Algeria on the verge of losses due to pandemic and low oil prices

Slimane stands outside a bank in Algiers and pulls out the necklace and gold ring from his wife’s jewelry bag, which he hopes to use as collateral for the loan.

During the pandemic, the 46-year-old businessman had to shut down his small business that designed and produced promotional materials and laid off his four full-time employees.

“It’s very difficult. I feel like the sky is collapsing,” Slieman said, unwilling to disclose his full name. “The pandemic has forced businesses to downsize or shut down altogether, in especially in the tourism industry that I rely on for clients, my wife asked me to pawn her gold jewelry so we could open a grocery store near us.

The coronavirus pandemic has dealt a heavy blow to Algerians and has exacerbated the plight of the state-run economy, which has been marked by years of falling oil prices and restrictions on local and foreign investment.

Even before the pandemic, less than a third of young Algerians were unemployed, and many hoped for change after the massive protests that led to the overthrow of President Abdulaziz Bouteflika in 2019.

But analysts have warned that Algeria could soon face an economic catastrophe due to a single economy, entirely dependent on oil and gas exports, and depletion of foreign exchange reserves. Few believe politicians can make meaningful change, and the low turnout in last weekend’s election clearly demonstrates this. Analysts say that for a military-backed regime, the first parliamentary poll since the protest predicted democratic revival, and independents and pro-regime coalition governments are unlikely to change the status quo.

“The economic trends are extremely negative,” said Riccardo Fabiani, head of North Africa at the International Crisis Group, a conflict resolution organization. “There is a liquidity crisis in banks and local businesses. The construction industry is the second largest industry after oil, and the number of bankruptcies has reached an all-time high. The country risks heading towards an economic catastrophe, with a heavy social cost. “

Volunteers provide meals to poor families at a charity center in Algiers © Ryad Kramdi / AFP via Getty Images

According to data from the International Monetary Fund, the economy shrank 6% last year. Due to rising oil prices, the organization expects the economy to grow 2.9 percent in 2021. It predicts that the 2021 budget deficit will amount to 18.4 percent of GDP. In order to balance the budget, the bank said Algeria needs an oil price of US $ 169.6 per barrel, more than double the current price of US $ 72. However, analysts said it was not yet clear how the regime planned to prevent possible economic disasters.

Mabrouk Aib, lecturer and public policy analyst at the University of Algeria, said: “Politicians say they want to open up the economy and diversify. “They want a lot of things. This is what they claim, but in fact we do not know if they are right. There is a clear strategy on how to implement this.

Although the fall in oil prices in recent years has weighed on public finances and limited its ability to provide alms and create jobs for the predominantly young population, Algerian military decision-makers, or Decision maker As we all know, they have failed to diversify their economy. On the contrary, successive governments have consumed foreign exchange reserves, which fell from US $ 200 billion in 2014 to US $ 47 billion in 2020.

The military traditionally controls key decisions Independence from France In 1962, he hesitated to implement reforms to remove obstacles from the private sector, encourage investment and bring transparency to an economic system built on a network of vested interests and clientelism driven by petrodollars. Under Bouteflika’s leadership, the capitalist private sector cronyism flourished, thanks to political sponsorship and government generosity. Many of these businessmen are now in prison for corruption and some of their businesses have been taken over by the state.

Fabiani stressed that given the absence of external debt and the rise in oil prices, the Algerian regime can still buy for “one or two years”. It can resort to bilateral loans from China or the Gulf region. President Abdelmadjid Tebboune ruled out a loan to the International Monetary Fund last year, suggesting it would limit the country’s ability to formulate an independent foreign policy. “The bigger question remains what the new government will do,” Fabiani said. “Will they come up with new ideas? “

Rising prices have sparked repeated demands for wage increases and strikes from all walks of life, from teachers and doctors to postal workers. Uniformed firefighters protested last month and were dispersed by police using tear gas.

Out of vigilance against the demonstrations, the authorities cracked down before the elections and prevented the demonstrations of the country’s democratic movement, which expelled Bouteflika in 2019 and flooded the city center of Algiers with police cars. More than 200 people have been jailed for demonstrating.

The authorities may well repress dissent, they are well aware that under the combined effects of blockades, business closures and inflation, the living conditions of Algerians continue to deteriorate.

“I want to support a family of seven, but the construction company I worked for has closed,” said 50-year-old unemployed Samir Yefsa. “The country is our only client, but the government has no construction plans at the moment. I do not know what to do. I have a problem with my family. I can only borrow money from my family and friends who are retired and live on pensions because of other young people. Similar to mine.

In a Naïma market in Algiers, a schoolteacher complained about rising prices and falling purchasing power. “I swear to you, I haven’t bought any fruit for my child for two months,” she said. “Now some things are too expensive for low and middle income people. “


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