Price riots spread across the country

Algeria has become the second country in North Africa, after Tunisia, to be hit by riots by youths protesting at economic privation. Rising commodity prices, high youth unemployment, and resentment at authoritarian rule and elite corruption have proved to be a combustible mix across this region. But whereas Tunisia has suffered owing to its economic integration with a struggling EU, which has contributed to a halving of its growth rate, the Algerian government's failure to make more effective use of a massive oil and gas windfall is one of the principal underlying causes of the recent unrest in its major cities.

One of the main flashpoints has been the Bab el-Oued neighbourhood of the capital, Algiers, the site of many similar popular protests in the past, mostly notably in October 1988 when several hundred people were killed in what turned out to a defining moment in the country's slide into civil war in the subsequent decade. El Watan, a local French-language daily, quoted one protester as saying that the "apparatchiks are skimming billions and getting rich off our backs. We no longer want this life of a dog." In Oran, a major city in western Algeria, youths protested in the downtown area, blocking it off by burning tires and setting up barricades. Police and drivers were attacked with stones and Le Quotidien d'Oran, a local paper, reported the looting of sacks of flour from a depot. Most merchants shut down in the early afternoon of Wednesday for fear of looting. By the evening, police in Oran said that the situation was under control. Rumours of a flour shortage run contrary to statements in late December from the director of the Office algérien interprofessional de céréales, the state grain buyers, that the country had sufficient wheat stocks to cover demand until the end of the first quarter of 2011.

A statement from the Ministry of Commerce in reply to the demands of the protesters to bring prices for sugar and cooking oil in particular under control, said that "mass consumption products would continue to be subsidised by the state". The office of the prime minister announced a series of measures on January 8th that will exempt some commodities from value-added tax (VAT) and import duties as a means of lowering prices. These policies aren't new in Algeria; prior to the Islamic holiday of Ramadan this year, the government set up an agency to control the importation of meat into the country and to monitor its distribution. Nevertheless, there was still serious criticism in the press and among Algerians of massive price rises during the holiday.

Issad Rebrab, the head of Cevital, one of Algeria's largest private companies and a major food distributor, warned of further increases on the global markets of both sugar and cooking oil prices. Mr Rebrab said that he would make a proposal to the government to discuss "fixing" the prices of commodities in the local market, while stressing that fluctuations were due to international price movements and not speculative opportunism by wholesalers and retailers.

Social unrest is not uncommon in Algeria but the intensity and geographic spread of these riots is significant. Strikes are relatively frequent and can seriously disrupt economic activity in the country. In early January dock workers at the Algiers port ended a strike after they were threatened with dismissal by the Algiers Port Company, according to a statement on Algérie Presse Service, the official news agency. In 2010 protests by steel, rail, dock and oil industry workers hampered activity in the country and demonstrated the strong leverage unions have over the government. In the past few years, Algeria has announced several economic policies that promote domestic production over foreign involvement in the economy, even if the use of local resources is more expensive.

Youth unemployment, particularly among university graduates, is a major concern in all countries of the Maghreb. According to Algeria's official statistics agency, total unemployment has come down from over 30% to 10% in the past decade, but one in five people in the 16-24 age group were unemployed as of end-September 2010, and 22% of graduates were out of work. The government is attempting to cut down on these numbers through a massive investment programme, with elements specifically aimed at increasing the skills base of the population. However, with Algeria's economy dominated by the hydrocarbons sector, which is capital-intensive but requires relatively little labour, there are few opportunities at present or likely in the medium term to address this job shortage.

The military elite's influence over the political process during the 1990s has largely been curbed by Mr Bouteflika, but the military retains the ability to challenge the president's policies. The cabinet reshuffle removed several ministers whose zeal for economic reform was not particularly effective. The president has, however, played a key part in the gradual transformation of Algeria since he came to power in 1999, notably by using the authority of his office to marginalise senior members of the military old guard, le pouvoir, who used to be the major powerbrokers in Algerian politics, and strengthen civil leadership.

Sporadic attacks by armed Islamists will remain a security concern for Algeria. A small, radical Islamist organisation, al-Qaida in the Islamic Maghreb (AQIM, previously known as the Groupe salafiste pour la prédication et le combat), continues to carry out attacks on the state, including assaults on the military, state representatives and the offices of foreign businesses. The government has launched new operations to eliminate militant groups and is co-operating with its regional partners to exert control over the large Sahara region in which much of AQIM operates. Security installations around foreign-owned operations and the capital, Algiers, have been strengthened. However, we do not expect the militants to pose a serious threat to political stability.

Succession will be the dominant risk to domestic political stability towards the end of the forecast period. At present it is unclear who will take over the leadership after Mr Bouteflika's current term expires or if the 73-year-old president will be well enough to complete his term in office. Mr Ouyahia is a likely candidate to succeed the president, but the possibility of Mr Bouteflika's brother, Said, taking a larger role seems to have increased recently as he is reported to be the head of a new political party. Civil unrest is likely to moderate towards the end of the forecast period as living standards in Algeria improve and the country opens up to greater economic and political integration with its European and regional partners.