Country outlook Algeria - CaixaBank Research
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Country outlook Algeria
Closing date of this issue: February 2020
Form of Government: Parliamentary republic
Algeria Capital: Algiers
Official language: Arabic, Berber, Spanish (not official) and
French (not official)
Population: 43 million inhabitants (2019)
Currency: Algerian dinar (DZD)
Exchange rate: 1 EUR = 133.04 DZD (31/01/2020)
1 USD = 120.05 DZD (31/01/2020)
GDP: $172 billion (0.5% of world GDP)
GDP per capita: $3,980 ($15,696 purchasing power parity)
Ease of doing business: 157th in the world out of 190
according to the World Bank (Doing Business)
Religion: Sunni Islam: 99%. Catholic: 1%
Country Outlook is a publication that is produced jointly by CaixaBank Research and BPI Research (UEEF) and it contains information and opinions from sources that we consider to be reliable. This
document is for information purposes only, so CaixaBank and BPI are not liable in any way for any use that may be made of it. The opinions and estimates are provided by CaixaBank Research and BPI and
may be changed without prior notice.Algeria
PIB. Variación interanual (%)
Economic GDP. Year-on-year change (%) CPI. Year-on-year change (%)
forecast 4
Forecast
10
Forecast
8
3 2.6
2.4 5.5
6
1.8
2 4.1
4
2.0
1
2
0 0
Average 2015 2016 2017 2018 2019 2020 2021 Average 2015 2016 2017 2018 2019 2020 2021
2010-14 2010-14
• In 2019, the economy grew, boosted by the • Following the stabilisation of prices in 2019,
resumption of hydrocarbon production and partly due to base effects (the sharp rise in
improved activity in the non-energy sector. energy prices 2018 was corrected early in the
We estimate that the rate of growth will slow year), we expect inflation to rise in 2020 and
down in 2020-2021 due to the combined 2021 following an increase in the money
effect of the anticipated fall in the price of supply (a result of the partial monetisation of
hydrocarbons, the weakness of domestic the fiscal deficit with international reserves)
consumption and foreign investment in non- and due to the weakness of the dinar’s
energy sectors and the continuation of the 4
exchange rate, which will increase the price 1
fiscal consolidation process, all against a of imports.
3 Moreover, public subsidies for
backdrop of ongoing political volatility. certain food and services will be reduced.
2
1
Economic Benchmark interest rate (%) 0
policy and exchange rate (DZD/USD) Fiscal balance (% GDP)
Forecast Forecast
6 150 0
123.5 124.3
119.4
5
-5
4 4.3
100 -5.4
4.0 -5.8
3.8 -8.1
3 -10
2 50
-15
1 EE. UU. Eurozona Emergentes
0 -20
0
Fuente: CaixaBank Research, a partir de datos de Citigroup y Bloomberg.
Average Average 2015 2016 2017 2018 2019 2020 2021 Average 2015 2016 2017 2018 2019 2020 2021
2010-14 2010-14 2010-14
Benchmark interest rate (left scale)
Exchange rate (right scale)
Current account (% GDP) Public debt (% GDP)
Forecast Forecast
5 60 52.5
46.1
49.2 0
0 50
40 -5
6 -5
30
5 -11.9 -11.5 -10
-10 -12.6 150
20
4
-15 10 -15
3
100
-20 0
2021 -20
2
Average 2015 2016 2017 2018 2019 2020 2021 Average 2015 2016 2017 2018 2019 2020
1 2010-14 2010-14
50
0
• Despite the respite following the Fed pausing • The ongoing weakness of oil and gas exports
its monetary tightening and, by extension,0 (which represent nearly 95% of Algeria’s
easing international financing conditions, international trade revenue) helped to prolong
there will continue to be downward pressures high fiscal and current-account deficits in 2019,
on the dinar in the coming years, as a result of despite the Government’s efforts
60 to diversify its
5
the macroeconomic imbalances in the Algerian revenue sources and 50 stimulate domestic
economy (fiscal and external deficit and rising consumption.0 In fiscal terms, the new
40
inflation). In this scenario, we anticipate that government -5 will implement the fiscal
the central bank will maintain a restrictive consolidation plan 30
announced by the previous
-10
monetary policy to anchor expectations amidst president, A. Bouteflika, which
20 should help to
rising inflationary tensions. reduce the-15 fiscal deficit10 from 2020, with
measures-20such as reducing0 public expenditure
and raising taxes on tobacco and cars. However,
given the political uncertainty, there is a risk
that the extent of the fiscal reforms will be
constrained due to social pressure.Algeria
Financial Private credit (% GDP) Gross external debt (% GDP)
conditions 30
Forecast 5
Forecast
25 4 4,6
25.6 26.7 27.6
3,9
20 3 3,4
15
2
10
1
5
0 0
Average 2015 2016 2017 2018 2019 2020 2021 Average 2015 2016 2017 2018 2019 2020 2021
2010-14 2010-14
• The Algerian banking sector is well-capitalised • External debt is low. As a result, the increase
and profitable, despite the low interest rate30
expected in coming years does not represent a
environment. Although the NPL ratio is high, significant macrofinancing vulnerability.
25
banks are well-provisioned. Private sector
20
credit growth will slow due to factors
15
including the likely tightening of domestic
10
monetary policy and the weakness of domestic
demand. 5
0
Political •
In December 2019, Abdelmadjid Tebboune • The new President is not popular with part of
situation (the former prime minister) was elected as the the population due to his political past, so
country’s President with 59% of the votes, there continues to be popular discontent and
after Abdelaziz Bouteflika’s resignation in the risk of demonstrations with protests
April. Given Tebboune’s close links with the against the government’s measures. Aspects
previous government, we expect him to such as inconsistent economic policy, high
follow a similar road map to his predecessor. youth unemployment and inefficient
management of public services are the focus
of the demonstrators’ protests.
Long-term GDP growth (%) Population (milions of inhabitants)
outlook 4 50 49.2
48
3
2.8
2.3 46
2 44
42.2
42
1
40
0 38
Average 2009 -18 Average 2019 -29 2018 2028
•
The growth model is highly dependent on • The country will benefit from considerable
hydrocarbon prices and hindered by an population growth. However, in the long-
unfavourable business environment (limited term, potential growth is expected to remain
foreign shareholding, excessive bureaucracy moderate, as no progress is expected
and tax regulations, excessive taxation and institutionally or in sector diversification.
extensive state presence in the economy).Algeria
Country CDS* 5 years (basis points) Classification of credit
risk 200 risk of the OECD
(from 0 to 7, with 0 being the best)
150
129.2
100
76.9 5
50 7
0
Average 2016-19 31/01/2020
*Credit default swap: measurement of country risk that reflects
the cost of insuring the non-payment of the sovereign bond.
Risks SHORT-TERM LONG-TERM
• Commodity prices lower • Maintenance of the
than forecast - + production model - +
• Political instability • Political stability - +
higher than forecast - +
• Increased tightening up of
international financing - +
Business STRENGTHS WEAKNESSES
environment • Natural energy resources. • Excessive regulation.
• Cheap labour. • Institutions (lack of confidence and
• Demographic dynamism. pending modernisation).
• Market size. • Inefficient labour market.
• Modest financial development.
• Limited innovation.
Main EXPORTS IMPORTS
sectors • Mineral fuels, fertilisers, inorganic • Machinery, electronics, vehicles, steel and
chemicals, sugar and organic chemicals. aluminium, and cereals.
48,8 36,7 76,2 21,7 42,8
50,0 69,5 53,0 52,2 48,7
CIBI | CaixaBank POSITION PILLARS SUBPILLARS
Index for Business IN COUNTRY 1. Accessibility
Internationalisation RANKING 100
Top
80
Similar tastes to Spain
41
56.0 60
5. Stability 40
2. Ease Distance, communications,
67 20
38.6
of operating and agreements with Spain
42.9
0
Macroeconomic stability
18.5
76.3 Bottom
4. Financial 3. Commercial
environment attractiveness Innovation capability
and innovation Credit and financial
— Africa — Algeria development
(Min. 0 - Max. 100)
100
Infrastructures
80
60
40
20
Source: CaixaBank Research, based on data from Bloomberg, IMF, OECD, Oxford Economics and Thomson Reuters Datastream.Algeria
Taxation Algeria’s tax system has some similarities with corporate earnings at a general rate of 25%
Western systems as it is centralised and made and 19% for the activities of production,
up of direct taxes, indirect taxes and duties. transportation, construction, civil engineering,
The most notable direct taxes are personal tourism and travel agencies.
income tax or “Impôt sur le Revenu Global” With regard to indirect taxes, value added tax
(IRG), applied on a sliding scale from 0% to has three different rates: a normal rate of 17%,
35%, and corporate tax, called “Impôt sur les a reduced rate of 7% and a third for certain
Bénéfices des Sociétés” (IBS), levied on exceptions such as medicines.
Investment Although Algeria was one of the top five other hand, the destination of FDI had
African countries in terms of foreign direct traditionally been related to the mining of
investment in 2011, in subsequent years, this natural resources but foreign investment in
flow of FDI has been in decline. Two trends can infrastructures and transport is currently
be observed: a sharp fall in European gaining ground due to the notable increase in
investment and renewed interest from the number of projects in these sectors.
investors in the Persian Gulf countries. On the
Establishment LOCAL COMPANY
A foreign firm cannot set up a company • Simple partnership (SCS).
without the collaboration of an Algerian firm, • Joint enterprise.
which must hold at least 51% of the share The most common types for a foreign firm are as
capital against maximum 49% held by the follows: limited liability company (SARL), which
foreign firm. can be set up between Algerian and foreign
There are different types of companies – shareholders and requires a minimum capital of
corporations: 1,000 euros (51%/49%); general partnership
• Limited or joint stock company (SPA). (SNC), where there is no minimum required
• Limited liability company (SARL). capital; and partnership limited by shares (SCS),
• One-person limited liability company (EURL). where the company is run by one or more
• Partnership limited by shares (SCA). managers. A foreign company providing a
service in Algeria has to pay a withholding tax of
And partnerships:
24% of its invoiced income.
• General partnership (SNC).
BRANCH
A branch offers the parent company the authority. The drawbacks to this form include
possibility to carry out commercial activity in exchange rate controls and the inability of
Algeria. In fact, a branch is considered to be the branch to sign contracts with the parent
an Algerian resident entity without legal company.
REPRESENTATIVE OFFICE
In this case activity focuses exclusively on offices since January 2015. Excessive state
handling the interests of the company or its intervention has meant that representative
subsidiaries. A representative office is not offices, formerly the most viable way to be
allowed to do business or carry out present in the market, are now less attractive
transactions involving an income. The due to the extensive legal limitations, both
Algerian government has toughened up the on the functions permitted and also on
requirements to set up or renew representative income.
Alliances FREE TRADE ZONE
strategic There are no free trade zones or special economic areas in this country.
JOINT VENTURE
To set up a joint venture with an Algerian partner it is necessary for a local partner to provide at
least 51% of the capital stock for all sectors of activity.Algeria
Customs FREE TRADE AGREEMENTS
conditions As part of the Euro-Mediterranean Association the European market for manufactured
Algeria has an agreement with the European products and preferential treatment for
Union that came into force in 2005 and grants agricultural products, processed agricultural
the country the following: duty-free access to products and fisheries products.
FREE TRADE ZONE
There are no free trade zones or special economic areas in Algeria.
GENERALISED SYSTEM OF PREFERENCES (GSP)
The country stopped being a beneficiary of the EU GSP in January 2014 as there is now a free
trade treaty.
Negotiations BUSINESS CULTURE
and protocol As this is an Arab country, the business world has partner is a very important factor for the business
some characteristics that need to be taken into or investment to be a success in Algeria. It is
account. Firstly, the working week is from Sunday advisable to adopt a conservative attitude at the
to Thursday and religion influences business first business meeting as judgements are
activity (e.g. it is not a good idea to do business sometimes made by appearance. Negotiations
during the month of Ramadan). can be very long.
Use of English is minimal, while French and Arabic
are accepted in business. Moreover, having a local
Top fairs • SIMA-SIPSA. • Food Expo.
• Maghreb Pharma. • ERA.
• Best 5 Algeria.
Websites • National Investment and Development Agency: www.andi.dz
of interest • Algerian Chamber of Commerce: www.caci.dz
• General Directorate of Customs: www.douane.gov.dz
Payment MEANS OF COLLECTION
and charging In 2009, the government established a measure terms for documentary credit to 60 days or less.
methods so that Algerian importers that import more This measure benefits large exporters and
than USD 40,000 worth of products must pay suppliers as it speeds up and guarantees
their suppliers by documentary credit. The payment by Algerian companies. Recently
measure was subsequently extended and, in payment by documentary remittance has been
2010, the Algerian government almost limited liberalised for some customs categories.
MEANS OF PAYMENT
The most widespread and secure payment documents (CAD), payable at 120 days, as well
method is documentary credit. Documentary as simple transfers. The central bank monitors
remittances are also used, normally cash against funds received from abroad.
EXCHANGE RATE INSURANCE
The Algerian dinar is non-convertible (it is never used to pay for foreign imports).
CaixaBank We accompany CaixaBank customers with their sales, to deployment in the country,
in the country interests in the Algerian market from the providing them with all the value added
representative office in Algeria. Our main aim is necessary to integrate properly. We also
the relationship with local financial institutions, manage and channel opportunities for Algerian
handling all kinds of international trade and companies in looking for future trading
investment operations for our customers. We partners in Spain. Moreover, our presence in
support companies in their internationalisation the country represents the entity institutionally
strategies, from an initial stage, channelling before official bodies.CaixaBank Bogotá (Colombia)
in the world New York (US)
Branches Agadir (Morocco)
Representative offices Casablanca (Morocco)
Spanish Desks London (United Kingdom)
Paris (France)
Frankfurt (Germany)
Warsaw (Poland)
Singapore
Vienna (Austria)
Toronto (Canada)
Beijing (China)
Shanghai (China)
Sidney (Australia)
Hong Kong (China)
New Delhi (India)
Dubai (United Arab Emirates)
Cairo (Egypt)
Johannesburg (South Africa)
Istanbul (Turkey)
Milan (Italy)
Algiers (Algeria)
Tangier (Morocco)
BPI (Lisbon)
São Paulo (Brazil)
Santiago de Chile (Chile)
Lima (Peru)
Mexico City (Mexico)
Contact details
Director: Leila Smaili
Tel. +213 (0) 798739300
Relationship Manager: Pablo Pérez
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