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Algeria Overview

    Context

    Development in infrastructure and agriculture, two large segments of the non-oil economy, were major contributors to this performance. Per capita GDP reached US$5,458 in 2013, exceeding its 2008 peak of US$4,967. All sectors grew over that period except for the hydrocarbon sector where production has been declining since 2006. Inflationary pressures in 2012, stemming from expansionary fiscal policy meant to respond to the European economic crises and contain domestic social pressures, have abated.

    The rapid decline, however, in hydrocarbon output and exports has resulted in a narrowing of the external current account surplus; should that continue, it will strain the government budget. The economy remains highly dependent on the hydrocarbon sector, which accounts for about a third of GDP and 98 percent of exports. Domestic energy consumption is on the rise at the same time as hydrocarbon production is declining.

    Amid political upheavals in other Arab countries, Algeria's government maintained stability through a combination of minimal political reforms and public sector expenditure. But the long term challenges facing the economy remain unchanged, namely reducing subsidies, improving the business environment, diversifying the economy and creating private sector jobs. While the government talks about the need for reforms, the steps it has taken have been modest. It will be left to the new government formed following the April 2014 presidential elections to take up this challenge.

    A business climate marked by difficult access to credit, a complex regulatory environment, and time-consuming procedures to set up a business, holds back the private sector. Unemployment has remained at about 10% since 2010, but significantly higher for youth (24.8%) and women (16.3%). Trade integration has also proceeded very slowly, and negotiations to join the WTO have not made much progress. On the fiscal front, expansionary budgets have propped up the economy but led to widening deficits, which peaked at 4% of GDP in 2012 and are expected to remain at around 4% of GDP over 2014-15 as hydrocarbon revenues decline. Public spending is in the order of 40% of GDP, partly due to a scaled-up investment program of US$280 billion for the period 2010-14, but more importantly because of a high spending on wages and transfers. Subsidies in particular, at over 15% of GDP in 2012, continue to weigh on government finances, underscoring the urgent need for subsidy reform.

    To bolster the economy, the government is seeking to further develop its hydrocarbon resources and has also explicitly embraced private sector development by opening research centers and launching major transport and housing projects. Regarding the business climate, the government has established a committee to come up with an action plan to help reform it. In the absence of these much-needed reforms, however, the Algerian economy is likely to continue to grow slowly. Economic diversification and reduced reliance on the hydrocarbon sector are both key to strong and balanced growth. The government’s ongoing development program has not met expectations. 

    Last Updated: Mar 12, 2014

    LENDING
    Algeria: Commitments by Fiscal Year (in millions of dollars)*
    *Amounts include IBRD and IDA commitments
    Strategy

    Since 2006, the World Bank’s activities in Algeria have focused on analytical work and Reimbursable Advisory Services (RAS) following the Government of Algeria’s decision to refrain from borrowing externally. The last International Bank for Reconstruction and Development (IBRD)-financed project in Algeria closed in February 2009. The World Bank-Algeria Country Partnership Strategy (2010-14) is focused on:

    • Strengthening Growth through Diversification of the Economy: Support the agricultural and rural development strategy, improve the investment climate particularly for small and medium enterprises, and modernize the financial and banking sectors;
    • Promoting Sustainable Development and Reducing Spatial Disparities: Provide technical assistance and support to implement environment protection initiatives and government programs; and help preserve desert ecosystem; and
    • Strengthening the Institutions of Economic Planning, Monitoring, Evaluation and Policy-Making: Provide technical support to strengthen the planning, monitoring and evaluation capacity of various sectors in the government. 

    Last Updated: Mar 12, 2014

    LENDING
    Algeria: Commitments by Fiscal Year (in millions of dollars)*
    *Amounts include IBRD and IDA commitments
    Results

    In 2012, the World Bank and Algeria signed eight Reimbursable Advisory Services (RAS) agreements in five sectors, those of finance, agriculture, environment, social assistance/national solidarity, and telecommunications. One RAS was signed in 2013 in the financial sector and two others are under preparation in the business environment and telecommunications sectors. The Ministry of Agriculture is interested in a second phase of three ongoing RAS and two new ones. Signings could take place in 2014.

    Reimbursable Advisory Services have been complemented by some analytical and technical assistance work financed by the World Bank and other budget resources. This includes support for the development of a new strategy for agriculture and rural development, as well as a study on managing agricultural risk; indicators from the report, Doing Business, in response to the Ministry of Finance’s request in 2011; a case study on Algeria on water desalination and renewable energy; support to the Office of National Statistics on improving methodologies on poverty analysis; support to private sector associations for improving public-private dialogue; and a series of workshops covering employment, evaluation of public programs and governance.   

    Algeria has also benefited from a number of regional initiatives. These included hosting a workshop in 2011 on trade; participating in the preparation of a regional study on trade facilitation and infrastructure in the Maghreb; ministerial level representation in the conference held in the Moroccan capital of Rabat in 2012 to endorse the study’s recommendations and action plan. Algeria was also part of the regional flagship report on climate change adaptation in Arab countries. The Center for Mediterranean Integration (CMI) led the preparation of a case study on climate change and natural risk management for the city of Algiers. The country was also part of a regional task on improving the governance of universities. The World Bank team delivered a case study on Algeria that was discussed with university rectors in a seminar in Algiers in late 2012. Algeria was also part of the CMI-led report on knowledge economy and innovation. In addition, Algeria participated in a number of World Bank regional events, including a seminar in the Tunisian capital of Tunis on the Bank’s social protection strategy and a governance seminar in Rabat.

    Two Global Environmental Facility (GEF)-funded projects are under preparation with the Bank as implementation agency, the Algeria Improved Desert Ecosystems, and Climate Resilient Oases. This project is part of the regional Desert Ecosystems and Livelihood Program also known as the Middle East and North Africa (MENA). The project will be financed by US$7.4 million GEF grant. The Algeria Energy Efficiency Project is part of the first phase of a larger Maghreb Energy Efficiency program. The total cost of the proposed project is US$10.6 million including a US$4 million grant.

    LENDING
    Algeria: Commitments by Fiscal Year (in millions of dollars)*
    *Amounts include IBRD and IDA commitments
Country Office Contacts
05, bis chemin Mackley, Ben Aknoun, Alger

Algiers, (+213) 21 94 54 81

ialaoui@worldbank.org