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Agriculture, mining and industry offer clearest path for Algeria's economic diversification


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Francisco Serrano

Journalist and analyst specialized in North Africa


April 18, 2023

Bottom Line:

In a bid to diversify its economic revenue sources, Algeria has been attempting to raise domestic and foreign investment in non-energy sectors. The increase in non-hydrocarbon exports, which went from $1.7 billion in 2019 to $7 billion in 2022, suggests how other sectors of the economy are improving their performances and finding markets abroad. Authorities have set the target of reaching $10 billion in non-hydrocarbon exports in 2023. While this can be seen as an improvement, non-hydrocarbon exports continue to be dwarfed by the country’s exports of oil and gas, which accounted for $38.6 billion in 2021 and $60 billion in 2022. High energy prices and bigger orders for Algerian hydrocarbons following Russia’s invasion of Ukraine in February 2022 have allowed the North African country to muster vast financial reserves over the past couple of years. But to translate this current increase in revenues emanating from oil and gas into meaningful economic diversification would require addressing three longstanding challenges: easing investment regulations, reducing the role of the state in the economy, and bolstering domestic production.

Background Facts:
  • Thanks to high energy prices, Algeria boasted sizeable foreign exchange reserves in the period spanning the early 2000s to 2014. However, this did not alter the structure of the economy much, which became evident during the 2014 oil collapse, driving the country’s foreign reserves down from around $200 billion that year to about $40 billion as of mid-2021.
  • Over 2016-2021 hydrocarbons represented nearly 20% of gross domestic product (GDP), 38% of budget revenues and 93% of product exports, according to the World Bank.
  • Meanwhile, Algeria’s non-hydrocarbon exports rose from $1.7 billion in 2019 to $7 billion in 2022, driven in large part by exports of semi-finished goods — accounting for 90% of the total — as well as international sales of steel, cement, sugar and olive oil, according to government data.
  • In a bid to further diversify its economy and shift its dependence away from hydrocarbons, Algeria published a new investment code in July 2022 and is working on a competition law aimed at improving the business environment, and ultimately attracting investment into the non-hydrocarbon economy.
  • In a further effort to foster a more attractive business environment, in 2020 Algeria revoked its 51/49 rule which previously limited foreign investors to a 49% stake at most in any investment, though it maintained the rule for sectors deemed strategic including energy, transport, infrastructure and pharmaceutical manufacturing.
  • Reducing dependence on energy revenues will require Algeria to strengthen activities across the broad spectrum of non-hydrocarbon economic activities. At the moment, agro-industrial production, industrial manufacturing and mining offer the clearest paths to economic diversification.
  • Agriculture is one of the key sectors the government is targeting in its economic diversification program; on the one hand, to build on the country’s food security, and on the other to reduce its import bill. In 2021, the country imported over $10 billion in food products, according the United States Department of Agriculture (USDA). A state program to increase food production over 2020-2024 is aiming to raise domestic output of key staples such as cereals, cooking oil, powdered milk and sugar, with the hope to reduce food imports by at least $2.5 billion yearly.  
  • A number of important industrial projects are set to add to Algeria’s manufacturing capacity, increase employment and drive potential exports in the coming months and years. Netherlands-based carmaker Stellantis will open a $213.3 million car assembly factory in 2023, to produce Fiat vehicles in Algeria. The new unit is expected to have an annual output of 90,000 cars by 2026. In Bejaïa, a new cooking oil factory owned by one of Algeria’s largest agribusiness firms, Cevital, will begin operations in 2023. Out of projected annual sales of $2.2 billion, as much as $750 million are expected to come from exports. State-owned Madar Holding is building a $177 million sugar refining plant in Boumerdes, 50 km from Algiers, set to be completed this year. The plant is expected to have a capacity of 2,000 tones of sugar per day and generate 1,200 jobs.
  • Mining is another industry offering significant revenue diversification potential, and the government recently launched a 2020-2024 program to revitalize the sector. The country’s sizable zinc, gold, iron ore and phosphates deposits, and the recent resumption of several mining projects, offer good prospects for development. Phosphates exports, for instance, doubled over the first half of 2022, to $103.4 million. In 2021, authorities signed a deal with three Chinese firms — Metallurgical Corporation of China, China International Water and Electric Corporation and Hunan Heyday Solar Corporation — to exploit iron ore deposits that have been on standby in Gara Djibelet, in southwest Algeria.
  • In March 2022, Algerian mining firm Manal and industrial conglomerate Asmidal signed a $7 billion joint-venture with Chinese companies Wuhuan Engineering and Tian’an Chemical to build an integrated phosphates project in Tebessa.
  • In Bejaïa, Terramin Australia Limited is partnering with the National Enterprise for Non-Ferrous Mining Products (ENOF) and the National Office for Mining Research (ORGM) to relaunch the Tala Hamza zinc and lead mine project, which is one of the world’s largest undeveloped zinc and lead reservoirs. Production is set to start in 2026.
  • President Abdelmadjid Tebboune seems intent on pursuing some economic reforms. Following a recent cabinet reshuffle in which he seemed to choose mostly technocrats over politicians to run his ministries, Tebboune encouraged the government to eliminate excessive regulation rather than create new laws.
  • However, reform will face vested interests linked to ruling structures, leaving private investors exposed to obstructive procedures and lack of transparency in administrative decisions.
  • The private sector in Algeria will also continue to face with unfair competition vis-à-vis state companies which tend to be favored in the award process of funding, public contracts and land.
Alternative Scenarios:

Scenario 1: Collapse in energy revenues reduces economic support and political will to diversify.

A sharp fall in oil prices over 2023-2024 curbs the government’s ability to allocate financial resources to diversification. The government revives attempts to raise employment through statist policies, empowering state-owned industrial firms and the public banking sector. Private sector initiative is crowded out. Industry and agriculture will be negatively impacted by a strengthening of government controls over sector activity. The economy remains anchored to energy price fluctuations. The threat of social instability rises due to the inability of the private sector to create new jobs and lack of state budgets to sustain social spending. Non-hydrocarbon exports grow slowly over 2023-2025, but remain highly concentrated on semi-finished goods.

Scenario 2: Strong financial resources and private-sector liberalization expedite diversification efforts.

Geopolitical disruption pushes oil prices back into 2022 levels for a sustained period of time. Stronger foreign exchange reserves extend the window of opportunity for diversification policies to take hold. Allocation of financial resources to domestic production incentives encourages manufacturing and agriculture. Energy revenues extend the state’s margin to quell social discontent through spending. Some regulations improve the environment for private business operations in Algeria. But vested interests still drive policymaking in some sectors. Non-hydrocarbon exports continue to grow, and benefit from government-led export promotion efforts. A return to large-scale public infrastructure projects encourages construction materials industries and other domestic services. But government support still reaches out to other sectors through well-financed industrial support programs. Overall, non-hydrocarbon exports accelerate both in terms of volume as well as the number of product categories. Although high energy revenues often reduce a country’s willingness to reform, Algeria’s recent memory of economic crisis after the 2014 collapse of oil prices would likely keep some government policies tilted towards diversification.

Conclusion - Most Likely Scenario:

Energy prices stabilize, before decreasing gradually after 2024-2025. European demand is still sufficient to drive investment into exploration and development of new hydrocarbons reserves. This allows for a gradual rise in energy revenues over the coming decade, and to finance further diversification efforts. Authorities still need to reduce informality and raise tax revenues to secure additional fiscal resources. But over the medium-term, private sector activity improves and a broader range of sectors contribute to employment and non-hydrocarbon exports. Strategic sectors remain firmly under government control. Conditions for foreign and domestic investors become more agile. But heavy bureaucracy at varying levels of public administration will continue slow growth in some sectors.  

Energy remains an important foreign exchange earner, but the economy gradually becomes less dependent on global price fluctuations. Non-hydrocarbon exports surpass the government goal of $10 billion in 2023, and continue to climb gradually after 2024, fueled by a more diverse pool of economic sectors and higher levels of domestic processing.

Contributor Background:

Francisco Serrano is a writer and analyst who focuses mainly on North Africa. He has been published in several outlets, including Foreign Policy, World Politics Review and the Middle East Institute. His second book, "As Ruínas da Década," about the past decade in the Middle East, was published in March 2022.

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