The economic context of Algeria

Economic Indicators

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The Algerian economy is mainly driven by hydrocarbons and public investment, with the former accounting for 40% of GDP, 94% of exports and one-third of fiscal revenues. In 2022, the country benefited from high energy prices and the increased demand from Europe that followed the EU sanctions against Russia: overall, the IMF estimated growth at 4.7%. In the same year, non-hydrocarbon GDP growth was projected to accelerate to 3.2%, from 2.1% one year earlier (IMF), despite the erosion of household purchasing power caused by food price-driven inflation. For 2023, GDP growth is forecast at 2.6% amid lower investment (especially in the private sector), with a further deceleration for 2024 (2% according to the IMF).

In recent years, continued large fiscal and external current account deficits have reduced policy space as public debt increased significantly and international reserves declined (IMF). The situation improved only partially in 2022, as higher hydrocarbon revenues contributed offsetting the government's operational and capital expenditure and the large share of social transfers (estimated to account for around 9.5% of GDP according to Coface). Nevertheless, such a strong dependence on oil prices underlines the need for economic diversification, especially toward petrochemicals, gas and agricultural products that have high export potential. After soaring following the COVID-19 crisis, the public debt-to-GDP ratio decreased to 62.7% in 2022, but it is expected to follow an upward trend over the forecast horizon, at 70.3% this year and 75.6% in 2024 (IMF). Overall, Algeria’s external debt level is very low (less than 3% of GDP) but could increase in the event of adverse shocks or if fiscal deficits widen. Foreign exchange reserves have been falling since 2013, decreasing from USD 195 billion to USD 53.5 billion in September 2022. Inflationary pressures have intensified due to higher international food prices and an episode of drought: the annual average inflation rate reached 9.7% in 2022, a level not seen in 25 years. The central bank has taken actions to control price pressures, but monetary policy remained accommodative, and the IMF expects inflation to remain high in 2023 (8.7%) and 2024 (9.3%). The new Government Action Plan comprises a wide range of reforms to support the transition towards a more diversified and sustainable economy and bolster governance and social cohesion, for example focusing on the mining sector (iron, phosphate), in accordance with the 2021-2023 national mining programme. Moreover, the country is looking for ways to reduce its dependence on gas for power generation by investing in solar energy.

According to IMF estimates, unemployment hit 13.7% of the population in 2022. As per the World Bank, unemployment is highest among youth, women and graduates due to skills mismatch in the labour market. With a youth unemployment rate above 30%, in 2022 Algerian President Abdelmadjid Tebboune announced a new unemployment benefit for first-time jobseekers aged 19 to 40. There are also big differences between living conditions in cities and rural areas, and instability caused by radical groups on Algeria's borders remains a risk factor.

Main Sectors of Industry

Agriculture accounts for 13% of GDP and employs 10% of the workforce (World Bank, latest data available). The main crops are wheat, barley, oats, citrus, wine grapes, olives, tobacco and dates. Algeria produces a large quantity of cork and is an important livestock farmer. In late 2020, the government introduced a 2020-2024 roadmap strategy to develop the soft wheat, maize, sugar and oilseeds sectors with the aim to reduce the annual food import bill (FAO). According to official governmental figures, the production of cereals reached 41 million quintals in the 2021/2022 agricultural season, an increase of 48% compared to the previous one, while the production of legumes increased by 20% and that of potatoes by 30%.

The secondary sector represents 20.3% of GDP, employing 30% of the active population. The oil and gas sector accounts for most of the federal income and almost all of its export income (it represents over 90% of total exports). Algeria is among the top five largest gas exporters in the world, it ranks 16th in oil reserves and 10th in confirmed gas reserves. The ores mined in large quantities are iron, lead, phosphate, uranium, zinc, salt and coal. The main activities of the manufacturing sector are industrial food processing, textile products, chemical products, metals and construction materials. The manufacturing sector alone accounts for 26% of GDP. Figures from the Ministry of Industry show that in 2022 the public industrial sector recorded a growth rate of over 8%, mostly thanks to a raise in energy exports, favoured by the EU sanctions against Russia.

The tertiary sector contributes to 44% of GDP and employs 60% of the workforce. Algeria's banking sector is dominated by public banks, which suffer from high levels of non-performing loans to state-owned enterprises. Of the 20 banks operating in Algeria, six state-run banks retain the lion’s share of the market. With over 1,600 km of Mediterranean coastline, important cultural and historical sites, and the striking desert landscapes of the Sahara, Algeria has long held considerable potential for tourism. Nevertheless, the sector still accounts for a small part of GDP.

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	10.3	31.0	58.6
Value Added (in % of GDP)	11.4	42.3	42.2
Value Added (Annual % Change)	4.0	1.7	4.1

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:

49,7/100

World Rank:

162

Regional Rank:

13

 

Business environment ranking

Definition

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:

4.47/10

World Rank:

76/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Sources of General Economic Information

Ministries

Ministry of Industry and Mining
Ministry of Commerce

Statistical Office

The National Office of Statistics

Central Bank

The Bank of Algeria

Stock Exchange

SGBV Algiers Stock Exchange

Economic Portals

Algerian portal for political, economic, IT, sports and cultural news in Algeria and worldwide.