Africa > North Africa > Algeria > Algeria Hydrocarbons, a blessing or a curse?

Algeria: Algeria Hydrocarbons, a blessing or a curse?



Hydrocarbons, a blessing or a curse?

Country Rating C2


  •  Strong hydrocarbon resources, with gas reserves estimated to last for another half century at current extraction rates (and crude oil for almost 22 years).

  • Strong liquidity indicators, supported by a long period of high oil prices, provide a financial cushion to withstand the impact of current weak commodity prices
  • External debt management is much improved following repayment concerns in the 1990s anddebt ratios and obligations are now low, providing scope for increasing debt to cover FX shortfalls resulting from low oil and gas prices.


  • Uncertain political succession, with the health of President Abdelaziz Bouteflika a major concern.
  • High unemployment and underemployment.
  • Lack of economic diversification. Over-dependence on oil and gas (99% of export earnings).
  • Banking sector remains dominated by state enterprises that have to absorb losses from public sector companies.
  • Limited private sector opportunities and perceptions that the business environment (including regulations) is restrictive.
  • Regional dynamics are affected by continuing friction between Algeria and Morocco.
  • Oil and gas installations are vulnerable to periodic (but localised) attacks by terrorist groups.

Economic Overview

General overview

Hydrocarbons (oil but particularly gas) remain pivotal for economic development as the sector accounts for around 40% of GDP and 99% of exports. Accordingly, current low oil prices curb GDP growth to lower levels than in the past. This assertion holds despite the recent humble recovery. EH expects GDP will expand by +3% in 2017 and +2.5% in 2018, only one point below the average ten-year growth rate (2006-15). This suggests that other factors have been limiting economic development. The Algerian economic model, which relies heavily on state-run enterprises is not efficient. Even programs to boost public spending (including increased subsidies and investment in infrastructure), reflected to some extent an initial official response to prevent contagion from the Arab Spring and did not raise growth rates markedly above annual population expansion. Until a leadership succession process is clarified significant uncertainties will weigh on investment and consumption decisions, with negative effects for trade.

Public finance deteriorated, but public debt is still low

Strong government revenues in periods of high oil prices resulted in fiscal surpluses or low deficits. Strong receipts enabled the state to increase public expenditure in an attempt to limit contagion from the Arab Spring. Since then weak oil prices (see above) have reduced earnings. Yet social needs have not diminished. Large fiscal deficits (-12.9% of GDP in 2016) require careful management. Public debt is increasing rapidly, but from very low levels. Even as it reaches 24% of GDP in 2018, public debt will not be alarming. The issue can be more related to state-run enterprises debt, related insolvencies, and its potential fiscal cost.

The external sector is under pressure

Foreign exchange reserves have deteriorated but are still very high (above 20 months of import cover). However, liquidity strains can emerge, as the Central Bank aims to sustain this level for self-insurance purposes under a low for longer oil prices hypothesis. The regulator uses shadow capital controls to limit exchange rate volatility during uncertainty periods (e.g. before the OPEC agreement on November 30th, 2016). Following significant pressures in relation to debt repayments in the 1990s, a revised external debt policy was adopted. It targeted a marked reduction in the country’s dependence on external borrowings. The policy has been successful, with external debt-GDP currently at 3%.
Related Articles
  • Year in Review 2017 Algeria

    2018/01/13 Stronger energy earnings, efforts to curb imports and increased tax revenue saw Algeria’s economy move onto a additional solid footing in 2017; however, the country’s ongoing reliance on hydrocarbons revenue continues to leave it exposed to external shocks. A positive return from the energy sector continued to drive increase this year. Energy exports rose 18% year-on-year in the initial 10 months of 2017 to reach $27.2bn, according to official data. And although oil and gas output is predicted to fall by 2.7% in 2017, the rebound in world oil prices means that full-year energy export revenue is expected to reach $32.3bn, up 16.6% on last year.
  • Top 10 Most Attractive Investment Destinations In Africa

    2017/08/20 Africa’s feverish increase has decelerated in recent years and a lot of nations have buckled under the pressure of falling resource prices, security disruptions, fiscal imprudence and adverse weather conditions.
  • Africa: Making Things Happen at the Bank - 'Not a Talk Shop' - Akin Adesina

    2017/07/02 Dr. Akinwumi Adesina is focusing on five areas to achieve the African and world goals for a prosperous continent since becoming president of the African Development Bank - Africa's major public financial institution in September 2015. He was a keynote speaker at this month's Corporate Council on Africa's U.S.- Africa Business Summit in Washington D.C. and moderated a lively panel with five African government ministers. He as well received the Gene White Lifetime Succcess Award from the World Child Nutrition Foundation. This week, he was named the 2017 recipient of the World Food Prize, a prestigious honor that includes a $250,000 award. In an interview in Washington, DC, Adesina discussed the Development Bank's ambitious schedule and his vision for attracting the increase capital Africa needs. Posting questions for AllAfrica was Noluthando Crockett-Ntonga.
  • Climate change laws around the world

    2017/05/14 There has been a 20-fold increase in the number of global climate change laws since 1997, according to the most comprehensive database of relevant policy and legislation. The database, produced by the Grantham Research Institute on Climate Change and the Environment and the Sabin Center on Climate Change Law, includes more than 1,200 relevant policies across 164 countries, which account for 95% of global greenhouse gas emissions.
  • Bilateral trade continued to grow and China has become the largest source of commodity import for Algeria.

    2015/10/01 In 2013, the strategic and cooperative relationship between the People's Republic of China and the People's Democratic Republic of Algeria maintained sound momentum of increase, with fresh evolution made in practical cooperation in various fields.