One of Africa’s largest oil producers, Algeria has experienced steady economic growth through much of the past decade. While the non-oil sector has experienced strong growth, with non-hydrocarbon GDP growth averaging 6 percent a year between 2003-2007, the Algerian economy remains heavily dependent on the oil and gas sector which, in 2009, accounted for 32 percent of GDP.

Real GDP growth, averaging 5.5 percent a year between 2002 and 2005, has slowed since 2006 to an average of 2.5 percent a year over the 2006-2007 period. The collapse of oil prices in late 2008 following the onset of the global economic and financial crisis has further affected economic activity and GDP growth declined from 3 percent in 2007 to 2.4 percent in 2008 and 2009. Real GDP growth did however increase to 3.3 percent in 2010, supported by rising global oil prices, increasing public investments and strong growth in non-oil sectors, and is projected at 3.6 percent in 2011 and 3.2 percent in 2012.    

The Algerian financial system appears to have been rather resilient to the effects of the global financial crisis. As of August 2010, overall credit to the economy showed 12.5 percent growth year-on-year, following an 18.5 percent increase in 2009, although private sector lending has declined as a result of a ban on consumer lending enacted in August 2009. Agricultural finance also experienced significant growth following the introduction of a new credit mechanism featuring seasonal interest-free loans to the agricultural sector. However, the non-bank sector is small and remains underdeveloped, with banks accounting for 93 percent of total financial system assets in 2008, although recent reforms in the field of regulation and supervision have laid the foundations for leasing, factoring, and venture capital.

The banking sector, comprising 21 banks, is profitable, well capitalized and very liquid. The sector’s exposure to global financial markets has been rather limited as Algerian banks receive relatively little external financing and rely heavily on domestically mobilized assets. Although liquidity levels fell in 2009, banking system soundness appears to have improved; between 2008 and June 2010 the capital adequacy ratio increased from 16.5 percent to 18.4 percent, while non-performing loans decreased from 15.7 percent to 14.9 percent of total loans and loan provisioning rose from 57.7 percent to 67.8 percent of classified loans. The banking sector as a whole continued to expand and bank deposits increased from 51.3 percent of GDP in 2008 to 58.2 percent in 2009. However, bank intermediation is still relatively low, and lending activities to public entities by state-owned banks dominates intermediation. Bank lending activity has been expanding in recent years, but remains limited, with private credit by deposit money banks rising from 12.6 percent of GDP in 2008 to 13.4 percent of GDP in 2009.

Access to financial services remains an issue. By 2009, 385 out of every 1000 adults were depositors in commercial banks and 26 out of every 1000 were borrowers, while banking networks featured 5.39 commercial branches and 5.69 ATMs for every 100000 adults.

Banking and financial sector reform processes have continued over the past few years. Authorities recently strengthened banking supervisory and regulatory frameworks, quadrupled capital requirements, enhanced financial intermediation instruments, introduced a new banking accounting system, and set key interest rates and excessive rate limits as well as new prudential management ratios for financial institutions. New regulations on investment flows introduced in 2009 now set a 49 percent cap on international investor ownership for certain key ventures, block the takeover of financial institutions by foreign banks, and prevent the entry of new foreign-majority controlled banking institutions. The presence of government representation on the board of private banks has also become mandatory.  Authorities also plan to establish a new bank rating system and central credit registry, assist banks in modernizing their operations and means of payment, and facilitate the expansion bank branch networks and the extension of credit to small and medium enterprises (SMEs).

The Algerian equity market remains relatively shallow. While the Algerian Stock Exchange -“la Bourse d’Alger”- experienced steady growth from its creation in 1997 up until 2008, trading activity, in terms of both volume and value, has since declined through 2009 and 2010. As of April 2011, 7 corporate entities where listed on the Stock Exchange. The money market, for its part, is predominantly centered on the Treasury bills market, with average interbank rates and deposit facility interest rates serving as benchmark rates. The interbank weighted average rate remains fixed within a 3.1 percent to 3.6 percent band, while the Bank of Algeria regularly intervenes on the interbank foreign-exchange market to correct any discrepancies between the nominal and real effective exchange rates.

Algeria’s fixed income market is fairly active and features a growing and increasingly diversified investor base. Authorities regularly issue a range of debt instruments of varying tenures, and demonetarized treasury bills and bonds represent about 82 percent of outstanding government debt. Non-government securities are also regularly issued by major corporations and financial institutions to meet financing needs. As of April 2011, Algeria received no long-term sovereign rating by any of the three major credit rating agencies.

As of December 2009, 20 banks and 5 financial institutions actively participated on the country’s capital markets. While all investors, including foreign investors, have equal access to primary and secondary markets and can engage in market transactions through any of the 13 authorized primary dealers operating in the country, foreign participation remains small and commercial banks, mutual funds and insurance companies represent the main investors in the market. The secondary market is rather liquid but transaction volumes remain limited. The Algerian derivatives market, for its part, currently features some off-shore non-deliverable forwards, but offers no interest rate or cross currency swaps.

The insurance sector, liberalized in 1995, is still dominated by government-owned institutions and so far accounts for only a small part of the economy as total premium volume amount to approximately 1 percent of GDP.

Sources

Bank of Algeria

Algerian Ministry of Finance

Algerian Stock Exchange

FSDI Sources - click here

For statistical coherence and comparability purposes, the FSDIs are extrapolated from a limited number of sources (AfDB, IMF, OECD, WB), where a common data collection methodology was applied to all countries surveyed. For additional data from other sources, please refer to the Documents section.

IMF Article IV

WB/IMF FSAP

WB Country Profile

IMF World Economic Outlook

African Economic Outlook

African Fixed Income and Derivatives Guidebook

IMF Regional Economic Outlook, Middle East and Central Asia