Algeria Oil & Gas Report Q4 2011

SWOT Analysis
Algeria Political SWOT

Strengths

The government responded swiftly and effectively to public demonstrations in H111 by granting a series of reforms that were adequate to appease protestors. Elevated international energy prices have bolstered the country's fiscal accounts, thereby allowing for even greater social spending measures if needed. The country has a youthful demographic profile, in which nearly half of the population is under the age of 25. While the overall unemployment rate has been declining, youth unemployment remains elevated and could spark political unrest. The government has struggled to contain elements of al-Qaeda in the Islamic Maghreb (AQIM). An improvement in relations between Algeria and Morocco could lead to greater diplomatic and economic cooperation. The lifting of the emergency law in February 2011 could lead to a gradual path towards greater political expression. A pronounced decline in international energy prices could limit the extent to which the government can respond to future unrest. With no clear successor to President Bouteflika, any change in leadership could lead to an armed power struggle.

Weaknesses

Opportunities

Threats

Algeria Economic SWOT

Strengths

Official foreign exchange reserves, which amounted to US$157bn in September 2010, are robust and can cover imports for nearly three years. Algeria has very low levels of public and external debt. Dependence on hydrocarbon exports means growth, exports and government revenue remain highly vulnerable to shifts in world energy prices. Measures undertaken by the government in H111 to ease public discontent, including public-sector pay rises, more generous subsidies and transfer payments to the unemployed, will put greater pressure on the fiscal budget. The government continues to prioritise investments in the oil and gas sector. While Algiers imposes high average tariff rates, its renewed efforts to join the World Trade Organization (WTO) are likely to see the average rate fall. Algeria's Association Agreement with the EU has resulted in a rise in imports without a corresponding rise in Algerian exports to the common area. Negotiations are under way to correct this imbalance, but they have stalled thus far.

Weaknesses

Opportunities

Threats

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Algeria Oil & Gas Report Q4 2011

Algeria Business Environment SWOT

Strengths

The government's Public Investment Programme (PIP) has been successful in driving growth in the construction and service sectors. Algerian banks do not rely on external financing, thereby eliminating foreign exchange risks in the banking sector. The 2009 Supplementary Budget Law, which imposes FDI restrictions, has caused a massive drop in FDI inflows (60% year-on-year decrease in 2009). Current economic policies are still influenced by the legacy of past inward-oriented and protectionist policies. While the banking sector is liquid, lending is still low due to inadequate credit risk management. A new bank rating system, which will come into operation in 2011, will help improve the assessment, management and control of credit risk, which in turn could spur lending. The government approved a national policy for renewable energy, which will see US$60-120bn in infrastructure investment over the medium term. Efforts to provide employment opportunities for local youth could result in foreign labour restrictions in the future. The government could pursue more onerous FDI requirements, as happened in 2008 and 2009.

Weaknesses

Opportunities

Threats

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