Algeria continues to move ahead into its future

Amid the constant change that has recently characterised North Africa, Algeria has charted a path of relative stability. This is largely due to vast oil and gas resources that have made it Africa’s fourth-largest economy. Hydrocarbons represent 31% of GDP and more than 60% of government revenue. They have also made Algeria a top exporter of energy to the US, Europe and a rising number of developing countries.

Geography & Climate

Algeria is Africa’s largest country. It borders the Mediterranean Sea to the north; Morocco, Western Sahara and Mauritania to the west; Tunisia and Libya to the east; and Mali and Niger to the south. Its two main cities are the capital, Algiers, and Oran, both of which lie on the coast. Most of the population is located in the north, with the Sahara Desert covering 80% of the country. The interior tends to be dry, while the coast has hot, dry summers and mild, wet winters. The environment suffers from soil erosion due to over-grazing and desertification, but the littoral regions provide enough fertility for a sizeable agricultural sector.

Natural Resources

Around 80% of the country is unsuitable for cultivation due to the arid climate. Hydrocarbons have long been the economy’s primary driver. Algeria is the world’s sixth-largest gas exporter, and has the world’s 10th-largest natural gas reserves. The sector has attracted attention from foreign oil companies, and accounts for the majority of foreign direct investment. Hydrocarbons make up around 60% of revenue and 95% of export earnings, with state-owned upstream energy company Sonatrach one of Africa’s largest companies.

While Algeria began production of oil in 1956 and natural gas in 1961, there is still ample room for further discoveries: Sonatrach officials estimate that up to 66% of territory remains under- or unexplored, particularly in the north and in offshore blocks. The country also has commercial deposits of minerals, as well as a robust agricultural industry.

Population

Algeria’s population – which is currently just under 40m – is rising at an annual rate of 1.9%. Like many other countries in North Africa, the population is young, with two-thirds under the age of 30. The country is also heavily urbanised, and the urban population was estimated to be growing at an annual rate of 3% between 2005 and 2012. Algiers is the largest city, with the metropolitan area home to 5m people. Several other urban centres have populations in excess of 1m.

Less than 10% of Algeria’s population lives in the south. Inhabitants are 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.

Language & Religion

Algeria’s population is 99% Arab and Berber. Berbers, also known as Amazigh, are the indigenous inhabitants of North Africa. Around 15% of Algerians self-identify as Berber. French remains an important language for the media, administration and business, but Arabic dominates daily life. The Algerian dialect, Darja, differs substantially from standard Arabic, weaving in words of Berber languages and French.

The instruction and official use of the Berber language, Tamazight, was outlawed for decades. However, in response to social pressure the state created a High Commission for Berber Affairs in 1995 and legalised Berber language instruction. Roughly 99% of the population identifies as Muslim. Islam is the official religion, and most of its adherents are of the Sunni sect, though a small number of citizens adhere to Christianity and Judaism.

History

The Berbers are the original inhabitants of Algeria, having occupied the region since 4000 CE. Assimilated under the advances of several empires – from the Romans to the Umayyads and the Abbasids in the seventh century – in the 16th century the region came under the rule of the Ottoman empire, and remained an autonomous province within it for three centuries. France took control of the territory in 1830, and colonial rule was maintained for over a century. Following three decades of rising nationalism, Algeria won its autonomy in 1962.

The National Liberation Front (Front de Libération Nationale, FLN), which led the fight for independence, became the dominant political force. The first constitution was enacted in 1963, declaring Algeria a socialist state. An expansion of state intervention in the economy followed, over two decades of relative peace. 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 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, which won the multiparty elections. The military halted elections, sparking a civil war known as the Décennie Noire, or Black Decade. Peace finally came about in 1999 under President Abdelaziz Bouteflika. The new government led an amnesty which saw an estimated 85% of militants lay down their 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.

Popular protests occurred in early 2011, largely motivated by rising food prices and unemployment levels. The protests were met with public spending increases, and 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 seem to be economic rather than political. Protests have continued intermittently and are often related to inflation, unemployment and power outages.

Economic History

Following independence Algeria pursued a socialist economic model, which led to widespread nationalisations and efforts to achieve greater economic self-sufficiency. Algeria’s first president, Ahmed Ben Bella, prioritised 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 market distortions that followed the state’s increasing involvement in economic management, these efforts were unsuccessful and left the country increasingly dependent on hydrocarbons revenues, rendering it vulnerable when the price of oil fell severely in 1986. This shock and the consequent social unrest helped spur Benjedid’s government to partially liberalise the economy.

Benjedid shifted away from the 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 development focus away from heavy industry and long-term planning towards smaller-scale light industry and the redevelopment of agriculture. Growth in the early 1990s was anaemic or negative, and Algeria signed a debt rescheduling agreement with the IMF in 1994. Growth picked up in the latter half of the decade, reaching 5.1% in 1998, yet unemployment continued to grow, peaking at 29.5% in 2002. In the early 2000s the economic situation improved, buttressed by rises in the price of oil from 2003. Average annual growth from 2000 to 2010 was 3.7%, compared to 1.6% in the 1990s, 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 pay down its foreign debt amid windfall oil prices. The subsequent accumulation of reserves has been used primarily to invest in major infrastructure construction programmes under consecutive five-year plans, with the most recent iteration running until 2019. The public administration’s modernisation programme, along with major projects in the transport sector, are indicative of the government’s push to improve the business climate and facilitate diversification.

Current Economy

Low oil prices have had a dramatic impact on producers around the world. Algeria has been unable to shield itself from that trend, which has had significant implications for the domestic economy. In June 2016 Prime Minister Abdelmalek Sellal announced that the fear of stagnation may have begun to materialise: foreign reserves dropped by $6.1bn in the first half of the year, and trade fell from a $25bn surplus to a $13bn deficit in 2016. The state has increased oil production – which is forecast to reach 69m tonnes in 2016, up from 67m in 2015 – which may improve the outlook, depending on oil demand from Europe.

As a result of the recent drop in hydrocarbons prices, GDP growth softened to 3.9% in 2015, while the fiscal deficit doubled in 2015. The government has made moves to trim spending in 2016, but has ringfenced a number of capital projects to ensure productive investments continue – in part to help push diversification for sectors such as tourism, construction, manufacturing and agriculture.