Algeria: The Political Economy of Oil and Gas

Article excerpt

Algeria: The Political Economy of Oil and Gas, by Ali Aissaoui. New York and Oxford, UK: Oxford University Press, 2001. xxiv +293 pages. Tables. Figures. Abbrevs. Chron. Refs. to p. 303. Index to p. 312. BP 29.50.

Reviewed by Bradford Dillman

This book examines changes in Algeria's oil and gas policies since independence and the dominant impact of the hydrocarbon sector on Algeria's economic development. Ali Aissaoui analyzes the constraints on policymakers from the international economy and from the structure of the oil and gas industry. He argues that the struggle for power and patronage in Algeria has revolved around hydrocarbons policies shaped by the interaction of government institutions, international oil companies, and Sonatrach, the national oil giant. Algeria has faced many setbacks in its efforts to "sow the petroleum." After more than a decade of violence and economic hardship, the government faces a daunting task in trying to reduce dependence on hydrocarbons and balance the budget while at the same time rebuilding a shattered social infrastructure.

Since 1962, Algeria's dependence on hydrocarbon rent has dramatically increased. The hydrocarbon sector now accounts for 95% of exports, 60% of government revenues, and 30% of GDP (gross domestic product). High rents enabled President Houari Boumedienne to pursue a capital-intensive development strategy that President Chadli Benjedid partly reformed before a steep drop in international oil prices in 1985 unleashed latent socio-political conflicts. The recovery of oil prices in 1999 helped newly-elected President Abdelaziz Bouteflika accelerate political and economic reforms, but his efforts to restructure dramatically Sonatrach and liberalize the hydrocarbon sector face staunch resistance.

Backed up with copious data, Aissaoui analyzes the kinds of structural constraints policy makers in Algeria face. In so doing, he helps explain why Algeria's ideological and nationalistic approach to economic policy, when flying in the face of structural limits, has often meant lost opportunities, delayed reforms, and huge economic penalties. Despite many policy successes, Algeria has faced challenges from changes in the international oil industry and the global political economy. It is clear that adapting to these changes often requires large, risky investments over many years.

Following nationalization of French oil and gas interests in 1971, restrictions on international oil companies and Sonatrach's "do-it-alone" strategy led to low exploration returns in the 1970s. A political battle in the early 1980s over gas pricing and production, combined with lower US gas demand and competition in Western Europe from Soviet exports, resulted in Algeria's loss of global market share. The government spent most of the 1990s changing laws to attract foreign investment (especially in gas exploration and enhanced oil recovery), to bolster long-term revenues, and to diversify customers. …