Algeria

Published October 18th, 2000 - 02:00 GMT

Indicators:  

1998 

1999 

2000e 

GDP real growth rate (%) 

2.0 

6.2 

5.0 

Inflation (%) 

5.0 

4.5 

6.0 

Total Exports (US$bn) 

10.12 

9.72 

16.0 

Total Imports (US$bn) 

9.3 

8.8 

8.5 

Trade balance (US$bn) 

0.82 

0.92 

8.0 

 

e – Al-Bawaba forecasts 

 

 

 

 

 

Political Outlook  

 

During the final days of 1999, President Abdulaziz Bouteflika appointed Ahmed Benbitour as Algeria's new Prime Minister. Benbitour chose a group of technocrats to head the important oil, finance, and trade portfolios in his new government. The makeup of the new cabinet, which is headed by a former Finance Minister and consists of various senior ministers with business backgrounds, represents President Bouteflika's method of signaling to the local and international business communities that Algeria is serious about implementing promised economic reforms. Still, Algeria's investment climate will remain crippled as long as domestic violence continues to wreak havoc on this North African nation. 

 

In mid-January, Algeria deployed thousands of troops in potential trouble spots, in anticipation of the impending deadline to a government amnesty for Muslim rebels. At the time, not all opposition groups had accepted the government's reprieve and thus, President Abdulaziz Bouteflika threatened to launch a brutal war against those who refused to surrender.  

 

Some historical opposition groups accepted the President’s amnesty offer. The AIS, the military wing of the state's largest opposition movement, the Islamic Salvation Front (FIS) dissolved itself. This move to cease hostilities followed Bouteflika's announcement of a blanket pardon for its roughly 3,000 fighters. While Algerian authorities presented AIS's decision to disband itself as a political victory, it is unlikely to have a substantial effect on the level of violence within this torn nation. The AIS had already been observing a de facto truce since mid-1997. Moreover, the President's proposed amnesty was categorically rejected by the more radical Armed Islamic Group (GIA) and the Salafist Group for Preaching and Combat (GSPC), which can field 5,000-7,000 rebels between them and have been responsible for most of the recent carnage. 

 

Violence and atrocities continued to inflict Algeria during the first half of 2000. The final weekend of May marked one of the most gruesome episodes of political violence in the nation’s recent history. Twelve people, including five members of the same family, were murdered. Moslem rebels sliced the throats of three children and their parents in Draa Smar, 70 kilometers south of the capital, Algiers. Nearby, rebels shot dead two other civilians at a fake roadblock.  

 

In response, government troops killed five guerillas in a gun battle, when they attacked a rebel hideout in the Saida Mountains. Twenty other members of the “Appeal and Struggle” radical faction fled to a nearby forest for refuge. This opposition party and the Armed Islamic Group are the two remaining movements still bent on violence. This episode of violence is merely one example of the brutality that continues to inflict this Arab state. 

 

Economic Outlook  

 

Violent incidents are nothing new in Algeria. What makes the latest rounds increasingly troubling is the fact that they have been accompanied by pessimistic economic signals, a disturbing mixture. A May 2000 report by Algeria’s National Economic and Social Council revealed that the value of the public sector’s industrial output had contracted by 1.5 percent in 1999 versus 10.5 percent growth in the previous year. Additionally, the country’s Agriculture Minister has warned that 80 percent of this nation’s cereal production is likely to be lost this year due to prevailing drought conditions. Such an occurrence would represent a financial cost of AD 33 billion (roughly $430 million). 

 

Algeria’s woes extend to the financial sector. The National Bank of Algeria (BNA) now finds itself in dire straights due to the treasury deficit it has accrued. BNA’s problems stem from difficulties in recovering debts from customers, mainly from government-owned companies that have been liquidated. On a macro level, the cost of servicing Algeria’s debt absorbs roughly 40 percent of export revenues. 

 

On a more positive note, help may be on the way from the United States. The American administration has committed to support Algeria’s Paris Club request to convert part of its debt into acquisition of state-owned enterprises. Furthermore, Eximbank, the U.S. export credit bank, will lend Algeria between $700 million and $1.2 billion to finance a planned energy project by state-owned Sonatrach and the purchase of Boeing aircraft by Air Algerie. 

 

For Algeria, consolidating domestic tranquility remains a necessary ingredient for achieving sustainable growth and expanding the economy beyond the energy sector. A number of large construction projects that had long lain dormant were revived earlier this year. For instance, the completion of a passenger terminal at Algiers airport is scheduled shortly. This initiative, which includes managing the terminal once it is finished, is worth approximately $300 million. Over 40 companies have applied to pre-qualify for the contract, including Athens-based Consolidated Contractors International Company (CCC) and Groupe GTM and Bouygues, both of France. 

 

In the medium-term future, Algeria’s economic well-being will depend heavily on its ability to accelerate its privatization program, which aims to sell off 250 public corporations in a number of different sectors. Privatization should receive a strong boost when the government opens its telecommunications sector to local and foreign investors before the end of 2000. The draft law, approved in June, aims at opening the sector to private entrepreneurs under a concession regime and setting up a state-run mobile watchdog to grant mobile phone licenses. The monopoly Administration de Postes et Telecommunication (PTT) presently has some 1.5 million fixed line subscribers and 60,000 mobile phone users. An international tender for the sale of a mobile telephone license will be launched early next year. 

 

Algeria’s mining sector is also a prime target of its privatization program. The new mining code, expected to be adopted later this year, will enable both domestic and foreign private investors to own up to 100 percent of mining operations, contrary to the current code, which limits private mining investment to 49 percent of the companies’ capital. Private investors will have easy access to geological information and data, and will also be able to launch exploration programs. 

 

Conclusion  

 

Despite Algeria's enormous energy resources, foreign investors remain turned off by unrelenting acts of domestic violence. Thousands of people have been killed since violence first shook Algeria in 1992. The damage of earlier brutal acts was mitigated by news that another multinational was planning to enter the Algerian market, in spite of the country’s precarious security situation. Recent indications of economic tribulations, however, combined with continuing bloodshed threaten to deter foreign investors. The social repercussions could be harsh: Algeria, which faces 30 percent unemployment, desperately depends on foreign capital to create jobs for its rapidly expanding workforce. 

© 2000 Mena Report (www.menareport.com)

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