Algeria’s risks are easing as newly-formed government pledges reform

Algeria is one of only two countries in North Africa – along with Libya – to have enjoyed amelioration in its ECR risk score in 2012, which has risen to 39.9 (out of 100). It means the sovereign has climbed six places in the world rankings this year, to 88th – trading places with Lebanon in the process – and by 13 places during the past two years. None of the main ratings agencies – Fitch, Moody’s or S&P – covers the sovereign, so ECR’s constantly updated survey provides an important guide to risk trends.

Source: ECR

The slightly improved risk profile – resulting from upgraded assessments of bank stability, monetary policy/currency stability, the employment/unemployment situation, institutional risk, government stability and hard infrastructure – has seen the country pull away from deteriorating Egypt and close in on Morocco and Tunisia, two other fallers in ECR’s survey this year. Its economy has received a boost from oil prices, leading to a wider trade surplus during the first half of 2012. Plus, a new government has finally been formed under prime minister Abdelmalek Sellal – a technocrat unaffiliated to any political party, but with close ties to the president – after disputed parliamentary elections in May. The government is vowing much-needed reforms, including a revised constitution. Still, a note of caution is warranted. As is typical of countries in the region, the scores for most economic, political and structural factors are low in comparison with advanced, industrialized economies. Moreover, as Kojo Amoo-Gottfried, analyst at FM Capital Partners and one of ECR’s survey participants, states: “The country has low debt, although its sole dependency on hydrocarbons is worrying.” Another one of ECR’s contributors, Mihoub Mezouaghi, an Economist at the Agence Française de Développement, states: “I don’t think that the formation of a new government will introduce something different. The political consensus remains the same and nothing should happen before the presidential election." "Probably, the situation will remain stable for 3 reasons : i) the opposition is divided and forceless; ii) the population is not ready for a revolution (because of the traumatism of the last two decades) and iii) the regime can redistribute the oil revenues to preserve a social peace and the security system remains strong." "But the social climate is structurally bad. We could observe some local tensions in some cities." "In the economic field, it’s too early to appreciate if the new government will adopt a more active policy."

This article was originally published in Euromoney Country Risk.