Economy of Algeria

Economy of Algeria
Algeria's economy continued to recover in the first half of 2022, led by a return of oil production to pre-pandemic levels and a continued recovery of the service sector along with a more vigorous agricultural activity. The recovery should continue into 2023, supported by the nonhydrocarbon sector and public expenditure growth, according to the latest edition of the World Bank's Algeria Economic Update.
External balances recovered and continued to grow on the back of higher global hydrocarbon prices. After growing by an estimated 59% over the first six months of 2022 and peaking in June, the average price of Algerian hydrocarbon exports lost around 26% in Q3-2022. External balances were also buoyed by a notable rise in non-hydrocarbon exports. Algeria’s terms of trade also improved as the dinar appreciated relative to the U.S. dollar and the Euro.
Yet Inflation remained high—9.4 percent year-on-year during the first nine months of 2022—notably led by the global rise in food prices (which increased by 13.6 percent in Algeria), poorer households being the most impacted. The authorities responded by intensifying measures to protect the purchasing power, primarily by increasing civil service salaries, introducing unemployment benefits for young first-time job seekers, and strengthening subsidies for basic foodstuffs.
The report cautions that this level of spending could lead to challenges over the medium term if world oil prices fall, thus reducing government revenues, and structural reforms as outlined in the Government Action Plan to promote private sector investment will be key to creating jobs.
"It is critical to stay the course," said Kamel Braham, World Bank Resident Representative in Algeria. "The implementation of Government Action Plan measures to increase mobilization of tax revenues, more efficiently use public resources, and promote private sector investment is essential to navigating the global challenges safely and put Algeria on the path of a sustainable and inclusive growth."
The World Bank’s Economic Update projects Algeria’s economy to grow by 2.3 percent in 2023. Yet the macroeconomic outlook remains vulnerable to fluctuations in global hydrocarbon prices. In the medium to long term, the report says, the non-hydrocarbon private sector must become the motor for Algerian growth and diversification of the economy.
Continued implementation of government structural reform programs, creating greater openness to the private sector, improving the economy’s competitiveness, and strengthening investment in human capital are all essential to the flourishing and resilience of the Algerian economy.
Historical trends
The total imports and exports on the eve of the French invasion (in 1830) did not exceed £175,000. By 1850, the figures had reached £5,000,000; in 1868, £12,000,000; in 1880, £17,000,000; and in 1890, £20,000,000. From this point progress was slower and the figures varied considerably year by year. In 1905 the total value of the foreign trade was £24,500,000. About five-sixths of the trade is with or via France, into which country several Algerian goods have been admitted duty-free since 1851, and all since 1867. French goods, except sugar, have been admitted into Algeria without payment of duty since 1835. After the 1892 increase of the French minimum tariff which applied to Algeria for the first time, foreign trade greatly diminished.
GDP per capita grew 40% in the 1960s, reaching a peak growth of 538% in the 1970s. Growth collapsed to 9.7% in the turbulent 1980s. Failure of timely reforms by successive governments caused the current GDP per capita to shrink by 28% in the 1990s.
This is a chart of trend of gross domestic product of Algeria at market prices estimated by the International Monetary Fund.
For purchasing power parity comparisons, the US dollar is exchanged at 70.01 Algerian dinars only (updated May 24, 2007). Average wages in 2007 hover around US$18–22 per day.
Burdened with a heavy foreign debt, Algiers concluded a one-year standby arrangement with the International Monetary Fund in April 1994 and the following year signed onto a three-year extended fund facility which ended 30 April 1998. In March 2006, Russia agreed to erase $4.74 billion of Algeria's Soviet-era debt during a visit by President Vladimir Putin to the country, the first by a Russian leader in half a century. In return, president Abdelaziz Bouteflika agreed to buy $7.5 billion worth of combat planes, air-defence systems and other arms from Russia, according to the head of Russia's state arms exporter Rosoboronexport.
Some progress on economic reform, Paris Club debt reschedulings in 1995 and 1996, and oil and gas sector expansion contributed to a recovery in growth since 1995, reducing inflation to approximately 1% and narrowing the budget deficit. Algeria's economy has grown at about 4% annually since 1999. The country's foreign debt has fallen from a high of $28 billion in 1999 to its current level of $5 billion. The spike in oil prices in 1999–2000 and the government's tight fiscal policy, as well as a large increase in the trade surplus and the near tripling of foreign exchange reserves has helped the country's finances. However, an ongoing drought, the after effects of the floods of 10 November 2001 and an uncertain oil market made prospects for 2002-03 more problematic. The government has pledged to continue its efforts to diversify the economy by attracting foreign and domestic investment outside the energy sector.
President Bouteflika has announced sweeping economic reforms, which, if implemented, will significantly restructure the economy. Still, the economy remains heavily dependent on volatile oil and gas revenues. The government has continued efforts to diversify the economy by attracting foreign and domestic investment outside the energy sector, but has had little success in reducing high unemployment and improving living standards. Other priority areas include banking reform, improving the investment environment, and reducing government bureaucracy.
The government has announced plans to sell off state enterprises: sales of a national cement factory and steel plant have been completed and other industries are up for offer. In 2001, Algeria signed an Association Agreement with the European Union. In June 1987, Algeria started accession negotiations for entry into the World Trade Organization, but negotiations ceased in 2014.
In the 2000s the country enjoyed several years of strong economic performance, with solid non-hydrocarbon growth, low inflation, an overall budget surplus and a positive trade balance.
Data
The following table shows the main economic indicators in 1980–2017. Inflation under 5% is in green.
Gross domestic product (GDP)
In 2023 Algeria's nominal GDP is estimated to be US$224.10 billion. Using purchasing power parity, estimated GDP was US$628.99 billion, or US$13,680 on a per capita basis. The estimated real growth rate is 2.6%, down from 3.4% in 2022. In 2017 industry accounted for 39.3%% of GDP, services constituted 47.4%, and agriculture provided the remaining 13.3%.
After having virtually eliminated external debt before 2013, the drop hydrocarbon prices and revenues has led to a large budget deficit which has been only partly offset by spending cuts. Consequently, government debt has increased to more than 30% of GDP. Inflation has remained at 3-6% on average for 2013–17. However, the economy remains highly dependent on hydrocarbons, which represent 89% of total exports; a continued slowdown of global energy demand has significantly put pressure on Algeria's fiscal and external positions.
Government budget
In 2007, government revenues of US$58.5 billion exceeded expenditures of US$41.4 billion. Receipts from the hydrocarbons industry usually account for roughly 60% of revenues.
Public and private sectors
Algeria's economy includes a significant public sector built up under a policy of import substitution industrialization which remained intact after other developing nations liberalised their economies under the influence of structural adjustment programmes advocated by the World Bank and the International Monetary Fund towards the end of the 20th century. As of 2019, this sector consisted of 400 publicly owned firms, and generates a third of the state's revenue. Although economic liberalisation has advocates in Algeria, in 2018 froze all plans to pursue privatisation.
In addition, the social safety net in Algeria is stronger than in other countries in the region: it saw periods of expansion in the 1970s, and in the 2000s, helping to build stability after the Civil War. It is supplemented by consumer subsidies. These measures allow for wages to be kept low.
The restrictive political economy in Algeria and continued adherence to the ISI model has limited foreign direct investment in the country: Algeria has one of the lowest levels of FDI in Africa. However, local businesses have benefited from the state undertaking public works projects in the construction of roads, ports, dams and housing. Both fixed capital formation and credit extended to the private sector increased during the 2010s.
Industries
Agriculture, forestry, and fishing
Algeria's agricultural sector, which contributes about 8 percent of gross domestic product (GDP) but employs 14 percent of the workforce, is unable to meet the food needs of the country's population. As a result, some 45 percent of food is imported. The primary crops are wheat, barley, and potatoes. Farmers also have had success growing dates for export. Cultivation is concentrated in the fertile coastal plain of the Tell region, which represents just a slice of Algeria's total territory. Altogether, only about 3 percent of Algerian territory is arable. Even in the Tell, rainfall variability has a significant impact on production. Government efforts to stimulate farming in the less arable steppe and desert regions have met with limited success. However, herdsmen maintain livestock, specifically cow and sheep in the High Plateaus region.
Algeria's climate and periodic wildfires are not conducive to a thriving forestry industry. However, Algeria is a producer of cork and Aleppo pine. In 2005 roundwood removals totaled 7.8 million cubic meters, while sawnwood production amounted to only 13 million cubic meters per year.
Algeria's fishing industry does not take full advantage of the Mediterranean coast, in part because fishing is generally done from small family-owned boats instead of large commercial fishing trawlers. However, the government is attempting to boost the relatively small catch—slightly more than 125,000 metric tons in 2005—by modernizing fishing ports, permitting foreigners to fish in Algerian waters, and subsidizing fishing-related projects.
Algeria produced, in 2018:
4.6 million tonnes of potato (17th largest producer in the world);
3.9 million tonnes of wheat;
2 million tons of watermelon (6th largest producer in the world);
1.9 million tons of barley (18th largest producer in the world);
1.4 million tons of onion (16th largest producer in the world);
1.3 million tons of tomato (18th largest producer in the world);
1.1 million tons of orange (14th largest producer in the world);
1 million tons of date (4th largest producer in the world, second only to Egypt, Saudi Arabia and Iran);
860 thousand tons of olives (6th largest producer in the world);
651 thousand tons of pepper;
502 thousand tons of grape;
431 thousand tons of carrot;
388 thousand tons of pumpkin;
262 thousand tons of tangerine;
242 thousand tons of apricot (4th largest producer in the world, second only to Turkey, Iran and Uzbekistan);
207 thousand tons of cauliflower and broccoli;
202 thousand tons of garlic;
200 thousand tons of pear;
193 thousand tons of cucumber;
190 thousand tons of peach;
186 thousand tons of pea;
181 thousand tons of aubergine;
124 thousand tons of artichoke (5th largest producer in the world, losing only to Italy, Egypt, Spain and Peru);
118 thousand tons of oats;
111 thousand tons of plum (20th largest producer in the world);
109 thousand tons of fig (4th largest producer in the world, second only to Turkey, Egypt and Morocco);
In addition to smaller productions of other agricultural products.
Fishing
Fishing is a flourishing but minor industry. Fish caught are principally sardines, bonito, mackerel, smelt and sprats. Fresh fish are exported to France, dried and preserved fish to Spain and Italy. Coral fisheries are found along the coast from Bona to Tunis. The annual catch averages around 142,000 tons, 54% sardines.
Minerals
Algeria is rich in minerals; the country has many iron, lead, zinc, copper, calamine, antimony and mercury mines. The most productive are those of iron and zinc. Lignite is found in Algiers; immense phosphate beds were discovered near Tébessa in 1891, yielding 313,500 tons in 1905. Phosphate beds are also worked near Sétif, Guelma and Aïn Beïda. There are more than 300 quarries which produce, amongst other stones, onyx and white and red marbles. Algerian onyx from Ain Tekbalet was used by the Romans, and many ancient quarries have been found near Sidi Ben Yebka, some being certainly those from which the long-lost Numidian marbles were taken. Salt is collected on the margins of the chotts.
In 2019, the country was the 17th largest world producer of gypsum, and the 19th largest world producer of phosphate.
Banking and finance
Algeria's banking sector is dominated by public banks, which suffer from high levels of non-performing loans to state-owned enterprises (SOEs). As of 2007, public banks controlled 95 percent of total bank assets. In 2007 nonperforming loans represented a towering 38 percent of total loans at public banks, according to International Monetary Fund (IMF) estimates. Modest progress has been made in implementing several reforms proposed by the IMF, including replacing bank credits to SOEs with government subsidies; boosting bank supervision, accountability, and transparency; and modernizing the payments system. One specific reform that has been achieved is the establishment in 2006 of the Algerian Real Time Settlements system, which facilitates the prompt and reliable electronic transfer of payments. In November 2007, the proposed sale and privatization of Crédit Populaire d’Algérie was postponed because of turbulent market conditions. Recently, HSBC and Deutsche Bank announced that they would commence commercial banking (in the case of HSBC) and investment banking (in the case of Deutsche Bank) in Algeria. Only a few companies are listed on the underdeveloped and relatively opaque Algiers stock exchange.
The non-bank sector remains less developed, although recent reforms in the field of regulation and supervision have laid the foundations for leasing, factoring, and venture capital.
The Algerian equity market remains relatively shallow, with only four companies being listed in the Bourse d’Algerie. Conversely, the bond market has expanded in recent years: the government has issued debt instruments with varying maturities of up to fifteen years, and five private companies have issued corporate bonds.
The insurance sector was liberalized in 1995, but is still dominated by government-owned institutions and so far accounts only for a very small part of the economy: total premium volume amounted to approximately 1 percent of GDP. The pension sector encompasses three pension funds, which attained coverage of approximately 40 percent of the working population in 2005.
Based on 2006 and 2007 estimates, 31 percent of the total population has access to financial services, with one bank branch or post office every 7,250 inhabitants. The microfinance sector still has great potential for further development. A 2006 study could not find major regulatory impediments to microfinance and suggested that the geographical net of postal offices – offering an increasing number of financial services to customers – holds a high potential of increasing access to finance for the Algerian population.
Official remittance inflows increased steadily from US$1.9 to 2.9 billion between 2005 and 2007.
Tourism
Algeria's tourism industry, which contributes only about 1 percent of GDP, lags behind that of its neighbors Morocco and Tunisia. Algeria receives only about 200,000 tourists and visitors annually. Ethnic Algerian French citizens represent the largest group of tourists, followed by Tunisians. The modest level of tourism is attributable to a combination of poor hotel accommodations and the threat of terrorism. However, the government has adopted a plan known as “Horizon 2025,” which is designed to address the lack of. Various hotel operators are planning to build hotels, particularly along the Mediterranean coast. Another opportunity involves adventure holidays in the Sahara (which comprises approximately 80% of the country's land area). In addition to potential ecotourism, the country boasts many cultural and historical sites, seven of which are UNESCO World Heritage Sites. The Algerian government set the goal of boosting the number of foreign visitors, including tourists, to 10 million by 2030.
Other industries
Algeria has many diversified industries that contribute to meet local demands and some times to exportation. The food industry is one of the largest industrial sector in Algeria. Private companies generally dominate the food sector in Algeria with large companies such as Cevital, La Belle, Groupe Bimo, Hamoud Boualam, Ifri, Général Emballage.
The pharmaceutical industry is also present in Algeria, with the domination of state-owned company Saidal, as well as other small private companies. The local pharmaceutical industry covers 38% of local needs.
The mechanical industry has existed in Algeria for a long time, with the state-owned company SNVI (Société Nationale des Véhicules Industriels) being the largest producer of buses and industrial vehicles in the region. These vehicles are exported to the Maghreb, Africa, and the Middle East. Mercedes-Benz has also invested in Algeria in cooperation with a state-owned company to produce industrial and military vehicles. Deutz AG also invested to produce agricultural utilities.
In the electric and electronic industry, Algeria has made a great leap in the field compared to its neighbours. The Algerian region Bordj-Bou-Arreridj is the biggest electronic pole in Africa, local companies cover 83% of it needs and export other products, Algeria started producing some 100% home made electronic product including smartphones, tablets, TV, TV decoders, air conditioning products ..., at least 16 big companies are active in the field, some of the companies are : Bya Electronic, HB Technologies, ZALA Computer, Cristor, Condor, Cobra, Continental électronique, Essalem Electronics, Samha, FRIGOR, BMS Electric, Bomare Company, etc.
Currency, exchange rate, and inflation
Algeria's currency is the Algerian dinar (DZD). The dinar is loosely linked to the U.S. dollar in a managed float. Algeria's main export, crude oil, is priced in dollars, while most of Algeria's imports are priced in euros. Therefore, the government endeavors to manage fluctuations in the value of the dinar. As of April 2008, US$1 was equivalent to about DZD 64.6.
Algeria's foreign currency reserves have grown rapidly since 2000, reflecting rising prices for exported oil. At the end of 2007, foreign reserves totaled US$99.3 billion, up from US$12 billion in 2000 and the equivalent of almost four years of imports. In 2007 the estimated inflation rate was 4.6 percent.
In 2010, the IMF voiced concerns about poor management of Algeria's monetary system and inflation.
In April 2014, a report focusing on world economic projections was published by the IMF, according to which it was predicted that, in 2015, Algeria's economic growth would fall by 1.5%, while unemployment would rise by 1.2%.
Labor
The largest employer is government, which claims 32 percent of the workforce. Even though industry is a much larger part of the economy than agriculture, agriculture employs slightly more people (14 percent of the workforce) than industry (13.4 percent of the workforce). One of the reasons for this disparity is that the energy sector is very capital-intensive. Trade accounts for 14.6 percent of the workforce, while the construction and public works sector employs 10 percent, reflecting the government's efforts to upgrade the country's infrastructure and stock of affordable housing.
Unemployment has remained at levels around 10% since 2010 but is significantly higher for youth (24.8%) and women (16.3%)
At the end of 2006, the unemployment rate was about 15.7 percent, but the rate among those under the age of 25 was 70 percent. In 2005 the labor participation rate was only 52 percent, versus an Organisation for Economic Co-operation and Development average of 70 percent. New entrants to the workforce and the lack of emigration options make unemployment a chronic problem and an important challenge to the government. Given its highly capital-intensive nature, the hydrocarbons industry is not in a position to employ many job seekers.
International trade and investment
Algeria is seeking more trade and foreign investment. For example, the hydrocarbons law passed in April 2005 is designed to encourage foreign investment in energy exploration. Increased production could raise Algeria's profile as a member of the Organization of the Petroleum Exporting Countries. In keeping with its pro-trade agenda, Algeria achieved association status with the European Union (EU) in September 2005. Over a 12-year period, the association agreement is expected to enable Algeria to export goods to the EU tariff-free, while it gradually lifts tariffs on imports from the EU. Algeria has signed bilateral investment agreements with 20 different nations, including many European countries, China, Egypt, Malaysia, and Yemen. In July 2001, the United States and Algeria agreed on a framework for discussions leading to such an agreement, but a final treaty has not yet been negotiated. Ultimately, trade liberalization, customs modernization, deregulation, and banking reform are designed to improve the country's negotiating position as it seeks accession to the World Trade Organization.
In 2007 Algerian imports totaled US$26.08 billion. The principal imports were capital goods, foodstuffs, and consumer goods. The top import partners were France (22 percent), Italy (8.6 percent), China (8.5 percent), Germany (5.9 percent), Spain (5.9 percent), the United States (4.8 percent), and Turkey (4.5 percent). In 2007 Algeria exported US$63.3 billion, more than twice as much as it imported. Exports accounted for 30 percent of gross domestic product (GDP). Hydrocarbon products constituted at least 95 percent of export earnings. The principal exports were petroleum, natural gas, and petroleum products. The top export partners were the United States (27.2 percent), Italy (17 percent), Spain (9.7 percent), France (8.8 percent), Canada (8.1 percent), and Belgium (4.3 percent). Algeria supplies 25 percent of the European Union's natural gas imports. In 2007 Algeria posted a positive merchandise trade balance of US$37.2 billion. In 2007 Algeria achieved a positive current account balance of US$31.5 billion. High prices for Algeria's energy exports are the main driver for the improvement in the
current account balance.
Algeria's trade surplus for 2010 rose to over $83.14 billion. The Algerian Centre for Information and Statistics Directorate of the Algerian Customs attribute this increase from the previous year to higher fuel revenue due to higher prices for a barrel of oil, and a slight decrease in imports of consumer non-food materials. The center said that Algerian exports rose by 78.26% during the period from January to November 2010 from $27.51 billion to $44.4 billion during the same period in 2009. Imports grew by 89.1% from $43.36 billion to $76.35 billion between 2009 and 2010.
Reflecting strong oil export revenues, external debt is on a downward trajectory. For example, these revenues facilitated early repayments of US$900 million in loans from the African Development Bank and Saudi Arabia. In March 2006, Algeria's purchase of 78 aircraft from Russia led to the cancellation of Algeria's entire debt to Russia. In 2006 external debt was estimated at US$4.4 billion, down from US$23.5 billion in 2003.
In 2006 foreign direct investment (FDI) in Algeria totaled US$1.8 billion. The petrochemical, transport, and utilities sectors have been recent beneficiaries of FDI. FDI into the oil sector was expected to rise as a result of a hydrocarbons law, approved in April 2005, that created a more even playing field for foreign oil companies to compete with Algeria's state-owned oil company, Sonatrach, for exploration and production contracts. Algeria also is seeking foreign investment in power and water systems.
As of August 2006, cumulative World Bank assistance to Algeria totaled US$5.9 billion, encompassing 72 projects. Currently, the World Bank is pursuing seven projects, specifically budget modernization, mortgage finance, natural disaster recovery, energy and mining, rural employment, telecommunications, and transportation. In 2005 economic assistance to Algeria from the United States amounted to US$4.4 million, most of which was attributable to the Middle East Partnership Initiative (MEPI) and the remainder to International Military Education and Training (IMET). MEPI encourages economic, political, and educational reform in the Middle East. In 2006 IMET, which provides U.S. military training to foreign troops, had a budget of US$823 million. In 2005 the European Union contributed US$58 million to Algeria's economic development under the Euro-Mediterranean Partnership.
See also
Energy in Algeria
List of companies of Algeria
Poverty in Algeria
Taxation in Algeria
United Nations Economic Commission for Africa
References
Notes
Works cited
Algeria country profile. Library of Congress Federal Research Division (May 1, 2006).
Laouisset, Djamel (2009). A Retrospective Study of the Algerian Iron and Steel Industry. New York City: Nova Publishers.
External links
Tariffs applied by Algeria as provided by ITC's Market Access Map, an online database of customs tariffs and market requirements
Algeria
Economy of the Arab League
Algeria