One of Africa’s largest markets
Algeria is located in North Africa on the Mediterranean Sea, with a population of 44.9 million. In terms of area, it is the continent’s largest country. Between 1830 and 1848, Algeria was a French colony and then part of France, from which it gained independence in 1962. Algeria is characterized by socio-political stability with a strong position of head of state. During the Arab Spring, it was one of the few countries where there was no change of government despite the demonstrations. Algeria is also one of the founding states of the African Union (AU).
Algeria is a lower-middle-income country. The economy is based primarily on hydrocarbon mining and trade, which accounts for 93% of all exports going to Europe, in particular. In 2022, the GDP was $191.9 billion ($4273 per capita). In the GDP structure, industry accounts for 42.3%, services for 42.2%, and agriculture for 11.4%. As for the business environment, micro, small, and medium-sized enterprises (SMEs) account for 99% (about 1.2 million) of all companies.
Algeria aims to reduce the state’s footprint in the economy and diversify it to reduce unemployment (12%), especially among the young (29%). As a result, reforms are being implemented for limited privatization, creating jobs in the private sector, and increasing non-hydrocarbon exports. The authorities also invest in infrastructure projects and pursue redistributive social policies to alleviate poverty. However, inflation (9,3% in 2022) is still a problem.
Population of Algeria
Algeria is home to 44.9 million people. Arabs and Berbers are the largest ethnic groups, accounting for 99% of the population, while Europeans make up less than 1%. Although almost all Algerians are of Berber (not Arab) descent, only 15% of the population consider themselves Berbers. The largest religious group is Muslim (99%), mainly Sunni, with Christians, Jews, and Ahmadi, Ibadi, and Shiite Muslims making up the remainder.
The official languages are Arabic and Tamazight. The labor force numbers 12.6 million people, and Algeria has a steady population growth rate averaging 1.3% annually. Working-age Algerians account for 64.29% of the population, while those aged 65 or older account for 6.93%. Most Algerians live in the northern part of the country along the Mediterranean coast. The urbanization rate is 75.3%, and the largest population centers are the capital, Algiers (population 2.9 million), and Oran (population 936,000).
After independence in 1962, Algerians who had previously supported the French (Harkis) left for France. According to estimates, about 1.6 million Algerian immigrants live in France. In contrast, Algeria receives migrants from sub-Saharan countries, primarily Mali, Niger, and Gambia. Since 1975, Algeria has also hosted refugees who left the Western Sahara due to armed conflict. Some 90,000 Sahrawis live in five refugee camps in southwestern Algeria near Tindouf.
Economy of Algeria
The petrochemical industry is of crucial importance to the economy. Algeria is a member of the Organization of Petroleum Exporting Countries (OPEC). Algeria has the 10th largest proven natural gas reserves (2.4 trillion cubic meters) and the 16th largest oil reserves (12.2 billion barrels). Revenue from hydrocarbon output and sales in 2016-2021 accounted for 19% of GDP, 38% of government revenue, and 93% of exports. According to Algerian oil company Sonatrach, 60% of Algeria’s territory has yet to be mapped for such reserves. Other natural deposits include iron ore, phosphates, uranium, and lead.
The economic vulnerability to fluctuations in hydrocarbon prices has prompted authorities to initiate efforts to diversify the economy and reduce the government’s role. The reforms undertaken in 2020-2021 aim to improve conditions for investors, expand the private sector and increase non-hydrocarbon exports. Major industries such as manufacturing companies, construction, transportation, agriculture, and fisheries are particularly likely to benefit. Because of the scarcity of agricultural land, food imports account for about 25% of Algeria’s total imports.
Under the “Horizon 2025” strategy, Algerian authorities also gradually expand tourism infrastructure to boost tourism’s contribution to GDP, which currently stands at 2%. In 2015, the “Renewable Energy and Energy Efficiency Development Plan” was updated to increase investment in renewable energy resources, mainly photovoltaics and wind power, and reduce greenhouse gas emissions by 7% by 2030.
International trade
Algeria is the world’s 58th economy by GDP, 63rd largest exporter, and 66th importer. Algeria’s exports are worth $35.4 billion and imports $34.3 billion. Algeria’s main trading partners are Italy, Spain, France, South Korea, the United States, the Netherlands, the United Kingdom, Greece, Turkey, China, and Singapore.
The group of most exported goods is natural gas ($14.3 billion), crude oil ($10.7 billion), refined oil ($6.23 billion), nitrogenous fertilizers ($1.21 billion), and ammonia ($714 million). Other products include iron and steel, iron and steel articles, sugar, cement, and tropical fruits.
The most imported goods are wheat ($2.2 billion), condensed milk ($1.27 billion), motor vehicles and parts ($800 million), soybean oil ($798 million), and corn ($795 million).
Trade agreements
Algeria has concluded 47 bilateral investment treaties (BITs) with African, Asian, and European countries. Algeria has also signed Trade and Investment Framework Agreement (TIFA) with the United States. Algeria is not a member state of the World Trade Organization (WTO), although official negotiations started in 1996.
Agreements with associations of countries:
African Union (AU)
African Continental Free Trade Area (AfCFTA)
Greater Arab Free Trade Area (GAFTA)
European Union (EU)
Arab Maghreb Union (AMU)
Organization of Islamic Cooperation (OIC)
Algeria-European Union relations
Algeria and the European Union enjoy an enhanced relationship. Algeria was a member of the European Communities until 1976. Today, the framework for cooperation with the European Union is set by the 2002 EU-Algeria Association Agreement, which came into force in 2005. It liberalized trade in goods and is expected to facilitate the establishment of a free trade area in the coming years. The European Union also supports Algeria financially under the European Neighborhood Policy.
Algeria is the European Union’s 19th largest trading partner, while the EU is the largest trading partner for Algeria. In 2022, the EU imported €41.9 billion worth of goods from Algeria, mainly hydrocarbons and chemical products. On the other hand, exports amounted to €13.9 billion and included machinery and appliances, chemicals, and vegetables. Bilateral trade in services was worth €2.6 billion. Imports of services to the EU amounted to €1 billion, while exports amounted to €1.6 billion.
Following Russia’s aggression against Ukraine, Algeria’s share of gas supplies to EU countries has increased. Along with Norway and the United States, Algeria is now one of the largest suppliers of this commodity to European countries. The European Union seeks to strengthen economic and political relations with Algeria, considering this an opportunity to improve stability in the Mediterranean region.
Opportunities and challenges
Algeria imposes duties on imported goods ranging from 0 to 30%. However, lengthy accounting and customs clearance procedures pose a challenge. A Provisional Additional Safeguard Duty (DAPS) regime of 30-200% on 1,095 products was introduced in 2019 to protect domestic products. Despite the government’s protectionist policies, an opportunity for foreign entrepreneurs stems from shortages of specific goods in the Algerian market and the authorities’ evolving attitude toward economic cooperation.
The structural reforms being implemented by the Algerian government aim at diversifying the economy. These efforts enjoy support from the European Union. It is an opportunity to expand the export of specific products and services and boost investment. Much will depend, however, on the speed and depth of the transformation, the liberalization of the economy, and the implementation of business-friendly policies. Aside from protectionist government policies, challenges include the judiciary’s susceptibility to political interference and corruption.
Among the most likely to succeed in Algeria are companies in the food (grain, milk and dairy products, beef, apples), automotive, and pharmaceutical industries. Transport, logistics, construction, education, and food processing also present promising investment prospects. Other opportunities involve state-owned enterprises privatization, the banking market, insurance, and energy. An incentive for exporters is the exemption of customs duties and VAT on services and goods imported or purchased locally, which will be directly used for investment projects.