COUNTRY NAME: People’s Democratic Republic of Algeria
LAND AREA: 2,4 million km2
POPULATION: 35 million (2010 est.)
LANGUAGE: Arabic (official), French (commercial)
CURRENCY: 1 Algerian Dinar (DZD) = 100 Santeem
1 EUR = 100 DZD (Nov. 2010)
MAIN CITIES: Algiers (Capital), Oran, Constantine, Annaba, Setif
NATIONAL DAY: 1 November – Revolution Day
TIME ZONE: Standard Time is GMT + 1
Algeria is a gateway between Africa and Europe; the Sahara desert which covers more than fourfifths of its land. Algeria is a large country with substantial mineral resources, but limited fertile land. Its population is around 34 million, making it the second-most populous country in North Africa after Egypt. It is classified as a lower-middleincome country, with a GDP per head of just over $8,000 (measured using purchasing power parity— PPP—exchange rates) in 2008, slightly above the average for North Africa.
Algeria has emerged from a decade of debilitating civil war in the early 2000s. During the confl ict, when the country was mostly isolated from the rest of the world, the economy was supported by the hydrocarbons sector, which, insulated from the violence, managed to attract considerable foreign investment. The high oil prices in recent years have helped improve Algeria’s fi nancial and macroeconomic indicators. Algeria has decreased its external debt to less than 5% of GDP after repaying its Paris Club and London Club debt in 2006. Algeria’s real GDP also has risen due to higher oil output and increased government spending. Foreign trade and most non-energy prices have been liberalized and private sector activity has been on an upward trend. However, exports have barely diversified away from the volatile hydrocarbon sector. The government will continue to rely primarily on public investment to achieve its aims of creating jobs, improving the provision of housing and utilities and developing nonhydrocarbons industry and the service sector. Actual capital spending has increased signifi cantly over the past few years, and the government plans to maintain this momentum though implementing a US$150bn development programme for 2009-13. Vested interests continue to obstruct economic diversifi cation in many areas of the economy, such as import concessions, publicsector firms and the state-owned oil and gas company “Sonatrach”.
The hydrocarbons sector is the backbone of the economy, accounting for roughly 60% of budget revenues, 30% of GDP, and over 95% of export earnings. Algeria also has the eighth-largest reserves of natural gas in the world and is the fourth-largest gas exporter; it ranks 15th in oil reserves. Algeria’s deposits of gold, uranium, zinc, iron and other minerals are also substantial. However, the dominant position of the hydrocarbons sector makes the Algerian economy highly sensitive to fluctuations in international oil prices and in output.
Population & Labour Market
Over the past two decades, Algeria, like most of the countries in the Middle East and North Africa, has experienced a rapid increase in population that has left the country with a very young demographic profile. This means that for the next 15 years or so, the working-age population will grow at a higher rate than the overall population. The EIU forecasts that average working-age population growth rate will be 2.2% in 2009-13. However, the proportion of Algerians in the 0-14 age bracket is starting to fall, which will result in a slowdown in the rate of growth of the working age population compared with the previous five years. With regards to unemployment, official figures indicate that unemployment has fallen significantly since the start of the current decade, suggesting that the surge in government investment, which was initiated in 2002 and which is set to accelerate over the forecast period, may have had a positive impact. The unemployment rate at end-December 2008 was offi cially estimated at 11.3%, compared with 11.8% 12 months earlier and almost 30% at the start of the decade.
Economic Reforms & Liberalisation
During the last three decades, Algeria began with a strategic plan to diversify its economy and sources of income. However, for most of the 1990s the country suffered from severe political and economic diffi culties, and the liberalization process and economic reforms was resumed after President Abdelaziz Bouteflika’s re-election for a third term in April 2009. Algeria is now is undertaken various reforms to shift the economy from a planned to a market economy. Algeria has courageously over the past decade attempted to modernize its financial system despite challenges posed by the large hydrocarbon sector. Privatization of state-owned industries provides signifi cant transaction and advisory opportunities for investment banks and professional service fi rms. Algeria’s more stable macroeconomic framework and fi nancial balances have helped to implement the reforms. The government is moving steadily to open up the fi nancial sector to foreign investors. The banking sector is set to be reformed gradually, but the process is likely to be haphazard. With regards to tax, the International Monetary Fund (IMF) is offering helpful advice on economic policy and recent progress made towards strengthening tax administration and simplifying the tax system has been welcomed by the Fund. Over the last decade, Algeria has initiated important reforms towards reducing exemptions, improving VAT design, and eliminating the turnover tax. The IMF has stressed the need for sustained further implementation of financial sector reforms to improving the business climate and enhancing private-sector led growth. The IMF recommended the strengthening the role of private banks, and improvements of the country bank governance and risk management. Algeria banking system is now progressively transitioning to get to par with that of the rest of the world although commercial banking and insurance sectors in Algeria remain underdeveloped.
Algeria is running substantial trade surpluses and building up record foreign exchange reserves. Sharp rises in crude oil prices few years ago have pushed up total export earnings dramatically in recent years. In 2008 export revenue rose by one-third year on year to $78.2bn. However, the trade surplus increased by only 14% to $39.1bn, as buoyant domestic demand boosted imports. The bulk of Algeria’s foreign trade is oil exports to the US and gas exports to the European Union, while most imports originate in the EU, a pattern that will be remain during the following years. Algeria has a free trade agreement with the EU and is seeking to expand its trading relations with the UK and other EU member states beyond its traditional trading partner, France.
Investment prospects shows that the largest share of opportunities will continue to be concentrated in the hydrocarbons sector—both upstream and downstream— which is better managed than other areas of the economy and more receptive to foreign involvement. The final amendments to the hydrocarbons law have recently been passed, which at least broadly clarifies the terms that foreign investment in this sector will face over the following few years. Other openings for investors in utilities, including power and water management, housing, construction and telecommunications is also expected to continue to expand, leading to more broad-based growth opportunities in the few years to come, despite the government’s recent changes in policy that limit the share that foreign investors can hold in joint ventures. Greenfield investments, which can be wholly owned, will remain an attractive opportunity. Moreover, provided investors are prepared to be patient, they will often be able to negotiate with the government on a case-bycase basis and possibly obtain more than 50% in joint ventures, especially outside the oil and gas sector. Structural reform within the economy, such as development of the banking sector and the construction of infrastructure, moves gradually ahead, attracting foreign and domestic investment outside the energy sector. Moreover, the tax regime is gradually being reformed in a bid to increase flexibility and transparency and to simplify the system. Foreign investors benefit from tax incentives, including five-year tax relief for companies investing in new projects, but since the beginning of 2009 will have to reinvest these benefits and pay a 15% tax on repatriated profits. Algeria’s score in the EIU’s business environment rankings improves in the forecast period (2009-13), taking its global ranking to 70th position from 76th. EU direct investors into the manufacturing industries enjoy the benefits of a large pool of cheap labour, as well as preferential access to the EU investors in compliance with Algeria’s Association Agreement with the EU. A range of tax breaks are also on offer. Algeria also expected the broader market access will increase further if the country joins the World Trade Organisation.
Long-term Growth Forecast
The government considers that it has sufficient funds saved from its large budget surpluses over the past five years to render this expansionary medium-term fiscal policy sustainable, provided that oil and gas prices do not weaken significantly from 2009 levels. The Economic Intelligence Unit (EIU) predicts that Algeria’s current account will remain in surplus throughout the forecast period, (2009-2013) owing to healthy hydrocarbons receipts. The surplus will narrow, though, from a peak of 22% of GDP in 2008 to around 7.5% of GDP in 2009- 13. EIU forecasts that expansion in the hydrocarbons sector and in government spending will push up real GDP growth to around 6.3% in 2013, following sluggish growth in 2008-10. Algeria’s real GDP growth is forecast to accelerate from a moderate annual rate of 3.3% in 2009-10 to an average of 5.7% in 2011-20, before picking up slightly to 6.1% in 2021-30. This will help push GDP per head towards $35,670 (measured using PPP rates) by 2030. Crucially, this forecast assumes that Algeria will largely escape the worst aspects of the “natural resource curse” that tends to affect primary commodity exporters.
Privatisation of Algeria’s telecommunications sector began in 2000 since which three mobile cellular licenses were issued and, in 2005, a consortium led by Egypt’s Orascom Telecom won a 15-year license to build and operate a fixed-line network; the license allows Orascom to develop high-speed data and other specialized services and contribute to meeting the large unfulfilled demand for basic residential telephony. Meanwhile, internet broadband services began in 2003 with approximately 200,000 subscribers by 2006.
Algeria’s tourism industry has great potential and has set itself the aim of boosting tourists to 2.5mn a year. The country possesses remarkable world class archaeological sites from the Roman and Phoenician eras (including seven UNESCO World Heritage sites) and a long stretch of Mediterranean coastline. However, facilities for tourists are limited. For example, there are few international standard hotels. Algeria is now keen to upgrade its tourism product in order to take a greater share of the global tourism market. Algeria aims to see an increase in hotel capacity and welcomes ideas to boost visitor numbers. A tourism development master plan for the year 2025 has been drawn up which identified areas where there are weaknesses in the sector such as quality of service, poor infrastructure and administrative obstacles. As part of the plan, personnel in the hotel trade and tourism sector will receive better training through public-private partnership to upgrade their skills to meet international standards.
Large stretches of Algeria are richly fertile making for a thriving agricultural sector employing some 9.4% of the working population. Main crops include olives and tobacco. More than 30,000 km² of land is devoted to the cultivation of cereal grains. The Tell is the main graingrowing land where the principal cereal crops raised are wheat, barley and oats. Many varieties of vegetables and fruits are grown for export. Algerian figs, dates, olives and olive oil, esparto grass and cork are also exported. The deglet nour variety of dates is a major export product for Algeria largely destined for the European market where it is popular among consumers. The country is the world’s second largest producer of these dates after Tunisia. The date has been described by the agriculture ministry as a “flagship product for Algerian agricultural exports”.
Source: Austro-Arab Trade Directory 2011.
The mentioned data are subject to modification. No responsibility is taken for the correctness of the details provided.
Last modified: 24 January 2011