Algeria

Algeria’s GDP growth is expected to remain at +4% in 2024 and slow down to +3.4% in 2025, after growing by +4.1% in 2023. Driven by elevated hydrocarbon prices, the main exports of the country, Algeria’s growth forecasts are expected to remain elevated over the short and medium term, even if structural inefficiencies and a weak private sector remain. However, over the longer term, as hydrocarbon production moderates, growth is expected to slow towards the end of the decade.

Inflation saw a downward shift in the first half of 2024 since the 9% y/y registered in late 2023, most likely due to the decision to allow imported food during Ramadan that lowered overall prices. Yet, inflation has continued to increase since the end of Ramadan in April 2024, mostly due to increasing food prices. The overall CPI is expected at 4.8% in 2024 and slightly lower at 4% in 2025. Meanwhile, the Bank of Algeria (BA) has kept the policy rate at 3% since 2020, and slightly increased the reserve ratio in 2023 by 100bps.

The official rate for the Algerian dinar depreciated during 2023/24, coming down from the 2022 appreciation amid the pick-up in global gas prices. However, according to some estimates, the parallel exchange rate of the dinar to euro is expected to be more than 60% lower than the official rate, which has fluctuated around 145EUR/DZD in 2024. The black-market rate has been deteriorating due to inflation but also due to the decreasing foreign reserves at the Bank of Algeria. A decade ago, FX at the BA stood at around USD200mn while today they are hardly above USD60mn, after touching rock bottom during the pandemic. Relative to other nations, this remains an elevated number above 12 months of imports, i.e. a substantial buffer against external shocks, allowing the BA to keep an anchored exchange rate. Moving forward, with an improved inflation outlook, the dinar is expected to slightly appreciate.

The 2024 presidential elections in Algeria reaffirmed President Tebboune’s leadership, though the 94% electoral win has been met with skepticism, with some viewing it as a "show election." This outcome signals political and policy continuity as Algeria’s increasing economic power, fueled by its energy revenues, continues to appease the military, political and economic elites. A significant shift has been the expanded role of the military, following Tebboune’s announcement of a policy change allowing troop deployments abroad with parliamentary approval.

While social stability appears to be maintained in the short term — evident from the absence of major post-election protests — the longer-term outlook remains uncertain. Algeria’s rentier economy faces mounting pressure from declining gas and oil reserves. Without new discoveries or a shift in economic models, social tensions could resurface as the economy deteriorates.

On the energy front, the government has prioritized renewable energy, aiming for 27% of electricity generation from renewable sources by 2023. Although only around 10% — approximately 1,200 MW — of electricity is projected to come from renewables in 2024, this still represents a notable increase from 2019's 4% (400 MW). Chinese solar power companies have emerged as key players, securing most new contracts, including a substantial 3,000 MW project awarded in early 2024.

Meanwhile, the business landscape remains heavily influenced by bilateral relations and personal connections, despite the government’s ongoing anti-corruption drive. Foreign companies, particularly those with no links to former President Abdelaziz Bouteflika’s circle, are unlikely to face significant risks. Italy has become Algeria’s closest European ally, particularly in the energy sector, where Italian firms such as ENI, Saipem, Ansaldo Energia and Bonatti playing leading roles. Moreover, in 2022, the Stellantis Group announced plans to establish a Fiat car manufacturing plant in Oran, further diversifying Algeria’s industrial base.

However, diplomatic tensions have flared up. In July 2024, following Spain’s stance, France endorsed Morocco’s autonomy plan for Western Sahara, dealing a blow to Algeria’s backing of the Polisario Front. Algeria responded by recalling its ambassador from Paris, further complicating its international relations.