Countries of the World/COUNTRYS.BIN/dp/0008/00088.txt

Text File | 1991-06-24 | 31KB | 491 lines

$Unique_ID{COW00088}
$Pretitle{244}
$Title{Algeria
Chapter 3A.   The Economy}
$Subtitle{}
$Author{Fadia Elia Estefan}
$Affiliation{HQ, Department of the Army}
$Subject{percent
sector
government
development
private
algeria
economic
plan
algerian
mid-1980s}
$Date{1985}
$Log{Drilling for oil in the Sahara*0008801.scf
}
Country:     Algeria
Book:        Algeria, A Country Study
Author:      Fadia Elia Estefan
Affiliation: HQ, Department of the Army
Date:        1985

Chapter 3A.   The Economy

[See Drilling for oil in the Sahara: Artist's rendition]

     In the course of two decades of independence the Algerian government has
made considerable achievements in economic development. Algeria in the
mid-1980s was counted among the upper-middle income countries; its national
income had grown at a real rate varying between 6 and 12 percent a year, and
the country had acquired a solid infrastructure of energy production,
telecommunications, and transportation.

     Economic growth was largely a result of the lucrative hydrocarbons
industry that exploited the country's valuable deposits of petroleum and
natural gas. Hydrocarbons have dominated the economy since the early 1970s. In
1985 the industry represented one-third of national production and almost all
of the foreign exchange earnings. Also responsible for the fast rate of
economic growth was the austerity in economic management that was reflected in
a high investment rate at the expense of consumer demands.

     Investment was mainly in heavy manufacturing, such as iron and steel,
which together with the light consumer products industry provided the next
largest share of gross domestic product. Agriculture employed the largest
segment of the population but contributed only around 7 percent of the total
national output. Production was devoted to fruits, vegetables, barley, wheat,
wine, sugar, olive oil, and dates.

     The building of a modern, capital-intensive industrial sector was a major
cause of the severe unemployment problem Algeria was experiencing in the
mid-1980s. Additionally, the limited openings the sector offered could not be
filled by workers with the lower level of education and skills that
characterized the Algerian labor force. But unemployment was only one of the
economy's many problems. Low productivity in both agriculture and industry was
another major issue. Algeria was growing increasingly dependent on outside
sources for its food needs. Manufacturing did not produce the expected volumes
or quality of products. Until the early 1980s revenues from hydrocarbon
exports cushioned the poor performances of other sectors, but since then the
economic outlook on the world demand for hydrocarbons, particularly crude oil,
has been bleak; Algeria's major challenge in the mid-1980s was to diversify
the hydrocarbons sector toward more production of refined petroleum products
and condensates-and the economy as a whole by enhancing productivity in both
agriculture and manufacturing.

     Accordingly, the government had established measures to fight centralized
economic decisionmaking, centralized economic activity, and cumbersome
bureaucracy-all presumed to a large extent responsible for the recession in
heavy industry. Agriculture was allocated more funds, and steps were taken to
enlarge the private sector, but the economy remained very much a socialist
one.

     In 1985 the government owned the large majority of resources, taxed
income and profits heavily, and provided an extensive array of public
services. Through elaborate development plans, it directed the economy toward
the authorities' choice of long-range goals. The government was also involved
in day-to-day economic operations. Every broad sector of national production
was dominated by public corporations that had active representatives of the
government within their management structures.

     By mid-1985 the economy was doing reasonably well in terms of increased
productivity and diversification. Out of concern for economic
self-sufficiency, a long-stated goal, Algeria was borrowing little and paying
off its large accumulated debts, two factors considered by most international
banks to be positive indicators of the economy's future well-being.

A Government-Directed Economy

     Since Algeria's independence in 1962 its economy has been dominated by a
powerful, all-present government. In the mid-1980s the state controlled the
modern agricultural sector, most industries, much of the wholesale and retail
trade, all foreign trade, all utilities, the transportation system, and the
banking network. By means of its multiyear development plans, the government
has also selected the amplitude and direction of economic growth.

     The emergence of the government as the major force in the economy
reflected the exceptional combination of circumstances that accompanied
Algerian independence and forced the government into an extremely activist
position practically by default. On the one hand, the bulk of the personnel
operating the modern portion of the economy had fled, leaving in chaos the
modern agricultural sector on which the country had depended for most of its
foreign exchange. Similar conditions prevailed to a lesser degree over much of
the industrial sector, except for petroleum and associated hydrocarbons.
Agreement between the Algerian and French governments afforded the
hydrocarbons industry a protected and expanded status quite different from
that of the other parts of the industrial sector, which had lost not only much
of their management and expertise but also the capital resources on which they
had depended-resources that were more necessary than ever as a result of the
extended wartime period of destruction, disrepair, and lack of replacement. On
the other hand, the traditional sector of the economy-mainly agricultural-was
overstaffed, undermaintained, and impoverished.

     And yet the extent of government control was not merely a result of
circumstances. The Algerians at the eve of independence adopted a development
path designed to form a complete, integrated, and self-sufficient national
economy and to satisfy the population's basic needs. A powerful centralized
government was considered indispensable to the attainment of those aims, and
it proposed to achieve them in three stages. The first stage would concentrate
on heavy industrialization by developing the capital-intensive hydrocarbons
industry but would also include the construction and mechanical equipment
industries. In this initial stage of the development process little employment
would be created. In the intermediate stage the output and revenues of the
heavy industries would be invested in the modernization of agriculture,
thereby achieving the triple aim of absorbing the machinery produced,
providing work for unemployed Algerians, and creating a middle-income class of
consumers. In the last stage a consumer products industry would be introduced.

     Until 1979 the Algerian government imposed austere restrictions on
consumption while subsidizing housing, medical care, education, and food and
maintaining an impressive 35-percent rate of investment, a level surpassed
only by the Soviet Union and Japan. The bulk of investment went to heavy
industry, as had been foreseen. But by the early 1980s, after the government
of President Chadli Bendjedid had become established, major policy changes
were instituted. Continued consumption sacrifices were deemed too harsh, and
the strict socialist rhetoric gave way to slogans such as "For a better life."
A more substantial reason for change was the level of industrial production,
which was far below expectations generated by the vast investment funds that
had been allocated. Two basic ambitions of the earlier policies seemed as
remote as ever from achievement: independence from foreign markets upon which
Algerian industry relied and modernization of the country's agricultural
sector through industrial development. Agricultural stagnation continued and,
faced with a growi