ALGERIA AT A GLANCE

Tahraoui Khedidja

【Abstract】Algeria has always been known for the fertility of its soil. The agriculture sector contributed to around 8.3% to the GDP and employs around 13.4% of the labor force. An area of more than 30，000 sq km is used to produce cereal grains. A large variety of vegetables and fruits especially citrus fruits， are exported. Algeria also exports figs， dates， esparto grass， and cork. Algeria is the largest oat market in Africa. While there has been progress towards gender equality， such as a 30% quota for womens participation in political parties； Algeria is still lagging behind other middle income countries in terms of womens economic and political empowerment. Algerias United Nations Human Development Index （HDI） continues to improve and its HDI places it above the regional average.

【Key words】Algeria；Challenges；Export；FDI；The World bank

0.Introduction

The Algerian government continues to face challenges of unemployment which is as high as 10%，corruption，bureaucratic resistance and poor standards in public service.

In a global ranking， Algeria occupies 7th place for natural gas reserves and 16th for oil①. In terms of global output it already features 6th and 13th， respectively. The government has announced plans to boost oil production from 1.3 million barrels per day now to 2 million bpd in 2010 and to increase gas production to 85 billion cubic meters per year. However， this could further reinforce the already dominant position of the energy sector in the Algerian economy. In 2007， the energy sector accounted for 97% of Algerias goods exports， 81% of fiscal revenues and 46% of total economic output. Since this blessing may rapidly turn into a curse if energy prices plummet， one of the governments main objectives at present is to foster diversification of the economy. High hopes are being pinned on the transport， tourism， construction and IT sectors.

1.Algeria economy-overview

In recent year that saw many countries in the middle East and North Africa Region rocked by revolution， government changes and political reforms， Algeria has largely been spared large-scale unrest .Nonetheless ，unemployment and un underperforming private sector remain key challenges for oil exporting country， and government has slowly enacted structural reforms to bolster the non-hydrocarbon economy .in an effort to speed its integration with the global economy ，Algeria has moved forward with reforms to became a WTO member， signing live additional bilateral trade agreements in the beginning of 2012②.Algeria continues to support the development and the financing of SMEs in the country in an effort to spur additional employment generation and private sector growth. According to official data， unemployment has been declining；reaching 10% in 2010， down from 10.2% in 2009，but youth unemployment remains high at 21% （2010）.

The 2009-2014 development plans， for the construction of housing and public facilities is expected to create up to 2 million new jobs. Algeria posted an estimated fiscal deficit of 4 % of GDP in 2011， the third consecutive deficit in over a decade， and the deficit is expected to rise to 6 percent in 2012 because of heavy public spending. However， Algeria holds significant foreign exchange reserves， estimated at US$193 billion （September 2012） to finance its deficit and its explanatory fiscal policy.

Algerias economy depends on the stability of hydrocarbon prices， access to and quality of basic services and the development of the countrys infrastructure. GDP and non hydrocarbon GDP growth for 2012 are estimated at 3.1 percent and 5.3 percent， respectively. Inflation in 2012 has risen to 9.1 percent fueled by a surge in fresh food prices， （12.1 percent as of June 2012） but also high public spending. The medium-term outlook remains positive， as Algeria will continue to benefit from high hydrocarbon prices. Added efforts will still be needed to reduce economic and regional disparities， and to generate sufficient employment for the increasingly educated and young labor force.

2.Economic Performance over 12 Months

Algeria has enjoyed several years of strong economic performance driven by public spending. However， declining demand for energy exports affected the economy in 2009. While the non-hydrocarbon sector enjoyed growth of around 9% in 2009， due to a good cereal harvest and the strength of the service and construction sectors， hydrocarbon production fell by up to 7%， and the overall economy grew by an estimated rate of just 2%， down from a provisional 2.4% in 2008.

However， the slowdown had a positive impact on inflation， which fell to an annual rate of 5.5% in February 2010， down from 5.7% in the same period in 2009. Inflation would have fallen to even lower levels but for a surge in fresh food prices in 2009， caused by structural shortcomings in the supply chain.

Thanks to its oil and gas exports， Algeria currently runs a trade surplus. However， lower global oil prices reduced Algerias trade surplus to US$4.2 billion in the first 11 months of 2009 from US$36.35 billion in the same period of 2008， according to official figures. The country recorded a small current account surplus in 2009， and official reserves have grown by US$3 billion since the end of 2008， reaching US$146 billion at the end of September 2009 （equivalent to three years of imports）.

The countrys GDP， in terms of purchasing power parity， amounted to in excess of US$240 billion in 2009， and Algeria continues to build up its foreign reserves， despite the downturn.

Algerias bid to be accepted into the WTO hinges in part on the countrys ability to introduce robust intellectual property protection laws.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.

3.Algeria FDI

Algerias Supplementary Finance Law of August 1990 introduced a system of concessionaries and wholesalers that 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）③， created in 2001.Algeria， as one of many developing countries， has increasingly come to see FDI not only as a source of economic development， but also a tool for modernization， growth of income， employment， etc. This is reflected by the current economic reforms and policies to improve the conditions to attract more FDI and maximize its benefits in the domestic economy. Since this new initiative， Algeria has become much more liberal in its economic policies， aiming to attract more FDI and increase its economic growth， aiding to alleviate poverty.In fact， Algeria is one of many competitors in this arena and offers its investors a range of attractive assets. This explains why the country has been successful over the last few years in attracting FDI inflows， especially in the energy and extractive sectors， as compared to the other potential sectors that encompass the entire country. The foreign-invested sector is now an important element of corporate Algeria， therefore becoming an important engine for economic growth in the country.

For Algeria， FDI has shown marginal impact on Algerian economic growth， in the areas of finance， employment， transfer of technology and export structure （UNCTAD， 2004）. The marginality was mainly due to the persistent effects of political unrest， being late on the scene with a real and true openness， as well as an investment framework with a weak investment policy. However， it seems that FDI can play a positive role in facilitating the transition process of Algeria to an open economy. In this sense， Meliani et al. （2001） conclude that “FDI promises to be extremely decisive in smoothing Algerias transitional process④.”

4.Could the new regulation on FDI promote diversification？

In an effort to increase the competitiveness of the economy， the authorities launched in 2004 a US$200 billion public investment program （PIP） to enhance or build new infrastructure. Moreover， a set of rules （such as trade liberalization，public sector enterprise restructuring and privatization， support to private investment or financial sector reforms） were adopted in since the late 1990s to help promote the diversification of the economy based on a vibrant domestic private investment sector. So far， the adoption of these measures had mixed results and has failed to boost domestic private investment in a significant way.

The 2009 Supplementary Budget Law⑤ and the 2010 addendum to the money and credit law introduced new foreign direct investment rules （FDI）， which could have important economic consequences for Algeria. The two main objectives of this section are to explain the potential effects of the new FDI rules on export diversification and the importance of export diversification for commodity exporters. To provide useful policy lessons to Algeria， we present a discussion on the benefits of export diversification and the importance of FDI in achieving this goal. Several commodity exporters that had successful export diversification strategies （e.g. Chile， Colombia， Indonesia or Malaysia） relied heavily on FDI to foster diversification.

5.Conclusion

The country has made strong gains in socio-economic indicators such as access to universal education and gender equality. Primary education rates were 96% and the ratio of females to males in primary education enrollment was 0.94 in 2010. Improvements have also been made in the health sector and in reducing the spread of HIV/AIDS； however service delivery is still weak. The World Bank （2009） provides the following lessons for Algeria：

First， infrastructure development and macroeconomic stability are essential for export diversification. Algeria should be praised for its efforts to maintain macroeconomic stability and develop infrastructure.

Second， open FDI regimes are essential for the development of a private sector-led export sector⑥.

Third， a good business climate is important for export diversification.

Fourth， trade openness is essential for opening new markets for export products. Successful diversified commodity exporters followed aggressive trade openness strategies， joined the World Trade Organization （WTO）， and signed numerous free trade agreements.

Fifth， the service and tourism sectors play a positive role in export diversification. The World Bank （2009） shows that export diversification can be achieved through very different paths that do not require the export of physical goods.

Sixth， successful export diversification can be state-driven or not： there is not a unique recipe for success. Algeria has traditionally promoted economic development based on strong public sector participation.

Seventh， export support institutions， like export promotion agencies and export promotion zones⑦， are instrumental in advancing export diversification.

Eighth， targeted and adjustable export support policies can help the development of the export sector.

While there has been progress towards gender equality， such as a 30% quota for womens participation in political parties； Algeria is still lagging behind other middle income countries in terms of womens economic and political empowerment. Algerias United Nations Human Development Index （HDI） （96thamong 187 countries） continues to improve and its HDI places it above the regional average.

【References】

[1]Dutch bank research： Algeria Mediterranean state with a wealth of natural resources，April，3，2008.

[2]World Bank data.

[3]CIA World Factbook except where stated， Algeria， QFinance， www.QFinance.com.

[4]Meliani et al.，“Economic reforms and FDI，” in；Algeria in Transition：Reforms and Development Prospects，edited by Redha M.Bougherira，New York：Routledge Curzon studies in Middle Eastern Policy，2001：87-100

[5]The new rules were adopted through the 2009 Supplementary Budget Law issued on July 26，2009（see http：//www.joradp.dz/JO2000/2009/044/F_Pag.htm）.

[6]Algeria：Selected Issues Paper，2011，International Monetary Fund.