Algeria looks to Türkiye to realise untapped economic potential

A spate of landmark agreements that concluded between Türkiye and Algeria are deepening bilateral cooperation as both nations share a positive economic outlook.

Algerian President Abdelmadjid Tebboune’s three-day presidential visit to Türkiye on May 15 was marked by the signing of a number of strategic agreements. This was recently followed by the announcement of twenty revisions to Algeria’s investment law on May 19, with the aim of facilitating a better investment environment in the North African nation.

The economic alignment comes in the aftermath of the global Covid-19 pandemic, which continues to play havoc with economies around the world. Algeria was also not spared by commodity price volatility and supply chain challenges, amid the largest global recession since the 2008 financial crisis. 

Emerging economies bore the brunt of the economic slowdown, necessitating previously unseen levels of government subsidies and stimulus funding to maintain economic momentum.

For Algeria however, diversified trade partnerships and foreign direct investments seem to be making the difference between a laborious climb to economic recovery and a spurred overhaul of the North African nation’s non-hydrocarbon sectors.

Prof Dr Amar Rouabhi, North African studies expert at the Center for Middle Eastern Studies (ORSAM), partly credits recent Algerian economic gains to the successful establishment of the first Algeria-Türkiye High-Level Cooperation Council, alongside as an engaged leadership determined to develop a win-win situation.

“Twenty years ago, there were only seven Turkish companies operating in Algeria. This number grew to 700 over years, now reaching 1,400 Turkish companies with over $5 billion in shared trade, both aiming to reach $10 billion,” notes Dr Rouabh. 

“Algerian President Abdelmadjid Tebboune’s visit to Türkiye constitutes the most significant presidential visit since he assumed his position,” he adds.

The delegation, which included a number of ministers and over 140 investors and heads of economic institutions, spent three days in Türkiye. It was the first trip made by an Algerian head of state to Türkiye in nearly 17 years.

For Algerian policy makers, the inked bilateral deals reached will make all the difference in developing a rising sum-sum Mediterranean economic powerhouse; with broad agreements ranging across civilian, military and naval sectors. Commitments were also made in the fields of mining, tourism, agriculture, education, culture, environment and security.

Economic revival

Algeria was hard hit by the pandemic with a rapid fall in hydrocarbon prices, forming nearly 20 per cent of its GDP in 2020, down from 28 per cent only four years prior. In 2021, Algeria managed to reduce its trade deficit to less than $1 billion, in sharp contrast to nearly $8 billion one year ago.

Despite the challenge involved in diversifying its nearly 85 percent of hydrocarbon exports, Algeria nonetheless reported a surprising economic turnaround made possible by an engaged diplomatic corps focused on developing constructive economic ties with long-standing allies and partners.

The International Monetary Fund estimates that Algeria’s real GDP growth will increase to 2.4 percent in 2023, after holding at 0.1 percent growth in October 2022.

This follows a 4 percent expansion of Algeria’s economy in 2021, according to the World Bank Organization which had initially estimated a 3.4 percent rate of growth for 2021.  

With Algeria’s consumption and investment levels returning to pre-pandemic conditions, confronting problems of economic productivity, competitiveness and sustainability are more feasible though no less challenging to policymakers and economists. 

Increasing consumer activity coupled with stronger accountability measures, deeper regulatory oversight and structured stimulus programs all played a role in reverting Algeria’s total budget deficit from 12 percent to 3.5 percent of its GDP according to the World Bank. 

Algeria’s current account deficit also shrank to 13.8 percent in 2021, while projected to drop further to 11.1 percent in 2022, with signs of recovering foreign exchange reserves after initially reaching a 14.8 percent deficit in 2020.

As part of a stimulus package to maintain its growing economic momentum, an Algerian financial law has effectively reduced income tax across all brackets beginning from January 2022 in a bid to stimulate spending and alleviate household financial pressure.

Gross annual incomes below $1600 saw tax exemptions alongside a minor increase in the national minimum wage. Payment of corporate taxes were also paused to mitigate the brunt of the pandemic on business owners. For Algeria, the African and European markets, inclusive of Türkiye and Libya are deeply important to its national economic revival project.

Algeria also announced the completed upgrade of its part of the 4,500 kilometer Tran-Saharan highway linking Algiers, Tunisia, Mali, Niger, Cameroon, and Lagos. Initially launched in the 1960s with the support of the African Union, the project aims to boost intra-regional trade considerably.

Improved trade connectivity is expected to bolster regional access to new markets, investments and human capital for both Algeria and its regional partners.

Algeria’s economic outlook is expected to continue its rebound with the support of major public and energy investments despite slow labour market recovery and continued high inflation. 

With rising energy prices, eased OPEC quotas, increased demand for liquefied natural gas and ongoing investments into raising its energy production capacity, Algeria’s economic safety net remains in place as non-hydrocarbon growth continues to gain momentum.

Nonetheless, Algeria must still contend with budget deficits amid rising food import prices, making its recent partnerships with Türkiye all the more vital to securing staples. 

While rapid economic renewal is challenging under the best of circumstances, Algeria also faces risks of further hydrocarbon price volatility, a major source of financial security for its economic plans.

Hydrocarbons made up nearly 20 percent per cent of Algeria’s gross domestic product in 2021, supporting the modest rally seen by Algeria’s foreign exchange reserves. The largest Arab and African, Algeria owns the world’s tenth-largest proven natural gas reserves, and third largest shale gas reserves. It also ranks sixteenth for oil reserves. 

Sonatrach states that two-thirds of Algerian territory remains largely unexplored, promising financial security to future generations. The Algerian state-owned national oil company is the largest company in Africa, and actively seeking to enhance and optimise energy and mine output and efficiency by attracting dynamic technology transfers and direct investments. 

Newly accessible markets

Türkiye's interests in North Africa transcend the economy, according to Dr Anwar Sekiou, an Algerian academic business administration researcher.

“There is a deep interest in meaningful cooperation between the two nations, as reflected in President Erdogan’s call for the formation of a free trade area between Algeria and Türkiye during his visit to the country in 2020,” notes Dr Sekiou.

Recent developments include President Tebboune’s recent ratification of a maritime agreement originally signed between Algeria and Türkiye in May 1998. The move will facilitate port investments, and transportation of both passengers and goods.

Algeria is also set to benefit from Türkiye's considerable light, medium and heavy industry, with a 2018 deal between Algerian energy company Sonatrach and Turkish companies Rönesans and Bayegan that saw the investment of $1 billion in the Adana Yumurtalik Free Trade zone receiving Algerian raw materials to produce automotive parts, textiles and packaging.

Tosyali Holding, a leading company dealing in iron and steel, has been active in Algeria since 2013 with a $500 million first stage investment, and $1.85 billion earmarked for further investment into Algeria’s steel and construction sectors.

One of Algeria’s chief priorities is increasing the number of investments and reliable companies in its markets, in pursuit of a more diversified economy and more employment. 

At the heart of this revitalized partnership is the promise of cost-effective, secure trade routes for Türkiye through Algeria, making it a key gateway to Sub-Saharan Africa.