Algeria Economy Facts

by ebizdir · Published January 30, 2023 · Updated February 22, 2023

Economical overview

Oil and gas recovery is the backbone of Algeria’s economy. It normally accounts for around one-third of gross domestic product (GDP), up to two-thirds of government revenue and basically the entire export value. The large dependence on a sector makes the economy sensitive to external circumstances, which becomes especially evident when the world market price of oil falls.

Growth averaged around 3 percent over a ten-year period, but turned downward with an international decline in oil prices in 2014, which cut Algeria’s export revenue by half. The first half of 2018 saw the worst half-year figures since 2000. Growth was below 1 percent. The budget deficit had increased sharply.

Countryaah.com: Major imports by Algeria, covering a full list of top products imported by the country and trade value for each product category.

The fall in oil prices also led to large current account deficits (financial transactions with the outside world) for the first time since the 1990s. However, the foreign exchange reserves were large and the external debt was small, so the situation did not immediately become acute. Decreasing oil production had also contributed to greater investments in the gas industry.

In 2019, Algeria is estimated to be Africa’s third largest oil producer – and ninth largest among gas producers in the world. Oil prices had recovered so much that the state’s oil revenues increased again. The World Bank made a cautious forecast of growth for 2019-2020. But in March 2020, when an international oil price war and a virus pandemic collapsed, Algeria’s new government announced that cuts in the state budget would be necessary. The oil price war started by Saudi Arabia (in search of new market shares since demand from China declined) had lowered international oil prices to levels well below the assumptions of future revenues on which the Algerian state budget was based. The currency reserve had also shrunk, and now the numbers had begun to become worrying: from $ 180 billion in 2014 to $ 62 billion in February 2020. The government decided to postpone some government projects and gave orders for savings. However, it was hoped to be able to secure the salaries of the government employees and the state’s expenditure on health care and education. Government debt was still low: below 2 percent of GDP.

Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including DZA which represents the country of Algeria. Check findjobdescriptions to learn more about Algeria.

The state oil and gas company Sonatrach controls around 80 percent of the sector and is a major gas supplier to Europe. The oil and gas money is invested in a government fund for public investment. The state also largely dominates the economy. The former planning economy was opened up for private initiatives during the 1990s, trade was liberalized and many subsidies were abolished. But the private sector is underdeveloped and lacks resources.

Sonatrach has always been regarded as closely tied to the government. A corruption havoc within the company that began to emerge in 2009 has shaken the country. Investigations concerning foreign suppliers and bribery in the multi-million class have led to convictions against a number of people, including the former CEO of the oil company. The change of heads has been frequent, in 2017 it was noted that Sonatrach has had ten different top managers over the course of ten years. A former energy minister was suspected of interference but left the country. There are estimates that the government loses billions of dollars each year due to corruption in the oil sector.

Sales of state-owned companies were slow for a long time. Since 2009, the state must own at least 51 percent of joint ventures with foreign companies. The restrictions, combined with the threat from militant Islamists, have forced foreign investors to do business with Algeria. Security risks became clear in 2013 in connection with the attack on a natural gas plant in In Amenas. In 2019, Parliament passed a bill allowing increased ownership, including in the oil and gas industry, but not in companies of strategic importance.

The oil and gas industry provides few jobs. High unemployment, especially among young people, is a constant scourge.

Dependence on food imports is high, which is defined as a problem, especially since falling oil prices mean that export revenues fall. With hopes of a sharp increase in cereal crops in particular, large investments were initiated in 2014 on improved technology and financial support for farmers (see Agriculture and Fisheries). At the same time, the agricultural sector was opened up for foreign investors to participate in joint projects. In 2018, the investments appeared to bear fruit, according to state statistics, agriculture has shown good development. However, both agricultural experts and farmers warn that bureaucracy often stands in the way when investments are to be put into reality.

In addition to food, machinery and consumer goods are mainly imported. China has in recent years become the single largest country from which Algeria buys goods, almost a fifth of Algeria’s imports come from there. However, the EU is still the most important trading partner. Both oil and gas exports go mainly to the EU.

The country’s largest port is in Algiers. The port was privatized in 2009 when renovation and expansion also began. International airports are located in Algiers, Constantine, Annaba and Oran. With the help of foreign companies, during the beginning of the 21st century, a major investment was made in the capital of Alger’s infrastructure. In 2011, the first subway line was opened, with ten stations. Algae thus became the second city in Africa to get a subway, after Cairo in Egypt.

Many of the road and rail extensions that have taken place in recent years have been carried out by Chinese companies, with Chinese personnel. Among three paved roads from north to south are Algeria’s part of a trans-Saharan road from the Mediterranean to Nigeria.

Algeria signed an association agreement with the EU in 2005. Since then, a number of trade restrictions on trade with the EU countries have been abolished. The US was previously an important exporting country, but sales of oil there have slowed. (In the US, domestic production of shale oil has increased rapidly.)

Algeria became a full member of the Arab Free Trade Zone (Gafta) in 2009, whose goal is to create a duty-free area throughout North Africa and the Middle East. Since 1987, Algeria has strived to become a member of the World Trade Organization (WTO). Negotiations began in 1998, but they have been slow.

The country also participated when 44 African states signed a new free trade agreement, AFCFTA, in March 2018. The agreement must be ratified at national level before it can come into force but is seen by many as an important step towards increased trade exchange within Africa.