With growing unrest in North Africa/Middle East, the question arises whether Algeria will be next in line for regime change. African Energy’s recent seminar, Algeria’s Energy Future: Industry and Political Risk Outlook, which we attended last week, threw some light on this complex issue. Discussion was centered on the political and economic situation and the future of energy in Algeria, specifically declining gas reserves and a lack of foreign investment and we set out the highlights below.
Our impression from the conference is that Algeria presents a unique situation in the midst of unrest in the Middle East. It could be seen as a race between reform and unrest. Although the potential exists for the country to follow the pattern of some of its neighbours, Algeria could present an opportunity to take a uniquely different approach to reform. Resistance towards Abdelaziz Bouteflika so far has been hit head on by the government with the mobilization of riot police and discussion about potential policy changes though it appears Bouteflika is taking a more democratic approach than some of its neighbours. While this may have delayed widespread and prolonged protesting, opposition to the ruling elite is rising. An ever-expanding need for political social and economic reform in Algeria is a reality. The current structure in Algeria is no longer working and attempts by Bouteflika to stop unrest may not be enough.
Protesting and challenges to authority have been a part of Algeria’s history. Civil war broke out in Algeria in the 1990s when radical Islamists came head to head with the government, resulting in the loss of up to 200,000 lives. The current President, Abdelaziz Bouteflika, saw Algeria out of this dark era and is acknowledged among Algerians for establishing the country in the global economy as an energy producer and exporter. In 2009 Algeria was ranked number 15 in the world as an oil producer and number 6 in the world as a gas producer, bringing revenue and prosperity to the country (Source: EIA).
Although Bouteflika carries respect, there is growing discontent among Algerians towards the wealthy elite who prosper at the expense of the majority. Algerian politics has been described as ‘highly personalized’ and dominated by an elite minority. Reform and change within the structure is a slow moving process. Dissatisfaction with the ruling elite, food shortages, lack of electricity, poor education and health services are among the many issues that cause weekly riots in Algeria.
Algeria has not been free from protesting since the Middle East fell into unrest. Since January 2011, protests have broken out in Algiers. Bouteflika has sought to combat protests head on with a possible reform of current policies to redistribute power between the ruling elite and the general population. Social issues such as food and petrol taxes and job creation have been addressed by the government. Attempts at protests in Algiers so far have been stopped by vast numbers of riot police and security forces.
Is Algeria Next?
With a possible ‘domino effect’ of unrest spreading over the Middle East, much discussion at the conference centered on whether Algeria might be next. General conclusions were that Algeria could see some level of unrest but unlikely on the scale of its neighbour Libya.
Some conference attendees thought that a history of civil unrest combined with a lack of opportunity could lead many young and unemployed Algerians to seek change within the country. Anger among Algerians stems from internal issues such as poverty, high unemployment and social marginalization. An established opposition party in Algeria has already staged various protests. Increasing discontent with the ruling elite is likely to cause rioting in Algeria. There is a large gap between the ruling elite and the majority population which is becoming increasingly unsettled. Similar to it neighbouring countries, political, social and economic issues could lead Algerians to a revolt against the Bouteflika government.
Those who felt Algerians would not revolt recall the recent civil war which is still fresh in many Algerians minds. This may not be reason enough to prevent Algerians from protesting, but it could influence the level and severity of protest. Furthermore, the prosperity that Algeria has seen over the last few years, largely due to the energy sector, may be enough to keep Algeria from falling into violent unrest. With the government taking a proactive approach through changes to public spending plans on infrastructure and by announcing potential reforms to the current power structure, Bouteflika has so far held off widespread protesting. The decision to lift the state of emergency in place since 1992 was a move by Bouteflika to show his intentions to change.
Challenges Facing Algeria – Energy sector
For Middle Eastern Countries, oil and gas plays a large part in economic prosperity. Most of the world’s oil reserves are in the Middle East but investment risk is high. Algeria is ranked high as a gas producer but potential unrest increases the risk for investing. This has potentially damaging affects on the Algerian energy industry which is a major player both economically and politically. Corruption is all too familiar within the energy sector of Algeria and some International Oil Companies (IOCs) have hesitated to invest.
Algerian state company Sonatrach dominates the energy sector, but the company was hit with scandal in 2010, leaving the future of the Algerian energy industry in question. Change came out of the scandal when the president director general (PDG) was dismissed along with the majority of the executive committee. The new minister, Youcef Yousfi, released a new Energy Policy in February 2011. The new policy emphasises renewable energy and recognizes the urgent need for exploration. Although this policy was meant to set Algeria’s energy sector in a new direction, many question if the policies stated by Yousfi are entirely ‘new’.
A stark reality that Algeria faces is the rapid decline of natural gas reserves and increasing demand for electricity both within Algeria and in Europe. Outlined in Yousfi’s strategy is a need for greater exploration and the development of non-conventional resources. The Hassi R’Mel gas field accounts for a quarter of Algeria’s total dry gas production and is estimated to have only 25 more years of production left (Source: EIA). The need to develop other gas fields within the country is becoming more urgent. The Southwestern region of Algeria is home to various prospective gas fields that have the attention of IOCs. Unfortunately, poor fiscal terms within the Oil Contracts, a lack of infrastructure in the southwest and a failure of the sector to live up to promises have held IOCs at bay. Evidence of IOCs’ lack of confidence in Algeria can be seen in the last three bid rounds which were deemed failures with low numbers of bids and few contracts awarded (seven contracts were awarded out of a possible thirty-six over 3 license rounds). Complaints from the IOCs have so far fallen on deaf ears.
With declining reserves and a lack of major foreign interest, challenges to the current leadership could be what the Algeria energy industry needs. Yousfi’s 2011 energy policy has been criticized as not being entirely new or drastic enough to revitalise the Algerian Energy sector. Extensive exploration and development and increased foreign investment are necessary to tackle the rapidly declining reserves in Algeria. Policy is holding back foreign investment and the current Algerian system does not encourage rapid policy changes. A reformation of the current political structure could be positive if replaced by a more democratic system. Should reform come to Algeria, an opportunity could arise for more favorable conditions for IOCs.
Source: Algeria’s Energy Future Report and discussion that took place at Africa Energy’s seminar.