Algeria - Overview of economy

Algeria's small-to medium-sized economy is largely dependent on the hydrocarbons sector, which accounts for about 95 percent of export earnings, 52 percent of budget revenues, and 25 percent of GDP. The second-largest natural gas exporter in the world, Algeria is home to the fifth-largest reserves of gas worldwide. Algeria also has the 14th-largest reserves of oil in the world. The European Union is the largest market for Algerian natural gas.

The industrial sector is the largest contributor to the economy, accounting for 51 percent of GDP and employing 13.6 percent of the labor force of 9.1 million workers. The sector is dominated by oil-related industries. Other light industries can also be found, but their contribution to GDP is modest. The services sector is the second-largest economic sector, accounting for 37 percent of GDP and employing 13.5 percent of the labor force. The agricultural sector contributes 11-12 percent of GDP annually and employs some 22 percent of the labor force.

Algeria entered the twentieth century as a French colony heavily dependent on agriculture. Soon after the conquest of Algeria in 1830, the French created large agricultural tracts, built factories and businesses, and exploited cheap local labor. Until Algeria's independence in 1962, the bulk of its economic activity and wealth was controlled by the French colonizers, who successfully developed a small industry and a sophisticated export trade that provided food and raw materials to France in return for capital and consumer goods . The French also controlled about 30 percent of the total arable land, and were responsible for most of agricultural production and exports.

Since 1962, Algeria's economy has been centrally-planned, despite state efforts to privatize the economy and attract foreign investment. The country's huge foreign debt , which in 1999 reached US$30 billion according to the CIA, forced the government to launch an economic reform program in 1989. The government also concluded agreements with the International Monetary Fund (IMF) in the late 1980s and 1990s to secure international credit for its envisioned reform program.

This program has been largely successful, with the government curbing inflation , cutting budget spending, and preserving foreign exchange reserves . The adoption of the economic reforms program has also accelerated growth and succeeded in reestablishing economic stability. In the late 1980s and early 1990s, the program was coupled with austerity measures designed to reduce Algeria's external debt , which has proven difficult to control. In 1995, the government approved a framework for the privatization and restructuring of public sector enterprises. A financial sector reform program has also been initiated, although progress has been slow. As a result, Algeria has managed to achieve an average annual real growth rate of 5.5 percent since the mid-1990s, with the hydrocarbon sector being the main driving force of economic growth.

While the government has managed to achieve some progress toward economic recovery and reform, the country's troubled economy continues to be heavily dependent on volatile oil and gas revenues. Furthermore, the slow pace of the reform program, coupled with political turmoil, has failed to attract sufficient foreign investment or to create sufficient employment opportunities. Neither the hydrocarbon sector nor agriculture is capable of providing enough jobs to counteract long-standing unemployment problems. The rate of unemployment in 1999 was reported at 30 percent. By contrast, unemployment in the United States in 1999 was just 4.2 percent. The challenge to create new job opportunities for Algeria's young population is one of the biggest tasks facing the government.

Government bureaucracy is a major impediment to the conduct of business in Algeria. Red tape permeates all government ministries and the commercial court system, which resolves disputes between merchants and other businesspeople. Corruption is also widespread at all levels of the public sector, largely as a result of the low wages and difficult living conditions. In 1998, the government launched an anti-corruption drive, which resulted in as many as 2,000 public officials being prosecuted or awaiting trial on charges ranging from petty crime to grand larceny.