Algeria

The Algerian economy has already returned to pre-pandemic levels, with GDP per capita reaching its 2011 peak and the current account reverting into a surplus after eight years. On the other hand, economic growth is largely a consequence of increased hydrocarbon prices, particularly in Europe, and could moderate already in 2023. GDP growth is expected to hover around +3% this year, slightly above the region's average, and then to slow to around +2% in 2024 due to less favorable assumptions on energy prices.

The government is trying to diversify its export basket and recently signed agreements with China to increase the production of phosphate and iron ore. Solar, wind and hydrogen projects could also see increased investment in the near future. Recent accords with Italy, the main destination market with circa 17% of total exports, are likely to increase natural gas sales, attract additional investment into the sector and partly mitigate an anticipated decrease in trade with Spain following diplomatic tensions over the recognition of Western Sahara (see below). All in all, the government remains exposed to a rapid depletion of its foreign exchange reserves should global energy prices fall, even though liquidity buffers were replenished in 2022.

Hydrocarbons represent 96% of total exports and 40% of budget revenues. Under present conditions, such as the increase in oil revenues and enhanced liquidity buffers, the government is unlikely to pursue much-needed structural reforms, including a long-term plan to diversify the economy away from the hydrocarbon sector. Algeria’s trade account also presents a structural deficit due to a relatively high import bill.

Algeria's prospects for government stability have improved since 2019-20, when it experienced weekly nationwide anti-government protests calling for sweeping changes to the political system. Three waves of the Covid-19 pandemic effectively neutralized the Hirak protest movement, which had served as the country's main opposition force for a decade. Moreover, the government of President Abdelmadjid Tebboune has embarked on a number of policies that have proved popular and helped to revive the economy, which has also benefited from a favorable commodity cycle. To reduce the risk of civil unrest, the 2023 budget law approved in late December increased already high levels of social spending, including subsidies.

The government is trying to open up to investors but significant obstacles remain, including capital controls. In a sign that President Tebboune’s administration recognizes that the business environment needs to be liberalized, the government reversed some protectionist policies adopted since 2019. However, the implementation of such policies may pose additional threats. In September 2022, the government issued secondary legislation related to the Investment Law published in July, prescribing that the foreign investor must bear at least 25% of the overall cost of the investment in order to repatriate freely the invested capital and the income derived from it. Algeria's application for BRICS membership in November 2022 is also likely to streamline administrative procedures for attracting investment and facilitating trade, including the transferability of funds and custom proceeds. Transparency of counterparty data is frequently cited among the causes of reduced credit limits among financial institutions and insurers.

Bilateral relations and personal ties remain prevalent in setting the business framework, while the government continues its anti-corruption drive. Foreign companies are unlikely to be directly targeted as such actions primarily target individuals close to former President Bouteflika and his inner circle. However, in June 2022, Algeria decided to suspend its friendship treaty with Spain after the Spanish Prime Minister voiced support for Morocco’s Autonomy Plan for the Western Sahara. Following this, the Algerian association of banks ordered its members to freeze operations relating to trade with Spain. The decision was soon reversed but affected trade and investment prospects between the two countries.