The Algerian president is the latest to call for the country’s diversification from the energy sector.
By Walid Ramzi for Magharebia in Algiers – 10/08/11
The Algerian government is looking to reduce the economy’s dependence on the hydrocarbon sector, which represents 98% of the country’s currency income.
“Algeria is called upon to exert a great effort to bring its economy out of dependence on oil and to diversify its resources so as not to be a hostage to the fluctuation of oil prices in international markets,” President Abdelaziz Bouteflika said at an August 4th meeting on the energy sector.
Economists have long raised concerns over the vulnerability of the Algerian financial system to shocks in the event of a drop in oil prices. Experts warn the dependence could continue in the coming years unless action is taken.
“The danger of the situation in the medium term is continuation of the economy being excessively linked to oil and gas prices in the world market, and the absence of any serious strategy to support economic diversification,” economist Mohamed Sellama told Magharebia.
He said that at the end of 2010, the hydrocarbon sector comprised a third of GDP, the equivalent of 98% of total exports and more than 70% budget revenue.
The economist stressed the necessity of adopting other means to develop the Algerian economy, particularly by relying on the knowledge economy. Sellama said Algeria “should quickly prepare for a post-petroleum phase with the acquisition of additional resources from other sectors, particularly agriculture and tourism”.
A government report released last year showed that the value of Algeria’s hydrocarbon exports during the period between 2000 and 2009 amounted to nearly $400 billion. The report said Algeria produces 1.45 million barrels of oil per day and 152 billion cubic meters of natural gas. It exports about 62 billion cubic meters annually and plans to increase the exports to 85 billion cubic meters per year beginning in 2013.
“The Algerian economy is facing a double jeopardy because of the nature of exports, as hydrocarbons make up 98% of exports and, in addition, half of the exports of non-hydrocarbon products are in fact derived from oil,” noted Samir Kateb, a financial affairs journalist.
In the opinion of many citizens, continuing to rely entirely on oil will lead the Algerian economy into an abyss. Businessman Mohamed Amarni, age 45, said, “Despite the government’s announcing several measures to raise the level of public expenditure and to increase salaries, they remain insufficient to address the structural imbalances of the Algerian economy.”
Amarni said Algerian companies face administrative complexities and a bureaucratic banking system that stood in the way of efforts to improve competitiveness.
“The deteriorating business environment, the instability of the legislation and the rules governing investment weaken the country’s attractiveness for investment and discourage foreign investors from launching industrial and service projects that could enhance the domestic economic fabric and support its competitiveness,” he added.
Economics student Said Brakni believes that talk about diversifying the Algerian economy “is an old record officials have repeated for several years without anything being achieved on the ground”.
For her part, Halima Salhi, a media company employee, believes that solutions exist but the “political will and courage in taking strategic decisions do not exist”.
“What is required is implementation of solutions, and we want to see results with our own eyes and without deception as soon as possible,” she said.