Dependent on gas rents, Algeria continues to suffer from a poorly diversified economy. Despite the declared political will to launch major structural reforms, some economists fear that the current rise in hydrocarbon prices will consolidate Algerian power in a form of stagnation.
Sixty years after its independence, Algeria is still not in control of its economic destiny. On the brink of the abyss after the drop in hydrocarbon prices between 2014 and 2021, the state coffers are once again full thanks to the rise in energy prices caused by the conflict in Ukraine.
In 2022, Algeria should pocket 58,000 million dollars (about 55,600 million euros) against 34,000 million last year, according to forecasts by the International Monetary Fund (IMF). “Hydrocarbons continue to make up around 95% of exports and contribute more than 50% to budget revenues,” says economist Alexandre Kateb, founder of The Multipolarity Report firm.
However, Algeria, vulnerable to external shocks, is finding it difficult to break out of this extreme dependence on hydrocarbons as the energy transition approaches in many importing countries.
Pending reforms
In September 2020, the head of state, Abdelmadjid Tebboune, advocated “a great reform of the banks, a great reform of taxation”, promising “an economy open to the world”, reviews the site ‘Middle East Eye’.
But two years later, the great structural changes take time to materialize and the Algerian economy suffers from the same ills: an omnipresent bureaucracy, random taxation, an absence of industrial strategy and an excessive weight of the public sector.
The only important advance that can be attributed to the Government to modernize the country’s economy is the relaxation of the rules for investing in its territory. In particular, Algeria has abolished the “51/49” rule, which prohibited foreign investors from owning more than 49% of a company’s shares. A sign of openness intended to favor the business climate when the country has two or three times less foreign investment than its neighbor Morocco.
Underexploited “human capital”
However, Algeria has considerable advantages to diversify its sources of income: a rich subsoil and “an energy sector that could support a reindustrialization of the country”, explains Alexander Kateb. “With exceptional sunshine”, Algeria also has a card to play in “the large-scale development of renewable energy projects”.
The Algerian power is also counting on tourism to limit its dependence on income linked to oil and gas exports. But once again, the sector is struggling to take off and only generates 300 million dollars (about 288 million euros) a year, compared to more than 13,000 million for Morocco in 2019, for example. Consequence of the lack of infrastructure, the high prices of airline tickets and the need to obtain a visa for foreign travellers.
Algeria also has an extraordinary “human capital” that is largely underexploited, according to Alexander Kateb, “in particular a young population that enjoys a high level of education compared to countries that have reached the same level of development.”
An opinion shared by the economist Camille Sari, president of the Euro-Maghrebian Institute for Studies and Prospectives, who deplores the fact that in Algeria there is “a system of pass right – a French expression to say that politicians have full authorization to do things – and pistons that do not give young graduates a chance, but instead allow the system to reproduce itself” and prevent the emergence of a true “meritocracy”.
“It is also one of the consequences of the rentier economy. This human capital is marginalized, since the sectors that could employ these young people are insufficiently developed. We can think in particular of the new technology sector,” says Alexander Kateb.
According to data from the World Bank, Unemployment among those under 24 years of age in Algeria approached 32% in 2021. Since March, an allowance of 13,000 dinars (about 80 euros) has been granted to unemployed young people, as well as health coverage.
Lack of “political vision”
But while state coffers are once again full thanks to rising hydrocarbon prices, some economists worry that the reformist accents of Algiers, the capital, will definitely fall into oblivion.
“It is surprising that the Algerian power, whatever the situation, does not take advantage of these exceptional revenues to inject these surpluses into the real economy”, estimates Camille Sari. “The problem is that there is no political vision,” adds the economist, who denounces corruption and the predominant role of the Army in the Algerian economy.
“This is the difficulty of an economy that, historically, has been managed vertically. Changing this requires a true cultural revolution,” says Kateb, who calls for a reform of the governance system and the revitalization of the private sector.
But, according to the prime minister, Aïmene Benabderrahmane, Algeria is on the right track. “Hydrocarbon exports have reached an unprecedented level since independence,” the head of government said in an interview during the preparation of the 2022 budget law.
In 2021, the country managed to register the figure of 4,000 million dollars (about 3,800 million euros) of non-hydrocarbon exports and expects to reach 7,000 million dollars (about 6,620 million euros) in 2022, says the French weekly magazine ‘Courrier international’.
“The ball is now in the field of the Algerian leaders and their ability to exploit this mana to invest it wisely,” says Alexander Kateb, “instead of using it to buy social peace and make the rent model last.”
This article was adapted from its French original
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