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Chronicle of the Middle East and North Africa

Economy of Algeria

workers riding bikes
A picture taken on January 16, 2018, at In Amenas gas plant, 1,300 kilometres (800 miles) southeast of Algiers, shows workers riding bikes. (Photo by RYAD KRAMDI / AFP)

Introduction

Algeria’s economy remains dominated by the state, a legacy of the country’s socialist post-independence development model. In recent years the Algerian Government has halted the privatization of state-owned industries and imposed restrictions on imports and foreign involvement in its economy, pursuing an explicit import substitution policy.

Hydrocarbons have long been the backbone of the economy, accounting for roughly 30% of GDP, 60% of budget revenues, and nearly 95% of export earnings. Algeria has the 10th-largest reserves of natural gas in the world – including the 3rd-largest reserves of shale gas – and is the 6th-largest gas exporter. It ranks 16th in proven oil reserves. Hydrocarbon exports enabled Algeria to maintain macroeconomic stability, amass large foreign currency reserves, and maintain low external debt while global oil prices were high. With lower oil prices since 2014, Algeria’s foreign exchange reserves have declined by more than half, and its oil stabilization fund has decreased from about $20 billion at the end of 2013 to about $7 billion in 2017, which is the statutory minimum, According to the CIA World Factbook.

Declining oil prices have also reduced the government’s ability to use state-driven growth to distribute rents and fund generous public subsidies, and the government has been under pressure to reduce spending. Over the past three years, the government has enacted incremental increases in some taxes, resulting in modest increases in prices for gasoline, cigarettes, alcohol, and certain imported goods, but it has refrained from reducing subsidies, particularly for education, healthcare, and housing programs.

Algiers has increased protectionist measures since 2015 to limit its import bill and encourage domestic production of non-oil and gas industries. Since 2015, the government has imposed additional restrictions on access to foreign exchange for imports, and import quotas for specific products, such as cars. In January 2018 the government imposed an indefinite suspension on the importation of roughly 850 products, subject to periodic review.

Algeria has struggled to develop non-hydrocarbon industries because of heavy regulation and an emphasis on state-driven growth. Algeria has not increased non-hydrocarbon exports, and hydrocarbon exports have declined because of field depletion and increased domestic demand.

Gross Domestic Product

The Coronavirus pandemic depressed the Algerian economy in 2020, causing Algeria’s GDP to decline by about 5.8% in 2020 compared to 2019, According to World Bank data. Algeria’s average GDP growth rate was 1.76% between 2010 and 2020, with an all-time high of 3.8% in 2014 and the lowest level in 2020. The Algerian economy contracted significantly, by about 5.5%, after a slowdown over 5 consecutive years.

The Covid-19 pandemic resulted in a decline in output levels in the oil sector, with declining oil demand and Algeria’s commitment to the OPEC agreement, to reduce production volumes. This resulted in a 12% decline in crude oil production levels in 2020, from 1.023 million barrels per day in 2019 to 899,000 barrels per day in 2020.

The double shock of rigorous non-pharmacological interventions to contain the Coronavirus pandemic (COVID-19) during 2020 and the sharp decline in revenue from hydrocarbon products resulted in more economic difficulties for Algeria. Labor-intensive sectors, such as services and construction – primarily concentrated in the informal economy – have been deeply affected, resulting in the loss of many temporary or permanent jobs. In addition, the temporary decline in oil prices, combined with the decrease in export volumes, caused a sharp fall in hydrocarbon export earnings. While the Algerian economy showed signs of recovery during the second half of 2020, the recession severely affected companies and workers. The temporary decline in world oil prices has further deteriorated the balance of public finances, bank liquidity, and external transaction balances, despite the depreciation of the Algerian dinar.

GDP: 

Indicatorsmeasuring unit20192020Change ±
GDP (at constant 2010)Billion US$202.404191.311-11.09
GDP growth (annual)%0.8-5.5-5.8
GDP per capita (constant 2010)US$4,701.34,362.7-338.6
GDP (at current value)Billion US$171.158145.164-25.994

Source: World Bank.

Industry

Algerian industry has always been dominated by oil and natural gas in two ways. First, the hydrocarbon sector is by far the largest industrial sector. Second, the revenues generated by the export of oil, gas, and related products have been the main source of investment capital for other industries, along with huge loans from the international capital market that form a mortgage on those reserves.

the headquarters of Algeria's state-owned energy giant Sonatrach
A picture taken on February 8, 2015, shows the headquarters of Algeria’s state-owned energy giant Sonatrach in the capital Algiers. AFP PHOTO / FAROUK BATICHE

From the major production sites in the Sahara desert, oil and natural gas are transported to the Mediterranean coast. The industrial areas surrounding major cities such as Algiers, Oran, and Annaba are home to huge refineries and petrochemical complexes and plants for the liquefication of natural gas that is transported in tankers to foreign markets.

As a major body responsible for the oil and gas sector, SONATRACH (the National Company for Research, Production, Transport, Transfer, and Marketing of Fuels) is often considered a State within the State. After its founding in 1963, the company grew in size and importance as foreign interests in the oil sector were nationalized during the same decade.

Algeria was ranked as one of the three largest shale gas reserves in the world in 2018 by the International Energy Agency.

SONATRACH has gained ground around the world with contributions, partnerships and 41 international branches in 2019, strengthening its presence and financial stability.

SONATRACH operates across the entire hydrocarbon value chain, integrating five activities: exploration and production; Pipeline transport; Solidification and separation; Refining and petrochemicals; And marketing. The consolidated turnover of the complex for the fiscal year of 2019 was estimated at 5,538.00 million Algerian dinars ($46 billion). However, oil companies suffered significant losses in 2020, estimated at 40% of their revenues, thus reducing their investment by 32%, Sonotrach was not immune from these losses either. 

There has been a sharp decline in energy production from fossil fuels, specifically oil and gas in 2020, conversely, the domestic demand for gas and petroleum products is growing by an estimated 7% annually, which has reduced export opportunities for these energy sources on international markets.

On this basis, Algeria has adopted an energy transition program to promote renewable energies and avoid energy deficits. According to the current “non-intervention” scenario (Laissez-faire scenario) in terms of production and consumption, the country could become an export-unable country by 2030, then an energy importer by 2040.

In the 1970s, the government invested billions of petrodollars (and money borrowed on the international markets) in the construction of heavy industries, especially the steel industry, supplied by Algerian iron-ore deposits. Together with other basic industries (e.g., cement plants), steel mills were meant to be the basis of extensive industrial development and provide inputs to light industries producing consumer goods. This approach of ‘industrializing industries’ did not work out as planned, due in part to political factors inherent in the rentier economy. Many industries remained inefficient and appeared to be generators of jobs for the regime’s constituency of workers and managers and the bureaucracy at the ministries in charge.

With shrinking resources and increased foreign debt, the restructuring and ultimate privatization of part of the industrial sector seemed inevitable. In the 1980s, many large state enterprises were divided. A decade later, the emphasis shifted to a policy of attracting foreign investment in the Algerian industrial sectors. This policy was not pursued to its full extent, as some activities were still considered to be of strategic interest to the state. More importantly, the structural deficits and inefficiencies that had plagued many enterprises in the state sector discouraged foreign companies from investing, as did the civil war. After 1999, the apparent stabilization of the political and security situations and the beginning of a new era of rising oil and gas revenues began to change this picture. As a result, the emblematic steel complex at al-Hajar went into the hands of the Indian Arcelor Mittal group. Increased opportunities for foreign investment also led to the French company Renault producing cars in Algeria. Negotiations and other preparations moved slowly, but the fact that two-thirds of Algerian cars are produced in France provided sufficient motivation.

Light industry is more diversified and has always involved greater private entrepreneurship. As with heavy industry, most factories are found near the main urban centres in the north, although the decentralization of the 1980s has also led to the creation of more light industry in the increasingly populous centres of the High Plateaux and some oasis towns. The light industrial sector comprises the processing of food and the manufacture of household appliances and some luxury items. In many cases, though, consumers prefer imported goods that bring higher social status.

The total number of small and medium enterprises of industrial nature in Algeria was 97,803 as of mid-2018, of which 99.92% were privately owned. According to World Bank data, the proportion of workers in the industry fell from 30.91% of the total number of workers in 2018 to 30.42% in 2019.

Agriculture and Livestock

Agriculture

agriculture algeria
@Fanack

The Algerian agricultural sector is at the heart of national economic development by increasing domestic crude production, raising its per capita share, providing jobs, and improving living standards in rural areas. This is the result of its natural human and material potential, which has been developed within the framework of successive development programs.

Studies have shown an increase in various agricultural products and their diversity as well as the role of agriculture in the national economy, which is limited compared to the sector’s potential. The results relied on the planned development programs.

By the turn of the third millennium, cereal products had taken a strategic place in the Algerian food system and national economy. The grain area occupied 40% of the valuable agricultural area until 2017.

In 2020, in contrast to most other economic sectors severely affected by the health crisis (COVID-19) that marked 2020, the agricultural industry revealed its remarkable resilience. It adapted to the crisis and made a significant jump in production and a surplus in export. Algeria’s agricultural exports have seen a massive leap in 2020 by exporting more than 100,000 tons, compared to 70,000 tons in 2019, given the Government’s Numerous governmental facilities for agricultural exports. According to official figures, Algeria exported 50,000 tons of agricultural products during the first quarter of 2021.

According to competent authorities, the value of agricultural production in the country’s GDP exceeded $25 billion in the health crisis of 2020, compared to $23 billion in 2019.

Thanks to its human, natural and material resources, agriculture has established itself as a strategic sector capable of ensuring food security for the country even in the most challenging exporting circumstances.

2020 was also marked by promoting worldwide rational use of natural resources, water, and the fight against waste through the tight running of surplus production, mainly through the sector’s intention to develop the logistics chain (storage, refrigeration, and transportation).

To this end, the sector has announced a road map to regulate production according to the specificities of each region with the establishment of manufacturing food units.

In 2020 Algeria began planting more than 11.5 million trees as part of the implementation of the National Afforestation Program.

The average area under grain cultivation during the years 2010-2020 was about 3.4 million hectares, up 6% from the average during the years 2000-2010. Steel wheat and barley occupy most of this area, accounting for about 74% of the total grain area.

During the second decade of the millennium, the cereal production rate was estimated to be at 51.5 million, an increase of 57.8% over the first decade when the production rate was estimated at 32.6 million.

Steel wheat and barley account for about 80% of total grain production, 51% and 29%, respectively.

The agricultural sector contributed more than 12.4% to GDP, with a production value equaling $25 billion in 2020, compared to $23 billion in 2019. Agriculture contributed to the employment of more than two and a half million workers.

According to official agricultural sources, Algeria exported 50,000 tons of agricultural products during the first quarter of 2021. To encourage agricultural investment, the Algerian Government has announced its intention to support investments in the farming sector with up to 90% of the value of the investment project. The Government intends to continue to improve agricultural production, increase productivity, rationalize the use of agricultural land in mountainous areas and preserve forest wealth.

Algeria has achieved Africa’s top food security ranking in the United Nations World Food Program (WFP). This achievement placed it in the “blue box” at the same level as the world’s most powerful nations. The report ranked Algeria as a food-stable country, placing the country in the category of countries with less than 2.5% of the world’s total population in 2018-2020.

According to economists and agricultural experts, there are several reasons behind this positive classification of Algeria as a country closing the food gap, given the country’s remarkable economic potential, as well as the shift towards an interest in agriculture and food industries as a result of the export of dominance fuels.

Livestock:

In Algeria, there are five major livestock species: Between 2019 and 2020, cattle, sheep, goats, camels, and horses were estimated at 28 million head of sheep. 1 million head of exported cows, and 400,000 head of apple. According to the Ministry of Agriculture and Rural Development, the number of sheep increased by more than 1 million in 2020 due to the lack of sales recorded during the stone imposed by the Covid-19 health crisis.                      

According to World Bank data, the proportion of workers in the agricultural and livestock sector in Algeria was estimated at 9.6% of the total number of employed and at 10.16%, 9.88%, and in 2017 and 2018, respectively. The value-added in agriculture accounted for 11.84%, 12.38%, and 14.23% of GDP in 2018, and 2019, 2020, respectively.

Foreign Trade

The total value of Algerian exports was $23.7 billion from January to August 2021, up 57% from the same period in 2020 ($15.1 billion). The trade deficit fell by 87.9% to $926 million. The trade deficit in Algeria declined by 87.9% to $926 million in the first eight months of 2021, given the rise in oil and gas revenues and the sharp decline in imports during the period.

OPEC member Algeria continues to rely heavily on oil and gas revenues, which account for over 90% of its total exports and 60% of the state budget.

Algerian exports outside the fuel sector during the first eight months of 2021 amounted to $2.9 billion, an increase of 118% over the same period in 2020. Exports outside the fuel sector are estimated at 12.2% of the total value of Algerian exports.

Export growth rates vary according to the nature of the products exported during this period compared to 2020. The most notable of these products are:

  • Metallurgical and chemical fertilizers: $886 million compared to $524 million, an estimated increase of 69.1%
  • Iron and steel: $ 595.78 million, compared to $ 28.76 million, an estimated increase of 1971.6%.
  • Inorganic chemicals: $501.8 million, compared with $150.1 million, an increase of 234.0%.
  • Sugar, sugar, honey: $288 million compared to $173 million, an estimated increase of 66.5%.
  • Exports of mineral manufactures amounted to $190.81 million, representing an estimated 6.54% of the total value of exports outside the fuel sector.

Total exports in 2020 declined by 36.4% ($14.2 billion) compared to 2019. According to the Foreign Trade Officials of the Algerian Ministry of Trade, the sharp decline in Algerian exports resulted from the drop in oil prices in world markets, This is a result of the decrease in demand due to the constraints imposed on Algeria during the Coronavirus pandemic.

According to official government data, Algeria’s economy is mainly dependent on its oil and gas revenues, which account for 93% of its foreign exchange earnings. Furthermore, Algerian imports contracted by about $9.18 billion (18.4%) in 2020, compared to 2019. Although total imports declined, the country’s trade balance deficit (the difference between the value of exports and imports) increased by about 45.6% ($5.02 billion) compared to 2019.

Total export coverage for total imports was 60.1% lower than in 2019.

The following table shows the movement of the country’s foreign trade:

Foreign Trade (Billion US$)

Indicators20192020Change ±
Total Exports39.0124.81-14.20
Total imports50.0340.85-9.18
Trade Balance Deficit11.0216.045.02
Ratio of total export coverage to total imports (%)78.060.1-17.9

Source: The World Bank.

Poverty

According to World Bank estimates, GDP per capita in constant prices fell from $4,701.3 in 2019 to $4,362.7 in 2020 by $338.6, a decline of about 7.2%.

The Covid-19 pandemic has exacerbated the economic crises facing Algeria, a member of OPEC. Unlike the severe fallout from the global pandemic, since March 2020, oil market losses have increased from the stifling crises that the Algerian government is facing.

According to the Algerian Association for the Defense of Human Rights report, Algerians living below the poverty line have jumped to 15 million, or about 38% of Algerians. Their social conditions have deteriorated, and they cannot acquire the basics of life, which means that 1 out of every 3 Algerians is living in ‘extreme poverty’.

In Algeria, poverty rose from 24 % in 2014 to about 38 % in 2021. The Association confirmed that the figures were relied upon after the census process and relied on several actors.

More than 1,400 poor municipalities lived on the subsidies of the Common Communities Fund, of which 20 million of the poorest citizens lived across 800 municipalities. In providing for citizens’ needs and day-to-day management, 30 states also rely on a fund to reduce disparities resulting from poor resources.

The Association referred to a recent World Bank report, which revealed that about 10% of Algerians are in poverty, owing to high unemployment rates, as well as high inflation of up to 9% during 2020; conversely, Algeria’s financial difficulties in recent years have caused the unemployment rate to rise by nearly 1.5% from 2019.

The World Bank calls on the Algerian Government to pay special attention to the families most in need of care during the recovery phase of the crisis, having been disproportionately affected by the negative consequences of the Covid-19 pandemic. The effects of the Covid-19 pandemic during 2020 have shown an urgent need to reform Algeria’s healthcare system to be just and equitable for all.

Construction Sector

Thanks to higher oil and gas revenues, increased public spending has revived the construction sector. Government programs to renovate physical infrastructure have also led to new highways and public transport facilities, such as urban railways and trams, and worldwide programs to address the housing crisis. New schools and other government buildings will be constructed, including the massive project of the Grand Mosque in Algiers.

Foreign companies from other Arab countries (such as Lebanon and the Gulf States) as well as Europe, China, and Turkey (which have built new residential buildings on the outskirts of major cities) do most of the construction work. All foreign companies are obliged to enter into joint ventures with Algerian construction companies. The sector is expected to continue to develop as there is a continuing need to build new housing and the Government’s infrastructure investment program is not yet complete. Like other economic activities, however, the construction sector depends heavily on the continuation of State investment, which in turn relies on developments in international energy markets.

Tourism

Tourism in Algeria is described as a sleeping giant that can drive the development of Algeria as the most prominent African country in terms of its area, diverse nature, civilization, society, civilization, and geographical and human diversity. Above all, the hospitality of the Algerian people. Algeria has essential tourism assets, particularly in the Taslai and Haqqar regions and in the desert, as well as 22 Romanian sites, of which seven are on the UNESCO World Heritage List, and 1644 kilometers of beaches. According to the World Tourism Organization, Algeria is ranked as the world’s most important tourist destination and the world’s second most important tourist destination for Roman antiquities after Italy.

People cool off in the water at el-Kettani beach
People cool off in the water at el-Kettani beach in the Bab el-Oued suburb of Algeria’s capital Algiers on August 15, 2020, as the country eases COVID-19 coronavirus pandemic restrictions. (Photo by RYAD KRAMDI / AFP)

According to the United Nations Educational, Scientific and Cultural Organization (UNESCO), the most beautiful sight of the sunset in the world is that seen at the top of the Skaram, which is found in a series of stagnant volcanic mountains in the Assekrem of Tamanrast. Studies indicate that the cave drawings in southern Algeria are the oldest in history, dating from the Paleontological period, up to 9,000 years old. Despite all this wealth, the tourism situation in Algeria seems fragile, as opposed to some individual and civil society-led attempts to promote tourism.

Algeria is one of the most accessible countries for European tourists in terms of geographical proximity, relatively low prices, and good hospitality. It also has a great variety of natural, enriching, and civilizational cultures. Each region has its distinctive character. Gant oasis, Bani Hamad castle, Mazab valley, Tasili Nagar mountain range, and Qasba of Algeria, illustrate the historical nature of the cities and regions of the north where Roman monuments, churches, and ancient buildings, the capital Algiers with its modern facilities and facilities, and the town of Oran with its Andalusian, Arab and Ottoman monuments.

According to World Bank data, international tourism revenues to Algeria accounted for 0.37% of the country’s total exports in 2019, compared to 0.44% in 2018. Given the rates mentioned above, many experts rank the tourism sector as the most backward sector in the country. Until things change, investors continue to bet on domestic and local tourism, which cannot convince more than 3 million Algerians to travel each year to Tunisia to seek better tourism services.

Banking

Six state-owned banks still dominate 95% of the commercial market, but Citibank, HSBC, BNP Paribas, Societe Generale, French banks, and the Arabian Peninsula are also active in Algeria. International money transfer services, such as Western Union, are also available.

The 2003 collapse of Khalifa Bank shook government confidence in the private banking sector, despite flaws in state-owned banks. As a result, banking reform gradually progressed in the aftermath of the 2008 global financial crisis. The privatization of the leading state-owned bank Credi Popolier Dalgery (CPA), was suspended indefinitely.

Barriers to outward cash transfers and the old domestic cash transfer system posed challenges to external investment in the country. Although the Central Bank has established a system to allow payment by cheque and credit cards, it is still very new, and many vendors have not adopted it. No checks and no credit cards are shared. ATMs are installed in some locations, including five-star hotels. Algeria remains a critical society. In late 2010, the Algerian government retroactively banned commercial loans from overseas shareholders, following the incidents of July 2019.

The Algerian Government has adopted many reforms based on economic and social requirements. With heavy regard to the laws on credit and money, in the year 1990, Algerian authorities liberalized bank activities to improve performance. As a result, the Algerian banking system changed dramatically, with 20 commercial banks, eight financial companies, and a range of foreign bank liaison offices in 2016.  

In 2020, the lending rate increased by only 3.1%, compared to 8.8% in 2019, as additional lending by banks would increase long-term risk, with some borrowers facing a weakness of sol due to the Corona pandemic.

According to available data, the credit rating agency Moodys was quick to warn of the deteriorating quality of Algerian bank assets, which could exacerbate the problem of non-performing loans of 12.3% of total loans. This called on the Central Bank of Algeria to undertake a series of actions, including the postponement or rescheduling of loan premium payments to customers adversely affected by the consequences of the pandemic, the extension of credit to clients initially benefiting from the action to postpone or reschedule their debt, as well as the reduction of the minimum liquidity rate required and the capital adequacy rate.

On April 1, 2021, the Algerian Central announced an extension of measures to reduce the negative effects of the Coronavirus on the national economy and Algerian banks.

According to Modise, these procedures would help reduce the deterioration in the quality of local bank assets. This extension is the third since the application of the process on April 6, 2020.

These actions will help reduce the decline in asset quality in Algerian banks by supporting the broader economy and keeping control of the liquidity challenges of some borrowers so that the potential of sol risks is avoided, according to a report by the credit rating agency Modez.

Nevertheless, Algerian banks are based on sound capitalization, which could help them absorb some of the losses. The ratio of allocation to capital was 14% in December 2020, compared to the minimum regulatory limit of 7%, and the capital adequacy rate was 18%, compared to the minimum of 9.5%. 

It should be noted that Algerian banks enjoy historically reasonable profit rates, with a return on assets of 2% in 2017, according to the latest available data.

Labour Force

The total labor force in Algeria (15-64 years) at the end of 2020 was 12.32 million, compared to 12.72 million in 2019. According to World Bank data, it is down about 3.15%. Females accounted for 20.13%, 19.88% of the country’s total labor force in 2018 and 2019, respectively, after reaching a historic peak of 20.40% in 2017.

A survey of the National Statistical Office in 2018 showed that 16.1% of the total workforce was engaged in construction, 16.1% in trade, and 15.8% in unhealthy public administration. 14.4% in health and social work and 11.7% in manufacturing.

The country’s private sector absorbed 6.95 million workers, or 63% of the country’s total employment, according to a survey conducted by the National Statistical Office in April 2018 regarding the labor market status in 2018.

According to DIWAN data, approximately 7 out of 10 workers are employees (69.6 %), which is higher among women, with an estimated 75.3%.

Algeria experienced a marked improvement in the unemployment rate from 29.8% in 2000 to its lowest level in 2021 at 11.5%.

Basic Indicators: 

Indicators2020
Total public revenues (billion US$)52
Total public expenditure (billion US$)65
Budget deficit (billion US$)13
Public debt to GDP (%)68
Fiscal yearالتقويم الميلادي
Inflation (%)2.4
Reserves of foreign exchange (billion US$)42
Gold Reserve (tons)173.6
Exchange rates (US$)0.0079