Algeria: Oil-driven recovery, but corruption allegations endure

Growth is projected to climb back to 3.0% in 2018 after dropping to 1.6% in 2017 from 3.3% in 2016. The 2017 drop was mainly driven by a contraction in hydrocarbon production caused by OPEC’s export quota decrease and by weak external demand for gas from Europe. Positive growth in both the oil and non-oil sectors is projected for 2018.

Inflation this year is expected at 7.4%, above last year’s 5.6%. This is mainly due to the adoption of an expansionary monetary policy by the Banque d’Algérie as a means of covering budget deficits and stabilising the economy. The fiscal deficit is expected to remain stable at 9% this year but is forecast to drop to a 5-year low of 4.8% in 2019. The Banque d’Algérie has been authorised to lend to the public treasury directly to finance the budget deficit. - The Ministry of Finance announced earlier this year that it is studying changes to the subsidy system as part of a goal of balancing the budget by 2020. But an announcement in September that this will be postponed to 2019 suggests a delay also in meeting the balanced budget target. The current account deficit dropped to 12.9% of GDP in 2017 and is expected to fall further to 9.7% this year. This is based mainly on the recovery in hydrocarbon revenues (thanks to rising prices) and to the implementation of customs duties ranging from 30% to 200%. 

Foreign reserves declined to USD 96B (19 months of imports) in 2017 and are expected to drop further this year to USD 83B (16 months). But tighter import barriers and the oil price recovery are expected to slow the loss of reserves.

Chinese investment and technology inflows are expected to help Algeria develop domestic industries (such as automotive and constructive material) and to diversify its economy.

Algeria has turned to China to finance several infrastructure projects since the collapse of global oil prices in 2014. Among the numerous projects undertaken by Chinese companies is the construction of Djamaâ el Kebir, aka the Great Mosque of Algiers, by the China State Construction Engineering Corporation. This is estimated to cost around USD 5B. ➢ In another example, Shaanxi Automobile Holding Group, a state-owned truck manufacturer in China, started making and selling in Algeria in 2017 after calls by the government for foreign auto-manufacturers to set up factories locally. The company’s heavy-duty trucks now account for 70% of the local market.

In politics, the opposition to President Abdelaziz Bouteflika’s government reacted to the arrest of state officials over alleged drug trafficking.

Concerns regarding corruption within governmental institutions have risen again amid calls by Algerian business executives and officials for Bouteflika to run for a fifth term in the 2019 elections. In September, the government launched a money-laundering and corruption investigation into the abuse of a state-run milk subsidy programme, in what could be seen as an attempt to underline Bouteflika’s willingness to fight corruption. Minister of Justice Tayeb Louh, pledging that a strong and independent justice system can effectively thwart corruption, created a unit devoted to financial crimes. Still, Algeria is ranked 112th out of 180 in Transparency International’s Corruption Perception Index.

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