Algeria: an economy of breath in spite of abundant resources

At the approach of the presidential election of 18 April, Algeria is more than ever a prey to uncertainty. Abdelaziz Bouteflika, his president, 81-year-old in p

Algeria: an economy of breath in spite of abundant resources

At the approach of the presidential election of 18 April, Algeria is more than ever a prey to uncertainty. Abdelaziz Bouteflika, his president, 81-year-old in power for 20 years, has already made know his intention to run for a fifth term in office despite serious health problems. But a part of the population is opposed to this new nomination. For more than fifteen days, spontaneous gatherings succeed one another in several cities of the country, with a single watchword: "Not the fifth term of office!". These manifestations eruptive, interspersed with violence, are the visible part of the political climate is particularly tense in which bathes the country in recent years.

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The political situation is much more flammable that the national economy is doing poorly. The assessment made by the institute for the study of French Xerfi is, in this respect, without appeal: "Algeria's economy is in its death throes. To such a point that the question is not if it will crack but when."

The "Dutch disease"

The weakness of the algerian economy can be explained by the "Dutch disease". This "disease economy" in most of the countries hydrocarbon producers, like Venezuela, among others. With 12.2 billion barrels of oil recoverable, Algeria ranks among the top 20 world exporters of "black Gold". One might think that these large reserves, would be the guarantee of economic prosperity of the country, yet the country's level of development is relatively low. In the vast majority of cases, this paradox is explained by a too great specialization of activities. And Algeria is no exception to the rule. Its economy is almost exclusively oriented towards the exploitation of gas and oil reserves. A choice clearly observable in the reading of its macroeconomic indicators: almost a quarter of the GDP in algeria is driven by the exploitation of oil and gas resources, which account for 95% of exports and two-thirds of the tax revenue.

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however, an economy specialized in a single sector of activity, particularly in the raw materials can be subject to cyclical variations. Thus, the sharp drop in world oil prices between 2014 and 2019, has significantly affected the national accounts algerians, leading to a decrease in consumption and investment.

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This economic fragility is accentuated for decades by the confiscation of economic benefits related to oil. In an interview with the Figaro Live , the journalist, writer and specialist of Algeria, Mohamed Sifaoui denounced the "system Bouteflika", the double function depends on the "uptake of the pension" issue of the oil and the "redistribution" of it in the hands of "oligarchs" and businessmen close to the government. These illegal cartel between the oil companies and the business community sometimes arise at the great day, as was the case at the resounding corruption scandal that has forced to exile by the former minister of energy, Chakib Khelil.

An industrial sector in decline

Like all the country subject to Dutch disease, the Algeria lies in the inability to operate other levers of growth, the industrial sectors public and private to be as low as the dependence on raw materials is high.

The state-owned enterprises (hydrocarbons, transport, telecommunications), which generate half of the industrial wealth of the country, are experiencing a structural decline in their level of production. Thus, in 2017, according to data compiled by Xerfi, the level of manufacturing production in public was only half of that of 1989. The weakening of the production of public enterprises, directly linked to the slowdown of economic activity, results in under-utilization of production capacities: by 2017, only half of the productive facilities available was not exploited.

The deindustrialization of the public sector is not compensated by the private sector, the latter being composed of 80% of micro-enterprises, family-oriented for the most part. The algerian economy is therefore de facto not the weight in the face of international competition, as the gap between its industry and the giants of the european, american or chinese, is enormous.

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A risk of hyperinflation

to remedy this lack of dynamism, the Bank of Algeria has decided to support the economy with billions of dinars. The image of the programmes of "Quantitative Easing" implemented in Europe or in the United States, the banking institution has injected into the economy, according to the latest figures available, more than 4005 billion dinars, or $ 34 billion,since November 2017. These monetary easing aimed at reviving growth by stimulating the investment of households and firms, however, this expansionary monetary policy is not without danger. In an economic context that is depressed, the abundance of liquidity could lead to a hyperinflation, the consequences of which would be disastrous for the national economy.

Updated Date: 04 March 2019, 00:00

Kathleen Lees

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