Algeria Economic Outlook

  • The economy expanded by 4% in 2014, driven mainly by the recovering oil and gas sector, with further growth of 3.9% forecast in 2015 and 4.0% in 2016.
  • To cope with the drop in oil prices since June 2014, the government has taken various steps, including the possible funding of public investments by local banks.
  • Faced with major disparities in spatial distribution, the biggest country in Africa (2.38 million km²) has a spatial inclusion policy that includes a development strategy and measures to strengthen local government.

Economic growth accelerated in 2014 (to 4%, up from 2.8% in 2013 and 3.3% in 2012) due to recovery of the oil and gas sector, whose value added grew by 0.5%, the first increase in eight years. Excluding oil and gas, however, GDP growth slowed to an estimated 5.5% (compared with 7.1% in 2013). Unemployment reached 10.6% (up from 9.8%), including high rates among women (17.1%) and the 16-24 age-group (25.2%).
Inflation slowed to 3% after price rises in the last half of 2012 led the Bank of Algeria to intervene in 2013 to mop up excess liquidity. This and government efforts to solve consumer staple distribution problems and increase supply seem to have worked and were continued in 2014.
The country’s external position remained solid, albeit with some signs of weakness, such as the ongoing slippage in the current account, which showed a deficit (4% of GDP) for the first time in 15 years. The external financial situation remained firm, with exchange reserves estimated at USD 185 billion at the end of 2014, equivalent to 32 months of goods and non-factor services (GNFS), and helped by only a small external debt of USD 4 billion in 2014 (1.9% of GDP).
The dramatic fall in oil prices (down 44% between June and December) dominated 2014 and had immediate effects on the economy, which depends on the sector for 98% of exports, 58% of government revenue and 28% of GDP. If this situation continues into 2015, the country’s macroeconomic balance will be affected. The government may focus its policy on the debate over the sustainability of public finances and the viability of long-term funding for major infrastructure projects, as well as on the urgent need to diversify the economy.
The government’s 2015-19 five-year plan incorporates measures to cope with cheaper oil prices without affecting the social and investment projects. These include a freeze on hiring government workers (except in education and healthcare) in 2015, postponing major non-priority investment projects (railways, tram networks), using banks to fund those projects in the five-year plan that are outside the equipment budget, and reintroducing import licences to rationalise and reduce imports without undermining foreign-trade liberalisation.