Ahead of Spring in Algeria: Tough Energy and Economic Challenges Await

Notes internacionals CIDOB, núm. 32

Algeria has remained uncharacteristically calm since the winds of change started sweeping across the Arab lands five months ago. But the country will not stay for ever immune from the clamour for change voiced by millions of younger people who cannot find employment and want a say in the running of countries characterised by ageing oligarchies. How the economy evolves and which policies will or will not be implemented in the coming months and years is critical to their future and to the survival of the ruling elite. This piece will focus on energy and economic challenges in a country which remains as totally dependant on the export of hydrocarbons as it did forty years ago.

On a superficial reading, the first ten years of the new millennium brought plenty of good news for the Algerian economy. Between 2000 and 2009 real Gross Domestic Product (GDP) increased at an annual average of 3.7% and real GDP per head by 22%. Unemployment declined by more than half to 10%. The economy was buoyed by a favourable macroeconomic environment marked by high oil and gas prices and very conservative macro economic policies whose consequences were wholly predictable: large fiscal surpluses and ever larger foreign exchange reserves which have reached an estimated $170bn today. The country’s foreign debt of $25bn was paid off. Agriculture for its part has seen production rise, helped by the virtual disappearance of terrorism and the long term leases available far more readily today than yesteryear. Towns and villages across Africa’s second largest country bear witness to a huge building boom Economic progress is however proving to be far bumpier than these rather bland statistics suggest. Recent developments in gas markets worldwide and depressed European gas demand leading to the sharpest contraction since 1970 have thrown up new challenges for the country’s policy makers. Algeria has failed to diversify its exports away from oil and gas: their value accounts for 98% of all foreign income and two thirds of tax receipts, figures which are unchanged from 1971. Meanwhile, the new foreign investment rules introduced in the 2009 Supplementary Budget Law and the 2010 addendum to this budget are having a negative effect on Foreign Direct Investment (FDI) and on the private sector. The bureaucracy seems intent on waging permanent guerrilla warfare on bona fide private producers of goods and services, thus depriving many young Algerians of a job they need: the unemployment rate among those who are under 30 years of age is estimated to be 21% according the International Monetary Fund (IMF).

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