Algeria's Economic Promise: Will It Be Enough?

By Smith, Pamela Ann | The Middle East, April 2011 | Go to article overview

Algeria's Economic Promise: Will It Be Enough?


Smith, Pamela Ann, The Middle East


WHILE THERE IS LITTLE DOUBT THAT ALGERIA'S population of 36 million faces many of the same problems as in Egypt, the North African country has far greater resources of oil and gas, which could be used to ameliorate the escalating cost of living and to tackle the extensive unemployment and underemployment, particularly among its youth. But, as elsewhere in the Arab world, much will also depend on the willingness of the government to allow peaceful protests, to curb widespread corruption and to reform the political system, economy and society.

After a dismal performance in 2009, Algeria's revenues from its hydrocarbon exports last year rose by almost a third, from $43 billion to just under $56 billion. This year they are expected to be even higher as a result of the rise in global oil prices and a recovery in international demand for gas. Algeria's new Medgaz pipeline under the Mediterranean to Spain is due to begin full operations this spring and a new trans-Saharan gas link to Nigeria is also being developed.

The sector, which accounts for more than 96% of the country's export income, should also flourish this year thanks to a programme of intensive investment in new projects which has followed a crackdown on corruption in the state-owned oil and gas company, Sonatrach, and the appointment of a new energy minister, Youcef Yousfi. Some $60 billion is to be invested in new oil and gas facilities between now and the end of 2015. Of this, according to a statement issued by Yousfi in January, 57% will be focused on new exploration and production. This year alone, investment in new exploration projects is due to rise by 40%, he added.

The strong performance of hydrocarbons helped to push up GDP growth by 4.1% in 2010 to $153 billion. This is expected to rise to $164 billion by the end of next year, according to expert forecasts, even though some slowing in economic growth is predicted due to the social unrest. However, industrial growth should remain strong, increasing by an estimated 4.8% this year, 4.7% in 2011 and an impressive 5.8% in 2010. This could offset sharp falls in the services sector and a decline in agricultural output over the next two to three years.

The country's international financial reserves are another strong point. They amounted to no less than $158 billion in 2010, despite sharp falls in the country's current account balance over the past few years, thanks in part to earnings on Algeria's huge foreign assets and by the end of 2012, they are expected to reach 175 billion. Algeria's external debt is just 2.9% of GDP, compared to 14.3% for Egypt and a staggering 463% for Tunisia.

Current government policies are aimed at diversifying the economy, forming new partnerships with foreign companies and, above all, creating jobs. Some $150 billion is being invested in infrastructure and utilities under the latest five-year plan, which ends in 2014. This includes work on a new trans-Maghreb highway and the development of another transcontinental route across the Sahara.

Special regional programmes have been launched for the underdeveloped parts of the country, particularly the central highlands and the south, where Islamist elements sympathetic to Al Qaeda continue to operate. Climate change and the development of renewable energies are now priorities as part of government plans to prepare the country for what Yousfi calls the "post-petroleum era".

Industrial development is seen as vital to the achievement of these goals, particularly those sectors that have the highest potential for growth. These include factories and processing facilities for the country's primary resources, many of which remain relatively untapped. Aside from petrochemicals, fertilisers, steel and non-ferrous metals, building materials and construction-related manufacturing is also being targeted for state funds. Existing activities such as agri-business, pharmaceuticals, and the assembly of imported electrical products, are being expanded to cater for both exports and domestic demand. …

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