Algerians have voted in their election and a new government will be taking shape in coming days. While there is likely to be continuity in leadership, the country is at a crossroads with regard to its dependence on fossil fuels as a spur for economic growth. With Africa’s second largest oil and gas reserves (after Nigeria) and the third largest “technically recoverable” shale gas reserves in the world, the country might continue with a fuel export economy for the next few decades. Yet, to prevent the “resource curse” from taking hold, the country’s leadership will need to rapidly expand and diversify its manufacturing and service sector economies.
The war in Ukraine has given the Algerian gas industry an additional boost as Europe is now more reliant on non-Russian gas and the closest source to its markets are north African fields. The country accounts for at least 10% of Europe’s gas consumption. While the gas fields are currently constrained by infrastructure capacity, Algeria has a vast infrastructure of pipelines internally as well as three which cross the Mediterranean to Europe. The country has also invested in state-of-the-art Liquefied Natural Gas export facilities. Europeans are thus invested in keeping the country politically stable as a reliable source of gas which remains essential as a source of baseload power for the continent.
The good news is that Algeria is also investing heavily in renewable energy sources, which could eventually allow for dispatchable solar electricity being exported to Europe. While the natural gas will run out in a few decades, the sun will continue to shine in Algeria for millennia to come. No wonder it is noted as the most promising locale for the Desertec Foundation’s efforts at developing energy infrastructure in arid areas. Solar energy infrastructure can also be a mechanism for diplomacy to play a role in improving trust between China and Europe via Algeria. Chinese firms have dominated the auction for up to 2GW of solar power generation capacity development in Algeria. This investment can be a good-faith collaboration towards decarbonization on the one hand while supporting energy security in Europe.
Diplomatic capital will also need to be expended in improving Algeria’s relations with its neighbor Morocco, which has a far more diversified economy. The Maghreb-Europe pipeline that flows from Algeria through Morrocco to Spain has been closed for transit since 2021 due to diplomatic tensions between the two countries. Recently, there is also further concern that the MedGaz pipeline could also fall prey to Algerian-Moroccan tensions over the disputed territory of Western Sahara (which used to be a Spanish colony). The Arab League, and particularly the UAE could play an important mediating role backed by the European Union in resolving the conflict which now appears to be favoring the current Moroccan status quo.
Algeria and Morrocco could benefit enormously from improved relations which could be further galvanized by environmental diplomacy. Both countries have much to gain by more integrated energy infrastructure as well as trade. Morrocco has a highly developed service sector, particularly tourism. Algeria still has onerous visa policies which prevent tourism from flourishing despite being home to seven UNESCO World Heritage sites. The comfortable revenues from oil and gas exports have mitigated incentives for diversification in the service sector. Morrocco also has a major extractive economy around phosphates (accounting for around 70% of global reserves). In addition to their use in fertilizers, phosphates are also needed for the green transition because of the growth of lithium iron phosphate batteries.
The election in Algeria can be the dawn of a new era of economic and political renewal if the leadership can see the opportunities of diversifying their economy. The World Bank has noted in its July 2024 income classification report that the country has moved from “lower middle-income” to “upper middle-income.” While much of this has been attributed to improved statistics, there is cautious optimism around the country’s development trajectory if environmental and social concerns are addressed. As Africa’s largest country by area, as well as a powerhouse of renewable energy, Algeria must be on the forefront of global conversations about the Green Transition.
