ALGERIA ECONOMIC UPDATE A Holistic Framework for Sustained Export Growth Fall 2024 Algeria Economic Update A Holistic Framework for Sustained Export Growth Fall 2024 Middle East and North Africa Region © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclu- sions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or fail- ure to use the information, methods, processes, or conclusions set forth. 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TABLE OF CONTENTS List of Acronyms..................................................................................................... v Acknowledgments................................................................................................... vii Executive summary................................................................................................. ix Résumé analytique................................................................................................. xi ‫ملخص تنفيذي‬......................................................................................................... xiv Chapter 1: Recent Economic Developments.................................................................... 1 Growth in Non-Extractive Sectors Remained Robust in H1-2024........................................................................... 1 Oil and Gas Output Contracted in the First Half of 2024, and Hydrocarbon Export Revenues Fell............. 3 The Current Account Came Close to Balance in H1-2024....................................................................................... 5 Decreasing Hydrocarbon Revenues and Higher Spending Put Pressure on the Fiscal Balance................. 6 Driven by Stabilizing Fresh Food Prices, Inflation Decelerated Significantly....................................................... 7 Chapter 2: Outlook and Risks..................................................................................... 9 Growth Is Expected to Slow in 2024 Before Rebounding in 2025 and 2026..................................................... 9 Fiscal and External Deficits Will Remain Elevated...................................................................................................... 10 Global Energy Prices and Climate Hazard Are Risks to the Macroeconomic Outlook.................................... 11 Chapter 3: Towards a Holistic Framework to Support Exports............................................... 13 Algeria Has a Large Non-Hydrocarbon Export Potential........................................................................................... 13 Productivity Growth and a Conducive Macroeconomic Framework Are Essential for Export Growth......... 14 Adapting to Global Decarbonization Efforts Is also Essential................................................................................. 16 Annex 1: Recent Special Sections of the Algeria Economic Update......................................... 19 Bibliography......................................................................................................... 23 iii List of Figures Figure 1 Investment demand was mostly met through imports…....................................................................... 2 Figure 2 …and the services sector was the main driver of growth..................................................................... 2 Figure 3 Nighttime lights suggest heterogeneous growth during H1-2024…................................................. 2 Figure 4 …with the North-Center contributing most to non-hydrocarbon growth........................................... 2 Figure 5 During the 2023–2024 crop season rainfall improved relative to the previous season in most of the East but worsened in the West…...................................................................................... 3 Figure 6 … and crop growth measures tracked rainfall......................................................................................... 3 Figure 7 Crude oil and natural gas production declined during H1-2024….................................................... 4 Figure 8 …while export prices remained elevated despite a moderation in natural gas prices................. 4 Figure 9 The current account narrowed as export prices decreased and imports expanded…................ 5 Figure 10 …even as import prices eased for several product categories........................................................... 5 Figure 11 Vessel tracking data suggest a cross-cutting decrease in export volumes in 2024….................. 6 Figure 12 …while lower container and cargo imports were offset by higher bulk imports............................ 6 Figure 13 Increasing current expenditures and decreasing revenues are expected to widen the fiscal deficit…........................................................................................................................... 7 Figure 14 …which is expected to be partially financed from oil savings............................................................. 7 Figure 15 Inflation eased as fresh food prices stabilized for most of 2024….................................................... 8 Figure 16 …led by a stabilization in meat and fish prices, and a decline in fruit and vegetable prices...... 8 Figure 17 The exchange rate remained stable in H1-2024…................................................................................. 8 Figure 18 …while the growth of money supply and credit to the private sector accelerated........................ 8 Figure 19 Export volumes increased since 2017, led by chemical and manufactured products…............. 14 Figure 20 …but remain concentrated in a few products, notably fertilizers........................................................ 14 Figure 21 Algeria’s exports are less complex than those of its peers, despite recent improvements…..... 14 Figure 22 …and are concentrated in a small number of countries....................................................................... 14 Figure 23 Algeria’s total factor productivity is lower than that of the region…................................................... 15 Figure 24 …and labor productivity is lower in public than in private firms.......................................................... 15 Figure 25 Products affected by CBAM represent an increasing share of Algeria’s exports…...................... 16 Figure 26 …and Algerian fertilizers have a higher carbon content than EU products.................................... 16 List of Boxes Box 1 Measures taken by Algeria to support investment................................................................................ 10 Box 2 Sustainable forest management to combat forest fires in Algeria.................................................... 11 Box 3 CBAM implications for Algeria.................................................................................................................... 17 iv ALGERIA ECONOMIC UPDATE – A HOLISTIC FRAMEWORK FOR SUSTAINED EXPORT GROWTH LIST OF ACRONYMS AIS Automatic Identification System MENA Middle East and North Africa ASAP Anomaly Hotspots of Agricultural MTOE Million tonnes of oil equivalent Production NASA National Aeronautics and Space BoA Bank of Algeria Administration BTU British thermal unit NEER Nominal effective exchange rate ISIC International Standard Industrial OAIC Algerian Interprofessional Office of Classification Cereals CPI Consumer Price Index OECD Organization for Economic Cooperation DZD Algerian Dinar and Development EIA Energy Information Agency ONS National Office of Statistics EUR Euro OPEC Organization of the Petroleum Exporting EPT Algeria’s administrative regions Countries FAO Food and Agriculture Organization GDP Gross Domestic Product IMF International Monetary Fund Pp Percentage points FRR Revenue Regulation Fund PSR Special refinancing program LNG Liquefied natural gas REER Real effective exchange rate LPG Liquefied petroleum gas SMMEEI Steel, metal, mechanical, electrical, and FDI Foreign direct investment electronic industries JODI Joint Organizations Data Initiative SOE State-owned enterprises Kb/d Thousands of barrels per day US$ United States Dollar MARS Monitoring Agricultural Resources WB World Bank Mb/d Millions of barrels per day v ACKNOWLEDGMENTS T his Algeria Economic Update reports on the effects of the border carbon adjustment mechanism main recent economic developments and by Susanne Aakerfeldt, Alexandra Campmas, and policies. It places them in a global and longer- Sahil Gill, with contributions from Weronika Celniak term context and assesses the implications of these and Paulina Schulz Antipa. The authors would like developments and policy changes for Algeria’s eco- to thank Ahmadou Moustapha Ndiaye (Country nomic prospects. The report is intended for a broad Director for the Maghreb and Malta) and Kamel audience, including policymakers, business leaders, Braham (Resident Representative for Algeria) for their financial market participants, and the community of valuable comments during the review of this report. analysts and professionals working in/on Algeria. The authors thank the Algerian Investment Promotion The report is divided into three chapters. Chapter 1 Agency (AAPI) for providing the data used in the box presents macroeconomic developments in Algeria on investment support measures. The World Bank over the year 2023 and the first half of 2024, while team would particularly like to thank the Algerian Chapter 2 describes the short- and medium-term Ministry of Finance for their comments on the content outlook for the Algerian economy, and Chapter 3 of the report prior to publication. presents macroeconomic considerations in sup- The findings, interpretations, and conclusions port of non-hydrocarbon export development. This expressed in this report are those of the World Bank report is based on data available on October 30, staff and do not necessarily reflect the views of the 2024. World Bank Board of Executive Directors or the The Algeria Economic Update is the work of countries it represents. For information about the the Middle East and North Africa (MENA) section of World Bank and its activities in Algeria, including the World Bank Group’s Macroeconomics, Trade, and electronic copies of this publication, please visit Investment (MTI) practice area. It was prepared by https://www.banquemondiale.org/fr/countr y/ Cyril Desponts, Amel Henider, and Daniel Prinz under algeria. For questions or comments on the content the supervision of Eric Le Borgne and Abdoulaye Sy. of this publication, please contact Cyril Desponts The box on sustainable forest fire management was (cdesponts@worldbank.org) and Eric Le Borgne prepared by Sandrine Jauffret, and the analysis of the (eleborgne@worldbank.org). vii EXECUTIVE SUMMARY Economic Growth Remained money supply growth and credit to the private sector Robust and Inflation Was Gradually accelerated during 9m-2024. Contained in H1-2024, but External Lower hydrocarbon exports, combined and Fiscal Pressures Increased with higher imports and rising public spending, brought the current account back to balance During the first half of 2024, robust economic and increased the fiscal deficit. After the current growth continued, supported by non-extractive account surplus narrowed markedly to 2.3 percent of sectors and dynamic investment. After an accel- GDP in 2023, it reached balance in H1-2024 as export eration to 4.1 percent in 2023, GDP growth slowed prices and volumes declined, while import volumes slightly in the first half of 2024 (+3.9 percent y-o- remained elevated, stimulated by investment. Foreign y), supported by dynamic non-extractive growth. exchange reserves increased slightly, reaching about Investment growth accelerated, stimulating imports, 16.2 months of imports of goods and services at end- while private and government consumption remained September 2024. In addition to lower hydrocarbon robust. Nightlights suggest that non-extractive growth revenues, increasing current and capital expenditures, was driven by the North-Center region. Non-extractive including the last of three waves of public sector wage GDP growth was broad-based and supported by resil- increases, are contributing to an expansion in the fis- ient agricultural output, but extractive GDP remained cal deficit, after it reached 5.2 percent of GDP in 2023. stable during H1-2024 (+1.0 percent y-o-y) after The deficit was mainly financed through oil savings, another reduction in Algeria’s crude oil production and therefore public debt increased moderately. quota in January and lower European gas demand. Inflation decelerated markedly in H1-2024 as fresh food prices stabilized, import prices mod- Growth Is Expected to Slow erated, and the exchange rate remained stable. Moderately before Rebounding, After reaching 9.3 percent in 2022 and 2023, inflation while External and Fiscal Deficits fell to 4.3 percent during the first nine months of 2024 Would Widen following the stabilization of fresh food prices start- ing in H2-2023 after increasing rapidly. Lower inflation Growth is expected to slow moderately in 2024, was also supported by resilient agricultural output, the due to stable hydrocarbon output, while fiscal lifting of meat import restrictions, as well as a stable and external financing needs would expand. In the exchange rate after the Bank of Algeria interrupted baseline scenario, GDP growth would slow to 3.1 per- fourteen years of depreciation in mid-2022. Monetary cent in 2024 as non-extractive growth remains robust policy remains accommodative, with the policy inter- and broad-based, amidst dynamic investment and pri- est rate remaining unchanged since May 2020, and vate consumption, but hydrocarbon output stabilizes. ix As a result of the latter, exports would decline and, inputs, and a few countries account for most exports. combined with sustained equipment-led imports, Yet, Algeria has a large potential for diversification the current account would post a moderate deficit. and growth, including due to proximity with Europe, in Declining hydrocarbon revenues and rising expendi- support of its objective to export US$ 29 billion in non- tures would cause an expansion in the fiscal deficit, hydrocarbon products by 2030. and public debt would reach 49.5 percent of GDP at Productivity growth and a framework of end-2024. conducive macroeconomic and microeconomic A recovery in hydrocarbon output would policies are key to boosting exports. Over the past support a rebound in growth in 2025, and hydro- twenty years, investment, aggregate productivity, and carbon export revenues would rise. Nonetheless, the share of manufacturing in GDP moderated, limiting faster import growth would cause the current account competitiveness in sectors with higher export poten- deficit to expand and foreign exchange reserves to tial. Strengthening the business environment and firm decline, although they would remain at a comfortable productivity—including that of SOEs, which account level. The moderate increases in spending suggested for a fifth of nonhydrocarbon value-added—will be key by the medium-term budget framework of the 2024 to enhancing export competitiveness. Balanced and Budget Law would stabilize the fiscal deficit at a high supportive exchange rate and trade policies would level, and public debt would rise, although it remains support export diversification, while attracting for- domestically held, at low rates and long-term matur- eign direct investments would support integration into ities. Given the high share of rigid public spending global value chains, generating productivity gains and and the economy’s reliance on imports, unpredict- export growth. Policies to develop value chains with able fluctuations in global hydrocarbon prices, amidst export potential and comprehensively improve export significant global uncertainty, remain the key risk to facilitation would also support the growth and diversi- Algeria’s macroeconomic outlook. fication of non-hydrocarbon exports. Adapting to global decarbonization efforts A Holistic Approach Is Essential for is also essential to a sustainable export growth Sustained Growth and Diversification strategy. The global green transition will affect of Algeria’s Non-Hydrocarbon Exports demand for products with a high carbon footprint, most immediately in the framework of Europe’s carbon Algeria’s non-hydrocarbon export growth poten- border-adjustment mechanisms (CBAM), which could tial is significant. Hydrocarbon products still generate significant costs for Algerian exporters. Over represented over 90 percent of Algeria’s product 80 percent of Algeria’s non-hydrocarbon exports to exports in 2023, although nonhydrocarbon exports Europe are in fact concentrated in carbon-intensive have tripled since 2017, to reach 2.0 percent of GDP products (fertilizers, cement, iron and steel). Greening or US$ 5.1 billion in 2023. Fertilizers, iron and steel the production of these products, diversifying exports products and cement account for over 80 percent of towards less polluting industries, and adopting explicit nonhydrocarbon exports. Exports complexity is there- carbon pricing will be decisive for the long-term perfor- fore limited, while exporters benefit from subsidized mance of Algeria’s non-hydrocarbon exports. x ALGERIA ECONOMIC UPDATE – A HOLISTIC FRAMEWORK FOR SUSTAINED EXPORT GROWTH RÉSUMÉ ANALYTIQUE La croissance économique est 2022 et 2023, l’inflation est tombée à 4,3% en glisse- restée robuste et l’inflation a ment annuel sur les neuf premiers mois de 2024, à la progressivement ralenti au premier suite de la stabilisation des prix agricoles frais à par- semestre 2024, mais les pressions tir du S2-2023, après une forte hausse. La baisse de sur les équilibres extérieurs et l’inflation a également été soutenue par la production budgétaires se sont accrues agricole résiliente, la levée des restrictions à l’impor- tation de viande, ainsi qu’un taux de change stable Au cours du premier semestre 2024, la crois- après que la Banque d’Algérie a interrompu quatorze sance économique est demeurée robuste, années de dépréciation à la mi-2022. La politique soutenue par les secteurs non extractifs et l’inves- monétaire est restée accommodante, le taux d’intérêt tissement. Après une accélération à 4,1% en 2023, directeur demeurant inchangé depuis mai 2020, et la la croissance du PIB a légèrement ralenti au premier croissance de la masse monétaire et du crédit au sec- semestre 2024 (+3,9% en glissement annuel), soute- teur privé s’est accélérée durant les 9m-2024. nue par une croissance non extractive dynamique. La baisse des exportations d’hydrocarbures, La croissance de l’investissement s’est accélérée, sti- combinée à l’augmentation des importations et mulant les importations, tandis que la consommation des dépenses publiques, a ramené la balance privée et publique est restée robuste. Les données courante à l’équilibre et a augmenté le déficit satellitaires d’éclairage nocturne suggèrent que la budgétaire. Après que l’excédent du compte courant croissance non-extractive a été principalement tirée se soit nettement réduit, pour atteindre 2,3% du PIB en par la région du centre-nord. La croissance multi- 2023, il s’est établi à l’équilibre au premier semestre sectorielle du PIB non extractif a notamment été 2024, les prix et les volumes des exportations ayant soutenue par une production agricole résiliente, mais baissé, tandis que les volumes des importations le PIB extractif est resté stable au cours du premier restaient élevés, stimulés par l’investissement. Les semestre 2024 (+1.0%) après une nouvelle réduction réserves de change ont légèrement augmenté, attei- du quota de production de pétrole brut de l’Algérie gnant environ 16,2 mois d’importations de biens et en janvier et une baisse de la demande européenne de services à la fin septembre 2024. Outre la baisse de gaz. des recettes d’hydrocarbures, l’augmentation des L’inflation a nettement ralenti en 2024 dépenses courantes et d’investissement, y compris la grâce à la stabilisation des prix des aliments frais, dernière des trois vagues d’augmentation des salaires la modération des prix à l’importation et la stabi- dans le secteur public, a contribué à une expansion lité du taux de change. Après avoir atteint 9,3% en du déficit budgétaire, après que celui-ci ait atteint xi 5,2% du PIB en 2023. Ce déficit a été principalement Une approche holistique est financé par l’épargne pétrolière, la dette publique essentielle à une croissance n’augmentant que modérément. soutenue et à la diversification des exportations hors hydrocarbures de l’Algérie La croissance devrait ralentir modérément avant de rebondir, Le potentiel de croissance des exportations hors tandis que les déficits extérieurs et hydrocarbures de l’Algérie est important. Les budgétaires se creuseraient hydrocarbures représentaient encore plus de 90% des exportations de produits de l’Algérie en 2023, La croissance devrait ralentir modérément en même si les exportations de produits hors hydro- 2024, en raison de la stabilité de la production carbures avaient triplé depuis 2017, pour atteindre d’hydrocarbures, tandis que les besoins de finan- 2,0% du PIB ou 5,1 milliards de dollars en 2023. Les cement budgétaire et extérieur augmenteraient. engrais, les produits sidérurgiques et le ciment repré- Dans le scénario de base, la croissance du PIB ralen- sentent néanmoins plus de 80 % des exportations tirait à 3,1% en 2024, la croissance non extractive hors hydrocarbures et la complexité des exportations restant robuste mais la production d’hydrocarbures est limitée, tandis que les exportateurs bénéficient se stabilisant. En conséquence, les exportations d’intrants subventionnés et qu’un petit nombre diminueraient et, combinées à des importations sou- de pays représente la majorité des exportations. tenues d’équipements, la balance courante afficherait Cependant, l’Algérie dispose d’un important poten- un déficit modéré. La baisse des recettes d’hydrocar- tiel de diversification et de croissance, notamment bures et l’augmentation des dépenses entraîneraient en raison de sa proximité avec l’Europe, en soutien une hausse du déficit budgétaire, et la dette publique à l’objectif d’exporter 30 milliards de dollars de pro- atteindrait 49,5 % du PIB à la fin-2024. duits hors hydrocarbures d’ici 2030. La reprise de la production d’hydrocar- L’amélioration de la productivité et un bures soutiendrait un rebond de la croissance ensemble de politiques macroéconomiques et en 2025, et les recettes d’exportations d’hydro- microéconomiques favorable sont essentiels carbures augmenteraient. Une croissance plus pour stimuler les exportations. Au cours des vingt rapide des importations entraînerait cependant une dernières années, l’investissement, la productivité glo- augmentation du déficit de la balance courante et bale et la part de l’industrie manufacturière dans le une diminution des réserves de change, qui reste- PIB ont montré des signes de ralentissement, affec- raient toutefois à un niveau confortable. Les hausses tant la compétitivité dans les secteurs à fort potentiel modérées des dépenses prévues dans le cadre bud- d’exportation. Le renforcement de l’environnement gétaire à moyen terme de la Loi de Finances pour des affaires et l’amélioration de la productivité des 2024 permettraient de stabiliser le déficit budgé- entreprises sont essentiels à la compétitivité des taire, qui demeurerait élevé et ferait augmenter la exportations, notamment au niveau de la producti- dette publique, qui reste détenue au niveau natio- vité des entreprises publiques, qui représentent un nal, à des taux faibles et à des échéances à long cinquième de la valeur ajoutée hors hydrocarbures. terme. Compte tenu de la part élevée des dépenses Des politiques calibrées de change et de commerce publiques rigides et du poids des importations, les extérieur soutiendraient la diversification des expor- fluctuations imprévisibles des prix mondiaux des tations, tandis que l’attraction des investissements hydrocarbures, dans un contexte de forte incertitude directs étrangers favoriserait l’insertion dans les géopolitique et économique mondiale, demeurent un chaînes de valeur mondiales, générant des gains de risque important pour les perspectives macroécono- productivité et stimulant les exportations. Des poli- miques de l’Algérie. tiques de développement de chaines de valeur ayant xii ALGERIA ECONOMIC UPDATE – A HOLISTIC FRAMEWORK FOR SUSTAINED EXPORT GROWTH un potentiel à l’export, et de facilitation transversale, ce qui pourrait générer des coûts importants pour les soutiendrait également la croissance et la diversifica- exportateurs algériens. Plus de 80% des exportations tion des exportations hors-hydrocarbures. algériennes hors hydrocarbures vers l’Europe sont en L’adaptation aux efforts mondiaux de effet concentrées dans des produits à forte intensité décarbonation est également essentielle à une de carbone (engrais, ciment, fer et acier). Verdir la pro- stratégie de croissance durable des exportations. duction de ces produits, diversifier les exportations La transition verte au niveau mondial affectera la vers des industries moins polluantes, et adopter une demande de produits à forte empreinte carbone, plus tarification explicite du carbone seront déterminants immédiatement dans le cadre du mécanisme euro- pour la performance à long terme des exportations péen d’ajustement carbone aux frontières (CBAM), hors hydrocarbures de l’Algérie. Executive summary xiii ‫ملخص تنفيذي‬ ‫امليزانية‪ .‬بعد أن تقلص الفائض يف الحساب الجاري بشكل ملحوظ‬ ‫ـل النم ــو االقتص ــادي قوي ـاً وت ــم احت ــواء التضخ ــم‬ ‫ظـ ّ‬ ‫إىل ‪ 2.3٪‬من الناتج املحيل اإلجاميل يف عام ‪ ،2023‬وصل إىل التوازن يف‬ ‫ي ــا يف النص ــف األول م ــن ع ــام ‪ ،2024‬غ ــر أن‬ ‫النصف األول من عام ‪ 2024‬مع إنخفاض أسعار الصادرات وحجمها‪،‬‬ ‫تدريج ً‬ ‫بينام ظل حجم الواردات مرتفع اً‪ ،‬مدعوم اً باالستثامر‪ .‬وارتفعت‬ ‫الضغ ــوط ع ــى امليزاني ــة العام ــة واملي ــزان الخارج ــي‬ ‫را من‬‫احتياطي الرصف بشكل طفيف‪ ،‬لتصل إىل حوايل ‪ 16.2‬شه ً‬ ‫تزاي ــدت‪.‬‬ ‫واردات السلع والخدمات يف نهاية سبتمرب ‪ .2024‬وباإلضافة إىل‬ ‫انخفاض إي رادات املحروقات‪ ،‬ساهمت الزيادة يف النفقات الجارية‬ ‫بقي النمو االقتصادي قويً ا‪ ،‬يف النصف األول من عام ‪ ،2024‬مدعو ً‬ ‫ما‬ ‫واالستثامرالعمومي‪ ،‬مبا يف ذلك املوجة األخرية التي شملت ثالث‬ ‫بنمو القطاعات الغري االستخ راجية واالستثامر‪ .‬بعد أن ارتفع منو‬ ‫زيادات يف أجور القطاع العمومي‪ ،‬يف زيادة عجز امليزانية‪ ،‬بعد أن‬ ‫الناتج املحيل اإلجاميل إىل ‪ 4.1٪‬يف عام ‪ ،2023‬تباطأ بشكل طفيــف‬ ‫بلغ ‪ 5.2٪‬من الناتج املحيل اإلجاميل يف عام ‪ .2023‬تم متويل هذا‬ ‫م ا بنمو قوي‬ ‫يف النصف األول من العام ‪ +3.9٪( 2024‬سنوي اً)‪ ،‬مدعو ً‬ ‫العجز بشكل رئييس من خالل املدخ رات النفطية ‪ ،‬بينام زاد الدين‬ ‫يف القطاعات الغري االستخ راجية‪ .‬تسارعت وترية منو االستثامر‪ ،‬مام‬ ‫العمومي بشكل طفيــف‪.‬‬ ‫ف ز الواردات‪ ،‬بينام بقي كل من االستهالك الخاص والعمومي قويّ ني‬ ‫حّ‬ ‫‪ .‬تشري بيانات اإلضاءة الليلية إىل أن منو القطاع الغري االستخ راجي كان‬ ‫ع ا بشكل رئييس باملنطقة الشاملية الوسطى ‪ .‬كان النمو متعدد‬ ‫مدفو ً‬ ‫مــن املتوقــع أن يتباطــأ النمــو قليــا قبــل أن‬ ‫م ا بشكل‬ ‫القطاعات يف الناتج املحيل اإلجاميل الغري االستخ راجي مدعو ً‬ ‫ينتعــش‪ ،‬بينــا مــن املتوقــع أن يتســع عجــز‬ ‫خاص باإلنتاج الزراعي القوي‪ ،‬لكن الناتج املحيل اإلجاميل االستخ راجي‬ ‫الحســاب الخارجــي وعجــز امليزانيــة‪.‬‬ ‫را يف النصف األول من عام ‪ +1.0٪( 2024‬سنوي اً) بعد‬ ‫ظل مستق ً‬ ‫تخفيضات يف حصص إنتاج النفط الخام الجزائري يف جانفي وانخفاض‬ ‫من املتوقع أن يتباطأ النمو بشكل طفيف يف عام ‪ ،2024‬بسبب‬ ‫الطلب األورويب عىل الغاز‪.‬‬ ‫استق رار إنتاج املحروقات‪ ،‬بينام ستزداد االحتياجات التمويلية‬ ‫تباطأ التضخم بشكل ملحوظ يف ‪ 2024‬بفضل استق رار أسعار‬ ‫الداخلية والخارجية‪ .‬يف السيناريو املرجعي‪ ،‬سيتباطأ منو الناتج‬ ‫األغذية الطازجة‪ ،‬وت راجع أسعار الواردات‪ ،‬واستق رار سعر الرصف‪.‬‬ ‫املحيل اإلجاميل إىل ‪ 3.1٪‬يف عام ‪ ،2024‬مع استم رار منو القطاع الغري‬ ‫بعد أن بلغ ‪ 9.3٪‬يف عامي ‪ 2022‬و‪ ،2023‬انخفض التضخم إىل‪4.3٪‬‬ ‫ة لذلك‪،‬‬‫استخ راجي بشكل قوي مع ثبات إنتاج املحروقات‪ .‬ونتيج ً‬ ‫سنوي اً خالل األشهر التسعة األوىل من عام ‪ ،2024‬نتيجة استق رار‬ ‫قد تنخفض الصادرات‪ ،‬إىل جانب الواردات التي تعززها واردات‬ ‫أسعار املنتجات الزراعية الطازجة منذ النصف الثاين من ‪ 2023‬بعد‬ ‫ف ا‪ .‬قد يؤدي ت راجع‬‫زا طفي ً‬ ‫املعدات‪ ,‬قد يسجل الحساب الجاري عج ً‬ ‫ارتفاعها الكب ري‪ .‬كذلك كان انخفاض التضخم مدعو ً‬ ‫م ا باإلنتاج الزراعي‬ ‫عائدات املحروقات وزيادة اإلنفاق إىل ارتفاع عجز امليزانية‪ ،‬وقد‬ ‫القوي‪ ،‬ورفع القيود املفروضة عىل است رياد اللحوم‪ ،‬واستق رار سعر‬ ‫يصل الدين العمومي إىل ‪ 49.5٪‬من الناتج املحيل اإلجاميل بحلول‬ ‫م ا من انخفاض‬ ‫الرصف بعد أن أوقف بنك الجزائر أربعة عرش عا ً‬ ‫نهاية عام ‪.2024‬‬ ‫قيمة العملة يف منتصف عام ‪ .2022‬ظلت السياسة النقدية تيسريية‪،‬‬ ‫قد يدعم انتعاش إنتاج املحروقات انتعاش النمو يف عام ‪ ،2025‬وقد‬ ‫حيث ظل سعر الفائدة الرئييس دون تغيري منذ ماي ‪ ،2020‬وتسارع‬ ‫تزداد عائدات تصدير املحروقات‪ .‬ومع ذلك‪ ،‬فإن تسارع منو الواردات‬ ‫منو الكتلة النقدية واالئتامن للقطاع الخاص خالل األشهر التسعة‬ ‫سيؤدي إىل زيادة عجز الحساب الجاري وانخفاض احتياطي الرصف‪،‬‬ ‫األوىل من عام ‪.2024‬‬ ‫الذي سيظل بالرغم من ذلك عند مستوى مريح‪ .‬الزيادات الطفيفة يف‬ ‫أدى انخفاض صادرات املحروقات وإرتفاع الواردات واإلنفاق‬ ‫اإلنفاق املتوخاة يف إطار امليزانية املتوسطة املدى لقانون املالية لعام‬ ‫العمومي إىل إعادة ميزان الحساب الجاري إىل التوازن وزيادة عجز‬ ‫‪xv‬‬ ‫يا‬ ‫تحسني اإلنتاجية وسياسات االقتصاد الكيل والجزيئ املالمئة أساس ً‬ ‫‪ 2024‬قد تسمح بتثبيت عجز امليزانية الذي سيظل مرتفع اً وسيؤدي‬ ‫لتعزيز الصادرات‪ .‬عىل مدى العرشين عا ً‬ ‫م ا املاضية‪ ،‬تباطأ االستثامر‬ ‫را عىل املستوى الوطني و‬ ‫إىل زيادة الدين العمومي الذي ال يزال محصو ً‬ ‫واإلنتاجية اإلجاملية وحصة الصناعة التحويلية يف إجاميل الناتج‬ ‫بنسب فائدة منخفضة وبآجال استحقاق طويلة املدى‪ .‬ونظ را الرتفاع‬ ‫املحيل ‪ ،‬مام حد من القدرة التنافسية للقطاعات ذات اإلمكانات‬ ‫نسبة اإلنفاق العمومي غري املرن (كاألجور)‪ ،‬واعتامد االقتصاد عىل‬ ‫التصديرية العالية‪ .‬تعزيز بيئة األعامل وتحسني إنتاجية الرشكات‬ ‫الواردات ‪ ،‬فإن التقلبات غري املتوقعة يف أسعار املحروقات العاملية يف‬ ‫خصوص ا بالنسبة‬ ‫ً‬ ‫أم ران أساسيان لتعزيز القدرة التنافسية للصادرات‪،‬‬ ‫بيئة تتسم بقلة الرؤية الجيوسياسية تشكل خط را ً أساسي اً عىل آفاق‬ ‫لرشكات القطاع العمومي التي متثل خُمس القيمة املضافة خارج‬ ‫االقتصاد الكيل يف الجزائ ر‪.‬‬ ‫قطاع املحروقات‪ .‬ستساهم السياسات املتوازنة يف مجايل سعر الرصف‬ ‫والتجارة الخارجية بتنويع الصادرات‪ ،‬يف حني أن جذب االستثامرات‬ ‫األجنبية املبارشة سيعزز االندماج يف سالسل القيمة العاملية‪ ،‬مام‬ ‫إن اتبــاع نهــج شــامل رضوري لتحقيــق النمــو‬ ‫يحقق مكاسب يف اإلنتاجية ومنو الصادرات‪ .‬كام أن السياسات ال رامية‬ ‫املســتدام وتنويــع الصــادرات الجزائريــة خــارج‬ ‫إىل تطوير سالسل القيمة ذات اإلمكانات التصديرية‪ ،‬وتيسري التجارة‬ ‫قطــاع املحروقــات‪.‬‬ ‫عرب الحدود‪ ،‬ستدعم منو الصادرات خارج قطاع املحروقات وتنويعها‪.‬‬ ‫ويعد التكيف مع الجهود العاملية للحد من االنبعاثات الكربونية‬ ‫تتمتع الجزائر بإمكانيات كبرية لتنمية صادراتها خارج قطاع‬ ‫رضوريا لوضع اس رتاتيجية منو للصادرات مستدامة‪.‬سيؤثر التحول‬ ‫املحروقات‪ .‬ال تزال املحروقات متثل أكرث من ‪ 90٪‬من صادرات الجزائر‬ ‫العاملي نحو االقتصاد األخرض عىل الطلب عىل املنتجات ذات‬ ‫من املنتجات يف عام ‪ ،2023‬عىل الرغم من أن صادرات املنتجات خارج‬ ‫البصمة الكربونية العالية‪ ،‬وبشكل مبارش يف إطار آلية تعديل حدود‬ ‫املحروقات قد تضاعفت ثالث م رات منذ عام ‪ ،2017‬لتصل إىل ‪ 2٪‬من‬ ‫الكربون يف أوروبا (‪ ،)CBAM‬مام قد يفرض تكاليف إضافية عىل‬ ‫الناتج املحيل اإلجاميل أو ‪ 5.1‬مليار دوالر يف عام ‪ .2023‬متثل األسمدة‪،‬‬ ‫درين الجزائريني‪ .‬ترتكز أكرث من ‪ 80%‬من صادرات الجزائر خارج‬ ‫املص ّ‬ ‫املنتجات الحديدية‪ ،‬واإلسمنت أكرث من ‪ 80٪‬من هذه الصادرات‪،‬‬ ‫قطاع املحروقات املوجهة إىل أوروبا عىل منتجات كثيفة االنبعاثات‬ ‫درون من‬ ‫ويظل تعقيد الصادرات فيها محدودًا‪ ،‬فيام يستفيد املص ّ‬ ‫الكربونية (مثل األسمدة واإلسمنت والحديد والصلب)‪ .‬سيكون‬ ‫مدخالت مدعومة‪ ،‬وتتمركز الصادرات يف عدد قليل من الدول‪ .‬متتلك‬ ‫التحول نحو إنتاج صديق للبيئة‪ ،‬وتنويع الصادرات نحو صناعات أقل‬ ‫را لقربها من‬ ‫الجزائر إمكانيات هامة لتنويع صادراتها‪ ،‬خاص ً‬ ‫ة نظ ً‬ ‫حاساًم ألداء الصادرات خارج‬ ‫ً‬ ‫تلوي ثًا‪ ،‬وتبني تسعري رصيح للكربون أم ً‬ ‫را‬ ‫أوروبا‪ ،‬مبا يدعم هدفها بتصدير ‪ 30‬مليار دوالر من املنتجات خارج‬ ‫قطاع املحروقات للجزائر عىل املدى الطويل‪.‬‬ ‫قطاع املحروقات بحلول ‪.2030‬‬ ‫‪xvi‬‬ ‫‪ALGERIA ECONOMIC UPDATE – A HOLISTIC FRAMEWORK FOR SUSTAINED EXPORT GROWTH‬‬ 1 RECENT ECONOMIC DEVELOPMENTS Growth in Non-Extractive Sectors North-Center region of the country. The adoption Remained Robust in H1-2024 of policies to support diversification and non-hydro- carbon investment has continued in 2024, including Dynamic non-extractive GDP growth continued the launch of the Algerian Investment Promotion in H1-2024, supported by investment and pri- Agency’s (AAPI, see Box 1) online investment plat- vate consumption. Non-extractive GDP1 expanded form and land grant program,3 and the introduction by 3.7 percent in 2023, driven by strong investment growth. Combined with robust oil and gas output 1 The rebased national accounts present “extractive indus- growth, overall GDP growth reached 4.1 percent in tries” but do not present the former “hydrocarbon” sector. 2023. Standard labor market indicators have not Extractive industries now mirror the international standard been published since 2019, but international esti- industry classification (ISIC) and account for crude oil mates suggest that unemployment rates decreased and natural gas extraction activities, but also include min- ing activities. Hydrocarbon processing (oil refining, gas to their pre-pandemic levels.2 Dynamic non-extractive liquefaction) is now classified under the “manufacturing growth extended into H1-2024 (+3.9 percent y-o-y) sector”, while some hydrocarbon-related activities have as investment growth accelerated further (+15.5 per- been reclassified from the hydrocarbon sector to the ded- cent y-o-y), while public and private consumption icated ISIC sections (e.g., construction, transport). remained robust. The expansion of investment-driven 2 Modeled estimates from the International Labor Orga- imports and a large contraction of non-hydrocarbon nization (ILO) suggest that the overall unemployment rate declined to 12.3 percent in 2023 (–0.2 pp), that exports resulted in a steeply negative contribution of the female unemployment rate declined to 21.5 percent net exports to GDP. Satellite-based nightlights data (–0.3pp) and that the youth unemployment rate declined also suggest that non-extractive growth remained to 31.3 percent (–0.7 pp). robust in H1-2024, and that it was driven by the 3 APS, February 2023. 1 FIGURE 1 • Investment demand was mostly met …and the services sector was FIGURE 2 •  through imports… the main driver of growth 130 10 8 Real GDP and components, indices 120 6 Year-on-year growth and contributions (%, pp) 4 110 2 (2019=100) 0 100 –2 90 –4 –6 80 –8 –10 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 70 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 Agriculture Extractive industries Other industries Imports Consumption Investment GDP Services GDP at factor cost Source : Office National des Statistiques (ONS). Source : Office National des Statistiques (ONS). Note: As the indices are in base 100 in 2019, these data compare the current level of Note: As the indices are in base 100 in 2019, these data compare the current level of the components of real GDP with their level in the same quarter in 2019. the components of real GDP with their level in the same quarter in 2019. Nighttime lights suggest FIGURE 3 •  …with the North-Center contributing FIGURE 4 •  heterogeneous growth during most to non-hydrocarbon growth H1-2024… 15% Y-o-y change in nigh-time light intensity 10% 5% 0% –5% –10% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2019 2020 2021 2022 2023 2024 North-Central North-East North-West Eastern Highlands Four regions Source: World Bank staff estimates based on National Aeronautics and Space Administration (NASA) data. Source: World Bank staff estimates based on NASA data. Note: The map uses the old administrative division into 48 wilayas. Note: The regions correspond to the Espaces de Programmation Territoriale (EPT). of Crédit Populaire d’Algérie (CPA), a state-owned electricity, and manufacturing, while also boosting bank, on the stock exchange.4 imports. At the same time, state-owned enterprise Demand generated by strong invest- (SOE) activity decelerated, with non-hydrocarbon ment growth stimulated industrial production SOE industrial output growth slowing from 3.5 per- and imports, while private consumption growth cent in 2023 to 0.7 percent y-o-y in H1-2024, with a boosted services. Dynamic investment stimulated industrial production in sectors like construction, 4 APS, June 2024. 2 ALGERIA ECONOMIC UPDATE – A HOLISTIC FRAMEWORK FOR SUSTAINED EXPORT GROWTH During the 2023–2024 crop season FIGURE 5 •  …and crop growth measures tracked FIGURE 6 •  rainfall improved relative to the rainfall previous season in most of the East but worsened in the West… 40% 30% FPAR, % difference relative to 2001–2024 average 20% 10% 0% –10% –20% –30% 2017 2018 2019 2020 2021 2022 2023 2024 Humid and semi-humid Semi-arid east Semi-arid west National average Source: ASAP. Note: FPAR=Fraction of Photosynthetically Active Radiation. Crop growth for each year is considered between Q4 of the previous year and Q2 of the index year. For example, Source: ASAP. data for 2024 is for Q4-2023, Q1-2024, and Q2-2024. Note: For the 2022–2023 crop season, rainfall between Q4-2022 and Q2-2023 is considered. For the 2023–2024 crop season, rainfall between Q4-2023 and Q2-2024 is considered. marked decline in steel, metals, mechanics, electri- Oil and Gas Output Contracted in the cal and electronical industries (SMEEI, –12.2 percent First Half of 2024, and Hydrocarbon y-o-y in H1-2024). SOE output increased rapidly in Export Revenues Fell the cement and agri-food sectors. Strong private con- sumption also stimulated the services sector (+4.2 With another decrease in Algeria’s produc- percent y-o-y during H1-2024), which was the princi- tion quota in January 2024, oil production and pal driver of non-extractive growth. exports contracted once again during H1-2024. Agricultural output growth remained stable, Following the partial recovery of oil production with satellite data on crop development suggest- from pandemic-induced quota cuts by mid-2022, ing recovery in the East and the coastal regions, Algeria’s production quotas have decreased three but subdued growth in the West. After posting mod- times, from 1055 kb/d to 1007 kb/d in November est growth in 2023 (+2.8 percent), agricultural output 2022, then to 959 kb/d in May 2023, and to 908 growth accelerated during H1-2024 (+4.7 percent y-o- kb/d in January 2024. As a result, crude oil produc- y). Rainfall during the 2023–2024 season decreased tion in September 2024 was 13.4 percent below the year-on-year in western wilayas but improved in parts October 2022 peak and 5.3 percent lower than in of the East and the humid and semi-humid coastal September 2023. Lower crude oil production (–7.6 regions. Consequently, crop development improved percent y-o-y during 9m-2024) has translated into in 2024 relative to 2023 but remains below its his- lower refined petroleum output and, combined with toric level as in recent years precipitation has been increasing domestic consumption amid robust eco- below average. The government has initiated sev- nomic activity, has led to further contracting oil eral projects to improve agricultural production and resilience, including signing large agricultural invest- ment agreements with Italy5 and Qatar,6 and initiating 5 APS, July 2024. an innovative greenhouse project in the Sahara to be 6 APS, April 2024. completed in 2024.7 7 AgriAlgérie, May 2024. Recent Economic Developments 3 Crude oil and natural gas production FIGURE 7 •  …while export prices remained FIGURE 8 •  declined during H1-2024… elevated despite a moderation in natural gas prices 120 110 350 Price in USD, indices (Q1-2019=100) 300 Indices (Q1-2019=100) 100 90 250 80 200 70 150 60 100 50 50 40 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2019 2020 2021 2022 2023 2024 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2019 2020 2021 2022 2023 2024 Crude oil production Export of crude oil and condensate Natural gas production Pipeline & LNG exports Natural gas Weighted price Crude oil Fertilizer price Source: Joint Organizations Data Initiative (JODI) for gas, Bank of Algeria (BoA), for exports to Q4-2023, OPEC for crude oil production. Note: Data are presented as a Source: BoA, oilprice.com & World Bank Commodity Price Data for fertilizer price. rolling four-quarter average. Crude oil and condensate export estimates are compiled Note: The weighted hydrocarbon price index uses dollar export values from BoA to from IMF PortWatch tanker tracking data. weight each hydrocarbon type. exports in year-on-year terms during the first nine prices peaked in Q2-2022 and the reference price for months of 2024.8 Algerian oil decreased from US$ 103.8 in 2022 to US$ Natural gas production and exports 83.6 in 2023, motivating successive quota cuts to sup- decreased during the first seven months of 2024 port prices. During the first nine months of 2024 the relative to their 2023 peak, driven by contracting reference price stabilized at US$ 82.9 following the LNG exports. Natural gas production increased by latest quota decrease in January 2024. On the other 6.1 percent in 2023, driven by strong European demand hand, natural gas prices peaked in 2022 following and output from new fields, followed by a decrease of Russia’s invasion of Ukraine and have since gradu- 7.4 percent y-o-y during the first seven months of 2024. ally moderated, though they remain elevated relative Relative to the 2023 peak, increasing domestic con- to historical levels. They are likely to have continued sumption, another mild winter in Europe, a movement moderating in H1-2024, tracking oil prices with a lag of towards renewables, and record high levels of end- three to six months,11 and contributing to lower hydro- of-heating-seasons storage in Europe reduced LNG carbon export prices (–5.5% y-o-y in H1-2024). As a exports (–10.8 percent y-o-y), while pipeline exports result, and in combination with stable export volumes, remained stable (+0.7 percent y-o-y).9 Italy, Spain and the value of hydrocarbon exports fell by 4.7% y-o-y in France remain the most important buyers of Algerian H1-2024, and by 8.8% compared with H2-2023. gas as European countries continue to replace Russian 8 Hydrocarbon export volume data from the Bank of Algeria imports and Algeria remains the second largest pipeline is only available until Q4-2023, but IMF Portwatch data and fourth largest LNG supplier of Europe.10 With overall on tankers leaving Algerian ports suggest a 12.4 per- production in the extractive sector up slightly in H1-2024 cent y-o-y decline in tanker export volumes during the (+1.0% year-on-year) despite the decline in oil and natu- first nine months of 2024. ral gas production, this suggests dynamic growth in the 9 U.S. Energy Information Administration. Less natural gas production of other types of primary energy (conden- consumption in Europe is keeping storage full. July 23, 2024. sates or LPG in the fields) and mining production. 10 European Commission. Quarterly Report on European Hydrocarbon export revenues decreased Gas Markets with Focus on Annual Overview for 2023. in H1-2024, as natural gas export prices con- 11 Algeria Economic Update. “Building Resilience in Favor- tinued moderating and oil prices stabilized. Oil able Times” Spring 2022. 4 ALGERIA ECONOMIC UPDATE – A HOLISTIC FRAMEWORK FOR SUSTAINED EXPORT GROWTH The current account narrowed as FIGURE 9 •  …even as import prices eased for FIGURE 10 •  export prices decreased and imports several product categories expanded… 20 1.4 170 15 1.2 150 Indices (Q1-2019 =100) 10 1.0 130 5 0.8 Billion US$ 110 0 0.6 90 –5 0.4 70 –10 0.2 50 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 –15 0.0 2019 2020 2021 2022 2023 2024 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2019 2020 2021 2022 2023 2024 Cereal prices Import prices PPI, EU Imports, volume Exports G&S AG;;E1<3CHH0G1< Imports G&S IJ3AG;;E1<3CHH0G1< Change in forex reserves KE;@23043<;CLE3M;B2N Current account NH current Terms of trade (rhs) account Source: ONS, Food and Agriculture Organization (FAO), Eurostat and World Bank estimates. Source: BoA, International Monetary Fund (IMF), ONS and World Bank estimates. Note: PPI = Producer Price Index. Note: NH = non-hydrocarbon. The Current Account Came Close to imports of transport equipment and materials remain- Balance in H1-2024 ing elevated (+23.8% y-o-y) due to dynamic investment and the temporary relaxation of vehicle import con- The current account came close to balance trols. Over the same period, a 26.5% y-o-y increase in H1-2024 as imports stabilized and exports in food import volumes was offset by a 10.0% fall in decreased. After an average deficit of 11.6 percent food prices, and lower imports of raw materials, oils of GDP between 2015 and 2020, surging oil and gas and chemicals. On the other hand, the value of goods prices propelled the current account to its first sur- exported fell by 5.2% y-o-y, as, in addition to the drop plus (8.6 percent of GDP) in eight years in 2022, in hydrocarbon exports, non-hydrocarbon exports fell before it narrowed considerably in 2023 (2.3 per- sharply (–9.2% y-o-y in H1-2024), due in particular to cent of GDP) as hydrocarbon and nonhydrocarbon the sharp drop in fertilizer prices, against a backdrop exports declined and imports increased, stimulated of moderate growth in export volumes (+1.3% y-o-y). by rising investment and consumption. This trend In Q3-2024, data from vessels leaving Algerian ports continued in H1-2024 as the trade balance narrowed suggest stable non-hydrocarbon export volumes rela- from US$ 6.3 billion in H1-2023 to US$ 3.5 billion in tive to Q2, a moderate increase in tanker exports, and H1-2024. As a result, the current account was close continued dynamism in imports. The data also suggest to balance in H1-2024 (–0.3 billion dollars) and for- that exports remain below their previous year’s level. eign exchange reserves increased slightly. According to IMF data, the latter stood at $71.3 billion at end- September 2024, or around 16.2 months of imports Decreasing Hydrocarbon Revenues of goods and services. and Higher Spending Put Pressure on Imports of goods and services stabilized at the Fiscal Balance an elevated level in H1-2024, while falling fertil- izer prices led to a fall in non-hydrocarbon exports. Declining hydrocarbon export revenues and a Total imports reached US$ 22.5 billion in H1-2024, continued increase in public spending in 2024 the same level as in H2-2023 and up 4.1% y-o-y, with suggest an expanding fiscal deficit. The budget Recent Economic Developments 5 FIGURE 11 • Vessel tracking data suggest a …while lower container and cargo FIGURE 12 •  cross-cutting decrease in export imports were offset by higher bulk volumes in 2024… imports 400 180 350 160 Total volume in metric tons of vessels Total volume in metric tons of vessels 300 140 120 250 100 200 80 150 60 100 40 50 20 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q3 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 Tanker Other Dry bulk Container General cargo Source: IMF Portwatch. Source: IMF Portwatch. deficit averaged 9.6 percent of GDP during the five fiscal deficit and extensive SOE debt buyback, before years before the pandemic, before narrowing con- moderating to 48.1 percent in 2022. Despite large siderably during the post-pandemic recovery amid fiscal financing needs, rising bond issuances, and surging hydrocarbon prices, reaching 3.0 percent the use of non-bank financing, the Treasury replen- of GDP in 2022. It expanded to 5.2 percent of GDP ished the oil savings fund (Fonds de Régulation des in 2023 due to moderating hydrocarbon prices and Recettes, or FRR) in 2022 and 2023, which reached markedly expanding wage and transfer spending 7.9 percent of GDP at end-2023, as public debt (+4.4 percent of GDP), as the government sought to increased to 49.2 percent of GDP. During H1-2024, ease cost-of-living pressures, and the non-hydrocar- the government partly used accumulated oil savings bon budget deficit increased from 20.6 percent of to finance the deficit, and public debt only increased GDP to 24.9 percent. Preliminary data for H1-2024 by 5.1 percent in nominal terms. It remains nearly all suggests a further widening of the fiscal deficit in domestically held, at long-term maturities and low H1-2024 as hydrocarbon prices moderated and the interest rates. government implemented the third and last wave of public sector wage raise and a 10 to 15 percent pension increase,12 as well as increased investment Driven by Stabilizing Fresh Food spending. Rising expenditures would be partially Prices, Inflation Decelerated offset by higher tax revenues supported by higher Significantly personal income tax receipts—tracking the larger Stabilizing fresh food prices led to a marked wage bill—and the effect of economic growth on deceleration of inflation during the first nine consumption, imports and firm profits, boosting tax months of 2024, reaching 4.3 percent y-o-y. receipts. Inflation started picking up in 2021 (7.2 percent), Public debt has only increased moderately in H1-2024, suggesting that oil savings were used to finance the deficit. Public debt peaked at 12 APS, May 2024. 55.2 percent of GDP in 2021 to finance a significant 6 ALGERIA ECONOMIC UPDATE – A HOLISTIC FRAMEWORK FOR SUSTAINED EXPORT GROWTH FIGURE 13 • Increasing current expenditures and …which is expected to be partially FIGURE 14 •  decreasing revenues are expected financed from oil savings to widen the fiscal deficit… 18 60 50 16 50 40 14 30 12 40 Trillions of DZD % of GDP 20 10 In % of GDP 30 8 10 6 20 0 4 –10 10 2 –20 0 0 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 –30 2017 2018 2019 2020 2021 2022 2023 2024 2016 2017 2018 2019 2020 2021 2022 2023 2024p Liabilities to the BoA Liabilities to banks Revenue Expenditure Hydrocarbon revenues Total (rhs) Public savings (rhs) Overall budget Nonhydrocarbon balance budget balance Source: IMF and World Bank estimates. Source: Ministry of Finance, ONS and World Bank estimates. Note: On the right-hand axis, public debt is related to GDP over four rolling quarters. accelerating in 2022 (9.3 percent) and stabilizing in theless, the nominal effective exchange rate (NEER) 2023 (9.3 percent). Fresh food price inflation was par- and the real effective exchange rate (REER) appreci- ticularly pronounced in 2023 (22.1 percent) driven by ated during 2023 driven by the dinar’s appreciation meat and fish products (28.6 percent) as well as fruits against the yuan, even as it remained stable against and vegetable (12.7 percent). As a result, food price the U.S. dollar and the euro, as well as by the higher inflation reached 13.3 percent, hurting the most vul- inflation rate in Algeria relative to trade partners, incen- nerable Algerians the most as food represents more tivizing imports, and particularly those from China.13 In than half of the expenditures of the bottom 40 per- H1-2024, the dinar was effectively pegged to the U.S. cent of the population. However, the prices of fruits dollar at a rate of 134.5 DZD/US$, while also remain- and vegetables, largely produced in Algeria, started ing stable relative to the Euro and the Yuan, stabilizing to decline in mid-2023 in a context of resilient agricul- the NEER and REER, before strengthening to 132.1 tural production, while meat and fish prices stabilized DZD/US$ by the end of Q3-2024. Meanwhile, the starting in Q4-2023, as the government authorized informal market exchange rate weakened, with the meat imports. As a result, fresh food inflation fell to 4.5 exchange rate premium for the U.S. dollar increasing percent y-o-y during the first nine months of 2024 and, from 53 percent during Q4-2023 to 66 percent dur- combined with a stable exchange rate and the contin- ing Q3-2024.14 ued moderation in import prices, enabled consumer Monetary policy continues to remain accom- price inflation to decline to 4.3 percent y-o-y over the modative, and money supply growth and credit to first nine months of 2024. the private sector accelerated. The nominal policy The official exchange rate remained stable during the first nine months of 2024, but the infor- mal market premium widened. After over a decade 13 The NEER weights the exchange rates of different cur- of exchange rate depreciation, the authorities sup- rencies by the amount of trade Algeria conducts with each country. The REER further adjusts for differences ported a 6.6 percent appreciation of the dinar against in inflation across countries. the U.S. dollar between July and December 2022 to 14 The average premium between 2019 and 2023 was ease imported inflation before supporting the stability 40 percent. The informal market exchange rate is gath- of the official exchange rate since early 2023. None- ered from various crowdsourcing websites. Recent Economic Developments 7 Inflation eased as fresh food prices FIGURE 15 •  …led by a stabilization in meat and FIGURE 16 •  stabilized for most of 2024… fish prices, and a decline in fruit and vegetable prices 12 170 160 14 10 Contributions to the food CPI (pp) 150 12 Indices (Q1-2019=100) 8 140 10 130 8 CPI (%) 6 120 6 4 110 4 100 2 2 90 0 0 80 –2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 CPI Non-food CPI Bread and cereals Meat and fish Fruits and vegetables Fresh food price CPI NEER index (rhs) Milk and dairy products Oils and fats Other Source: ONS, IMF and World Bank estimates. Source: ONS and World Bank estimates. The exchange rate remained stable FIGURE 17 •  …while the growth of money supply FIGURE 18 •  in H1-2024… and credit to the private sector accelerated 110 20 105 Growth and contributions, y-o-y (%, pp) 100 15 Indices (T1-2019=100) 95 10 90 5 85 0 80 –5 75 70 –10 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 NEER REER USD/DZD EUR/DZD DZD/Yuan Currency in circulation Deposits in M2 M2 Credit to private sector Source: ca.investing.com, IMF and World Bank estimates. Source: IMF & BoA and World Bank estimates. rate of the Bank of Algeria remains unchanged since May 2020, which implies a negative real (inflation- ing 10.1 percent y-o-y in September. After accelerating adjusted) policy rate. As inflation has decelerated, the in 2023, reflecting increased investment and imports, gap between inflation and the nominal interest rate credit growth stabilized during the first nine months of has narrowed in recent months, increasing the incen- 2024 (+5.6 percent y-o-y, with strong growth in credit tive to save. Money supply growth decelerated from to the private sector contrasting with stagnating credit 14.3 percent y-o-y during Q4-2022 to 6.0 percent by to public enterprises. Q4-2023. It accelerated again during H1-2024, reach- 8 ALGERIA ECONOMIC UPDATE – A HOLISTIC FRAMEWORK FOR SUSTAINED EXPORT GROWTH 2 OUTLOOK AND RISKS Growth is Expected to Slow in 2024 recovers following an increase in quotas. Mod- Before Rebounding in 2025 and 2026 erate growth in oil and gas output is expected under the baseline scenario in 2025 and 2026. Contrib- In 2024, non-extractive sectors would support uting to future gas export capacity, new strategic growth, but hydrocarbon production would partnerships have been signed for the exploration decline due to cuts in crude oil production and development of gas fields.15 Investment and pri- quotas. In the baseline scenario, GDP growth is vate consumption growth would slow somewhat as expected to slow to 3.1 percent in 2024, following the medium-term fiscal framework of the 2024 Bud- an expected drop in extractive sector production, as get Law suggests a slowdown in public spending, crude oil production quotas remain in place and natu- but remain dynamic relative to recent years, stimu- ral gas production declines. Growth in non-extractive lating industrial production and services. Growth sectors is expected to remain dynamic, with invest- in agricultural production is expected to be moder- ment continuing to drive growth as major projects ate in 2025, in line with a relatively dry season from in the energy, mining, water and transport sectors October 2024 to February 2025.16 Investment will progress, stimulating imports and the construc- continue to grow strongly, supported by the gov- tion sector. Growth in private consumption would ernment’s proactive policy (see Box 1). As a result, remain dynamic after three years of rising wages import growth would exceed export growth, and net and transfers in the public sector, robust growth exports would continue to make a negative contribu- and decelerating inflation, stimulating sectors serv- tion to GDP growth. ing households. Net exports would once again make a negative contribution to growth, as hydrocarbon exports follow the decline in production, and invest- ment stimulates equipment imports. 15 In particular with Midad Energy, ENI and Equinor. Growth would accelerate in 2025 and 16 European Commission, precipitation forecast maps stabilize in 2026, as extractive production (September 2024). 9 BOX 1: MEASURES TAKEN BY ALGERIA TO SUPPORT INVESTMENT The Algerian Investment Promotion Agency (AAPI) facilitates investment in Algeria by simplifying administrative procedures and providing customs and tax incentives.a Significant incentives exist for investment in (i) priority sectors, (ii) priority geographic areas, as well as (iii) structurally important (employment creating and very large) projects. These incentives include exemption from customs duties and VAT for imported goods used directly in realizing the investment, as well as from transfer duties and land registration taxes, administrative fees, and property taxes. Once investments are realized, companies can receive a 3-to-5-year exemption from the corporate income tax. The AAPI has recently introduced a one-stop-shop for investors, allowing them to register and access incentives through a digital platform. A recent addition to this platform allows businesses to search available land online and apply for it, further facilitating investment projects. Over the last two years, AAPI registered 10,234 proposed investment projects, nearly all in the private sector, across a variety of sectors. While only a small share (188) of projects involve foreign investors, two-thirds of which are joint ventures, these projects represent most of the proposed investment value. 55 percent of the proposed investment amount comes from 15 Algerian-Chinese joint ventures, followed by 29 percent investment value from 9 Algerian-French enterprises. Proposed investments cover a variety of sectors, with industrial sectors representing 40.4 percent of proposed investment projects and services accounting for 4.7 percent. Within industry, the chemical (12.1 percent), the steel, metal, mechanical, electrical, and electronic (8.7 percent) and agro-food (7.5 percent) sub-sectors would receive the largest number of projects submitted to the AAPI. While the mining sector represents a small share of the proposed projects by number (0.8 percent) due to the size of these potential projects, they represent a disproportionate investment value (12.1 percent). The projects submitted to the AAPI would represent significant investment in all regions of Algeria. 51.6 percent of projects would be realized in the North, 27.2 percent on the Highlands, and 21.2 percent in the South, the latter two regions being targeted as priority areas. A large share of investments would be realized by micro and small (88.2 percent) enterprises, while large enterprises represent a small share (0.8 percent) of projects but are disproportionately important in terms of proposed value of investment (34.7 percent), with the 29 largest investments representing nearly half of the promised investment value. a The authors thank the Algerian Investment Promotion Agency (AAPI) for providing the data used in this box. Fiscal and External Deficits Will 2024 Budget Law, the pace of expenditure growth Remain Elevated is expected to slow down in 2025 and 2026, while hydrocarbon revenues would recover, allowing the The current account would post a modest def- overall budget deficit to stabilize in 2025 before icit in 2024, and reserves would stabilize. resorbing in 2026. Assuming that most hydrocar- Hydrocarbon export volumes would decrease, and bon savings would be used to finance the 2024 prices remain stable in the baseline scenario, while deficit, the public debt to GDP ratio would stabi- imports would expand, and the current account lize in 2024 but would then increase more rapidly in deficit would post a modest deficit. Even as hydro- 2025 and 2026, reaching 58.9 percent of GDP by carbon exports are expected to recover in 2025, 2026. As nearly all debt is held domestically and at investment-driven imports would outpace exports, long-term maturities and low interest rates, the pub- and the current account deficit would widen. Foreign lic debt level would remain manageable, although exchange reserves would decrease to to 9.4 months domestic bank financing may crowd out private sec- by end-2026. tor credit and investment. The budget deficit would continue widening in 2024, while the government’s Global Energy Prices and medium-term budget framework points to fiscal Climate Hazard Are Risks to the consolidation starting in 2025. In 2024, the bud- Macroeconomic Outlook get deficit would widen as hydrocarbon revenues fall with reduced production and exports, tax reve- Hydrocarbon prices and their effect on revenues, nues remain approximately stable, and rapid growth public spending, and imports remain the main in wage and transfer spending is compounded by risk to the macroeconomic outlook. High hydrocar- a moderate pace of capital expenditure growth. bon prices enabled a reduction in the budget deficit In line with the medium-term budget framework of and a record current account surplus in 2022, while 10 ALGERIA ECONOMIC UPDATE – A HOLISTIC FRAMEWORK FOR SUSTAINED EXPORT GROWTH lower prices and a reduction in quotas in response import needs. However, Algeria is facing struc- contributed to an increase in the budget deficit and turally increasing temperatures and declining a reduction in the current account surplus in 2023. rainfall, with spatially differentiated effects on agri- The evolution of hydrocarbon prices therefore cultural production, highlighting the importance remains the main risk to the medium-term macroeco- of designing adaptation policies to protect out- nomic outlook, both upwards and downwards, a risk put, firms, and households. A changing climate exacerbated by uncertainty surrounding global geo- also entails additional risks, such as coastal ero- political and economic dynamics. Fluctuations in sion, floods, or forest fires, which have become energy prices drive Algeria’s export and budget rev- more frequent. Developing a climate-resilient enues, and thus affect the country’s ability to finance development strategy, which begins by assess- high levels of public spending and maintain high lev- ing the medium- to long-term risks from climate els of imports to support investment. change, will be key to the design of appropriate Additional risks from climate change under- adaptation policies. Box 2 below provides a spe- line the importance of integrating climate risks into cific example of the risks and costs from forest the national development strategy. In the short-term, fires in Algeria, in addition to adaptation priorities, growth is particularly vulnerable to droughts, which building on the collaboration between Algerian can affect Algeria’s agricultural production, prices and authorities and the World Bank. BOX 2: SUSTAINABLE FOREST MANAGEMENT TO COMBAT FOREST FIRES IN ALGERIA In the North African region, Algeria is the country most affected by forest fires in terms of area affected. While the fires have on averaged affected about 20,000 hectares of forest in Algeria in recent years, a new phenomenon has emerged with “mega-fires”. For instance, in 2021, more than 100,100 hectares were burnt out, affecting 40 wilayas and in particular Tizi Ouzou, Béjaia, Khenchela (DGF, 2021). The risks associated with forest fires is increasing with climate change, which increases the frequency and intensity of drought periods. As more people move into forests areas, the risk of fire increases, as well as the number of people impacted and at risk, including fatality. This is compounded by significant population growth, with Algeria’s population predicted to increase to 51 and 70 million inhabitants, respectively in 2030 and 2050, compared to 44.18 million in 2021. Forest fires cause significant damages and costs, impacting various sectors and necessitating substantial financial resources for recovery and prevention. In 2021 and 2022, material damages were estimated at 15.4 billion DA (US$ 113.3 million) in the agricultural sector and 1.5 billion DA (US$ 11 million) on housing. Beyond economic impacts, forest fires also have devastating effects on the health of local populations due to the smoke they generate. Annual economic losses related to the commercial value of wood and cork, firefighting operations, and vegetation restoration are estimated at between 2 and 2.5 billion DA (US$ 15 to 19 million) per year. Compensation payments to victims amounted to 700 million DA in 2017 and 600 million DA in 2020. Preventing forest fires is significantly more cost- effective than covering post-fire interventions and state compensation for damages. For instance, 1 dinar invested in prevention could save 15 dinar in intervention costs (DNRM, 2022). Recent public policies, such as the Forest Strategy for 2035 and national strategies and action plans for forest fire management as well as the updated Forestry Law adopted in December 2023, emphasize the need to strengthen investments in sustainable forest management to prevent fires, protect forests, and develop rural areas. The World Bank, the DGF, and the DNRM have jointly identified key recommendations and priority areas for action to enhance sustainable forest management (SFM) and combat forest fires. The latter are highlighted in the “Note on Algerian Forest: Sustainable Forest Management to Combat Forest Fires.” Strengthening SFM is crucial for preventing forest fires and maximizing environmental and socio-economic benefits. The five major priority areas include: 1) ensuring continued financial resources and significant investments in the forestry sector, particularly for SFM, by mobilizing various funding sources; 2) placing forest management and forest fire risk analysis at the core of intervention processes with strong population involvement; 3) continuing strategic efforts to clarify the legal framework and coordinate forest and fire management; 4) improving forest and wildfire information management, inter-institutional collaboration, and communication; and 5) continuous strengthening the technical capacities of all actors involved in sustainable forest and wildfire management. Outlook and Risks 11 3 TOWARDS A HOLISTIC FRAMEWORK TO SUPPORT EXPORTS Algeria Has a Large Non-Hydrocarbon destinations are key priorities. Key non-hydrocar- Export Potential bon exports include nitrogenous fertilizers, ammonia, iron and steel products, hydrogen, cement, sugar Algeria’s nonhydrocarbon exports are relatively and dates. These products represented 88 percent limited, but their growth potential is significant. of nonhydrocarbon exports in 2023. Therefore, and Hydrocarbon products still represented over 90 per- although it has improved in recent years, export diver- cent of Algeria’s product exports in 2023, with oil sification and sophistication, as measured by the products accounting for around half and gas prod- Economic Complexity Index (ECI), remains limited. ucts the other half.17 Nonhydrocarbon product exports Key manufactured products (cement, iron) also use increased markedly since 2017, rising from 0.7 per- a large share of subsidized products as inputs, with cent of GDP to 2.0 percent of GDP in 2023. Moreover, the production of construction materials using over Algeria has a large unexploited potential for non- 60 percent of inputs from the water and energy sector. hydrocarbon export growth, with the lowest openness Across key non-hydrocarbon export categories, a few to non-oil exports in the MENA region—that is, the larg- countries account for most exports. For chemicals, est gap between current exports and those that would 29.0 percent go to France, for fertilizers 18.4 percent be predicted based on a set of explanatory variables go to the United States and 20.2 percent to Brazil, such as the size of its economy, that of its export des- tinations, the participation in free trade agreements, or the presence of a shared language or border.18 17 Petroleum products account for 51 percent, including Notably, proximity to the European Union market con- 24 percent from crude oil, 17 percent from refined petro- stitutes a natural comparative advantage to exploit, leum products, 7 percent from liquefied petroleum gases and 4 percent from condensates. Natural gas products compounded by the existence of a free trade agree- account for 49 percent, with 33 percent exported in gas- ment between Algeria and the EU. eous form, and 16 percent in liquid form. Expanding the basket of exported prod- 18 Gatti el al. (2024), Middle East and North Africa Eco- ucts, their complexity and the range of export nomic Update, October 2024. 13 Export volumes increased since FIGURE 19 •  …but remain concentrated in a few FIGURE 20 •  2017, led by chemical and products, notably fertilizers manufactured products… 100% 1,000 900 80% Share of exports by category Exports at constant 2011 prices 800 700 60% 600 500 40% 400 300 20% 200 100 0% 0 2002–2006 2007–2011 2012–2016 2017–2021 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Sugar Other food products Fertilizers and chemicals Cement, phosphate, salt Chemical products Manufactured products Food products Iron and steel Copper, aluminum, zinc Other products Total non-hydrocarbon Others Source: ONS and WB staff estimates. Source: Trade Map and World Bank staff estimates. Algeria’s exports are less complex FIGURE 21 •  …and are concentrated in a small FIGURE 22 •  than those of its peers, despite number of countries recent improvements… 100% 0.0 90% 80% Share of exports by country –0.2 70% Economic complexity index (ECI) –0.4 60% 50% –0.6 40% –0.8 30% 20% –1.0 10% 0% –1.2 Non-hydrocarbon Fertilizer Chemicals Iron and steel –1.4 Top 10 EEA Countries Türkiye United Kingdom 2002 2007 2012 2017 2022 India Tunisia Other Algeria MENA excl. FCV Structural comparators United States of America Brazil Source: Atlas of Economic Complexity. FCV = countries in fragile, conflict or violence Source: Trademap.org. contexts. for iron and steel, 29.8 percent going to Turkey and competitiveness and sustained export growth. 28.6 percent going to the United States. Over the past twenty years, investment and aggregate productivity moderated in Algeria,19 limiting export competitiveness, including in sectors with higher Productivity Growth and a Conducive export potential, such as steel, metal mechanical, elec- Macroeconomic Framework Are trical, and electronic industries (SMMEEI). Meanwhile, Essential for Export Growth the share of manufacturing in non-extractive GDP Productivity gains, particularly in sectors with high export potential, will be essential to Algeria’s 19 See World Bank Algeria Economic Update, Spring 2024. 14 ALGERIA ECONOMIC UPDATE – A HOLISTIC FRAMEWORK FOR SUSTAINED EXPORT GROWTH Algeria’s total factor productivity is FIGURE 23 •  …and labor productivity is lower in FIGURE 24 •  lower than that of the region… public than in private firms 1.0 Labor productivity 8.1 8.0 Total factor productivity (share of US) 0.9 Dinar of value added per dinar of wages paid 0.8 0.7 0.6 5.4 0.5 0.4 3.9 0.3 0.2 0.1 2.3 2.1 2.1 1.7 0.0 United States Qatar Bahrain Saudi Arabia United Arab Emirates Kuwait Jordan Egypt Tunisia Iraq Algeria Iran Morocco Syria Yemen Agriculture Manufacturing Construction Services Private sector Public sector Source: Gatti et al., forthcoming. Source: ONS and WB staff calculations. Note: Labor productivity is measured here as the ratio of value added to wages paid (in dinars). declined from 11.2 percent in 2002 to 9.2 percent in Conducive exchange rate, international 2022. As a result, Algeria’s total factor productivity trade, and foreign investment policies are also (adjusted for oil rents) is lower than that of the region; needed to support nonhydrocarbon export Gulf Cooperation Council countries, but also that of growth. In Algeria, the real effective exchange rate non-oil countries in the region (Jordan, Egypt, Tunisia). has remained stable over the past decade, despite Strengthening the business environment and firm pro- a marked nominal depreciation, which has there- ductivity, including by raising the efficiency of factor fore had limited effects on Algerian competitiveness. markets, financial sector development and business Meanwhile, the presence of a dual exchange rate sophistication will be key to enhancing the domestic system could bias the incentives to import—and, if and export competitiveness of Algerian firms. the dinar is overvalued, could encourage import Efforts to raise firm productivity should also and import over-invoicing—while discouraging non- include state-owned enterprises. SOEs account for hydrocarbon exports. Trade policies can also impact a third of Algeria’s GDP, a fifth of its nonhydrocarbon Algeria’s export capacity, with trade restrictions limit- value-added, and almost a quarter of that of the man- ing access to foreign inputs and products, affecting ufacturing sector. According to the Court of Accounts, productivity and exports, but full liberalization poten- SOEs’ economic and financial performance has been tially harming emerging domestic producers. Lastly, limited, except for six SOE groupings.20 This is con- encouraging foreign direct investments can support firmed by ONS data, that shows that SOE profitability insertion into global value chains, allowing foreign and labor productivity, measured by the value added exporters to enter the Algerian market, supporting per dinar of wages paid, is lower in public firms than in private firms, across economic sectors.21 Considering 20 Namely SONATRACH (energy), SAIDAL (pharmacy), that SOEs account for a large share of the workforce, GICA (construction materials) COSIDER (construction), a large share of economic activity and for close to SERPORT (transport) MADAR (agro-industry). See Court half of bank lending to the economic sector, and that of Accounts, Annual Report 2022. 21 Parro and Torres (2024) also suggest substantial pro- SOE presence can have implication for private sec- ductivity gains across the MENA region from reallocating tor development, efforts to raise Algeria’s productivity talent away from the public sector, estimating that aggre- and global competitiveness should also include a gate productivity would increase by over 40 percent in strategy to increase SOE productivity. Algeria. Towards a holistic framework to support exports 15 FIGURE 25 • Products affected by CBAM …and Algerian fertilizers have a FIGURE 26 •  represent an increasing share of higher carbon content than EU Algeria’s exports… products 5 90 3.0 Share of exports excluding hydrocarbons (%) 80 4 2.5 70 Ton of CO2e per ton of good Export value (USD bn) 60 2.0 3 50 40 1.5 2 30 1.0 1 20 10 0.5 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 0.0 Cement Other Ammonia Nitrogenous Mixed clinkers portland fertilizers fertilizers Other ROW) Other (EU27) cement Cement (EU27) Cement (ROW) Cement Fertilizers Fertilizers (EU27) Fertilizers (ROW) Iron and steel (EU27) Iron and steel (ROW) Default direct Default Iindirect EU total DZA total Share of total NH exports (RHS) Share of EU27 NH exports (RHS) Source: WB staff estimates. Note: Ammonia and nitrogenous fertilizers account for most of Algeria’s fertilizer exports, while cement clinkers and Portland cement account Source: WB staff estimates. for most of its cement exports. Algeria’s competitiveness and export growth. To this Adapting to Global Decarbonization end, the partial repeal of the 51/49 Law in 2020 could Efforts Is also Essential support the entry of foreign exporters in Algeria, with the success of exporters such as Algerian Qatari Given Algeria’s current specialization in exporting Steel (AQS) or Tosyali providing examples to build on. carbon-intensive products, a sustainable export Export diversification also requires a multi- growth strategy will also need to be cognizant of dimensional approach to export facilitation. This global decarbonization efforts. These efforts will needs to be coordinated and driven at the highest level affect demand for products with a high carbon foot- of government. Diversifying, expanding and developing print such as fertilizers, cement, and iron products, exports requires a combination of vertical and horizon- most notably in the framework of Europe’s car- tal approaches. A vertical approach focuses on devel- bon border-adjustment mechanism (CBAM). Given oping value chains with export potential, from upstream Algeria’s current export specialization, with exports to to downstream, by removing bottlenecks and target- the EU increasingly concentrated in “CBAM products” ing promising markets and market segments, such as (80 percent in 2023), reducing the carbon footprint agriculture, fisheries and aquaculture, information and of exported products, diversifying exports towards communication technologies, renewable energies, tour- cleaner industries, and adopting an explicit carbon ism or the industrial sector. On the other hand, a hori- tax would be key to sustained nonhydrocarbon export zontal approach applies to all export sectors, covering growth. Absent adaptation, CBAM and other carbon regulatory and institutional aspects (export promo- border adjustment mechanisms could result in mar- tion, in particular) as well as those relating to financ- ket share losses and significant taxes by Algerian ing, logistics, trade facilitation and quality certification. exporters to European authorities (see Box 3). 16 ALGERIA ECONOMIC UPDATE – A HOLISTIC FRAMEWORK FOR SUSTAINED EXPORT GROWTH BOX 3: CBAM IMPLICATIONS FOR ALGERIA Starting in 2026, CBAM will impose a price on embedded CO2 emissions of certain goods imported into the EU, to complement the EU Emissions Trading System (EU ETS). Currently, European emissions allowances are free to European producers, but those for highly polluting goods, such as cement, iron and steel, fertilizers, aluminum, electricity, and hydrogen, will gradually become payment-based as CBAM is rolled out, to ensure equal carbon pricing for EU-produced and imported goods. During the transition phase (2024–2025), importers must report their direct (from production) and indirect (from the production of energy used in production) emissions on a quarterly basis. From January 2026, imports of “CBAM products” will be subject to a carbon price equivalent to that paid by EU companies.a Since 2022, the price of such allowances has been fluctuating between EUR 60 and 100 per ton of CO2 emission. To avoid double pricing on carbon, any explicit (or direct) carbon price already paid in the exporting country will be deducted from the CBAM fiscal obligation. Emissions need to be verified by an accredited verifier; otherwise set default values will be applied. CBAM products account for more than 80 percent of Algeria’s nonhydrocarbon exports to the EU and, absent action, could result in Algerian exporters paying large duties when exporting. In recent years, alongside substantial growth in Algeria’s fertilizer exports, which represent most of its nonhydrocarbon exports, Algeria has increased its exports of iron, steel, and cement products. CBAM products now account for nearly 70 percent of Algeria’s total nonhydrocarbon exports, highlighting the country’s vulnerability to CBAM. In addition, Algeria’s fertilizer products, its most traded CBAM goods with the EU, have higher embedded emissions than those produced in the EU, meaning that they will face higher taxes than those produced in the EU. Because CBAM will be implemented gradually, assuming constant exports of CBAM goods, stable emissions intensities and stable default values from 2022 to 2034, the revenue collected from Algerian exports by the EU through CBAM would be rising sharply after 2028, reaching close to US$ 700 million by 2034, or about 4.6 percent of Algeria’s tax revenues. To adapt to CBAM, Algeria could adopt cleaner production technologies and introduce an explicit carbon pricing instrument, thereby supporting Algeria’s own decarbonation efforts. Redirecting exports to non-EU countries would carry costs, while new markets could also soon adopt Border Carbon Adjustment (BCA) mechanisms. Even then, Algeria would still face price competitiveness losses vis-à-vis other, greener producers. However, If CBAM goods are produced in Algeria with lower embedded emissions compared to goods produced in the EU, its carbon cost would be lower. The recent agreement between Sonatrach and Tosyali Algérie to produce hydrogen from renewable energies provide a good example of greening production processes.b Finally, the introduction of an explicit carbon pricing instrument (carbon tax or ETS) would encourage green technology adoption, raise tax revenues in Algeria, and reduce fiscal CBAM obligations since the carbon price paid in Algeria would be deducted from the CBAM charges. For instance, Uruguay introduced a carbon tax in 2022, converting its implicit pricing to explicit pricing, while Vietnam is considering introducing one to replace taxes on fossil fuels. a During the definitive period, only direct emissions are to be considered for iron, steel, aluminum and hydrogen, while both direct and indirect emissions are within the scope for the remaining CBAM goods, namely cement, electricity and fertilizers. b See: https://www.aps.dz/economie/173718-sonatrach-signature-d-un-protocole-d-entente-avec-tosyali-algerie-dans-le-domaine-de-l-hydrogene-vert. Towards a holistic framework to support exports 17 TABLE OF INDICATORS 2020 2021 2022 2023e 2024f 2025f 2026f Output and prices (In percent, unless otherwise indicated) Real GDP –5.0 3.8 3.6 4.1 3.1 3.8 3.3 Non-extractive –1.9 2.5 5.0 3.7 3.6 4.0 3.5 Extractive –20.9 19.8 –5.1 4.8 –0.8 2.2 1.5 Real GDP per capita –6.6 2.1 1.9 2.5 1.6 2.4 1.9 Consumer price index (period average) 2.4 7.2 9.3 9.3 4.0 4.9 4.4 GDP (in billions of US$) 164.9 186.3 225.6 239.9 261.6 276.7 291.4 GDP per capita (US$) 3794.4 4216.3 5023.3 5260.2 5652.1 5896.3 6128.8 Crude oil production (thousand barrels per day) 899.2 910.7 1020.0 973.1 909.0 946.0 959.0 Natural gas production (billions of m3) 87.7 102.8 99.2 105.2 102.0 105.2 107.2 External sector (In percent of GDP, unless otherwise indicated) Current account –11.3 –2.4 8.6 2.3 –1.2 –3.1 –4.2 Trade balance –10.9 –1.3 9.9 3.0 –0.4 –2.3 –3.4 Exports of goods and services 15.1 22.5 30.6 24.5 21.6 20.0 19.0 Hydrocarbon exports 12.3 19.7 26.9 21.1 18.0 16.4 15.3 Nonhydrocarbon exports 2.8 2.7 3.7 3.4 3.6 3.7 3.7 Imports of goods and services 26.0 23.8 20.7 21.5 22.0 22.4 22.4 Gross official reserves (months of imports) 13.5 12.3 15.7 16.0 14.2 11.9 9.4 Exchange rate (Algerian dinar per US$; period average) 126.8 135.1 142.0 135.8 Sahara Blend export price (US$/barrel) 41.4 70.6 100.9 82.6 Central Government Finance (In percent of GDP, unless otherwise indicated) Government revenue and grants 27.0 26.2 29.7 32.9 29.9 28.4 27.4 Hydrocarbon revenuea 9.2 10.4 17.7 19.7 14.4 13.1 12.3 Non-hydrocarbon revenue 17.8 15.9 12.1 13.2 15.6 15.4 15.0 Expenditures 37.5 32.5 32.7 38.1 39.7 38.3 36.0 Current expenditures 24.0 21.8 24.9 27.7 29.9 28.7 26.7 Capital expenditures 9.1 7.7 6.1 8.3 8.5 8.2 7.8 Special Account Balance and Treasury Interventions 4.5 3.0 1.7 2.1 1.4 1.5 1.5 Overall budget balanceb –10.5 –6.3 –3.0 –5.2 –9.8 –9.9 –8.7 Primary overall budget balance –9.7 –5.7 –1.8 –3.9 –8.6 –8.6 –7.3 Non-hydrocarbon overall budget balance –19.7 –16.7 –20.6 –24.9 –24.2 –23.0 –21.0 Total central Government debt 45.8 55.2 48.1 49.2 49.5 55.2 58.9 Domestic debt 45.1 54.5 47.6 48.9 49.1 54.9 58.7 External debt 0.7 0.6 0.4 0.4 0.3 0.2 0.2 a Includes dividends from Sonatrach and hydrocarbon revenues transferred to the oil savings fund. b Includes special account balance and Treasury interventions. 18 ALGERIA ECONOMIC UPDATE – A HOLISTIC FRAMEWORK FOR SUSTAINED EXPORT GROWTH ANNEX 1: RECENT SPECIAL SECTIONS OF THE ALGERIA ECONOMIC UPDATE Spring 2024: “Tracking Economic overall government expenditures in Algeria have been Developments with Alternative Data cyclically neutral, on average not tracking swings in Sources.” output, which compares favorably with peer countries. Patterns differ for current and capital expenditures. New developments in big data research enable imme- Current expenditures are countercyclical: wages diate monitoring of economic trends at disaggregated and transfers are typically expanded during down- geographical levels. Satellite data are available with a turns. Capital expenditures are strongly procyclical: short lag and are highly disaggregated across time they have been increased when hydrocarbon out- and space. By estimating the relationship between put expanded. The rigidity of public expenditures has these alternative data and national accounts over increased in recent years but remains below the aver- the past years, they can help produce timely and age of peer countries. geographically disaggregated output estimates. Nightlights data reliably estimate hydrocarbon and Fall 2022: “Estimating Economic nonhydrocarbon GDP. Satellite-based weather and Activity from Nightlights Data.” vegetation data can be used to estimate agricultural production. Data on vessels and their cargo arriving Nightlights data is a tool now commonly used to and departing from ports capture imports and exports assess economic activity. Since 2012, satellite data in a timely manner. have been available daily and are publicly avail- able on the Group on Earth Observations website. Fall 2023: “Analyses in Algeria’s For Algeria, the empirical link between nightlights data Public Finances.” and economic activity is strong, both for oil produc- tion (geolocated by gas flaring sites), gas production, Algeria’s public finances have tracked oil and nat- and non-hydrocarbon activity. The strong correlation ural gas prices over the last two decades: when between nightlights and non-hydrocarbon activity hydrocarbon prices fell, budget revenues followed, allows us to mobilize these data to estimate the recent and the fiscal deficit expanded. At the same time, level of economic activity, and to produce spatialized 19 estimates of the level and dynamics of activity, useful country to country. In Algeria, the price increase that for sectoral or local development analyses. began in 2021 was driven by food prices. A model of the consumer price index since 2009 shows that it is characterized by strong short-term inertia, but that the Fall 2022: “Estimation of the Fiscal depreciation of the dinar, the increase in the price of Multipliers in Algeria.” imported goods, the rise in public spending and the increase in currency in circulation explain more than The sharp increase in government spending in 2022 40% of the variation in the CPI after two years. In addi- raises the question of its effects on economic activ- tion, the importance of these factors varies according ity. The propensity of public spending to support to the categories of goods and services, reflecting the economic activity and generate additional economic intensity of imports of these products and the char- activity is captured by the fiscal multiplier. An analysis acteristics of the Algerian market both in terms of conducted on quarterly Algerian data since 2000 finds production and distribution. a weak multiplier effect of Algerian public spending on GDP, notably caused by the effect of an increase on the deterioration of the trade balance, resulting from Fall 2021: “Evolution of Non- its impact on imports. The spillover effect of spend- Monetary Poverty and Inequality in ing on private consumption is observed but is limited, Algeria.” while the analysis finds a more marked effect of pub- lic spending on the construction sector. The multidimensional poverty indicator improved in Algeria between 2013 and 2019, reflecting progress in all its dimensions: education, health, and living con- Spring 2022: “Does Algeria Benefit ditions. Although Algeria performs well in the MENA from Rising Gas Prices?” region, and despite notable improvements, multidi- mensional poverty varies considerably across regions The export price of Algerian natural gas follows a and between rural and urban areas. The North-Central distinct dynamic from the reference price of gas on and North-Eastern regions face lower levels of depri- international markets. Thus, while the Henry Hub vation than the rest of the country, while the Central gas reference price has gained nearly 50% between Highlands region faces a higher level of deprivation. Q2 and Q3-2021, the export price of Algerian natu- The most vulnerable regions improved more rap- ral gas has increased by only 0.5% over the same idly between 2013 and 2019, showing convergence period. Indeed, these prices are established contrac- with the richer regions. Health and education have tually, sometimes on a long-term basis, and based become more important dimensions of deprivation, on bilateral negotiations with buyers. An economet- underscoring the policy priorities for Algeria’s human ric modeling exercise allows us to establish that the development. export price of Algerian natural gas is characterized by a strong inertia, as well as a delayed linkage to the oil price. The model presented allows to explain 88% Fall 2021: “Resilience of Algeria to of the variation of the exported natural gas prices. Climate and Natural Disaster Risks.” The Algerian territory is exposed to a range of climatic Spring 2022: “The Impact of and geological hazards, particularly in urban areas, Macroeconomic Factors on Inflation which are experiencing rapid population growth and in Algeria.” concentrate a significant share of economic activity. Floods are the most frequent disasters in Algeria, but Inflation is on the rise in 2021 and 2022, both globally the greatest economic losses have been caused by and in Algeria, but the underlying causes vary from earthquakes. Algeria has a modern legal framework 20 ALGERIA ECONOMIC UPDATE – A HOLISTIC FRAMEWORK FOR SUSTAINED EXPORT GROWTH for disaster risk management (DRM), a clear deci- by ongoing macroeconomic and fiscal adjustments. sion-making framework for emergency response, A sustainable and inclusive recovery will therefore and recognizes the importance of protecting strate- require offering the most vulnerable the opportunity gic infrastructure and critical sectors. Serious efforts to recover what they have lost. have been made to reduce risk, especially in emer- gency response management and reconstruction, at the expense of prevention. Moreover, information Spring 2021: “Towards an Equitable sharing is not systematic, leading to inconsistencies, Reform of the Algerian Health especially in disaster prevention, and enforcement of System.” GRC legislation can be improved. Significant efforts The consequences of the COVID-19 pandemic have should still be made for comprehensive and cross- shown the need for a fair reform of the Algerian health sectoral climate and disaster risk reduction and system. Although officially the number of cases and management. deaths remains low, the pandemic has highlighted the limitations of the health system. A double burden of Spring 2021: “Effects of COVID-19 on communicable and non-communicable diseases, as Inequality in the MENA Region and well as limited resources, suggest a need to strengthen Algeria.” it. Although the health system receives substantial public financial support and requires relatively little Survey results from the Middle East and North Africa individual expenditure, and although life expectancy (MENA) region confirm that the poorest individuals and control of noncommunicable diseases are com- are more likely to report a deterioration in their living parable to peer countries, health outcomes remain conditions since the beginning of the COVID-19 crisis. below those of middle- and high-income countries, Despite the lack of recent data on household welfare particularly in terms of equity in maternal and child in Algeria, the characteristics of vulnerable individu- health conditions. The need for physical and human als suggest that inequality has also increased. They resources and for a better distribution of health cov- are more likely to contract COVID-19 or lose their jobs erage are major challenges. Finally, declining public during the pandemic, have less adequate social pro- financing and health system capacity pose risks to tection, and are likely to be disproportionately affected health system resilience. 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