Algeria flag Algeria: Economic and Political Overview

The economic context of Algeria

Economic Indicators

The Algerian economy is mainly driven by hydrocarbons and public investment, with the former accounting for 40% of GDP, 94% of exports and one-third of fiscal revenues. In 2022, the country benefited from high energy prices and the increased demand from Europe that followed the EU sanctions against Russia, resulting in a GDP growth of 3.2%. The positive trend continued in 2023, when economic growth reached 4.2%, underpinned by robust activity in the hydrocarbon, industry, construction, and services sectors. For 2024 and 2025, GDP growth is forecasted to decelerate marginally to 3.1% and 2.5%, respectively, amid lower hydrocarbon prices (IMF). Private consumption, constituting 42% of GDP, is anticipated to make a positive contribution, largely sustained by government-introduced social support measures for households.

In recent years, continued large fiscal and external current account deficits have reduced policy space as public debt increased significantly and international reserves declined (IMF). During 2022 and 2023, the windfall hydrocarbon revenues failed to counterbalance the additional expenditures aimed at supporting the economy, resulting in a continual widening of the government deficit, which stood at 9% of GDP last year. Among the top-priority expenditures, the government plans to fund a 47-50% raise in public sector workers' salaries from 2023 to 2024, an augmentation in retirement allowances for the least affluent, an expansion of unemployment benefits, and a doubling of the defence budget, which will result in high deficits in 2024 (6.8%) and 2025 (6.3%) as per the IMF. The debt-to-GDP ratio was estimated at 55.1% in 2023 (from 55.6% one year earlier) and is expected to follow an upward trend over the forecast horizon, reaching 63.9% by 2025. The average annual inflation remained high at 9% in 2023, driven primarily by elevated prices of fresh food. Despite an appreciation in the exchange rate, which has helped mitigate imported inflation, monetary policy remains accommodative. In April, the central bank increased reserve requirements and intensified liquidity absorption in the banking sector, but inflationary pressures persist. The new Government Action Plan comprises a wide range of reforms to support the transition towards a more diversified and sustainable economy and bolster governance and social cohesion, for example focusing on the mining sector (iron, phosphate). Moreover, the country is looking for ways to reduce its dependence on gas for power generation by investing in solar energy.

According to the World Bank’s estimates, unemployment hit 11.6% of the population in 2022 (latest data available). Unemployment is highest among youth, women and graduates due to skills mismatch in the labour market. Algeria has a low GDP per capita, estimated at USD 13,682 in 2023 by the IMF (PPP). There are also big differences between living conditions in cities and rural areas, and instability caused by radical groups on Algeria's borders remains a risk factor.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 225.63244.75266.78277.34287.04
GDP (Constant Prices, Annual % Change) 3.64.23.83.12.5
GDP per Capita (USD) 4,9825,3245,7225,8695,999
General Government Gross Debt (in % of GDP) 48.149.546.449.751.9
Inflation Rate (%) 9.39.37.66.46.1
Unemployment Rate (% of the Labour Force) 0.00.00.00.00.0
Current Account (billions USD) 19.065.280.36-4.18-7.26
Current Account (in % of GDP) 8.42.20.1-1.5-2.5

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

Agriculture accounts for 11.6% of Algeria’s GDP and employs 10% of the workforce (World Bank, latest data available). The main crops are wheat, barley, oats, citrus, wine grapes, olives, tobacco and dates. Algeria also produces a large quantity of cork and is an important livestock farmer. In late 2023, the government introduced the “Strategic plan for the development of cereal production in Algeria 2023-2028”, aimed at developing the soft wheat, maize, sugar and oilseeds sectors to reduce the annual food import bill. National wheat production was anticipated at 2.5 million tonnes in 2023, approximately 17% lower y-o-y. The total cereal production was estimated at 3.6 million tonnes, marking a 12% decrease from the prior year, which was already impacted by adverse weather conditions. Overall, the 2023 harvest was more than 20% below the five-year average as the country faced a third consecutive drought season (FAO).

The secondary sector represents 45.9% of GDP, employing 31% of the active population. The oil and gas sector accounts for most of the federal income and almost all of its export income (it represents over 90% of total exports). Algeria is among the top ten largest gas exporters in the world, it ranks 16th in oil reserves and 10th in confirmed gas reserves. The ores mined in large quantities are iron, lead, phosphate, uranium, zinc, salt and coal. The main activities of the manufacturing sector are industrial food processing, textile and chemical products, metals and construction materials. The manufacturing sector alone accounts for 35% of GDP (World Bank). Figures from the Ministry of Industry show that in the two first quarters of 2023, the public industrial sector recorded a growth rate of over 5.6% and 1,3% y-o-y, respectively.

The tertiary sector contributes to 38.6% of the GDP and employs 59% of the workforce. Algeria's banking sector is dominated by public banks, which suffer from high levels of non-performing loans to state-owned enterprises. Of the 20 banks operating in Algeria, six state-run banks retain the lion’s share of the market. With over 1,600 km of Mediterranean coastline, important cultural and historical sites, and the striking desert landscapes of the Sahara, Algeria has long held considerable potential for tourism. Nevertheless, the sector still accounts for a small part of GDP.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 10.3 31.0 58.6
Value Added (in % of GDP) 11.4 42.3 42.2
Value Added (Annual % Change) 4.0 1.7 4.1

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
49,7/100
World Rank:
162
Regional Rank:
13


 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
4.47/10
World Rank:
76/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

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Latest Update: June 2024

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