Algeria looks to industry to boost flagging economy

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Algeria’s disappointing economic performance, with its heavy reliance on oil and gas, is spurring a push to revive long-neglected industry as the way forward.

Prime Minister Abdelmalek Sellal told business leaders and trade unionists Thursday that “reindustrialization must be the engine of strong and healthy economic growth,” creating sustainable employment and a far greater share of GDP.

“It’s the only way we can effectively break out of this vicious circle of dependence on hydrocarbons,” he added.

As it stands, oil and gas exports account for more than 95 percent of foreign currency earnings.

In contrast, economist Abdelatif Rebah says, the industrial sector accounts for only 4.0 percent of GDP, compared with around 25 percent in the mid-1980s.

The sector has suffered from decades of under-investment, restructuring and downsizing, he explains.

Algeria enjoyed an industrial boom in the 1970s, when investment multiplied 15-fold, according to Rebah, who says that between 1968 and 1980 investment averaged 45 percent of GDP.

The country’s main industrial centers bloomed, with the construction of petrochemical plants, steelworks, a heavy goods vehicle plant and another for agricultural machinery.

Rebah says this created expertise in a range of areas and led to the creation of 1.4 million jobs, and came out of a political will to industrialize.

Decades on, Algerian leaders are now looking to the country’s industrial potential in the hope of kick-starting a revival, because despite its energy riches, the economy has underperformed in recent years, exacerbating social problems.

At the moment, the country of 35 million people has an unemployment rate of 10 percent. But that figure reaches 21.5 percent among Algeria’s youth.

Overall, growth is expected to edge lower in 2013, from 3.3 percent last year to 3.1 percent, the International Monetary Fund forecast on Tuesday, as the all-important energy sector languishes and nothing fills the gap.

Oil and gas export earnings fell 7.05 percent in the first half of 2013 from a year earlier.

President Abdelaziz Bouteflika called last month for a “modern industrial base,” which “must involve” state support.

Smail Kouadria, an MP and member of the national workers union (UGTA), agrees that re-launching the national economy requires a revival of industry.

“We have no other choice,” he said, adding that this meant “returning to the approach of the 1970s, with a new vision.”

And earlier this week, an industry leader said Algeria lacked economic vision, and “continued to navigate without a program.”

Back in the heyday of Algeria’s dirigiste economic policies, the industrial sector was 100 percent state-owned. Today any revival will need the involvement of the private sector, whether Algerian or foreign, to bring in new technologies and know-how.

But Algeria is widely seen to have an unattractive business climate, which remains a formidable obstacle.

In the World Bank index that ranks the ease of doing business in 185 countries, Algeria dropped two places this year to 152.

Deterrents to private-sector investment include the high cost of doing business, limited access to finance and limitations on foreign direct investment, with a maximum of only 49 percent foreign ownership of Algerian assets permitted, according to the IMF.

“Algeria’s economy is insufficiently diversified and is growing below its potential; it remains heavily reliant on the hydrocarbon sector and public spending, while private-sector growth is lackluster,” the fund noted.

Rebah believes “re-industrialization” should be driven by centralized state decisions with the intervention of public companies, and calls for a long-term plan combining incentives and coercive measures.

“The industry questions are too important for the future of the country to be left to the chaotic play of market forces and the whims of globalization.”

But more than 50 years after independence from France and of reliance on its natural resources, it remains to be seen whether Algeria can wean itself off hydrocarbons and develop an economic model that raises general living standards.