Algeria – a country with a role on the world stage?

Written by Stuart Poole-Robb, CEO, KCS Group Europe

The 31st session of the Arab League Summit has been taking place in Algeria, chaired by the country’s President, Abdelmadjid Tebboune. The country is trying to assert itself as a regional leader with a role to play on the world stage.

KCS Group Europe has been analysing the strategic risks for investors of the host country.

In Algeria – largely absent from Arab affairs for several years following the 2019 mass protests that led to the ousting of President Bouteflika – the meeting has been portrayed as a mark of its return to frontline diplomacy. According to KCSGE, the country sees itself as a major player in regional geopolitics.

President Tebboune has recently held talks with the leaders of France and Germany and convened a meeting between Palestinian factions in an attempt to end discord.

At a government military parade held In July 2022, to mark 60 years of independence from France, Tebboune assumed the role of international power broker to orchestrate a photo op of Palestinian President, Mahmoud Abbas, and his arch-rival, head of Hamas’ politburo, Ismail Haniya, shaking hands.

But Algeria has its own diplomatic problems. During the summer of this year, a bitter feud with Morocco over Western Sahara spilt over to damage relations with Spain after that country indicated it would support autonomy for WS.

Ending a 20-year-old co-operation pact with Madrid, Algeria reacted by banning foreign trade products and services from Spain in June 2022, which had followed policies to ban Spanish imports and suspend co-operation in controlling migration flows across the Mediterranean Sea. Although the flow of trade and direct debit payments between Algeria and Spain resumed as of August 2022, diplomatic tension over Western Sahara remains.

 

ECONOMY

As part of the scramble to find alternative energy suppliers to Russia, Algeria has become of greater interest to foreign governments and businesses. As with every other country, Algeria faces pressure to open up economically from a decade of deflated oil prices and the Covid pandemic.

KCSGE points to concerns over Algeria’s relationship with non-Western partners. Russia has been known to buy up oilfields in Africa and the Middle East to thwart European states looking to circumvent its pipelines. The fact that Gazprom, the Russian state-owned energy giant, is planning to build the El Assel gas field in East Algeria from 2025 only strengthens the view that Moscow is making long term plans in the region.

Nor does Algeria’s relationship with China do much to alleviate Western concerns about business in the area. Considered one of Algeria’s ‘friendly countries’, China could well step in to support future Algerian projects – thus replacing the despised IMF or other foreign bank loans that put Algeria into debt in the 1990s. China is already involved with past Algerian infrastructure projects.

One of these, the East-West Highway, was a US $7 billion contract awarded to the Chinese consortium CITIC-CRCC (among others), one of approximately 1,000 Chinese companies operating in Algeria as of 2020.

 

KCSGE has previously cautioned about the expansion of the BRICS trading bloc, dominated by China. The BRICS group is composed of Brazil, Russia, India, China and South Africa. Beijing and Moscow cast it as a powerful emerging market alternative to the G7.

In September 2022 China’s Foreign Minister welcomed Algeria’s request to join BRICS + and was also quoted as saying Beijing supported Algeria’s effort to make the Arab League Summit a success.

Algeria has been actively looking for new economic and political alliances to replace its 2005 Association Agreement with the European Union, which it considers a “failed bet.”

These diplomatic interactions also highlight Algeria’s economic overdependence on oil and gas. As part of a US $58 billion sector making up 95% of the country’s total exports, Algeria’s oil and gas sector, spearheaded by the state-owned oil company Sonatrach, continues to dictate the country’s economic environment.

 

Recognising efforts across EU member states to decrease reliance on Russian oil and gas, Algeria is likely to use its energy exports as a weapon to maximise profits and further its geopolitical strategy.

Yet, under pressure to rebuild the country’s economy post-pandemic, Algeria has made moves to facilitate a programme of economic expansion beyond energy exports. For example, in 2020, the government relaxed a law previously requiring foreign investors or companies to have an Algerian partner and it is now only enforced in strategic sectors – the military, oil and gas, and certain infrastructure projects.

The recent moves are aimed at diversifying the economy. New measures also include cash incentives for non-oil exporters. A former government minister is quoted as saying the state is in a race against time to secure revenues away from oil and gas before prices are crushed again.

President Tebboune has pledged to set up free zones and change customs regulations to make it attractive for foreign investors. And to further boost exports, the government has offered tax exemptions and help with transport costs.

But the path to a brighter Algerian economy may be overshadowed by a backward business environment and corruption remains one of the foremost problems for foreign companies. Furthermore, local administration is weak, government bureaucracy is inefficient and opaque, and the judiciary is vulnerable to political influence.

 

For all its problems, some Western businesses, from professional service firms to technology companies and multinationals, have been operating in the country without major issues. However, the Algerian government will want to take advantage of what is going on geopolitically to assert itself in the region.

This creates an uncertain environment in which to operate and will require companies to conduct thorough due diligence on all future business operations.

KCS Group Europe has over three decades of experience in providing intelligence and due diligence to financial institutions.

 

About Editor 2434 Articles
Lisa Baker is the Editor of International Business News. As the Owner of Need to See IT Publishing, Lisa is an experienced business and technology journalist and publisher.