[AJA Global Report] Algeria’s economy and the gap between resources and achievements

Visitors are seen at the 16th International Conference & Exhibition on Liquefied Natural Gas held in Oran, Algeria, April 20, 2010. The 16th International Conference and Exhibition on Liquefied Natural Gas which opened on April 18 in Oran attracted more than 200 international companies from 62 countries. (Photo : Xinhua/NEWSis)

Algeria is the largest country in Africa in terms of surface area, the tenth in the world. It has the third largest oil reserves in Africa after Nigeria and Libya, where its proven oil reserves is estimated at 12.2 billion barrels. It also has the second largest reserves of natural gas after Nigeria, and is classified among the ten countries most equipped to shale gas reserves in the world. The country has foreign exchange reserves of up to 200 billion dollars, an amount sufficient to finance Algeria’s imports for more than three years.

Despite these striking facts, the social and economic situation of Algerian families is getting worse. Most of Algerians have complained about the quality of basic social services, including education, health care and access to housing. according to official Data, unemployment rate remains high, as high as 21.5 percent among young people who are aged between 15 and 24. Most of the jobs created during the past decade are featured by their fragility, low wages, and lack of social coverage.

Over the past five years, the volume of public investment in Algeria has been twice greater than its neighbors, such as, Morocco and Tunisia, however, Algeria has not achieved the same level of economic growth achieved by this countries. Compared with a sample of countries in the Middle East, Africa, Asia and Latin America, Algeria appears as a strange case that combines a high level of public spending and a modest economic growth.

Corruption is an important factor in explaining the gap between huge resources and failures in the five-year program to achieve real economic take-off and social welfare. Algeria ranked 105 among 176 countries in the general corruption Index for 2012 issued by Transparency International, and ranked the 12th among the 17 countries in the Middle East and North Africa.

Knowing that Algeria has ratified the United Nations agreement against corruption in 2004 with some reservations, and adopted a national law against corruption in the public sector, and has established a national committee for same purpose in the same year. Algerian President did not appoint the seven members of the Committee until 2010, and it seems that this committee did not achieve any concrete results so far. The World Economic Forum report on competitiveness note that the judicial system in Algeria suffers from interference of the executive branch members, companies, and powerful individuals. The report classifies Algeria in the 123rd out of 144 countries in the area of judicial independence, making it lags behind all Middle East and North Africa countries except Lebanon.

The different Algerian governments have not succeeded in breaking the strong dependency on the Algerian economy over oil and gas production. Therefore, the energy sector still accounts for more than one-third of GDP, two-thirds of government revenues, and about 98 percent of exports. Algeria’s economy is a less diversified economy, since agricultural sector contributes only eight percent of GDP, while the manufacturing sector contributes five percent. There are a few sectors who contribute to the economic growth, such as construction industry and public works, and government departments demand mainly financed by the of oil and gas revenues.

The Algerian government has not been able to lay the legislative and regulatory environment that encourages private investment, and economic diversification, which is essential for growth and economic stability in the long term. Most of private companies, particularly, small and medium-sized enterprises face barriers to enter the market and bank lending. According to the latest World Bank report on the «Doing Business», Algeria ranks 153 out of 189 countries – behind most countries in the Middle East and North Africa.

Developing the Algerian economy and making it able to meet the challenges of competition has to start with causing a break with the old methods of resources management that Algeria used to follow many decades ago. The five-year programs has to be clearly formulated and well implemented, where the private sector and civil society has to contribute in, rather than a tool to win over voters. This also requires improving the quality of public projects and activating devices for oversight and accountability, and strengthen the supervisory role of the parliament in order to investigate the facts on the impact of the scandals manipulation of public funds, and strengthen the independence of the judiciary and enable it to play its full role, otherwise, the chances of economic take-off is very small, despite the magnitude of the resources.

By Ouafa Bakhouche, Algeria, AJA Global Reporter