ALGERIA
Rank: 134 Regional Rank: 14 of 17
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lgeria’s economy is 52.2 percent free, according to our 2007 assessment, which makes it the world’s 134th freest economy. Its overall score is 1.1 percentage points lower than last year, partially reflecting new methodological detail. Algeria is ranked 14th out of 17 countries in the Middle East/North Africa region. Algeria scores high in several of the 10 factors of economic freedom, such as business freedom, fiscal freedom, and monetary freedom. On average, it takes far less time to start a business in Algeria than it does elsewhere in the world. Algeria has a high income tax rate but, because of widespread poverty and substantial oil income, collects only a small proportion of GDP in taxes. Inflation is relatively low, and prices are relatively stable, although the government does subsidize various necessities. In other areas, the outlook is not so positive. Algeria has significant problems with the overall size of government, banking restrictions, corruption, and political interference in the judiciary. The government has been slow to implement its privatization plan, and state-owned companies still dominate several critical industries, such as banking. BACKGROUND: Algeria gained its independence from France in 1962 and imposed a socialist economic model that stifled economic growth and wasted its huge oil and gas wealth: Algeria is the world’s second-largest exporter of natural gas and has the world’s seventh-largest natural gas reserves and 14th-largest oil reserves. In 1992, Islamic radicals launched a brutal civil war that claimed more than 100,000 lives. President Abdelaziz Bouteflika negotiated a fragile peace accord and has delivered greater political stability. His government has made slow progress on liberalization, privatization, and attracting foreign investment, and the economy has benefited from high world energy prices.
The economy is 52.2% free
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Mideast/North Africa Average = 57.2 World Average = 60.6
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2007
QUICK FACTS
Population: 32.4 million GDP (PPP): $213.7 billion 5.2% growth in 2004 4.3% 5-yr. comp. ann. growth $6,603 per capita Unemployment: 20.9% (2003) Inflation (CPI): 3.6% FDI (net inflow): $624 million Official Development Assistance: Multilateral: $90 million Bilateral: $299 million (1% from the U.S.) External Debt: $22.0 billion Exports: $32.2 billion Primarily petroleum, natural gas, petroleum products Imports: $18.0 billion Primarily capital goods, food, consumer goods
How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.
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ALGERIA’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 73.7 56 82.6 47.9 80.6 50 20 30 28 53.7
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INVESTMENT FREEDOM — 50%
Foreign investors receive nondiscriminatory treatment. In August 2001, the National Investment Development Agency was created to simplify investment, but investors still face complex and burdensome procedures. Foreign ownership of pipelines is prohibited. Foreign exchange and capital transactions are subject to numerous restrictions. The International Monetary Fund reports that both residents and non-residents may hold foreign exchange accounts, subject to some restrictions. Payments and transfers are subject to various limits, approvals, surrender requirements, and restrictions. Purchase, sale, or issue of capital market securities is permitted through an authorized intermediary.
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100 = most free,
= world average
BUSINESS FREEDOM — 73.7%
Starting a business takes an average of 24 days, compared to the world average of 48 days. To maximize entrepreneurship and job creation, it should be easier to start a company. Obtaining a business license can be difficult because of regulations, but closing a business is relatively easy. With more than 400 legislative and regulatory texts, however, business regulations can be complex and technical. The overall freedom to start, operate, and close a business is relatively well protected by the national regulatory environment.
FINANCIAL FREEDOM — 20%
The government exerts heavy influence on the financial sector. There were 15 private banks in 2004, but six stateowned banks accounted for over 86 percent of total bank assets in 2003. While banking sector reform and privatization has ostensibly been a goal since 1999, progress has been slow. State dominance of banking has undermined private banks and led to several bankruptcies. The government intervenes in credit markets, including subsidizing credit for loss-making public enterprises. Governance of the financial sector is weak. The insurance sector is small and dominated by six state-owned firms, although private insurers are permitted and six private insurers were operational in 2004. The stock exchange is extremely small.
TRADE FREEDOM — 56%
Algeria’s weighted average tariff rate in 2003 was 12 percent. Non-tariff barriers include customs clearance procedures, some import and export controls, and regulatory restrictions that delay trade and increase costs. Consequently, an additional 20 percent is deducted from Algeria’s trade freedom score.
PROPERTY RIGHTS — 30%
The constitution provides for an independent judiciary, but the judicial environment is inefficient and, in fields like the adjudication of intellectual property disputes, suffers from a lack of trained magistrates. The judiciary is influenced by the executive branch and the Ministry of Interior.
FISCAL FREEDOM — 82.6%
Algeria has a high income tax rate and moderate corporate tax rate. The top income tax rate is 40 percent, and the top corporate tax rate is 30 percent. Other taxes include a value-added tax (VAT), a tax on professional activity, and an apprenticeship tax. In the most recent year, overall tax revenue as a percentage of GDP was 10.8 percent.
FREEDOM FROM CORRUPTION — 28%
Corruption is perceived as widespread. Algeria ranks 97th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.
FREEDOM FROM GOVERNMENT — 47.9%
Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 34.6 percent of GDP, and the government received 72.6 percent of its revenues from state-owned enterprises and government ownership of property.
LABOR FREEDOM — 53.7%
The labor market operates under restrictive employment regulations that hinder employment and productivity growth. The non-salary cost of employing a worker is high, but dismissing a redundant employee is costless. Algeria’s unemployment insurance system, funded by workers and their employers only, offers benefits equaling about 38 percent of an average worker’s annual salary.
MONETARY FREEDOM — 80.6%
Inflation is relatively low, averaging 2.2 percent between 2003 and 2005. Relatively low and stable prices explain most of the monetary freedom score. Government policies distort prices through subsidies and direct controls on some commodities, such as agricultural goods. Consequently, an additional 10 percent is deducted from Algeria’s monetary freedom score to adjust for price control measures.
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2007 Index of Economic Freedom