October Algeria report (Part II)

Appointed just over a month ago, the Sellal government was convened on September 17 for the first full council of ministers meeting chaired by President Bouteflika in seven months. The new government now has a programme of sorts, coupled with a draft budget for 2013 that will soon be put to the vote in parliament. Although its programme includes no lofty ambitions for political transformation, the Sellal government will nonetheless have its hands full fending off socio-economic challenges in the coming period – all the more so given that the crucial presidential election is now just a year and a half away.

The official communiqué issued after the council of ministers meeting, which outlines the government’s priorities, makes no mention of the promised reform of the constitution, or more generally of the programme of political and institutional reforms launched in April 2011. These, it would seem, are the exclusive prerogative of the Presidency. Prime Minister Sellal and his team, according to the text of the communiqué, are to concentrate on “four main areas”:

continued improvement of governance such as to strengthen the rule of law, carry through a root and branch rehabilitation of public services and promote national cohesion;

the consolidation of the economic and financial sphere with a view in particular to strengthening the visibility of the national development process, improving the investment environment, notably as far as land is concerned, continuing the modernization of the financial system and increasing the efficiency of government intervention in the economy;

the development of socio-economic infrastructures, and in particular implementing scheduled house-building programmes for which all necessary resources will be mobilised, and the expansion of infrastructure networks;

the promotion of human development through the continued implementation of the reform of the education and training sector, the fight against unemployment, developing government assistance for the less well-off, better support for young people and establishing an efficient cultural policy.

In our last report, we suggested that the replacement of Ouyahia with Sellal might augur a shift in economic strategy, away from the “economic nationalism” championed by Ouyahia and towards more investor-friendly policies. The reference to “improving the investment environment” in the government communiqué comes as partial confirmation of that, but it would seem that Sellal has been told to tread carefully on this front: presenting his plan of action to parliament on September 25, the new Prime Minister insisted that Algeria “would never become a neoliberal country, but will establish the necessary conditions to encourage direct and indirect investment”; furthermore, the rule requiring a minimum Algerian stake of 51% in all ventures established by foreign firms in Algeria, imposed by his predecessor, is to remain unchanged. This cautious, middle-of-the-road approach is very much in evidence in the government’s new bill to amend the Hydrocarbons Law[1]: on the one hand, the conditions pertaining to IOCs’ exploration and production activities are to be eased, the methodology for determining the tax rate on oil revenues is to be based on a project’s profitability instead of sales, and there are new tax incentives to encourage activities related to unconventional hydrocarbons, small deposits, deposits in under-explored areas, and fields with complex geology and/or lacking infrastructure; while on the other, Sonatrach’s monopoly over pipeline transportation of oil and petroleum products is restored and partnership with Sonatrach in the downstream sector becomes obligatory.

The 2013 draft budget is also a cautious piece of legislation. Current expenditure having been pumped up by the public sector pay rises that were rolled out last year in a panic reaction to the wave of revolt sweeping through the Arab world, capital expenditure has had to be reined in for the first time in years; taxes, meanwhile, go up. Even so, it is by no means guaranteed that the government will be able to balance the books at the end of the year. For 2013, as for the past several years, revenue has been calculated on the basis of a reference price for crude oil of $37/barrel, and as in previous years, on paper this results in a deficit budget. $37 is of course way below actual international oil prices, and the government has for years now been able not only to wipe out the programmed deficit each year but to run a substantial surplus. By the middle of this year, however, the central bank calculated that an oil price of at least $112/barrel was needed in order to balance the 2012 budget. The 2013 budget requires broadly similar oil price levels in order to break even, and any lasting decline in oil prices in the coming year could therefore have a dramatic effect on Algeria’s fiscal balance, perhaps forcing the government to draw for the first time on the Revenue Regulation Fund established in 2000. Sustained low oil prices might compel the government to review its spending commitments under its five-year infrastructure development plan – putting the regime’s strategy of buying social peace at risk. On top of this, as a major importer of agricultural products Algeria is highly vulnerable to fluctuations in global food prices. Drought in the US cereals belt is currently fuelling an explosion in the price of wheat (the main staple in Algeria, in the form of bread and couscous), corn (an essential ingredient of feed for chickens, the main source of meat for ordinary Algerians) and soya (also an input for animal feed, as well as a source of cooking oil). The government’s commitment, also made under the pressure of the Arab Spring, to controling prices for basic foodstuffs means that its subsidies bill will be rising dramatically. Over the medium term, the Algerian government may therefore have to choose between making further cuts to capital expenditure to compensate for runaway spending on consumer subsidies, or cutting subsidies on food and running the risk of bread riots.

It is against this background that the authorities have begun to crack down on potential agitators, in particular human rights activists and independent trade union organisers, who have been increasingly subject to harassment, arrest and prosecution of late. With the clock now ticking on the countdown to the 2014 presidential election, the regime will be all the more inclined to try and keep a lid on social protests.

It cannot be entirely ruled out that President Bouteflika – who has been written off as dead or dying more often than can be remembered but who bounced back once again in apparently combative form at the September 17 council of ministers meeting – might yet stand for a fourth term of office[2], notwithstanding his earlier hints that the time has come for his generation to stand aside. But a new element has emerged recently in the preparations for 2014 with the creation of Amar Ghoul’s Algerian Hope Rally, more commonly known by its Arabic acronym, TAJ (meaning ‘crown’). Ghoul, who has been Public Works Minister for ten years, broke with the moderate islamist MSP this year in order to hold onto his ministerial position and proceeded to establish TAJ, which was joined by around 40 members of parliament, freshly elected on the MSP ticket or under the colours of Moussa Touati’s Algerian National Front (FNA). In late September, when TAJ held its founding congress, it became clear that the new party enjoys surprisingly abundant financial resources and the tacit complicity, if not outright support, of the authorities. Ghoul has proclaimed that his party, inspired by the example of the FLN during the liberation war, intends to “mobilize the living forces of the country, irrespective of ideological divisions: islamists, nationalists and democrats come together under its banner to inspire hope and build a united, promising and pioneering Algeria” – a discourse which might have come straight from the regime’s copybook. The episode is reminiscent of the creation back in 1997 of the RND, which three months after it was established went on to win the parliamentary elections. This suspiciously premature success, together with the physiognomy of its General Secretary Ahmed Ouyahia, led Algiers wits to dub the RND “the baby that was born with a moustache”. The latest joke, alluding to Amar Ghoul’s islamist background, casts TAJ as “the baby born with a beard”.

There is now speculation that Ghoul himself is being groomed as a possible successor for Bouteflika in 2014, or at least as a vice president if and when the Presidency finally gets around to amending the constitution. It is worth noting in this respect that Ghoul, although not particularly charismatic, offers the distinct advantage, from the point of view of the regime’s power brokers and in particular DRS chief Mohamed ‘Tewfik’ Médiène, of being eminently controllable: deeply involved in corruption in his time as Minister of Public Works, notably in connection with the East-West motorway project, Ghoul has to date never been charged, and rarely even accused publicly, giving those in the know – in other words, the DRS – a potentially powerful hold over him.