Gas Field Attack Deals a Blow to Algeria's Economic Hopes

Article excerpt

The country is heavily dependent on oil and natural gas and has been desperate to attract foreign investment.

It is telling and a significantly deep blow to the Algerian economy that the militant attack and hostage-taking in that country has occurred at a foreign-run natural gas field.

Algeria's economy, though far from vibrant, is heavily dependent on its oil and gas industry. And the country has been desperately trying to attract foreign investment -- something that the hostilities at the joint venture owned by BP, Statoil and the Algerian state company, Sonatrach, is unlikely to help.

"I wouldn't be surprised if those investors Algeria might be courting are even more wary now than they were before," said Rachel Ziemba, a Middle East analyst at Roubini Global Economics in London.

The Algerian economy remains among the most state-dominated among the Arab countries, with few private businesses of any size and little foreign investment. Energy extraction accounts for about 60 percent of government budget revenue and 97 percent of Algeria's exports, according to the C.I.A. World Fact Book. But oil and gas are not big employers, making them of little help in producing jobs in a country of about 38 million people and 10 percent unemployment.

With a per capita gross domestic product that works out to about $7,300 a year, Algeria is somewhat wealthier within the Arab world than Egypt, at $6,500, but far behind true oil-wealth emblems like Qatar, where per capita G.D.P. is nearly $100,000.

And even the energy exports have stagnated over the past five years. Moreover, the government would need an oil price of $121 a barrel to balance its books, the International Monetary Fund estimated in November. With oil prices currently in the $110 range, relief is not in the immediate offing.

A slow pace of investment has caused Algerian natural gas production to decline more than 10 percent from 2005 to 2011. And its share of natural gas imported by Europe has also fallen, to 14 percent in 2010 from 21 percent in 2002, according to the European statistical agency Eurostat.

Until recently, the government was unwilling to spend its oil and gas earnings, building up reserves of around $180 billion. After the Arab Spring revolutionary movements began in neighboring Tunisia and Libya in 2011, and food riots in Algeria later that year, the government opened up the taps, spending more on subsidized staples - - and imported military equipment.

Last September, amid worries that Algeria could be buffeted by the same forces that have toppled other governments across North Africa, the government, which has been headed by president Abdel Aziz Bouteflika, brought in a technocratic prime minister, Abdelmalek Sellal, with some leeway to court private investment. …