Economy and Trade
Algeria’s economy is heavily reliant on the hydrocarbons sector, which accounts for 60% of the country’s revenues and some 30% of GDP. It also accounts for a massive 95% of Algeria’s exports, by value. The Algerian government is committed to opening up trade, and to encouraging inward investment, particularly by Western companies interested in using Algeria as a manufacturing base, or in doing joint ventures with local companies to help them boost export activities.
When he came to power in 1999, on the promise of implementing a range of political, economic and social reforms, President Bouteflika boosted the country’s ailing economy with a US$18 billion public-sector spending program. This generated four years of steady growth and won Bouteflika a second term of office. It also reduced the country’s massive unemployment, bringing it down to 23%. It currently stands at around 13%.
Economic Policy over 12 Months
The IMF and the World Bank want to see Algeria spending more money on education, and on the creation of jobs for those entering the economy. Success on both these fronts, but particularly on the former, is seen as crucial to the country’s ability to sustain its growth, and its efforts to diversify its economy beyond the oil and gas sector. Considerable progress has already been made, with education being free to all, and school attendances more than doubling to in excess of 5 million students. However, Algeria still needs to spend more on teacher training if it wants a skilled workforce capable of attracting sustained inward investment.
In early 2009, the President was seeking to amend the constitution to allow him to run for a third term of office, and seemed likely to achieve this. There is a high degree of consensus among political parties that Algeria needs a liberal market economy and a prudent fiscal and monetary policy. However, there has been speculation about the extent to which President Bouteflika is influenced by hardliners who want more state intervention, and who are seen as blocking privatization of the remaining state monopolies and industries.
In 2006, for example, President Bouteflika overturned a law, introduced the previous year, which would have allowed foreign firms to take majority stake holdings in Algerian oil and gas companies. In June 2008, he announced that foreign company investments were not benefiting the country as much as had been hoped, and said that in future they would be limited to minority shareholdings in local concerns. Nevertheless, there are those in the Algerian government determined to push ahead with liberalizing reforms.
The government has succeeded in privatizing certain sectors of the Algerian economy, and has encouraged industry to form joint ventures with some state-owned and operated organizations. Algeria wants to become a member of the World Trade Organization, a step that is seen as very positive in its implications both for domestic business and for inward investment.
The vast majority of the population lives along the Mediterranean coast, which occupies some 12% of the country’s land mass. This of itself creates a large urban population, with some 45% of the country’s population living in cities such as Algiers. The government’s economic policy has some challenges trying to stem the mass migration of people from the poor rural areas to the more affluent cities. In part, support for Algeria’s agricultural sector is designed both to accomplish this, and to generate greater wealth in a potentially lucrative sector.
The banking sector has been liberalized since 1990, and there are some 22 public and private-sector banks, 12 of which are foreign-owned. Reforms at the end of 2003 paved the way for investment banks and leasing companies. Similarly, a massive reform of the telecoms and postal sector since 2000, and a new legal and regulatory framework for a multi-operator telecommunications infrastructure are now in place. The World Bank currently rates Algeria’s telecommunications market as the most liberalized in the MENA region.
Economic Performance over 12 Months
Thanks to its oil and gas exports, Algeria currently runs a trade surplus. This rose to US$39.07 billion at the end of 2008, up by more than 20% on the prior year’s figure of US$32.53 billion. Imports, which range from consumer goods to medical and technical supplies, were worth US$39.15 billion in 2008, up 42.7% on the previous year. The country’s GDP, in terms of purchasing power parity, amounted to in excess of US$240 billion in 2008, and Algeria continues to build up its foreign reserves, despite the downturn.
According to comments from Abdelkrim Mansouri, the general manager of the Algerian National Agency for the Development of Investment (ANDI), made to the official news agency APS in January 2009, foreign inward investment into Algeria is expected to continue in 2009, on the back of “good economic indicators.” The economy grew by over 3% in 2008 and is expected to maintain positive growth in 2009, despite the global recession.
France currently provides more than 30% of Algeria’s imports, and some 60% of Algeria’s trade last year was with the European Union. An agreement between Algeria and the European Union envisages the creation of a free-market area, with the phasing out of tariff barriers over the next decade. The Algerian government has also said that it intends to dismantle all monopolies in the country by 2010—a necessary condition of its joining the WTO.
Much of Algeria’s current domestic economic performance outside the oil and gas sector comes from the success of its liberalization program, with a number of wealthy Algerian families launching banking and commercial ventures. According to one of President Bouteflika’s close colleagues, Hamid Temmar, who has held the posts of both Commerce Minister and Minister for Participation and Investment Promotion, and who has overseen much of the reform program, Algeria is in the process “of reviewing all regulatory matters and installing a (modern) legislative framework to give (the country) a wholly liberal economy.”
Algeria’s bid to be accepted into the WTO hinges in part on the country’s ability to introduce robust intellectual property (IP) protection laws. As a current hotbed for the illegal copying of software and music CDs—dubbed Algeria’s “parallel economy” by Temmar—the country has its work cut out in this area.
Apart from hydrocarbons, areas that could be attractive to investors, and to companies looking for joint venture deals in Algeria include housing, agriculture, and some mining of local ores. Algeria is also cited by the World Bank as having considerable potential as a manufacturing base, given its proximity to Europe.
Support for Inward Investment and Imports
Algeria’s Supplementary Finance Law, August 1990 introduced a system of concessionaries and wholesalers who were entitled to represent foreign companies, as part of a process to liberalize imports. Importers also gained the right to hold foreign currency accounts to carry out their legitimate business. Today, the entity responsible for foreign direct investment in Algeria is the National Investment Development Agency (ANDI), created in 2001.
Tax Exemptions
All discussions on tax breaks should be taken up with ANDI. The country has five free trade zones where investments are exempt from all customs, taxes, and other fees.
Statistics
GDP growth: 3.4% (2008)
GDP per capita: US$7,100 (PPP)
CPI: 3.6%
Key interest rate: 8% (commercial bank prime rate, December 31, 2007)
Exchange rate versus dollar: Algerian dinars per US dollar—63.25 (2008)
Unemployment: 12.9% (2008)
FDI: US$14.11 billion (2008)
Current account deficit/surplus: under 5% (US$2.913 billion)
Population: 33,769,668 (July 2008)
Source: CIA World Factbook except where stated
www.qfinance.com