Econostrum | Economic News in the Mediterranean



Algeria doing well without overcoming its structural constraints

With rising oil prices, Algeria is now enjoying a degree of prosperity. However, it still faces major challenges, such as industrialisation, unemployment and dependence on hydrocarbons

Faced with a 50% fall in its foreign exchange earnings, the Algerian government has adopted a protectionist turn (photo: DR).
Faced with a 50% fall in its foreign exchange earnings, the Algerian government has adopted a protectionist turn (photo: DR).
ALGERIA. The financial crisis of 2008 did not have an immediate effect on the Algerian economy. 

But when the price of oil fell below $40 a barrel in 2009, after rising to almost $150 several months earlier, the authorities were then faced with a 50% drop in foreign exchange earnings. 

Through the Finance Act (LFC) of 2009, they then adopted a protectionist turn: a moratorium on privatisations, assistance to the public sector, preference to national companies, etc.

The economist Brahim Gacem, who was requested by econostrum.Info, says that “the first measure adopted by the Algerian government (which was positive) to prevent a deterioration in the balance of trade was to restrict imports.” 

According to the President of the FCAS (Forum of Algerian Competences in Switzerland) and Head of the Business & Management University of Geneva,  “Algeria has not developed an original strategy to stimulate development in Algeria, but rather implemented traditional measures to boost economic growth and development, with colossal budgets announced in different five-year plans and initiatives on the ground.”

“Economic patriotism” confirmed in 2010

Brahim Gacem, President of FCAS (photo: AB)
Brahim Gacem, President of FCAS (photo: AB)
The LFC of 2010 reinforces the right of pre-emption of the State and state-owned enterprises enshrined in LFC 2009 in the event of the sale of shares of foreign shareholders. 

The Capital Distribution Law will even apply to old companies in the event of an amendment to the registration of the same with the Commercial Register, changes in their share capital, the discontinuation of one or more activities or the addition of other activities, etc. 

The development programme for 2010-2014 (€108.3bn) will mainly benefit Algerian businesses, with some invitations to tender being reserved solely to domestic companies. 

The amended Money and Credit Law requires all foreign investors who wish to open a bank or financial institution to do so in partnership with shareholders who are majority Algerian-owned (51%). 

In agriculture, foreign nationals will not be allowed to buy land under the new law on the exploitation of State-owned private agricultural land.

A sound financial position

Today, as a result of the improvement in oil prices, Algeria’s finances are in excellent shape. At the end of the first half of 2010, treasury reserves reached €2.9bn.

In September 2010, forex reserves reached €111.544bn. 

The balance of the Income Stabilisation Fund, which is financed by the differential between the actual price of a barrel of oil on international markets and the price used by the government when drafting the Finance Act ($37, or €27.02), stands at €29.75bn.

Finally, Algeria’s external debt fell to €2.9bn in 2010.

The economy faces the same structural challenges

For each $1 of exports to Europe, Algeria imports $20 (photo: DR).
For each $1 of exports to Europe, Algeria imports $20 (photo: DR).
However, youth unemployment remains high (25%), inflation is persistent (5.41% in June 2010), deindustrialisation continues, structural dependence on hydrocarbons continues and a budget deficit of €38bn has been forecast for 2010. 

Faced with widespread public discontent, the government has agreed to significant wage increases, in particular in the civil service (education, health, higher education, etc.). 

In order to contain corruption – tax evasion costs the treasury close to €2bn in lost revenue each year – the government has adopted a new Public Procurement Code that renders small over the counter transactions exceptional. 

Foreign operators who wish to participate in international invitations to tender must do so in partnership with a company incorporated under Algerian law and which is majority-owned by Algerian residents. 

According to Brahim Gacem, considerable efforts are being made to boost economic activity and guarantee the minimum social income. As regards prospects for the Algerian economy, the FCAS   President has emphasised that “efforts to consolidate basic infrastructure must continue and, in particular, to adopt a clear policy to open up the market (smaller presence of the State in production). The private sector must contribute to growth and development. The State must focus much more on these official actions and, of course, continue to protect strategic sectors and businesses.”       

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Amal Belkessam, à ALGER

Monday, October 15th 2012

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