|Now's the time for investment in Algeria|
|Oil prices are high, and so are the public's needs
France, the U.S. and China are interested in helping Algiers spend its wealth
This week Algeria commemorated the 50th anniversary of the start of the Algerian War of Independence against colonial France. This comes in the wake of a visit to Algiers by the French president and the signing of a 600 million euros ($773.8) development and cooperation accord in preparation for a treaty of friendship between the two countries planned for 2005.
This reconciliation activity comes in response to an effort by the new Algerian government to open the country to foreign investments through a commitment to the EuroMed program and a strengthening of Algeria's relationship with the United States. With significant financial reserves and a worn out infrastructure, Algeria today is a country that has all that is needed to attract investors. France, the lead trade partner of Algeria accounting for 25 percent of imports and 15 percent of exports, is in no way intending to miss on the Algerian economic boom.
Algeria is one of the wealthiest nations of Africa; it possesses some of the largest hydrocarbon - crude petroleum and natural gas - reserves in the world, and is one of the world's top natural gas exporters. Oil and natural gas account for 30 percent of Gross Domestic Product (GDP). Other major mineral products, such as iron ore and pyrites, zinc, lead, mercury, gypsum, and coal contribute to 17 percent of Algeria's GDP and it is believed that more than 500 million tons of phosphates remain untapped in the hilly regions of Djebel Onk. Manufacturing accounts for 8 percent of Algeria's GDP. Major manufactures are carpets and textiles, chemicals, refined petroleum, plastics, construction materials, olive oil, wine, and processed tobacco. Agriculture plays a declining but still important role in the Algerian economy, with farming accounting for 10 percent of GDP.
Since the end of the 90s and with the toning down of more than a decade of violence that tore the country apart, Algeria's trade balance registered record gains; a surplus of 5.8 billion euros in 2002 with the balance expected to reach 12.5 billion euros in 2004. The country shows impressive growth rates: GDP grew by 2.6 percent in 2001, 6.7 percent in 2003 and is expected to reach 8.3 percent in 2005.
Furthermore, and given that 96 percent of Algeria's export revenues and 65 percent of its budget revenues are derived from hydrocarbon sales, the increases in the price of oil that broke the $50 a barrel mark recently are set to accrue an already significant government wealth - the Algerian Central Bank had in its reserves on Dec. 1, 2003 a net surplus of $10 billion after covering all of Algeria's foreign debt.
This is coming at a time when Algeria is suffering from a decade of economic stagnation and a decline in investment opportunities that resulted in an infrastructure in dire need of modernization. Works on the Algiers subway and suburbs train connection project were halted some 20 years ago and only 360 kilometers of the projected 1,279 km long highway linking the east to the west of the country were completed.
In addition to transport and road projects, the water system needs revamping and rehabilitation. This country of circa 32 million inhabitants, 29.9 percent of whom are under 14 years of age, is suffering a severe housing crisis and the government is considering a project involving the addition of one million new housing units over the period 2004-2009.
Besides these projects that are already attracting French, American and Chinese companies, a major investment is needed in the hydrocarbon industry and is expected to reach $50-70 billion in the coming decade according the Huston Research Center.
Fifty years after the first shot in its War of Independence , Algeria presents today strong investment prospects; a positive trade balance, high currency reserves, a healthy growth rate, a multitude of construction and modernization projects up for grabs, and a government working on opening up the country. Since 1997, the Algerian government has been backing the emergence of a strong private sector and in order to promote investments has declared all public companies "eligible to privatization."
This rosy outlook for the country is handicapped by an archaic banking sector desperately in need of reform and is mired by the still unresolved political situation in some parts of the country.
Khatoun Haidar, a Lebanese Business Consultant based in Vienna and Beirut, wrote this analysis for The Daily Star
Beirut,11 15 2004
The Daily Star