This page has been visited
Engineering Export Promotion Council Report
ALGERIA EXECUTIVE SUMMARY
Algeria is a large market for American exports, but one difficult
to develop because of the ongoing political crisis and widespread
terrorism. Indian exports to Algeria reached $0.15 billion in 1994,
up over thirty percent from 1993 levels. Grains and petroleum-
sector equipment and services comprise the bulk of U.S. sales.
This export surge came as the Algerian economy is undergoing an
immense transition. The Algerian government over the past 15
months has implemented a broad array of economic liberalization
measures, backed with strong support from the IMF. It has
substantially deregulated foreign trade. In addition, IMF
financing and generous foreign debt rescheduling have made
foreign exchange readily available to Algerian importers. The
Algerian government also has substantially deregulated its
investment and product distribution controls. After several
years of disappointing economic performance, the government
projects the economy will grow about four percent in 1995; the
petroleum, agriculture and construction sectors appear poised for
substantial expansion. Indian exporters targeting these and other
market niches will find substantial opportunities.
The murderous violence plaguing Algeria will challenge Indian
companies seeking to capitalize on these opportunities, however.
The economy likely will not expand if the political crisis
continues. Armed gangs regularly attack infrastructure and
economic facilities. Moreover, terrorists target both foreigners
and Algerians alike. Any firm thinking of establishing a new
operation or an office in Algeria will have
to make security considerations a priority. Companies new to the
market may find it best to use local distributors or agents able
to undertake all the necessary legwork on the ground.
Country Commercial Guides are available on the National Trade
Data Bank on CD-ROM or through the Internet. Please contact
STAT-USA at 1-800-STAT-USA for more information.
The Algerian economy is now undergoing a wrenching transition
from a state-controlled system to a market economy. The past
eighteen months have witnessed more market-oriented reform
measures than any previous period in Algeria's history.
Overshadowing this tremendous progress in reorienting the
economy, however, is the ongoing political violence wracking the
country. Despite substantial help from the International
Monetary Fund and the World Bank, and a generous foreign debt
rescheduling, GDP registered growth of -1.1% in 1994; this
followed negative growth of 2.2% in 1993. This disappointing
performance stemmed from reduced gas export earnings, low
agriculture-sector output due to bad weather conditions and
continued public-sector production inefficiencies. In addition,
new investment shied away from Algeria because of investor
worries about the political/security situation. The government
hopes that new investments in the hydrocarbons and construction
sectors, as well as better rainfall, will hike economic output in
1995 by about four percent. Economic growth is essential to
reverse the trend of rising unemployment. About a quarter of the
workforce is unemployed, a problem with major political
implications.
Principal Growth Sectors
Construction: One of the worst problems faced by young Algerians
is the shortage of housing; the Government estimates Algeria
needs over one million units immediately, as well as an
additional 140,000 annually. Production in 1994 totaled only
80,000 units, however. Large, state-owned construction
enterprises dominate the housing sector. They have suffered from
constant financial difficulties, as well as shortages of key
materials such as cement and steel bars. As part of its economic
reform program, the Government plans to inject 30 billion dinars
($600 million) to improve the firms' balance sheets and improve
their access to bank credits and imported inputs. The Government
hopes up to 160,000 units will be built during 1995.
Major Local and Third Country Competitors
Algeria's domestic producers are not in a position to compete
with their American counterparts. While Algeria has a relatively
well-developed industrial base which covers most manufacturing
sectors, local production is largely below international
standards in terms of quality and range. It also is not
sufficient to meet local demands. This is particularly true of
consumer products, since basic industrial goods make up most of
what is locally produced. The success in recent years of the
local "trabendo" (contraband) trade in consumer goods
demonstrated that Algerians are prepared to pay world prices for
high quality imported goods.
The U.S. has become Algeria's second largest trading partner
following France. Italy, Germany, Spain, and to a lesser extent
Japan, are the other main U.S. competitors. The four European
countries' combined exports account for an annual average of 40-
60% of total Algerian imports in such sectors as
telecommunications, computer equipment, mining equipment,
building products, and water resource equipment. Suppliers from
these countries also have staked out near-monopolistic positions
in some sectors. Examples include France which supplies 70% of
Algeria's pharmaceutical imports; Italy whose market share for
food processing equipment and agricultural machinery has averaged
70% and 40% respectively in recent years; and Germany, which
accounts for 40% of mining equipment imports. Other competitors
have established specific market niches, such as Finland and
Sweden in telecommunications, and Japan in telecommunications and
water resource equipment.
Government Role in the Economy
Trade Liberalization: Although the economy was stagnant in 1994,
the Government laid useful groundwork for the future. It broadly
liberalized the foreign trade sector, abolishing in the summer of
1994 a list of 80 goods, mostly machinery and foodstuffs produced
already by Algeria's public sector, whose importation previously
was illegal. In January 1995 the Government abolished a second
list of goods, mostly basic food commodities, for which special
import permits were required. In addition, the Government has
sought to make foreign exchange more readily available to
importers in both the private and public sectors, by allowing
commercial banks to buy foreign exchange from the Bank of Algeria
(Central Bank). Thes banks' demand for foreign exchange assets
is to determine the foreign exchange rate of the Algerian dinar.
Since this system went into operation in September 1994, the
dinar has depreciated 20%. The Government plans to allow
commercial banks to trading in foreign exchange by the end of
1995. In addition, in June 1995 the Bank of Algeria began
allowing Algerians to buy foreign exchange to pay for medical and
educational expenses overseas. By 1996, the dinar may become
fully convertible.
Budget Austerity and Price Liberalization: Beyond the trade
liberalization measures noted above, the Government sought to
reduce inflation, estimated at 30% for 1994, and also bring
domestic prices into line with world prices. The Government has
followed a strict policy of budget austerity in which spending in
many categories, such as infrastructure investment and wages for
public-sector workers, fell after inflation adjustment. As a
result, the Government has reduced the budget deficit to under 3%
of GDP, down from about 9% in 1993. In tandem with the budget
restraint, the government has implemented very tight monetary
policy. Interest rates average about 24%. Despite these tough
measures, price inflation remained stubbornly in the thirty
percent range in early 1995. Interest rates are, therefore,
unlikely to fall soon. To restrain consumption and boost
domestic production, the Government also has cut subsidies
and lifted controls on prices on nearly all items and eliminated
the previous controls on profit margins for politically sensitive
items such as foodstuffs.
State Enterprise Reform: The reform policies above have had an
adverse impact on the output of Algeria's industrial sector,
which produces about 14% of GDP. Algeria's industry is marked by
large, inefficient state-owned enterprises dependent on imported
inputs and easy bank credits; many operate at only 35-40% of
capacity. The dinar devaluation raised their costs
substantially, while the tight monetary policy largely closed
their access to financing. Industrial output during the first
quarter of 1995 slumped nearly 8% from that of the same period of
1994. To remedy this the Government is restructuring companies
which could be made solvent and providing them new financing. It
will close firms which are chronically unprofitable. It also
plans to privatize some firms.
Infrastructure Situation
Algeria, whose territory is one third the size of the U.S., has
devoted significant resources to expanding and modernizing the
transport and telecommunications sectors since the 1970s. Today,
Algeria has a relatively well-developed infrastructure as a
result. Unfortunately, armed groups fighting the Government have
often targeted the power and telecommunications networks as well
as rail and road transport lines.
Shipping: Algeria has 12 main ports: eight are general purpose
ports, and four are specialized hydrocarbon terminals. Algerian
ports in 1994 handled a total of 82.2 million tons in goods
traffic, 63.6 million tons for exports, and 18.6 million tons for
imports. Passenger traffic was 408,400 passengers. Some of the
largest ports (Algiers, Oran, Annaba) are being equipped with
container handling installations. By 1995, a number of
businessmen were complaining of difficulty finding shipping lines
still willing to call on Algerian ports; like air carriers, fewer
shipping firms are maintaining their service to Algeria.
Telecommunications: The Algerian Post and Telecommunications
Ministry operates telephone, telex, telegraph, and facsimile
networks, a mobile telephone system, a public data communications
network, and a maritime radio service. All new installations
since 1986 use digital technology. The international telephone
network links Algeria to most countries, and is more reliable
than the domestic network; the domestic network also has suffered
from acts of sabotage. Algeria relies heavily on satellite
communications, particularly in the Sahara. DHL was operating
services in Algeria until the PTT without warning or explanation
suspended its operations in April 1995.
This page has been visited 
times.