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Algeria - Economy (Notes)

ECONOMY The hydrocarbons sector is the backbone of the Algerian economy, accounting for roughly 60% of budget revenues, nearly 30% of GDP, and over 97% of export earnings. Algeria has the seventh-largest reserves of natural gas in the world (2.7% of proven world total) and is the second-largest gas exporter; it ranks 14th for oil reserves. Its key oil and gas customers are Italy, Germany, France, the Netherlands, Spain, the United Kingdom, and the United States. U.S. companies have played a major role in developing Algeria's oil and gas sector; of the $4.1 billion (on a historical-cost basis, according to statistics gathered by the U.S. Department of Commerce, Bureau of Economic Analysis) in U.S. investment in Algeria, the vast bulk is in the petroleum sector. Faced with declining oil revenues and high-debt interest payments at the beginning of the 1990s, Algeria implemented a stringent macroeconomic stabilization program and rescheduled its $7.9 billion Paris Club debt in the mid-1990s. The macroeconomic program has been particularly successful at narrowing the budget deficit and at reducing inflation from of near-30% averages in the mid 1990s to almost single digits in 2000. Inflation was at 3.6% in 2004. Algeria's economy has grown by more than 5% in each of the past five years, posting 5.6% growth in 2006. The country's foreign debt fell from a high of $28 billion in 1999 to $5 billion in 2006; in that year Algeria paid off the last of its Paris Club debt. The spike in oil prices in 1999-2000 and 2004, the government's tight fiscal policy and conservative budgeting of oil prices from 2000 to present, a large increase in the trade surplus, and the near tripling of foreign exchange reserves have helped the country's finances. The government pledges to continue its efforts to diversify the economy by attracting foreign and domestic investment outside the energy sector. The Algerian Government has had little success at reducing high unemployment, officially estimated at 17.7%, though international estimates put the figure higher, and at improving living standards. Priority areas are banking and judicial reform, improving the investment environment, partial or complete privatization of state enterprises, and reducing government bureaucracy. The government has closed or sold off numerous state enterprises and a total of 1,200 were offered for sale in 2004. The government also has begun to privatize certain sectors of the economy and embrace joint venture investment opportunities with traditionally state owned and operated entities. In 2001, Algeria concluded an Association Agreement with the European Union, which was ratified in 2005 by both Algeria and the EU and took effect in September of that same year. The government is working toward accession to the World Trade Organization.