Economic Outlook

Published October 18th, 2000 - 02:00 GMT

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. 

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