Algeria: Economy

The hydrocarbons sector is the backbone of the Algerian economy, accounting for roughly 60% of budget revenues, nearly 30% of GDP, and over 97% of export earnings. Algeria is the fourth-largest crude oil producer in Africa. In 2009 Algeria produced 2.13 million barrels per day of oil liquids, of which 1.33 million barrels per day was crude oil. Algeria has the tenth-largest reserves of natural gas in the world and is the sixth-largest gas producer (2008). Algeria produced 3.05 trillion cubic feet of natural gas in 2008, 69% was exported. Its key oil and gas customers are Italy, Germany, France, the Netherlands, Spain, the United Kingdom, and the United States. U.S. companies have played a major role in developing Algeria's oil and gas sector; of the $5.3 billion (on a historical-cost basis, according to statistics gathered by the U.S. Department of Commerce, Bureau of Economic Analysis) of U.S. investment in Algeria the vast bulk is in the hydrocarbon sector.

Faced with declining oil revenues and high-debt interest payments at the beginning of the 1990s, Algeria implemented a stringent macroeconomic stabilization program and rescheduled its $7.9 billion Paris Club debt in the mid-1990s. The macroeconomic program was successful at narrowing the budget deficit and at reducing inflation from near-30% averages in the mid 1990s to almost single digits in 2000. The government reported an inflation rate of 5.7% in 2009 and an economic growth rate of 3.9%. The country's foreign debt fell from a high of $28 billion in 1999 to $4 billion in 2008. The spike in oil prices at various times this decade, along with the government's tight fiscal policy and positive trade surpluses based on oil exports, have led to a tremendous increase in the country’s foreign exchange reserves, which reached nearly $145 billion in 2008.

The government seeks to diversify the economy by attracting foreign and domestic investment outside the energy sector but announced several economic policies in 2008 and 2009 that would strengthen Algerian Government control over foreign investment projects. Algeria adopted a “complementary finance law” on July 22, 2009, which imposed new restrictions on foreign investment, import companies, and domestic consumer credit. The law requires a minimum of 51% Algerian partnership in new foreign investments, a 30% Algerian partnership in all foreign import companies, and payment of all imports by letters of credit opened by banks. The Algerian Government has had little success at reducing high unemployment--officially estimated at 10% in January 2009, though international estimates put the figure much higher--or at improving living standards.

Policies needed to modernize the economy and increase growth are banking and judicial reform, improving the investment environment, partial or complete privatization of state enterprises, and reducing government bureaucracy. The government has privatized or closed some state-owned enterprises in certain sectors of the economy and allowed joint venture investment in others. In 2001, Algeria concluded an Association Agreement with the European Union, which was ratified in 2005 by both Algeria and the EU and took effect in September of that same year. The government continues to expresses interest in working toward accession to the World Trade Organization.

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