Large scale protests to oppose President Abdelaziz Bouteflika’s candidacy for a fifth term in office, erupted in February 2019, demanding his resignation, which took place in April. An interim president was inaugurated to oversee the transition period and organize the presidential election, due to be held in December 2019. The current political uncertainty has reduced levels of predictability in the business environment, given the impact the transition has had on senior managerial level in some large companies.
Algeria is one of a handful of countries that have achieved 20% poverty reduction in the past two decades. The Algerian government took significant steps to improve the wellbeing of its people by implementing social policies in line with the United Nations’ Sustainable Development Goals. The country’s oil boom has enabled the authorities to clear Algeria’s external debt, invest in infrastructure projects, and improve the country’s Human Development Indicators.
For example, Algeria has significantly improved its human capital development: its position on the World Bank Human Capital Index (HCI) that measures five key indicators in health and education is 93rd out of 157 countries. Between 2012 and 2017, its HCI value remained more or less constant at 0.52, however in 2017, it was lower than the average for its region and income group.
Algeria is considered to have achieved universal primary education with a 97% Primary Net Enrollment Rate in 2015 (with gender parity) and equally elevated higher education enrollment rates. Going forward, the government needs to improve the quality of education, as Algeria ranked 71 out of 72 economies for the performance of its 15-year-olds in science, mathematics, and reading in the 2015 PISA assessments.
Although these still largely positive results of shared prosperity have contributed to Algeria’s overall socioeconomic stability, the costs of underlying social programs and subsidies are no longer affordable amid persistently moderate oil prices. The restrained upside in worldwide oil prices have necessitated changes in resource-rich country economic models, and triggered a domino effect of reforms in MENA oil exporting countries to adapt. Similar to its neighbors, Algeria’s hydrocarbon revenues have halved in the recent years, contributing to a rapid decrease in its currency reserves, which albeit still remain at a very high level.
Algeria’s economy is highly dependent on hydrocarbons, and on global oil and gas prices. GDP growth reached 1.5 percent in 2018, compared to 1.4 percent in the previous year, and was sustained at 1.5 percent the first quarter of 2019. Growth in the hydrocarbon sector was slow, with economic activity contracting by 6.5 percent in 2018 and 7.7 percent in Q1 2019, partially offsetting the slight increase in non-hydrocarbon growth at 3.4 percent and 3.9 percent respectively.
Commercial services, industrial, construction, and public works continue to drive non-hydrocarbon growth. Exports of goods and services contracted in real terms by 6.4 percent in Q1-2019, driven by a decline in hydrocarbon exports due to rising domestic demand and stagnant production. At the same time, the import of goods and services has increased by 4.1 percent despite the slowdown in the economy which has resulted in a wider trade and account deficit. The fast erosion in official reserves has pushed the government to take additional steps to tighten imports, through new operational mechanisms to regulate wheat and milk imports, and through better controls on subsidies.
The budget and primary deficits have improved in 2018, reaching 7.6 percent and 4.9 percent of GDP respectively, due to a slight increase in revenues and lower spending on goods, services, and wages, as well as on capital spending. Inflation remained stable at 4.3 percent in 2018 and has declined at 4.3 percent in 2018 and has declined to 4.1 percent in end-March 2019.
The unemployment rate reached 11.7 percent as of October 2018 and is higher among the youth (29 percent in April 2018), women (19.4 percent) and university graduates (18.5 percent) as a result of the skills mismatch in the labor market.
There are no recent poverty estimates for the country, but official numbers from 2010/2011 show that 5.5 percent of the population was considered poor, with large regional variations and higher concentration in the Sahara and the Steppe regions. These estimates are based on poverty lines of less than US$3.6/day which is far below the US$5.5 poverty line associated with upper middle-income countries.
The shift towards a more diversified economy will help Algeria move toward sustainable growth and create jobs. This does need to be done in a way that protects the most vulnerable by ensuring well defined and targeted compensation mechanisms. The Bank’s global perspective, analytical expertise, knowledge and resources are shared with the Algerian government to support the country in the implementation of the reforms.
Last Updated: Oct 01, 2019