Algeria

RISK ASSESSMENT

Slight rebound in growth, still mainly driven by the hydrocarbon sector and public spending

Lower than predicted in 2012, mainly because of an unfavourable international economic situation, growth is likely to rebound slightly in 2013 thanks to a moderate increase in hydrocarbons production and the continuation of a far-reaching public investment programme (housing, road and railway construction). Moreover, higher public sector salaries as well subsidies for basic necessities will sustain household consumption. As for private sector investment, growth may again be hampered by a lack of finance.
Inflation is expected to ease through the setting of food price ceilings, lower customs duties on these products and better management of their distribution.

Low public debt and strong external financial position

Despite the rise in oil revenues – representing more than 70% of government revenues – the budget deficit grew in 2012 due to higher spending (public sector salaries, social measures, infrastructure modernisation). Indeed, the public accounts have become more vulnerable to hydrocarbon prices. However the budget deficit is expected to be lower in 2013 thanks to more prudent management, with the planned restructuring of current spending and the rise in non-hydrocarbon revenues. Moreover, the hydrocarbon revenues, set aside in the Hydrocarbon Stabilisation Fund, will enable funding of the deficit and the country enjoys low public debt.
Thanks to hydrocarbon exports – over 95% of foreign exchange receipts – and to still high expected prices, the trade and current account balances will again be in surplus in 2013, despite some erosion. These exports are sustained by the start of operations in 2011 of the Medgaz pipeline between Algeria and Spain, of liquefied natural gas units in 2012 as well as, from 2013, additional oil production capacity. Moreover, the restrictive measures taken by the authorities since 2009 mean imports will remain limited, despite substantial purchases of wheat, of which Algeria is one of the largest importers in the world, and of capital goods linked to infrastructure development.
Extensive foreign currency reserves (about 3 years’ imports) reinforce an already strong external financial position. In order to diversify its assets, Algeria made a contribution of $5bn to the IMF late 2012. Thereby the country also intends to assert itself on the international scene as part of its arduous process of joining the World Trade Association.
Moreover, the active policy of paying off external debt, mainly by prohibiting businesses from borrowing abroad, keeps the debt/GDP ratio at a very low level (3%).

Political, social, security and business challenges

Against a background of uprisings since early 2011 in other Arab countries, the government has taken measures aimed at combating youth unemployment and increasing the availability of social housing in order to defuse political and social conflict.
The May 2012 parliamentary elections, marked by a high abstention rate, did not lead to the predominance of the Islamist parties, the nationalist coalition in power, composed mainly of the FLN and the RND, having kept its majority. Given the extent of the president’s prerogatives, the key date will be that of the April 2014 presidential election when A. Bouteflika is unlikely to seek another term. Following the ousting of the leaders of the two main parties in the coalition government early 2013, the outcome of its succession seems unpredictable at this stage.
Though the security situation has improved somewhat, the activism of radical Islamist groups has intensified on the country’s southern borders, as evidenced by the terrorist attack in mid January 2013 on the In Amenas gas plant.
Moreover, restrictions on imports and on foreign investments – aimed at protecting the country’s economy and promoting domestic industries – were adopted under the 2009 supplementary finance law and in the main renewed since, despite some easing. The business environment seems now to have stabilised but is hardly conducive to the expansion of the private sector and foreign investment, along with the inadequacy of the banking sector.

Population36.494 million

GDP206.545 US$ billion

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