Economy of Algeria

Economy of Algeria
Algeria is the 6th largest gas exporter and 16th in oil reserves in the world.
Currency	Algerian dinar (DZD)
Trade organisations	OPEC, GECF, WTO and others
Statistics
GDP	$325.0 billion (2012 est.) [1]
GDP growth	3.3% (2013 est.) [2]
GDP per capita	$7,600 PPP (2012 est.)
GDP by sector	agriculture: 8.4%; industry: 61.1%; services: 31.5% (2011 est.)
Inflation (CPI)	3.9% (2013 est.) [3]
Population below poverty line	23% (2006 est.)
Gini coefficient	35.3 (1995)
Labour force	11.31 million (2012 est.)
Labour force by occupation	agriculture: 14%; industry: 13.4%; construction and public works: 10%; trade: 14.6%; government: 32%; other: 16% (2003 est.)
Unemployment	9.8% (2013 est.) [4]
Main industries	petroleum, natural gas, light industries, mining, electrical, petrochemical, food processing,steel
Ease of doing business rank	148th[5]
External
Exports	$76.84 billion (2012 est.)
Export goods	petroleum, natural gas,electronics and petroleum products 97%
Main export partners	United States 16.1%  Spain 13.9%  Canada 10.4%  Netherlands 8.4%  France 8.0%  Brazil 5.6%  United Kingdom 5.1% (2012 est.)[6]
Imports	$48.27 billion (2012 est.)
Import goods	capital goods, foodstuffs, consumer goods
Main import partners	France 17.2%  China 11.5%  Spain 9.4%  Italy 9.1%  Germany 4.6% (2012 est.)[7]
FDI stock	$17.34 billion (31 December 2009 est.)
Gross external debt	$5.413 billion (31 December 2009 est.)
Public finances
Public debt	8.5% of GDP (2012 est.)[8]
Revenues	$79.32 billion (2012 est.)
Expenses	$84.29 billion (2012 est.)
Foreign reserves	$190.5 billion (31 December 2012 est.)
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars

In 2012, the Algerian economy grew by 2.5%, up slightly from 2.4% in 2011. Excluding hydrocarbons, growth has been estimated at 5.8% (up from 5.7% in 2011). Inflation is increasing and is estimated at 8.9% (up from 4.49% in 2011). Despite the financial authorities’ good performance, thanks to modernisation reforms, the budget deficit widened to 3.3% of GDP in 2012 (as against 1.3% in 2011) due to the continuation of the expansionary fiscal policy initiated in 2011 to meet strong social demands in terms of purchasing power, jobs and housing. The oil and gas sector is the country’s main source of revenues, having generated about 70% of total budget receipts. The economy is projected to grow by 3.2% in 2013 and by 4.0% in 2014. The country’s external position remained comfortable in 2012, with a trade surplus of about USD 27.18 billion. The current-account surplus is estimated at 8.2% of GDP and official foreign-exchange reserves have been estimated at USD 190.7 billion at end-December 2012, or the equivalent of more than three years of imports of non-factor goods and services. Oil and gas export earnings made up more than 97% of total exports. Algeria has enormous possibilities to boost its economic growth, including huge foreign-exchange reserves derived from oil and gas. A development strategy targeting stronger, sustained growth would create more jobs, especially for young people, and alleviate the housing shortage the country is facing. The national strategic option is therefore to revitalise the process intended to diversify the economy starting with the non-oil sector while deepening the reforms needed for the structural transformation of the economy.^[9]

Historical trend

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.^{[citation needed]}

GDP per capita grew 40 percent in the Sixties reaching a peak growth of 538% in the Seventies^[10] But this proved unsustainable and growth collapsed to a paltry 9.7% in the turbulent Eighties. Failure of timely reforms by successive governments caused the current GDP per capita to shrink by 28% in the Nineties.

This is a chart of trend of gross domestic product of Algeria at market prices estimated by the International Monetary Fund with figures in millions of Algerian Dinars.

Year	Gross Domestic Product	US Dollar Exchange	Inflation Index (2000=100)	Per Capita Income (as % of USA)
1980	162,500	3.83 Algerian Dinars	9.30	18.51
1985	291,600	4.77 Algerian Dinars	14	15.55
1990	554,400	12.19 Algerian Dinars	22	10.65
1995	2,004,990	47.66 Algerian Dinars	73	5.39
2000	4,123,514	75.31 Algerian Dinars	100	5.17
2005	7,493,000	73.44 Algerian Dinars	114	7.43

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 $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.^[11][12] 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 November 10, 2001 floods and an uncertain oil market make prospects for 2002-03 more problematic. The government pledges 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; it has started accession negotiations for entry into the World Trade Organization.

Gross domestic product (GDP)

In 2007 Algeria’s estimated GDP was US$125.9 billion according to the official exchange rate. Using purchasing power parity, estimated GDP was US$268.9 billion, or US$8,100 on a per capita basis. The estimated real growth rate was 4.6 percent. In 2007 industry accounted for 61 percent of GDP, services constituted 31 percent, and agriculture provided the remaining 8 percent.^[13] The country has enjoyed several years of strong economic performance, with solid non-hydrocarbon growth, low inflation, an overall budget surplus of 8percent of GDP and a positive trade balance of 28 percent of GDP in 2008. Average annual non-hydrocarbon GDP growth averaged 6 percent in 2003-2007, with total GDP growing at an average of 4.5 percent during the same period due to less buoyant oil production in 2006-07. External debt has been virtually eliminated, and the government has accumulated large savings in the oil stabilization fund (FRR). Inflation, the lowest in the region, has remained stable at 4 percent on average for 2003-07. However, the economy remains highly dependent on hydrocarbons, which represent 98 percent of total exports; a continued slowdown of global energy demand would therefore significant pressure on Algeria’s fiscal and external positions.^[14]

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 percent of revenues.^[13]

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 goats, cattle, and sheep, in the High Plateaus region.^[15]

Algeria’s climate and periodic fires are not conducive to a thriving forestry industry. However, Algeria is a producer of cork and Aleppo pine. In 2005 round wood removals totaled 7.8 million cubic meters, while sandalwood production amounted to only 13 million cubic meters per year.^[16]

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.^[16]

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 Bonn 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 Tessa in 1891, yielding 313,500 tons in 1905. Phosphate beds are also worked near Swift, Miguel and Ann Belinda. There are more than 300 quarries which produce, among st other stones, onyx and beautiful white and red marbles. Algerian onyx from Sin Balletic was used by the Romans, and many ancient quarries have been found near Sid Ben Kaye, some being certainly those from which the long-lost Quotidian marbles were taken. Salt is collected on the margins of the hots.

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 (SMEs). 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 SMEs 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 Crudités Popular Alighieri 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.^[16] 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 two companies being listed in the Course Algeria. 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.

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 infrastructure. Various hotel operators are planning to build hotels, particularly along the Mediterranean coast. Another potential opportunity involves adventure holidays in the south. The Algerian government has set the goal of boosting the number of foreign visitors, including tourists, to 1.2 million by 2010.^[16]

Currency, exchange rate, and inflation

Algeria’s currency is the 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 DZD64.6.^[17]

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.^[17] In 2007 the estimated inflation rate was 4.6 percent.^[13]

In 2010, the IMF voiced concerns about poor management of Algeria's monetary system and inflation^[18]

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.^[19]

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.^[19]

Foreign economic relations

In its foreign economic relations, Algeria is seeking more trade and foreign investment. For example, Algeria’s 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.^[20]

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.^[20]

Algeria's trade surplus for 2010 has risen to over $83.14 billion. The Algerian Centre for Information and Statistics Directorate of the Algerian Customs attribute this increase from last year due to higher fuel revenue due to the high price of a barrel of oil, and the 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.^[21]

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.^[20]

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.^[20]

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.^[17]

See also

• Energy in Algeria
• List of companies of Algeria
• Taxation in Algeria

References

Notes

Works cited

• Algeria country profile. Library of Congress Federal Research Division (May 1, 2006).  This article incorporates text from this source, which is in the public domain.
•  This article incorporates public domain material from websites or documents of the CIA World Factbook.

External links

• Economy of Algeria on the Open Directory Project

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