How is Algeria diversifying its economy?
Algeria–Algeria is a major producer of oil and natural gas, which contribute significantly to state revenues. An addiction, that of hydrocarbons, which at the same time creates significant problems for various reasons. The first and most important is that it exposes public finances to price changes on international markets. An element over which, in the event of a drop in prices, it has little control. That makes it very difficult to plan long-term investments.
The second reason is the awareness of oil and gas producers that in the coming years, the demand for black gold is destined to reach a peak and then, slowly but gradually, decrease. That is due to investments in renewable or alternative sources by the most energy-intensive nations. Hence the need to find alternative sources of income not strictly linked to the production of hydrocarbons.
The diversification strategy conducted by Algeria starts from the law, under study by the Government, aimed at encouraging foreign investments in non-oil sectors. In the past, the parliament of the North African country has already launched measures that allow foreign capital to have a majority in projects and companies, albeit with the limit of non-strategic sectors.
However, that is not enough to make Algeria an attractive destination in international eyes. For this reason, the Government is thinking of new laws to grow the local stock market, one of the smallest and least developed in Africa. In addition, improve the management of banks, sell shares in state credit institutions, facilitate collaboration between private and public companies, and, last but not least, offer a broader role to Islamic finance.
In recent years, the successive Algerian governments have not managed to diversify the economy of the North African country, considering that exports from the non-oil sectors have never exceeded 3 billion dollars. In this regard, reports al-Arab, underground riches still represent the central pillar of the plans of the Algiers executive. That also occurred with the incumbent premier, Abdelaziz Djerad.
However, he promised “change and renewal” to respond to the aspirations of the popular mobilization movement, the so-called Hirak. At the same time, however, the executive is trying to increase the oil and gas reserves and, consequently, the country’s productivity through a new law on hydrocarbons that offers incentives for foreign investments.
According to some economic experts, Algeria must set realistic goals and conditions to ensure their success. In addition, it was highlighted that only five exporters control 73% of Algeria’s sales abroad, excluding the oil and gas sectors, although the country can rely on 1,153 sources other than hydrocarbons. Among the difficulties that could hinder the path towards economic diversification is the weakness of the industrial fabric and the services sector.
The repercussions deriving from the restrictions imposed with the Coronavirus pandemic have been added. In addition, the legislative and regulatory frameworks relating to exports include rules that hinder export operations, including the recovery of foreign currency in exchange for overseas sales. At the same time, the weakness of logistics, transport, and goods means also affects the development of the Algerian sectors outside of hydrocarbons and their export orientation.
Therefore, according to the experts, Algiers must consider the various threats and ensure that its plan sets fundamental objectives, considering the human resources available and a more favourable bureaucratic framework. In addition, it is necessary to activate periodic supervision by the executive. In any case, according to some, the sectors on which Algiers could focus most are agriculture, industry, and tourism considered the key to success in curbing an excessive flow of imports.