Algeria’s growth trajectory has been boosted by stronger hydrocarbon exports and government spending
Despite a promising growth outlook, MNCs should be aware that opportunities in Algeria will remain challenging to access due to a weak business environment and persistent operational challenges and import restrictions. Growth will be driven by exports and the state, and businesses will need to engage public entities to identify promising opportunities.
Although inflation is projected to slow and the dinar’s outlook has improved in recent months, the adverse conditions since 2019 have damaged consumer confidence, and B2Cs should expect modest consumption growth. Given elevated price sensitivity, B2Cs should consider streamlining their product portfolio to target key customer segments and adapt their pricing strategy to reflect consumer conditions.
The regulatory environment will continue to create difficulties for businesses, with authorities making frequent changes on short notice; MNCs should engage local partners to remain abreast of possible changes. In addition, localization pressures will continue in 2023 due to government priorities, and MNCs should consider localization and export diversification capabilities when considering investing in Algeria.
Overview
- Algeria’s 2023 budget projects government spending and investment of around DZD 13.8 trillion, compared to DZD 11.6 trillion in 2022.
- Amid high gas prices globally, Algeria renegotiated existing gas supply contracts with France and Spain and signed new agreements with Italy and Slovenia.
- Algeria’s oil production passed 1 million barrels per day in June 2022 and has returned to pre-pandemic levels.
Our View
Under volatile global conditions, Algeria is the North African country that is best positioned to secure meaningful economic growth in 2023, and FrontierView forecasts growth of over 4%. However, MNCs will face challenges in accessing opportunities in the state-driven economy. Global conditions have raised hydrocarbon prices and, in turn, Algeria’s revenues, which will be reflected in a vastly expanded 2023 state budget. The government will raise public sector salaries and pensions in March 2023, while unemployment benefits will rise by 15%. Most ministries have seen large increases in their respective budgets, indicating higher public spending on projects in 2023. However, the government has delayed some fiscal reforms and continues to expand its fiscal deficit, raising questions about the country’s longer-term economic viability. Long-term trade deficit reduction will remain a state priority in 2023, which will be reflected in more localization pressures and restrictions on imports authorities believe are nonessential.
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