Recently implemented rules aimed at diversifying economic activities to reduce dependence on oil and gas sales included a new investment law that took effect this month and monetary incentives for exporters of non-oil products.
“Algeria is in a real race against time. It has to secure revenues away from oil and gas before prices drop again,” said a former minister in the government who still advises officials regarding economic files, after asking not to be named.
For decades, Algeria has resorted to high energy revenues to run a state-dominated economy where private or foreign investment has struggled. While the government kept to itself the management of major sectors, businessmen suffered from bureaucratic constraints, according to a Reuters report.
But the decline in cash reserves after the drop in oil prices in 2014 devastated public finances and constrained social spending, adding to popular anger over the political deadlock that fueled mass protests that rocked the country in 2019 and 2020.
With foreign exchange reserves falling by two-thirds in six years and the growing risk of continuing unrest, President Abdelmadjid Tebboune’s government pushed reforms to boost the private sector, giving a boost to local businesses.
“We still have a deep-rooted bureaucracy, usually a corrupt bureaucracy. This is the reality,” said Mohammed, a businessman who waited three years with a foreign partner to get approval to set up a refrigerator factory.
“I know that Tebboune is trying to accomplish some things. It is too early to say if he will succeed in them. So for me it is still up to us, let’s wait and see.”
Over the years, the private sector in Algeria has suffered from random policy changes, the scourge of corruption, bureaucratic hurdles, and severe restrictions on doing business.
Tebboune, who was elected president in a vote with limited voter turnout in late 2019, has shouldered the burden of dealing with the legacy of political turmoil and economic decline even before the COVID-19 pandemic dominated the scene. Tebboune has passed some reforms, but he is now enjoying strong demand for Algeria’s energy resources and increasing revenues.
An economy that is more conducive to investment
Sami Akli, head of the Forum of Enterprise Heads, a major business association in Algeria, said the new rules seek to make the Algerian economy more open and conducive to investment, but acknowledged that it would be a long process.
Akli added, “The first steps are clear. Free zones will be created and the customs law has been amended to be more attractive to foreign investment, and we also have a new investment law.”
To boost exports, the government introduced significant tax breaks and helped defray transportation costs. However, Akli said any long-term plan to boost exports would require more investment in non-oil industries.
One indication that the government is accelerating the pace of economic reforms is that unlike in 2016, when the investment law was agreed but not finalized, the Official Gazette has already published the rules for implementing the new law.
Meanwhile, non-oil exports, including cement, pharmaceuticals, pipelines, turbine components, and refined sugar, are set to hit a record $7 billion this year, albeit with significant state help for private exporters, including providing financing. To cover some transportation costs.
Tebboune also indicated that Algeria wants to join the BRICS group of emerging economies, which represents a new approach for one of the few countries that has not joined the World Trade Organization.
Like other major energy exporters, Algeria has throughout its history taken steps towards reform during periods of declining revenues and then returned again to controlling the joints of the economy after the price recovery.
A former government adviser on economic affairs said the authorities were aware of the need to press ahead with reforms despite the increase in energy revenues this year.
“Selling more commodities away from oil and gas is our top priority. Time is running out because oil prices are very volatile and a global recession has become the most likely scenario,” he added.
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