Global Research Economic
Algeria
Algeria Economic & Strategic Outlook
December 2008
Promising Opportunities

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Financial Analyst
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Phone No: (202) 3760 9526

Table of Contents
Summary ................................................................................................................................ 1
Annual Indicators ................................................................................................................... 4
Economic News Flow (January 2008 to December 2008) .................................................... 5
Macroeconomic Profile.........................................................................................................10
Gross Domestic Product .......................................................................................................13
Public Finance.......................................................................................................................17
Public Debt............................................................................................................................20
External Trade.......................................................................................................................22
Exports .......................................................................................................................22
Imports .......................................................................................................................23
Current Account ....................................................................................................................25
Capital & Financial Account and Balance of Payment ........................................................26
Foreign Direct Investment ....................................................................................................27
Privatization ..........................................................................................................................28
Monetary Policy ....................................................................................................................29
Foreign Exchange Reserve ...................................................................................................31
Exchange Rate ......................................................................................................................31
Inflation .................................................................................................................................32
Population and Labor Force ..................................................................................................33
Sector Performance ...............................................................................................................35
Hydrocarbons.............................................................................................................35
Oil ...................................................................................................................35
Natural Gas.....................................................................................................38
Banking......................................................................................................................41
Telecommunications and IT ......................................................................................47
Agriculture .................................................................................................................51
Fertilizers ...................................................................................................................55
Steel ...........................................................................................................................57
Cement .......................................................................................................................59
Construction and Real Estate.....................................................................................61
Tourism......................................................................................................................63
Capital Market ......................................................................................................................66

Global Research - Algeria Global Investment House
Summary
The financial windfall realized in the Algerian economy over the past several years reveals
inherent investment opportunities, especially with the country’s prime location, which
facilitates trade with other countries in both the African and European continents. Being
among the top African countries possessing ample oil and gas resources, Algeria was able to
take advantage of the international boom in the oil sector that took place since the late 90’s,
realizing high revenues from the hydrocarbons projects. This has encouraged investment
activity, which is expected to flourish furthermore given the country’s need for diversifying
its sources of wealth beyond hydrocarbons.
During the period from 2003 to 2007, nominal GDP grew at a CAGR of 15.2%, while real
GDP grew at a CAGR of 4.2%. Nominal GDP grew by 9.1% y-o-y between 2006 and 2007,
reaching AD1 9,232.7bn. Whereas, real GDP grew by 4.6% y-o-y, reaching AD5,581.1bn,
compared to AD5,335.7bn the previous year. According to the International Monetary Fund
(IMF), nominal GDP is estimated to grow by 28.3% y-o-y, to reach AD11,849.9bn in 2008,
while real GDP is estimated to reach AD5,852.3bn in the same year, a growth of 4.9%.
In 2008, the government surplus is expected to represent 14.3% of GDP, reaching AD1,694.5bn,
implying a remarkable growth rate of 61.0%. This is attributable to the expected boost in
revenues by 34.0%, compared to a 23.6% rise in expenses. The revenues’ acceleration is
spurred by the 35.5% expected surge in hydrocarbons proceeds, reaching AD4,029.0bn.
The total public debt provisional figure represents 18% of GDP in 2007, that is approximately
US$24.2bn, implying a y-o-y decline of 17.1%. Algeria was successful in dropping its total
government debt, between 2003 and 2007, at a CAGR of 8.5%, mainly through the decline
of its external debt.
Midyear export balances inclined by 61.5% as of June 2008, reaching US$44.3bn, compared
to US$27.4bn in June 2007. This was mainly attributed to the hydrocarbon exports, forming
94.1% of total exports, as they rose by 55.0% over the year, reaching US$41.6bn, up from
US$26.9bn.
Algeria increased its imports by 27.9% in 2007, as they reached US$27.4bn, compared to
US$21.5bn in 2006. This represents a CAGR of 21.5% over the years from 2003 to 2007.
The main imported products in 2007 were the industrial equipment, which amounted to
US$10.0bn, representing 36.3% of total imports and realizing an increase of 16.7% over the
previous year.
Preliminary results of June 2008 indicate that the current account surplus was ameliorated by
68.0% y-o-y, reaching US$22.3bn in June 2008, compared to US$13.3bn in June 2007. This
was a result of many factors. Exports rose by 61.6%, compensating for the 81.8% jump in
imports, leading to an acceleration of 45.2% in the trade balance, as it rose from US$15.2bn
in June 2007 to US$22.0bn in June 2008. Meanwhile, the deficit in the services and income
account dropped by 61.0%, reaching US$1.1bn, compared to US$2.8bn the previous year.
Also, the transfers account was ameliorated by 54.0%, reaching US$1.3bn. The amelioration
of the current account balance by 68.0% over the period from June 2007 to June 2008, has
offset the increase in the capital account deficit, which became US$2.5bn, up from US$0.7bn,
and led to an enhancement in the overall balance of the balance of payment by 57.1% over
the same period, as it reached US$19.8bn, up from US$12.6bn.
AD=Algerian Dinar
1
December 2008 Economic & Strategic Outlook 1

Global Research - Algeria Global Investment House
The Foreign Direct Investment (FDI) inflows to Algeria reached US$1.7bn in 2007,
representing 1.2% of GDP, a decline of 7.2% y-o-y, as it stood at US$1.8bn in 2006.
Meanwhile, it grew at a CAGR of 23.6% over the 3-year period starting from 2004, where it
amounted to US$0.9bn.
Along with the liberalization process announced in the late 90’s, Algeria announced its
movement towards a privatization program, taking various forms, starting from selling
public enterprises, to even partial sales of state-owned corporations, which could take place
either through the secondary market, organizing bids or through private deals. Usually, a
restructuring of the state-owned enterprise takes place prior to the privatization, to ensure
profitable and successful deals.
Over the period from June 2007 to June 2008, domestic liquidity (M2) in Algeria grew by
22.1%, reaching AD6,602.1bn, which was mainly a result of the 27.5% rise in Money Supply
(M1), amounting to AD4,732.7bn, compared to AD3,712.2bn in June 2007. In addition,
Quasi money accelerated by 10.4% over the same period, reaching AD1,869.3bn.
Net international reserves rose by 41.5% y-o-y, to reach US$110.6bn in 2007, compared to
US$78.2bn, the previous year. This balance represents a CAGR of 34.9% over the 4-year
period starting from 2003. The rise of oil and gas prices helped boost exports proceeds, which
resulted in the surge of reserves over the period. As of June 2008, international reserves
reached US133.2bn.
Future balances of foreign reserves will depend to a great extent on the trend of hydrocarbon
prices in the coming period. The foreign exchange market in Algeria is controlled by
Banque d’Algerie, through a floating management system. Most of the operations take place
through the Central Bank, whereas a minor proportion is left to function within the interbank
market.
Following the general trend that took place in 2007 in the whole world, inflation in Algeria
has reached high levels, after it had slowed down for 2 years, to reach back the 3.6% level,
which was achieved in 2004. Though the government has targeted inflation at 3.5% for 2008,
IMF estimates that inflation would reach 4.3% by the end of 2008. It is worthy to note that
inflation averaged 4.2% over the 9M period ending September 2008.
The Algerian economy is ruled by hydrocarbon exports, which amounted to US$59.3bn in
2007, contributing to almost 44.1% of GDP and 97.8% of the country’s total exports. The
surge in hydrocarbons prices in recent years has had a positive effect on the whole economy,
primarily improvements in the Country’s budget, external debt and foreign currency
reserves.
Algeria is perceived as being under banked, with low penetration rate and low banking
density. These facts carry out many potential opportunities for banks with expansion plans,
which have been illustrated by the existence of international lenders in the market.
The Algerian telecom and IT sector took off in 2000 after the government’s decision to end
its stronghold on the sector and the creation of the Post and Telecommunications Regulatory
Authority (ARPT). As a result, the telecom and IT sector has transformed immensely with
massive local and foreign investments, being directed towards constructing a state of the art
telecommunications infrastructure.
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Global Research - Algeria Global Investment House
While Algeria used to be a food exporting country, its current production does not meet the
local demand, which led it to import around 45% of its food needs. In fact, Algeria became
one of the main importers of wheat, agricultural seeds and milk products internationally. The
majority of imports come from Europe, mainly France.
One of the main resources used to create nitrogenous fertilizers is natural gas, and since
Algeria has one of the region’s largest natural gas reserves, it is perfectly positioned to be a
major player in the fertilizers market.
Steel production in Algeria has been witnessing a steady rise over the past decade. During
the mid-90s, output levels were decreasing due to a slowdown in the construction sector,
however, since 1997 production levels have increased from 399 thousand tons to 1.2mn tons
in 2006, representing a CAGR of 13.02%. This could be mainly attributed to the boom in the
real estate sector, driven by companies from the Middle East.
The cement sector in Algeria has been steadily growing over the past five years, due to the
renaissance of the construction sector. The policies adopted by the Algerian government since
the mid-1990s directed at the enhancement of foreign investments are now bearing fruits, as
massive projects are being announced aiming at revolutionizing Algeria’s construction and
infrastructure sector.
As for the construction and real estate sector, it has been witnessing an annual real growth
rate of around 7% since 2002. The sector confronts many challenges in Algeria. These are
represented by lands’ paucity, which consequently drives prices higher, lack of experienced
labor, in addition to growing construction costs. The real estate sector is expected to witness
further progress in the future, especially with the prevailing aim of diversifying the Country’s
sources of wealth away from the hydrocarbons sector. In addition, the fact that 69% of the
population is between the age of 15 and 64 years old had increased demand on real estate,
which should in turn trigger new projects establishments.
Concerning infrastructure, as most of Algeria’s external trade takes place through its ports,
the Algerian government realizes the importance of ameliorating its ports performance.
Therefore, it announced in August 2008 the recuperation of the port of Oran. There is another
plan to expand the port of Bejaïa, which is deemed to be the most important port in Algeria
after the port of Oran, by an additional 43ha. As for the Djendjen and Algiers ports, the
Emirati “Dubai Ports World” (DPW) announced that they would initially invest around
US$108mn for the development and expansion of these two ports. Moreover, the Algerian
government plans to privatize 30 ports, one of which is the port of Oran.
The tourism sector is weakly performing in Algeria. This is due to the lack of superior
accommodation in addition to security problems, which have been somehow improved over
the last few years. It is worth mentioning that Algeria receives approximately 200 thousand
tourists per year. The sector is expected to show better performance in the future, especially
with the existence of announced plans for new hotels establishments.
The Algerian capital market is still very much inactive. The stock exchange (Bourse des
Valeurs Mobilieres d’Alger) was established in the 1990’s and has very few listed stocks.
Only 2 companies were listed in the stock exchange in 2007 and were not even witnessing a
considerable trading activity.
December 2008 Economic & Strategic Outlook 3

Global Research - Algeria Global Investment House
Annual Indicators
2003 2004 2005 2006 2007 2008F
Economic Performance
GDP at Current Prices (ADbn) 5,247.5 6,135.9 7,544.0 8,460.5 9,232.7 11,849.9
GDP at Current Prices (US$bn) 67.8 85.1 102.7 116.8 134.3 171.3
Growth Rate of GDP at Current Prices (%) 16.0% 16.9% 22.9% 12.1% 9.1% 28.3%
GDP at Constant Prices (ADbn) 4,731.2 4,977.2 5,231.1 5,335.7 5,581.1 5,852.3
Growth of GDP at Constant Prices (%) 6.9% 5.2% 5.1% 2.0% 4.6% 4.9%
Per Capita GDP at Constant Prices (AD’000) 148.6 153.8 159.0 157.9 162.2 168.2
Inflation, Average Consumer Prices (%) 2.6% 3.6% 1.6% 2.5% 3.6% 4.3%
Population (mn) 31.8 32.4 32.9 33.8 34.4 34.8
Government Finance (ADbn)*
Total Revenues and Grants** 1,947.5 2,215.2 3,082.7 3,639.9 3,803.9 5,095.5
Hydrocarbon Revenue*** 1,350.0 1,570.7 2,352.7 2,799.0 2,972.9 4,029.0
Total Expenditures 1,691.4 1,891.8 2,052.0 2,452.7 2,751.4 3,400.9
Personal Expenditure 398.0 446.8 492.2 531.3 470.9 568.8
Other Current Expenditure 723.0 798.7 749.2 902.4 1,098.7 1,315.3
Capital Expenditure 570.4 646.3 810.6 1,019.0 1,181.8 1,516.8
Budget Balance 256.1 323.4 1,030.7 1,187.2 1,052.5 1,694.5
Special Accounts Balance 187.1 109.9 (129.0) (4.0) N/A N/A
Net Lending by Treasury 32.6 11.8 5.2 32.0 N/A N/A
Overall Balance**** 410.6 421.5 896.5 1,151.2 N/A N/A
Government Debt (US$bn)***** 34.5 34.3 29.6 29.2 24.2 N/A
Gross Domestic Public Debt (US$bn) 12.7 13.9 14.2 25.4 N/A N/A
Gross External Debt (US$bn) 21.8 20.4 15.5 3.7 N/A N/A
Balance of Payment (US$bn)******
Trade Balance 11.9 15.1 26.4 33.3 34.1 22.0
Total Exports 24.5 32.2 46.5 54.8 60.3 44.3
Total Imports (12.6) (17.1) (20.0) (21.5) (26.3) (22.3)
Services and Income (Net) (4.1) (5.6) (7.4) (6.7) (6.4) (1.1)
Transfers (Net) 1.8 2.5 2.1 1.6 1.9 1.3
Current Account 9.6 11.9 21.1 28.2 29.5 22.3
Capital Account (1.4) (1.9) (4.2) (11.2) (0.4) (2.5)
Overall Balance 8.2 10.0 16.9 17.0 29.1 19.8
Money and Banking******
Money Supply (M1) (ADbn) 1,630.3 2,160.5 2,421.4 3,167.6 4,214.3 4,732.7
Quasi-Money (ADbn) 1,724.0 1,577.5 1,736.2 1,766.1 1,763.7 1,869.3
Net Foreign Assets (ADbn) 2,342.6 3,119.2 4,179.7 5,515.1 7,402.6 8,290.4
Domestic Credit (ADbn) 1,803.6 1,514.4 846.6 601.4 (1.2) (565.7)
International Reserves (US$bn) 33.4 43.6 56.6 78.2 110.6 133.2
Interest Rates
Discount Rate 4.50% 4.00% 4.00% 4.00% 4.00% 4.00%
Deposit Rate 4.50%–5.75% 2.25%–3.25% 1.25%–2.50% 1.80% 1.80% 2.00%
Lending Rate 8.00%–9.00% 6.00%–9.00% 5.50%–9.00% 8.00% 8.00% 8.10%
Real Interest Rate 1.30% 0.51% 0.09% (2.68%) (2.12%) N/A
Exchange Rates*******
(AD/US$) end of period N/A 72.6137 73.3799 71.1582 66.8299 62.8140
(AD/US$) period average N/A 72.0659 73.3627 71.0716 67.0718 63.3613
(AD/EUR) end of period N/A 98.9507 87.0176 93.7545 98.3302 98.9664
(AD/EUR) period average N/A 89.6423 91.3014 93.9017 97.6445 98.6392
*Estimated balances in 2007 and 2008
** Excluding privatization receipts, which are classified under nonbank financing
***Including dividends on current profits paid by Sonatrach
****Including special accounts, net lending and operations of the Rehabilitation Fund
*****Estimated balance in 2007
******Provisional balances in 2007 and provisional midyear balances in 2008
*******For 2008, end of period rates are for the end of June, while average rates represent average of rates in the month of June
Source:IMF, BP, Energy Information Association, African Development Bank, Organization for Economic Co-operation and Development,
CIA World Factbook, Banque d‘Algerie, World Bank, Economist intelligence Unit, Go Currency website and Global Research
4 Economic & Strategic Outlook December 2008

Global Research - Algeria Global Investment House
Economic News Flow (January 2008 to December 2008)
January
• Mr. Abdelhamid Temmar, Industry and Investments Promotions Minister said that both
cement units located in eastern and center Algeria have been sold to the Italian company,
Buzzi Unicem in an exceptional deal. The objective of such a concession, estimated to 35%
of the capital of each company, is to improve both production capacity and consolidating
current manpower.Mr. Temmar said that he is expecting the Italian company is to double
its annual production capacity, estimated currently to 1mn tons, in order to meet the huge
demand of workshops undertaken in the framework of the Republic President program,
namely the 1mn houses and East-West highway projects. In accordance with the contract
terms, the Italian company will be in charge of increasing cement production of the two
units as to reach 945 thousand tons of clinker in Hdjer Essoud, and 900 thousand tons in
Sour El Ghozlane factory. (Source: El Khabar Newspaper)
• 13 major state-owned companies will be included in a list of the 1 hundred companies
list, which are to be set for privatization in the framework of the program of privatization
process of the first half of the ongoing year, has unveiled the Minister of Industry and
Investments Promotions, Mr. Temmar, adding that these companies are pertaining to
several economic fields, namely steel industry, washing, cleaning and public works.
(Source: El Khabar Newspaper)
• The construction sector nationwide is suffering from a steel shortage crisis, which has
contributed to raising the prices to reach about AD1,500 per 50kg, following the new
prices development in the international stock exchanges reaching AD650 per 50kg. These
high prices have hindered the construction company’s activities, because of the escalating
steel prices, traded at AD6,500 per 50kg, while few weeks ago it was traded at AD500
per 50kg. According to some experts, this situation could curb the housing projects being
constructed, especially the social and participatory projects, whose prices have been
already fixed by public authorities.(Source: El Khabar Newspaper)
• Oil prices under $60 will threaten the Algerian economy, because this will create
difficulties related to different projects funding, indicated the Minister of Industry and
Investments Promotion, adding that if the prices will lower to $60, this will not put the
economy in jeopardy during 3 years only.
Regarding the privatization issue, Mr. Temmar has unveiled that 417 companies have
been partially or completely privatized since 2003, this managed the public treasury to
receive AD125bn, and to maintain 36 thousand jobs and create 18,396 new jobs. (Source:
El Khabar Newspaper)
• The government has given the green light to the Ministry of Small and Medium Sized
Enterprises, to elaborate a plan of action meant to resolve the companies’ financial charges
issue, unveiled Mr. Mustapha Ben Bada, the sector’s Minister. Still, the private SMEs
debts are valued at AD713bn, while all financings have been granted to these companies
by public banks. In this context, the Minister said 100 companies are asking the Ministry
to cut their financial charges. (Source: El Khabar Newspaper)
December 2008 Economic & Strategic Outlook 5

Global Research - Algeria Global Investment House
February
• Bahrain-based Gulf Finance House (GFH) announced that it has reached an agreement
with the government of Algeria to establish a US$3bn GFH Economic Development
Zone on the outskirts of Algiers. The zone would be the primary commercial development
within the new master planned city of Bouinan and is expected to have an end value of
more than US$3bn once completed on a 2.8 square km site. The GFH special projects
team is currently working with industry experts to finalize the business districts of the
zone and the business clusters within each business district. It is expected that the zone
could include energy, financial, telecommunications, and IT business districts, as well as
residential development and leisure facilities. (Source: MENAFN - Arab News)
• The Emirates International Investment Co (EIIC) plans to construct a US$5bn park
(Parc Dounya), known as the green belt in Algeria. The Abu Dhabi-based EIIC will use
its own resources to finance the Park on 670 hectares in the Algerian capital, with a
quarter of the land set aside for commercial and residential use. The purpose of the new
development is to provide a place where stressed residents can unwind. EIIC also has
other projects in Algeria including a US$200mn luxury hotel development near Algiers, a
dairy farm complex in the south and an electrical cable manufacturing company. (Source:
MENAFN)
March
• The real estate firm, SNASCO, which recently announced its intention to enter the
Algerian real estate market, has now announced the opening of its offices in Hidra-
Algeria. SNASCO’s offices in Algeria will service the country, as well as the general
North Africa region, where studies have shown a significant increase in investment across
a number of economic sectors. (Source: MENAFN - Khaleej Times)
April
• The Daewoo Engineering & Construction Co. announced that the Company has received
a US$626.5mn contract to construct a part of a fertilizer factory in Algeria. The Algerian
plant will have a production capacity of 4,000 tons of ammonia per day, 7,000 tons of
urea and 7,000 tons of granulated urea. (Source: MENAFN)
• Nokia Siemens Networks and Wataniya Telecom Algerie announced that, WTA will
deploy Nokia Siemens Networks’ state-of-the art 3GPP Release 4 mobile soft-switching
solution. This solution allows Wataniya to immediately reduce operating expenses, while
accelerating the deployment of new services to mobile subscribers. (Source: MENAFN)
May
• Spain’s General Cable announced that it has entered a joint venture for majority
ownership of E.P.E/EN.I.CA.BISKRA SPA (Enica Biskra), which is a leading provider
of utility cables to the principal Algerian state-owned power utility and gas producer.
Spain’s General Cable is seeking to aggressively invest in business, mainly for the fast
growing Middle East and North African regions, which have more than four billion euros
of addressable wire and cable demand. It is noteworthy that Enica Biskra is located in the
province of Biskra, Algeria, roughly 260 miles southeast of Algiers and is on an 86 acre
site with approximately 1mn square feet of manufacturing, warehousing and office space.
(Source: MENAFN)
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Global Research - Algeria Global Investment House
June
• UAE has predicted that the Country’s investments in Algeria will reach US$50bn within
the coming few years. The UAE committee members discussed with their Algerian
counterparts means to expand cooperation and joint investments in the industry, services,
agriculture and energy sectors. (Source: Emirates News Agency (WAM))
July
• JGC Corp., Japan’s second-largest plant engineering company, announced that it has won
a US$500mn order from Sonatrach, Algeria’s state-owned oil company, to construct a
crude oil and natural gas treatment plant. The plant, to be built in Algeria’s Rhourde
Nouss district, will be completed in 2011. JGC will handle the design and procurement
of equipment, while wholly-owned unit JGC Algeria will construct the factory. Crude oil
and gas will be separated at the plant and shipped through pipelines to oil refineries and
gas treatment facilities. (Source: Reuters)
August
• Algeria’s Energy and Mines Minister said that the Country’s energy sector plans to invest
US$45.5bn in 2008-2012, with US$35.8bn from state company Sonatrach and US$9.7bn
from foreign partners. He further added that the aim of the spending is to increase the
North African OPEC (Organisation of Petroleum Exporting Countries) member country’s
oil production and gas exports. Sonatrach’s total investment, including its partners’
share, over the medium term plan of 2008 to 2012, amounts to US$45.5bn. (Source: Gulf
News)
• The Algerian Prime Minister said that his government is planning to take a majority
stake in any future investment project involving foreign capital, outlining a measure
which already applies to much of the oil and gas sector. The North African country of
about 34mn people is an important oil and gas supplier to Europe. In the energy sector,
state energy conglomerate Sonatrach has the right to a 51% stake in any exploration and
production and downstream activity. Outside of the oil and gas sector, foreign investors at
present can own a majority stake in their Algeria ventures. Until recently, some of these
foreign investors could repatriate 100% of their profits. (Source: Gulf Daily News)
• Algeria and Iran signed an agreement to build an assembly unit for train cars and a cement
factory totaling Euro22mn. Algerian President of chamber of Commerce and Industry
Ibrahim bin Jaber said, after a joint meeting between Algerian and Iranian businessmen,
that Iran share from the agreement will be 51%, including the establishment of a cement
factory with an estimated production power reaching 1mn tons annually. The Algerian
official also stated that the amount of commercial exchange between the two countries
reached US$25mn and is expected to reach US$50mn by the end of 2008. (Source:
Kuwait News Agency (KUNA))
• The Chairman of SNASCO announced that the company has recently signed an agreement
with the Family Housing Development Establishment in Algeria, to develop a waterfront
project in the city of Oran worth roughly US$400mn. He further pointed out that the
development is situated near the well-known Conference Palace project and extends over
150,000 square meters. (Source: Gulf News)
December 2008 Economic & Strategic Outlook 7

Global Research - Algeria Global Investment House
September
• Alumco LLC, the UAE-based specialized aluminum facade contractor and major glass
processor, and Saudi Arabia-based Construction Products Holding Company (CPC)
announced today the signing of a Memorandum of Understanding (MOU) to set up a
new aluminum extrusion factory in Algeria. The project will involve investment to the
tune of AED100mn and capital will be raised equally by both Alumco and CPC. The new
factory, spread over 100,000 square meters, will have an initial production capacity of
50,000 tons per year, revealed Mr. Barakat, and work on the project is expected to start
within six months from the signing of the MOU, with completion due within nine months
to one year. (Source: Bahrain Tribune)
October
• Swicorp announced a new partnership with Petroser. Petroser is the leading privately held
distributor of fuel and related products in Algeria. Under the terms of the partnership,
Intaj Capital, Swicorp’s US$250mn private equity vehicle focusing on sectors driven by
growth in consumer demand in the Middle East and North Africa region, has provided
funding to allow Petroser to expand into two new lines of business. (Source: Khaleej
Times)
• Bahrain-based Islamic investment bank, Al Salam Bank commenced operations in
Algeria taking its Islamic banking model to the North African region. The bank acquired
the license of Algeria’s Money and Credit Council to operate as one of the largest
banks in North Africa and to offer its banking services through its headquarters in the
Kingdom, besides a branch in the Algerian capital city with a paid up capital of AD7.2bn
(US$100mn). (Source: Bahrain Tribune)
November
• Dubai Ports World (DPW) will invest initially US$108mn in developing the ports of
Algiers and Djen-Djen. Sultan Ahmad Bin Sulayem, DPW Chairman said that the ports
of Algiers are in need for the advanced equipments and machines, and have to be larger
to accommodate bigger vessels. The project will handle these needs. Commenting on
the size of the investment, Bin Sulayem said this is an initial investment, which will be
increased when the traffic of the vessels starts. DPW will upgrade the infrastructure of
the ports to accommodate even the fourth generation of the huge vessels, he added. Amar
Tuo, Algerian Minister of Transport, said that Algeria is going through huge development,
where a budget of US$200bn had been allocated to the 2005-2009 plan. Algerian ports
will end up in a high level that would match up with the expected future Algerian wealthy
economy. (Source: Gulf News)
• Two-way trade between France and Algeria, France’s biggest trade partner in Africa, is
on course to reach Euro10bn (US$12.88bn) in 2008, a record high. Two-way exchanges
between France and the OPEC member country in the first nine months of 2008 stood
at Euro7.7bn, a rise of 49% from the same period in 2007. In 2007, two-way trade
amounted to Euro7.52bn, with France running a surplus of Euro779mn. In 2006 trade
stood at Euro8.17bn, with France running a deficit of Euro97mn. While some of the
increase is attributable to higher world prices for oil and gas -- Algeria’s principal exports
-- the increase also indicates a widening and deepening of French commercial interests in
Algeria. More than 300 subsidiaries of French companies were present in Algeria, three
8 Economic & Strategic Outlook December 2008

Global Research - Algeria Global Investment House
times as many as in 2005, directly employing 30,000 people and indirectly supporting
100,000 jobs. French exports are mainly food and agricultural products, worth 23% of the
total, automobiles and automotive products, worth 15%, and pharmaceuticals, perfumes
and cosmetics, worth 12%. (Source: Reuters)
December
• Algeria’s decision to stop importing locally-produced medicines will save up USD500mn
of its annual pharmaceutical imports cost, according to the permanent secretary of
Algerian Pharmaceutical Industry Union. (Source: Echorouk Newspaper)
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Global Research - Algeria Global Investment House
Macroeconomic Profile
The financial windfall realized in the Algerian economy over the past several years reveals
inherent investment opportunities, especially with the country’s prime location, which
facilitates trade with other countries in both the African and European continents. Being
among the top African countries possessing ample oil and gas resources, Algeria was able to
take advantage of the international boom in the oil sector that took place since the late 90’s,
realizing high revenues from the hydrocarbons projects. This has encouraged investment
activity, which is expected to flourish furthermore, given the country’s need for diversifying
its sources of wealth beyond hydrocarbons.
Revenues from oil and gas projects were the main reason behind the country’s ability to
realize notable growth in its economy. This was reflected on its GDP figures, as nominal
GDP grew by 9.1% in 2007, AD9,232.7bn, compared to AD8,460.5bn in 2006. While in
real terms, GDP rose by 4.6% in 2007, reaching AD5,581.1bn, compared to AD5,335.7bn
the previous year. Meanwhile, nominal GDP grew at a CAGR of 15.2% over the period
from 2003 to 2007, whereas real GDP grew at a CAGR of 4.2%. It is worth mentioning that
nominal GDP is expected to reach AD11,849.9bn in 2008, growing by 28.3% y-o-y. As for
real GDP, it is expected to rise by 4.9% in the same year, reaching AD5,852.3bn.
The main catalyst behind such results was the performance of the hydrocarbon sector,
contributing to around 44% of GDP and around 98% of total exports in 2007. It is worth
mentioning that most of the projects in this sector are concerned with upstream activity. The
sector grew by 4.9% y-o-y in 2007, reaching AD4,071.6bn, up from AD3,882.2bn in 2006.
The sector’s projects dominate Foreign Direct Investment (FDI) inflows, which reached
US$1.7bn in 2007, representing 1.2% of GDP.
Spurred by high hydrocarbons revenues realized over the beginning of 2008, the government
is expected to realize a growth rate of 61.0% in its fiscal surplus in the same year, to reach
AD1,694.5bn, where public revenues and expenditure are expected to grow by 34.0% and
23.6%, respectively.
The high revenues realized from the hydrocarbon projects in Algeria over the past years
enabled the government to make advance payments and reduce its external debt considerably
in 2006, as it reached US$3.7bn, compared to US$15.5bn in 2005, a decline of 75.8%. This
had in turn positively affected many aspects of the country’s economy. These include the
amelioration of the total government debt, as it reached an estimated balance of US$24.2bn
in 2007, compared to US$34.5bn in 2003, declining by a CAGR of 8.5% over the 4-year
period. Meanwhile, the reduction of external debt resulted in a 96.1% drop in the capital
account deficit in 2007, which in turn resulted in an amelioration of the overall balance of
the balance of payment, as it reached US$29.1bn, in 2007, up from US$17.0bn in 2006.
Moreover, the decline in external debt resulted in an enhancement of the Domestic Liquidity
(M2) after 2006, as it grew by 21.2% in 2007, compared to a growth rate of 18.7% in 2006.
One of the main challenges that the Algerian government faces is the high level of
unemployment, which had an estimated rate of 14.1% in 2008. It is worth mentioning that
unemployment rate in Algeria is considered higher than the average rate in the MENA region.
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Nevertheless, the government was able to significantly reduce this rate, as it represented
31.0% in 2003.
The Algerian economy still has a lot of unexploited opportunities. The hydrocarbon sector
governs the majority of projects taking place in the country. This fact may hinder the
Algerian economy, as the Minister of Industry and Investments Promotion stated early this
year that if oil prices went below US$60, problems in projects financing would arise. As
proposed by the IMF, the government shall move towards wealth diversification. This could
be achieved through concentrating on other sectors, which have promising potentials and
will consequently reduce the unemployment rate. These sectors include banking, telecom,
fertilizers, real estate, construction and other sectors. In addition, the IMF perceives that
the Algerian economy may not be harmed with the global financial crisis, as the banking
system in Algeria is minimally exposed to the international markets, nevertheless, the IMF
suggested that macroeconomic policies should be flexible to handle any possible hard drops
in oil prices.
A commission related to the finance ministry is currently monitoring the global financial
crisis to propose any necessary amendments in the Algerian macro-economic policies, if the
country’s economy is to be negatively affected by the world financial turmoil.
Other attempts of the Algerian government to secure the economy’s development was a
new legislation announced in August 2008, which was concerned with restricting foreign
participation in any business to only 49%. In addition, taxes of 15% will be imposed on
repatriated capital starting from 2009. We believe this was a reasonable decision taken by
the government to ensure the reinvestment of capital in the country and in the mean time
this action will guarantee that citizens will benefit from their own economy’s improvement.
Meanwhile, these decisions did not cut foreign investors’ appetite in the Algerian market.
This is illustrated by the flow of announced foreign investments in various sectors, including
energy, cement, real estate and fertilizers. It is worth mentioning that greater attention to
downstream projects should take place in order to take advantage of the intrinsic opportunities
in the energy sector.
In addition, the government announced plans to privatize state-owned enterprises and banks
but the privatization process is still considered sluggish and is expected to remain slow over
the coming period, due to the current world economic disorder. Moreover, it announced a
plan to resolve abnormal debts of the Small and Medium Sized Enterprises, expected to
witness growth, where the total finance charges on these companies were estimated at more
than AD700bn at the beginning of 2008.
The government shall exert efforts to facilitate the ease of doing business in the Country to
encourage the entrance of foreign investors in the market. A report published by the World
Bank indicated that Algeria ranked number 132, in terms of ease of doing business, in a
sample composed of 181countries.
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Global Research - Algeria Global Investment House
Table 01: Algeria’s ranking in “Doing Business 2009”
Rank Doing Business 2009
Ease of Doing Business 132
Starting a Business 141
Dealing with Construction Permits 112
Employing Workers 118
Registering Property 162
Getting Credit 131
Protecting Investors 70
Paying Taxes 166
Trading Across Borders 118
Enforcing Contracts 126
Closing a Business 49
Source: World Bank (Doing Business 2009 Report-Country Profile for Algeria)
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Gross Domestic Product
Being ranked among the top African countries in terms of holding ample hydrocarbons
reserves, Algeria’s economy is highly dependent on the oil and gas sector, which revenues
were the catalyst for the Country’s economic growth. This growth was reflected on Algeria’s
GDP acceleration in recent years.
During the period from 2003 to 2007, nominal GDP grew at a CAGR of 15.2%, while real
GDP grew at a CAGR of 4.2%. Nominal GDP grew by 9.1% y-o-y, reaching AD9,232.7bn,
compared to AD8,460.5bn in 2006. Whereas, real GDP grew by 4.6% y-o-y, reaching
AD5,581.1bn, compared to AD5,335.7bn the previous year. According to the International
Monetary Fund (IMF), nominal GDP is estimated to grow by 28.3% y-o-y, to reach
AD11,849.9bn in 2008, while real GDP is estimated to reach AD5,852.3bn in the same year,
a y-o-y growth of 4.9%.
Table 02: Gross Domestic Product
2003 2004 2005 2006 2007 2008*
GDP at Current Prices (ADbn) 5,247.5 6,135.9 7,544.0 8,460.5 9,232.7 11,849.9
GDP at Current Prices (US$bn) 67.8 85.1 102.7 116.8 134.3 171.286
Growth Rate of GDP at Current Prices (%) 16.0% 16.9% 22.9% 12.1% 9.1% 28.3%
GDP at Constant Prices (ADbn) 4,731.2 4,977.2 5,231.1 5,335.7 5,581.1 5,852.3
Growth of GDP at Constant Prices (%) 6.9% 5.2% 5.1% 2.0% 4.6% 4.9%
Per Capita GDP at Constant Prices (AD’000) 148.6 153.8 159.0 157.9 162.2 168.2
Population (mn) 31.8 32.4 32.9 33.8 34.4 34.8
*Estimated
Source: IMF and Global Research
The per capita GDP at constant prices reached AD162,242.1 in 2007, compared to
AD157,860.6 in 2006. It realized a CAGR of 2.2% over the 4-year period ending 2007. As
per the IMF, the per capita GDP at constant prices is estimated to reach AD168,169.1 in
2008.
Chart 01: GDP Growth
6,000 8%
6.9%
7%
5,500 6%
5.2% 5.1% 4.9%
4.6% 5%
4%
5,000
3%
2.0%
4,500 2%
4,731.2
4,977.2
5,231.1
5,335.7
5,581.1
5,852.3
1%
4,000 0%
2003 2004 2005 2006 2007 2008E
GDP at Constant Prices (ADbn) Growth of GDP at Constant Prices (%)-(right scale)
Source: IMF
The major contributor to GDP at all times was the hydrocarbon sector, which share reached
44.1% in 2007, amounting to AD4,071.6bn, up from AD3,882.2bn in 2006. This implies a y-
o-y growth of 4.9%. It is worthy to note that the hydrocarbon sector grew by 15.8% in 2006,
December 2008 Economic & Strategic Outlook 13

Global Research - Algeria Global Investment House
compared to a growth of 44.5% in the previous year. This drop justifies the deceleration of
real GDP growth from 5.1% in 2005 to 2.0% in 2006. The development of hydrocarbons
sector indicates a CAGR of 21.5% over the 4-year period from 2003 to 2007.
Table 03: GDP by Economic Activity-at Current Prices
2003 2004 2005 2006 2007*
Hydrocarbons 35.6% 37.8% 44.4% 45.9% 44.1%
Other sectors 56.7% 54.9% 49.0% 48.7% 50.0%
Agriculture 9.8% 9.4% 7.7% 7.6% 7.7%
Industry 6.7% 6.2% 5.3% 5.0% 4.7%
Construction and public works 8.5% 8.3% 7.5% 8.0% 8.7%
Services 31.7% 31.1% 28.5% 28.1% 28.9%
Nongovernment services 21.2% 21.2% 20.1% 20.1% 20.5%
Government services 10.5% 9.8% 8.4% 8.0% 8.4%
Imports taxes and duties 7.7% 7.3% 6.5% 5.4% 5.8%
*Provisional
Source: Banque d’Algerie, IMF and Global Research
The second highest contributor to GDP is the services sector, combining both government
and non-government services. This sector constituted 28.9% of GDP in 2007, amounting to
AD2,668.3bn, compared to a share of 28.1% in 2006, where its balance was AD2,381.3bn.
This sector realized a growth of 12.1% in 2007, up from the 10.8% growth realized in the
previous year. Over the 4-year period from 2003 to 2007, the services sector grew at a CAGR
of 12.5%.
Chart 02: GDP Composition by Economic Activity-2007*
Imports Taxes and Duties
5.8%
Services
28.9% Hydrocarbons
44.1%
Construction and
Public Works
8.7%
Industry
Agriculture
4.7%
7.7%
*Provisional
Source: Banque d’Algerie, IMF and Global Research
The share of construction and public works in GDP in 2007 was 8.7%, reaching AD803.2bn,
compared to a share of 8.0% the previous year, amounting to AD674.3bn. This sector was
able to realize a y-o-y growth of 19.1% in 2007 and a CAGR of 15.9% for the 4-year period
starting from 2003.
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Meanwhile, the agriculture sector captured a share of 7.7% of GDP in 2007, amounting
to AD710.9bn, compared to a share of 7.6% the previous year, reaching AD639.7bn. This
sector realized a significant escalation in its growth, as it jumped from 0.1% in 2005 to 10.4%
in 2006 and further to 11.1% in 2007. In addition, it realized a CAGR of 8.4%, over the
period from 2003 to 2007.
Industry, excluding hydrocarbons, had a share of 4.7% of GDP in 2007, down from 5.0% the
previous year. This sector witnesses a y-o-y growth rate of 1.9% in 2007, and a CAGR of
5.5% over the 4-year period, starting from 2003.
Table 04: GDP Composition by Expenditure Activity-Current Prices
Jan-Jun Jan-Jun
In ADbn 2003 2004 2005 2006 2007*
2007* 2008*
Final Consumption 2,902.5 3,216.0 3,414.7 3,643.3 N/A N/A N/A
Household Consumption 2,125.0 2,369.1 2,549.0 2,688.9 N/A N/A N/A
Public Consumption 777.5 846.9 865.7 954.4 N/A N/A N/A
Investment 1,590.1 2,034.1 2,380.1 2,501.3 N/A N/A N/A
Fixed Capital Formation 1,265.2 1,476.9 1,680.8 1,951.2 N/A N/A N/A
Change in Inventory 324.9 557.2 699.3 550.1 N/A N/A N/A
Net Exports* 754.9 885.8 1,749.2 2,315.9 2,284.0 1,030.8 1,393.9
Exports of Goods and Services 2,009.0 2,462.9 3,569.6 4,147.4 4,044.6 1,864.9 2,806.3
Imports of Goods and Services 1,254.1 1,577.1 1,820.4 1,831.5 1,760.6 834.2 1,412.3
*Provisional
Source: IMF, Banque d’Algerie and Global Research
The African Development Bank (AfDB) and the Organization for Economic Co-operation
and Development (OECD) estimate the share of final consumption in GDP to be 1.8% in
2007, and project a contribution sof 3.2% in 2008. Consumption grew by 6.7% in 2006,
reaching AD3,643.3bn, compared to AD3,414.7bn in 2005, and realizing a CAGR of 7.9%
over the period from 2003 to 2006. This growth was mainly driven by the 5.5% increase in
household consumption.
On the other hand, AfDB and OECD estimate the contribution of investment to GDP to
be 3.1% in 2007 and project it at 2.7% in 2008, respectively. It is worth mentioning that
investment realized a slight growth of 5.1% in 2006, reaching AD2,501.3bn, compared
to a 17.0% growth, realized the previous year, where it amounted to AD2,380.1bn. This
slowdown was mainly a result of the 21.3% decline in the change in inventory in 2006,
compared to the previous year.
According to Banque d’Algerie, which represents the Central Bank of Algeria, the trade
balance as of June 2008 reached approximately AD1,393.9bn, where the exports amounted
to AD2,806.3bn. The trade balance reached around AD2,284.0bn in 2007, where the exports
amounted to approximately AD4,044.6bn. In June 2007, it was AD1,030.8bn, where exports
were AD1,864.9bn. Whereas in 2006, the trade balance increased by 32.4%, reaching
AD2,315.9bn in 2006, compared to AD1,749.2bn, the previous year. This was a result of the
16.2% rise in exports, which surpassed the 0.6% increase in imports.
With the current global financial crisis, the IMF expects that Algeria would be able to realize
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Global Research - Algeria Global Investment House
a higher growth in real GDP, compared to that of the world’s average, over the 3-year period
from 2009 to 2012. Algeria is expected to realize a 4.5% GDP growth in 2009, compared to
a world’s average of 3.0%. Furthermore, the world’s GDP growth is expected to reach 4.8%
by 2012, whereas Algeria’s growth would be 5.1%.
Chart 03: Algeria’s Real GDP Growth vs. the World’s Real GDP Growth
8%
7%
6%
5%
4%
3%
2%
1%
0%
2003 2004 2005 2006 2007 2008F 2009F 2010F 2011F 2012F
Algeria's Real GDP Growth World's Real GDP Growth
Source: IMF
On the other hand, the World Bank’s latest report “World economic prospects 2009” issued
in December 2008, has forecasted Algeria’s real GDP growth at 3.8% and 5.4% in 2009 and
2010, respectively, compared to a world average of 0.9% and 3.0% during those two years.
This in turn divulges the intrinsic investment prospects in the Algerian economy.
16 Economic & Strategic Outlook December 2008

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Public Finance
In 2008, the government surplus is expected to represent 14.3% of GDP, reaching
AD1,694.5bn, implying a remarkable growth rate of 61.0%, over 2007. This is attributable
to the expected boost in revenues by 34.0%, compared to a 23.6% rise in expenses. The
revenues’ acceleration is spurred by the 35.5% expected surge in hydrocarbons proceeds,
reaching AD4,029.0bn. Meanwhile, AfDB and OECD estimated that the fiscal surplus would
reach AD1,052.5bn in 2007, decreasing by 11.3%, compared to 2006, and representing
11.4% of GDP. The reason behind such decline is attributed to the slowdown of government
revenues, as they were estimated to grow at 4.5% y-o-y, compared to a growth rate of 12.2%
in expenses. Such slowdown resulted from the lower increase in the proceeds generated from
hydrocarbons, as they rose by only 6.2% in 2007, compared to a growth rate of 19.0% in the
previous year.
It is worthy to note that the Algerian government was able to ameliorate its budget balance
in 2006, as it raised its surplus by 15.2%, reaching AD1,187.2bn up from AD1,030.7bn a
year before, and improved its share of GDP from 13.7% in 2005 to 14.0% in 2006. This
came on the back of the 18.1% rise in revenues, which amounted to AD3,639.9bn, compared
to AD3,082.7bn in 2005. This had its effect on alleviating the burden of expenses, which
realized a growth rate of 19.5% in 2006. This can be explained by the fact that revenues
constituted 43.0% of GDP, while the expenses had a lower share of 29.0% in 2006.
Table 05: Government Finances
In ADbn 2003 2004 2005 2006 2007E 2008F
Total Revenues and Grants* 1,947.5 2,215.2 3,082.7 3,639.9 3,803.9 5,095.5
Hydrocarbon Revenue** 1,350.0 1,570.7 2,352.7 2,799.0 2,972.9 4,029.0
Tax Revenue 524.9 580.4 640.5 720.9 710.9 912.4
Nontax Revenues* 69.7 63.7 89.5 119.7 N/A N/A
Grants 2.9 0.4 0.0 0.3 N/A N/A
Other Non-Distributed Items*** 0.0 0.0 0.0 0.0 120.0 154.0
Total Expenditure 1,691.4 1,891.8 2,052.0 2,452.7 2,751.4 3,400.9
Current Expenditure 1,121.0 1,245.5 1,241.4 1,433.7 1,569.6 1,884.1
Personnel Expenditure 398.0 446.8 492.2 531.3 470.9 568.8
Mudjahidins’ Pensions 62.7 69.2 79.8 92.5 N/A N/A
Material and Supplies 58.8 71.7 76.0 95.7 N/A N/A
Public Services 161.4 176.5 187.5 215.5 N/A N/A
Current Transfers **** 326.1 396.1 332.7 430.1 N/A N/A
Interest Payments 114.0 85.2 73.2 68.6 83.1 82.9
Other Non-Distributed Items*** 0.0 0.0 0.0 0.0 1,015.6 1,232.4
Capital Expenditure 570.4 646.3 810.6 1,019.0 1,181.8 1,516.8
Budget Balance 256.1 323.4 1,030.7 1,187.2 1,052.5 1,694.5
Special Accounts Balance 187.1 109.9 (129.0) (4.0) N/A N/A
Net Lending by Treasury 32.6 11.8 5.2 32.0 N/A N/A
Overall Balance***** 410.6 421.5 896.5 1,151.2 N/A N/A
* Excluding privatization receipts, classified under nonbank financing
**Including dividends on current profits paid by Sonatrach
***Due to lack of available data in 2007 and 2008, these items represent the difference between totals and available data
****This item covers expenditures for public services, food subsidies, agricultural price support, and cash transfers for the poor
*****Including special accounts, net lending and operations of the Rehabilitation Fund
Source: IMF, AfDB, OECD and Global Research
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The hydrocarbons’ share of government revenues is estimated to reach 78.2% and 79.1% in
2007 and 2008, respectively. Revenues from taxes decreased by 1.4% in 2007 and are then
estimated to realize a remarkable growth of 28.3% the following year, reaching AD912.4bn
and representing 17.9% of total revenues.
It is worthy to note that the Algerian government has announced that taxes of 15% will be
imposed on repatriated capital by foreign corporations operating in Algeria to their home
countries starting from 2009.
As for the fiscal revenues in 2006, 76.9% came from the hydrocarbon sector, which as
mentioned earlier, grew by 19.0% in the same year, reaching AD2,799.0bn. Tax revenues,
constituting 19.8% of total revenues, grew by 12.6% y-o-y, reaching AD720.9bn, up from
AD640.5bn in 2005. The revenues generated from taxes on goods and services, representing
47.4% of total tax revenues, rose by 10.6%, from AD308.8bn in 2005 to AD341.4bn in 2006.
In the mean time, taxes on income and profits representing 33.5% of total tax revenues,
increased by 43.5%, reaching AD241.2bn, up from AD168.1bn in 2005. Other non-tax
revenues, constituting 3.3% of total revenues, grew by 33.7% in 2006, reaching AD119.7bn,
compared to AD89.5bn in 2005. These revenues are derived from fees, Bank of Algeria
dividends and dividends from holdings.
Table 06: Breakdown of Government Revenues
In ADbn 2003 2004 2005 2006 2007E 2008F
Hydrocarbon Revenue 1,350.0 1,570.7 2,352.7 2,799.0 2,972.9 4,029.0
Of which: Sonatrach Dividends 65.0 85.0 85.0 85.0 N/A N/A
Nonhydrocarbon Revenue* 594.6 644.1 730.0 840.6 N/A N/A
Tax Revenue 524.9 580.4 640.5 720.9 710.9 912.4
Taxes on Income and Profits 127.9 148.0 168.1 241.2 N/A N/A
Wage Income Taxes 63.3 77.4 85.6 96.1 N/A N/A
Other 64.6 70.6 82.6 145.1 N/A N/A
Taxes on Goods and Services 233.9 274.0 308.8 341.4 N/A N/A
VAT and Excises on Imports 92.9 118.8 135.8 140.9 N/A N/A
VAT & Excises on Domestic Activities 102.5 115.1 129.1 145.7 N/A N/A
VAT on Domestic Transactions 73.4 86.6 98.9 114.2 N/A N/A
Tobacco and Alcohol Excises (DIC) 29.1 28.5 30.2 31.5 N/A N/A
VAT on Petroleum Products/levy 5.6 5.7 5.9 4.4 N/A N/A
Excises on Petroleum Products 30.3 31.4 37.9 40.6 N/A N/A
Other Indirect Taxes 2.7 2.9 0.1 9.7 N/A N/A
Customs Duties 143.8 138.8 143.9 114.8 N/A N/A
Registration and Stamps 19.3 19.6 19.6 23.5 N/A N/A
Non Tax Revenue* 69.7 63.7 89.5 119.7 N/A N/A
Fees* 23.6 27.0 35.1 44.4 N/A N/A
Bank of Algeria Dividends 42.1 30.0 48.7 75.3 N/A N/A
Dividends from Holdings 4.0 6.7 5.7 0.0 N/A N/A
Grants 2.9 0.4 0.0 0.3 N/A N/A
Other Non-Distributed Items** 0.0 0.0 0.0 0.0 120.0 154.0
Total Revenues and Grants* 1,947.5 2,215.2 3,082.7 3,639.9 3,803.9 5,095.5
* Excluding privatization receipts, classified under nonbank financing
**Due to lack of available data in 2007 and 2008, these items represent the difference between total and available data
Source: IMF, AfDB, OECD and Global Research
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Fiscal expenses were estimated to rise at 12.2% in 2007, a lower acceleration than the
19.5% realized in the previous year. This was due to the slowdown of the growth of both
current and capital expenditure. Current expenses increased by 9.5%, reaching AD1,569.6bn,
where funds allocated to personal expenditure declined by 11.4%, and those allocated for
interest payments, inclined by 21.1%. As for 2008, total expenses are expected to reach
AD3,400.9bn, implying a growth rate of 23.6%, resulting from the increase in current and
capital expenditure by 20.0% and 28.3%, respectively. It is worthy to note that personal
expenditure is projected to rise by 20.8% in 2008, while interest payments are to decrease by
0.2% in the same year.
As aforementioned, expenses rose by 19.5% in 2006, reaching AD2,452.7bn, compared to
AD2,052.0bn, the previous year. Both current and capital expenditure contributed to such
increase, as the current expenses incurred during the year, representing 58.5% of total
expenditure, inclined by 15.5%, moving up from AD1,241.4bn to AD1,433.7bn. The major
portion went to the wages and salaries, representing 37.1% of current expenses in 2006.
They grew by 7.9% y-o-y, reaching AD531.3bn. Current transfers, with a share of 30.0%
of current expenditure, grew by 29.3%, and amounted to AD430.1bn. Meanwhile, capital
expenses, representing 41.5% of fiscal expenses, rose by 25.7%, reaching AD1,019.0bn in
the same year.
Table 07: Breakdown of Government Expenditure
In ADbn 2003 2004 2005 2006 2007E 2008F
Current Expenditure 1,121.0 1,245.5 1,241.4 1,433.7 1,569.6 1,884.1
Personnel Expenditure 398.0 446.8 492.2 531.3 470.9 568.8
Wages and Salaries 392.8 442.3 490.1 531.3 N/A N/A
Other 5.2 4.5 2.1 0.0 N/A N/A
Mudjahidins‘ Pensions 62.7 69.2 79.8 92.5 N/A N/A
Material and Supplies 58.8 71.7 76.0 95.7 N/A N/A
Public Services 161.4 176.5 187.5 215.5 N/A N/A
Hospitals 59.3 63.2 61.7 73.5 N/A N/A
Other 102.1 113.2 125.8 142.0 N/A N/A
Current Transfers* 326.1 396.1 332.7 430.1 N/A N/A
Food Subsidies 0.3 1.0 1.5 2.9 N/A N/A
Youth Employment Support Fund 2.3 7.8 4.0 5.5 N/A N/A
Other Transfers 323.5 387.3 327.2 421.7 N/A N/A
Interest Payments 114.0 85.2 73.2 68.6 83.1 82.9
Other Non-Distributed Items** 0.0 0.0 0.0 0.0 1,015.6 1,232.4
Capital Expenditure 570.4 646.3 810.6 1,019.0 1,181.8 1,516.8
Total Expenditure 1,691.4 1,891.8 2,052.0 2,452.7 2,751.4 3,400.9
Special Accounts Balance 187.1 109.9 (129.0) (4.0) N/A N/A
Net Lending by Treasury 32.6 11.8 5.2 32.0 N/A N/A
Total Expenditure and Net Lending 1,536.9 1,793.7 2,186.2 2,488.7 N/A N/A
*This item covers expenditures for public services, food subsidies, agricultural price support, and cash transfers for the poor
** Due to lack of available data in 2007 and 2008, these items represent the difference between total and available data
Source: IMF, AfDB, OECD and Global Research
December 2008 Economic & Strategic Outlook 19

Global Research - Algeria Global Investment House
Public Debt
The total public debt provisional figure represents 18% of GDP in 2007, that is approximately
US$24.2bn, implying a y-o-y decline of 17.1%. Algeria was successful in dropping its total
government debt, between 2003 and 2007, at a CAGR of 8.5%, mainly through the decline
of its external debt.
The government external debt reached US$3.7bn in 2006, compared to US$15.5 in 2005, a
decline of 75.8%. This came on the back of the Country’s ability to make advance payments,
taking advantage of the growing GDP. On the other hand, domestic debt grew at 79.4% from
2005 to 2006, as it climbed from US$14.2bn to US$25.4bn.
Table 08: Public Debt
In US$bn 2003 2004 2005 2006 2007*
Gross Domestic Debt 12.7 13.9 14.2 25.4 N/A
Gross External Debt 21.8 20.4 15.5 3.7 N/A
Total Government Debt 34.5 34.3 29.6 29.2 24.2
*Estimated
Source: IMF, AfDB, CIA World Factbook and Global Research
The majority of gross domestic public debt in 2006 went to the equipment bonds and regular
securities, which represented 91.7% of the total local debt, equivalent to US$23.3bn, realizing
a y-o-y growth of 93.9%. The remaining debt came from the Central Bank overdrafts and
the refinancing bonds, constituting 5.5% and 2.8% of the domestic debt, respectively. It is
worthy to note that the Central Bank overdrafts declined by 7.7% in 2006, reaching US$1.4bn.
In addition, refinancing bonds shrank by 7.2% in the same year, where they amounted to
US$0.7bn.
Chart 04: Composition of Gross Domestic Public Debt-2006
Refinancing
Bonds
Central Bank 2.8%
Overdrafts
5.5%
Equipment Bonds and
Regular Securities
91.7%
Source: IMF
The Algerian government succeeded in reducing its gross external debt as percent of GDP
from 32.2% in 2003 to 3.2% in 2006. Conversely, domestic debt increased from 18.7% of
GDP in 2003 to 21.8% in 2006. The overall effect was an amelioration of the total debt
status, bringing it down from 50.9% of GDP to 25.0% of GDP over the 3-year period from
20 Economic & Strategic Outlook December 2008

Global Research - Algeria Global Investment House
2003 to 2006. As per the CIA World Factbook, a further enhancement was realized, as the
government reduced its total debt, both public and private, to an estimate of 18% of GDP in
2007.
Chart 05: Public Debt as a % of GDP
35% 32.2%
30%
23.9%
25%
21.8%
18.7%
20%
16.3%
15.0%
13.8%
15%
10%
3.2%
5%
0%
2003 2004 2005 2006
Gross Domestic Debt / GDP Gross External Debt / GDP
Source: IMF, AfDB and Global Research
December 2008 Economic & Strategic Outlook 21

Global Research - Algeria Global Investment House
External Trade
Exports
Midyear export balances inclined by 61.5% as of June 2008, reaching US$44.3bn, compared
to US$27.4bn in June 2007. This was mainly attributed to the hydrocarbon exports, forming
94.1% of total exports, as they rose by 55.0% over the year, reaching US$41.6bn, up from
US$26.9bn.
The hydrocarbon exports were impeded by the deceleration of output in 2007, as they rose
by 10.6% in the same year, realizing a lower growth than the 17.6% achieved in the previous
year. Nevertheless, their share of total exports remained the same at 97.8% in 2007. The
low increase in the hydrocarbon exports drove the total exports to rise similarly at a lower
rate, as they rose by 10.6% in 2007, which was below the 17.9% growth rate realized in the
previous year. Total exports in 2007 inclined by a CAGR of 25.5% over the period from
2003 to 2007.
Table 09: Exports
Jan-Jun Jan-Jun
In US$mn 2003 2004 2005 2006 2007*
2007* 2008*
Hydrocarbon 23,988 31,548 45,572 53,608 59,303 26,877 41,660
Food 47 66 67 73 92 43 N/A
Raw Materials 49 97 134 195 153 53 N/A
Semi Finished Products 316 432 651 828 988 409 N/A
Agricultural Equipment 1 - - 1 1 - N/A
Industrial Equipment 29 50 38 44 44 23 N/A
Consumer Goods 35 15 20 44 34 11 N/A
Other Non-Distributed Items** - - - - - - 2,630
Total Exports 24,465 32,208 46,482 54,793 60,615 27,416 44,290
*Provisional
**Due to lack of available data in June 2008, these items represent the difference between totals and available data
Source: Banque d’Algerie
Algerian exports increased notably over the 3-year period starting 2003, as they swelled from
US$24.5bn in 2003 to US$54.8bn in 2006, where they realized a y-o-y growth of 17.9% in
2006. Being the bedrock for the economy’s development, hydrocarbon exports constituted
97.8% of total exports in the same year.
Chart 06: Composition of Exports-2007*
Other Non Hydrocarbon Exports 2.2%
Natural Gas
14.2%
Liquefied Natural
Crude Oil
Gas
41.8%
10.8%
Liquefied Petroleum
Gases
7.5%
Refined Petroleum
Products
9.6% Oil Condensates 14.0%
*Provisional
Source: Banque d’Algerie
22 Economic & Strategic Outlook December 2008

Global Research - Algeria Global Investment House
The majority of Algerian exports were directed to the US in 2007, as they captured a share
of 29.4% of total exports, up from 27.2% in 2006. Italy and Spain followed with shares of
13.8% and 9.6% of total exports, respectively. Exports to these countries were reduced over
the year, as Italy’s portion of total exports was 17.0% in 2006, while 9.7% of total exports
went to Spain in the same year. Other countries including Canada and France constituted
8.4% and 7.4% of total exports in 2007, respectively.
Chart 07: Exports by Country-2007
US
Others 29.4%
31.4%
France Italy
7.4% 13.8%
Canada
Spain
8.4%
9.6%
Source: CIA World Factbook
Imports
Algeria increased its imports by 27.9% in 2007, as they reached US$27.4bn, compared to
US$21.5bn in 2006. This represents a CAGR of 21.5% over the years from 2003 to 2007.
The main imported products in 2007 were the industrial equipment, which amounted to
US$10.0bn, representing 36.3% of total imports and realizing an increase of 16.7% over
the previous year. The semi finished products, constituting 25.2% of total imports in 2007,
surged by 40.2%, reaching US$6.9bn, compared to US$4.9bn in 2006. Also, imports of food
amounted to US$4.8bn in 2007, a 27.0% y-o-y increase and a share of 17.6% of total imports.
Data from Banque d’Algerie indicated that total imports reached US$22.3bn in June 2008.
Chart 08: Composition of Imports
US$mn
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
-
2003 2004 2005 2006 2007*
Energy Raw Materials Semi Finished Products Agricultural Equipment
Industrial Equipment Consumer Goods Food
*Provisional
Source: Banque d’Algerie
December 2008 Economic & Strategic Outlook 23

Global Research - Algeria Global Investment House
The major importing country of the Algerian products in 2007 was France, having a share of
19.1% of total imports, down from 22.0% in the previous year. China followed with a share
of 9.2%, up from 8.5% in 2006. Then came Italy and Spain, which shares remained somehow
stable, representing 8.7% and 6.1% of total imports, respectively.
Chart 09: Imports by Region-2007
France
19.1%
Others
41.6%
China
9.2%
Italy
8.7%
Spain
Turkey 6.1%
Germany US
4.2%
5.5% 5.6%
Source: CIA World Factbook
24 Economic & Strategic Outlook December 2008

Global Research - Algeria Global Investment House
Current Account
Preliminary results of June 2008 indicate that the current account surplus was ameliorated by
68.0% y-o-y, reaching US$22.3bn in June 2008, compared to US$13.3bn in June 2007. This
was a result of many factors. Exports rose by 61.6%, compensating for the 81.8% jump in
imports, leading to an acceleration of 45.2% in the trade balance, as it rose from US$15.2bn
in June 2007 to US$22.0bn in June 2008. Meanwhile, the deficit in the services and income
account dropped by 61.0%, reaching US$1.1bn, compared to US$2.8bn the previous year.
Also, the transfers account was ameliorated by 54.0%, reaching US$1.3bn.
The current account surplus realized a growth of 4.6% in 2007, reaching US$29.5bn. This
modest growth was attributed to the slight increase of 2.1% in the trade balance, realized in
the same year, as it amounted to US$34.1bn, which was in turn a result of the jump of 22.3%
in imports, parallel to a 10.1% rise in exports. In addition, the deficit in the services and
income account was reduced by 5.1%, reaching US$6.4bn. Moreover, net transfers inclined
by 15.5%, reaching US$1.9bn in 2007, compared to US$1.6bn in the previous year.
The current account surplus in 2006, representing 24.2% of GDP, increased by 33.5%,
reaching US$28.2bn, compared to US$21.1bn in 2005. This was mainly a result of the rise
in the trade balance, which grew by 26.1% in the same year, reaching US$33.3bn, up from
US$26.4bn in the previous year. This was a result of the 17.9% increase in exports, surpassing
the 7.0% rise in imports.
Meanwhile, the government was able to reduce the deficit in the services and income
account by 8.6% in 2006, reaching US$6.7bn, compared to US$7.4bn in the previous year.
Nevertheless, net transfers decreased by 21.8% over the year, reaching US$1.6bn, down
from US$2.1bn in 2005.
Table 10: Current Account
Jan-Jun Jan-Jun
In US$bn 2003 2004 2005 2006 2007*
2007* 2008*
Trade Balance 11.9 15.1 26.4 33.3 34.1 15.2 22.0
Exports 24.5 32.2 46.5 54.8 60.3 27.4 44.3
Hydrocarbons 24.0 31.5 45.6 53.6 59.3 27.0 41.7
Other Exports 0.5 0.7 0.9 1.2 1.0 0.41 2.6
Imports (12.6) (17.1) (20.0) (21.5) (26.3) (12.3) (22.3)
Services and Income (net) (4.1) (5.6) (7.4) (6.7) (6.4) (2.8) (1.1)
Services (net) (1.4) (2.0) (2.3) (2.2) (4.0) (1.8) N/A
Credit 1.6 1.9 2.5 2.6 2.84 1.42 N/A
Debit (2.9) (3.9) (4.8) (4.8) (6.86) (3.2) N/A
Income (net) (2.7) (3.6) (5.1) (4.5) (2.4) (1.0) N/A
Credit 0.8 1.0 1.4 2.4 3.3 1.61 N/A
Debit (3.5) (4.6) (6.5) (6.9) (5.7) (2.6) N/A
Of which:
Interest Payments (1.2) (1.3) (1.0) (0.8) (0.2) (0.1) N/A
Profit Repatriation (2.3) (3.3) (5.5) (6.2) (5.4) (2.5) N/A
Transfers (net) 1.8 2.5 2.1 1.6 1.9 0.87 1.3
Current Account 9.6 11.9 21.1 28.2 29.5 13.3 22.3
*Provisional
Source: IMF and Banque d’Algerie
December 2008 Economic & Strategic Outlook 25

Global Research - Algeria Global Investment House
Capital & Financial Account and Balance of Payment
The amelioration of the current account balance by 68.0% over the period from June 2007 to
June 2008, which have been discussed earlier, has offset the increase in the capital account
deficit, which became US$2.5bn, up from US$0.7bn, and led to an enhancement in the overall
balance of the balance of payment by 57.1% over the same period, as it reached US$19.8bn,
up from US$12.6bn.
The Balance of payment witnessed an increase in its overall balance by 71.0% in 2007,
reaching US$29.1bn, up from US$17.0bn in 2006. The main driver for such jump was the
amelioration of the capital account, as the government succeeded in reducing the deficit in
that account by almost 96%, from US$11.2bn in 2006 to US$0.4bn in 2007, which in turn
came on the back of the reduction of the external debt that occurred in 2006.
Table 11: Balance of Payment
Jan-Jun Jan-Jun
In US$bn 2003 2004 2005 2006 2007*
2007* 2008*
Current Account 9.6 11.9 21.1 28.2 29.5 13.3 22.3
Capital Account (1.4) (1.9) (4.2) (11.2) (0.4) (0.7) (2.5)
Direct investment (net) 0.6 0.6 1.1 1.8 1.5 (0.5) 1.0
Loans (net) (1.4) (2.2) (3.1) (11.9) (0.9) (0.9) (0.3)
Drawings 1.7 2.1 1.4 1.0 0.5 (0.2) 0.6
Amortization (3.0) (4.4) (4.5) (12.9) (1.5) (1.1) (0.9)
Short-term capital and errors and omissions (0.6) (0.3) (2.3) (1.1) (1.0) (0.3) (3.2)
Overall Balance 8.2 10.0 16.9 17.0 29.1 12.6 19.8
*Provisional
Source: IMF and Banque d’Algerie
26 Economic & Strategic Outlook December 2008

Global Research - Algeria Global Investment House
Foreign Direct Investment
The Foreign Direct Investment (FDI) inflows to Algeria reached US$1.7bn in 2007,
representing 1.2% of GDP, a decline of 7.2% y-o-y, as it stood at US$1.8bn in 2006.
Meanwhile, it grew at a CAGR of 23.6% over the 3-year period starting from 2004, where it
amounted to US$0.9bn.
The Algeria government started a liberalization program for the country’s economy in 1996.
Since then, foreign investments have begun to flow to Algeria, spurred by the government
encouragement, especially in the hydrocarbon sector. Currently, FDI inflows are in the range
of 13%-14% of Algeria’s investments, up from 2.3% when it started over in the late 90’s.
Inflows are expected to increase furthermore, in response to the government’s attempts to
ameliorate various aspects in the economy, one of which is the infrastructure sector.
Albeit the majority of inwards are coming from the hydrocarbon sector, especially from
Europe, we find that foreign projects have begun exploring other sectors, such as building
materials, telecommunication, water and electricity. Nevertheless, oil and gas projects
are expected to dominate future foreign investments, as the government plans to raise its
hydrocarbon production. Meanwhile, demand from Europeans is still assured for the medium-
term.
In August 2008, the Algerian government issued a new legislation that limits the foreign
participation in any business to only 49%. This comes in line with the government aim of
expanding the local partnership in projects, in an attempt to obtain major control over the
proceeds generated from various projects. In addition, new taxes of 15% on repatriated capital
will be imposed on some foreign businesses operating in Algeria, starting 2009. Moreover,
the hydrocarbon sector witnessed increased costs of engineering and construction.
While all these legislations and actions taken by the Algerian government might be seen as
a cause for delays or reconsiderations for some projects, we believe that the low cash cost of
production for many industries, on the back of the relatively cheap different feedstock, is the
real trigger for more FDI inflows in Algeria.
Chart 10: Foreign Direct Investment
US$mn
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
-
2004 2005 2006 2007
Foreign Direct Investment Inflows Foreign Direct Investment Outflows
Source: Economic Intelligence Unit (World Investment Prospects to 2011 Report)
December 2008 Economic & Strategic Outlook 27

Global Research - Algeria Global Investment House
Privatization
Along with the liberalization process announced in the late 90’s, Algeria announced its
movement towards a privatization program, taking various forms, starting from selling
public enterprises, to even partial sales of state-owned corporations, which could take place
either through the secondary market, organizing bids or through private deals. Usually, a
restructuring of the state-owned enterprise takes place prior to the privatization, to ensure
profitable and successful deals.
The government has announced the privatization of the majority of the “Credit Populaire
d’Algerie” Bank that should have taken place by the end of 2007. Nevertheless the subprime
crisis that hit the US market has apparently affected some of the banks that were about to
present their bids and the deal was postponed. The government plans currently to sell a stake
of another bank “Banque de Developpement Local” to a strategic investor, but has not yet
scheduled the date on which it will execute the deal.
Meanwhile, the government was planning to partially privatize its major fixed line operator
“Algerie Telecom” through selling a stake of 35% in an Initial Public Offering (IPO). This
deal was supposed to take place by the end of 2006. Nevertheless, the government announced
in 2008 that it will postpone the deal for 2 or 3 years to improve the operator’s services, so
that it would be more commercial. Other privatization deals announced to be currently in the
pipeline are for ports and Air Algeria.
On the other hand, 13 state-owned corporations have been announced to be privatized in an
invitation by the government in 2008 to national and international investors to tender for
privatization. These enterprises operate in various fields and industries, including car batteries,
detergents, salt production, insecticides, steel manufacturing, road works and other areas. As
announced by the Minister of Industry and Investments Promotion in the beginning of 2008,
417 privatization deals took place since 2003. These deals resulted in proceeds amounting
to AD125bn and a creation of 18,396 jobs. Meanwhile these deals helped maintaining 36
thousand jobs.
It is expected that the privatization process would remain slow over the near future due to
the global economic crisis, which could hinder the financial position of foreign investors and
consequently could negatively affect their appetite for acquisition deals.
28 Economic & Strategic Outlook December 2008

Global Research - Algeria Global Investment House
Monetary Policy
Over the period from June 2007 to June 2008, domestic liquidity (M2) in Algeria grew by
22.1%, reaching AD6,602.1bn, which was mainly a result of the 27.5% rise in Money Supply
(M1), amounting to AD4,732.7bn, compared to AD3,712.2bn in June 2007. In addition,
Quasi money accelerated by 10.4% over the same period, reaching AD1,869.3bn.
Domestic liquidity grew at a CAGR of 15.5% over the 4-year period from 2003 to 2007, as
it reached AD5,978.0 in 2007, compared to AD3,354.3bn in 2003. It realized a y-o-y growth
of 21.2% in 2007. This was mainly attributed to the 33.0% increase in (M1), as it moved up
from AD3,167.6bn in 2006 to AD4,214.3bn the following year. It is worth mentioning that
domestic liquidity witnessed acceleration in its growth starting from 2006, as before that the
government’s efforts to minimize external debt were translated into a slow growth of M2, as
it represented only 11.4% in 2004 and 11.2% in 2005. Then in 2006, it rose by 18.7%.
The period from June 2007 to June 2008 witnessed a y-o-y increase of 29.1% in net foreign
assets, which stood at AD8,290.4bn, a higher balance than that of domestic liquidity,
indicating that these assets are a principal source of funds for the country.
Table 12: Money Supply
Jan-Jun Jan-Jun
In ADbn 2003 2004 2005 2006 2007*
2007* 2008*
Net Foreign Asset 2,342.6 3,119.2 4,179.7 5,515.1 7,402.6 6,419.4 8,290.4
Central Banks 2,325.9 3,109.1 4,151.5 5,526.4 7,382.9 6,392.8 N/A
Commercial Banks 16.7 10.1 28.2 (11.3) 19.7 26.6 N/A
Domestic Credit 1,803.6 1,514.4 846.6 601.4 (1.2) 324.0 (565.7)
Credit to the Government 423.4 (20.6) (933.2) (1,304.0) (2,183.3) (1,686.2) N/A
Credit to the Economy 1,380.2 1,535.0 1,779.8 1,905.4 2,182.1 2,010.2 N/A
Total Domestic Liquidity (M2) 3,354.3 3,738.0 4,157.6 4,933.7 5,978.0 5,405.7 6,602.1
Money Supply (M1) 1,630.3 2,160.5 2,421.4 3,167.6 4,214.3 3,712.2 4,732.7
Money in Circulation 781.3 874.3 921.0 1,081.4 1,284.5 1,153.3 N/A
Demand Deposits 718.9 1,127.9 1,224.4 1,750.4 2,551.1 2,185.1 N/A
Deposits with Treasury & Postal
130.1 158.3 276.0 335.8 378.7 373.8 N/A
Checking System
Quasi-Money 1,724.0 1,577.5 1,736.2 1,766.1 1,763.7 1,693.5 1,869.3
*Provisional
Source: Banque d’Algerie
The discount rate has been almost stable for the last four years, as it stood at 4%. As for the
deposit and lending rates, in nominal terms, as they remained stagnant in 2007 with rates of
1.8% and 8.0%, respectively. For deposit rates, they averaged between 1.25% and 2.50% in
2005, while lending rates averaged between 5.50% and 9.00% in the same year. It is worthy
to note that these rates are expected to be raised by 2008, as a tool used by the government for
tightening monetary policy to control inflation and keep positive real interest rates. However,
with the current expected recession, many commodities’ prices would drop, which will ease
the inflation in Algeria.
December 2008 Economic & Strategic Outlook 29

Global Research - Algeria Global Investment House
Table 13: Movement in Interest Rates
2003 2004 2005 2006 2007 2008F
Discount Rate 4.50% 4.00% 4.00% 4.00% 4.00% 4.00%
Deposit Rate 4.50%–5.75% 2.25%–3.25% 1.25%–2.50% 1.80% 1.80% 2.00%
Lending Rate 8.00%–9.00% 6.00%–9.00% 5.50%–9.00% 8.00% 8.00% 8.10%
Source: AfDB, IMF, Banque d’Algerie and EIU
Real interest rates in Algeria turned out to be negative in the last couple of years, as they
reached -2.68% and -2.12% in 2006 and 2007, respectively. This drop of real interest rates
is due to the accelerated inflation, which was opposed by stable nominal rates. It is worth
mentioning that an over liquidity in the banking system occurred as a result of the augmented
funds deposited by Sonatrach, the national enterprise for research, production, transport,
transformation and marketing of oil and gas in Algeria. To curb the excess liquidity, many
tools were used, one of which was setting the required reserve ratio at 6.5% and another was
to offer interest-bearing deposits, in addition to calling for tenders. This has led to settling
more than 96% of the over liquidity problem. A tighter monetary policy is expected to be
adopted to combat inflation, this includes increasing nominal interest rates to adjust real
interest rates to reach positive terms.
Chart 11: Real Interest Rates Development
%
8
6
4
2
0
-2
-4
2001 2002 2003 2004 2005 2006 2007
Source: World Bank
30 Economic & Strategic Outlook December 2008

Global Research - Algeria Global Investment House
Foreign Exchange Reserve
Net international reserves rose by 41.5% y-o-y, to reach US$110.6bn in 2007, compared to
US$78.2bn, the previous year. This balance represents a CAGR of 34.9% over the 4-year
period starting from 2003. The rise of oil and gas prices helped boost exports proceeds, which
resulted in the surge of reserves over the period. As of June 2008, international reserves
reached US133.2bn. Future balances of foreign reserves will depend to a great extent on the
trend of hydrocarbon prices in the coming period.
Chart 12: International Reserves
US$bn
140
120
100
80
60
40
20
-
2003 2004 2005 2006 2007 Jun2008
Source: AfDB and Banque d’Algerie
Exchange Rate
The foreign exchange market in Algeria is controlled by Banque d’Algerie, through a floating
management system. Most of the operations take place through the Central Bank, whereas a
minor proportion is left to function within the interbank market.
The difference between the official and non-official foreign exchange markets lessened at the
beginning of 2006, as importers were required to have a minimum capital of AD20mn. This
has resulted in diminishing number of importers and thus demand for foreign currency was
reduced. Nevertheless, the appreciation of the Euro in 2007 spurred its demand and resulted
in an expansion in the gap between the two markets.
Soaring oil and gas export prices and the resulting ample reserves of foreign currency helped
appreciating the local currency, as the average exchange rate was AD67.07:US$1 in 2007,
where it stood at AD71.07:US$1 the previous year. It is worthy to note that the average
exchange rate for the month of June 2008 reached 63.36AD:US$1.
Table 13: Exchange Rates
Jan-Jun Jan-Jun
2004 2005 2006 2007
2007* 2008*
(AD/US$) end of period 72.6137 73.3799 71.1582 66.8299 67.7960 62.8140
(AD/US$) period average 72.0659 73.3627 71.0716 67.0718 68.0384 63.3613
(AD/Euro) end of period 98.9507 87.0176 93.7545 98.3302 91.6317 98.9664
(AD/Euro) period average 89.6423 91.3014 93.9017 97.6445 91.3000 98.6392
*End of period rates are for the end of June, while average rates represent average of rates in the month of June
Source: Banque d’Algerie and Go Currency Website
December 2008 Economic & Strategic Outlook 31

Global Research - Algeria Global Investment House
Inflation
Soaring prices of imported goods to Algeria, whether primary or industrial, in addition to
the expansionary fiscal policy adopted by the government, in terms of increased investment
plans, as well as salaries increases, were behind the surging inflationary pressures witnessed
in Algeria in 2007.
Following the general trend that took place in 2007 in the whole world, inflation in Algeria
has reached high levels, after it had slowed down for 2 years, to reach back the 3.6% level,
which was achieved in 2004. Though the government has targeted inflation at 3.5% for 2008,
IMF estimates that inflation would reach 4.3% by the end of 2008. It is worthy to note that
inflation averaged 4.2% over the 9M period ending September 2008.
The efforts made by the Algerian government towards squeezing inflationary pressures are
expected to result in lower inflation levels in 2009, as it is expected to reach 4.0%, according
to the IMF estimates. Like many developing economies, Algeria suffered from the surging
food prices in 2008, which are expected to ease in 2009, pushing the inflationary level
down.
Chat 13: Inflation (Average Consumer Prices)
140 5.0%
4.5%
120
4.0%
100 3.5%
3.0%
80
2.5%
60 2.0%
1.5%
40
1.0%
20
0.5%
- 0.0%
2003 2004 2005 2006 2007 2008F 2009F
Inflation, Average Consumer Prices-Index, 2000=100 Inflation, Average Consumer Prices-Annual Percent Change (right scale)
Source: IMF
32 Economic & Strategic Outlook December 2008

Global Research - Algeria Global Investment House
Population and Labor Force
Population in Algeria reached an estimate of 34.8mn in 2008. This implies a y-o-y growth
of 1.2%, as it amounted to 34.4mn in 2007. In the mean time, population grew at a CAGR
of 1.8% over the 5-year period from 2003 to 2008, where it represented 31.8mn in 2003.
The birth and death rates remained stagnant since 2004 at around 17.1 per 1,000 and 4.6 per
1,000, respectively.
Chart 14: Population in Algeria
mn
39
37
34.8
34.4
35
33.8
32.9
32.4
33 31.8
31
29
27
25
2003 2004 2005 2006 2007 2008E
Source: IMF
Of the Algerian population, around 26.3% is below the age of 14 years old, 68.7% is in the
range between 15 and 64 years old, while 5% are above 65 years old. It is worthy to note that
the labor force is estimated to represent 27% of the population in 2008, as it reached 9.4mn,
representing a y-o-y growth of 0.8%, where it stood at 9.3mn in 2007.
Table 14: Population Indicators
2003 2004 2005 2006 2007 2008*
Labor Force/Population % 29.5% 29.7% 30.1% 30.0% 27.1% 27.0%
Unemployment Rate % 31.0% 26.2% 25.4% 17.1% 15.7% 14.1%
Rate of Births (per thousand) 21.9 17.1 17.1 17.1 17.1 17.0
Rate of Deaths (per thousand) 5.1 4.6 4.6 4.6 4.6 4.6
Illiteracy (%) 30.1% 29.0% 27.9% 30.1% 26.0% N/A
*Estimated
Source: Index Mundi and AfDB
Unemployment rate witnessed a sharp decline over the 5-year period from 2003 to 2008, as it
dropped from 31.0% in 2003 to an estimate of 14.1% in 2008. Nevertheless, the government
still has to control unemployment rate, as it is considered higher than the average of other
MENA countries in 2007. New candidates to the labor force and absence of immigration
opportunities make reduction of unemployment rate more difficult. In addition, the
hydrocarbon sector, capturing the overwhelming majority of the Algerian economic activity
is more of a capital intensive industry, implying that it cannot absorb a large proportion of
unemployed population.
December 2008 Economic & Strategic Outlook 33

Global Research - Algeria Global Investment House
Chart 15: Employment by Sector-2006
Other
Agriculture
23.2%
27.3%
Industry
8.1%
Government
23.7%
Construction and
Public Works
17.8%
Source: IMF
The agriculture sector captured around 27% of the labor force in 2006. The public sector
followed with a share of 23.7%, then the construction with 17.8%.
The government’s plan towards decreasing unemployment should begin with realizing
economic growth in various aspects, including easing trade activity and encouraging
investments. Also, the government should act towards making new jobs creation, which
could be achieved through providing facilities in the labor market, one of which is to ease
turnover. In addition, increasing wages could be a stimulant for new jobs opportunities.
It is worthy to note that the government is currently expanding its fiscal spending, including
raising employees’ salaries. Furthermore, the IMF proposed that the proceeds of the Algerian
hydrocarbon sector should be oriented towards lowering personal income taxes for labor
intensive industries. However, with the current declines in the international oil prices, on the
back of the expected world recession, this plan may found difficulty in application.
34 Economic & Strategic Outlook December 2008

Global Research - Algeria Global Investment House
Sector Performance
Hydrocarbons
The Algerian economy is ruled by hydrocarbon exports, which amounted to US$59.3bn in
2007, contributing to almost 44.1% of GDP and 97.8% of the country’s total exports. The
surge in hydrocarbons prices in recent years has had a positive effect on the whole economy,
primarily improvements in the Country’s budget, external debt and foreign currency
reserves.
Chart 16: Algeria’s Hydrocarbons Exports Development
US$mn
30,000
25,000
20,000
15,000
10,000
5,000
-
2004 2005 2006 2007*
Crude Oil Oil Condensates Refined Petroleum Products LPG LNG Natural Gas
*Provisional
Source: Banque d’Algerie
The Country is rich in both oil and natural gas. Algeria owns 0.9% of the world oil reserves,
equivalent to 12.2 billion barrels (bbl). As for the natural gas, the Country holds 2.6% of the
world proven reserves, amounting to 159.5 trillion cubic feet (tcf).
Oil
Algeria holds the third largest oil proven reserve in Africa, after Libya and Nigeria, estimated
at 12.2 bbl as of January 2008. Most of the proven reserves are mainly located in the eastern
half of the country. The Hassi Messaoud basin contains over 70% of the Country’s proven
oil reserves. Many industry analysts consent that Algeria’s oil sector is still under explored,
despite the fact that the country has produced oil since 1956.
Chart 17: Top 5 African Proven Oil Reserve Holders, 2007
Billion Barrels
45 41.5
40 36.2
35
30
25
20
15 12.2
9.0
10
5.0
5
-
Libya Nigeria Algeria Angola Sudan
Source: Energy Information Administration (EIA)
December 2008 Economic & Strategic Outlook 35

Global Research - Algeria Global Investment House
Algeria is an active member of the Organization of the Petroleum Exporting Countries
(OPEC). It is worth mentioning that the Algerian Minister of energy and mining, Mr. Chakib
Khelil is the current head of OPEC. The country’s oil production reached 2,000 barrels per
day (bbd) in 2007, representing 19.4% of the African production and 2.5% of the world’s
total daily oil production. The Algerian oil production grew at a CAGR of 1.9% between
2003 and 2007.
The Algerian oil is among the highest quality in the world for its low sulfur content, 0.1%,
which meets the European Union countries stern regulations on sulfur content of gasoline
and diesel fuel.
Chart 18: Oil Production in Africa in 2007
Tunisia
Rep of Congo
0.9%
(Brazzaville)
Other Africa
2.2%
Chad 0.8%
1.4%
Cameroon
Gabon 0.8%
Equatorial Guinea 2.2%
Nigeria
3.5%
22.8%
Sudan
4.4%
Egypt
6.9%
Angola
16.7% Algeria
19.4%
Libya
17.9%
Source: BP Statistical Review of World Energy, June 2008
Though Algeria’s oil production is high, the local consumption doesn’t exceed 13.5%,
leaving the rest for exports. The Algerian government plans to increase its industrial base to
make use of the abundant oil supply, as well as the proven reserves, instead of orienting it to
exportation. In other words, the country is shifting its policy to more downstream projects
than upstream ones.
In April 2005, the hydrocarbon law passed to remove many restrictions on foreign energy
companies, however the sector is still dominated by the government entity Sonatrach, which
is either the owner or the majority holder in joint ventures in hydrocarbon related projects. As
for oil exploration promotion, upstream contracts signing, development plans approvals, as
well as taxes and royalties collections, are also state regulated through Al Naft agency.
36 Economic & Strategic Outlook December 2008

Global Research - Algeria Global Investment House
Chart 19: Algeria’s Oil Production and Consumption Development
Thousand barrels daily
2,500
2,000
Net Exports
1,500
1,000
500
-
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Oil Production Oil Consumption
Source: BP Statistical Review of World Energy, June 2008
With domestic oil consumption limited at 270,000 bbd, Algeria’s oil net exports reached
1.73million bbd in 2007. Algerian oil, as aforementioned, for its low sulfur content is
favored in developed world, where stern environmental regulations apply. Close to half of
the Algerian oil exports are exported to the US, followed by Europe with 38% of the total
exported quantities and the remaining 14% is oriented to Asia.
Chart 20: Algerian Oil Exports by Destination in 2007
Asia
14%
Europe
38%
America
48%
Source: Sonatrach Annual Report 2007
The Algerian oil exports are helped by a network of pipelines, which facilitate transport the
crude oil and oil condensates, as well as the Liquefied Petroleum Gases (LPG) to exportation
terminals on the coast of the Mediterranean. Most of the oil pipelines are operated by
Sonatrach. As the Hassi Messaoud field is where the major Algerian oil fields are located, it
is the origin of most of the transported crude oil to the export ports.
Table 15: Algeria’s Major Domestic Crude Oil Pipelines
Origin Destination Length (miles) Capacity (bbl/d)
Hassi Messaoud Arzew 500 470,000
Hassi Messaoud Bejaia 410 370,000
Hassi Messaoud Skikda 400 520,000
In Amenas Hassi Messaoud 390 390,000
Hassi Berkine Hassi Messaoud 180 110,000
El Borma Mesdar 170 55,000
B. Mansour Algiers 80 77,000
Mesdar Hassi Messaoud 70 26,000
Source: Energy Information Administration (EIA)
December 2008 Economic & Strategic Outlook 37

Global Research - Algeria Global Investment House
Algeria has four oil refining facilities with a combined capacity of 450,000 bbd and are all
operated by Naftec, an affiliate of Sonatrach. Naftec supplies the majority of the Algerian oil
products needs. The bulk of the country’s refined products come from the Skikda refinery,
which operates with a capacity of 300,000 bbd. The three other refineries are geographically
spread in order to supply different parts of the country with the required end products.
Chart 21: Algeria’s Crude Oil Refining Capacity
Thousand Barrels per Day
600
500
400
300
200
100
-
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: Energy Information Administration (EIA)
After the hydrocarbon law of 2005 came into effect, the foreign partnerships with Sonatrach
increased. Many multinationals were eager to open more business in Algeria in the field of
oil and gas for its rich resources and huge proven reserves.
Chart 22: Crude Oil and Condensates Production by Ownership Structure
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Sonatrach Foreign Partnership
Source: Sonatrach Annual Report 2007
Natural Gas
Algeria ranks among the top ten countries with the highest proven natural gas reserves in the
world, with 159 trillion cubic feet (tcf) as of January 2008. On the African continent, Algeria
ranks second in terms of the natural gas proven reserves. Such a huge reserve has positioned
the Country as one of the most favorable destinations for both natural gas dependant upstream
and downstream projects. Almost quarter of the Algerian dry natural gas proven reserves are
located in Hassi R’Mel field, with 85 tcf of proven reserves.
38 Economic & Strategic Outlook December 2008

Global Research - Algeria Global Investment House
Chart 23: Top African Natural Gas Reserve Holders in 2007
Trillion cubic feet
200 187.0
180
159.4
160
140
120
100
72.9
80
52.8
60
42.8
40
20
-
Nigeria Algeria Egypt Libya Other Africa
Source: BP Statistical Review of World Energy, June 2008
The Country produced 8.0billion cubic feet per day (bcf/d) of natural gas in 2007, while it
consumed about 2.4bcf/d and the remaining was exported mostly in liquefied form. Between
2006 and 2007, the Algerian production dropped slightly by 1.7%, at the same time the
consumption rose by 2.7%, during the same period.
Between 2000 and 2007, the Natural Gas production slightly dropped at a CAGR of 0.2%,
while the consumption rose at a CAGR of 3.0%. This in turn came on the back of the Country’s
expansion of more downstream projects like fertilizers and petrochemicals to maximize the
value added of its abundant reserves of the light feedstock.
Chart 24: Algeria’s Natural Gas Production vs. Consumption Development
Billion cubic feet per day
9.0
8.0
7.0 Net Exports
6.0
5.0
4.0
3.0
2.0
1.0
-
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Natural gas Production Natural gas Consumption
Source: BP Statistical Review of World Energy, June 2008
In 2007, Algeria ranked fourth on the world in terms of Liquefied Natural Gas (LNG) exports,
behind Qatar, Malaysia and Indonesia. It is worth mentioning that Algeria was the world’s
first producer of LNG in 1964, through its plant located in Arzew, which currently became the
Country’s largest LNG export terminal facility. Skikda and Algiers are considered important
exportation terminals as well.
France imported 31.8% of Algeria total LNG exports in 2007, followed by Turkey and Spain
with 18.0% and 17.5%, respectively.
December 2008 Economic & Strategic Outlook 39

Global Research - Algeria Global Investment House
Chart 25: Chart 26:
Top LNG Exporters in 2007 Algerian LNG Exports by Destination in 2007
Italy
Japan
Billion cubic feet 9.9% US
1,600 3.2%
8.6%
Spain
1,400 UK
17.5%
1,200 2.6% India 1.8%
1,000
Greece
800
2.0%
600 China 1.7%
Other
400
6.4%
200
Belgium 1.4%
- Turkey
ria alia ago ypt an nei AE inea
tar sia sia ria a y
US by rwa
Qa alay one Alge Nige ustr Tob Eg Om Bru South Korea 1.0%
18.0%
Li
U
Gu No
d
ral Taiwan 0.6%
In
M A &
to
ad ua
d
ini Eq
Tr France
31.8%
Source: BP Statistical Review of World Energy, June 2008
The Algerian natural gas sector is also state regulated through Sonatrach, which controls
production and wholesale. As for the retail distribution, it is dominated by another government
entity that is Sonelgaz. Foreign investments in the sector were allowed and various foreign gas
producers, including BHP-Billiton, BP, Repsol, Statoil and Total, have entered the Algerian
natural gas market in partnerships with Sonatrach.
Chart 27: Natural Gas Production by Ownership Structure
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Sonatrach Foreign Partnership
Source: Sonatrach Annual Report 2007
The Algerian natural gas is equipped with a network of pipelines which facilitate both its
domestic and exports distribution. The local pipeline network’s midpoint is around the Hassi
R’Mel natural gas field, from where the natural gas is distributed to most of the cities. As for
the exports pipeline network, Algeria has two main pipelines connected to Europe, the Trans-
Mediterranean (Transmed, also called Enrico Mattei) and the Maghreb-Europe Gas (MEG,
also called Pedro Duran Farell). The Transmed is a 1,078.3km pipeline, which runs from the
Hassi R’Mel via Tunisia and Sicily to end in Italy. The MEG is a 1,609.3km length pipeline
connecting Hassi R’Mel with Cordoba, Spain via Morocco, where it ties into the Spanish and
Portuguese natural gas transmission networks. It is worth mentioning that the MEG pipeline
is operated by a consortium led by Spain’s Enagas, Morocco’s SNPP, and Sonatrach.
Though these are the main two export pipelines for Algerian gas, there are other export
oriented pipelines but under construction. The Medgas pipeline, planned to be completed
by 2009, should link Beni Saf in Algeria to Almeria in Spain, with an eventual extension
to France. The Galsi Pipeline, also projected to be completed by 2009, should link Algeria
to Italy. Finally, the Trans-Saharan Pipeline, which is aimed to link Nigeria to Algeria
through Niger, in order to export the Nigerian natural gas through the Medgas and Transmed
to European markets. Due to its huge length and possible disruptions, as well as its huge
cost, estimated at US$10bn, the project’s feasibility is still questioned. If the project proves
feasible, the pipeline should function by 2015.
40 Economic & Strategic Outlook December 2008

Global Research - Algeria Global Investment House
Banking
The banking sector in Algeria is still in its development stage. As a major contributor to an
economy’s growth, the Algerian government is seeking the adoption of many reforms on the
sector, some of which have already occurred and others are still under process.
Algeria is perceived as being under banked, with low penetration rate and low banking
density. These facts carry out many potential opportunities for banks with expansion plans,
which have been illustrated by the existence of international lenders in the market.
After the nationalization of French banks in 1986, the banking sector in Algeria consisted of
5 public commercial banks, an investment bank and the National Fund for Provident Savings.
The sole investment bank was Banque Algerienne de Developpement (BAD). The 5 public
commercial banks were Credit Populaire d’Algerie (CPA), which was about to be privatized
in 2007, Banque Nationale d’Algerie (BNA), Banque Exterieure d’Algerie (BEA), Banque
de l’Agriculture et du Developpement Rural (BADR) and Banque de Developpement Local
(BDL).
The law of currency and credit, passed on 1990, permitted the launch of private banks. This
law was a new start for the banking system in Algeria, as it allowed the entrance of local
and foreign lenders, matching the liberalization movement initiated by the government.
Meanwhile, this law assigned Banque d’Algerie to be the responsible for applying the
monetary policy, acting as the Central Bank. Afterwards, new legislations for banking
activities were placed in the ordinance 03-11 of August 26, 2003. One of the provisions of
this ordinance was the minimum capital requirement for a bank, which starting from 2004,
was set at a minimum of AD2.5bn.
Public banks were increased by the creation of the Islamic Bank “Al Baraka” in 1991, which
was formed between Banque Algerienne de Developpement Rural “BADR” and the Saudi
Group of Della Al Baraka to perform commercial activities. It is worthy to note that Al
Baraka Bank has 17 branches in Algeria and is planning to expand its branch network to
reach around 50 branches by 2013.
In 1995, the first national private bank “Union Bank” was created by some Algerian
businessmen, as a commercial bank. In addition, many financial institutions were established
starting the same year, namely Caisse Nationale du Logement (CNL), Caisse de Garantie
des Credits Immobiliers (CGCI), Societe de Refinancement Hypothecaire (SRH) and other
institutions.
Foreign interest in the Algerian banking sector was illustrated in 1997, where many foreign
lenders got approvals to get a presence in the market. Some of these were, Citibank, which
had already a representation office in the Country, Societe Generale, BNP and others.
As of 2006, the banking sector in Algeria constituted of 21 banks and 7 lending institutions.
Private banks amounted to 15 banks, including domestic and international players.
Nevertheless, the market is dominated by the state-owned banks, which contributed to 95%
of the aggregate assets of the banking system in 2007. Of late, Deutsche Bank and HSBC
announced their intention to operate in Algeria, which indicates that there are potential
opportunities inherent in the market.
December 2008 Economic & Strategic Outlook 41

Global Research - Algeria Global Investment House
This positive sentiment comes from the fact that the banking sector in Algeria is deemed to
be unexploited, with around 15% of the population holding ATM cards. Also, there is a rising
need for expanding branch network, as currently a branch serves on average 30 thousand
people, which entails the establishment of new banks or branches to satisfy the unfulfilled
demand, which is expected to increase even more with the growing population, around 34mn
in 2007.
As an oil rich Country, where economy growth is highly dependent on the hydrocarbons
sector, the need rose to diversify sources of wealth, which could be achieved through
motivating the private sector investments. This necessitates a sound banking system to ensure
the availability of necessary funding for such investments. That is why the government acted
towards ameliorating the banking sector through the adoption of some reforms.
The treasury repurchased some of the Non Performing Loans (NPLs) extended by state-
owned banks to public enterprises over the period from 1990 to 2002, which accounted for
around 4% of GDP annually. One of the reforms made on the banking sector was to replace
banks’ loans to public enterprises with subsidies granted to them in the government budget
of 2005. It is worthy to note that NPLs in 2007 reached 38% of the public banks’ loans
books. Other reforms included improving banks’ management, transparency and improving
surveillance on banks.
Of the important reforms that occurred on the banking system in 2006, was the establishment
of the Algerian Real Time Settlements system, which is responsible for urgent electronic
transfer of large payments. In addition, the banking system witnessed the launching of Algerie
Telecompensation interbancaire, which is an interbank electronic clearing system.
Other ways of reforms were the privatization of some public banks, however this process is
still dawdling and is not yet complete. The government announced that CPA, which is one
of the largest public banks in Algeria, would be privatized by the end of 2007, where the
government would still own 49% of the Bank. Six banks showed their intention to participate
in the bid, these were BNP Paribas, Societe Generale, Credit Agricole, France Natexis, the
Spanish Banco Santander and Citigroup. It is worth mentioning that Societe Generale and
BNP were already operating in Algeria. The bid did not take place as scheduled, as three
of the prospective bidders abandoned the deal. Citigroup was affected by the subprime
crisis, which hit the USA in 2007. Credit Agricole requested to postpone the deal, while
Banco Santander preferred to concentrate on its acquisition of ABN Amro. As a result, the
government decided to postpone the deal, without specifying a date, fearing that it will end
up with an underestimated price for the Bank. In addition, partial privatization of BDL is in
the pipeline.
42 Economic & Strategic Outlook December 2008

Global Research - Algeria Global Investment House
Table 16: Balance Sheet of Deposit Money Banks
In ADbn 2002 2003 2004 2005 2006 2007*
Assets
Reserves 203.9 373.8 280.6 198.1 273.6 445.2
Net Foreign Assets 49.6 55.5 76.7 91.4 83.9 100.2
Credit to the Government 843.9 808.6 803.4 876.4 1,014.5 950.4
Credit to the Economy 1,266.0 1,379.5 1,534.4 1,779.0 1,904.1 2,180.7
Credit to the Public Sector 715.5 791.4 857.7 882.4 847.0 968.4
Credit to the Private Sector 550.2 587.8 674.7 895.9 1,055.7 1,210.4
Other 0.3 0.3 2.0 0.7 1.4 1.9
Other Items (Net) 960.3 917.0 1,197.9 1,264.9 1,952.8 2,832.3
Total Assets 3,323.7 3,534.4 3,893.0 4,209.8 5,228.9 6,508.8
Liabilities
Demand Deposits 642.2 718.8 1,127.9 1,224.4 1,750.4 2,541.5
Public Sector 322.1 387.3 697.4 773.9 1,163.9 1,800.8
Private Sector 244.5 232.3 273.9 321.3 442.4 578.9
Other 75.6 99.2 156.6 129.2 144.1 161.8
Time Deposits 1,485.2 1,724.1 1,577.5 1,736.1 1,766.2 1,763.8
Public Sector 382.9 514.0 254.1 365.8 364.5 355.0
Private Sector 1,001.6 1,102.2 1,189.2 1,232.8 1,271.4 1,394.3
Other 100.7 107.9 134.2 137.5 130.3 14.5
Short Term Foreign Liabilities 36.7 38.8 66.5 63.2 95.3 80.5
Medium and Long Term Foreign Liabilities 36.7 41.9 49.7 20.6 19.4 16.1
Government Deposits 69.9 51.1 66.5 99.1 143.7 217.6
Obligations to the Government 36.2 59.7 49.0 54.6 33.5 28.9
Capital 131.0 137.8 141.7 151.8 161.3 170.8
Reserves 19.9 22.0 24.5 19.7 23.5 27.8
Other Items (Net) 865.9 740.2 789.7 840.3 1,235.6 1,661.8
Total Liabilities 3,323.7 3,534.4 3,893.0 4,209.8 5,228.9 6,508.8
*Provisional
Source: Banque d’Algerie
Over the 5-year period from 2002 to 2007, the aggregate liabilities of the deposit money
banks grew at a CAGR of 14.4%, reaching AD6,508.8bn in 2007, compared to AD3,323.7bn
in 2002. Meanwhile, they inclined by 24.5% y-o-y, as they represented AD5,228.9bn in 2006.
This y-o-y rise was mainly caused by the acceleration in demand deposits, contributing to
39.0% of total liabilities, as they rose by 45.2%, from AD1,750.4bn in 2006 to AD2,541.5bn
in 2007. Provisional data published by Banque d’Algerie indicates that these deposits reached
AD2,933.7bn in June 2008.
December 2008 Economic & Strategic Outlook 43

Global Research - Algeria Global Investment House
Chart 28: Composition of Time Deposits at Deposit Chart 29: Composition of Time Deposits at Deposit
Money Banks -2006 Money Banks -2007*
In Foreign
In Foreign
Currency
Currency
13.6%
13.1%
In Local
In Local
Currency
Currency
86.9%
86.4%
*Provisional
Source: Banque d’Algerie
Time deposits at deposit money banks witnessed a slight decline of 0.1%, as they reached
AD1,763.8bn in 2007, down from AD1,766.2bn a year before. Meanwhile, the contribution
of these deposits to total liabilities declined from 33.8% in 2006 to 27.1% the following
year. These deposits have a provisional balance of AD1,869.3bn in June 2008. It is worth
mentioning that deposits in local currency represented 86.4% of total time deposits in 2006
and their contribution remained stable in the following year, as it reached 86.9%.
Chart 30: Development of Demand Deposits in the Financial Sector (2006-2007)
ADbn
3,000
2,500
2,000
1,500
1,000
500
-
2006 2007*
Deposits at Banks Deposits with Treasury Deposits with Postal checking System
*Provisional
Source: Banque d’Algerie
Concerning demand deposits of the total financial sector, they reached AD2,929.8bn in 2007,
compared to AD2,086.2bn the previous year, implying a y-o-y growth of 40.4%. Deposits
at banks constitute the majority of these deposits. They swelled by 45.2% over the year, as
described earlier, capturing 87.1% of total demand deposits in 2007, up from 83.9% in 2006.
Other demand deposits are represented by deposits with treasury and deposits with postal
checking system, which shares of total demand deposits reached 5.7% and 7.2% in 2007,
respectively.
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Global Research - Algeria Global Investment House
Chart 31: Development of the Credit to the Economy (2006-2007)
ADbn
1,400
1,200
1,000
800
600
400
200
-
2006 2007*
Short Term Medium and Long Term
*Provisional
Source: Banque d’Algerie
On the other hand, the 24.5% y-o-y rise in total assets of the deposit money banks was
mainly caused by the 14.5% increase in the credit to the economy, constituting 33.5% of total
assets, as it reached AD2,180.7bn in 2007, up from AD1,904.1bn the previous year. Credit
to the economy is composed of short term credit, with a share of around 46%, equivalent to
AD998.7bn, implying a y-o-y increase of 9.1% over 2006, while the medium and long term
credit grew by 19.6%, from AD989.7bn in 2006 to AD1,183.5bn the following year.
Chart 32: Credit to the Economy by Sector-2006 Chart 33: Credit to the Economy by Sector-2007*
Local Local
Administration Administration
0.1% 0.0%
Public Sector Public Sector
44.5% 44.4%
Private Sector Private Sector
55.5% 55.6%
*Provisional
Source: Banque d’Algerie
As for the distribution of credit to the economy, the two years 2006 and 2007 witnessed
similar shares, as around 56% went to the private sector, while the rest went to the public
sector.
Chart 34: Loans/Deposits Development
120%
100%
80%
60%
40%
20%
0%
2002 2003 2004 2005 2006 2007*
Loans/Deposits-excl. govt Loans/Deposits
*Provisional
Source: Banque d’Algerie and Global Research
December 2008 Economic & Strategic Outlook 45

Global Research - Algeria Global Investment House
The loans to deposits ratio indicates a declining trend over the period from 2002 to 2007. The
ratio including credit to the government and government deposits went down from 96.0% in
2002 to 69.2% in 2007. By excluding the government balances, we find that the ratio moved
from 59.5% in the beginning of the period to reach 50.7% in 2007, which is still too low
compared to the approximate world average of 80%.
The banking sector in Algeria offers promising opportunities. Given the small percentage
of population using banking products and services along with the growing population, of
which 69% are between the age of 15 and 64 years old, we expect higher demand on banking
services in the years to come. In addition, prospective projects are expected to take place,
spurred by ample hydrocarbons reserves in the country. These projects would represent
profitable lending opportunities for the banking sector, which would easily fulfill lending
needs, given its low loans/deposits ratio.
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Global Research - Algeria Global Investment House
Telecommunications and IT
The Algerian telecom and IT sector took off in 2000 after the government’s decision to end
its stronghold on the sector and the creation of the Post and Telecommunications Regulatory
Authority (ARPT). As a result, the telecom and IT sector has transformed immensely with
massive local and foreign investments, being directed towards constructing a state of the art
telecommunications infrastructure.
In the past, the telecom sector was monopolized by the state owned Algerie Telecom, which
controlled both the fixed-line and mobile telephony services. However, with a new policy
directed at deregulating the telecom sector, the Algerian government decided to offer private
licenses for investors from around the world. In 2001, Egypt’s Orascom Telecom was
awarded the first private license, after submitting a bid worth US$737mn, to start its GSM
operations in 2004, under the trade name “Djezzy”. The license granted to Djezzy expires
in 2016, and there is an option to renew the contract for two 5 year periods. In addition,
Algerie Telecom decided to create an independent GSM services operator and created its
own offshoot Mobilis. In 2004, Kuwait’s Wataniya Telecom was awarded the second private
license, after outbidding rivals with a US$421mn bid, and operates its GSM services through
its subsidiary “Nedjma”. And so, today, the Algerian mobile services market is controlled by
only three operators, Djezzy, Mobilis and Nedjma.
The Algerian government had planned to sell 35% of Algerie Telecom in an initial public
offering (IPO), however, continued delays forced the government to reschedule the offering
until mid 2008. Of late, Algerie Telecom’s CEO has announced that the entire plan has been
pushed forward at least two years, to allow more time for the Company to improve the quality
of its services and increase its competitiveness, which in turn will increase the Company’s
value.
Chart 35: Algerian Mobile Services Market Share (30 Sept. 2008)
Nedjma
17%
Mobilis
20%
Djezzy
63%
Source: Orascom Telecom Holding
The mobile services industry has been widely welcomed by the Algerian people, who have
embraced the new technology and elevated its status, making telecommunications market in
Algeria is now worth an estimated US$6.4bn.
According to the Post and Telecommunications Regulatory Authority (ARPT), in 2007, there
were around 27mn mobile services subscribers in Algeria, distributed as follows, Djezzy
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had 13mn subscribers, Mobilis had 9mn subscribers and Nedjma had 5mn subscribers. This
represents a stunning 127% CAGR between 2000 and 2007, in which Algeria started with
86 thousand subscribers. As a result of this overwhelming demand for mobile services, the
Algerian government decided to switch mobile phone numbers from nine-digits to ten-
digits.
Moreover, with 28mn subscribers Algeria has an impressive 81% penetration rate, one of the
highest in the region in 2007.
Chart 36: Number of Mobile Cellular Subscribers and Penetration Rate
In 000s
30,000 90%
81.4%
80%
25,000
70%
63.0%
20,000 60%
50%
41.6%
15,000
40%
10,000 30%
15.1% 20%
5,000
4.5% 10%
1.4%
0.3% 0.3%
- 0%
2000 2001 2002 2003 2004 2005 2006 2007
Mobile cellular subscribers Penetration Rate
Source: International Telecommunication Union
Upon issuing private mobile services licenses in Algeria, the average revenue per user
(ARPU) started declining from highs of about US$36 in 2002 to about US$10 in 2005. This
was mainly due to the fact that for the first time there was competition in the sector. The
three competing operators had to make attractive offers to customers by decreasing costs
and tariffs, which ultimately reduced the ARPU. However, due to its large market share,
Djeezy was still able to achieve a higher ARPU than its rivals. In 2007, Djeezy’s ARPU was
US$12.3, while Nedjma’s ARPU was US$7.6 and Mobilis’s ARPU was US$3.0.
Chart 37: Average Revenue per User (ARPU) per operator in 2007
US$
14
12.3
12
10
7.6
8
6
4 3.0
2
-
Djezzy Nedjma Mobilis
Source: Business Wire
The fixed-line market in Algeria doesn’t enjoy as much success and penetration as its mobile
services counterpart, as there are only about 3.1mn subscribers, as of 2007, which is an
extremely low number, when compared to the 27mn subscribers of mobile services, the same
year. This low penetration rate, of 9.1%, has obstructed internet access in the country, which
depends on the amount and quality of fixed lines.
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Chart 38: Telephone lines and Penetration Rate
In 000s
3,500 10%
9.1%
8.5% 9%
3,000 7.8%
7.7%
8%
6.7%
2,500 7%
6.2%
6.1%
5.8%
6%
2,000
5%
1,500
4%
3%
1,000
2%
500
1%
- 0%
2000 2001 2002 2003 2004 2005 2006 2007
Fixed telephone lines Penetration Rate
Source: International Telecommunication Union
In 2005, Lacom, a 50-50 Egyptian joint venture between Telecom Egypt and Orascom, was
awarded a 15-year license as a fixed-line operator and high-speed internet services developer,
at an estimated cost of US$65mn. The agreement stipulated that the venture would have to
invest about US$1bn in state of the art telecommunication networks. Moreover, the license
also gave Lacom a two year exclusivity period to run both national and international fixed
line services. Lacom launched its operations on February 2006, and by the end of the year
the venture had more than 44 thousand subscribers. However, in 2007, Lacom launched a
complaint against Algerie Telecom alleging the state-owned firm of “unfair practices” that
resulted in Lacom recording US$45mn losses. The Post and Telecommunications Regulatory
Authority (ARPT) responded that it had taken all the necessary measures to ensure fair
competition. However, after months of speculation, on November 13th, 2008, Telecom
Egypt announced that Lacom will be liquidated due to the difficulties it faced in the Algerian
market.
Although growth has been impressive in the last couple of years, Algerian internet penetration
remains low, at 10.3%, compared to its neighboring countries. Internet users have increased
from 500 thousand in 2002 to 3.5mn in 2007, reflecting a 47.6% CAGR, most of which
use dial up connection, even though the government has been trying to promote broadband
connections. The broadband users represented only 8% of the total internet users in Algeria
in 2007.
It is worthy to mention that the Algerian internet market was liberalized in 1998, and a year
later the competition started between Internet Service Providers (ISPs). Since the end of
2000, ISPs, which were required to get a license, have to get an authorization regulated by
a schedule of conditions. Only 30 ISPs are operational despite the fact that more than 90
service providers got the authorization.
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Chart 39: Internet Users and Penetration Rate
In 000s
4,000 12%
10.3%
3,500
10%
3,000
7.4% 8%
2,500
5.8%
2,000 6%
4.6%
1,500
4%
2.2%
1,000
1.6%
2%
0.7%
500 0.5%
- 0%
2000 2001 2002 2003 2004 2005 2006 2007
Internet Users Penetration Rate
Source: International Telecommunication Union
In 2006, the ARPT legalized the use of VoIP (Voice over Internet Protocol), a service allowing
broadband users to transmit voice calls through the internet, and awarded 11 licenses to
providers of VoIP services. By late 2006, there were only six active operators providing the
service.
The future of the telecom and IT sector in Algeria appears to be bright. Penetration level in
the mobile services is expected to increase to 99.5%, as subscribers are expected to reach
35.8mn by 2010. Djeezy’s market share might decrease, as Nedjma increases its own.
However, Djeezy is still expected to have pricing power, high EBITDA margin and a strong
brand name.
The fixed-line market is also poised for expansion, as it is an extremely untapped market with
huge potential, due to its relationship with internet connectivity. Even though, the liquidation
of Lacom by both Telecom Egypt and Orascom doesn’t send a positive message to foreign
investors, there is still massive potential in the Algerian fixed-line market. The government
has already placed improvements in the information and communications technology sector
on top of its priority list, indicating an emphasis on the development of the sector. Moreover,
various cyber parks are currently being constructed in different regions within the country,
further implying the interest and growth of the sector.
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Agriculture
During the French colonization era, agriculture was the dominant sector in Algeria. The
French gave great attention to agricultural production. They exploited many channels to
ameliorate the sector and developed large arable lands, orchards, citrus gardens and vineyards.
Due to their efforts, most of the country’s food needs- around 90% of grains consumption-
were satisfied by local production, to the extent that Algeria was even exporting food and
raw materials to France, in exchange for consumer and capital goods. Before shifting to the
hydrocarbon sector as the main driver for the economy’s wealth, food exports generated
around 63% of total exports revenues.
Algeria lost foreign management and expertise when it gained its independence. Accordingly,
interest to the agriculture was abandoned, especially that many factors related to the country’s
aridity and rainfall volatility had an additional negative influence on the sector. In addition,
viticulture production and exports, which dominated the sector during the French colonization
period, declined considerably due to Islamic considerations. Since then, the importance of
hydrocarbons showed up and the government’s focus moved towards developing the oil and
gas sector. The significance of the agriculture sector diminished, as it captured around 27%
of the total labor force in 2006, compared to a contribution of around 40% during the 1960’s.
Nevertheless, the agriculture is still considered the country’s major employer. On the other
hand, the current contribution of Agriculture to GDP reached around 7% in 2007, compared
to a 44% share of hydrocarbons.
Chart 40: Agriculture as a % of GDP
12%
9.8%
10% 9.4%
7.7%
7.7% 7.6%
8%
6%
4%
2%
0%
2003 2004 2005 2006 2007*
*Provisional
Source: Banque d’Algerie and IMF
Arable lands constitute around 3% of the total country’s land, where cultivation is mostly
concentrated on the coastal plain of the Tell region. The principal crops constituting the
main agricultural activities are wheat, barley and potatoes. Wheat production reached 2,688
thousand tons in 2006, realizing a y-o-y growth of 11.3%, as its production amounted to
2,415 thousand tons the previous year. This implies a CAGR of 15.7% over the 4-year period
starting from 2002. Concerning barley, it reached 1,236 thousand tons in 2006, growing by
a 19.7% over 2005 and rising at a CAGR of 31.3% over the 4-year period. As for potatoes,
Algeria produced 2,181thousand tons in 2006, compared to 2,157 thousand tons in 2005,
growing by 1.1% y-o-y and implying a CAGR of 13.1% over the period from 2002 to 2006.
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Other crops include tomatoes, citrus fruits, olives, dates, grapes, wines, tobacco, sorghum,
millet, rye, rice, oats and corn.
Chart 41: Principal Crops Production
In Thousand Tons
3,500
3,000
2,500
2,000
1,500
1,000
500
-
1998 1999 2000 2001 2002 2003 2004 2005 2006
Wheat Barley Potatoes
Source: African Statistical Yearbook 2007
In 2007, the agriculture sector grew by 11.1% y-o-y, reaching AD710.9bn and captured a
share of 7.7% of GDP, compared to a share of 7.6% a year before. Ameliorations in the sector
took place and had a positive effect on the 2007 total production, of which was the expansion
of table grapes areas, which led to an enhancement in the fresh fruits exports, in addition to
the developments made on the orchards areas, as they reached 1mn hectares in 2006, up from
518 thousand hectares in 1999.
Table 17: Agricultural Land Use Patterns
In Thousand Hectares 2002 2003 2004 2005 2006
Cereals 3,130.8 3,045.1 3,290.8 3,151.2 3,266.7
Durum wheat 1,350.7 1,321.6 1,372.5 1,314.9 1,358.0
Bread wheat 813.8 812.5 808.8 721.2 700.1
Barley 894.9 833.5 1,029.0 1,023.4 1,117.7
Other 71.4 77.5 80.5 91.7 90.9
Pulses 62.2 68.0 72.1 69.2 66.9
Fodder crops 300.3 272.8 461.6 484.2 364.7
Industrial crops* 30.1 32.4 32.8 26.2 15.7
Vegetables** 158.1 184.2 197.8 211.0 212.4
Grapes 80.0 94.0 97.5 100.0 97.0
Fruit trees 577.0 645.7 703.9 778.5 810.1
Natural prairies 23.6 26.0 25.4 26.1 25.6
Others 3,769.0 3,796.5 3,437.6 3,544.2 3,544.5
Total cultivated land 8,131.1 8,164.7 8,319.5 8,390.6 8,403.6
Fallow 3,733.8 3,701.5 3,382.9 3,589.9 3,404.8
*Industrial tomatoes and tobacco
**Potatoes, tomatoes, garlic, onions and watermelons
Source: IMF and Global research
It is worth mentioning that per capita agricultural production and per capita food production
grew each by an average of 5.6% over the period from 2001 to 2006.
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Table 18: Index Numbers of Agricultural Production (1999-2001=100)
1998 1999 2000 2001 2002 2003 2004 2005 2006
Total Agricultural Production 98.2 100.7 95.3 104.0 105.6 124.9 137.5 137.3 142.9
Total Food Production 98.0 100.8 95.2 104.0 105.7 125.2 137.7 137.5 143.1
Total Agricultural Production
101.1 102.2 95.3 102.6 102.6 119.5 129.6 127.5 130.8
(Per Capita)
Total Food Production (Per
100.9 102.3 95.2 102.5 102.6 119.8 129.8 127.7 131.0
Capita)
Source: African Statistical Yearbook 2007
While Algeria used to be a food exporting country, its current production does not meet the
local demand, which led it to import around 45% of its food needs. In fact, Algeria became
one of the main importers of wheat, agricultural seeds and milk products internationally. The
majority of imports come from Europe, mainly France. Also, wheat, dry dairy, corn, soybean
meals and oils are imported from the USA. In 2007, imported food represented 17.6% of total
imports, while exported food’s share of total exports was 0.15%. The major food exports by
Algeria are dates, grapes and wines, olives, citrus fruits and industrial tomatoes. Although
the sector has been greatly impacted by privatization, it is still influenced by governmental
control, through subsidies and price fixing and other intervention activities.
Chart 42: Imports and Exports of Food (2003-2007)
US$mn US$mn
6,000 1,000
900
5,000
800
700
4,000
600
3,000 500
400
2,000
300
200
1,000
100
- -
2003 2004 2005 2006 2007*
Imported Food Exported Food (right scale)
*Provisional
Source: Banque d’Algerie
The government created a national plan for agricultural development (PNDA), with the main
aim of improving the agricultural sector, through enhancing agricultural production, lands,
forestation and protecting the steppe.
The plan showed successful results after its implementation. These were reflected on the
employment activity, as 200,000 jobs were created. In addition, progress occurred in the
production of many crops, of which dates, potatoes, tomatoes, vegetables, fruits, eggs and
others. Also, other plans included jobs creation reaching 300,000 by 2009 and expanding
agricultural lands.
The government made many efforts recently to ameliorate the sector’s performance. In
July 2008, a new law was approved, concerning the concession of state agricultural land,
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constituting around 30% of the total agricultural territory in Algeria. The goal is to make
the government control the agricultural activity through the concession option, where the
beneficiaries who use lands with other objectives than farming will be penalized. A national
economic recovery plan for the 4-year period ending 2009, included a budget of US$4.2bn, to
be oriented to agricultural developments, including lands concessions, soil amelioration and
other activities. In addition, in April 2008, the government encouraged farmers to increase
cereals production to the extent that it would purchase domestically produced wheat with
prices close to international ones.
The main irrigation source for the Algerian agriculture is rainfall, on which the sector accounts
heavily. The Mitidja region, which is characterized by arable lands and gardens, witnessed
low quantities of rain in the beginning of 2008. Therefore, the government announced that
waste water will be used to irrigate lands. In addition, it announced a plan to transfer water
from Oued Djer, which will be used to irrigate 24 thousand hectares in Mitidja, through the
establishment of a diversion dam and a pumping station.
The agricultural sector holds potential opportunities, especially with the dates production,
constituting the dominant exported food. However more diversification is needed, as
enhancement should be made in the production of cereals, vegetable oils, sugar, milk and
dairy products, to relatively decrease the country’s imports of food.
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Fertilizers
Over the last couple of years, the Algerian government has been implementing a program
dedicated towards increasing utilization of all its energy and natural resources, through
improving its downstream energy industries. One of the key sectors targeted by this program
is the fertilizers sector.
Fertilizers, as a commodity, play a key role in the survival and development of human beings,
as plant nutrients are an essential component of agriculture. They can be split into two broad
categories, organic and inorganic. Organic fertilizers are natural fertilizers obtained mainly
from animal manure, while inorganic fertilizers could be considered as chemical additives
for plants to take in, such as nitrogen, phosphorus and potassium, hence, inorganic fertilizers
are usually categorized as nitrogenous, phosphate and potash fertilizers. One of the main
resources used to create nitrogenous fertilizers is natural gas, and since Algeria has one of
the region’s largest natural gas reserves, it is perfectly positioned to be a major player in the
fertilizers market.
Since 1980, fertilizers production has increased from 54.6 thousand tons to 133.6 thousand
tons in 2005 at a CAGR of 3.64%. The increase in fertilizers production in Algeria came on
the back of the abundance of natural gas in the country. This in turn clarifies why most of the
fertilizers production is concentrated in the nitrogenous types, which are primarily devised
from natural gas. Moreover, the majority of production is being exported, as low production
costs give Algerian fertilizers a price advantage.
Chart 43: Total Fertilizers Production in Algeria
Thousand metric tons
250
200
150
100
50
-
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Phosphate Fertilizers Nitrogenous Fertilizers Total Production
Source: FAO Data
On the other hand, fertilizers consumption has decreased from 235.7 thousand tons in 1980
to 107.4 thousand tons in 2005, representing a -3.1% CAGR. This could be attributed to the
extremely underdeveloped agricultural landscape of Algeria compared to other countries in
the region.
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Chart 44: Total Fertilizers Consumption in Algeria
Thousand metric tons
300
250
200
150
100
50
-
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Source: FAO Data
The main entity responsible for the production of fertilizers in Algeria is the National
Company for Fertilizers, Asmidal, a subsidiary of the state-owned Sonatrach. Asmidal acts
as a partner to almost all private or international companies interested in exploiting Algeria’s
undeniable potential in the fertilizers market. The company used to have two complexes
for nitrogenous and phosphate fertilizers, however, as a result of the economic reforms that
Algeria is experiencing, the company’s new goal is the administration of a set of portfolios.
Asmidal currently owns 34% of Fertial, which produces ammonia, nitrogenous and phosphate
fertilizers, and 45% of Kimal, which specializes in producing STPP (Sodium Tri-Poly-
Phosphate), used in detergents. In addition, other companies in Asmidal’s portfolio include
Somias, Gaurding Company and Asfertrade SPA, which all operate in the fertilizers sector.
One of the main projects currently underway in the Algerian fertilizers market is Sorfet, a
joint venture between Egyptian based Orascom Construction Industries (OCI) and Asmidal,
which will establish a mammoth ammonia/fertilizer production facility in the region of
Arzew, to come on stream by 2010. This region has been expansively developed for energy
and natural resources industries, and is considered as a focal point for chemical exports.
Sorfet, which will be constructed on 33 hectares, is designed to produce as much as 1mn
tons of ammonia/urea fertilizer, in addition to 700 thousand tons of ammonia. Moreover, all
equipment for the plant will be supplied by German giants Uhde.
In addition, Omani based Suhail Bahwan Group Holding (SBGH) has also entered into a
joint venture with Asmidal to construct a new ammonia/urea plant. The new plant, named
Sharkia El Djazairia El Omani lil Asmida (AOA), will cost an estimated $US2.4bn and will
produce around 7,000 tons of urea and 4,000 tons of ammonia per day.
The outlook of the fertilizers sector in Algeria appears to be a bright one, as the country’s
relatively cheap feedstock, labor and its proximity to Europe give it a competitive advantage
over its rivals. Moreover, continuous reforms in business legislation will further enhance
Algeria’s ability to attract foreign investments to the downstream industries. However, one
of the main obstacles that will face the Algerian government is that the country has a severely
underdeveloped infrastructure, which may deter some investors. Moreover, Algeria will most
definitely face stiff competition from countries in the MENA region, as several countries
within the region are interested in developing their own downstream industries. The Gulf
countries in particular, buoyed by high oil revenue, are looking to decrease their dependency
on oil exports and are very interested in further enhancing their downstream industries.
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Steel
The face of the steel sector in Algeria has been witnessing a dramatic change over the last
couple of years. Economic reforms initiated by the Algerian government have liberalized
the country’s economy. In turn, this has created an enormous potential for industrial and
constructional development, which positively affected the steel sector. Production levels
have significantly risen from their previous historic levels to feed the ever growing demand
created by the resurgence of the real estate sector. Moreover, large iron ore reserves located
in the region of Tebessa have had a positive impact on the industry, as they have significantly
reduced the costs of production.
Steel production in Algeria has been witnessing a steady rise over the past decade. During
the mid-90s, output levels were decreasing due to a slowdown in the construction sector,
however, since 1997 production levels have increased from 399 thousand tons to 1.3mn tons
in 2007, representing a CAGR of 12.3%. This could be mainly attributed to the boom in the
real estate sector, driven by companies from the Middle East. It is worth mentioning that
Algeria’s steel production reached 0.6mn tons in October 2008.
Chart 45: Algeria’s Crude Steel Production
Thousand Metric Tons
1,400
1,200
1,000
800
600
400
200
-
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Jan -
Oct
2008
Source: World Steel Association
The steel market in Algeria is a monopoly with only a single producer, ArcellorMittal–
Annaba. Prior to 2001, steel production was carried out only by the state owned Sider, but
in October 2001, LN Mittal N.V, through its subsidiary Ispat, was able to purchase 70%
equity stake of the company and renamed the company Mittal-Annaba. Moreover, LN Mittal
acquired 70% equity interest of iron ores in Boukhrada and Ouenza from Ferphous, and
named the new company Ispat Tebessa. When Mittal merged with Luxemburg-based giants
Arcellor and created the largest steel company in the world, Mittal-Annaba was renamed
ArcellorMittal–Annaba.
The complex in Annaba has a capacity of 2mn tons per year and ArcellorMittal has been
engaged in a series of operations to enhance all production facilities. In 2007, the company
started a development plan for all production units. The plan is to overhaul the plant over two
years ending by late 2008, with an estimated cost of US$75mn. Moreover, ArcellorMittal
have recently announced plans to invest a massive US$2.5bn on a brand new steel complex in
Jijel state, pending to the approval of the Algerian authorities. The new complex, if approved,
will lift total production capacity to an estimated 2.8bn tons/year. In addition to establishing
new plants, the company also announced its intentions to further enhance the production
capacities of its mines in Boukhrada and Ouenza to reach an estimated 3mn tons by 2010,
which could lead to an increase in total production to reach 2mn tons.
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However, the company faced major problems in 2008, as technical breakdowns to both the
blast furnace and rolling mill stopped production for four month, which resulted in a loss of
30% of the annual production.
In late 2007, the Algerian government approved plans presented by Egyptian steel powerhouse
Ezz Steel to construct a new Greenfield steel plant, its first outside Egypt. The plant, which is
expected to be up and running by late 2010 or early 2011 at most, will be built on two phases
and is expected to have a capacity of 3mn tons per year of long products. The production of
long products is obviously a result of the booming construction sector of Algeria, however,
the company has also announced that an expansion to produce flat products is also expected
at some time later. By expanding its operations in Algeria, Ezz Steel will become the largest
consolidated steel producer in the Middle East region.
In 2008, steel prices worldwide soared to record highs, driven by ever growing demand from
emerging markets, including Algeria. This surge in prices placed enormous pressure on the
construction sector and resulted in the deterioration in quality of housing units. To make
matters worse, the technical breakdown in Arcelor Mittal’s Annabe complex created a severe
steel deficiency, causing prices to rise even higher while prices worldwide were declining.
In January, steel was being traded at AD1,500 per ton and in November the price reached
an estimated AD8,000 per ton. Moreover, it is expected that prices will reach a stunning
AD10,000 per ton in March 2009.
The potential of the steel market in Algeria is enormous, as the current demand-supply gap
is too large to be filled by a sole producer. Algeria is considered the second largest importer
of steel in the Arab region, as the country’s reinforcing steel imports reached 2mn tons per
year in 2007. These imports are expected to increase in the future with the increasing arrival
of real estate companies to Algeria. Moreover, demand for flat steels is also expected to
increase, as the Iranian government reached an agreement with its Algerian counterpart to
construct a new facility to manufacture cars. Additional advantages that the country posses,
include the abundance of raw materials, relatively cheap labor and cheap energy prices.
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Cement
The cement sector in Algeria has been steadily growing over the past five years, due to the
renaissance of the construction sector. The policies adopted by the Algerian government since
the mid-1990s directed at the enhancement of foreign investments are now bearing fruits, as
massive projects are being announced aiming at revolutionizing Algeria’s construction and
infrastructure sector. As a result, Algeria’s cement sector has immensely benefited, as both
demand and supply of cement has drastically increased and the country, which is regarded as
a net importer of cement, is starting to bridge the gap between its demand and supply.
The construction sector in Algeria is mainly driven by the government’s initiatives aimed at
expanding the nation’s extremely underdeveloped housing sector. Algeria suffers from one
of the most severe housing shortages in the Middle East and has one of the highest occupancy
rates on earth. In 2007, the housing deficit was estimated to be 1mn housing units and this
figure is expected to rise to 2mn in the future. This has prompted the Algerian authorities to
formulate a construction policy with a vision of creating 150,000 housing units annually for
the next decade. As a result, Algeria’s cement consumption has been steadily increasing at a
high growth rate to feed the North African nation’s ever growing appetite for development,
and since 2004 cement construction had grown at a CAGR of 13.0%.
Chart 46: Cement Consumption in Algeria
Thousand tons
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
-
2004 2005 2006 2007
Source: World Cement Book 2007
The production of cement in Algeria didn’t take off until 2004 when the Algerian Cement
Company (ACC) effectively commenced operations. During the period between 1997 and
2004, production levels remained somewhat static around 9mn tons per year. However, as
more investments were directed into the sector, cement output has grown at impressive rates.
In 2007, total production reached about 15.5mn tons, up from 11.3mn tons in 2004, a CAGR
of 11.1%.
Chart 47: Cement Production in Algeria
Thousand tons
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
-
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: World Cement Book 2007 and US Geological Survey
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Global Research - Algeria Global Investment House
The largest cement producer in Algeria is the Algerian Cement Company (ACC), which was
formed in 2001 by Egyptian based Orascom Construction Industries (OCI) and is considered
the largest foreign investment outside the petrochemicals and telecom sectors. ACC
commenced its activities in early 2004, were it had one production line with a capacity of
2.5mn tons per year, and in mid-2005 a second production line was added with an additional
capacity of 2.5mn tons per year, raising the total capacity of the plant to 5mn tons per year.
Moreover, OCI introduced plans to establish an additional 2.5mn tons per year plant near
the coast of Algeria, which will give the company a brilliant export facility. As for white
cement, OCI also built a 0.6mn ton per year plant, named Ciment Blanc d’Algerie (CBA),
to capitalize on the local market’s increasing demand. However, in late 2007, the French
cement giant Lafarge was able to acquire OCI’s cement operations including ACC and CBA.
It is worth mentioning that Lafarge became the world’s largest cement producer after this
deal.
The Algerian government has been busy trying to find potential investors for the 12 state-
owned cement complexes. These complexes have a combined capacity of 11.5mn tons per
year, but have been operating below these capacities due to a severe lack of maintenance.
In 2006, Italian cement producer Buzzi Unicem acquired a 35% stake in two Algerian
companies, which own cement complexes in both Hadjar Soud and Sur El Ghozlane, having
a combined capacity of 2mn tons.
In addition, Pharaon Commercial Investment Corporation, a Saudi Arabian based firm, also
acquired a 35% stake in the Beni Saf plant, owned by Le Groupe de Ciments de L’Ouest,
and has announced its intentions to increase the plant’s capacity from 0.5mn tons per year
to 1mn tons per year. Other Saudi investments in the Algerian cement sector include a plant
worth an estimated US$200mn to be established in the region of Galfa by a Saudi-Algerian
venture. The new plant is expected to be completed in 2009 and will produce approximately
1mn tons per year.
In July 2007, the Egyptian company ASEC was granted a contract to construct a cement
complex at the central region of Djelfa, with an estimated cost of US$550mn. The new plant
is expected to commence its activities in 2010 and will have a capacity of 3mn tons per
year.
In July 2008, the Algerian government and its Iranian counterpart signed an agreement to
establish a new cement plant with a capacity of 1mn tons per year, at a cost of Euro220mn.
The new plant will be 51% owned by the Iranian government and is an extension to the
various joint projects agreed upon by the two countries.
The future of the cement sector in Algeria continues to look bright, as the boom and expected
growth of the housing and construction sectors will continue to drive cement demand even
higher. Moreover, newly added and announced capacities will further enhance the cement
industry’s ability to meet the soaring demand. Even though Algeria is still considered a net
importer of cement, the country is moving positively towards self-sufficiency, as is reflected
in the declining import figures from major markets, such as Egypt and Turkey. Another vital
factor that will help the cement sector to continue to grow and attract foreign investments,
is the fact that production costs are extremely low compared to any region in the world. In
2007, it was estimated that it costs approximately a stunning US$15 to produce one ton of
cement in Algeria, a figure that is likely to attract a large number of investors.
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Construction and Real Estate
As for the construction and real estate sector, it has been witnessing an annual real growth
rate of around 7% since 2002. The sector confronts many challenges in Algeria. These are
represented by lands’ paucity, which consequently drives prices higher, lack of experienced
labor, in addition to growing construction costs.
In 2005, the Algerian government announced a plan, with a 5-year period, which will include
US$60bn as government expenditure, with the aim of ameliorating the sector’s performance.
The plan included the development of 1mn housing units. This plan spurred foreign
corporations to establish projects in Algeria.
Emaar, the Emirati Developer, announced in 2007 that it will establish 4 real estate projects,
with an estimated cost of US$20bn. These projects cover a new town called Sidi Abdellah, a
tourist resort at Colonel Abbas, a healthcare resort at Staouali County and a redevelopment of
the waterfront at Algiers. The projects will include hotels, villas, shopping centers, marinas,
apartments, hospitals, sport centers, students’ campuses, a para-medical school, a medical
school and a golf course. The new city of Sidi Abdellah will have an area of 400hectares (ha),
while the tourist and waterfront projects areas are expected to be 109ha and 260ha. It is worth
mentioning that Emaar announced in February 2008 that it will raise its investments in the
Algerian projects to reach US$30bn.
In addition, the Saudi-originated real estate developer “SNASCO” announced in 2008 that
it will establish a mega waterfront project in the city of Oran, with an estimated area of
150 thousand square meters and an estimated cost of Euro400mn. The project will include
residential and commercial units.
Moreover, the Emirates International Investment Company (EIIC) announced in the same
year the establishment of the “Parc Dounya” project, which is expected to be completed in
5 years and has an estimated area of 6.6mn square meters. The project’s total investment is
estimated to be US$5bn. The Company will provide 75% of the project’s area as a public
park. The remaining area will be used for residential and commercial activity and will include
hospitals, a convention center, lakes, hotels, a golf course and a playground for children.
Table 20: Selected Announced Real estate Projects in Algeria
Estimated Estimated Cost Description
Developer Project Area
Colonel Abbas Apartments and villas, a marina and a shopping
Emaar 109ha
Touristic Resort center
Sports facilities, medical and para-medical
Staouli Healthcare school, apartments and villas, a shopping mall, a
N/A
City students’ campus, a spa hotel, a research center
A combined
cost of up to and a hospital
US$30bn
City Abdellah Sports facilities, golf course, apartments and
400ha
Development villas, hotels, a hospital and a university campus
Algiers Bay A marina, a marina hotel, office buildings,
Waterfront 260ha villas and apartments, two shopping malls, a
Development convention center and retail outlets
SNASCO Oran Waterfront 150,000 m2 Euro400mn Residential and commercial units
Public park, children’s playground, a golf
EIIC Parc Dounya 6.6 mn m2 US$5bn course, hospitals, a convention center, lakes and
hotels
Source: Zawya and News Announcements
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Global Research - Algeria Global Investment House
The real estate sector is expected to witness further progress in the future, especially with the
prevailing aim of diversifying the Country’s sources of wealth away from the hydrocarbons
sector. In addition, the fact that 69% of the population is between the age of 15 and 64 years
old ensures an increased demand on real estate, which should in turn trigger new projects
establishments.
Concerning infrastructure, as most of Algeria’s external trade takes place through its ports,
the Algerian government realizes the importance of ameliorating its ports performance.
Shipment to Algeria is considered too expensive. In addition, trade through ports in Algeria
faces long wait-time, reaching 7 days in Algiers port, whereas the average wait-time is around
1 or 2 days internationally. Moreover, the Algerian ports capacity is limited to vessels with
400 containers only. Therefore, the Algerian government announced in August 2008 the
recuperation of the port of Oran. The government’s plan is to be completed over two phases,
where the first one will start from 2009 for a 3-year period. In the first phase of the plan, a
new 600m berth will be established over a reclaimed land having an area of 24ha, with an
estimated cost of US$182.5mn. In addition, 2 container cranes will be acquired. In the second
phase, US$431mn will be invested, as a 900m berth is to be established over a reclaimed
land, with an area of 34ha, with 2 more cranes to be acquired. The government aims at
enhancing the port’s capacity to reach 1.5-2mn containers per year.
Table 21: Selected Ports Developments
Ports Description
To be completed over a 3-year period, starting from 2009. Includes establishing a new
Port of Oran-1st phase 600mn berth, at an estimated cost of US$182.5mn, in addition to the acquisition of two
container cranes
Total estimated investment of US$431mn. Includes establishing a 900m berth, in addition
Port of Oran-2nd phase
to the acquisition of two new container cranes
Port of Bejaïa An additional 43ha expansion
Djenjen and Algiers DPW announced an initial investment of US$108mn for the development and expansion
Ports of the two ports
Source: Oxford Business Group
There is another plan to expand the port of Bejaïa by an additional 43ha. It is worthy to note
that Bejaïa port is deemed to be the most important port in Algeria after the port of Oran,
with a capacity of 500 thousand containers per year. As for the Djendjen and Algiers ports,
the Emirati “Dubai Ports World” (DPW) announced that they would initially invest around
US$108mn for the development and expansion of these two ports. Moreover, the Algerian
government plans to privatize 30 ports, one of which is the port of Oran.
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Tourism
Though the tourism sector in Algeria is progressing, the sector is still underperforming. This is
due to the lack of superior accommodation in addition to security problems, which have been
somehow improved over the last few years. According to the World Tourism Organization
(UNWTO) report on tourism highlights 2008, Algeria ranked 4th on Africa (excluding Egypt
and Libya) in terms of number of tourist arrivals in 2007, as they reached 1,743 thousand
tourists, representing 3.9% of the continent’s total. On the other hand, tourist receipts reached
US$215mn in 2006, compared to US$184mn in 2005, a y-o-y growth of 16.8%.
Table 22: Tourism Statistics in Algeria compared to Africa and other Maghreb countries
International Tourist Arrivals International Tourist Receipts
Major Destinations (‘000) Share (%) (US$mn) Share (%)
2005 2006 2007* 2007* 2005 2006 2007* 2007*
Africa 37,260 41,369 44,430 100.0% 21,820 24,602 28,292 100.0%
Algeria 1,443 1,638 1,743 3.9% 184 215 N/A N/A
Tunisia 6,378 6,550 6,762 15.2% 2,143 2,275 2,555 9.0%
Morocco 5,843 6,558 7,408 16.7% 4,621 5,967 7,264 25.7%
South Africa 7,369 8,396 9,090 20.5% 7,327 7,875 8,418 29.8%
*Provisional
Source: UNWTO (Tourism Highlights-2008 Edition)
As aforementioned, Algeria received 1,743 thousand tourists in 2007. This implies a y-o-y
growth of 6.4%, as this number amounted to 1,638 thousand tourists in 2006. In the mean
time, it implies a CAGR of 10.5% over the 7-year period, from 2000 to 2007.
Chart 48: Algeria’s Number of Tourist Arrivals
In 000s
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
-
2000 2001 2002 2003 2004 2005 2006 2007*
*Provisional
Source: UNWTO (Tourism Highlights-2008 Edition) and UN Data
As for the North African Countries -excluding Libya, Algeria’s number of tourists was the
least in the last three years, ending 2007. As mentioned earlier, it captured only 3.9% of total
tourists visiting Africa in 2007, a relatively small share compared to its peers.
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Chart 49: Algeria Tourists Arrivals compared to other North African Countries
In 000s
12,000
10,000
8,000
6,000
4,000
2,000
-
Algeria Morocco Tunisia Egypt
2005 2006 2007*
*Provisional
Source: UNWTO (Tourism Highlights-2008 Edition)
Algeria is characterized by a prime geographical location, with a coastal side of 1,200km,
and a large desert land wrapping almost 80% of the country’s area. Such features enable it
to succeed as a touristic destination. Realizing the importance of the sector, the government
aims at enhancing the tourism performance in the near future.
To achieve this goal, the Algerian government made several steps beginning with developing
infrastructure, mainly roads and transportation. It is worthy to note that US$8.2bn have been
allocated for public works related projects, one of which is the rehabilitation of the East-
West Highway. The government also employed a plan called “Horizon 2025”, which is
mainly concerned with ameliorating infrastructure. In addition, a new Algiers international
airport was established in 2006. Meanwhile, the Ministry of National Planning, Environment
and Tourism signed 80 contracts with various Algerian investors in 2008, with the aim of
establishing touristic projects starting from 2008. These projects, which have an estimated
cost of AD20bn, include the establishment of a marina and hotels.
The government adopted a plan for the development of the tourism sector, which is to be
completed by 2013. The number of tourists is targeted to reach 3mn tourists by the end of the
plan’s period. The plan includes ameliorating touristic hotels and accommodation aspects,
along with the quality of services provided. This plan has an estimated cost of AD232bn and
is targeting to expand hotels capacity to reach 187 thousand beds, up from 92 thousand beds
at the beginning of 2007. This would result from the expansion plan that covers 174 different
touristic zones.
As an attempt to further ameliorate the tourism sector, the government encouraged investments
and a new legislation has been announced, which includes a tax exemption for a 10-year
period for tourism-related projects. In addition, it announced its plan to privatize various
public hotels, owned by Tourism and Hotel Company (GESTOUR) and Societe de Gestion
des Participations de l’Etat (SGP).
The government pays a great attention to the amelioration of the Algerian bay. A large
mosque, enabled to encompass around 12 thousand people is to be established on the coastal
line, in addition to a health center, commercial and business areas.
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Many international investors announced their intention to develop touristic projects in
Algeria. The UAE’s Al Hamed Group announced an initial investment of US$90mn to be
directed to the coastal line in Algiers. Also a hotel was announced to be established by
Starwood Hotels and Resorts, which already exists in the Algerian market. Accor and the
Mehri Group announced the establishment of 36 hotels. The US Tourist Group Panorama
announced that it would develop a touristic resort, with an estimated cost of US500mn in
El Aouana region. Other resorts are to be established in Algiers and Boumerdes, having an
estimated capacity of 25 thousand beds and an estimated cost of US$300mn. Also, a tourist
resort is to be established by Emaar, among its 4 real estate projects, having a combined cost
of US$20bn, which have been announced to be raised up to US$30bn approximately.
Moreover, the Emirati-based real estate developer, Al Qudra Holding, signed a contract in
2007 for establishing a tourism compound, with an area of 8ha on the coast of Sidi Faradj,
which is estimated to be completed by 2010, with an estimated cost of US$250mn. It is worth
mentioning that the Company announced its intention to develop tourism and real estate
projects in Algeria, worth US$350mn.
The numerous announced tourism projects indicate that the sector is to show better
performance in the future, especially with the government’s aim to expand its economy
through other sources than hydrocarbons.
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Global Research - Algeria Global Investment House
Capital Market
The Algerian capital market is still very much inactive. The stock exchange (Bourse des
Valeurs Mobilieres d’Alger) was established in the 1990’s and has very few listed stocks.
Only 2 companies were listed in the stock exchange in 2007 and were not even witnessing a
considerable trading activity. These are Group Saidal and Entreprise de Gestion Hoteliere,Spa
(EGH El Aurassi). Due to the inactive market, private companies are not encouraged to list
their shares in the stock exchange. As for the bond market, its situation is slightly better,
as bond issuance is supported by low interest rates in the market and sufficient domestic
liquidity. It is worth mentioning that of the total issued bonds in 2005, corporate bonds had
a share of 33%.
The extensively low number of listed shares and the low dividends distributed by these
companies are the main reasons leading to the weak activity of the Algerian stock market.
This insignificant number of listings resulted in the Algerian exchange having the least
market capitalization among its neighbors, as it didn’t reach US$100mn in 2007, while the
Morocco and Tunisia stock exchanges had a market capitalization reaching US$12bn and
US$4bn, respectively.
The Algerian government should exert efforts to improve its stock market activity. The
sentiment for the bond market is more positive, as publicly owned enterprises are more
inclined to issue bonds when they need sources of funds. As an attempt to ameliorate the
market, the government announced its plan to list bonds with maturities ranging from 7 to
15 years in the stock exchange. In addition, it announced its plan for privatizing portions of
state-owned corporations through the stock exchange.
66 Economic & Strategic Outlook December 2008

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