Running out of time: the Algerian Hirak Movement

The Algerian Hirak Movement 

After almost a year hiatus due to Covid-19 lockdown regulations, the Algerian Hirak movement has re-emerged, with weekly demonstrations occurring throughout the country since mid-February. 

The Hirak movement calls for the dissolution of the opaque military cliques that have ruled Algeria in a sub rosa manner since its independence in 1962, the establishment of civilian political rule, and structural economic reforms. 

In February 2019, after it was announced that the ailing and rarely seen President Abdelaziz Boutfelika would run for a fifth term, Algeria erupted into massive protests, shocking both regime insiders and political analysts who had long saluted Algiers’ ability to uphold domestic stability amid a turbulent region. 

After two months of burgeoning peaceful protests and intensifying pressure from the country’s powerful military, Abdelaziz Bouteflika announced his resignation on April 2nd after nearly twenty years in power. 

Bouteflika’s resignation invigorated the Hirak movement who saw the military’s call for his resignation as yet another demonstration of its control over Algeria’s political institutions. 

In response, the interim government initiated corruption trials against associates of President Bouteflika’s clique-which many labelled as regime infighting and score settling, held a referendum that approved a new constitution, and organized presidential elections. 

Abdelmajid Tebboune, a regime insider, won the hastily organized December election, which was plagued with historic low-turnout due to a Hirak sponsored boycott. President Tebboune has continued the policy of attempting to appease the movement with symbolic political reform, recently announcing the dissolution of parliament and new parliamentary elections, as well as amnesty for jailed protesters. 

Algeria’s Dire Economic Situation 

Not only will symbolic reforms fail to alleviate domestic instability, they fail to address Algeria’s most pressing issue: its dire economic situation. 

Years of economic mismanagement, a failure to diversify from hydrocarbons, a shackled private sector, and an unwillingness to attract foreign investors has led Algeria to the brink of bankruptcy. 

The Covid-19 epidemic has only exacerbated the economy’s structural issues, highlighting the urgent need for diversification and foreign investment. 

The hydrocarbon sector is the backbone of the Algerian economy, representing approximately 95% of its merchandise export earnings, 60% of government budget revenues, and 30% of GDP. 

With the epidemic sending oil prices crashing, Algeria’s foreign reserves plummeted to $42 billion, down from $73 billion in April 2019, and $201 billion in 2013. While oil prices seem to be finally rising again, it is evident that Algeria can no longer rely on cyclical price movements of its prized commodity. 

Even if prices do continue to rise, Algeria needs the price of a barrel of oil to be $135.2 in 2021 to break-even according to the IMF, approximately $70 more than the current price of the OPEC basket. 

With foreign reserves at an all-time low, the Algerian government has had to limit imports of strategic goods - including food - to preserve cash, causing domestic prices to skyrocket. Facing imminent bankruptcy, the Algerian government has announced plans to initiate significant cuts in public spending, further alleviating the suffering of a population that relies heavily on government subsidies for employment, food, housing, and fuel. 

These policies will further revitalize the Hirak movement as they showcase that the general population, especially the youth whom approximately 30% are unemployed, stand to suffer first from the state’s economic mismanagement. 

Refusing IMF financing, due to a painful experience with international loans in the 1990s and ideology, the Algerian government has been compelled to initiate diversification efforts aimed at ameliorating business conditions and easing regulations to stimulate the economy and attract foreign investors.

The 49/51 Rule

Algeria’s 1600km of Mediterranean coastline, 8 million hectares of arable land, 43 million population, significant cultural sites, and proximity to Europe make it a promising market for development, specifically in the tourism and agricultural industries.

Yet, Algeria has long been considered one of the most onerous business environments in North Africa due to its sclerotic bureaucracy and stringent regulations.

Recognizing its ossified economy, the Algerian government has recently taken steps to ameliorate the country’s investment climate by repelling the infamous 49/51 rule, which previously limited foreign ownership of Algerian entities to 49%, forcing investors to establish joint ventures with Algerian companies. Foreign investors are now able to own up to 100% of Algerian entities, except for those in the “strategic sectors”, which include extractive and military industries, transportation infrastructure, ports and airports, as well as pharmaceuticals.

The Algerian Car Industry Fiasco 

While recent measures may alleviate investors’ concerns about the Algerian market, it is not the first time the government has attempted to attract foreign capital to develop local industries. One needs to look no further than the Algerian car industry fiasco. 

The Algerian car industry was born in 2014 when French automobile maker Renault established a factory in Oran. South Korea’s Hyundai and Germany’s Volkswagen followed suit in 2016 and 2017 respectively. The Algerian government provided significant tax and custom reductions, energy subsidies, and free real estate to attract the foreign automakers. In return, the corporations hired thousands of Algerians and promised to gradually increase their use of local inputs in vehicle production. The deal was lauded as exactly the type of economic initiative the Algerian government needed to reduce its dependence on hydrocarbons. 

By spring 2017, the industry was already mired in scandal after custom authorities discovered pre-assembled cars in Algerian ports. The foreign corporation’s attempt to bypass local production requirements was quickly met with ire from the government who labelled the tactic as disguised imports and immediately suspended all car production. The government went a step further and banned the importation of spare car parts and announced investigations into the companies’ practices in the country. 

By early 2020, the foreign automakers had already started fleeing the fledgling Algerian car industry, costing thousands of jobs. Big players in the industry were not spared in Hirak-initiated corruption trials, with two former industry ministers and many factory owners receiving lengthy sentences for corruption. 

In Conclusion

Algeria is running out of time. Parliamentary elections with the same cliques will not quell protests. Shoddy deals with foreign corporations will not stimulate the local economy and safeguard foreign reserves. The car industry fiasco not only highlights Algeria’s need for economic and political reform, but showcases that for the latter to be effective, the former must be addressed.