Algeria

Economic Overview

The People's Democratic Republic of Algeria has one of North Africa's largest economies, fundamentally shaped by its vast hydrocarbon wealth. The economy is heavily dominated by the state and is overwhelmingly reliant on revenues from the export of oil and natural gas, which have historically accounted for the vast majority of export earnings and government income. This dependence makes the economy highly vulnerable to fluctuations in global energy prices. In recent years, the government has acknowledged the urgent need for economic diversification and has initiated reforms to attract private and foreign investment into non-hydrocarbon sectors. The 2025-2026 outlook is stable, contingent on energy prices, with modest growth projected as the country slowly pursues its diversification agenda.

GDP Size & Growth Trajectory

Algeria's GDP is one of the largest in Africa, but its growth trajectory is closely tied to the performance of the hydrocarbon sector. Following the global energy price surge, the economy has recovered. The IMF projects real GDP growth to be 3.8% in 2024, moderating to 3.1% in 2025. The non-hydrocarbon sector is showing signs of growth, which is crucial for long-term, sustainable development.

Sector Composition

• Industry: This sector dominates the economy, contributing over 45% of GDP. This is almost entirely driven by the oil and gas industry, managed by the state-owned giant Sonatrach. This sector accounts for approximately 95% of export earnings.
• Services: The services sector accounts for about 40% of GDP, led by public administration, trade, and construction.
• Agriculture: This sector contributes around 13% to GDP and is a significant employer. However, Algeria remains one of the world's largest food importers, particularly for cereals.

Inflation Trends

High inflation has been a persistent challenge, fueled by global price trends and a rigid economic structure. The Bank of Algeria has aimed to control inflation, but pressures remain. Inflation is forecast to remain elevated before gradually moderating as global conditions ease.

Fiscal & Monetary Policy Stance

• Monetary Policy: Monetary policy is managed by the Bank of Algeria, often working to manage the exchange rate of the Algerian Dinar (DZD) and control inflation within the context of a state-managed economy.
• Fiscal Policy: Fiscal policy is heavily dependent on hydrocarbon revenues. In periods of high oil prices, the government runs a surplus and builds its foreign reserves; in periods of low prices, it faces significant deficits. Recent reforms aim to improve non-hydrocarbon tax collection to create a more stable revenue base.

Debt Sustainability Indicators

Algeria has historically maintained a very low level of external debt, a legacy of a national policy to avoid foreign borrowing. The country has relied on its accumulated foreign exchange reserves to finance its needs. While this has insulated it from external debt crises, it has also limited access to international capital and expertise.

Table 1: Key Macroeconomic Indicators (2023-2026F)

Market Size & Demand Potential

Algeria's large and youthful population represents a significant domestic market.

Population Size and Demographics

With a population of over 46 million, Algeria is one of the most populous countries in North Africa. Its population is young, providing a large potential consumer base and labor force.

Urbanization and Consumer Hubs

The country is highly urbanized, with the majority of the population living along the northern coast. The capital, Algiers, is the largest city and the primary economic and administrative center. Other major cities include Oran and Constantine.

Consumer Spending & Market Access

Consumer spending is significant but has been impacted by inflation. The market has historically been dominated by state-owned enterprises and a large informal sector, but there is growing space for private and international brands.

Business Environment

The business environment in Algeria has traditionally been challenging for foreign investors due to heavy state control and bureaucracy. However, this is beginning to change.

Ease of Doing Business & Regulatory Reforms

The government has enacted a new, more attractive investment law aimed at simplifying procedures and offering incentives to private and foreign investors. The Algerian Investment Promotion Agency (AAPI) has been established as a one-stop-shop to facilitate investment projects. The goal is to reduce red tape and improve the country's ranking in ease of doing business.

Company Registration Process

The process of starting a business involves registering with the National Trade Register Center (CNRC). While reforms are intended to streamline this, it can still be a complex process often requiring local legal and administrative support.

Tax Regime

• Corporate Income Tax (CIT): The standard rate varies based on the sector, but is generally around 26%.
• Value Added Tax (VAT): The standard VAT rate is 19%.

The new investment law provides significant incentives, including tax exemptions for up to 10 years for projects in priority sectors.

Political Stability & Governance

Algeria is a presidential republic that has experienced a period of political transition.

Political Environment

The country has been dominated by the same political establishment since independence. Large-scale protests (the "Hirak" movement) in 2019 led to a change in leadership and promises of political and economic reform. While the political situation has stabilized, the government is still navigating the path of implementing these reforms while managing social expectations.

Rule of Law & Investor Protection

The legal system is based on French civil law. The new investment law provides stronger guarantees for foreign investors, including the freedom to repatriate profits and protection against expropriation. It also allows for recourse to international arbitration for dispute settlement, a key demand from foreign investors.

Infrastructure Readiness

Algeria has invested its hydrocarbon wealth in developing a solid infrastructure base.

Transport and Logistics

• Ports: Algeria has a long Mediterranean coastline with several major ports, including Algiers, Oran, and Skikda, handling the country's significant import and export volumes.
• Road Network: The country has a well-developed road network, including the East-West Highway, which is a critical artery for domestic transport.

Energy Sector: The Hydrocarbon Backbone

This is the most developed part of the economy.

• Oil and Gas: Algeria is a major producer of oil and the largest producer of natural gas in Africa. The state-owned company, Sonatrach, dominates the sector.
• Pipelines to Europe: Algeria is a crucial energy supplier to Southern Europe via several trans-Mediterranean gas pipelines, such as the Trans-Mediterranean Pipeline to Italy.
• Renewable Energy: Recognizing the need to diversify its energy mix, Algeria has launched an ambitious program to develop renewable energy, particularly solar power, leveraging its vast Sahara desert which offers some of the highest solar irradiation potential in the world.

Sector-Specific Opportunities

1. Renewable Energy

This is a top government priority. The "Sola 1,000 MW" project and subsequent initiatives aim to attract massive private investment into developing utility-scale solar power plants across the country. This presents a major opportunity for international energy developers and technology providers.

2. Agribusiness and Food Processing

Given that Algeria is a major food importer, there are significant opportunities in developing the agricultural sector to improve food security. This includes investment in modern irrigation, large-scale farming of cereals and dairy, and food processing industries.

3. Manufacturing

The government is keen to develop the non-hydrocarbon industrial base. With its proximity to Europe and a large domestic market, there are opportunities in pharmaceuticals, automotive components, and consumer goods manufacturing.

4. Mining

Algeria has significant, underexploited mineral resources beyond hydrocarbons, including iron ore, phosphates, and gold. The government is seeking foreign partners to help develop these resources, highlighted by the major Gara Djebilet iron ore project.

5. Information and Communication Technology (ICT)

With a large and young population, the ICT sector has significant growth potential. Opportunities exist in developing digital services, e-commerce platforms, and data centers.