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Chapter 3. The Economy


Lighthouse along the Mediterranean coast with fishing boat in the foreground

ALGERIA IN 1993 was in transition, moving from a centralized system toward an open market economy. In this connection, its physical resources of arable land and hydrocarbons played major roles. Algeria's close to 2.4 million square kilometers make it the second largest country in Africa, after Sudan, and one-third the size of the United States. More than 2 million square kilometers are desert or semiarid steppes extending into the southern Sahara region, but the country also contains a fertile strip of cultivable land concentrated along the coast of the Mediterranean Sea. Algeria's main physical resources are hydrocarbons: 3.2 trillion cubic meters of proven natural gas reserves and 9.2 billion barrels in recoverable reserves of crude oil. Algeria, with 4 percent of proven world reserves of natural gas, ranks fifth in the world; moreover, only 17 percent of the reserves have been exploited. Other resources include iron, zinc, phosphates, uranium, and mercury. In 1993 the country's population, predominantly Arabs and Berbers traditionally dependent on agriculture, was estimated by the United States government at 27.4 million, and the work force was thought to exceed 5.5 million.

A bloody eight-year revolution brought independence to Algeria's population, at that time numbering about 10 million, in 1962. The departure of the French colons and other foreigners, who had held a tight stranglehold on the country's administration, nearly brought the economy to a halt. The formerly productive agricultural sector was especially hard-hit, mainly because most Algerians were untrained and hence excluded from managing any aspect of agriculture or industry. The total commitment of the first independent government, headed by Ahmed Ben Bella, to a socialist system of centralized administrative management and economic self-sufficiency (because of its perceived positive correlation to political independence) also took a severe toll on the economy. Furthermore, Ben Bella's preoccupation with playing a major role in political relations with developing countries did not help matters.

Not until the late 1970s, when more pragmatic and less ideological leaders took over the reins of government under President Chadli Benjedid, did Algeria recognize the urgent need for social and economic reform. Government development plans until then had been driven by rigid central control and state ownership of most of the means of production and agriculture. The resulting inefficiencies and shortages spurred the government to devise an economic program aimed at increasing productivity and growth. But it was the widespread bread riots of "Black October" 1988 that compelled the government to institute a more serious and accelerated economic reform program. What is also referred to as the "Couscous Revolt" was attributed to an unacceptably slow pace of political and economic reform, as well as critical food shortages caused by the 1986 oil price drop and ensuing decrease in hydrocarbon export earnings.

The main goals of the accelerated reform program were to transform the national economy from a tightly controlled centralized system to a market-oriented one, create a climate more conducive to foreign investment and increased trade, and encourage domestic savings and investment. To achieve these objectives, the government gave management autonomy to two-thirds of the 450 state-owned enterprises, including banks, while instituting a profit accountability system for their managers. The government also eliminated state-controlled monopolies for import and distribution and allowed both Algerian and foreign companies to engage in these activities. Finally, the authorities encouraged continuation of the de facto privatization of the agricultural sector.

Algeria's development plans reflected the progress made toward achieving the goals of economic growth, infrastructure building, and movement from a government-dominated economy to decentralized reliance on market forces. These plans were influenced by the various leaders' personal vision and sociopolitical approach to the economic issues facing their country.

Data as of December 1993

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