Algeria: Fifty Years After Independence, Slow Progress To Prosperity

Oil-rich Algeria is celebrating its fiftieth year of independence from France this year. While its economy is either the third biggest on the African continent (behind South Africa, Libya and tied with Nigeria), Algeria remains relatively undeveloped and has been scarred by an Islamic insurgency that killed up to 150,000 people – perhaps many more -- during the 1990s.

While political instability has greatly eased in recent years, much of the Algerian public remains burdened by poverty, high unemployment, poor public services and entrenched government corruption.

Amazingly, the “Arab Spring” turmoil that has spread across the Middle East over the past year and largely left Algeria unscathed. Aside from some riots over food prices and some separatist agitation by the minority Berbers last year, Algeria, which borders Tunisia and Libya, remains relatively peaceful.

International Business Times spoke to an expert on Algeria to discuss the nation’s economy.

Edward Bell is a London-based economist at the Economist Intelligence Unit, and is an expert on Middle East and North African countries.

IB TIMES: On the 50th year anniversary of Algeria’s independence from France, how would you assess the current state of Algeria’s economy?

BELL: Algeria's economy remains below potential, in our view. It has a young, relatively well-educated population and large hydrocarbons reserves so it should be able to achieve growth rates well above the average of about 2.6 percent that it has recorded in recent years when oil prices have been very high.

IB TIMES: Algeria has long imposed a Socialist-style, state control of its economy -- has this hampered the country’s economic growth? And are they moving away from this model?

BELL: The government continues to play a large role in the economy as the private sector did not develop during the period of intense civil war in the 1990s.
Since 2008 the government has tightened restrictions on foreign investors -- but now it may accept the fact that it will have to rescind some elements of this policy, particularly in the oil and gas sector.

IB TIMES: Algeria is an oil producer and a member of OPEC. Have they started to diversify the economy away from its over-dependence on the energy sector?

BELL: Algeria began a period of diversification in the 1970s with government-led investments in heavy industry. However, the country remains heavily dependent on the oil and gas sector -- it contributes over 95 percent of export revenues.

Industries slated for expansion include metals -- Algeria already has a steel plant but there are plans for aluminium as well – and autos.

Algeria has been in negotiations with French car manufacturer Renault about setting up an assembly plant, but these talks have been lengthy and may not amount to much as Renault already has an export-oriented plant in neighboring Morocco.

IB TIMES: Is France, the former colonial ruler, Algeria’s top trading partner? Is France heavily invested in Algeria? Who are Algeria’s principal oil and gas importers?

BELL: France is Algeria's largest import supplier -- the North African country buys a significant share of wheat from France -- but its largest export market is the United States, which takes a large share of Algeria's oil exports.

French companies have been active in Algeria in winning contracts and investments – for example, the operator of the new Algiers metro is the same company that runs the Paris metro.
However, Algeria has been trying to encourage investment from other countries as well.

The UK and US -- mainly through oil and gas companies -- have significant exposure to Algeria, as do some other European companies such as Italy.

The major consumers of Algerian oil gas are the United States, Italy, France, Spain, Netherlands and Turkey and Canada.

IB TIMES: Does Algeria depend heavily on remittances sent by Algerian immigrants living in France?

BELL: Algeria is less dependent on remittances than other countries in North Africa (such as Morocco) as it receives most of its foreign currency receipts in the form of oil exports.

IB TIMES: Algeria has just opened up its stock exchange to foreign investors. Do you expect this bourse to attract much in foreign investments?

BELL: The opening up of the stock market to foreign investors is unlikely to draw in significant funds as there are very few listed securities and Algerian companies have so far been very hesitant to list publicly.

IB TIMES: Does have a well developed banking and financial system?

BELL: Algeria's financial system is dominated by state-run banks which own more than 90 percent of the banking system's assets. One of the reasons Algeria avoided the major effects of the credit crunch in 2008-2009 was because its financial system is poorly integrated with the international financial system.

IB TIMES: What is the unemployment rate in Algeria and has this figure been declining in recent years? Are Algeria’s youth crushed by joblessness?

BELL: Unemployment has actually been declining overall in recent years, down to 10 percent in 2010 from as high as 25.7 percent in 2002 -- but youth unemployment remains a problem.
The government has tried to address this by creating government jobs but these may not be a long-term solution to dealing with youth unemployment.

IB TIMES: Algeria appears to have largely avoided the turmoil sweeping across the Arab world. Does this suggest the country is “stable” and, therefore, an attractive place to invest?

BELL: Algeria suffers from many of the problems that led to unrest in its peers in North Africa and the Middle East -- high youth employment, a lack of political expression and poor economic prospects for many people -- but avoided much of the unrest due to some legitimate “release valves” such as permitting a relatively independent press.
The experience of the civil war in the 1990s has cast a long shadow on the potential of unrest spilling out of control, meaning Algerians are well aware of the consequences of social upheaval.

IB TIMES: What is your near-term outlook for Algeria’s economy?

BELL: Algeria's growth rates will be modest despite its resource endowment and the government's ample financing capabilities. We expect it to grow by 2.9 percent in 2012 and 4.3 percent in 2013, when new oil facilities become operational and thereby increase overall production.