Algeria‘s economic potential is huge, yet since its independence 38 years ago, the country has failed to live up to its promise. Today, however, Algeria has commited itself to a reform agenda that may finally realize the country‘s vast natural and human resources

   

With all its extraordinary riches, Algeria could have become – with time and effort – one of the world‘s premier economies and a land of affluence for its people. But that potential remains unrealized, sidetracked by fractious and Byzantine politics and unsuccessful economic policies that eventually led to a tragic period of civil violence. The country‘s troubles have obscured a determined reform agenda put in place at the beginning of the last decade, an agenda that is steadily transforming Algeria into a fully liberal market economy. Galvanized by its energetic President, Mr. Abdelaziz Bouteflika, Algeria’s reform process is now not only recognized as irreversible but also as one that cannot exist or succeed without foreign investors. Algeria, to reprise a cliché, is open for business.

Algeria’s international image is unfortunately limited. For most, the country is known for its bloody independence struggle from the French and, more recently, for the civil crisis of the 1990s, in which more than 100,000 rebels, soldiers and civilians have died. If one is a little more informed, he knows that Algeria is important to world energy markets because it is a significant oil and gas producer and exporter. One might even know that Algeria is a member of OPEC and an important energy source for Europe. But by and large it stops there, which is ironic, because what is unknown to the casual observer today is perhaps more interesting than what is general knowledge. Particularly now.

In 2000, Algeria seems a country reborn, and visiting this formerly mysterious nation is an exercise in re-education. Streets and towns deserted just a few years ago due to endemic political violence are now bustling centers of activity. Its business and political leaders, once bastions of state socialism, are vigorously attempting to attract investment, touting the benefits of privatization, and ultimately frustrated that the rest of the world can‘t seem to keep up with Algeria‘s change in image. 

Their frustration is understandable. Algeria is seeing fundamental changes in just about every area of its political and economic life. The country‘s president, Mr. Bouteflika – in power for 18 months – hit the ground running, inheriting a reform process that began several years earlier. Politically, Mr. Bouteflika and his ministers argue that the civil strife of the 1990s is now over. While limited incidents of political violence still persist, Algeria has made enormous ground regarding the country‘s transition to a fully peaceful society. Violence has been on the decline since the government reached a cease-fire with the Islamic Salvation Army (ISA) in 1997, followed by an amnesty passed by parliament in 1999. A wide majority approved the President‘s peace policy in a national referendum in September 1999, and the ISA announced its disbandment at the beginning of the year. One minister argued to Exclusive, not unjustifiably, that Algeria today is experiencing a level of political violence not unsimilar to that of Spain. A new image of Algeria indeed. 

Nevertheless, Algeria‘s horrifying experience is never far from the politicians‘ minds. The civil crisis had its roots in the deteriorating living standards of the 1980s and today, the severe unemployment problem - most extreme among young workers - and a critical shortage of housing, makes the country‘s policy-makers very wary of the political consequences of the huge economic changes to come. 

On the economic front, Mr. Bouteflika has been equally, if not more, busy. In January of this year, his government presented to parliament a wide-ranging reform program that, besides gearing fiscal and monetary policy toward macroeconomic stability, encompasses four major economic policy commitments. First, the government will continue to pursue the restructuring of the financial sector by ensuring proper regulation, adherence to prudential requirements, and the exposure of public banks to foreign and local competition. Second, the program slates most non-financial state-owned enterprises for privatization, effectively making it one of Africa‘s largest sales of state assets. The plan includes the liberalization of the telecommunications sector, the decision to sell a second cellular telephone license and reform of the country‘s investment regulations. Third, the energy sector will be subjected to greater competition and internal restructuring, and finally, the government will focus on the housing shortage, for example by stimulating private sector construction, and address land reform issues. At the time of printing, Mr. Bouteflika had just appointed Mr. Ali Benflis, the former director of the presidential cabinet, to the position of Prime Minister, in what observers say is an attempt to increase the pace of economic reform.

Mr. Bouteflika‘s reform agenda is not new. Instead it is designed to continue the process of economic transition put in place in 1994, when the sustained low price of oil and an economy creaking under the weight of central planning had culminated in spiraling external debt and a balance of payments crisis. On the structural side, the reforms began the slow process of rehabilitating the financial sector and initiated the privatization program by implementing the restructuring of state industry. More urgent, however, was the program‘s focus on regaining macroeconomic stability. In this regard, the government was particularly successful. Inflation dropped from 39% in 1994 to approximately 4% this year, while the budget balance, in deficit at under 9% of GDP in 1993, was turned into a 2.9% surplus by 1997 and is scheduled for a 5% surplus this year. Gross official reserves – crucially important to protect the economy from further oil shocks – increased from $4.2 billion in 1996 to a projected $9.6 billion in 2000, while debt as a percentage of GDP shrunk from 72% in 1996 to a projected 48% in 2000. 

Thanks to these reforms and a gradual improvement in oil and gas revenue, Algeria has managed to reverse the trend of negative GDP growth that characterized the period from the mid-1980s to the mid-1990s. But despite these many positives, the economy still remains structurally lopsided. First off, the industry continues to face ongoing restructuring and has yet to be a positive factor in the national income. That means the economy is still heavily reliant its hydrocarbons income and favorable weather conditions for strong agricultural production, making it vulnerable to forces beyond its control.

Algeria is a land of immense economic potential. A quick glance at its country statistics and it is obvious why. At nearly 2.4 million km2, Algeria is the world‘s 10th-largest country (the second-largest in Africa); it borders seven countries in a strategic location between Europe, the Middle East, and Africa, and has over 1,200 km of coastline. It is a country of vast resources, both natural and human. Its Saharan sedimentary basins contain hydrocarbons reserves that are among the world‘s largest. The country also boasts significant deposits of non-fuel minerals, such as high-grade iron ore, phosphate, mercury, zinc, and even gold. Agriculturally, Algeria has large and virtually unexploited fisheries. It has a population of approximately 30 million people – 50% of which are under 20 years of age – a well-trained work force, and a highly developed transport infrastructure, including 31 airports (13 of international class), 13 marine ports (four specialized for hydrocarbons), and 100,000 km of roads and railways stretching over 4,500 km. 

Despite (some say because of) these riches, Algeria remains a country-in-waiting, yet to genuinely realize the huge potential its resources and people represent. And as Mr. Bouteflika is reported to have said, one can‘t eat potential. Thirty-eight years after the revolution, Algerians, predominately young and impatient with symbols of the past and the material sacrifices of their parents, are expecting that potential to be realized in their lifetime, not their children‘s. That is why in 2000, Algeria is on an irreversible path of reform, a path that has already opened the country to the outside world and to investment. It is also a path that may finally lift the country into a period of prolonged prosperity and rising living standards.