ALGERIA

COUNTRY OVERVIEW

LOCATION AND SIZE.

Algeria is located in North Africa, bordering the Mediterranean Sea. It shares borders with Morocco, Mauritania, Mali, Niger, Libya, and Tunisia. Taken together, Algeria, Morocco, and Tunisia form what is known as the Arab Maghreb or West. With an area of 2,381,740 square kilometers (919,595 square miles) and a short coastline of 998 kilometers (620 miles), Algeria is the second largest country in Africa after Sudan, and is slightly less than 3.5 times the size of Texas. Algeria's capital city, Algiers, is located in the north on the Mediterranean Sea. Other major cities include Annaba and Oran, both in the north.

POPULATION.

The population of Algeria was estimated at 31,193,917 in July of 2000, an increase of 6.2 million from the 1990 population of 25,010,000. In 2000, Algeria's birth rate stood at 23.14 per 1,000, while the death rate was reported at 5.3 per 1,000. With a projected growth rate of 1.7 percent between 2000 and 2015, the population is expected to reach 39.8 million by the year 2015. Muslims, mostly of the Malekite Sunni tradition, make up 99 percent of the population, while Christians and Jews make up the remaining 1 percent. A small percentage of the population are the indigenous Berbers, who speak Tamazight. Since 1995, the Berbers have been given wider autonomy and have been allowed to speak and teach their language. Arabic is the official and dominant language.

Algeria's population growth has slowed significantly since the early 1990s, reaching 2.8 percent in 1998, down from 3.06 percent in 1987. The slowdown is mostly attributable to a falling birth rate, which is now 2.15 children per family. Population growth is expected to drop even further in the coming years. The success of the Algerian government's family planning policies has ensured wider access to contraceptives and family planning education. The Comite national de la population (CNP) was established in October 1997 to oversee and coordinate national planning policies.

The population is generally young, with some 35 percent below the age of 14 and just 4 percent older than 65. Given the population makeup and the significant drop in the population growth rate, the government is faced with the daunting challenge of creating new employment opportunities, and is bracing itself for an aging population in the coming decades. Algeria's young population has also been a source of political instability, feeding an anti-government Islamic backlash that began in the early 1990s. Unemployment and limited job opportunities are largely responsible for an Islamic insurgency that has destabilized the country since 1991.

As in many developing countries, a majority of Algerians live in urban areas. In 1997, 60 percent of the population was urban, an increase of 29 percent from 1966, but the trend toward rural-urban migration is believed to have leveled off. Most of the population is concentrated in the north, with the capital Algiers and its suburbs being home to the largest concentration of Algerians; 4 million people live in the capital.

OVERVIEW OF ECONOMY

Algeria's small-to medium-sized economy is largely dependent on the hydrocarbons sector, which accounts for about 95 percent of export earnings, 52 percent of budget revenues, and 25 percent of GDP. The second-largest natural gas exporter in the world, Algeria is home to the fifth-largest reserves of gas worldwide. Algeria also has the 14th-largest reserves of oil in the world. The European Union is the largest market for Algerian natural gas.

The industrial sector is the largest contributor to the economy, accounting for 51 percent of GDP and employing 13.6 percent of the labor force of 9.1 million workers. The sector is dominated by oil-related industries. Other light industries can also be found, but their contribution to GDP is modest. The services sector is the second-largest economic sector, accounting for 37 percent of GDP and employing 13.5 percent of the labor force. The agricultural sector contributes 11-12 percent of GDP annually and employs some 22 percent of the labor force.

Algeria entered the twentieth century as a French colony heavily dependent on agriculture. Soon after the conquest of Algeria in 1830, the French created large agricultural tracts, built factories and businesses, and exploited cheap local labor. Until Algeria's independence in 1962, the bulk of its economic activity and wealth was controlled by the French colonizers, who successfully developed a small industry and a sophisticated export trade that provided food and raw materials to France in return for capital and consumer goods. The French also controlled about 30 percent of the total arable land, and were responsible for most of agricultural production and exports.

Since 1962, Algeria's economy has been centrally-planned, despite state efforts to privatize the economy and attract foreign investment. The country's huge foreign debt, which in 1999 reached US$30 billion according to the CIA, forced the government to launch an economic reform program in 1989. The government also concluded agreements with the International Monetary Fund (IMF) in the late 1980s and 1990s to secure international credit for its envisioned reform program.

This program has been largely successful, with the government curbing inflation, cutting budget spending, and preserving foreign exchange reserves. The adoption of the economic reforms program has also accelerated growth and succeeded in reestablishing economic stability. In the late 1980s and early 1990s, the program was coupled with austerity measures designed to reduce Algeria's external debt, which has proven difficult to control. In 1995, the government approved a framework for the privatization and restructuring of public sector enterprises. A financial sector reform program has also been initiated, although progress has been slow. As a result, Algeria has managed to achieve an average annual real growth rate of 5.5 percent since the mid-1990s, with the hydrocarbon sector being the main driving force of economic growth.

While the government has managed to achieve some progress toward economic recovery and reform, the country's troubled economy continues to be heavily dependent on volatile oil and gas revenues. Furthermore, the slow pace of the reform program, coupled with political turmoil, has failed to attract sufficient foreign investment or to create sufficient employment opportunities. Neither the hydrocarbon sector nor agriculture is capable of providing enough jobs to counteract long-standing unemployment problems. The rate of unemployment in 1999 was reported at 30 percent. By contrast, unemployment in the United States in 1999 was just 4.2 percent. The challenge to create new job opportunities for Algeria's young population is one of the biggest tasks facing the government.

Government bureaucracy is a major impediment to the conduct of business in Algeria. Red tape permeates all government ministries and the commercial court system, which resolves disputes between merchants and other businesspeople. Corruption is also widespread at all levels of the public sector, largely as a result of the low wages and difficult living conditions. In 1998, the government launched an anti-corruption drive, which resulted in as many as 2,000 public officials being prosecuted or awaiting trial on charges ranging from petty crime to grand larceny.

POLITICS, GOVERNMENT, AND TAXATION

After a bitter guerilla war with France (guerilla wars are fought with non-conventional methods by small units against larger, more conventional armies), which held Algeria as a colony, the country finally achieved independence in 1962. But Algeria's economy was in a state of chaos. Skilled labor was in short supply, as the French had taken with them most of the skilled personnel who ran the country. Until the late 1980s, Algeria's successive governments reacted by instituting a highly centralized socialist system that ensured the government a central role in the economy. Algeria's first president, Ahmad Ben Bella, moved to nationalize land and property previously owned by the French colonialists, which by 1963 had fallen under state control. Oil companies were nationalized in 1971, while agricultural land was placed under the control of workers. During this phase, the government placed special emphasis on the development of capital-intensive heavy industry. However, these state-led development programs and socialist policies soon proved to be a failure. The agricultural sector was particularly hit by bureaucratic mismanagement, inefficiency, and graft.

It was not until 1985 that the government came to realize the high costs associated with its socialist policies. Falling world oil prices, coupled with a high food import bill and a growing foreign debt burden, forced the government to re-evaluate its policies and abandon socialist policies. High unemployment rates, a lack of consumer goods, and shortages in basic foodstuffs threatened the country's political stability, as signs of popular unrest began to manifest themselves in protests. In 1985, President Chadli Benjedid shifted the focus of the country's development plans toward building a diversified economy by placing greater emphasis on agriculture. Benjedid's economic liberalization program sought to reduce central planning and decrease government control over the economy.

Since independence, Algeria has been ruled by 1 party, the National Liberation Front (FLN), which has largely used its dominance to impose heavily centralized economic structures that were justified through socialist ideology. However, the regime's priority on heavy industry and centralized management led to the neglect of the agricultural sector and the basic needs of its growing population. The decade of the 1980s laid bare the failure of the FLN to achieve either a lasting political consensus or a sustainable basis for economic growth. The sharp decline of oil prices in the mid-1980s, coupled with an intolerable debt burden and a high food imports bill, precipitated a financial crisis that accelerated the decline of the regime's appeal. Civil unrest and widespread demonstrations in 1988 sent a clear signal that the government's command of the people's allegiance had worn thin.

In an attempt to reverse the situation, the regime experimented with democracy between 1988 and 1991. In June 1990, elections for local councils resulted in an astonishing victory for Islamic fundamentalists, with the Islamic Salvation Front (FIS) winning more than half the nation's towns and cities, including the capital of Algiers. In parliamentary elections in December 1991, the FIS continued to make impressive gains and appeared poised to take control of the government in the run-off vote slated for January 1992. Before this crucial election could take place, however, the army stepped in to put an end to this democratic experiment and its unforeseen consequences, canceling the elections, banning the FIS, and imprisoning its leaders. The military's decision to abort the electoral process led to the unraveling of what little political consensus and national unity once existed. The FLN had been discredited both by its inability to defeat the Islamists at the polls and its failure to manage the country's relatively rich economic resources.

Since 1992, Islamic militants have gone underground and launched a campaign of terror against the government. More than 75,000 Algerians have been killed in the ensuing armed struggle. Islamic militants have also staged attacks against the country's infrastructure —including telephone exchanges, electrical stations, rail links, and the international airport—as well as multinational oil facilities. The military has responded to growing terrorist attacks with a ferocious crackdown on militants. Since 1992, thousands of Islamic rebels have been killed by security forces during routine raids and ambushes. Even so, these efforts do not appear to have lessened the militants' resolve, and the spiral of violence continues.

Presidential, parliamentary, and local elections were organized in November 1995 through October 1997. These elections were aimed at transforming the military junta (a group of military leaders who rule a country) into a democratically elected government, and thus putting an end to the Islamic rebels' claims that the regime was not legitimate. However, with the army running the country, the political scene remains riddled with problems. Under pressure from the military, Gen. Liamine Zeroual, who won the 1995 presidential elections, announced his untimely resignation in September 1998, paving the way for the 15 April 1999 election of Abdulaziz Bouteflika, a 62-year-old former foreign minister. Bouteflika's election raised hope that the 7-year civil war may come to an end, but the violence is far from over. Shortly after taking office, Bouteflika declared general amnesty for Islamic militants who give up their arms and return to the fold of the nation.

Structurally, the Algerian government is a republic, with a president directly elected for a 5-year term and a bicameral (2-house) Parliament. The 380 members of the National People's Assemby are popularly elected for 4-year terms, while the 144 seats in the Council of Nations are filled with either members appointed by the president or elected by indirect vote. The prime minister is appointed by the president. However, this ideal government structure has rarely been achieved in Algeria, where ongoing civil and political struggles have meant the suspension, cancellation, and rescheduling of elections, and frequent interference by the military.

Since the 1960s, Algerian politics have been dominated by the military, which has constituted the power base of the regime. The role of the military, which has traditionally also played a big role in the economy, was briefly suspended in 1989 following the restoration of democracy in the country. By 1991, the military, which forms the bulk of the security apparatus, was back into politics to counter the Islamic insurgency. Today, the military in Algeria is stronger than ever and its powers are so extensive that no president can be nominated without the consent of the generals running Algeria behind the scenes.

The major source of government revenues comes from hydrocarbon receipts and customs duties, in addition to corporate, salary, road, and property taxes. According to the IMF, in 1999, taxes accounted for 13.5 percent of the central government's non-hydrocarbon revenue. Tax revenues decreased from 16.2 percent in 1997 to 13.5 percent in 1999, the direct result of the 1998 tax reforms, which sought to lower tax rates across the board. Taxes come in different forms. Taxes on goods and services account for the largest proportion of tax revenues, making up 6.4 percent of the total. Customs duties, which in 1999 accounted for 3.5 percent of tax revenues, are the second largest contributor. Taxes on income and profits and on wage income together accounted for 4.5 percent of government revenues.

However, tax evasion is a major problem, costing the government an estimated AD30 billion a year. Tax revenues dropped slightly from AD329.8 billion in 1998 to AD314.8 billion in 1999. The government's plans to press ahead with plans to improve tax collection measures in line with the IMF's recommendations are complicated by economic and political uncertainties—mainly the ongoing civil war.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Algeria enjoys an extensive though aging infrastructure that has been largely neglected since independence. The country is serviced by a network of over 104,000 kilometers (64,626 miles) of primary and secondary roads, 71,656 kilometers (44,527 miles) of which are paved. According to the EIU Country Profile, Algeria's poor road system claims the lives of 10 people a day, while the cost of accidents to the state is estimated at AD10 billion annually. The road system is badly in need of repairs, and repair and renovation costs are estimated at AD227 billion. Roads, especially in urban areas, are highly congested. Plans are underway to privatize the road system in 2001 to cover the renovation costs, but the process is likely to be slow, despite the availability of foreign financing for the projects. Similarly, the nations' railway system, which consists of 4,820 kilometers (2,995 miles) of track, is troubled. The state's railway company, Societe national de transport ferroviare (SNTF) is also slated for privatization, but the process has been stifled by the lack of progress in the restructuring of the industry to focus on business activities. Rail lines have more than once sustained damage as a result of sabotage attacks by Islamic militants. The SNTF has been heavily indebted for years, and the railway system is mostly used to transport cargo.

Algeria has 4 major airports, located in Algiers, Oran, Annaba, and Constantine, all of which are fairly modern. Several airlines stopped service to Algeria in December 1994, following the hijacking of an Air France airplane at Houari Boumedienne airport. Many European airlines, with the exception of Air France, have resumed flights since 1999. The national carrier, Air Algerie, serves 37 destinations in Europe, Africa, and the Middle East. It carries 3 million passengers per year. Plans are currently underway in 2001 to upgrade the country's airports and expand their capacities and privatize Air Algerie. Algeria has 9 major ports, at Algiers, Oran, Bejaia, Arzew, and Annaba. The government plans to expand the handling capacity at the ports of Algiers and Oran in 2001.

Electrical power is supplied to Algerians by the state-owned power company, Sonelgaz. Over 90 percent of Algeria's 21.38 billion kilowatt hours (kWh) of power is generated from gas, while the remaining 7 percent is generated by hydroelectric power stations in Kabylie. Over 94 percent of homes are connected, and the government is planning in 2001 to extend the power network to rural areas at the rate of 150,000 new homes annually. Like the rest of state-owned companies, Sonelgaz is slated for restructuring.

Telecommunications services in Algeria are generally aging, but are better in the north than they are in the south. Telephone service is provided by the Ministry of Posts and Telecomunications. The country had 1.17 million telephone lines in use in 1995, and some 33,500 mobile cellular phones in 1999. The Ministry of Posts and Telecommunications in 2001 is upgrading the country's phone lines using fiber optic technology and digital systems. In 1999, the country had 1 Internet service provider.

ECONOMIC SECTORS

Algeria's low-to medium-size economy is heavily dependent on natural gas and hydrocarbons, which account for about 95 percent of export earnings, 52 percent of budget revenues, and 25 percent of GDP. The industrial sector is the largest contributor to the economy, accounting for 51 percent of GDP and employing 13.6 percent of the labor force. The sector is dominated by oil-related industries. Other light industries can also be found, but their contribution to GDP is modest. The services sector is the second largest economic sector, accounting for 37 percent of GDP and employing 13.5

percent of the labor force. The agricultural sector contributes 11-12 percent of GDP annually and employs some 22 percent of the labor force. The sector, however, has been vulnerable to adverse weather conditions, and production has fluctuated accordingly.

Two of the greatest obstacles to growth in all of Algeria's economy are inefficiency in the state-controlled public sector and the state's central role in the economy. Recognizing these obstacles, Algeria has targeted certain sectors, mainly state-owned enterprises, for privatization. Years of inefficient state control over the economy have finally given way to reform. The government has embarked on an ambitious restructuring program coordinated with the IMF and its successful implementation is one of the main challenges facing the government in 2001.

AGRICULTURE

Agricultural production is a moderate contributor to the Algerian economy, accounting for 11-12 percent of GDP and 22 percent of total employment in 1997. The sector's contribution to the economy, however, has declined sharply since independence. Years of government restructuring, lack of investment, meager water resources, and dependence on rainwater for irrigation have contributed to this decline. The production of cereals as well as orchard and industrial crops has significantly dropped. As a result, Algeria today has become dependent on food imports, accounting for close to 75 percent of food needs.

Although Algeria is the second-largest country in Africa, the arable land of about 8.2 million hectares accounts for only 3.4 percent of the total land area. The vast Sahara desert, which spans much of the south central part of the country, is not available for agriculture. Between 1961 and 1987, all arable land was controlled by the state, which divided the land into state farms, known as domaines agricoles socialistes. State farms were dismantled in 1987 and the land was divided into smaller collective and individual farms. Despite these measures, about one-third of cultivable land in Algeria is still owned by the government, which leases the land to private investors and farmers. The remaining two-thirds of arable land (about 5 million hectares) is privately owned.

Algeria's main crops are cereals (mainly wheat and barley), citrus fruit, vegetables, and grapes. Fresh dates exports have risen sharply in the past decade and have become the second-largest export after hydrocarbons. Some 72,000 hectares are cultivated with palm trees, mainly in the Saharan oases. Algerian dates are mainly exported to France, Russia, Senegal, and Belgium. Algeria was once a major exporter of wine and associated products. Despite government efforts to revive the sector, production has fallen significantly since 1962, reaching 248,000 hectoliters (6,552,160 U.S. gallons) in 1996, down from 410,000 hectoliters (10,832,200 U.S. gallons) in 1992. Algeria is also a producer of olive oil, and production has generally averaged around 150,000 hecto-liters (3,963,000 U.S. gallons) annually.

The bulk of Algeria's crops are cultivated in the fertile but narrow plains around Bejaïa and Annaba in the east, in the Mitidja Plain south of Algiers, and beyond Oran from Sidi Bel Abbes to Tlemcen. The agricultural sector's dependence on rainwater for irrigation has often affected its production levels, especially during droughts. The cereal harvest, for example, was badly affected by drought conditions that plagued North Africa in 2000, producing only half of its annual yield. Hence, despite government efforts to extend funding and technical assistance to farmers and increase the productivity of the agricultural sector, Algeria imports the bulk of the food it consumes, especially cereals (mainly wheat).

FISHERIES.

Though Algeria's location would suggest that the country would have a booming fishing industry, actual fishing production remains low, largely due to under-exploitation. Since the late 1990s, the government has embarked on a modernization program to increase the productivity of the sector, but most fishing activity continues to center around small boats and family-owned businesses. The government has also been trying to attract foreign investment in this sector, in the year 2000 granting some 20 Japanese fishing boats the right to fish in Algerian waters. This agreement was based on a provision that the catch does not exceed 750,000 metric tons of red tuna a year.

INDUSTRY

MINING.

Hydrocarbons, mainly oil and gas, are the country's main exports. Algeria's oil and gas reserves rank 14th and 5th largest in the world, respectively. During the 1970s, Algeria was a large producer of oil, but has since lost that status as oil was replaced by gas production as the country's main source of export revenue. Oil, first produced in commercial quantities in the late 1950s, accounted for 73 percent of Algeria's hydrocarbon productions in 1980, but now accounts for about 20 percent. France, Spain, Belgium, Turkey, and the United States are the main consumers of Algeria's oil, and plans are underway to expand export activities, mainly to Europe. Although most restrictions on oil exports were removed in the 1990s and the government no longer subsidizes the sector, the state-owned company Sonatrach continues to retain full control over its activities.

The oil sector opened to foreign investment in 1991. As a result, foreign companies are now allowed to invest and even buy existing oilfields, and despite the high political risk associated with these investments, several foreign companies operate in the country in 2001. A total of 18 foreign companies operate in the oil sector, bringing in around US__BODY__.5 billion in investments. Natural gas production began in 1961, and in 2000 represented 57 percent of total proven hydrocarbon reserves. Algeria is the second-largest exporter of liquid natural gas in the world after Indonesia. The bulk of Algeria's gas is exported to Europe through 2 major pipelines that run through Tunisia and Morocco. Since the late 1990s, the government has been engaged in efforts to upgrade and expand oil and liquefied natural gas exploration by attracting foreign investments. It has also moved to increase the production of liquefied petroleum gas as a means to diversify income from this sector.

Algeria's non-hydrocarbon mining infrastructure remains underdeveloped. In addition to oil and natural gas, Algeria mines gold in the southeast Hoggar region and diamonds near the Mali borders, and exports high-grade ore, iron pyrites, phosphates, lead, zinc, mercury, barite, and antimony. Since the late 1990s, the government has made progress in removing restrictions on foreign and private investment in the non-energy mining sector in an effort to minimize the state's control over the sector. The sand, marble, and gold sectors have received special interest from small private investors.

MANUFACTURING.

The non-hydrocarbon manufacturing sector is a moderate though declining contributor to the Algerian economy. According to the EIU Country Profile for 2000, though manufacturing accounted for 12 percent of GDP in 1993, its contribution fell to 9 percent in 1999. The decline in manufacturing's contribution to GDP can be attributed mainly to the legacy of centralization and inefficiency that have characterized the state enterprises controlling the sector. Algeria's manufacturing industries are beset by an oversized bureaucracy and debt, and have, as a result, lost their ability to compete with imported finished products. The government's efforts since the 1980s to restructure the industrial sector into smaller state-run units and encourage joint ventures with the private sector have failed to produce the desired turnaround.

Before independence, food processing, textiles, cigarettes, and clothing constituted the main manufacturing activities in the country. Since the mid-1960s, a greater emphasis has been placed on heavy industry. Historically, Algerian companies have processed petro-chemicals, steel, metals, electronics, clothing, leather, paper, timber, chemicals, and construction equipment. Petrochemicals are an important contributor to GDP. Petrochemical industries include methanol, resins and plastics, and fertilizers, and are centered in the 2 cities of Skikda and Arzew. Production in the private sector recorded a 10-percent increase in 1999, in contrast to the non-hydrocarbon industrial state sector, which saw a drop in output of 1.5 percent in 1999. The pharmaceuticals, chemicals, construction equipment, and leather industries were the leading performers.

SERVICES

FINANCIAL SERVICES.

Financial services in Algeria are fairly outdated, and the lack of modern services is an obstacle to the growth of the private sector and foreign investment alike. Until 1998, the banking sector was dominated by 3 major state-owned banks. But private banks, including U.S. and French banks, have been allowed to operate in the country since 1998 as part of a government plan to reform the sector. A new money and credit law was adopted in 1990, and although the Treasury purchased most of the local banks' debt in 1994, these banks continue to suffer from bad loans, mismanagement, and political interference. The Algerian stock exchange was officially opened in 1999, also part of the government's plan to privatize the economy.

TOURISM.

Tourism is not a major contributor to GDP, despite government efforts to encourage the sector. Its promising potential is stifled by a lack of investment and the endemic political violence in the country, although the south, where some of the government's most recent projects are located, has been spared from these problems. Potential holiday destinations are the mountains and deserts of the interior and the country's beaches. Although foreign tourists have since 1998 started returning to Algeria, the sector has a long way to go to full recovery.

RETAIL.

Lacking many large commercial centers other than Algiers, Oran, and their suburbs, Algeria has a poorly developed retail sector. While Algiers is home to a variety of retail stores, the majority of towns in the interior of the country have small family-owned shops, farmer's markets, and temporary roadside stands.

INTERNATIONAL TRADE

Over the past several decades, Algeria has maintained a trade surplus, largely due to the export of hydrocarbons, which accounts for 90 percent of exports. In 1999 that surplus reached $4.4 billion on exports of $13.7 billion and imports of $9.3 billion. This surplus has endured even when oil prices dropped, as they did in 1998 when the trade surplus reached US__BODY__.5 billion. Nonhydrocarbon exports, although minimal, have risen in the last 3 years, but much of that is believed to have come as a result of repayment of debt owed to the former Soviet Union in the form of goods.

The value of imports increased between 1987 and 1995. Merchandise imports fell between 1996 and 1998, thanks to a good harvest, but rose slightly in 1999 due to an increase in domestic demand. Capital equipment accounted for 34 percent of imports, while food has generally accounted for almost 25 percent of imports. Semi-finished products were in third position, accounting for 27 percent of total imports.

The European Union and the United States are Algeria's main trade partners. The EU, which is negotiating a new Euro-Mediterranean Partnership (EMP) agreement with Algeria, is a major importer of the country's hydrocarbons. In 1999, Italy—Algeria's largest trade

partner in the last decade—accounted for 17.8 percent of exports, followed by France (12.4 percent) and Spain (10.2 percent). The United States is Algeria's second-largest trading partner, accounting for 16.4 percent of exports in 1999. France is Algeria's main source of imports, accounting for 29.8 percent, followed by Italy (9.7 percent), Germany (6.8 percent), and Spain (5.9 percent). The United States comes in the fifth place, providing 5.3 percent of Algeria's total imports.

MONEY

The value of the Algerian dinar held steady until September 1994, due to the central bank's policy of setting it at a fixed rate against other widely used currencies. This policy resulted in a wide gap between the official rate and informal exchange rates on the black market, where the dinar sold as high as 6 times the official rate at the end of 1989. The dinar has since been stable, but only after the government introduced full convertibility, allowing local importers to bid for hard currency in the local banking system. The country's strong foreign exchange reserves have allowed the banking system to meet the currency demands of the local market. Since 1998, the dinar has averaged AD66.57 to the U.S. dollar, but had slightly devaluated at the end of 2000, averaging 79.14 to the U.S. dollar.

POVERTY AND WEALTH

In the first 2 decades after independence, the government of Algeria made impressive gains in terms of raising living standards in the country by creating employment opportunities in the public sector and extending social benefits. However, the country's declining economic conditions since the 1980s, brought about by falling oil prices and years of inefficient state control, have had serious implications for the living standards of Algerians. High unemployment and inflation rates since the 1980s have led to a sharp increase in the incidence of poverty in the country. Between 1988 and 1995, the percentage of the population below the poverty line increased from 8 percent to 14 percent. According to the EIU Country Profile for 2000-01, GDP per capita in 1994 dropped by 2.5 percent over the preceding decade. While unemployment and poverty figures rose sharply in urban areas, the countryside was more seriously affected; almost 70 percent of the poor live in rural areas. Unemployment is especially serious among younger, unskilled workers.

Despite widespread poverty, however, uneven development has led to the emergence of an affluent class that controls most of the country's wealth, enjoying an elevated standard of living and visiting shopping centers featuring the best imported goods. Living in the suburbs of Algiers and Oran, the wealthy send their children to private schools and universities abroad. Yet not far from these affluent neighborhoods, a significant number of poor Algerians live in squalor, with poor and overcrowded housing, limited food supplies, and inadequate access to clean water, good quality health care, or education. The extremes are reflected in the country's distribution of income: in 1996, the wealthiest 20 percent of Algerians controlled 42.6 percent of the country's wealth, while the poorest 20 percent controlled only 7 percent of wealth. This uneven distribution of income has been exacerbated by chronic housing shortages, which have given rise to poor shantytowns in most cities. These shortages have been the result of high population growth rates and decades of rural-urban migration. This has prompted the government since the early 1980s to shift

its spending priorities to address the housing shortages by constructing subsidized housing units and prefabricated houses at moderate cost.

The decline in living standards in Algeria continued throughout the 1990s, as the government embarked on a structural reform program to reverse economic decline, and as subsidies of basic foodstuffs were lifted. Unemployment numbers also continued to rise, standing at 2.3 million in 1999, and representing about 25 percent of the labor force, according to official estimates. Another 10 percent of the labor force is believed to be underemployed.

Algeria's mounting economic difficulties fueled public discontent that culminated in the Islamic rebellion against the state that began in 1991. The military's decision to abort the electoral process led to the unraveling of what little political consensus and national unity once existed. The FLN had been discredited both by its inability to defeat the Islamists at the polls and by its failure to manage the country's relatively rich economic resources. In the absence of viable secular parties, the Islamists claimed to represent the voice of the people.

WORKING CONDITIONS

Algeria's labor force has steadily increased in the course of the past 2 decades. In 2000, Algeria's labor force was estimated at 9.1 million, up 2.7 million since 1995. The majority of the labor force is concentrated in the public and agricultural sectors. Algerian workers are relatively poorly educated, as technical and basic education have lagged in the 1990s.

Algerian labor has a tradition of unionization, headed by the Union Generale des Travailleurs Algeriens (UGTA). About two-thirds of the labor force is unionized. UGTA has been a powerful force in negotiating public sector wages with the government, but the 1990 labor law brought collective bargaining to an end. However, GTA still retains its power to organize public-sector strikes to protest the decline of wages. These strikes, however, have seldom succeeded in forcing concessions from the government.

The government has adopted labor rights regulating working conditions and other rights of workers. The minimum age for employment is 16 years. These regulations, however, are rarely enforced, and child labor, especially in the agricultural sector, remains widespread. The minimum wage is US$90 (6,000 dinars) per month. The standard workweek is 40 hours.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1830. France occupies Algeria and begins to lay down the economic foundation of its colony.

1933. Anti-French political protests begin and continue through 1956.

1950. Ahmad Ben Bella founds the Revolutionary Committee of Unity and Action (Comité Révolutionnaire d'Unité et d'Action—CRUA), later renamed the National Liberation Front (FLN).

1962. After a guerilla war, Algeria gains independence from France. The Democratic and Popular Republic of Algeria is formally proclaimed. First President Ahmad Ben Bella forms country's first cabinet since independence.

1963. President Ben Bella declares that all agricultural, industrial, and commercial properties previously operated and occupied by Europeans are vacant, legalizing their confiscation by the state.

1970. The first Four-Year Plan emphasizing capital-intensive heavy industry is adopted.

1971. President Houari Boumedienne launches an agricultural reform plan calling for the seizure of additional property and the redistribution of the newly acquired public lands to cooperative farms.

1976. Boumedienne drafts the National Charter; the constitution is promulgated.

1977. Boumedienne's death sets off a struggle within the FLN to choose a successor. Colonel Chadli Bendjedid is sworn in on 9 February 1979.

1980. The First Five-Year Plan (1980-84) and Second Five-Year Plan (1985-89) aiming at diversifying the economy are adopted.

1985. The 1985-89 Four-Year plan places greater emphasis on agriculture and decreased central planning.

1987. The Ministry of Planning is abolished.

1988. Popular protests break out; government declares state of emergency.

1989. New constitution promising pluralism is adopted. Abbassi Madani and Ali Belhadj found the Islamic Salvation Front.

1991. Government cancels national elections. FIS wages rebellion against the state.

1992. Parliament is dissolved.

1999. President Bouteflika announces national reconciliation plan to end the civil conflict.

FUTURE TRENDS

Algeria entered the 21st century under a cloud of economic uncertainty. For much of the century, state control of the economy and the government's experiment with socialism has left the economy in shambles. The economic reform program waged in the early 1990s has set the stage for partial economic recovery, however. Some progress has been achieved in terms of improving transparency, cutting budget expenditures, updating legislation, and liberalizing the telecommunications market. Wide-ranging structural reforms have also been achieved.

The pace of Algeria's economic reform program, however, has been rather slow. Despite major reform efforts, the public sector continues to be a major force in the economy. Long-term challenges include servicing the country's huge external debt, further privatizing state-owned enterprises, and attracting foreign investment. More importantly, the government is faced with the daunting challenge of improving living standards, which have steadily declined over the last few decades, and creating new job prospects for Algeria's youth, who account for over 50 percent of the population. If left unresolved, the problem of unemployment in particular may potentially become a renewed source of political instability and a credible challenge to the regime. Much work is also needed on the political front. The government will have to improve the unstable security situation in the country to attract foreign investments. To that end, it has to find a way to end the cycle of violence waged by Islamic insurgents since 1991, which has become a major obstacle to foreign investments and economic recovery.

DEPENDENCIES

Algeria has no territories or colonies.

BIBLIOGRAPHY

Economist Intelligence Unit. Country Profile: Algeria, 2000/2001. London: Economist Intelligence Unit, 2000.

The Embassy of Algeria in Washington, D.C. <http://www.algeria-us.org>. Accessed August 2001.

International Monetary Fund. Algeria: Recent Economic Developments. Washington, D.C.: International Monetary Fund, August 2000.

Ruedy, John. Modern Algeria: The Origins and Development of a Nation. Bloomington: Indiana University Press, 1992.

U.S. Central Intelligence Agency. World Factbook 2000. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed August 2001.

U.S. Department of State. Country Commercial Guide: Algeria Fiscal Year 1996. <gopher://dosfan.lib.uic.edu:70/00ftp:DOSFan:Gopher:12%20Business%20Affairs:04%20Country%20Commercial%20Guides:Algeria%20Commercial%20Guide>. Accessed June 2001.

U.S. Department of State. 1999 Country Reports on Human Rights Practices. Algeria. <http://www.state.gov/www/global/human_rights/1999_hrp_report/algeria.html>. Accessed February 2001.

—Reem Nuseibeh

CAPITAL:

Algiers.

MONETARY UNIT:

Algerian dinar (AD). One Algerian dinar equals one hundred centimes. There are coins of 20, 10, 5, 2, and 1 dinars, and 50, 20, 10, 5, and 1 centimes. Paper currency comes in denominations of AD1,000, 500, 200, 100, and 50.

CHIEF EXPORTS:

Petroleum, natural gas, and petroleum products.

CHIEF IMPORTS:

Capital goods, food and beverages, and consumer goods.

GROSS DOMESTIC PRODUCT:

US$147.6 billion (purchasing power parity, 1999 est.).

BALANCE OF TRADE:

Exports: US$13.7 billion (f.o.b., 1999 est.). Imports: US$9.3 billion (f.o.b., 1999 est.).