Algerian economy creaks at the seams after six months of turmoil

Dissent has continued since Bouteflika resigned in April. (Reuters)
Updated 27 August 2019

Algerian economy creaks at the seams after six months of turmoil

  • Thousands of jobs threatened as business tycoons detained
  • Talks between state energy firm and oil majors frozen

ALGIERS: On the face of it, Algeria’s state-dominated economy has weathered six months of turmoil well, with flightloads of public sector workers heading abroad for holidays even as protesters who ousted the veteran president in April now target his allies.
But business, and leisure, as usual for the North African country’s army of state employees masks a growing economic drama behind the standoff between political, business, labor and military elites and those determined to force them out.
The country’s rich oil and gas resources are still flowing, but thousands of jobs are on the line and growth is stuttering in an economy where official data shows one in four of the under-30s, who form 70 percent of the population, is unemployed.
The resignation of Abdelaziz Bouteflika in April was followed by the appointment of an interim president overseen by the military, and corruption investigations have been opened into some of those around the former leader.
Putting tycoons close to Bouteflika behind bars was a key demand of the protests. But while investigations drag on, five big firms across sectors from sugar to cars are almost paralyzed as their owners struggle to sign pay checks or orders to import materials because their bank accounts have been frozen.
Malik, one of 15,000 employees of detained businessman Ali Haddad, said he had just been sacked as a reporter for Dzayer TV. “The managers told me there is no more money,” he said, withholding his second name for fear of repercussions.
Haddad denies wrongdoing and the interim government says it will find ways to safeguard jobs, but after three months without pay, hundreds of his workers have joined tens of thousands of demonstrators who gather weekly in the capital Algiers.
Elections for a successor for Bouteflika have been postponed indefinitely, despite a dialogue between opposition parties and the non-party government managed by army chief Lt. Gen. Ahmed Gaed Salah.
To limit further dissent, the interim government has held back planned reforms, initiated toward the end of Bouteflika’s 20-year rule, to wind down subsidies, open the economy to investment and create jobs outside bloated public services.
An energy law to cut red tape is on hold and inside Algeria’s sprawling state energy company Sonatrach, which is hoping to boost production by linking up with oil majors, there is growing concern.
“Output is ongoing at Sonatrach, but everything else is completely frozen including talks with Exxon and Chevron,” a Sonatrach source told Reuters, declining to be named due to the delicate political situation. Exxon declined to comment and Chevron was not immediately available.
Any deal with a foreign firm is sensitive in Algeria and needs the support of a permanent president, not a caretaker: the source said it was not clear when the talks may restart.
“No visibility for the short term as politics not economics is at the top of the agenda for now,” the source said. The company spokesman was not immediately available for comment.
The country is a key gas supplier and security partner to Europe in a volatile region: Islamist militants are on the rise in West Africa and to the east, in Libya, two rival governments are fighting for control.
The government has given no growth forecast for this year, but Algiers University economics professor Abderrahmane Aya said the turmoil will cost this year’s GDP one percentage point of growth, which reached 2.3% in 2018, and could get much worse.
“No one can now imagine the magnitude of the economic problem,” he said.
Bouteflika’s fall came as authorities began trying to persuade citizens that a welfare state providing unproductive state jobs and guaranteeing cheap housing, petrol, food, drugs and free hospital treatment was no longer viable.
Oil and gas provide 94% of export earnings and 60% of the budget, but earnings fell 6.3% to $17.65 billion in Jan-June with rising energy consumption eating into gas exports.
Imports, averaging $50 billion a year, provide most of Algeria’s needs, legacy of a reluctance to allow foreign investment due to its 1954-62 independence war with France and once strong ties with the Soviet Union.
The trade deficit rose 12% in the first half of this year, customs data showed.
“Everything seems to indicate that we are going through a long period of economic uncertainty,” Abdelhak Lamiri, a former government economic adviser, wrote in the El Watan newspaper. “The government is not empowered to take strategic decisions.”
Houari Tigharsi, an economist and member of parliament’s finance committee, said investors were apprehensive and non-energy domestic production capacity was down 50 percent.
“If the crisis drags on, we will not only see a fall in growth but the economy will even face disaster,” he said.
Interim President Abdelkader Bensalah has resisted calls to quit from protesters who see him as symbol of the old regime. He says the only way out of the crisis is to hold elections “as soon as possible.”
Algeria had vowed to develop the car industry, but reduced quotas of car spare parts imports for private vehicle assemblies after the bill rose by a fifth to $1.234 billion in the first four months of this year. Importers get money in foreign currencies from state banks.
Foreign exchange reserves fell by $7.28 billion in the first four months to $72.6 billion. In 2014, when crude prices were at $100 a barrel, they were $178 billion.
Industry Minister Djamila Tamazirt told reporters the quota reductions were “transitional measures to adjust the balance of payments” and correct incentives aimed at the automotive sector.
Four private companies assembling cars are now cutting production, despite growing demand from the country’s 43 million people which may drive up prices of second-hand cars.
Family-owned firm Sovac, which runs an assembly plant with Germany’s Volkswagen, has suspended orders for this year. Sovac head Mourad Eulmi is being investigated for graft, which he denies.
Around 800 workers assembling vehicles under the Hyundai brand were given forced leave by their employer Tahkout Manufacturing in July due to lack of raw materials, according to state media.
While sectors like food, home appliances and mobile phones have been opened up to private companies, the non-energy sector grew by just 4% last year, up from 2.2% the year before.
Bureaucracy abounds and dominant state banks have little experience of commercial lending.
“We will need bank financing to expand our investment,” said Ziad Loucif, communication manager at Cuisinox, a private firm focused on kitchen equipment manufacturing, mainly for hotels. “We want the state to facilitate investment.”
Work on a 185-km (115-mile) railway line has stopped and some 200 employees were put on forced leave for a “lack of liquidity.” The project belonged to detained Bouteflika ally Haddad.
“The government is working to find legal solutions for these companies,” Finance Minister Mohamed Loukal told state news agency APS. “I can assure you that production tools and jobs at these companies will be safeguarded.”


NMC Health removes CEO amid investigation of UAE firm’s finances

Updated 27 February 2020

NMC Health removes CEO amid investigation of UAE firm’s finances

  • Chief Executive Prasanth Manghat was dismissed with immediate effect
  • Chief Operating Officer Michael Davis was appointed as interim CEO

NMC Health has removed Chief Executive Prasanth Manghat with immediate effect and granted its finance chief extended sick leave, as more details emerge from an investigation into the UAE health care firm’s finances.
Abu-Dhabi based NMC said after Wednesday’s market close that it had appointed Chief Operating Officer Michael Davis as interim CEO to succeed Manghat and said Chief Financial Officer Prashanth Shenoy had been placed on longer leave.
Manghat had been with NMC for about 10 years in various roles, including deputy CEO and CFO, and had seen the company through its 2012 listing on the London Stock Exchange.
The moves are the latest blow for the firm whose shares have lost about two thirds of their value since US-based short-seller Muddy Waters late last year questioned its financial statements.
NMC had said at the time that the report was “false and misleading,” but had opened its own investigation into company finances. The review is being led by Louis Freeh, who was director of the Federal Bureau of Investigation in the United States from 1993 to mid-2001.
NMC on Wednesday said the investigation committee had identified supply chain financing arrangements that were entered into by the company and “which are understood to have been used” by entities controlled by founder BR Shetty and former vice-chair Khaleefa Butti Omair Yousif Ahmed Al Muhairi.
Reuters was unable to reach Manghat, Shetty and Muhairi for comment outside business hours on NMC’s latest statement.
The company, which operates clinics and hospitals, specialized maternity and fertility clinics, and long-term care homes in 19 countries, said the committee was reviewing a drawdown of its facilities that had not been disclosed or approved by the board.
Its shares closed 6.6% higher before Wednesday’s statement.
NMC also said it had suspended a member of its treasury team over possible discrepancies in its bank statements and ledger entries, and said it would be unable to publish its annual results till at least the end of April.
Indian billionaire Shetty resigned as NMC’s co-chairman this month, after British regulators said they were looking into NMC following a disclosure that he had misstated the size of his stake.
Shetty had said this month that his NMC shareholdings were under a legal review looking into a large portion of his shares signed to two of NMC’s top investors in 2017, while some of his other stock had been pledged as security against loans.