Sound economy, sick state

21 February 1997


Readers may be forgiven for being confused about Algeria: the IMF is praising the country for improving its economy and international oil investment is growing apace, yet reports about violence and increasing financial hardship abound. In the populated north, living standards have dropped and violence reached new heights this Ramadan, yet the south of the country is a success story for oil companies and government revenues.

‘We think Algeria succeeded very well in its stabilisation programme. The budget surplus is 2.6 per cent [of GDP], inflation has dropped and the levels of reserves are at their highest,’ says the World Bank Algeria econ-omist. Provisional figures for 1996 show economic growth of 4 per cent, after a 4.3 per cent increase in 1995 reversed several years of decline. Inflation was 15 per cent, down from 50 per cent in 1992.

Algeria’s implementation of structural reforms receives even higher praise. ‘On the structural adjustment side, Algeria has made good progress. Prices freed, and Algeria has now one of the most liberal trade regimes in the region. Efforts at structural reforms are now focusing on privatisation of public enterprises, and the reform of the housing and financial sectors. Decisive progress in these areas will be critical to the sustainability of the gains realised in the stabilisation front,’ the economist says.

However, Algerians have felt little benefit and the standard of living has deteriorated markedly. The abolition of subsidies has driven up prices and many complain they can no longer afford basic goods. Unemployment, estimated to be much higher than the official 25 per cent, is growing under the present privatisation programme. Not only does a new private manager usually reduce the company’s workforce, but 87 of the 138 enterprises sold were liquidated and ceased operating.

A special unemployment fund compensates laid-off workers, but real relief will only come with new investment - and this is unlikely to happen before potential investors are sure they will not be attacked or their projects destroyed by bombs. The non-hydrocarbon industrial sector has been declining at varying speeds for several years (see table).

Violence intensified during the holy month of Ramadan in January-February, when more than 300 people were reported killed in bomb, car bomb and other attacks. The extent of the carnage embarrassed the government as the attacks followed high-profile statements that the armed opposition had been reduced to ‘residual terrorism’ which would quickly be crushed. The total number of fatalities over the past five years is unclear, but the average monthly death toll is unlikely to have exceeded the Ramadan figure of 300 in one month, analysts say. Human rights organisations say there is significant under-reporting of casualties as a result of censorship. However, for the commonly used estimate of 60,000 to be credible, it would mean that deaths have averaged 1,000 a month since 1992.


If the government hoped reforms would help quell the flow of new recruits to Islamist opposition groups, the aim looks far off as poverty in urban areas is increasing. In addition, the local press reports that laid-off workers often find employment with the security forces, one of the few organisations which are expanding.

In the absence of investment in manufacturing, economic figures have improved thanks to Algeria’s success in the oil and gas sector. Export revenue from hydrocarbons grew an estimated 21.2 per cent to $12,440 million in 1996, partly helped by the rise in oil prices. While the north of the country has been plagued by attacks and falling living standards, the government has managed to establish an adequate working environment for international companies in the south and attract them with favourable investment terms. ‘The pace of finds so far will encourage more companies to come into Algeria - the country which for the past two consecutive years has reported a greater volume of oil finds than any other,’ says Salomon Brothers in its recent report entitled Algeria: Fixed Income Investment Outlook.

After an initial bout of fear by international companies that working in Algeria would be too dangerous, contractors now say security arrangements are satisfactory. ‘We have camps out there and supplies are not a problem. We employ a security company - they all do that,’ says the Algeria manager of a company working in the oil sector. As well as the security company, the army provides protection, and access to the production areas is heavily restricted.

Energy Minister Amar Makhloufi says exports of 1.2 million barrels a day (b/d) is a realistic target and the government is expected to ask OPEC to raise its quota, currently at 750,000 b/d. Further income is expected from the gas industry, which has supplanted oil as the principal foreign currency earner. ‘The growth of Algeria’s gas sector is impressive as the industry now accounts for a quarter of all EU gas imports and Algeria is lining up to supply more still…,’ Salomon Brothers says.

Although the hydrocarbon industry is well cushioned against the vagaries of the life ordinary Algerians lead, it does depend on secure transport of equipment from the north coast and occasional visits to Algiers by employees. As long as the government can provide this, Algeria will continue to be the toast of international oil companies and be able to satisfy its donors.

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