ALGERIA: Economic recovery gathers pace

The Algerian economy, driven by an upturn in oil and gas earnings, is posting a strong recovery that looks set to continue for the foreseeable future. Stephen Williams reports from Algiers.

Algeria's minister of financial reform, Karim Djoudi, reported in early April that exchange reserves had reached a new high of $61bn at the end of February 2006. This is an indication of the renewed strength of the Algerian economy.

This boost in exchange reserves is thanks, in large part, to higher oil prices and represents an increase of $18bn in just 14 months.

Foreign debt has also been substantially cut. It has fallen by over $12bn in five years to now stand at $16.4bn. While oil and gas revenues have enabled the country to makes these cuts, another factor has also played its part. Russia's President Vladimir Putin's visited Algiers last March and though details of the deal remain shrouded in secrecy, it appears that Russia has sold Algeria $7.5bn worth of arms, and Russia, for its part, agreed to write off $4.74bn of Algerian debt.

Algeria's economic indicators point to an economy that appears to have turned the corner and recovered from three decades of socialist inspired command economy policies and 10 years of a bloody civil insurrection. Economic growth has doubled in five years, soaring by 5.1% in 2005 to match 2004 growth. Real GDP growth has also continued and now amounts to more than $100bn, resulting in GDP per capita breaking through the $3,000 barrier.

This welcome economic revival will help government fund an ambitious $80bn five-year spending plan creating two million additional jobs in the next three years. That addresses one of the country's most serious problems: unemployment. It stood at 15.3% last year according to government figures which, as bad as that rate might be, still represents half the jobless figures for year 2000. But government is aiming for a further reduction to the unemployment rate, which should be cut to just 10% if targets are met under this spending plan.

Determined to broaden export profile

With around two-thirds of Algeria's export trade destined for Europe, it was deemed a priority to negotiate an initial associate status with the EU. In addition, Euromed trade ministers, who met in February, have agreed to launch negotiations for regional economic integration and the setting up of a Euro-Mediterranean free trade area by 2010.

There are already initiatives afoot to improve regional transport infrastructure between Algeria and Morocco and Tunisia. Bids have been invited to tender for the construction of a new east-west motorway to link the three countries, and seven companies have expressed an interest in the three separate sections of the 1,216km motorway project. It is planned to be completed by 2009.

After Europe, much of the balance of the country's exports go to the US and Japan, but along with Algeria's attempts to diversify the economy away from an over-reliance on oil and gas exports is a move to broaden its export markets, and Algeria is determined to join the World Trade Organisation as soon as possible.

The US is pushing for greater co-operation with Algiers. The local press has reported that US vice-president, Dick Cheney, is to visit the country later this month in a bid to secure greater access to Algeria's oil production.

Although Coface, the international export credit agency that boosted Algeria's trade rating from a B to A4 at the end of last year, considers the country's economic and financial situation has benefited mainly from the extremely favourable oil markets, it also pays tribute to the government's tight economic policies and active management of foreign debt.

Coface says that the healthy flow of oil revenues should provide the means of placating social tensions, although it does counsel that, in the longer term, the emergence of a private sector capable of taking over from the state in maintaining growth and creating jobs will require significant improvements to the institutional environment and banking system.

Coface, in partnership with Natexis Banques Populaires experts, are following economic developments in Algeria with interest and are thought likely to begin offering new credit insurance packages for Algerian import-export companies from later this year.

Meanwhile, a vastly improved security situation is attracting an increasing number of foreign investors to take a stake in the country's economic revival.

Besides the oil and gas industry, US companies have taken a renewed interest in a variety of sectors including pharmaceuticals, a South African-led consortium is building a new desalination plant and Chinese construction companies are helping to build two million badly needed new homes.

The National Investment Development Agency says that Algeria's FDI reached $1.5bn in 2005, consisting of 85 major investment projects.

Huge potential for tourism

Tourism is another economic sector that has huge potential. A gentle revival of the industry has led the Ministry of Tourism to announce a forecast of 1.6m visitors in 2007, up from the total of 1.44m visitors recorded last year.