With industrial production increasing, construction projects breaking ground and transport activity rising, Algeria’s economy has benefitted from stable growth in a diverse array of sectors. However, oil and gas remain the lifeblood of the economy. As a result, the fall in the international price of oil since mid-2014 is having a substantial economic impact, in particular on the country’s trade balance and government finances. On the positive side though, the drop in prices is accelerating efforts to further diversify the economy, pushing the government to open up the country to greater private and foreign investment in order to provide alternatives to state spending, in part through measures to render the rigid investment environment more attractive. Plans are also in place to limit pressure on the fiscal and trade balances by raising taxes and phasing out subsidies for basic goods, as well through measures aimed at reducing imports into the country.


Algeria has a long record of broad economic stability, with the economy having enjoyed positive real GDP growth in local currency terms every year since the mid-1990s. GDP stood at AD17.21trn (€158.3bn) in 2014, up from AD16.64trn (€153.1bn) in 2013 and AD11.99trn (€110.3bn) in 2010, according to figures from central bank, the Bank of Algeria (BoA). The economy grew by 3.8% in real terms in 2014, according to figures from the National Office of Statistic (Office National des Statistiques ONS), up from 2.8% in 2013. The IMF forecasts the figure to fall to 3% in 2015, before recovering to 3.8% in 2016. The government’s 2016 budget is based on non-hydrocarbons GDP growth of 4.6%.

Economic Composition

Hydrocarbons production was worth AD4.66trn (€42.9bn) in 2014, or 29.2% of GDP, down from 32.3% in 2013 due to a fall in the price of oil in the second half of the year. Non-government services accounted for a larger share of GDP than any other sector outside of the oil and gas sector, accounting for 24.3% of the total in 2014 (equivalent to AD4.19trn, €38.5bn), up from 23.1% in 2013 and 20.3% in 2012.

Agriculture’s contribution to GDP stood at AD1.78trn (€16.4bn), or 10.3% of the total, in 2014, up from AD1.64trn (€15.1bn) the previous year. Construction and public works accounted for 10.4% of GDP in 2014, up from 9.8%, while industry was responsible for 4.9% of 2014 GDP.

Per-Capital Income & Population Growth

Undefined gross national income per capita stood at $5460 in 2014 according to ONS figures, similar to levels in countries such as Thailand, Namibia and Serbia and well above regional peers such as Morocco and Tunisia, at $2980 and $4280 (in 2013), respectively. The figure was a decrease from $5475 the previous year and but up from $4479 five years earlier.

The World Bank puts the country’s population size in 2014 at 38.93m, up from 38.19m in 2013. The birth rate for the year stood at 24 per 1000 inhabitants. Fertility rates fell during the 1990s, with population growth hitting around 1.3% at the turn of the millennium. However, they subsequently began rising again and population growth has held steady at around 2% a year over the last four years, according to figures from the World Bank. As a result of the increased fertility rate, the size of the working age population relative to the non-working age population is set to shrink again in the future.


Inflation began picking up in September 2014 and continued to do so in the first half of 2015. As of June, the figure stood at 4.97%, up from 2.92% in December 2014. Price rises were driven in large part by the education, culture and leisure elements of the price basket, which rose 8.89%, clothing and shoes (up 7.56%), and food and drink (up 6.43%). The IMF predicts average inflation to stand at 4.2% for 2015 as a whole and 4.1% in 2016. Similarly the 2016 budget predicts inflation of 4%. Factors stoking price rises in recent times have included the depreciation of the dinar, while planned rises in taxes on some basic goods will also push up the cost of living.

Foreign Exchange

The value of foreign exchange reserves, including gold, stood at $159bn as of June 2015 according to the latest available data from the BoA at the time of writing, down from $193.3bn a year earlier amid pressures on the current account due to the fallen oil price.

Abderrahmane Benkhelfa, the Algerian minister of finance, in November 2015 forecast that reserves would fall to $151bn by the end of the year and to $121bn by the end of 2016. The central bank runs a managed float exchange rate regime for the Algerian dinar and has been allowing the currency to gradually weaken against the US dollar in recent years, a dynamic that picked up over the course of 2015 as the US dollar strengthened. The value of the currency fell from AD74.4 to the dollar in 2010 to AD87 at the end of 2014, and to AD98.6 in June 2015, according to BoA data. By late November 2015 the currency had weakened again, to $1=AD108.2, as the BoA allowed the currency to depreciate further in order to help reduce imports.

Against the euro, the currency fell from AD99.2 in 2010 to AD106.9 in 2014. While it has also fallen further against the euro in 2015, the trend has been more muted than against the dollar, to an average of AD110.05 in June and AD115.4 as of late November 2015. The BoA has said that despite the falls, the value of the dinar appears to remain high in comparison to its medium-term equilibrium level.

The IMF has called for the country to ensure that the dinar is not overvalued in order to ensure that exports are competitive and avoid undermining economic diversification efforts.


Algeria has traditionally maintained a strong trade surplus, but it has narrowed since 2010 as declining oil and gas revenue has been unable to offset increasing reliance on imports. The country registered a trade deficit for the first half of 2015 of $8.2bn, compared to a surplus of $2.3bn in the first half of 2014, after the country’s trade balance turned to a deficit in the final quarter of 2014. The deficit in the first half of the year was largely due to a fall in the value of oil exports, from $32.4bn in the first six months of 2014 to $18.9bn in H1 2015, driven in part by lower international commodity prices. Non-hydrocarbon exports rose from $650m to $800m. A fall in imports from $30.1bn in H1 2014 to $27.1bn in H1 2015 slightly mitigated the impact of reduced hydrocarbons exports, in part due to measures implemented by the government to reduce purchases from abroad (see analysis).

The largest category of imports for the period was industrial equipment, at a value of $8.7bn, followed by semi-finished products at $5.9bn, food at $5.13bn and consumer goods at $5.05bn. By the end of October 2015, the deficit had widened to $10.8bn, compared to a surplus of $4.29bn in the first 10 months of 2014.

Current Account Balance

The country’s current account registered a deficit of $13.2bn in the first half of 2015, up from $2.8bn for the same period a year earlier, according to figures from the BoA, driven largely by the deterioration of the trade balance. In its October 2015 update of its World Economic Outlook database the IMF forecast the deficit for the year, as a whole, to reach $31bn, or 17.7% of GDP, up from an estimated $9.7bn (4.5% of GDP) reached the previous year.

Trading Partners

The EU is Algeria’s largest trading partner, accounting for 57.1% of Algeria’s total foreign trade in the first nine months of 2015, according to figures from the Ministry of Commerce. The bloc accounted for 48.5% of imports into the country and 69.1% of exports over the period. Imports from the EU fell by 16.4% compared to the same period in 2014, while exports were down 35.1%. Asia is the country’s next largest source of imports, at 21.5% of the total, while non-EU OECD countries are its second-largest export market, on 16.7% of total sales abroad.

As regards individual countries, Italy was the largest purchaser of Algerian goods, at 17.3 % of total Algerian exports (which were worth $28.86bn for the period), just ahead of Spain at 17.1% and France at 11.7%. China was the largest individual exporter to Algeria over the period, accounting for 16.4% of imports (the total value of which stood at $39.2bn), followed by France at 10.35% and Italy at 9.4%.

An association agreement between Algeria and the EU signed in 2002 came into effect in 2005. The agreement, amongst other provisions, foresees the creation of a free trade zone between the two over a period of a maximum of 12 years. However, the government appears reluctant to go ahead with this element of the agreement due to its desire to reduce imports and has complained that rising EU exports to Algeria have not been accompanied by similar increases in investment, and in October 2015 the Council of Ministers said that the agreement would need to be revised.

Ease Of Trading

Algeria is not currently a member of the World Trade Organisation (WTO). It applied for membership of the body in 1987; however, negotiations with the body have made slow progress since then. The most recent meeting of the WTO Working Party to discuss Algeria’s membership took place in March 2014. Bakhti Belaib, the minister of trade, in August 2015 appeared to suggest that the government was not keen to join the body, at least until it has secured various rights for itself in membership negotiations.

The country ranked 176th out of 189 countries in the trading across borders category of the World Bank’s “Doing Business 2016” report, due mainly to the long time it takes to import and export goods. For example, according to the rankings, border compliance for imports takes 327 hours, compared to a regional average of 120 hours and an OECD average of nine hours, while documentary compliance takes 249 hours, compared to averages of 105 hours and 4 hours for the Middle East and North Africa and OECD, respectively. Costs incurred by border and documentary compliance for imports and exporters by contrast were not substantially higher – and in some cases were lower – than regional averages, but were still much higher than OECD averages. Following the fall of the oil price the government is working to restrict imports further, which is resulting in increased difficulties for some firms exporting to Algeria (see analysis).

Foreign Investment

Total foreign direct investment (FDI) flows into Algeria stood at $1.49bn in 2014 according to the UN Conference on Trade and Investment, down from $2.66bn in 2013. Around half of annual FDI goes into the hydrocarbons sector. Net foreign direct investment stood at -$1.33bn in the first half of 2015, according to BoA data.

2009 saw a major change to the foreign investment regime, with the passage of legislation stipulating that foreign investors could own a maximum of 49% of an Algerian company, with Algerian partners obliged to own the remainder. The requirement only applies to new investments and companies changing their shareholding structure. The law included exemptions but some of these have since been eliminated. For example, a provision allowing foreigners to own up to 70% of import-export companies was removed by the 2014 Finance Law, and the 2016 Finance Law also applies the requirements to wholesalers. In 2010 the government also introduced requirements giving itself and state-owned firms a right of first refusal on stakes in companies being sold by or to foreign investors. The IMF has called for the ownership requirement to be lifted or applied only to strategic industries.

However, Ismail Chikhoune, president and CEO of the US-Algeria Business Council, said he did not see it as a major challenge. “Some companies are not very happy with the 51:49 requirements but many are nonetheless working with it,” said Chikhoune.

Local Investment

While foreign investment is key to diversification, the government also needs to boost investment by locals and Algerians living abroad. Investment by companies and quasi-companies outside of the energy sector is equivalent to less than 10% of total investment,” Rafik BoukliaHassane, professor of economics at the University of Oran, said. “It is not only foreign investment that is needed; the authorities also need to ease up on bureaucracy and improve access to finance to allow Algerians to invest more in the economy,” Markus Haas, commercial counsellor at the Austrian Embassy, told OBG. “There is a lot of work to be done on that front, but it should be possible to attract Algerians who have studied and live in Europe and whose prospects in Europe have worsened because of the eurozone slowdown to invest in the country.”

Attracting Business

In 2013 the authorities set up a committee to form an action plan to improve the business environment. “We are aware that a good foreign trade strategy will enable our country to maximise opportunities at the multilateral and regional levels,” Ramtane Lamamra, minister of foreign affairs, told OBG. “Algeria’s natural resources and geostrategic position as a Mediterranean, African, North African and Arab country are all assets that make it a key player in various regional integration projects and partnerships.”

In November 2014 the government signed an agreement with the World Bank for the latter to provide technical assistance on improving the investment climate and boosting Algeria’s performance in the bank’s ease of doing business rankings. The EU in October 2015 also launched a €17m project to support both industrial diversification and improvements to the business environment. Additionally, the authorities are also working on a new law to reform the country’s current investment code. According to press reports in November 2015 by outlets that had seen a draft of the legislation, the law is in part aimed at simplifying the code, which amendments over the years had rendered increasingly complex. The law is also set to reduce levels of bureaucracy affecting foreign investors and improve the efficiency of public services.

The draft legislation will reportedly remove the requirement limiting foreign investors’ ownership to 49% of an Algerian firm from the investment code. However, the requirement will still remain in place as it is reiterated in the 2016 Finance Law. Some observers see the change as a possible move to eventually alter or eliminate it altogether, as the Finance Law is replaced every year and is often amended during the year by a supplementary finance law, providing opportunities to revise the requirement. “It is plausible that the government may amend or abolish the 51:49 requirement within a year or so, and it may have little choice if it is to counter the oil price fall,” Haas told OBG.

The 2016 Finance Law also includes measures to boost investment, including allowing the government to authorise, on a case-by-case basis, recourse to financing from abroad for foreign investment projects, barred since 2009. It also removes a requirement introduced in 2009 that foreign companies reinvest any savings they have made through tax incentives designed to encourage investment in the country, and allows Algerian firms (including those with foreign backers) to sell stakes in themselves via the stock exchange, without triggering the government’s right of first refusal.

Government Finances

As part of economic diversification efforts and amid a long period of high oil prices, the government has heavily stepped up infrastructure investment in recent years. According to Benkhelfa, such spending rose from AD18trn (€165.6bn) in the decade from 2000 to 2009 to AD25trn (€230bn) in the five years from 2009 to 2014, funding numerous projects in the health, education, telecommunications and transport sectors, amongst others.

In 2011 and 2012, amid wider regional unrest in the wake of the Arab Spring, the government further raised spending, albeit on current expenses such as wages and back payments for civil servants in particular. Expenditure rose from AD4.44trn (€40.8bn) in 2010 to AD5.85trn (€53.8bn) in 2011 and then again to AD7.06trn (€65bn) in 2012, according to IMF figures. However, some of the outlays, such as back-pay for civil servants, were temporary and in 2013 spending fell, to AD6.02trn (€55.4bn), before rising again to AD6.98trn (€64.2bn) in 2014.

The 2015 Supplementary Finance Law, which was passed in July and amended the original budget for the year, foresees government spending of AD7.59trn (€69.8bn) for the year, against anticipated receipts of AD4.95trn (€45.5bn), calculated based on an oil price of $37 a barrel, which is set to be lower than actual average oil prices over the course of the year.

The draft 2016 budget, approved by the cabinet in October 2015 but not yet approved by the parliament, forecasts revenues to stand at AD4.9trn (€45.08bn), down 4% on the revenues anticipated in the 2015 budget, while AD7.98trn (€73.4bn) of expenditure is pencilled in – AD4.81trn (€44.3bn) of operational expenses and AD3.18trn (€29.3bn) of investment. The overall Treasury deficit will stand at AD2.45trn (€22.5bn).

Oil Fund

While the deficit is rising, debt remains relatively low, with total external debt standing at 1.7% of GDP at the end of 2014 and at $3.3bn at the end of the first half of 2015. Total internal debt stood at AD1.24trn (€11.4bn) at the end of 2014. The government has been able to avoid recourse to debt financing thanks to its ability to tap the country’s oil savings fund, the Revenue Regulation Fund.

However, financing recent deficits has depleted the fund’s resources. According to latest available figures from the BoA, the value of the fund stood at AD3.44trn (€31.6bn) at the end of June 2015, down from AD5.1trn (€46.9bn) a year previously. The IMF has recommended that the fund be transformed into a sovereign wealth fund invested abroad.

Five-Year Plan

The government’s medium-term development strategy is based around a series of five-year investment and development plans. The current plan, for 2015-19 period, is based on investment of €192.6bn, down from €210.2bn under the previous 2010-14 plan, with a focus on a number of sectors including boosting oil and gas exploration; developing small and medium-sized enterprises (see analysis) and diversifying the economy more generally; improving the country’s transport infrastructure; and building more social housing to address the country’s persistent housing shortage.


The value of oil and gas output stood at AD4.66trn (€42.9bn) in 2014, equivalent to 27% of GDP, with the sector accounting for 97% of exports by value and 58% of government revenues.

Oil output entered a period of decline in the mid2000s. Production peaked at 1.99m barrels per day (bpd) in 2007 before falling to 1.49m bpd in 2013, according to the BP’s “Statistical Review of World Energy”. This was partly a result of a lack of investment in the sector to maintain volumes (see Energy chapter). However, stepped up exploration and recovery rates at some fields saw production rise slightly in 2014, to 1.53m bpd, the third-highest level in Africa. Proven oil reserves have risen from 11.8bn barrels to 12.2bn barrels over the last decade. Natural gas production stood at 83.3bn cu metres in 2014 – the highest in Africa – and has held steady at between 80bn cu metres and 90bn cu metres over the past decade. Proven reserves have held steady over the period, at 4.5trn cu metres.

However, domestic energy use has been steadily rising in recent years bolstered by substantial implicit subsidies for hydrocarbons products and electricity. Selling these items at prices well below international market rates has put pressure on exports. Oil consumption rose from 239,000 bpd in 2004 to 395,000 bpd a decade later, while natural gas consumption rose from 22bn cu metres to 37.5bn cu metres over the same period.


Non-hydrocarbons exports are equivalent to around 2% of imports, making Algeria one of the most oil and gas-dependent states in the world by that measure, which has sparked efforts to diversify the economy. These have been bolstered more recently by the fall in the price of oil. The IMF cites factors such as high trade costs, “pervasive” controls on foreign exchange and restrictions on overseas investment by exporters as amongst the main constraints on non-hydrocarbons exports.

In the long term, the country has little choice but to diversify away from hydrocarbons. According to the IMF, the country’s oil is set to run out by the mid2030s, followed by gas by the mid-2050s.

Given Algeria’s large oil and gas resources, one potential opportunity for diversification is the development of downstream hydrocarbon products, such as refined products and petrochemicals, the exports of which are small. “Everything related to the transformation of hydrocarbons is very promising,” said Bouklia-Hassane, while arguing that the sector needs to be opened up to more private investment (see Energy chapter).


Chikhoune cites pharmaceuticals and agribusiness as the two most promising sectors. “The Algerian pharmaceuticals industry has been one of the country’s notable successes, and has succeeded in reducing imports,” Haas told OBG. The government is seeking to make the country a major hub for biotechnology through an initiative called Vision 2020, with support from the US pharmaceuticals industry. In 2014 US pharmaceuticals industry representative body Pharmaceutical Research and Manufacturers of America signed a memorandum of understanding (MoU) with Algeria’s National Pharmaceutical Products Control Laboratory on cooperation between the two countries to achieve Vision 2020, including elements focusing on training and intellectual property protection.

Agribusiness is also attracting foreign investment. “Agribusiness has major potential and is lacking only the development of a value-added chain,” Haas told OBG. “Wages are competitive in the sector, though there is a need for partnerships with foreign firms in order to access technologies,” said Bouklia-Hassane, adding that the sector could become a significant exporter with foreign support. This seems to be increasingly forthcoming; November 2015 saw the signature of an MoU between American International Agriculture Group and Algeria’s Lacheb Group to create a $100m agribusiness joint venture, known as La Firma, that will be active in a range of domains including dairy, cattle ranching and irrigation. Six MoUs to create other US-Algerian agricultural joint ventures were signed the previous June (see Agriculture chapter).

“Car manufacturing is also working well, with Peugeot likely to follow Renault into the country, which could lead to a potential production hub in Oran,” said Haas, referring to the Renault factory that opened in the city in November 2014. Abdesselam Bouchouareb, the minister for industry and mining, in October 2015 said that plans for a Peugeot factory were almost finalised.


October 2014 saw the first vehicles roll off the production line at a facility to produce Mercedes Benz-branded military vehicles in Tiaret. The facility is a joint venture between the military, the state-owned Entreprise Nationale des Véhicules Industriels, and Emirati investment fund Aabar, with German firm Daimler involved as a technological partner (see Industry chapter). “Production is currently mainly based on the assembly of kits, but it will nonetheless stimulate the development of local supply chains and the industry is set to grow,” Haas told OBG. “One move that would help diversification efforts generally would be to facilitate imports of production machinery from abroad and the financing thereof,” he argued. “The authorities are moving in the right direction on this.”

Tourism is another industry cited as having significant potential, given for example the country’s long Mediterranean coastline, though visa restrictions are currently hindering the industry’s development. “Tourism is stagnant compared to neighbouring countries, but could have a lot of potential, especially as regards catering for Algerian emigrants coming home,” Abderrezzak Osmani, president and CEO of the UK-Algeria Business Council, said. “Work is under way to develop the sector but a lot remains to be done and it will take time,” he told OBG, adding that results might start to be seen by around 2020 (see Tourism chapter).

Employment & Unemployment

The size of the employed workforce stood at 10.57m people as of April 2014, according to the National Office of Statistics. The government is a major employer, with 41.1% of employed Algerians working in the public sector. The labour force participation rate remains very low, at 47% of working-age Algerians, according to the IMF, largely due to low participation in the workforce by women and young people.

Against a backdrop of steady economic growth (see above), the unemployment rate has fallen heavily from levels exceeding 25% in the late 1990s and 15.3% 10 years ago. However, in more recent years it appears to have stabilised at around 10%. The rate stood at 10.6% in 2014 according to IMF data, up from 9.8% in 2013. Unemployment is strong particularly amongst youth, where the rate stands at around 25%. The IMF forecasts the joblessness figure to rise to 11.6% in 2015 and 11.7% in 2016, and argues that labour market reforms are needed in addition to economic growth in order to bring the rate down further, describing the market as rigid in terms of hiring workers and terminating employment and noting a mismatch between education offer and the needs of the private sector.

Business Environment

The World Bank describes the business environment in Algeria as being “marked by difficult access to credit, a complex regulatory environment, and time-consuming procedures to set up a business,” which it says holds back the development of the private sector.

Algeria came 163rd out of 189 countries in the World Bank’s 2016 “Doing Business” rankings, nine places down on its 2015 position. The ranking was weighed down by particularly low performances in the categories of trading across borders (176th place), which is based on the time and cost involved in exports, and the protecting minority investors and getting credit categories, placing 174th in each.

Respondents to the World Economic Forum’s 2015-16 “Global Competitiveness Report” ranked Algeria in 87th place out of 140 countries, based on a competitiveness score of four out of seven (seven representing maximum competitiveness). The country performed particularly strongly in the macroeconomic environment (38th) and market size categories (37th), respectively, but was near the bottom of the rankings in the labour market efficiency and financial market development categories, placing 135th in both. Respondents rated access to financing as the most problematic factor for doing business in the country.

Employers’ representative group the Forum des Chefs d’Entreprises in July 2015 issued recommendations for structural and sectoral reform to improve the business environment. Structural measures called for include opening up all sectors to private investment, removing the possibility of criminal penalties being applied for management decisions, creating a $10bn investment fund to boost private sector development, allowing private companies to create industrial parks along the length of the East-West Highway, and reforming the country’s tax system. Repatriating profits can also be problematic for foreign investors, a result of an opaque legal framework, and the implementation of the investment law by decree leaves investment regulations subject to frequent change.

Access To Land

Another constraint on business development is access to land and, in particular, land for commercial industrial purposes. Much of the land is owned by the government. Mohamed Himour, director-general of the Land Office, in November 2015 told media part of the issue was that the government lacked a database of available real estate, meaning the authorities have to search for land each time an investor makes a request.

In addition, not all land made available is put to actual use. Nouredine Bedoui, the minister of interior and local authorities, the previous month had said that around half of industrial land allocated to investors was not being exploited. The government is taking various initiatives to address the issue, and Bouchouareb in November said the problem would be “definitively resolved” in the next six months. The government in 2013 announced plans to create 42 dedicated industrial zones – since raised to 49 – by 2017, and in July 2015 Bouchouareb said work on 31 of the zones would begin in 2015 and that the government would make 15,000 ha of industrial land available to investors by the end of the year.

The draft 2016 Finance Law allows private investors to create industrial and commercial activity zones on their own land, provided it is not agricultural land. In order to incentivise the exploitation of land that has already been allocated, the 2015 Supplementary Finance Law included a 3% tax on land that has not been used within three years of being distributed, while Bouchouareb in November also warned that the state would take back industrial land that had been allocated to investors but was not being used. The 2015 Supplementary Finance Law created a one-stop-shop for investors seeking land in order to reduce associated bureaucracy.


Algeria’s near-term economic prospects will depend heavily on oil price movements, and current price levels are putting the country’s trade and fiscal balances under substantial pressure, which will only increase should prices remain steady or fall further. However, such pressure is also pushing the country to attract more investment and step up long-standing plans for economic diversification, which could help to put Algeria on a more sustainable economic footing in the long-term.

“The prospects for strong economic growth and diversification are quite encouraging given the ongoing reforms to improve the business ecosystem. This notwithstanding, these reforms embedded in the 2016 Finance Law need to be sustained and supported in order to ensure that the expected changes take place and drive Algeria to knock on the door of the BRICS group in less than a generation,” Boubacar Traoré, resident representative at the African Development Bank, told OBG.

While it remains to be seen exactly how this will play out as regards diversification, the passage of legislative changes opening up state-backed companies to private investment in late November 2015 coupled with indications in early December the same year that the government intends to phase out subsidies for basic goods in years to come (see analysis) suggests that such political will for substantial economic reforms in Algeria now exists.