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Algeria Uses Gas Sales to Replenish Cash Reserves Amid Economic Crisis

Despite the economic hardship of the Algerian people, the country’s ruling elite is hesitant to spend the foreign cash flowing into state coffers.

June 20, 2022

Rabat - A return to high gas prices has brought significant new foreign currency flows to Algeria, but citizens have seen little relief as a result.

Algeria and its state-owned hydrocarbon company Sonatrach are once again seeing significant gas revenues flowing into the country because of a significant rise in global gas prices. As hydrocarbon exports account for 94% of Algeria’s exports, Algeria has seen its foreign currency reserves diminish markedly every year since the 2014 drop in gas prices.

Despite the recent uptick in global prices, Algeria appeared unprepared for the sudden increase in demand for its main export product. Years of lacking investment in its primary industry, and the vital infrastructure that supports it, meant the country is rapidly playing catch-up to ensure the production levels that its customers expect.

Politically-driven decisions

Algeria’s opportunity to finally cash in after years of relatively low gas prices was further hampered by politically-driven decision-making. The country’s regime decided to not renew a long-term contract that sent gas through Morocco to Spain, reducing the country’s ability to export to gas-hungry Europe.

Meanwhile the country’s leadership continues to favor its Russian ally over its European customers while continuing to use foreign policy as a means to project strength to domestic audiences. The country is now embroiled in a diplomatic stand-off with both Spain and Morocco over its increasingly isolated stance on the Western Sahara dispute.

Read also: Gas Supply: NATO Considers Algeria 'Security Risk' for Europe

While Algeria’s leadership has played politics with its hydrocarbon resources, Algerians have seen their spending power fall, newspapers shutter, and food prices rise along with inflation.

Algiers has long depended on its gas riches to provide subsidies and grants to its people whenever public discontent rose. Currently however, the country’s elite appears focused on replenishing its reserves, and preparing for future crises instead of addressing current economic hardships.

It appears that the country’s pseudo-military elite expects that its current political theater and incriminations towards its perceived traditional foes are sufficient to keep a restless population under control. Algiers seems content with the results of its crackdown on dissent and press freedom, and its efforts to keep the domestic Hirak (anti-establishment “movement”) in an artificial coma.

A risky strategy

Algeria’s current strategy appears to be a risky gambit.

Algeria desperately needs foreign cash to be able to diversify its economy, build reserves for the coming difficult years, and find structural solutions to its lingering structural economic issues.

Yet it remains to be seen whether the current strategy is focusing on such structural issues, or is merely oriented toward building a piggy bank of funds that can be deployed whenever domestic unrest reaches a fever pitch in the future.

The aging elite that rules Algeria has shown little ability to produce innovative new solutions to structural issues, and few expect a drastic change in the country’s economic approach. If Algiers is indeed simply building reserves to later splurge on short-term fixes, the country is likely to continue its ongoing economic crisis, with few solutions at hand.

While Algerian leadership appears focused on the future in terms of building up reserves, it appears that the unwillingness to spend its newfound riches directly conflicts with domestic demands to combat growing unemployment, poverty and declining living standards.

If public discontent in Algeria again reaches the same heights as in 2019, the country’s rulers will likely not be able to spend their reserves fast enough to appease angry protestors.

With limited options on the table, Algeria’s regime unfortunately appears confident that repression and the silencing of critics is enough to keep control over the country while the people continue to suffer.