Welfare: In 2003 Algeria ranked 103 out of 177 countries in the United Nations’ human development index, a measure of overall well-being. Approximately half the Algerian population lives below the poverty line. About 45 percent of wealth is concentrated in the hands of the top 5 percent of the population, a phenomenon that is partly the result of collusion among businessmen, public officials, and military officers.
Overview: Algeria’s economy is in the midst of a difficult and halting transition from state control to an open market. The economy depends heavily on the hydrocarbons industry, which is highly cyclical. In the current high price environment for oil and natural gas, Algeria’s economy is experiencing an upswing, and hydrocarbons account for about 66 percent of revenues, 35 percent of gross domestic product (GDP), and 95 percent of exports. However, the International Monetary Fund (IMF) is encouraging Algeria to diversify its economy, in part to reduce the country’s high rate of unemployment (24 percent as of the end of 2003) but also to promote stability and assist in the transition to a market economy. Under the leadership of President Abdelaziz Bouteflika (1999– ), the government is pursuing an economic reform program that embraces not just diversification but also other IMF initiatives such as deregulation, banking reform, and trade liberalization. However, the program is expected to encounter bureaucratic resistance, particularly in the area of privatization. Much improvement is needed; in a 2005 survey of business conditions in 155 countries, the World Bank ranked Algeria 128 for ease of doing business.
Gross Domestic Product (GDP): In 2003 Algeria’s GDP was US$65.2 billion, or US$1,986 per capita. Using purchasing power parity, per capita GDP was US$5,016. The average annual GDP growth rate over the past 10 years was 3.6 percent. In 2004 industry accounted for 57.4 percent of GDP, services constituted 32.3 percent, and agriculture provided the remaining 10.3 percent. Even though industry is a much larger part of the economy than agriculture, agriculture employs more people (27 percent of the workforce) than industry (less than 9 percent of the workforce). One of the reasons for this disparity is that the energy sector is very capital-intensive.
Government Budget: In 2003 government revenues of US$26.6 billion exceeded expenditures of US$24.4 billion. Receipts from the hydrocarbons industry accounted for almost 66 percent of revenues, and taxes on goods and services accounted for an additional 12.5 percent. The US$2.2 billion surplus represented about 3.2 percent of gross domestic product (GDP).
Inflation: In 2004 the average inflation rate was 4.6 percent, a relatively low rate that was attributable to import competition.
Agriculture, Forestry, and Fishing: Algeria’s agricultural sector, which constitutes about 10 percent of gross domestic product (GDP) but employs 27 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. In 2002 livestock farmers produced 551,500 tons of meat.
Algeria’s climate and periodic fires are not conducive to a thriving forestry industry. However, Algeria is a producer of cork and Aleppo pine.
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 100,000 tons in 2001—by modernizing fishing ports, permitting foreigners to fish in Algerian waters, and subsidizing fishing-related projects.
Mining and Minerals: Algeria’s Ministry of Energy and Mines is responsible for overseeing the nation’s mineral production. State-owned steel and gold production companies were privatized in 2001–2. In 2003 the major products of Algeria’s mining sector (listed by metric tonnage) were as follows: crude petroleum (580,000 tons); nitrogen (578,200 tons); pozzolan, an admixture for concrete (500,000 tons); salt (191,017 tons); natural gas (137,634 tons); methanol (115,690 tons); crushed marble (105,249 tons); and hydraulic lime (100,000 tons).
Industry and Manufacturing: In 2004 industry accounted for 57.4 percent of gross domestic product (GDP), but most of that amount (about 40 percent of GDP) was attributable to the hydrocarbons sector. By contrast, manufacturing’s share of GDP was only about 9 percent, and the trend line was downward. In fact, manufacturing output declined each year from 2001 through 2003. The main drag on manufacturing is inefficient state-owned enterprises, which constitute about three-quarters of the sector and are operating at only about 40 percent of capacity. Some of Algeria’s top manufactured products are cement, footwear, pig iron, steel ingots, and trucks.
Energy: A member of the Organization of the Petroleum Exporting Countries, Algeria exports both crude oil and natural gas, and elevated energy prices in recent years have led to an improvement in the country’s budget, external debt, and foreign currency reserves. Algeria has proven oil reserves, as of March 2005, of 11.8 billion barrels, a relatively modest amount. Proven natural gas reserves are estimated at 160 trillion cubic feet, the eighth largest in the world, and natural gas production has exceeded oil production since 1997. The European Union and the United States are Algeria’s top natural gas customers. Out of more than 1.9 million barrels of oil, condensate, and natural gas produced per day in 2004, nearly 1.7 million barrels were exported. Algeria’s largest oil field, Hassi Messaoud in the Sahara Desert, contributed 400,000 barrels per day. The energy and mining minister is optimistic that crude oil production, which averaged 1.2 million barrels per day in 2004, can rise to 2 million barrels per day by 2010, partly as a result of foreign investment. A hydrocarbons law passed in April 2005 removes many restrictions on foreign energy companies. In 2003 Algeria’s electricity production was 27 billion kilowatt-hours, slightly exceeding electricity consumption of 25 billion kilowatt-hours.
Services: In 2004 Algeria’s services sector accounted for 32.3 percent of gross domestic product (GDP) but employed the majority of the workforce. The services sector expanded at an average annual rate of 1.9 percent in 1990–2002, by 2.0 percent in 2001, and by 2.5 percent in 2002. The services sector is undergoing deregulation and is being opened to private and foreign competition. Insurance, banking, air transportation, and air courier services already have been deregulated. However, most banks are still public, and the capital markets are severely underdeveloped. Tourism is weak, reflecting the low quality of accommodations and the fear of insurgency-related terrorism.
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 year-end 2004, public banks still controlled 90 percent of financial assets, even though 15 private banks had been licensed since 1998. Each year from 1991 to 2002, public banks’ losses associated with non-performing loans equated to an average of 4 percent of gross domestic product (GDP). However, several reforms proposed by the International Monetary Fund are being implemented, including replacing bank credits to SOEs with government subsidies; boosting bank supervision, accountability, and transparency; and modernizing the payments system. Only a few companies are listed on the underdeveloped and relatively opaque Algiers stock exchange.
Tourism: Algeria receives only about 200,000 tourists and visitors annually. In 2001 the top two countries of origin for tourists were France (36 percent) and Tunisia (17 percent). Other countries of origin in order of popularity were Mali, Italy, Libya, Germany, Spain, and Morocco. The modest level of tourism is attributable to a combination of poor hotel accommodations and the threat of terrorism. Despite the relatively weak tourism sector, the Algerian government has set the goal of boosting the number of foreign visitors, including tourists, to 1.2 million by 2010.
Labor: At the end of 2003, the unemployment rate was about 24 percent, but the rate among those under the age of 25 was twice as high. New entrants to the workforce and the lack of emigration options make unemployment a chronic problem and an important challenge to the government. In 2003 about 18 percent of the workforce was unionized.
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 is on the verge of gaining association status with the European Union (EU). This status will 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.
Imports: In 2003 Algerian imports totaled US$13.3 billion. The principal imports were capital goods (US$5.0 billion), food (US$2.7 billion), semi-finished goods (US$2.4 billion), and consumer goods (US$2.2 billion). The top suppliers were France (32.9 percent), Italy (10.2 percent), Spain (6.5 percent), and Germany (6.1 percent).
Exports: In 2003 Algeria exported US$26.0 billion, nearly twice as much as it imported. Exports accounted for 38 percent of gross domestic product (GDP). Hydrocarbon products constituted at least 95 percent of exports. These products included crude oil (US$11.6 billion), natural gas (US$6.1 billion), condensate (US$4.2 billion), refined products (US$3.3 billion), and liquefied petroleum gas (US$2.6 billion). The top export recipients were Italy (18.9 percent), the United States (17.9 percent), France (13.2 percent), and Spain (10.9 percent).
Trade Balance: In 2003 Algeria posted a positive merchandise trade balance of US$12.7 billion.
Balance of Payments: In 2003 Algeria achieved a positive current account balance of US$9.0 billion, corresponding to 13.8 percent of gross domestic product (GDP). Estimates for the current account balance in 2004 range from US$10.9 billion (according to Algeria’s central bank) to US$12.7 billion (according to the International Monetary Fund). High prices for Algeria’s energy exports are the main driver for the improvement in Algeria’s current account balance.
External Debt: 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. Accordingly, the external debt to gross domestic product (GDP) ratio was expected to decline to 25 percent in 2005, down from 35 percent in 2003. In 2004 external debt was estimated at US$21.9 billion.
Foreign Investment: In 2004 foreign direct investment (FDI) in Algeria totaled US$3.5 billion, most of which for the first time was directed at non-oil sectors such as telecommunications. FDI into the oil sector may rise as a result of a hydrocarbons law, approved in April 2005, that creates 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.
Foreign Aid: As of mid-2005, cumulative World Bank assistance to Algeria totaled US$5.9 billion, encompassing 72 projects. Currently, the World Bank is pursuing nine projects, including budget, finance, and mortgage systems, earthquake recovery, energy and mining, rural employment, telecommunications, and transportation. In 2004 economic assistance to Algeria from the United States amounted to US$1.5 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. IMET provides U.S. military training to foreign troops. During 1995–2003, the European Union (EU) contributed US$71.4 billion out of a total commitment of US$417.1 billion to Algeria’s economic development under the Euro-Mediterranean Partnership. In 2003 the EU contributed US$14.5 billion out of a total commitment of US$49.5 billion. The disparity between payments and pledges is attributable to the threat of terrorism, which prevented the EU from maintaining its original schedule.
Currency and Exchange Rate: 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 mid-March 2006, US$1 was equivalent to about DZD73.
Algeria’s foreign currency reserves have grown rapidly since 2000, reflecting rising prices for exported oil. By the end of the third quarter of 2005, foreign reserves totaled US$37 billion, up from US$12 billion in 2000 and the equivalent of almost two years of imports.
Fiscal Year: Calendar year.