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Economy
Algeria’s macroeconomic situation has been improving over the last few years. Growth has been consolidated since 2002, and the economic structure has evolved. Indeed, growth has achieved 4,2% in 2002, 6,8% in 2003 and 5.2% in 2004, with non-oil sectors growing by 4,3% in 2002, 6.1% in 2003 and 6% in 2004. This means that non-oil sectors, especially services and construction, have contributed more to growth than the oil sector, which is a great change from previous years. This is the result of the reflationary policy implemented between 2001 and 2004, with a budget allocation of $7bn.
Both Algeria’s internal as well as external position are now satisfactory. Inflation has stabilised at around 3%. Public finances are healthy. External position is more comfortable than ever, with a current account surplus and large foreign-exchange reserves consolidating import capacity. Such a positive context is obviously conducive to pressing on with economic and financial reform.
Algeria is currently undertaking reform of public finances with a number of key objectives:
- modifying the way of spending public funds, with a view to shifting from providing means to achieving results
- Reorganising the country’s tax authorities, with a two-fold objective: improving tax collection and making the relationship between taxpayers and in order to adapt them to charges in the economy and to international standards.
- Rrevising the Finance Act with a view to improving budgetary control and public finance visibility.
Moreover, the banking reform currently underway aims at modernising the banks and especially the payment system.
The state has also invested heavily to improve the business environment. In this respect, it is important to note that Algeria is consolidating the results of the 2001-04 public spending plan with a $60bn Complementary Plan for Growth Support (PCSC) for the 2005-09 period. This will allow to strengthen infrastructure and to achieve a better balance in terms of regional development. This ambitious public investment plan aims to boost the country’s economic and social development create a business environment conducive to private investment, to ensure the availability of land for industrial development, a better baking system, telecommunications, and a sound relationship between companies and the authorities.
To this end, Algeria has already undertaken a number of actions:
- First the 2005 Finance Act has introduced measures aimed at increasing industrial land on offer by ensuring that state-owned entreprises’excess land is transferred back to the public domain;
- Second, the telecommunications law has cleared the way for new private operators, which brought about great progress in terms of offer, quality and prices;
- Third, reorganising the tax administration, with a view to making them more user-friendly while ensuring better performance;
- Finally, working to normalise corporate access to foreign exchange by establishing a forward exchange market, which will dampen the black market foreign exchange market.
The PCSC is a large-scale $60bn public investment plan and its implementation undoubtedly requires a strong economic base. Algeria boasts sizeable execution capacities in a number of sectors. This programme will provide local companies with a unique opportunity to fill in their order books and to strengthen their financial position, which should allow them to increase their cash flow, upgrade their activities and strengthen their competitiveness against a backdrop of the opening of the domestic market. Besides, the nature and scope of the projects within the PCSC give it an international reach, both in terms of preliminary studies and execution. The PCSC will be implemented according to the marker over code, which was modified in 2002 to meet international standards. Therefore, the funds channelled through the PCSC do not run the risk of “evaporating”. Public spending is subject to rules at every stage. Projects will be launched only when they have reached full maturity, meaning that all the necessary conditions for the project’s success are met.
Since 2001, the non-oil sectors that have been the engines of growth have mostly been construction and services, while the industrial sector’s contribution has been limited. Even though it is growing, this sector will play a driving role only if the industrial reform currently underway is a success.
It is noteworthy that the private sector’s contribution to industrial value-added has topped two-thirds of the total, up from 20% 10 years ago. Economic growth forecasts indicate that between 2005 and 2009, construction and services will grow by over 6% which will foster overall economic growth, expected to hover around 5,7%. The PCSC will thus strengthen the country’s economic structure, and could help loosen current constraints such as land availability and urban density by trigger.
The financial reform plan covers banking, insurance and financial markets aspects.
Regarding the banking sector:
- The first objective is to modernise the mass payment system, with the launch of an electronic payment and tele-compensation system in early 2006;
- The Second is to increase the sector’s profitability. To strengthen overall bank governance, a contract has been established, designed to bind board members of public banks to the shareholder – the state – and precisely define their function, such as regulating lending supervising activities or even preparing the bank for privatisation. Algeria is also aiming at restructuring the sector through privatisation. It is not secret that it has been decided to sell off 51% of shares from the Credit Populaire d’Algérie to strategic investor. This operation will be concluded by September 2006;
- The third objective is to develop the loan market and reduce the cost of intermediary financing;
- Fourth, developing the mortgage market by securitising mortgage debts and implementing a 1m unit-housing programme.
In the insurance sector, reform is aimed at three key objectives: fostering stability and security, improving cost control and cover ratio, and developing new offers.
Regarding the financial market, the bond market has recently emerged, mobilising around $2bn. the main goal is now to strengthen the capital market with the forthcoming introduction of dozen public firms.
A number of private firms, either Algerian or subsidiaries of trans-national corporations, have also expressed their interest during an initial public offering on the Algiers Stock Exchange.
A number of other reforms are currently underway as Algeria gear up to reap the fruit of the Association Agreement with the EU and for Algeria’s accession to the World Trade Organisation (WTO). In this respect, a tariff reform has been conducted, which it has been implementing since 2002. It has reduced the number of tariffs from four to three, with the 40% surcharge tariff brought down to 30%. Meanwhile, the 2004 Finance Act abolished the 2.4% ad valorem customs fee. Intellectual property regulations have also been modified in order to put them in line with WTO rules. Last but not least, Algeria is currently revising the customs code, which will be based on universal concepts used in international trade.
- Invest in Algeria (document PDF)
- Algeria/EU Association Agreement (document PDF)
- Ministry of State Shareholdings and Promotion of Investments (www.mppi.dz)
- Ministry of energy and mining (www.mem-algeria.org)
- Ministry of Finance (http://www.finances-algeria.org)
- Ministry of Trade (http://www.mincommerce.gov.dz)
- National agency for investment development (www.andi.dz)
- Bank of Algeria (www.bank-of-algeria.dz)
- Chamber of commerce (www.caci.dz)
- Forum des chefs d’entreprises (www.fce-dz.org)
- Trade Shows Company « SAFEX » www.safex.com.dz
- Algerian Foreign Business Promotion Office “ PROMEX » (www.promex.dz)
- Algerian News Agency “APS” (http://www.aps.dz/an/welcome.asp)
- National Statistical Office www.ons.dz
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