Algeria: Economy

Population growth and associated problems--unemployment and underemployment, inability of social services to keep pace with rapid urban migration, inadequate industrial management and productivity, and a decaying infrastructure--continue to affect Algerian society. The government began an economic reform program in 1994, focusing on macroeconomic stability and structural reform, which has met with some success in certain sectors. At the start of his third term in office, President Bouteflika announced that his 5-year plan (2009-2014) would include an increase from $120 billion to $150 billion in spending to improve national infrastructure, create three million jobs, and build one million new homes.

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). The country 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%. Increases in the production and prices of oil and gas over the preceding decade led to foreign exchange reserves exceeding an estimated $150 billion in 2010. The spike in oil prices at various times in recent years, along with the government's tight fiscal policy and positive trade surpluses based on oil exports, brought foreign exchange reserves to nearly $180 billion (est.) as of January 2012.

The Algerian Government has had little success at reducing high unemployment--officially estimated at 10% in February 2011, 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.

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.

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 express interest in working toward accession to the World Trade Organization.

Sources:

CIA World Factbook (January 2012)
U.S. Dept. of State Country Background Notes ( January 2012)

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