreciated currency, inflation and reduced purchasing power. Various sectors of Algerian society have organized strikes in recent months, including health professionals, youth groups and postal workers.

The Algerian regime—represented by Bouteflika’s successor, President Abelmadjid Tebboune, although real power lies with the military—is scrambling to contain the unrest while grappling with diminished revenues. It has made some token efforts to placate the protesters, like arranging early parliamentary elections, which were initially scheduled for 2022 but were brought forward to this Saturday. However, the elections should not be mistaken for a genuine concession by the regime, as they will not bring about substantial change.

Instead of genuinely engaging with Hirak’s demands, the regime has increasingly relied on repression. In addition to jailing protesters, it has brought trumped-up charges against Hirak activists and harassed journalists. The heavy-handed strategy has been effective so far, but the pandemic has changed the stakes for state-society relations in Algeria by highlighting the regime’s deep crisis of legitimacy. Both sides are currently at an impasse, and further repression will not solve the issue. Instead, the regime must reconsider its flawed, rentier economic model and genuinely address the country’s needs: substantial and broad-based economic relief, COVID-19 vaccines and implementation of long overdue plans to diversify the economy. Significantly, both the historically insular regime and the general population have shown signs of opening up to the outside world, which presents international actors with a rare opportunity to deepen ties with Algiers.

Algeria’s hydrocarbon-reliant economy suffers from a set of long-standing fiscal problems relating to mismanagement of accumulated revenues, an unfavorable business environment dominated by military elites and a constrained private sector. The economic fallout from the global pandemic and decline in oil prices led the government last year to cut public spending and delay previously planned investment projects. This risks hindering necessary diversification reforms in the short to medium term. The government also devalued the dinar, Algeria’s currency, in an attempt to stimulate exports and promote local production, but the move increased the exchange of dinars in the black market, thus exacerbating the country’s liquidity crisis and resulting in inflation. Furthermore, the pandemic has increased expenditures for health care and welfare while stymying consumer spending and production of goods, thereby reducing the government’s tax revenues.

This resulted in grim economic figures for 2020. GDP shrank by an estimated 6.5 percent, while the debt-to-GDP ratio rose to 68 percent, up 21 points from the previous year. Unemployment currently stands at close to 14 percent, following a reported 500,000 jobs lost since the beginning of the pandemic. This led Algerian leaders to consider requesting an emergency loan from the International Monetary Fund, although this was ruled out due to Algeria’s negative experience borrowing from the IMF in the 1990s, when it had to restructure its external debt in the wake of the 1986 and 1990 oil shocks. The IMF’s conditions back then included devaluing the dinar by 40 percent, privatization of state-owned enterprises, the closure of unprofitable companies and job cuts. While these reforms succeeded in restoring financial stability to an extent, they worsened the population’s standard of living. As a result, Algeria has avoided borrowing money from overseas since 2005.

Despite its limited budgets due to lower hydrocarbon revenues and spending cuts, the Algerian regime has enacted several relief measures since the start of the pandemic. Most significantly, it enacted a law in June 2020 providing over $50 million dollars for medical supplies, bonus payments to health workers, COVID-related unemployment allowances and cash transfers to vulnerable households. The regime also took measures to support the financial sector, including lowering interest rates and reducing the minimum required liquidity and reserve ratios for banks.

However, these policies were complicated by delays in dispensing aid and the ambiguity of the distribution process. Furthermore, due to its limited resources, Algeria’s fiscal relief packages have been smaller than in many other oil-exporting countries. They may have helped alleviate some of the short-term economic pressures associated with the health crisis, but do not address Algeria’s long-term problems.

The economic fallout of the pandemic will have far-reaching impacts on the country’s political dynamics. First, constrained fiscal space will limit the regime’s ability to use economic concessions to mitigate unrest, thus challenging Algeria’s rentier economic model, in which the state has direct and discretionary access to rents from hydrocarbon exports, which it uses to essentially buy social peace. Since it does not depend on revenues from taxing citizens, it does not grant them representation.

In the absence of effective reforms, longstanding issues such as inequality and unemployment will persist and fuel further unrest. In turn, political instability will affect the economy due to investment uncertainty and an adverse business environment. The demonstrations that resumed in February will almost certainly continue in full force once COVID-19 is fully controlled, with Hirak leaders reiterating their demands for root-level reforms and continuing to call for a transition from a military-dominated state to a civilian one. However, the country’s military leaders are unlikely to concede.

The failures of the state-run health care system, which have been exposed by the pandemic, could become another driver of contestation. Algeria ranks poorly on pandemic preparedness—173 out of 195 countries, according to the Global Health Security Index. In 2018, Algeria’s health care expenditure per capita was $963, compared to the world average of $1,467. In addition to low levels of funding, the system is chronically understaffed, an issue that is linked to Algeria’s massive brain drain problem.

Clearly, the Algerian regime faces stark challenges and could benefit from international support, but it has historically been wary of foreign interference in its domestic affairs due to the country’s brutal colonial past. Mistrust of international actors grew after the country’s aforementioned negative experience with IMF loans in 1990s. Even outside the cloistered political elite, Algerians as a whole generally prefer not to have closer relations with global powers. An Arab Barometer poll released in 2019, for example, found that only 24 percent of Algerians want closer relations with the United States, the lowest percentage in the Middle East and North Africa. Algerians have limited desire for increased foreign aid, and over half believe that Western powers want to gain influence over their country through aid.

Yet, there are signs that Algerians’ isolationist tendencies are slowly changing. Nearly 40 percent of respondents in the Arab Barometer survey thought positively about opening up to the outside world, up from 32 percent in 2013. The country’s leaders have also shown signs of moving toward greater engagement, for example by seriously considering external aid from donors like the IMF and World Bank. This opens the door for aid donors, such as the World Bank and the European Union, to deepen ties with Algeria and work with the regime to address major issues.

Some of Algeria’s most pressing issues at the moment are related to the pandemic. Although Algeria received some foreign aid during the first year of the pandemic—notably 85 million euros from the European Commission in medical equipment and socioeconomic assistance—this is not enough. The country requires further emergency aid, as well as vaccine doses, given that it has the lowest vaccination rate in North Africa and one of the lowest in the world so far. Most of the help it has received has come from Moscow and Beijing. In February, Algeria received 200,000 doses of the Chinese Sinopharm vaccine, and in April, it announced a partnership with Russia to start producing the Sputnik V vaccine this fall. Other global powers, especially in Europe, should follow these examples.

Beyond these short-term solutions to its pandemic woes, Algeria also needs to tackle long-term structural problems and diversify its economy. While the pandemic has dealt a severe setback to these efforts, there is room for international partners to help, for example by extending financial support for renewable energy sector development, increasing capacity building for private businesses and investing in Algeria’s modest tourism sector.

Likely the most sensitive and complicated area for all parties involved will be navigating the tense political climate between the military-led state and the opposition. This impasse is unlikely to be resolved by the upcoming legislative elections. Voter turnout will likely be low, as it has been in previous polls, since many Algerians view elections as a smokescreen. Furthermore, the military leadership is so strong that it is difficult to imagine a scenario in which any candidate or party can overpower it. In other words, the elections will not bring about the deep change sought by protesters. As contestation continues, the regime will again resort to repression.

The dilemma international actors face is that, if they call out the regime’s repression of protesters and activists, this may trigger hostility from Algerian decision-makers. However, if they do not address the repression issue, then they may be viewed by the wider population as supporters of a regime that many view as illegitimate. As foreign powers move to step up relations with Algeria, they will have to consider its strained political climate and perform a delicate political balancing act.

Yasmina Abouzzohour is a visiting fellow at the Brookings Doha Center and the European Council on Foreign Relations, and a senior fellow at the Moroccan Institute for Policy Analysis. Follow her on Twitter @YAbouzzohour.