Algeria makes progress diversifying its economy, IMF says

The International Monetary Fund (IMF) says Algeria has made progress moving its economy away from oil and gas, but it must keep that momentum going.

Awras published an article on Tuesday by the head of the IMF mission to Algeria and two of the fund's economists.

The economists said the government's plans rest on large investment projects. These aim to raise production and exports outside oil and gas, in areas such as mining, food and water security, and transport and trade infrastructure.

Authorities have taken steps to help these projects go ahead. They have simplified procedures, improved governance and made trade easier.

Reforms in investment, real estate and mining have followed, along with a single digital platform for investment. The platform is meant to help companies invest, expand and compete better.

Progress so far

The economists said several signs are encouraging. Sectors outside oil and gas make up a gradually larger share of real gross domestic product (GDP) and of goods exports.

Export revenue from outside oil and gas has also grown over the past decade.

What holds growth back

Oil and gas still make up most of Algeria's exports. They also provide a large share of public revenue and have helped pay for infrastructure, skills and priority investment in the past.

Other exports are concentrated in a small number of products. The economists added that the export base is growing, but at a slow pace.

Large projects can raise production capacity and link regions and markets more closely. However, they need large amounts of finance.

The economists said recent investment has pushed up demand for imports. It has also put pressure on public finances and the external sector.

They said choosing the right projects matters as much as the amount spent. Money should go to the projects with the greatest economic effect, and priority projects should stay within what the country can afford.

The economists also linked the success of current investment to its ability to raise productivity, create jobs and build a more dynamic private sector.

Public finances

The economists said public investment can lay the basis for a competitive private sector. That would help exports grow, especially in activities that produce fewer carbon emissions.

Companies need efficient infrastructure, easier access to finance, better skills and stronger institutions to compete. Clear and predictable rules, and fair competition between private firms and state economic companies, are also central to a better business climate, they added.

The economists said the budget deficit and pressure on financing may make it harder to keep the broad investment programme going over time.

The economists said the state should tighten public finances gradually. This means spending money more efficiently and raising revenue from outside oil and gas.