Does Algeria’s oil boom signal a return to social peace?

By Rania Hamdi
Posted on Monday, 28 March 2022 10:40

The Hassi Messaoud oil field (central Algeria), operated by Sonatrach. © J-F ROLLINGER/ONLY WORLD via AFP.

Although inflation on basic foodstuffs remains high, the oil windfall once again offers a breath of fresh air to Algeria’s presidency.

Algeria had not experienced such a windfall since Abdelaziz Bouteflika’s third term. In 2008, the average price of a barrel of oil reached a record $147. This was driven by several factors, including tensions in the Middle East, a drop in the value of the dollar and unprecedented growth rates in China. For many years, this influx of liquidity allowed the then government to absorb social tensions like a sponge.

As a direct result of the Russian-led war in Ukraine, oil prices broke through the $100 a barrel mark again in March. After peaking at $123.70 on 8 March, black gold was trading at $110 a barrel on 22 March. Is this enough to allow Algeria to resume a more generous social policy?

Room for manoeuvre

“This increase will certainly have a positive impact on public finances. If it continues, the increase in oil taxation will lead to a rise in budgetary revenues. The latter are normally able to adjust to the current level of public spending, which includes nearly 20% of the operating budget for social transfers,” Brahim Guendouzi, professor of economics, told us.

Also, according to him, we should therefore expect that the state will continue to devote the same amount of financial resources to the fragile and average social strata.

“This favourable situation for hydrocarbon exports, both in quantity and in relation to prices, gives the executive room for manoeuvre in order to keep intact the economic and social balances, which were weakened by inflationary tension in 2021.”

Given that the country began the year with a dizzying increase in consumer prices which forced President Abdelmadjid Tebboune to suspend the application of new taxes and levies provided for in the finance law in mid-February, the rise in the price of oil represents a lifeline. At the same time, salaries have increased by between 14% and 16% as a result of the reduction in income tax (IRG), which has been applied since the beginning of the year.

At the beginning of March, the government continued its efforts by introducing an unemployment allowance of 13,000KD (nearly €82) for first-time jobseekers aged between 19 and 40, which also gives the right to social security coverage – 800,000 people are entitled to this allowance, according to the director-general of the National Employment Agency Abdelkader Djaber.

According to Tebboune, these expenses are provided for in the 2022 finance law. Although the authorities have already taken several measures to calm the social front, this policy’s effect on purchasing power has not yet been quantified.

Targeting the poorest

Can we expect further measures this year? The social arbitrations to come will affect more “the subsidy system, whose form is likely to change, social housing and the creation of new jobs for young people,” says Guendouzi. “Other actions may be launched within the framework of the 2022 complementary finance law, which is expected at the end of this semester.” However, financing this social policy raises the question of whether Algeria is capable of implementing it in the long term.

“As long as there is oil rent, short-term social tensions are artificially mitigated thanks to hydrocarbon revenues. These allowed subsidies and social transfers representing 23.7% of the general state budget and 9.4% of GDP for the year 2021. But given that they are poorly managed and targeted, these measures do not always benefit the poorest,” says economist Abderrahmane Mebtoul.

“Let us hope that with the increase in hydrocarbon revenues, Algeria will not repeat the mistakes of the past. These revenues must be devoted to sectors that directly boost development and indirectly the education and health sectors,” says the specialist.

Collapse in the value of wages

For the time being, the country is nevertheless facing emergencies that it must address, according to a source within the presidency.

The first is inflation – which is weighing heavily on households, particularly small and medium-sized businesses – while the upward trend, observed from the beginning of the first quarter of 2021, has not slowed down. The price of certain foodstuffs has sometimes more than doubled, such as pasta, milk, oil, vegetables, fruit and meat. There are also recurrent shortages of table oil and semolina, which form the basis of the local diet. A comparative study by the Consumers’ Association between average prices in 2010 and today shows that Algerians’ wages have lost 50% of their value due to rising prices.

“If financial resources permit,” says our same source, “the government will continue its social support policy.” From a sociological standpoint, mostly students, the unemployed and low-income families took part in the Hirak. Furthermore, youth malaise and frustration gave rise to feelings of anger against the political system in March 2019.

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