As a market of 35m people with a hydrocarbons-driv­en economy and the strategic role of providing energy- to Europe Algeria has attracted companies from all over the world.

It was largely insulated from the glob­al financial crisis of 2008 and one of the first economies to rebound the second half of 2009, due to the rally in global oil prices. Money from oil and gas has allowed Algeria to leave behind decades of economic hardship, inflows have financed large-scale public works and vast social program. The country has also paid off the bulk of its external debt, but over-reliance on energy exports crowds out the non-hydrocarbons sector.

Oil and gas account for 55% of GDP and 98% of Export receipts, and structural reforms in recent years have been described by the IMF as "timid". The way forward is to diversify the economic base. As part of its new five-year plan, the government hopes to create 200,000 new small and medium-sized enterprises (SMEs) by 2014, and a total of 139,441 new compa­ res registered with the National Business Registry (Centre National du Registre du Commerce, CNRC) in 2008, up 4,2% over 2007, Retail was the fastest-growing segment, with 39.8% of new firms, then services, with 34.6%, and public works contractors, with 17,5%.


A World Bank report published in June 2009 ranked Algeria among the four leading nations in Africa in terms of its competitiveness and business environment, it is now part of a group of countries known informally as SANE

( south Africa, Algeria, Nigeria and Egypt). Which account for roughly two-thirds of the continent's largest com­panies and 50 of its largest banks. In 2008 Algeria alone attracted € 1.7 bn in foreign direct investment (FDI).

The IMF expects non-hydrocarbons growth to reach 9% in 2009 as a result of a bumper grain harvest. The trend will be reinforced by the government's public investment program, which has financed road construction and hundreds of infrastructure projects. However, the drop in aggregate demand for oil and gas depressed Algeria's hydrocarbons output, reducing overall GDP growth to 2%. Algeria will post its first budg­et deficit in a decade, which according to the IMF may reach 8.4% of GDP, from the 8.1% of GDP budget sur­plus in 2008. Meanwhile, official international reserves (OIRs) totaled €107 bn at the end of September 2009.

The current account surplus eroded over the year, also due to low demand for oil and gas and the high level of imports. In the first four months of 2009 Alger­ian exports fell 46.62% to €10.03 bn while imports grew by 5.9% to €9.65 bn, according to the National Statis­tics Office (Office National des Statistiques, ONS). Thus the current account balance had a surplus of only €374 m by May 2009, compared to €9.67 bn in 2008.

“By 2017 we will have a free trade area with the EU. We could see imports grow by 60% while Algerian exports to Europe stagnate. If the global recession con­tinues there will be questions” Abdelhak Lamíri, the director of the international Institute of Management (Institut international du Management), told OBG. Con­sumer prices are forecasted to rise by 5.8% in 2009, driv­en mainly by food imports. Growth in non-food prices will remain low, at an estimated 1.4% thanks to the inflation targeting policies of the central bank,

"Despite a deteriorated international environment, Algeria has continued to post good economic perform­ance. It is characterized by solid non-hydrocarbons growth, control of inflation and reduction of unemploy­ment, which remains high among Algeria's youth, Thanks to prudent financial policies and comfortable external reserves, fiscal savings have built up and external debt has been kept at a very low level, so macroeconomic performance will remain robust in 2009," said Joel Too- jas-Bernaté. The head of an IMF mission to Algiers.

The subprime crisis in the US had a devastating impact on many emerging markets. But in the case of Algeria, exposure was limited because around 85% of bank assets are held by state-owned institutions. The high level of OIRs and the managed float of the dinar, the domestic currency, also helped buffer the econo­my. In addition, the strategy of eliminating external debt was key in stabilizing the balance of payments (BoP).

By the end of 2008 external debt had dropped to 3.13bn. down from €15..64bn in 2004. Concerning FDI, opening the country's market led to net inflows of €1.71bn in 2008. up from €1bn a year earlier.


Algeria is often perceived as having a stop-start relationship with structural reforms. Political decisions can be conditioned by the short­-term outlook for hydrocarbons receipts. As long as the inflows of cash are high. policies are allowed to shift to liberalization. It is when things are less clear that polit­ical talk shifts back to protectionism.

Nevertheless. despite a rocky year and the recent volatility of oil prices. the government will not budge from its pursuit of economic liberalization. With the EU­ Algeria Association Pact and the Arab Free Trade Zone (Zone Arabe de Libre Echange. ZALE) now in effect. there is no turning back. Prime Minister Ahmed Ouyahia has said that the terms of WTO membership will not be revis­ited either. " Algeria is 100% committed to a market economy. But free markets are not synonymous with the neglect of state-owned enterprises. Those that are successful will continue to underpin our economic sys­tem." he told parliament in May 2009.

There have been many positive changes in the coun­try's investment framework, but market confidence suffered a blow when five executive decrees were issued in December 2008. Import companies were ordered to open 30% of their capital to Algerian part­ners, with non-compliant parties set to see their licenses revoked by the CNRC on December 31. 2009. "We want to fight the bazaar economy and reduce the level of imports. Which reached €29.2bn in 2008, up from €9.5bn in 2003; the prime minister said. Concerns over the BoP and the fact that the authorities see no added value in foreign importing activities were at the root of the debate. However. some think the 30% executive decree was a message directed at domestic operators seeking non-productive ways of making money.

"At the heart of government and institutions. I think they are still looking for the right formula. They worry about going too fast. Then there is a section of the pop­ulation that would like to stop the process altogether because they think the Boumediene era, with all its pub­lic companies, can continue to exist,” said Pierre Farel­la, a risk director at BNP Paribas in Algiers.

The 30% executive order was finally codified into law in June 2009. Contrary to expectations, it will not be applied retroactively. According to the CNRC. only eight of the 1846 foreign-owned importing companies had complied with the 30% provision by July 2009.

The decree that FDI projects can only be realized with a 51% capital share in the hands of an Algerian partner was codified into law on July 22. 2009. The government passed the Complementary Finance Law (CFL) via Ordinance No 09/01 and it was published in the Official Journal on July 26. replacing a previous rul­ing from 2001 (Ordinance No 01/03).

"Successful foreign investors in Algeria bring know­how into the domestic economy. transferring skills to the local population and improving product standards

with internationally bench marked quality. Algerian acceptance of such projects is often partially based on their support to reduce the high level of imports as well

as to increase the growth opportunities for the labor force and domestic companies;' Camille Nassar. the CEO of National Holding Algeria. Said.


The CFL dictates that all new invest­ment projects will be screened by a panel of experts at the National Investment Council. Foreign companies will need to prove their project offers a positive for­eign exchange balance for the national economy. In addi­tion to the 51 % ownership by an Algerian counterpart. all financing for FDI projects will have to be carried out through the domestic banking system. Foreign banks also came under scrutiny for supposed irregularities in trade finance. Auditors from the Ministry of Justice imposed heavy fines on seven institutions equivalent to up to 20% of their portfolio. These included ABC Bank. Arab Bank. AI Baraka Bank. BNP Paribas EI Djazair, Cit­igroup. Societe Genersle and Trust Bank. Their appeal cases have not yet been resolved.

Security is no longer a major issue for foreign investors. According to the National Investment Pro­motion Agency (Agence Nationale de Developpernsnt de l’nvestissement. ANDI). companies interested in Algeria have shown more concern for land ownership rights. fiscal incentives and access to credit

*The Report Algeria 2010 Oxford buisiness Group










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