Business & Industry

Jun 1, 2015

Algeria's rebirth

Algeria is the sixth largest gas exporter in the world thanks to its gas and oil reserves. With a gross domestic product (GDP) of about US$200 billion, the country's gas exports are rising among the fall of oil prices, specially to its mediterranean partners of Italy and Spain. The country is modernizing and in the near future it will be one of the fastest growing investment places in the Maghreb region.

Under French rule and earlier, the Algerian economy was based on agriculture. The major products were crops destined for export to the colonial centre, such as grains and wine grapes. In addition, some light industry existed, mostly involving the processing of these products. All this began to change in 1956, when the first large oil fields were discovered at Hassi Messaoud and natural-gas fields were discovered at Hassi R'Mel. As a consequence, the economy of modern Algeria is dominated by the production of petroleum and, more importantly, natural gas. 

Given this economical dominance, fluctuations in the world oil and gas markets have always had important effects on the country's social and political development. Revenues from the international energy market enabled the state to guarantee the population a degree of welfare. Regionally, it allowed the Algerian state to project its power and enlarge its sphere of influence in the Maghreb, the broader Arab world, and the Sahel region. Globally, 'oil power' supported Algeria's endeavours in the 1970s, together with like-minded countries, to change the global economic balance of power, but, as this power was based mainly on the export of a commodity dependent on Western demand, this attempt was less successful than that of the present BRIC countries, which are mostly commodity exporters.

The predominance of oil revenues explains the central role of the state in the Algerian economy. Even though foreign oil companies have come to play an important role in the exploration and production, the state has remained the intermediary in these ventures. At the same time, the exchange with the world market is very important at all levels of the economy.

The overall liberalization of the economy in the 1990s has meant that the rules regarding foreign investment have been relaxed. The government looks for ways to stimulate foreign investment in the economy. At the same time, it has tried to strengthen the role of domestic capital through the obligation for foreign firms to enter into partnership with one or more Algerian counterparts, who must have at least a 51-percent ownership. 

Despite these constraints, Algeria has important assets for further economic development. Its strategic location close to Europe makes it a potential supplier of solar energy, and there are considerable possibilities for international tourism. Algeria has a well-educated population, especially when its extensive migrant community is taken into account.

Rising exports

Italy is doubling imports of natural gas from Algeria as lower oil prices filter into long-term supply contracts, reducing costs of the heating fuel.

Gas flows into the Mazara del Vallo entry point, in Sicily, were 23.5 million cubic meters (825 million cubic feet) in March, up from 10.7 million at the end of February, according to data from Italian grid operator Snam Rete Gas.

A 50 percent drop in Brent crude prices since June 2014 is starting to filter into long-term oil-indexed European gas contracts with countries including Algeria, Norway and Russia. About half of the continent's gas deals are linked to the price of crude and oil products, with a six- to nine-month lag.

Algeria is also boosting gas flows to Spain, with imports by the Iberian nation rising 88 percent in the begining of April, when compared with the end of March, according to data from the European Network of Transmission System Operators for Gas, or Entso-g. Flows of algerian gas go through the Almeria and Tarifa Spain entry points, in southern Spain.


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