The largest economy in the Maghreb, Algeria is also the region’s wealthiest country in terms of purchasing power parity-adjusted per capita. Hydrocarbons are the mainstay of economic activity; however, amid slowing production and exports, as well as the sharp drop in oil prices since mid-2014, the government is taking a range of measures to develop other sectors, with a particular focus on industry, agriculture and tourism. The drop in oil prices, as well as rises in government spending in recent years, has led to the emergence of large fiscal and current account deficits. These are expected to fall in coming years as spending cuts, efforts to widen the tax base and diversification efforts all start to have an effect, and while both foreign reserve and government debt levels will come under increasing pressure, both appear set to remain reasonably comfortable for the foreseeable future.

Historical Overview

In local currency terms, Algeria’s annual real GDP growth stabilised from very high levels of volatility in the early years of the country’s independence to fairly steady and consistently positive growth between the mid-1970s and mid-1980s, according to World Bank data. Growth levels subsequently fell, with the economy contracting on several occasions in the late 1980s, following the collapse in international oil prices in 1986 and again in the early 1990s due to the eruption of civil conflict in the country.

By the late 1990s, the picture improved again, with local currency growth in real terms having remained positive every year since 1995 and reaching particularly high levels in the early 2000s, including a peak of 7.2% in 2003, before stabilising at low single-digit levels in the years since then, according to World Bank data. The picture looks somewhat different in nominal US dollar terms, due to factors including oil price volatility and changes in the country’s exchange rate. Following fairly consistent growth for the country’s first two decades of independence, GDP fell sharply from $66.7bn in 1987 to a subsequent low of $41.8bn in 1995. The economy returned to slow growth in subsequent years, but picked up sharply from 2002 onwards, with GDP reaching $171bn in 2008 and, following a short downturn resulting from the international financial crisis, $213.5bn in 2014.

Current Growth

In constant prices and local currency terms, the growth picture has remained largely unchanged in 2015 compared to previous years. GDP grew by 3.9% in constant prices, up slightly from 3.8% a year earlier, according to data from World Bank. Real terms growth (in local currency) continued at similar levels in the second quarter of 2016, according to the latest available figures from the National Statistics Office (Office Nationale des Statistiques, ONS), at a rate of 3.4%, with the non-oil sector expanding at a rate of 4.7%. An October 2016 review by the IMF forecasts growth in constantprices and local currency at 3.7% for 2016 as a whole, though the institution added that risks are tilted to the downside given the trend in oil prices.

However, in nominal dollar terms, GDP contracted sharply during 2015 thanks to falls in the value of both the dinar and the international price of oil, which began declining in the second half of 2014 and gained momentum in 2015. GDP for 2015 was down 21.9% year-on-year (y-o-y) to $166.8bn, according to World Bank figures. Despite the fall, the 39m-person country remains by far the largest economy in the Maghreb region, well ahead of neighbouring 33m-person Morocco with $100.4bn.

Gdp Per Capita

Algeria also had the second-highest level of national economic output on a per capita basis in North Africa in 2015, at $4132, just behind 6m-person Libya with $4643 and ahead of 11m-person Tunisia in third place with $3873. The figure was sharply down from $5474 in 2014, due to the slump in the value of oil, as well as the depreciation of the dinar – though in local currency terms the fall would have been substantially smaller. However, in terms of purchasing power parity the country came in first in the region, with a GDP per capita of $14,687 international dollars, ahead of Libya with $14,154. In contrast to straightforward GDP per capita, which has been somewhat erratic in recent years and was down in 2015 from 2008 levels, PPP-adjusted income has been rising steadily and was up in 2015 from $14,259 the previous year, suggesting that the purchasing power of Algerians continues to grow despite the sharp fall in the price of oil.


Consumer price inflation stood at 5.8% on an annualised basis as of August 2016, according to latest available data from the central bank, the Bank of Algeria (BoA). This is up from an average figure of 4.8% in 2015 and 2.9% the previous year, driven by factors such as the decline in the value of the dinar and a concomitant rise in the cost of imported goods – something that the government has been looking to address by expanding domestic production of consumer products.

Employment & Unemployment

As of April 2016 10.9m Algerians were in employment, according to latest available data from the ONS, which is out of an active workforce of 12.1m. The two figures were up from 10.6m and 11.9m, respectively, in September 2015, and 10.2m and 11.5m, respectively, a year before that. This led to an employment rate out of the total population of just 37.8% in April 2016, up from 37.1% in September 2015 and 36.4% in April 2014. This also meant an unemployment rate out of the total active labour force of 9.9%, which was down from 11.2% in September 2015 and 10.6% a year before that, according to the ONS figures. As is the case in most North African countries, youth unemployment is particularly high at 24.7% for the population between the ages of 16-24, and rising to 40% for women in the same age group. According to the ONS, overall unemployment has been broadly stable in recent years at levels of around 10%, but it is down from a rate of 15.3% in 2005 and a recent peak of close to 30% in 2000.

The primary reason for the low national employment rate is a low national labour force participation rate of 42% overall, which is dragged down by the female participation rate – another labour force characteristic shared with much of the Maghreb region – of just 17.3%. The rate is 26.7% in Morocco and 25.2% in Tunisia. “Lots of women work in segments such as education and health, but female participation in the private sector needs to be boosted given the increasing number of Algerian women who are educated at the professional and university level,” Boubcar Traoré, the country’s resident representative for the African Development Bank, told OBG, citing cultural factors as one of the explanations for such low rates. He added, “For example, many people do not regard it as culturally acceptable for women to ride a scooter or use public transport, and many women cannot afford a car of their own, limiting their ability to compete successfully for jobs in both the official and informal markets.”

Recently the focus on boosting employment has shifted more towards efforts to develop the private sector and diversify the economy. The government also has plans to revise the country’s labour code – though at an October 2016 press conference Mohamed El Ghazi, the minister of labour, employment and social security, said that the ministry had not yet started work on this. The IMF has also noted that there is scope to improve ties between the private sector and educational institutions, as well as increase the flexibility of the labour market, which it describes as characterised by a number of rigidities.

Foreign Exchange Regime

The Algerian dinar is traded under a managed float. The BoA allowed the currency to decline significantly over the course of 2015, from $1:AD87.47 at the beginning of the year to $1:AD107.15 by the end. The dinar was more stable in 2016, fell and then recovered slightly to around $1:AD110.77 by early December 2016. Such falls are in keeping with a broader gradual decline in the value of the currency since around 2008, when it was worth around $1:AD60.

Under the exchange rate regime, access to foreign currency is limited, which has created a parallel currency market in which it trades at a substantial discount to the official rate. “The government is strongly committed to enacting reforms to put an end to the informal exchange markets as part of measures to improve the business environment,” said Traoré, arguing that Algeria still enjoys some foreign exchange reserves equivalent to around two years’ worth of imports (see analysis).


The value of Algerian exports to other countries stood at AD3.8trn (€31.4bn) in 2015, down 25% from the 2014 figure of AD5.07trn (€41.9bn), as a result of the sharp drop in oil prices that began in 2014 and picked up over the course of 2015, according to ONS figures. In dollar terms, the size of the fall was steeper still, at 39.9%. Despite the reduced value of hydrocarbons exports, energy and lubricants nonetheless continued to account for the great bulk of exports at 94.5% of the total by value, down from around 98% in 2014. The next largest category of exports was semi-finished products, which contributed 4.5% of the total.

Meanwhile, the value of imports rose in local currency terms over the course of 2015 to AD5.17trn (€42.8bn) from AD4.72trn (€39bn) the year before, an increase of 9.5%. In dollar terms, the value of imports fell by 12.1%, according to the ONS. Equipment accounted for 30.1% of imports, down 9.74% in dollar terms; inputs for local production made up 30.8% (down 9.9%); food and drink contributed 18.1% (down 15.3%); and non-food consumer items added 16.7% (down 16.8%).

As a result of the sharp fall in exports and the rise, in local currency terms, in the value of imports, the country’s trade balance turned from a surplus of AD346bn (€2.9bn) in 2014 to a deficit of AD1.38trn (€11.4bn) in 2015, according to the ONS. In dollar terms, the figure moved from a positive balance of $4.3bn to a deficit of $13.7bn, as the fall in exports substantially outpaced the decrease in imports. In the first three quarters of 2016 the trade deficit expanded further, despite a slight rally on oil prices during the year to $15.4bn, a 20% y-o-y rise, according to an October 2015 Reuters report.

Trading Partners

According to ONS figures, the country’s main export destination in 2015 was Spain, which accounted for 17.4% of the value of Algerian goods sold abroad, followed by Italy (16.3%), France (13%), the UK (7.6%) and the Netherlands (6%). Turkey and the US were the country’s largest customers outside of the EU, accounting for 5.5% and 5.2% of Algerian goods, respectively. China was the largest exporter to the country, accounting for 16% of imports, followed by France (10.5%), Italy (9.4%), Spain (7.6%) and Germany (6.6%).

Import Restrictions

The widening in the trade deficit came despite a government target announced in March 2016 to reduce imports by around 15% over the course of that year. To help achieve this, the authorities have gradually been putting in place measures to make non-productive imports more difficult to undertake, in particular as regards those of vehicles and construction materials such as steel and cement, and requiring import licences for such goods starting in early 2016, as well as new requirements introduced in 2015 for imported cars to comply with a new bill of specifications issued by the Ministry of Industry and Mines. The country has also brought in requirements obliging vehicle distributors to start producing vehicles in the country on order to maintain their import licences, in line with a new wider approach of requiring investment before foreign companies can obtain market access.

Accessing Inputs

While the authorities have been taking measures to reduce the country’s import bill for non-productive imports such as consumer goods, they have simultaneously been working to make life easier for Algerian firms importing raw or semi-processed inputs to be used in production. To this end, in 2012 a government decree created a new opérateur économique agréé (licenced economic operator, OCE) status that companies can apply for. This grants them privileges when dealing with the country’s Customs administration, mostly notably the immediate port clearance of any products they import (with targeted checks taking place further down the line to ensure continued compliance with Customs regulations). The Customs Agency began to accord OCE status to companies in 2013, and as of mid-2016, 263 firms, accounting for around 17% of the country’s external trade, had been granted the status, with plans to extend the status to 400 companies by the end of 2017.

Ease Of Export

The administration is also working to help facilitate exports, through initiatives such as clearing and sealing products for export at factories, from where the goods go straight to ports and airports without undergoing further checks. The agency is also working to bring down clearance times, which have fallen from around eight days in 2011 to 3.5 in 2016, according to figures from the Customs Agency itself, with plans to further reduce the figure to 48 hours by 2017. In order to improve efficiency, the agency plans to put in place a new information system by the end of 2017 and is working to standardise Customs procedures across all of its sites, eliminating any procedures that are not in line with its standard practice.


Inflows of foreign direct investment (FDI) turned negative in 2015 (meaning the value of divestments were greater than those of investments) at a $587m deficit, according to data from the UN Conference on Trade and Development. This figure was down from a positive balance of $1.51bn in 2014 and $2.58bn in 2011. The fall is likely to have been a result of the decline in oil prices over the period, as well as Algeria’s difficulties in recent years in securing interest in hydrocarbons exploration and production activity. Industry, including the energy sector, accounted for the bulk of FDI in the country, with AD1.68trn (€13.9bn) of investment in foreign investment projects between 2002 and 2015 having gone into the sector, or 68% of the total, according to figures from the country’s investment promotion body, the National Investment Development Agency (Agence Nationale de Développement de l’ Investissement en Algérie, ANDI). ANDI also recorded an increase in the number of projects invested in, from 20 in 2012 to 120 in 2016.

The authorities are making efforts to boost investment, both foreign and local, as part of wider plans to diversify the economy away from its reliance on oil and gas. In July 2016 parliament passed a new law making changes to the country’s investment promotion framework that is intended to increase levels of FDI in the country, in particular in the industrial, agricultural and tourism industries, by providing a range of new incentives for investors and streamlining administrative requirements (see analysis). Observers believe that the tourism sector could develop relatively quickly in some areas. The ANDI is also being reorganised under the changes to focus on providing support for investors.


The fall in the oil price since mid-2014 has seen the economic contribution of the hydrocarbons sector fall substantially, but nevertheless the industry continues to dominate the Algerian economy. In 2015 oil and gas exports accounted for 94.5% of total sales of Algerian-produced goods abroad, according to ONS figures, while revenue for the sector contributed nearly 47% of total government revenues, according to estimates from the IMF, compared to 61.7% two years previously.

The sector is also facing a number of challenges in addition to lower prices, including falling output and export volumes. Oil production stood at 68.5m tonnes in 2015, according to the 2016 “BP Statistical Review of World Energy”. While this was up slightly on 2012 and 2013 production, and essentially unchanged since 2014, it is down significantly over the longer term, with output having stood at 86.5m tonnes in 2007. Production has been impacted by maturing fields – with the largest oil-producing field now nearly 60 years old – while new fields have been slow to come on-line. Only around one well in five exploratory well drillings having proven successful in recent years. Meanwhile, domestic consumption of oil has been rising steadily over the past decade, from 11m tonnes in 2005 to 19.3m tonnes in 2015, cutting into production that is available for exports – though plans to gradually eliminate subsidies on fuel should help to curb consumption growth in coming years (see analysis).

In contrast to oil output, marketed gas production, which stood at 83bn cu metres in 2015, has been more stable over the last decade, according to BP figures. However, when flared and reinjected gas is included in the total, output has also been falling, and conventional gas reserves are expected to be exhausted in the mid-2050s. The country also has enormous reserves of shale gas, which the US Energy Information Administration estimates could be the third-largest such deposits in the world, though the extent to which these are commercially exploitable is unclear. As with oil, rising gas consumption is also putting downwards pressure on the availability of gas for export; domestic consumption rose from 23.2bn cu metres in 2005 to 39bn cu metres in 2015.


Facing falling hydrocarbons production and exports, as well as the current environment of comparatively low oil prices, the authorities are keener than ever to diversify the economy away from its heavy reliance on oil and gas. In line with this, a key element of the government’s current fiveyear economic plan, which runs from 2015 to 2019, is the development of the non-oil economy. “There has been a large increase as regards awareness of the need to diversify the economy,” Ahmed Tibaoui, general manager and CEO of the trade and investment association World Trade Centre Algiers, told OBG. “For example, walis [regional governors] have been actively seeking foreign investors for a year or so now, which is a new development.”

Sectors that the government is successfully seeking to develop as part of such efforts include industry, such as automobile and automobile parts manufacturing. Renault launched a car plant in the country in 2014 and more companies are planning to follow, such as Volkswagen. The government has also put measures in place to compel car manufacturers that wish to market their vehicles in the country to set up local manufacturing facilities.

Other manufacturing sectors are showing strong signs of emergence; for example, in September 2016 at a foundation-laying ceremony Abdessalem Bouchouareb, minister of industry and mines, told the Algerian Press Service that Algeria would become self-sufficient in the production of cement by the end of 2016, which should allow for exports to begin in 2017. Locally owned electronics and white goods producers Brandt and Condor have also emerged as significant exporters and are working to develop their sales abroad (see Industry chapter).

As regards heavier industries, downstream oil and gas industries such as refining and petrochemicals represent another industry widely viewed as having a great deal of potential for diversification. Reuters also reported that the country’s phosphate industry appears poised for development following the conclusion in July 2016 of a $4.5bn deal between Indonesian firm Indorama and state-owned Algerian phosphate firms to develop a phosphate mine in the north-east of the country and construct two phosphate-processing and fertiliser production facilities.

Business Environment

Unsurprisingly given the country’s history of making social welfare a priority, Algeria’s public sector has played a predominant role in stoking economic activity, with state-owned enterprises present in sectors ranging from industry to banking to energy. Strict requirements on ownership, including a 2008 rule that capped foreign holdings to 49% of any venture, have also affected the business environment. This has in turn limited space for private capital, although recent reforms – alongside the emergence of a number of new private sector associations such as the Chamber of Commerce and Industry and the Forum for Business Leaders – has brightened the outlook for private companies.

The country’s business environment came 156th out of 190 countries in the World Bank’s 2017 Doing Business index, up seven places on its 2016 performance. It ranks particularly poorly in the categories of trading across borders (178th), protecting minority investors (173rd), getting credit (175th) and registering property (162nd), though it performed moderately well in the resolving insolvency category (74th) and dealing with construction permits (77th), where it improved vastly, jumping 44 spots since 2016. The country also scored an encouraging 87th out of 138 countries in the World Economic Forum’s (WEC) “The Global Competitiveness Report 2016-2017”, with particularly strong scores in the market size, health care and primary education, and macroeconomic environment categories. Respondents to the WEC’s study rated inefficient government bureaucracy as the most problematic factor for doing business, ahead of access to financing in second place and corruption in third place.

The IMF said in its May 2016 Article IV consultation that the investment climate, which it says is characterised by “pervasive bureaucracy and cumbersome administrative procedures,” has been one of the key barriers to stronger private sector growth and, by extension, diversification away from oil and gas.

The authorities are aware of such business environment challenges and introduction of major constitutional reforms, passed in February 2016, commits the authorities to improve the environment. Since then the government has taken a number of specific measures to do so, including a new investment law passed in July 2016 (see analysis). Among other things, a law passed by parliament in mid-2016 to modify the investment code (see analysis) moved the 51:49 requirement from the code itself to the budget law (Loi de Finances), which is renewed every year, and some observers believe that the change may herald moves to render the requirements more flexible by, for example, limiting them to strategic economic sectors or even doing away with them entirely in the long run. “There has been a lot of discussion about softening the 51:49 rule, especially in non-strategic sectors,” Traoré told OBG. “The situation is improving, but there remains a lot of work to do. There is still a lot of bureaucracy in particular, which is the main obstacle to attracting investment.” He also cited problems such as a shortage of industrial land and an insufficiently sophisticated banking and finance system.

Private Sector Participation

As part of efforts to improve government finances and diversify the economy, the authorities are also taking some more dramatic steps towards the partial or total privatisation of some state companies. In particular, Article 66 of the 2016 Finance Law allows for the sale of stakes of up to 66% in state-owned firms to private investors, subject to approval from the State Participations Council. Such companies will also be able to be fully privatised five years after any initial stake sale. However, the process is likely to be a lengthy one, due in part to the size and complexity of the privatisation process in Algeria, as well as the muted response to a partial stake sale, via the country’s stock exchange, of local cement producer Société des Ciments de Aïn El Kébira. The sale was put on hold in June 2016 as a result of a lack of private investor interest in the transaction.


Algeria is going through a difficult period involving sharp spending cuts as a result of falling oil prices. However, these should bolster diversification efforts that will have long-term benefits, in particular given anticipated falls in oil and gas production over the coming decades, and the long-term prospects are positive. “Algeria is likely to go through a painful period that will require radical reforms; however, once those are completed, the outlook is very promising,” Farid Bourennani, financial expert and consultant, told OBG. “The country is immense with vast natural resources and other competitive advantages that are currently severely under-exploited. Globally, we are confident in the future of Algeria, provided that we act in the right way.”