Algeria: Country Profile

Transcription

1 Algeria: Country Profile Country Profile 24 Jan 2014 Algeria will see a moderate pickup in growth in A projected increase in gas exports will provide much of the support for the economy but growth in the domestic economy will be feeble. To provide jobs for all new entrants, the non-energy sector must grow by at least 5% per year. A housing shortage has pushed the average age of marriage into the 30s. Vast areas of prime agricultural land still lie fallow. All this has created a huge pool of unhappy youths. KEY POINTS Real GDP is forecast to grow by 3.7% in 2014 (up from 3.1% in 2013). A projected increase in gas exports will provide much of the support for the economy but growth in the domestic economy will be feeble. Unemployment is high but lower than in most neighbouring countries. The jobless rate was 9.3% in 2013 and it will decline to 9.0% in Youth and female unemployment rates stand at 21.5% and 17.2%, respectively. Moreover, the labour force is increasing at % per year. To provide jobs for all new entrants, the non-energy sector must grow by at least 5% per year. Most of the jobs created over the last decade pay low wages and do not provide any social coverage. The government has announced large increases in spending that will include pay hikes for public sector workers and more generous state subsidies on flour, milk, cooking oil and sugar. New housing projects will also be developed. However, deep structural flaws and a poorly functioning labour market suggest the economy has a long way to go before the benefits of growth trickle down to ordinary citizens. The economy is expected to grow by % per year in the medium term. Huge challenges remain if growth is to benefit more than a tiny minority of Algerians. A housing shortage has pushed the average age of marriage into the 30s. Vast areas of prime agricultural land still lie fallow. All this has created a huge pool of unhappy youths. Chart 1 Real GDP Growth and Per Capita GDP: Source: Euromonitor International from national statistics/eurostat/oecd/un/imf Note: Data for 2013 and 2014 are forecast. GDP per capita are in constant 2012 prices FACTS Area 2,381,745 square kilometres Currency Algerian dinar (= 100 centimes) Location Algeria, one of the largest countries in Africa, occupies most of the western Mediterranean coast of North Africa, and faces Spain and Italy across the Mediterranean at a distance of no more than 150km. It is Page 1 of 10

2 bordered to the west by Morocco and Mauritania, to the south by Mali and Niger, and to the east by Tunisia and Libya. The climate is warm and has a dry desert character. Capital Algiers GOVERNMENT Head of State Abdelaziz Bouteflika (1999) Head of Government Abdelmalek Sellal (2012) Ruling Party The government is formed by a coalition of six parties. Political Structure The President is elected for a five-year term by the people. Parliament has two chambers. The National People s Assembly has 389 members, elected for a five-year term in multi-seat constituencies by proportional representation. Eight seats in the national assembly are reserved for Algerians abroad. The National Council has 144 members; 96 members elected by communal councils and 48 members appointed by the President. Last Elections Presidential elections were held in April Bouteflika was re-elected with 90.2% of the vote, winning a third five-year term after a poll marred by accusations of fraud. His main rival, Louisa Hanoune, received 4.2% of the vote. Three other candidates shared the remaining votes. Elections to the National Assembly were held in May The National Liberation Front won 220 seats while the National Rally for Democracy took 68 seats. The Green Alliance, an Islamic party, captured 48 seats. The Front of Socialist Forces obtained 21 seats and the Workers Party received 20 seats. Independents and minor parties received the remaining seats. Sellal was appointed as prime minister in September Political Stability and Risks Algeria continues to face serious economic, social, and political problems such as occasional labour unrest; a large informal market (possibly 20% of the country s GDP) and weakness in the non-oil economy. Roughly 70% of the population is under 30 years of age and more than a quarter are unemployed. Algeria has been affected by instability and poor security conditions in North Africa and the Sahel, most recently by fighting in northern Mali and a terrorist attack on a gas plant in southeast Algeria in early International Issues In 2001, Algeria and the EU reached an Association Agreement after years of negotiations. Under the accord, Algeria agreed to cut tariffs on EU agricultural and industrial products over the next 10 years and the EU agreed to eliminate duties and quotas on many Algerian agricultural products. In 2005, voters approved a controversial peace plan to pardon most militant Islamists who rose up against the army-backed regime in In 2013, Algeria s oil industry was the target of a vicious attack Page 2 of 10

3 by Islamic militants which left a number of workers dead and created much concern among investors. Government Finance The fiscal deficit was pared to 1.3% in However, the recent surge in current spending has weakened the fiscal stance and spurred inflation. The deficit rose to 3.3% in 2012 but a balanced budget was planned for The deficit should be around 2% of GDP in the medium term thanks to greater wage stability and spending cuts. A process of fiscal consolidation began in Public debt totalled DZD1,879 billion in 2013 equivalent to just 13.4% of GDP. In real terms, public debt rose by 6.5% in Spending on general public services accounted for 19.7% of government expenditure in 2012, followed by spending on economic services (14.6%). Chart 2 Public Debt: Source: Euromonitor International from national statistics/eurostat/imf/oecd Note: Data are in constant 2012 prices ECONOMY Economic Structure and Major Industries The agricultural sector employs 9.2% of the work force. Most farming is limited to the coastal regions where wheat, maize and sugar beet are grown. Productivity is relatively low. Algeria continuously struggles with the problem of food security but the government is stepping up its efforts to develop farming as part of its diversification strategy. Manufacturing is of little significance, accounting for just 3.3% of GDP though it employs 13.5% of the work force. Food processing and chemicals are the dominant industries. Many light industries are not efficient. Algeria and Qatar plan to construct a steel plant producing five million tonnes per year. The real value of gross manufacturing output fell by 1.4% in Oil and natural gas account for 98% of exports by volume and 70% of tax revenues but just 5% of the work force. Sonatrach, the country s monopoly oil supplier, is Africa s largest enterprise, employing 120,000 and earning huge export revenues each year. There are also a number of downstream, oil-using industries, as well as plants producing steel, paper products, metal manufactures and even motor vehicles. The publically-owned banking sector provides only limited credit to the private sector. The financial system is highly susceptible to interference by the government. Page 3 of 10

4 Overview of the Economy Algeria saw solid gains in real GDP growth prior to the global slowdown, spurred on mainly by oil and gas exports and public spending. During that time, the government built up substantial savings in its oil stabilisation fund which were later used to finance an ambitious programme of infrastructure development. Nonetheless, the economy is thought to be underperforming. Algeria's economy is considered one of the least diversified economies in the world. Faced with mounting social demands, the government increased its spending in order to boost employment. Booming hydrocarbon exports make this aggressive approach possible. While the overall pace of structural reform remains slow, some progress has been achieved in trade liberalisation. Algeria has traditionally received relatively little FDI outside the energy sector. The non-oil sector accounts for nearly 98% of all employment. Major challenges include the need for greater economic diversification and to reduce both youth and female unemployment. Real GDP grew by 3.1% in 2013, spurred by mainly by public investment, domestic demand and high oil prices. Growth in the nonenergy sector was 5.8%. A major investment programme was launched to strengthen national refining capacities and to develop the subcontracting industry, particularly in the field of petrochemicals. Foreign Trade Hydrocarbon exports are the main driver of Algeria s economy. Exports made up 41.0% of GDP in 2013, down from 51.2% in Supported by high oil prices, exports should rise by 18.0% (in dollars) in Algeria is not a member of the World Trade Organisation. It maintains rather high tariffs and, aside from its oil exports, trades very little with other countries in the region. Mineral fuels made up 98.3% of exports in The EU is Algeria s main market, accounting for 55.4% of the total in The USA took another 14.9% of Algeria s exports. With such a market concentration, Algeria is especially vulnerable to market conditions in industrialised countries. The current account surplus fell to 2.7% of GDP in 2013 as imports of consumer goods rose and oil exports fell. Chart 3 Total Foreign Trade: Source: Euromonitor International from national statistics/oecd/imf Economic Prospects Real GDP is forecast to grow by 3.7% in 2014 (up from 3.1% in 2013). A projected increase in gas exports will provide much of the support for Page 4 of 10

5 the economy but growth in the domestic economy will be feeble. Inflation has been high in recent years but a process of fiscal consolidation and tighter monetary policy has brought it down. Inflation was 3.5% in In 2014, prices are expected to rise by 4.0%. The government has announced large increases in spending including generous state subsidies on flour, milk, cooking oil and sugar. New housing projects are also being developed. However, deep structural flaws and a poorly functioning labour market suggest the economy has a long way to go before the benefits of growth trickle down to ordinary citizens. Unemployment is high but lower than in most neighbouring countries. The jobless rate was 9.3% in 2013 and it will decline to 9.0% in Youth and female unemployment rates stand at 21.5% and 17.2%, respectively. Moreover, the labour force is increasing at % per year. To provide jobs for all new entrants, the non-energy sector must grow by at least 5% per year. Most of the jobs created over the last decade pay low wages and do not provide any social coverage. Despite all its natural resources, Algeria receives comparatively little FDI. For example, Morocco receives significantly more foreign direct investment, even though the Moroccan economy is much smaller. Part of the problem is the harsh business climate in Algeria. The government has argued repeatedly with big oil companies over the past decade. The terrorist attack in January 2013 scared off more potential investors and raised the cost of doing business. Private final consumption rose by 5.0% in real terms in 2013 and gains of 5.3% are expected in Chart 4 Real GDP Growth: Source: Euromonitor International from national statistics/eurostat/oecd/un/imf Note: Data for 2013 and 2014 are forecast Evaluation of Market Potential Algeria depends heavily on energy exports, leaving the country vulnerable to swings in the world price for oil. Growth remains below potential and must be accelerated in order to reduce unemployment. More efficient forms of public investment are needed. Productivity growth is unimpressive. Vested interests are extensive and hold back efforts at economic liberalisation. The economy is expected to grow by % per year in the medium term. Huge challenges remain if growth is to benefit more than a tiny minority of Algerians. A housing shortage has pushed the average age of marriage into the 30s. Vast areas of prime agricultural land still lie fallow. All this has created a huge pool of unhappy youths. Page 5 of 10

6 Public finances are vulnerable to any deterioration in international conditions particularly a prolonged period of lower oil prices. Sustainable growth depends on a larger role for the private sector. Such a transition will require a much more aggressive programme of economic reforms than anything the government has contemplated so far. BUSINESS ENVIRONMENT The restrictive regime governing FDI significantly detracts from the business climate. Foreigners may own no more than 49% of an Algerian company and are not permitted to buy the land on which to build a plant. Rules restrict foreign investors and contractors, giving priority to local companies on tenders for government contracts. The underdeveloped financial sector poses serious problems for businesses. Credit to the private sector is rising but remains a relatively low proportion of GDP. The government plans to extend new tax incentives in order to encourage private investment and to foster new industries. Approximately 97% of the private sector consists of firms employing less than 10 workers. Small businesses face withering competition from overseas producers. Corruption is widespread. Overall, the business climate remains more hostile than in neighbouring countries. Clearly, Algeria s economy is badly in need of reforms and influential officials would support this move. Action, however, will probably have to wait unit after the next general election in April Table 1 Indicators of Business Environment: 2014 Ease of doing business rank (out of 189) 153 Starting a Business Time (days) 25 Procedures (number) 14 Dealing with construction permits Time (days) 241 Procedures (number) 19 Getting Electricity Time (days) 180 Procedures (number) 5 Registering Property Time (days) 63 Procedures (number) 10 Employing workers Standard workday in manufacturing (hours) 8 Paid annual leave for a worker with 1 year of tenure (in working days) 22 Tax rate Total tax rate (% profit) 71.9 Labour tax and contributions (% of commercial profits) 29.6 Time (hours per year) 451 Payments (number per year) 29 VAT (%) 17.0 Page 6 of 10

7 Exporting Documents for export (number) 8 Time to export (days) 17 Cost to export (US$ per container) 1,270 Importing Documents for import (number) 9 Time for import (days) 27 Cost to import (US$ per container) 1,330 Protecting investors Strength of investor protection index (0-10) 5.0 Resolving Insolvency Time (years) 2.5 Cost (% of estate) 7 Source: Euromonitor International based on the World Bank Note: Data is sourced from the World Bank s Doing Business Doing Business presents quantitative indicators on business regulations and the protection of property rights - and their effect on businesses, especially small and medium-size domestic firms. The data for all sets of indicators in Doing Business 2014 are from June 2012 until June 2013 (except for paying taxes data which refers to January December 2012). Rankings are based on data sets across 189 countries. ENERGY Algeria is considered to be under-explored although significant oil and gas discoveries have been made over the last few years. The country has 12.2 billion barrels of proven oil reserves and produced 72.4 million tonnes of oil equivalent in Algeria should see increases in crude oil exports over the next few years, due to significant investment and the continued substitution of natural gas for oil in domestic energy consumption. The state-owned oil company announced the discovery of a number of new oil fields in recent years. Algeria plans to invest billions of dollars in exploration and development in the medium term. Algeria is also estimated to have 4.5 trillion cubic metres of natural gas reserves (the eighth-largest in the world). The volume of recoverable natural gas potential, however, may be much higher. Production of natural gas totalled 73.9 million tonnes of oil equivalent in The government plans to boost gas exports considerably by Chart 5 Primary Consumption of Energy (% of total): 2012] Source: Euromonitor International from BP Amoco, BP Statistical Review of World Energy SOCIETY Population Page 7 of 10

8 Algeria s population reached 37.0 million in 2013, up from 18.8 million in The country s median age is still relatively young but rising rapidly. It was 27.5 years in 2013, up from 16.7 years in At 2.1 births per female in 2013, the fertility rate is equal to the replacement level but it declined by two-thirds in The downward trend is expected to continue for the foreseeable future. Meanwhile, Algeria is becoming increasingly urbanised. Presently, more than 90% of the population lives along the Mediterranean coast on just 12% of the country s land mass. Chart 6 Age Pyramid in 2012 and 2030 Source: Euromonitor International from national statistics/un Income and Expenditure Algeria s savings ratio was 5.2% of disposable income in 2013 and it will grow to 5.3% in Consumer expenditure per capita amounted to DZD149,496 (US$1,880) in The real value of consumer expenditure per capita is forecast to rise by 3.9% in Rapid urbanisation, especially in the north of the country, should boost consumer spending over the course of this decade. Total consumer expenditure (in real terms) will rise by 5.2% in Total consumer expenditure is forecast to grow at an average annual rate of 4.7% in in real terms. It will increase by a cumulative value of 44.3% during this period. Total consumer expenditure will represent 40.1% of GDP in Steady gains in the middle class are driving consumer spending. Disposable income per capita totalled DZD158,798 (US$1,997) in In 2014, the indicator will grow by 4.0% in real terms. During the period , total disposable income will increase by a cumulative 46.3% in real terms growing at an average annual rate of 4.9% in real terms. Chart 7 Per Capita Annual Disposable Income, Spending and Savings Ratio: Page 8 of 10

9 Source: Euromonitor International from national statistics/trade sources/oecd Note: Data are in constant 2012 prices Statistical Summary Inflation (% change) Exchange rate (per US$) Lending rate GDP (% real growth) GDP (national 9,968, ,770, ,404, ,133, ,160, ,066,464.0 currency millions) GDP (US$ 154, , , , , ,209.4 millions) Population, 34, , , , , ,228.8 mid-year ('000) Birth rate (per '000) Death rate (per '000) No. of 5, , , , , ,612.6 households ('000) Total exports 79, , , , , ,172.9 (US$ millions) Total imports 39, , , , , ,694.2 (US$ millions) Tourism receipts (US$ millions) Tourism spending (US$ millions) Urban 22, , , , , ,251.3 population ('000) Urban population (%) Population aged 0-14 (%) Population aged (%) Population aged 65+ (%) Male population (%) Female population (%) Page 9 of 10

10 Life expectancy male (years) Life expectancy female (years) Infant mortality (deaths per '000 live births) Adult literacy (%) Imports and Exports Major export destinations 2013 Share (%) Major import sources 2013 Share (%) Europe 60.0 Europe 60.3 North America 21.9 Asia Pacific 20.5 Asia-Pacific 8.0 Latin America 7.5 Latin America 5.7 Africa and the Middle East 5.9 Africa and the Middle East 4.3 North America 4.5 Other countries 0.0 Australasia 0.8 Euromonitor International 2014 Page 10 of 10