## IMF Survey: Algeria Should Reduce Reliance on Oil, Create More Jobs, Says IMF

_IMF News, January 26, 2011_

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## Bibliographic details
- Published: January 26, 2011

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### Economic structure and recent macro performance
- Hydrocarbon sector accounts for 98 percent of the country’s exports.
- Hydrocarbon sector represents about 40–45 percent of total GDP and about two-thirds of budget revenues.
- The state plays a predominant role: 90 percent of the country’s banks are public; the hydrocarbon company is state owned; government spending represents two-thirds of non-hydrocarbon GDP.
- Macroeconomic outcomes over the past decade: relatively strong growth, low inflation, sharp reduction in public and external debt, large external reserves, and budget resources in an oil stabilization fund (helped during the 2009 hydrocarbon price decline).

### Employment, demographics, and human capital
- Youth unemployment is 21 percent; a decade earlier youth unemployment exceeded 50 percent.
- Labor force growth is between 2½ to 3 percent per year.
- To stabilize unemployment and absorb new entrants, Algeria probably needs growth in the nonhydrocarbon sector of at least 5 percent.
- Education spending: about 6 percent of GDP over the past decade.
- Progress noted: universal primary education and high enrollment rates for primary and higher education; greater focus on vocational training to reduce skills mismatches.

### Diversification and the business environment
- Algeria’s exports are among the least diversified in the world, even compared to other oil producers.
- Diversification is a central policy objective; government efforts include large public investment in infrastructure and expansion of access to services (housing, water, energy, health).
- Measures to improve access to credit for small and medium-sized companies and to facilitate entrepreneurship have been implemented, but results are taking time.
- Long-term prospects depend on improving the business climate to allow new enterprises to emerge and grow.

### Foreign direct investment and financial sector development
- 2009 regulations for foreign direct investment limit foreign participation in new projects, intended to encourage partnerships with domestic investors; outcome has been a significant decline of foreign investment flows to Algeria.
- Algeria needs a business environment more conducive to private sector development; authorities should review strategy to allow a stronger and broader private sector to emerge.
- Financial sector is dominated by public banks; modernization and deepening are needed to facilitate access to credit.
- Foreign partnerships could be particularly useful for financial sector development.

### Trade policy and regional integration
- Algeria has opened trade gradually but maintains relatively high customs tariffs and is not a member of the World Trade Organization.
- Algeria does not trade much with other countries in the region.
- Trade liberalization could help competitiveness and diversification, with Chile cited as an example of successful trade openness leading to diversified exports.

### Social tensions and food price measures
- Recent unrest (earlier this month in context of the article) was triggered by significant price increases of basic food items (sugar and oil); authorities temporarily eliminated customs duties and the value-added tax on those items to reduce prices.
- Cost of these temporary measures is relatively small at about 0.3 percent of GDP and is seen as appropriate while targeted on basic food items consumed by poorer segments.
- Longer-term responses recommended: promote competition in the food distribution sector to avoid monopolistic behavior and develop the agricultural sector to increase immunity to large international price variations.

### Risks and historical context
- Main risk: continued heavy dependence on hydrocarbons, leaving the economy vulnerable to negative oil-price shocks and unable to generate enough jobs.
- Historical precedent: in the mid-1980s a large drop in oil prices forced cuts in public spending, contributed to the “lost decade” of the 1990s and political instability.
- Observation: large financial resources accumulated during the last decade will help mitigate this risk, but hydrocarbons bring wealth, not jobs; without sustained strong growth in other sectors, high unemployment-related discontent could persist.

### Key policy recommendations
- Diversify exports and reduce reliance on oil and gas to create jobs and reduce vulnerability to oil-price shocks.
- Improve the business environment to encourage private sector development and allow new enterprises to emerge and grow.
- Review FDI strategy and the 2009 FDI regulations to attract more foreign investment while fostering domestic partnerships.
- Modernize and deepen the financial sector to improve access to credit, potentially through foreign partnerships.
- Promote vocational training to reduce skills mismatches and better align labor supply with private-sector demand.
- Promote competition in food distribution and develop the agricultural sector to reduce vulnerability to food-price shocks.

*IMF Survey online: January 26, 2011*

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## Content in this bundle

- [Int012611aapdf (PDF)](/-/media/websites/imf/imported/external/arabic/pubs/ft/survey/so/2011/int012611aapdf.pdf){rel="external" type="application/pdf"}
- [Int012611afpdf (PDF)](/-/media/websites/imf/imported/external/french/pubs/ft/survey/so/2011/int012611afpdf.pdf){rel="external" type="application/pdf"}

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Survey Interview](https://www.imf.org/en/news/search)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Read the press release](https://www.imf.org/external/np/sec/pr/2010/pr10415.htm)
- [Algeria and the IMF](https://www.imf.org/external/country/DZA/index.htm)
- [Public information notice](https://www.imf.org/external/np/sec/pn/2011/pn1110.htm)
- [Natural resource challenges](https://www.imf.org/external/np/speeches/2010/110410.htm)
- [World economic outlook](https://www.imf.org/external/pubs/ft/survey/so/2011/RES012411A.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/soint012611a_