North Africa, West Asia

A toxic dependency: Algeria’s love-hate relationship with its oil

This year's 41st anniversary, celebrated two weeks ago, has been marked in particularly gloomy fashion. Reports have recently emerged floating the prospect of oil reserves drying up and arguing that new discoveries are failing to keep pace with production. This might well turn out to be the best news of all.

Hicham Yezza
12 March 2013

As every Algerian school kid knows, Algeria regained its independence - wrenched out of revolutionary blood and toil after a colonial night lasting 132 years - on July 5, 1962. However, it could be argued that full independence was not truly achieved for another decade; to be precise, not until February 24, 1972, when then-president Houari Boumediene got up to address an assembly of trade unionists and proceeded to announce to the nation, and the world, that the country's oil and gas resources had been nationalised.

The moment was pivotal, and the message a resoundingly unequivocal one: Algeria's resources belonged to Algerians, and the days when western firms would make a mint out of the country’s natural riches, leaving the locals to pick up the crumbs, were over. The era was still one of revolutionary euphoria; the talk then was of leveraging the country’s oil wealth to bring about an industrial revolution. Factories would be built, exports would boom, lasting prosperity for all was within reach.

Of course, things did not pan out quite as promised. The reasons are too numerous to examine here, but the usual suspects all played their part: economic mismanagement, oil crashes, political myopia, and good old fashioned greed and corruption. Year after year, as the slogans grew more hollow, the reality on the ground became grimmer. The rising incomes of the 1970s and early 80s gave way, in the wake of the 1986 oil crash, to a collapse in consumer purchasing power and a country on its knees with debt. 

By 1992, the IMF was at the door, a prescription for shock doctrine treatment in hand. Most Algerians couldn't fathom how things could have come to this. How could a country with one of the world’s largest oil and gas reserves, perched at the gates of the European markets and blessed with a young, relatively small population find itself on the verge of bankruptcy, more reliant on the geological accident beneath its ground than ever?

Today, despite oil-producing countries having enjoyed a relatively ‘good decade’, Algeria’s relationship with its oil wealth continues to be one of intense, unspoken unease. Not only is such wealth largely unearned, it has become a symbol, and reminder, of everything that is wrong with the country: the political failures, the warped economic priorities, and the rampant consumerist culture they have produced. Four decades after nationalisation, oil and gas export revenues continue to represent around 97% of Algeria's national income, a frightening and toxic dependency which, despite half a century of ‘beyond oil’ rhetoric from successive governments, remains a sword of Damocles hanging above the country’s economic future.

Of course, the annual commemorations of that glorious February day continue, but - as the event recedes into the collective past – the celebrations have grown more formulaic and ‘by-the-numbers’ with every passing year. This year's 41st anniversary, celebrated two weeks ago, have been marked in particularly gloomy fashion, with official coverage barely summoning the energy to go through the usual motions and rituals, serving up the same archival footage of the historic announcement interspersed with half-hearted, meandering speechifying.

And no wonder! For most Algerians, this is not a particularly auspicious time to be talking about oil. The In Amenas hostage crisis, which took place two months ago this week, was the first significant attack against the country's strategic energy infrastructure since independence – and has left in its wake a cloud of anxiety and apprehension over the security and resilience of the country's economic lifeline. Another, potentially bigger crisis has since erupted, almost coinciding with the anniversary. A gigantic scandal, dubbed ‘Affaire Sonatrach II’ (named after the country’s state oil company, already subject of a first scandal three years ago) has been gripping the nation these past three weeks. The details are dependably murky but the general theme is easy enough to adumbrate: an on-going Italian corruption enquiry has uncovered what seems to be evidence of a large nexus of bribes, baksheesh and favours involving the granting of Algerian state oil (and other) contracts to Canadian and Italian companies, and implicating a network of obscure, and less obscure, protagonists (including a US-based former Algerian energy minister, and the Canada-based flamboyant nephew of a former justice minister).

As corruption scandals go, this might sound rather tepid, except that it’s to do with the state oil company, and Algerians, no matter how cynical they claim to be about the rottenness at the top, nevertheless do not enjoy having shenanigans they merely suspected of taking place being thrust into their faces, especially when these scandals involve what is, nominally, a public resource; everyone is a stakeholder. As one journalist put it “L’affaire Sonatrach” is about more than corruption: “it’s a crime against a whole country, its people, its history, its martyrs who gave their blood, their lives so that Algeria can regain its dignity, not for a band of predators to squander its riches and bring it to its knees”.

Of course, grumblings about dilapidated oil revenues are not confined to episodic scandals. However, these do tend to act as focal points for the disparate grievances of the vast swathes of the population who feel disenfranchised and cut-off from the economic bonanza of the past decade. As the country’s foreign reserves zoom towards the 200 billion dollar mark, social unrest is fast reaching fever pitch, with hundreds of strikes, protests and sit-ins being recorded in the past six months alone.

Still, the current scandal, whatever its outcomes, will not change the fundamental issue at the heart of Algeria’s unhealthy relationship with its oil and gas wealth. Reports have recently emerged floating the prospect of oil reserves drying up and arguing that new discoveries are failing to keep pace with production. For a country that has struggled for so long to secure a sustainable, lasting prosperity beyond its toxic dependency on oil, this might well turn out to be the best news of all.

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