Algeria

A stable rent economy

Last update – January 2025

Country rating

MEDIUM RISK FOR ENTERPRISE

Economic risk

Business environment risk

Political risk

Commercial risk

Financing risk

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Form of state	Semi-presidential republic
Head of government	Abdelmadjid Tebboune (President)
Next elections	2029, presidential

Strengths & weaknesses

Top natural gas producer in Africa and second-largest reservoir in the region (after Nigeria), with reserves estimated to last 28 years at current rates of extraction
Second-largest provider of oil to Europe via pipeline and an increasing LNG supplier
Potential for renewable solar energy production and mining

Hydrocarbon production and revenues are expected to deteriorate and negatively impact growth in the mid term
Significant political and social risk, with a divided society and occasional diplomatic tensions with European partners that could have an impact on trade
Lack of any substantial economic diversification pose risks to the long-term prospects, with a banking sector dominated by state-owned institutions, which are required to finance the state budget and may create contingent liabilities

Economic overview

Gas and oil sustain an increasingly rentier economy

Algeria’s GDP growth is expected to slow to +2.7% in 2025 from +3.0% in 2024. The downward trend in global natural gas prices is causing a gradual decline of Algerian growth from the +4% averaged between 2021-2023. As prices further relax and hydrocarbon production moderates due to lagging investment, economic activity is expected to continue slow towards the end of the decade.

Inflation is projected to slightly pick up in 2025 to 5.5% y/y following a downward shift in the first half of 2024 from the 9% y/y recorded in late 2023 due to a drop in food prices caused by import relaxation during Ramadan. Yet inflation has continued to increase since April 2024, mostly due to food price increases. Meanwhile, the Bank of Algeria (BA) has kept the policy rate at 3% since 2020, and slightly increased the reserve ratio in 2023 by 100bps.

After a full year of depreciation, the Algerian Dinar remained flat by end-2024 at .0074USD/DZD. However, according to some estimates, the parallel exchange rate of dinar to USD is expected to be more than 60% lower than the official rate. The black-market rate has been deteriorating due to inflation but also due to the decreasing foreign reserves at the Bank of Algeria. A decade ago, FX at the BA were standing around USD200mn while today are hardly above USD60mn after touching rock bottom during the pandemic. However, relative to other nations, this remains an elevated number above 12 months of imports, providing a substantial buffer against external shocks, allowing the BA to keep an anchored exchange rate.

Short-term improved fiscal and external position but long-term questions remain

Hydrocarbons play a pivotal role in the Algerian economy, with oil and gas revenues making up 96% of all exports and over 60% of government revenue. The disruption of global energy markets following Russia’s invasion of Ukraine has further amplified the importance of hydrocarbons to Algeria’s finances. Since 2022, revenue from hydrocarbons has accounted for around 20% of non-hydrocarbon GDP and over 15% of overall GDP, both significantly higher than pre-invasion levels. At the same time, non-hydrocarbon revenues have declined and are not expected to return to pre-invasion levels this decade.

Despite elevated hydrocarbon revenues, the Algerian government continues to struggle to balance out its budget. With total revenue at 29.2% in 2024, just below Saudi Arabia’s 29.2%, Algeria’s fiscal balance stood at -9.3% in the same year, much larger than the -3% of GDP of its Gulf peer. The non-oil fiscal balance has experienced a moderate improvement to -29.5% in 2024 and should experience further improvement in 2025. Although the fiscal balance has continued to worsen since the pandemic, and it will remain highly dependent on hydrocarbon revenues, the government’s debt profile did return to pre-pandemic levels of 31% in 2022. Since then, the debt burden has moderately increased and is expected to reach 34% in 2025. Algeria’s sovereign wealth fund, the Revenue Regulation Fund, has also seen its buffers increase by more than 5% of GDP since 2020, while government transfers have grown by over 5% compared to pre-pandemic levels.

On the external front, Algeria’s current account is estimated to have reached 3.3% of GDP in 2024, marking the third consecutive year of surplus. However, a return to a deficit is expected by 2025 to -2.5% of GDP, driven by declining non-renewable energy prices. Since joining OPEC in 2023, Algeria has maintained oil exports at 1mn barrels per day, adhering to a self-imposed ceiling as part of efforts to stabilize oil prices even as global prices have softened. The country is working to expand its oil refining capacity, though progress has been slow; a new refinery is expected to become operational by 2027.

Regarding natural gas, as Europe’s second-largest supplier of pipeline gas after Norway, Algeria has gained strategic importance in the EU’s gas market since 2022, primarily through the Medgaz (via Spain) and Transmed (via Tunisia and Italy) pipelines, which deliver gas as far as Germany. Liquefied natural gas (LNG) exports are set to rise in the short to medium term as aging facilities are upgraded. While France and Turkey remain Algeria’s largest gas customers, the country has diversified its European clientele, supplying Croatia for the first time in 2024 and expanding exports to Hungary, Slovakia and the UK. Improved gas prices in 2024, due to supply disruptions in the Eastern Mediterranean, benefited Algeria. Its role as a gas supplier to Europe could grow further if the long-discussed Trans-Saharan gas pipeline becomes a reality, connecting Nigerian gas fields to Europe via Algeria. However, political challenges continue to stall the project despite interest from both African nations and European energy companies.

Political continuation with the reelected President Tebboune

The 2024 presidential elections in Algeria reaffirmed President Tebboune’s leadership, though the 94% electoral win has been met with skepticism, with some viewing it as a "show election." This outcome signals political and policy continuity as Algeria’s increasing economic power, fueled by its energy revenues, continues to appease the military, political and economic elites. A significant shift has been the expanded role of the military following Tebboune’s announcement of a policy change allowing troop deployments abroad with parliamentary approval.

While social stability appears to have been maintained in the short term – evident from the absence of major post-election protests – the longer-term outlook remains uncertain. Algeria’s rentier economy faces mounting pressure from declining gas and oil reserves. Without new discoveries or a shift in the economic model, social tensions could resurface as the economy deteriorates.

On the energy front, the government has prioritized renewable energy, aiming for 27% of electricity generation from renewable sources by 2023. Although only around 10% – approximately 1,200 MW – of electricity is projected to come from renewables in 2024, this still represents a notable increase from 2019's 4% (400 MW). Chinese solar power companies have emerged as key players, securing most new contracts, including a substantial 3,000 MW project awarded in early 2024.

Meanwhile, the business landscape remains heavily influenced by bilateral relations and personal connections, despite the government’s ongoing anti-corruption drive. Foreign companies, particularly those with no links to former President Abdelaziz Bouteflika’s circle, are unlikely to face significant risks. Italy has become Algeria’s closest European ally, particularly in the energy sector, where Italian firms such as ENI, Saipem, Ansaldo Energia and Bonatti play leading roles. Moreover, in 2022, the Stellantis Group announced plans to establish a Fiat car manufacturing plant in Oran, further diversifying Algeria’s industrial base.

However, diplomatic tensions have flared up. In July 2024, following Spain’s stance, France endorsed Morocco’s autonomy plan for Western Sahara, dealing a blow to Algeria’s backing of the Polisario Front. Algeria responded by recalling its ambassador from Paris, further complicating its international relations.

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