Algerian protesters win historic victory — but massive challenges remain

CNBC, by Natasha Turak

Algeria’s longtime president has conceded to popular demands to abandon his re-election bid after three weeks of massive protests rocked the North African country of 41 million.

But a giant question mark now hangs over what happens next, leaving Algerians and investors alike  particularly those in the oil and gas sector mired in uncertainty.

“There will be no fifth term,” a statement from 82-year-old President Abdelaziz Bouteflika, who is in his 20th year in power but has rarely been seen in public since suffering a stroke in 2013, said on Monday.

Silent throughout the Arab Spring, Africa’s largest country and third-largest oil producer erupted in protest in late February after its ageing president announced his fifth re-election bid. The protests, leaderless and largely peaceful, represented a wide cross-section of society including students, teachers, lawyers, and the working class.

“There was never any question of it for me,” the president’s statement continued. “Given my state of health and age, my last duty towards the Algerian people was always contributing to the foundation of a new Republic.”

Algeria’s general election, scheduled for April 18, has now been postponed. But demonstrations continued this week in Algerian cities as protesters read Bouteflika’s concession as simply a maneuver to prolong his presidency.

Economic reforms needed as uncertainty reigns

Bouteflika’s decision, a stark difference from the heavy-handed reactions of most Arab leaders toward protest movements during the Arab Spring eight years ago, marks a historic victory for Algeria’s demonstrators, who counted at more than a million across the country by some reports.

The protesters’ … calls for inclusive government and an end to corruption have become increasingly strident and we do not expect the timeline and terms of transition that have now been laid out to satisfy them.

But uncertainty remains high, as the president’s concession does not guarantee reforms, a timetable for new elections or policy changes designed to expand oil and gas investment opportunities for international companies.

“Wide-ranging reforms would still be needed to significantly improve Algeria’s long-run prospects,” Jason Tuvey, senior emerging markets economist at Capital Economics, said in a research report Tuesday, while warning that reforms may go against the vested interests of those in power.

“Efforts to improve the business environment and clamp down on corruption would need to be front and center of any reform package.”

Oil and gas sector remains vulnerable

“The oil and gas sector will not be immune to operational disruption as a result of protest action,” Anthony Skinner, MENA director at risk consultancy Verisk Maplecroft, said in a report Tuesday, describing pictures on social media of the employees of national oil company (NOC) Sonatrach protesting in certain towns and at a major gas complex called Oued Ezzine.

“This dynamic will probably spread among the NOC’s estimated 120,000 employees should le pouvoir (the governing elite) refuse to make sufficiently large concessions, thereby frustrating joint venture operations with IOCs (international oil companies).”

A video grab taken from footage broadcast by Algeria’s ‘Canal Algerie’ on March 11, 2019 shows Algerian President Abdelaziz Bouteflika (R) meeting with Algeria’s army chief, Ahmed Gaid Salah in the capital Algiers. ‘Peacefully, we have overthrown the puppet!’ people sang in Algiers following the president’s decision.

Oil and gas revenues make up more than 95 percent of Algeria’s export earnings, and it has the 10th largest natural gas reserves in the world. Its proven crude reserves sit at 12.2 billion barrels, the third-largest in Africa, while it produces about 1.05 million barrels per day (bpd), a number analysts say is lower than its potential due to under-investment.

So there’s a dire need for reforms focused on “attracting more investment from IOCs to expand hydrocarbon production and export earnings, ” Verisk Maplecroft said.

Sonatrach estimates some two-thirds of Algeria’s territory remains underexplored or unexplored. In 2018, oil majors Exxon and Eni signed contracts to explore its offshore areas. But heavy red tape, lack of transparency and a high tax on foreign companies’ profits have put off investors for the past several years.

Algeria’s government has been in the process of drafting a new, more investor-friendly Hydrocarbons Law that was expected to go through parliament after the now-postponed April 18 elections.

But “the prospect of protracted political turmoil,” Skinner said, “means that the adoption of a draft Hydrocarbon Law with new incentives to encourage exploration and production will be placed on the backburner. ”

As for the immediate future, a transitional government will be established to rule Algeria through 2019 and oversee later elections, though details on this remain vague. Analysts warn that the protesters may not be satisfied with the lack of offers of concrete solutions to their demands.

“The protesters’ rallying cry until yesterday was for Bouteflika to withdraw his candidacy,” Skinner wrote. “However, calls for inclusive government and an end to corruption have become increasingly strident and we do not expect the timeline and terms of transition that have now been laid out to satisfy them.”