Algeria – political unrest and tall economic challenges

By Lynge Gørtz Smestad, Chief Analyst, EKF

Danish exports to help boost the economy of Africa's largest country

This week, a Danish delegation of eight businesses, representing the agricultural and food sector, visited Algeria, Africa's largest country by land mass. The visit was paid at a time of high tension in the republic due to widespread political instability and a constrained economy. However, the Danish agribusiness delegates still see bright prospects for exporting equipment to boost agricultural and food production in the country.

The dramatic events in Algeria escalated in February this year when large crowds of demonstrators protested against the ageing President Abdelaziz Bouteflika. By April, the President had been forced to resign after 20 years in power. The cause of the protests is rooted in nation's ailing economy, which has resulted in high unemployment, especially among the under-30s, who represent half of the population.

Recently, the interim head of state, Abdelkader Bensalah announced that the presidential elections, originally scheduled for April, would be postponed until 12 December. New presidential candidates are to announce their candidacy by the end of October.

Algeria's powerful armed forces have played a decisive role in the country's transition towards a new president, but civilian discontent is rife amidst claims that the process has been undemocratic.

Government-controlled economy

The ailing economy continues to spur unrest, one of the root causes being government retention of a high number of ineffectual state-owned enterprises and large tracts of arable land, while the financial sector is dominated by government-controlled banks. Meanwhile, inflexible local legislation makes it difficult to attract private investors. However, these restrictions are expected to be eased in 2020.

Nonetheless, the hope is that current Danish exports worth DKK 160m to the agricultural and food sector will increase in the coming years

The current challenges can be traced back to independence from France in 1962. In the colonial era, Algeria had a major export of primary produce to Europe, but the new government neglected the agricultural sector in favour of industrialisation and mass rural-urban migration.

However, close proximity to Europe continues to hold excellent export potentials, and Algeria boasts an abundance of oil and gas reserves, which account for 60 percent of national revenue and 95% of export revenue; so much so that hydrocarbons yielded surpluses on the balance of payments right until the oil prices collapsed in 2014.

But rather than invest the hydrocarbons revenue in diversifying into new sectors, the money was spent on subsidies to lower the price of basic commodities. These subsidies drain the national budget and are difficult to remove, since the poorest will be hardest hit.

Danish agriculture sees opportunities

Now Algeria is committed to generating growth by modernising its agricultural and food sector. The challenge lies in the fact that almost 40 percent of farmland is under state ownership, while the remainder is largely owned by smallholders with scant access to loans and credits for financing the equipment that would yield higher returns.

Nonetheless, the hope is that current Danish exports worth DKK 160m to the agricultural and food sector will increase in the coming years. This is because a number of players in the export promotion drive include Danish businesses, who rank among the global leaders in grain and seed storage and energy-efficient ventilation of stables – and Danish businesses are favoured in Algeria.