Steady going: The country maintains relative economic and political stability in a quickly changing regional environment

Even amidst the constant change that now characterises North Africa, Algeria has charted a path of relative stability. This is largely due to its natural riches, with a vast array of oil and gas resources, that have made Algeria the fourth-largest economy on the continent after South Africa, Nigeria and Egypt, and the second-largest in North Africa. Those same hydrocarbons reserves currently represent around 31% of GDP and more than 60% of the government’s revenue. They have also made the republic a top supplier of energy exports to the US and Europe, as well as a growing number of developing countries.

BRANCHING OUT: However, the country’s dependency on oil and gas has prompted an increasingly urgent push for diversification, not only to reduce exposure to commodity volatility but also to stimulate job creation over the medium and long term. With a strong socialist heritage, Algeria’s economy has long been dominated by statist institutions, although the government is currently working to encourage more activity in the private sector through targeted investment in areas such as agriculture, retail, construction, manufacturing and tourism. Algeria is ramping up its foreign partnerships to encourage investment and knowledge transfer in sectors with the potential to boost employment rates.

Hydrocarbons receipts have fuelled state spending on health and education programmes, affordable loans and subsidies on basic consumer goods – one of the reasons behind Algeria’s relative stability. However, several issues remain, including official unemployment of nearly 10% and a need to ensure more inclusive growth outside of major urban areas. In response, the government has introduced a series of legislative reforms, housing projects and job creation programmes to reaffirm the economic basis for social and political stability.

GEOGRAPHY & CLIMATE: Algeria became the largest country in Africa by land size when Southern Sudan achieved independence in 2011. The country covers 2.4m sq km and is divided into 48 wilayas, or provinces. Algeria has just under 1000 km of Mediterranean coastline and over 6000 km of shared land boundaries. It borders Tunisia and Libya to the east, Niger and Mali to the south, and Mauritania, Western Sahara and Morocco to the west. While it maintains open relations with most neighbours, the border with Morocco is closed due to the ongoing dispute over Western Sahara.

Though 85% of the country is covered by desert, the remainder has a varied climate and topography that includes coastal plains, mountains and high plateaus. A narrow, fertile plain, the Tell, stretches along Algeria’s northern coast. Its climate is typical of the Mediterranean with mild, wet winters and hot, dry summers. The Tell is home to several major cities, including the capital, Algiers. In fact, 91% of Algerians live in 13% of the territory. Just over 3% of Algeria’s territory is arable, primarily located in the Tell and surrounding areas. Given its population concentration, moderate climate and proximity to export centres, the majority of economic activity takes place in the northern coastal zone.

Moving south, the territory rises into the Tell Atlas Mountains, which are part of a range stretching from Morocco to Tunisia. Farther south, the mountains give way to the High Plateau region, which has a semiarid climate. The Saharan Atlas Mountains form its southern edge and stretch into the desert. The country also has another mountain range in the far south known as the Hoggar Mountains at an average altitude of more than 900 metres. Average temperatures in Algiers and much of the north range from a low of 9°C to a high of 30°C in August. Rainfall in the north typically peaks around 140 mm in December. In the desert south, daytime temperatures frequently exceed 40°C and can fall below freezing at night.

POPULATION: The population reached nearly 38m in January 2013, according to the National Office of Statistics (Office National des Statistiques, ONS). It is growing at an annual rate of 1.9%, and 74% is urbanised, according to World Bank estimates for 2013, though the urban population was estimated to be growing at an annual rate of around 3% between 2005 and 2012. Like many other countries in the North African region, the population is quite young, with two-thirds under the age of 30.

Algeria’s population is 99% Arab and Berber. Berber peoples, also known as Amazigh, are the indigenous inhabitants of North Africa, and their presence dates back to at least 10,000 BCE. The population is made up of several sub-groups who speak distinct Berber dialects. The largest population resides in the mountainous region of Kabylie, east of the capital, and speaks a unique dialect, Kabyle. Other notable Amazigh populations include the Chaoui in the eastern Atlas Mountains, the Mozabites in M’zab in the northern Sahara and the Tuareg in the far south.

Less than 10% of Algeria’s population lives in the south. Inhabitants are mainly concentrated in Tamanrasset and Tindouf, as well as the desert cities of Hassi Messaoud and Adrar. Southern areas are home to the majority of oil and gas exploration, which brings in both foreign and domestic businesses. An estimated 1.5m inhabitants are partially or fully nomadic.

While the majority of the country can claim descent from native Amazigh inhabitants, the mid-7th century Arab conquest influenced the country religiously and linguistically. The official language is Arabic, and like all countries in the Maghreb, Algeria’s national dialect, known as Darja, differs substantially from standard Arabic. Darja is the language used in daily life, while standard Arabic is the language of the government, education and official media. French has traditionally been the language of business, and many Algerians are fluent speakers given the country’s colonial past. However, French is steadily losing ground to Arabic and even English, which is becoming more popular among youth. Berber was made a national, but not an official, language in 2001 in response to growing popular demand for recognition. The country is 99% Sunni.

SOCIAL INDICATORS: Revenue from oil and gas exports allows Algeria to support extensive public health and education systems; today, the majority of funding for social services comes from the public sector. Education is free and compulsory through the age of 16. World Bank data indicate that the primary school enrolment rate was 96% in 2011, with a primary completion rate above 94%. However, considerable disparity exists in the public school system, and insufficient allocations of resources has resulted in problems with the quality of instruction. In addition, enrolment rates drop off for secondary school; some estimates indicated that only half of eligible students are registered in secondary school.

And yet, the adult literacy rate was 72.6% in 2006, which is noticeably higher than many other countries in the region. However, male-female disparity is greater among adults; literacy among women over the age of 15 is around 64%, but 81.3% for men. Youth literacy rates are higher; the literacy rate for youth aged 15-24 was estimated at 91.8% in 2006, or 94.4% for boys and 89% for girls.

Algeria has made significant strides in the health sector since independence. Per capita health expenditure increased from $185.70 in 2008 to $224.80 in 2011; over 80% of total health spending comes from the state. Life expectancy rose from 50 years in 1965 to 73 in 2012. Non-communicable diseases represent the majority of the health care burden; they were responsible for 62.7% of deaths in 2008, while 29.6% were due to communicable diseases and maternal, prenatal and nutrition concerns. With improvements to the health system, the infant mortality rate has gone from 154 deaths per 1000 live births in 1965 to 25 today, and 95% of births are attended by health personnel.

ECONOMY: ONS data for 2012 showed that the tertiary sector, including commerce and other services, accounted for 55% of employment, followed by 19.4% in construction and public works, 13.7% in industry and 11.7% in agriculture. Roughly two-thirds of workers are in the private sector. Algeria’s GDP per capita rose from $5528 in 2011 to $5694 in 2012. In recent years, there has also been a push to reduce the dominance of the hydrocarbons sector and the lingering policy of state centralisation to encourage the development of the private sector and economic diversification. The government has stepped up financial support for small and medium-sized enterprises (SMEs) since 2011 by introducing business counselling centres, strengthening credit guarantees and increasing financing mechanisms available for small businesses.

NATURAL RESOURCES: While the state’s economic diversification plans are a priority, Algeria’s economy will continue to benefit from its vast natural resources. Proven oil reserves jumped from 9.2bn barrels in 2003 to 12.2bn barrels in 2013, making Algeria the 17th-largest holder of oil reserves in the world and the third largest in Africa after Libya and Nigeria. Algeria is also the 10th-largest holder of natural gas in the world and second largest in Africa, with 4.5trn cu metres of proven reserves. The country also has significant reserves of iron ore, phosphates, uranium, lead and zinc.

Algeria began production of oil in 1956 and natural gas in 1961. The hydrocarbons industry has attracted considerable attention from foreign oil companies, and it accounts for the majority of Algeria’s foreign direct investment (FDI). However, the national energy company, Sonatrach, maintains a firm grip on the sector. Sonatrach owns roughly 80% of total hydrocarbons production, according to US Energy Information Agency estimates, and it is required to be the majority stakeholder in all exploration and production ventures. Sonatrach officials estimate that up to 66% of territory remains under- or unexplored, particularly in the north and in offshore blocks. This creates considerable potential for the future of the sector, but Algeria will need to stimulate more foreign investment if these resources are to be fully exploited.

Significant changes to the regulations regarding FDI in the hydrocarbons sector over the past five years have led to a slowdown in new exploration projects, which when combined with a drop in global demand, contributed to a levelling off of total hydrocarbons output. However, that is likely to change by 2014, given that the government is currently working to encourage further investment and recently completed a revision of the Hydrocarbons Code that eases the tax burden on foreign companies; the revised code also has additional incentives for exploring untapped offshore blocks and non-conventional resources, such as shale gas.

POLITICAL HISTORY: Algeria’s economy has grown rapidly since independence in 1962, driven by largely state-centric development strategies. The protracted struggle for independence from 1954 to 1962 devastated the economy and unemployment levels were estimated at around 70% by the conflict’s end, backed by minimal oil and gas production and limited domestic industries. To help strengthen the country’s overall output, the government adopted a centralised approach; natural resources, banks and several foreign firms were nationalised in an effort to create a self-sufficient economy. Widespread oil and gas exploration beginning in the 1970s led to an oil boom that has supported economic growth. The development of natural resources was managed closely by the state, and the influx of export revenue allowed Algeria to develop a rentier economy.

Algeria saw the first true liberalisation of its political system as early as the 1980s, at a time when Tunisia and Egypt were still firmly under authoritarian systems. A sharp drop in global oil prices in 1986 severely impacted the economy. This led to public protests demanding greater economic and political openness, which kicked off a reform process in late 1988. Then-President Chadli Benjedid oversaw a transition from a planned socialist economy to more of a free market, though still with a nationalist approach. The government introduced a multiparty political system, reduced the military’s role in politics and liberalised the national press.

These reforms laid the groundwork for the development of Algeria’s political system. However, the country experienced a major setback in the 1990s when a conflict broke out between the state and armed militant Islamist groups. The military halted elections, sparking a civil war known as the dé civilian casualties range from 100,000-200,000.

However, peace finally came about in 1999 under newly elected President Abdelaziz Bouteflika. The new government led an amnesty programme, under which an estimated 85% of militants laid down arms. A charter of national unity was adopted by national referendum in 2005 and implemented in 2006, offering a second round of amnesty to remaining militants.

A series of popular protests occurred in early 2011, coinciding with the broader Arab Spring, but Algeria’s unrest was largely motivated by rising food prices and unemployment levels. The protests were met with public spending increases, which included public sector salary raises, increased consumer goods subsidies and support for SMEs. Due to the government’s response, as well as the recent experience of the civil war in the 1990s, protests never gained the critical mass seen in other Arab Spring countries. The state is in the process of introducing legislative reforms to head off potential sources of unrest, but the primary issues in Algeria seem to be economic rather than political. Protests have continued intermittently and are often related to inflation, unemployment and power outages.

POLITICAL STRUCTURE & REFORM: The president is elected by popular vote for a five-year-long term. Bouteflika was elected to a third term in April 2009. Algeria has a bicameral legislature, which is composed of the 144-seat National Council, the upper house, and the National People’s Assembly. One-third of council members are appointed by the president and two-thirds by indirect vote for six-year terms, and half of the council is renewed every three years.

National Assembly members are elected by popular vote to five-year terms as well. As part of the package of reforms adopted in 2011, the number of seats in the National Assembly was increased from 389 to 462. The reforms were meant to bring about a more balanced legislature by reserving one-third of spots on electoral lists for women and establishing a judicial panel to oversee elections, as well as loosened restrictions on opposition publications. In 2013 the assembly is expected to launch a process of constitutional revision.

The most recent local and legislative elections were held in May 2012. Voter turnout for parliamentary elections has traditionally been low, but the 43% participation in 2012 topped the 36% turnout seen in 2007. The National Liberation Front (Front de Libération Nationale, FLN), which has dominated Algerian politics since independence, increased its share of the expanded assembly to 220 seats. The National Rally for Democracy (Rassemblement National Démocratique, RND) won 68 seats. The third-largest group, the Green Algeria Alliance, includes three moderate Islamist parties: the Movement for a Society of Peace, Islamic Renaissance Movement and Movement for National Reform. The three parties ran on a joint ticket but performed more poorly than expected, winning just 48 seats.

The appointment of a new prime minister was delayed for several months, but Abdelmalek Sellal assumed office in September 2012. Sellal, an FLN technocrat who was closely involved in Bouteflika’s 2004 and 2009 re-elections and has held several ministerial posts, replaced former Prime Minister Ahmed Ouyahia of the RND. The president unexpectedly reshuffled the Cabinet in early September 2013, assigning several new players to important positions. General Ahmed Gaid Salah, the chief of the army, was named deputy defence minister while also retaining his post in the military. Taybe Belaiz, the head of the country’s Constitutional Council, was appointed interior minister. An experienced diplomat and the former commissioner of peace and security at the African Union, Ramtane Lamamra, was promoted to the position of foreign minister, while the former labour minister, Tayeb Louh, was made the chief of the Ministry of Justice.

ECONOMIC HISTORY: Following independence, Algeria pursued a strongly socialist, command-oriented economy model, which led to widespread nationalisations and efforts to achieve a higher degree of economic self-sufficiency. Algeria’s first president, Ahmed Ben Bella, prioritised autogestion, or the management of enterprises by their workers, while his successor, Houari Boumedienne, sought to create a domestic industrial base, overhaul the agricultural sector and achieve economic self-sufficiency.

However, due to the resulting distortions of the market that followed the state’s increasing involvement in economic management, these efforts were on the whole unsuccessful and left the country increasingly dependent on revenues earned from the sale of hydrocarbons, rendering it vulnerable to economic shock when the price of oil fell abruptly severely in 1986. This shock – and the consequent social unrest – helped spur the then-government under Benjedid to partially liberalise the economy.

In response to such problems, Benjedid and Mouloud Hamrouche, the key architect of many of the liberalising economic reforms and head of Benjedid’s government from 1989 to 1991, shifted away from the country’s socialist course, removing the designation of Algeria as a socialist state as part of constitutional reforms in 1989. New economic policies included breaking up certain state enterprises and giving some of them more autonomy while privatising others, lifting some price controls, partially liberalising foreign trade, allowing the development of small private firms and encouraging increased private and foreign investment.

Benjedid also shifted the country’s development focus away from heavy industry and long-term planning – tellingly, he abolished the Ministry of Planning – and towards smaller-scale light industry and the redevelopment of agriculture. Against a backdrop of worsening violence, growth in the early 1990s was anaemic or even negative, and the country, burdened by its heavy foreign debts, signed a debt rescheduling agreement with the IMF in 1994. While growth picked up somewhat in the latter half of the decade, reaching 5.1% in 1998, unemployment continued to grow, peaking at 29.5% in 2002.

However, as levels of violence fell significantly in the early 2000s, the economic situation improved, buttressed in part by rises in the price of oil from 2003 onwards. Average annual growth in the first decade of the 2000s stood at 3.67%, compared to 1.6% in the 1990s and 2.26% in the 1980s, and the country has not witnessed a year of contraction since 1994. The 2000s also saw the country strengthen its fiscal and trade fundamentals.

The decade also saw the country’s paying down of its foreign debt amid windfall oil prices. Since then the subsequent accumulation of reserves has been used primarily to invest in a major infrastructure construction programme under the 2010-14 five-year plan (see Economy chapter).

SOCIAL DEVELOPMENT: The improving economic situation has helped lift a number of social indicators, although the country still has significant inroads to make in terms of health and education. Algeria ranked 96th out of 187 countries on the UN’s 2011 Human Development Index, making it the second-highest-ranked country in the Medium Human Development category and just short of the High Human Development one. The country has witnessed widespread social transformation since independence. For example, life expectancy has greatly increased and the population has more than tripled from around 12m in 1966 to 38m currently, despite the emigration of hundreds of thousands of Algerians to Europe in the first decade of independence. The country saw an annual increase of 2% on the Human Development Index between 1980 and 2012 and is now above the regional average and many Arab states.

Thanks to investment and improvements in health care, the density of doctors has increased from about 1 per 33,000 inhabitants at independence to 1.2 per 1000 inhabitants, and the infant mortality rate has plummeted from around 154 per 1000 live births in 1965 to around 25 today (see Health chapter). Urbanisation has also had an impact: the proportion of Algerians living in cities has increased from around 30% at independence to more than two-thirds today. About 90% of the non-European population was illiterate at independence, a figure that has now dropped to around 30% (see Education chapter).

INTERNATIONAL TIES: In the past three decades, Algeria has moved from a policy of state centralisation and self-sufficiency to increasing engagement in the Maghreb and in global markets. While trade with Maghreb neighbours still represents a small fraction of its trade volume with Europe, North America or even Asia, Algeria is nonetheless beginning to take on a more active political role, evidenced by its involvement in the Arab Maghreb Union and other regional bodies. Growing regional integration will be particularly important with regard to common security issues. Algeria, like its neighbours, faces a growing risk from the presence of militants in sparsely populated desert regions, a situation which has been exacerbated by the ongoing political uncertainty in neighbouring Tunisia and Libya. However, Algeria is asserting itself on the regional political stage and can bring important financial and security resources to bear; its natural resource wealth and strong military equip the country to manage these risks while still pursuing economic expansion.