Country Report Algeria July 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.
• There is likely to be growing political tension in 2009-10 with indications of disunity within the presidential alliance and speculation that the president's brother is establishing a political party, amid continued attacks by militants.
• Fiscal policy will remain strongly expansionary. Reduced oil and gas revenue, owing to lower hydrocarbons prices, will lead to the central government budget posting small deficits in both 2009 and 2010.
• We have revised our GDP growth forecast from 2.8% to 3.3% as higher than expected oil prices will help to boost investment and domestic demand. Growth is expected to rise to 4.3% in 2010 with higher oil and gas output.
• The Algerian dinar is likely to stabilise against the US dollar over the remainder of 2009 and during 2010. Against the euro, the dinar is forecast to depreciate gently in 2009 and 2010.
• In 2009-10 lower oil and gas prices will lead to a sharp contraction in the trade surplus, to around US$19bn from US$39.1bn in 2008. This will result in a concomitant narrowing of the current-account surplus.

Monthly review

• There has been media speculation that Said Bouteflika, the president's brother, is likely to establish a political party, which could undermine political stability and has fuelled conjecture that he is being groomed for presidency.
• The government has worried foreign investors by requiring foreign importers to cede 30% of capital to local companies. The policy is to be applied retroactively to companies already operating in Algeria.
• A government decree restricting foreign investment to minority stakes has caused plans for major steel and aluminium plants to be postponed.
• The government has met to discuss the supplementary budget. It has been indicated that it will include tax cuts and incentives for local firms.
• Relatively positive economic data has been released for 2008 with nominal GDP growth estimated to have been 18.3% according to the Banque d'Algerie.
• An agreement on the Trans-Saharan Gas Pipeline project is expected to be signed in July amid renewed government efforts to accelerate hydrocarbons projects. Gas export targets have been pushed back by project delays.
• The trade surplus has narrowed owing to lower oil and gas prices in 2009 although recent higher prices have improved prospects for the year.