The challenges Algeria faces to reform and grow

Video transcript of World Review expert Dr Emmanuel Martin talking about the challenges facing Algeria.

Dr Martin:

Algeria is what we call a rent economy based on gas and oil but also on import monopolies. And those rents obviously benefit a small minority, a small elite, connected to a political power.

This is problematic because most of the population does not have access to economic opportunities which generates development issues despite all the revenues of the country itself.

So the country needs to reform its economy to diversify it and this requires that the elite in power accepts to give away its rents or give away some sort of monopolies that they have. And obviously this requires some thinking about how to compensate them because they will be the losers if there are reforms.

Today, the opportunity to reform is pretty big because the oil price is going down, is very low, and it is completely unsustainable for the Algerian government which has bought social peace in a way by giving away subsidies to people. So it is very complicated for the budget of the government to be sustainable because of the price of the oil today.

Oil price at US$50 to US$60 is half of what the government needs in order to have a balanced budget.

So we considered the fiscal trajectory of Algeria today is completely unsustainable in the mid and long term.

So this is a beautiful opportunity to reform and to open up the country in the sense of having finally the rule of law, having sound business climate, so that all Algerians can finally enjoy economic freedom and economic opportunities.

Obviously this is a very big challenge in the sense that the elite in power has to accept to reform and they obviously have a short term interest in the status quo.

And so again the challenge in Algeria today is to find a solution in order to compensate the elite - which currently benefits from the system - to accept, to agree on opening up the country.

And well, that is not easy. That’s a complex task, first because the Algerian people have to understand it, then they have to negotiate this compensation, and then this compensation needs to be implemented and all this is terribly complex, so that is a huge challenge ahead for the country.

(Photo credit: dpa)