Algeria looks to Turkey to realize untapped economic potential

Growing regional ties and cooperation are driving rapid economic recovery for Algeria and Turkey, despite nearly two years of pandemic disruption and market volatility.

A series of landmark agreements between Turkey and Algeria deepen bilateral cooperation, with the two countries sharing positive economic prospects.

Algerian President Abdelmadjid Tebboune’s three-day presidential visit to Turkey on May 15 was marked by the signing of several 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 wreak havoc on economies around the world. Algeria has also not been spared from volatile commodity prices and supply chain challenges, amid the biggest global recession since the 2008 financial crisis.

Emerging economies bore the brunt of the economic downturn, requiring unprecedented levels of government subsidies and stimulus funds to maintain economic momentum.

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

Professor Amar Rouabh, an expert in North African studies at the Center for Studies on Middle East Strategies (ORSAM), attributes recent Algerian economic gains in part to the successful establishment of the first High-Level Cooperation Council Algeria -Türkiye, alongside committed leadership determined to develop a win-win situation.

“Twenty years ago, there were only seven Turkish companies operating in Algeria. This number has grown to 700 over the 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 Turkey is the most important presidential visit since he took office,” he added.

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

For Algerian political decision-makers, the bilateral agreements concluded will make all the difference in the development of a growing Mediterranean economic power; with broad agreements covering the civil, military and naval sectors. Commitments were also made in the areas of mining, tourism, agriculture, education, culture, environment and security.

Economic recovery

Algeria has been hit hard by the pandemic with a rapid fall in hydrocarbon prices, representing nearly 20% of its GDP in 2020, compared to 28% just four years earlier. In 2021, Algeria managed to reduce its trade deficit to less than $1 billion, in stark contrast to almost $8 billion a year ago.

Despite the challenge of diversifying its nearly 85% of hydrocarbon exports, Algeria has nonetheless reported a surprising economic turnaround made possible by a committed diplomatic corps focused on developing constructive economic ties with long-time allies and partners. .

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

This follows a 4% expansion of the Algerian economy in 2021, according to the World Bank Organization which initially estimated a growth rate of 3.4% for 2021.

With Algeria’s consumption and investment levels returning to pre-pandemic conditions, confronting the issues of economic productivity, competitiveness and sustainability is more feasible but no less challenging for policymakers and economists.

Increased consumer activity coupled with tougher accountability measures, stronger regulatory oversight and structured stimulus programs have all played a role in bringing Algeria’s total fiscal deficit back from 12% to 3 .5% of its GDP according to the World Bank.

Algeria’s current account deficit also narrowed to 13.8% in 2021, while it is expected to decline further to 11.1% in 2022, with signs of recovery in foreign exchange reserves after initially hitting a deficit. by 14.8% in 2020.

As part of a recovery plan aimed at maintaining its growing economic momentum, an Algerian finance law has effectively reduced income tax in all brackets from January 2022 in a bid to stimulate spending and ease the financial pressure on households.

Gross annual earnings below $1,600 received tax exemptions alongside a slight increase in the national minimum wage. Payment of corporate taxes has also been suspended to ease the burden of the pandemic on business owners. For Algeria, African and European markets, including Turkey and Libya, are extremely important for its national economic recovery project.

Algeria also announced the completion of the upgrade of its part of the 4,500 kilometer Trans-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 significantly boost intra-regional trade.

Improved trade connectivity should strengthen regional access to new markets, investments and human capital for Algeria and its regional partners.

Algeria’s economic outlook is expected to continue to rebound on the back of strong public and energy investment despite the slow labor market recovery and persistently high inflation.

With rising energy prices, easing of OPEC quotas, increasing demand for liquefied natural gas, and ongoing investment to increase its power generation capacity, the economic safety net of Algeria remains in place as non-hydrocarbon growth continues to gain momentum.

Nonetheless, Algeria still faces budget shortfalls amid rising food import prices, making its recent partnerships with Türkiye all the more vital for securing basic commodities.

While rapid economic revival is difficult at the best of times, Algeria also faces risks of increased hydrocarbon price volatility, a major source of financial security for its economic projects.

Hydrocarbons accounted for almost 20% of Algeria’s gross domestic product in 2021, supporting Algeria’s modest recovery in foreign exchange reserves. The largest Arab and African country, Algeria has the tenth largest proven reserves of natural gas in the world and the third largest reserves of shale gas. It also ranks sixteenth for oil reserves.

Sonatrach says two-thirds of Algeria’s territory remains largely unexplored, promising financial security for future generations. Algeria’s state-owned national oil company is Africa’s largest company and actively seeks to improve and optimize energy and mining production and efficiency by attracting dynamic technology transfers and direct investment.

Newly accessible markets

Türkiye’s interests in North Africa transcend economics, according to Dr. Anwar Sekiou, an Algerian university researcher in business administration.

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

Recent developments include the recent ratification by President Tebboune of a maritime agreement originally signed between Algeria and Turkey in May 1998. This decision will facilitate port investments and the transport of passengers and goods.

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

Tosyali Holding, a leading company in the field of iron and steel, has been active in Algeria since 2013 with an initial investment of 500 million dollars and 1.85 billion dollars intended for new investments in the sectors of steel and construction in Algeria.

One of Algeria’s top priorities is to increase the number of investments and reliable companies in its markets, in pursuit of a more diversified economy and more jobs.

At the heart of this revitalized partnership is the promise of safe and profitable trade routes for Turkey through Algeria, making it a key gateway to sub-Saharan Africa.

Source: World TRT