Country Report Algeria April 2009

Outlook for 2009-10

• The president, Abdelaziz Bouteflika, will remain in power in 2009-10 after securing a third term in the presidential election in April, following several amendments to the constitution approved by parliament in November.
• Armed Islamist groups will continue to pose a threat to general security, following a number of bomb attacks over the past three years, but they do not constitute a fundamental risk to political stability.
• Fiscal policy will remain strongly expansionary. Reduced oil and gas revenue, owing to lower hydrocarbons prices, will lead to the central government budget posting a deficit in both 2009 and 2010.
• Domestic demand will remain robust, but an expected slowdown in investment and export growth will push GDP growth down to 2.3% in 2009. However, it is forecast to recover to 4.5% in 2010 as oil output rises.
• The Algerian dinar is likely to depreciate on average against the US dollar in 2009, before recovering slightly in 2010. Against the euro, the dinar is forecast to depreciate gently in 2009.
• In 2009-10 lower oil and gas prices will lead to a sharp contraction in the trade surplus, to around US$12bn from US$39.1bn in 2008. This will result in a concomitant narrowing of the current-account surplus.

Monthly review

• As expected, Mr Bouteflika won a large victory in the presidential election on April 9th against minimal competition. The president's vigorous campaign management secured a high turnout, of 74.5%.
• The latest IMF Article IV report on Algeria has advocated that the government adopt a more prudent fiscal stance in the medium term if oil prices remain low and hydrocarbons exports are affected by the slowdown in Europe.
• The Economist Intelligence Unit has pointed to the risk of the recent acceleration in the government's public investment programme leading to poor quality and a lack of sufficient oversight of procedures.
• The prime minister, Ahmed Ouyahia, and the minister in charge of privatisation, Abdel-Hamid Temmar, have indicated that they favour reducing the ceiling for foreign investors' equity share in joint ventures to 40%.
• Several major contracts for upstream development have been awarded, including, in late March, a US$1.8bn order to Saipem of Italy for the construction of gas-production facilities in the Menzel Ledjmet East field.
• DP World, a UAE-based container-port operator, has formally taken over operations in two Algerian ports, the Port of Algiers and Djen-Djen.

Source: Country Report