Photo: Wikimedia Commons
A precipitous fall in oil prices in the last seven months has led many oil-producing nations to reconsider their incredibly costly fuel subsidies, which drain government budgets and distort the economy. Yet Algeria, which relies on oil for most of its government revenue, has taken a different path: freezing public-sector hiring and investment while keeping its subsidies in place – a decision which may only increase its dependence on oil exports in the future.
On Christmas Eve of 2014, Algerian Prime Minister Abdelmalek Sellal announced that, in response to the drop in oil revenue and impending economic crisis, the administration would freeze public sector hiring and new state investment projects. However, the Prime Minister and other officials have insisted that, for the moment, fuel subsidies will remain in place, keeping domestic fuel prices at some of the lowest levels on the African continent – 25 cents per liter, or about 95 cents per gallon.
“The administration is making decisions based on the outlook of the global oil market and on Algeria’s middle- and long-term capacity to support an economy fueled by hydrocarbons,” said Slim Othmani, President of CIPE partner Cercle d’Action et de Réflexion autour de l’Entreprise (CARE), in a recent interview.
In other words, this approach will only deepen the country’s dependence on oil and gas revenues. Not only is this a gamble, it also misses an ideal political moment to recalibrate the fuel subsidies. The government could use the pressure of outside economic forces to make the argument for internal change, and the natural consequences of dropping oil prices could bring home the reasons for reform. Plus, cutting subsidies when fuel is cheap will make the process less painful to consumers.
A street in Algiers, capital of Algeria and the second largest city in the Maghreb region. (http://www.flickr.com/photos/tomtalib/4037850966/)
Algerian President Abdelaziz Bouteflika’s “war” against corruption has recently reached the republic’s largest oil company. Sonatrach is a national oil corporation that employs 125,000 people and accounts for 98 per cent of Algeria’s foreign currency receipts in a country where gas exports make up 30% of the GDP. Sonatrach’s CEO and top management team have reportedly been suspended and placed under investigation for claims concerning company tenders for consultancy and security contracts.
They’re all making strides in corporate governance. In the recent issue of Corporate Governance Trends, a quarterly CIPE publication, you’ll read about new tools for family-owned businesses in Lebanon to implement corporate governance, a private sector-driven initiative to create the Corporate Governance Code in Algeria, and a successful program in the Philippines using scorecards to rank companies’ corporate governance performance. Even in these uncertain times, CIPE partners continue to move forward in their efforts to create better business environments and promote good governance. With the global downturn on everyone’s mind, we’ve also included an interview with CIPE Executive Director John D. Sullivan about the importance of good governance as a response to the economic crisis. The publication is available in Arabic, French, and English.
Algeria has recently announced its decision to begin participating in the International Monetary Fund’s (IMF) General Data Dissemination System (GDDS). The GDDS was established by the IMF in 1997 and provides a framework to help countries develop their statistical systems. The Banque Centrale d’Algerie said that the decision was made in response to the need to improve transparency in data compilation and dissemination.
Participation in the GDDS will entail a major upgrade and overhaul in the management and communication systems used by the Algerian Ministry of Finance, national office of statistics and the central bank. These changes will be regularly monitored as comprehensive information on Algeria’s statistical production and dissemination practices will appear on the IMF’s Dissemination Standards Bulletin Board.
Algeria is the 95th country (and 1st among its neighbors) to participate the GDDS. Algeria’s decision to join the GDDS countries in building a national statistical system consistent with international practices is an important step towards advancing transparency and data compilation needed for economic policymaking and monitoring development progress.
President Bouteflika’s recent re-election highlights the need for meaningful reforms beyond the ballot box that can help Algeria address its security and demographic challenges. While the election results themselves were unsurprising, failure to deliver on election promises of stability and growth could have destabilizing consequences.
Although rich in hydrocarbons, Algeria’s economic prospects are threatened by weak institutions and the global economic crisis. One-third of Algeria’s population is comprised of those who are under 30 years of age. The public sector was already estimated as being incapable of absorbing many of these new job seekers. Declining oil prices are set to reduce public coffers and exacerbate this trend. Additionally, as the European economies contract, young Algerians will find fewer opportunities abroad, adding another layer to the government’s job conundrum. These challenges put a premium on boosting private entrepreneurship and small businesses as well as diversification outside the oil sector. However, for this to occur, the government will need to adopt more transparent and inclusive governance practices that create a level playing field for all entrepreneurs.
Corporate governance offers one avenue to ensure that businesses and governments act in a fair and transparent manner. By underscoring democratic values of fairness, transparency, accountability, and responsibility, good corporate practices can reduce opportunities and incentives for crony capitalism.
Abdelaziz Bouteflika’s victory of a 3rd presidential term at the Algerian elections held on April 9th was a surprise to no one. His re-“re-election” for another 5 years with a whopping 90 percent of the votes was even less surprising. After all, he has already ruled for two consecutive terms and his party and political supporters were the major driving force behind passing the constitutional amendment that abolished the two-term limit for a president of the republic. What is surprising, however, is the turnout rate released by the Algerian interior ministry, showing that 75 percent of Algerians cast their ballots this past week, compared to 58 percent turnout during the elections of 2004.
Political observers and analysts, and anyone familiar with Algerian politics, know that over the past decade Algerians’ participation in political or civil society in general has been very limited compared to the size of the population and the size of the country’s social and economic ills.
Following the suspension of the 1992 elections that led to a brutal civil war, scores of Algerian politicians, intellectuals, civil activists, and regular citizens who were involved in any aspect of public or civic matters were killed. The violence and fear scared many people away from participation in politics or civil society; not to mention the sluggish economy and high levels of unemployment and immigration to Europe and the Gulf countries.