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TITLE:  ALGERIA ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE

                             ALGERIA

                     Key Economic Indicators
       (Billions of Algerian dinars unless otherwise noted)


                                  1991      1992      1993 /1
Income, Production,
 and Employment

GDP                                 793.2     987.0   1,149.0
GDP by Sector (at current prices)
  Petroleum                         234.0     255.2     259.9
  Agriculture                        85.9     118.8     147.0
  Energy and Water                    8.5       7.1   n/a
  Industry                           76.0      99.4     120.3
  Construction & Public Works        95.5     131.6     166.0
  Other Services                    131.6     176.7     210.9
Labor Force (millions)                6.0       6.2       6.4
Unemployment Rate (pct.)
 (official estimate)               20.2      21.9      22.0

Money and Prices
(annual pct. growth unless noted)

Money Supply (M2, bil. dinars)      416.6     524.6     655.2
Commercial Interest Rates          15.0      17.0      20.0
Personal Saving Rate
 (pct. of GDP)                     35         n/a       n/a
Consumer Price Index               22.8      32.2      22.0
Exchange Rate (dinar/$)
  Official                         18.47     21.82      23.10
  Parallel (est.)                  27.0      45.0       60.0

Balance of Payments and Trade
(million U.S. dollars)

Total Exports (FOB) /2            12,443    11,510    11,400
  Exports to U.S. (CIF)            2,099     1,588      n/a
Total Imports (FOB) /2             9,156     9,283     9,000
  Imports from U.S.                  727       676      n/a
Aid from U.S.                        357       375       150
Foreign Debt                      27,050    26.640      n/a
Debt Service Payments              9,550     9,360     9,110
Gold and FOREX Reserves            1,510     1,510     2,000
Trade Balance  2/                  3,287     2,229     2,400
  Balance with U.S.                1,372       912      n/a


Notes:

1/  1993 Figures are estimates based on available monthly data
    in October 1993.
2/  Merchandise trade.



1.  General Policy Framework

    Algeria has great long-term potential as a market for U.S.
business.  It boasts a population of 26 million people.  Its
products enjoy preferential access into the European Community
market as well as into other Maghreb countries.  However, the
transition from statist economy, necessary for realizing its
full potential, has not yet been completed.  Economic
performance has been sluggish since the mid-1980's with
marginally positive or negative real growth rates registered
each year.

    One bright spot among public sector enterprises is the
state-owned petroleum industry.  The hydrocarbon sector
provides 97 percent of export earnings and 65 percent of
government revenues.  The oil price slump in 1986 drastically
reduced Algeria's hard currency earnings, from $13 billion in
1985 to $8 billion in 1986, and forced the government to
curtail imports.  Low oil prices will continue to aggravate
Algeria's balance of payments situation.  Algeria's trade
balance, while positive, is minimal, due to a high import bill
for foodstuffs, spare parts, and consumer goods.  Economic
performance has been sluggish since the mid-1980's with
marginally positive or negative growth rates registered each
year.

    The oil price slump of 1986 provided further impetus to
economic reform efforts.  However, in attempting to move from a
centrally controlled economy to a market-based economy, the
government has experienced serious social problems.  Chief
among these are annual unemployment and inflation rates
exceeding 20 percent, and a severe housing shortage.  These
factors have slowed progress toward market reforms.

    In August 1993 Redha Malek was named as the country's new
prime minister, replacing Belaid Abdesselam.  During
Abdesselam's tenure from July 1992 to August 1993, new controls
were placed on imports, foreign exchange, and wages.  Saddled
with an annual debt service burden that consumed 75 percent of
foreign exchange earnings, the Abdesselam  government opted to
choose a path of austerity rather than seek a debt rescheduling
which would have required the government first to reach
agreement with the IMF on an economic reform program.  The
government instituted a ban on luxury imports.  The government
also created an "Ad Hoc Committee" of senior Ministers to
ration lines of credit to those companies deemed to be
operating in the public good.  Results were highly favorable to
public enterprises.  At the same time, a record budget deficit
was forecast by the government, in large part due to budgetary
outlays for support of inefficient public sector enterprises. 
New Prime Minister Malek has pledged to make progress toward a
market economy but has not yet articulated what specific
economic course the government intends to follow.

    As part of its effort to diversify the economy, the
government has instituted several new policies to encourage
foreign investment and trade in recent years.  Chief among
these is a new investment code (discussed under Part 3).  In
addition, legislation enacted in December 1991 allowed foreign
firms to take up to a 49 percent share of production in
existing oil fields and participate in natural gas exploration
for the first time.  The new law also established and set in 
place new incentives to encourage exploration.  As a result of
these new incentives, several U.S. companies have signed
exploration and production sharing agreements. Other positive
steps included the introduction in April 1992 both of a new and
simplified tax code and a new customs tariff schedule which
simplified and reduced tariffs (see also Part 3 below.)


2. Exchange Rate Policy

    The dinar is a nonconvertible currency.  The central bank
states that its value is set against an undisclosed basket of
foreign currencies.  Since 1990 the central bank has allowed
the official rate to slide approximately 158 percent against
the dollar in nominal terms.  There was a major devaluation of
22 percent in September of 1991.  The pace of devaluation has
slowed considerably since then because of government concerns
about the inflationary impact of devaluation.  Despite the
progress made since 1987, the official exchange rate remains
valued at almost one-third the non-officially determined
parallel rate.  Since the dinar remains overvalued, further
devaluation will be necessary to increase significantly
non-hydrocarbon exports or reduce dramatically the
competitiveness of imports in relation to local production.

    The Abdesselam government announced in September 1992 its
intention to introduce a dual exchange rate system in 1993. 
The system would have an official rate for priority imports and
a floating rate closer to the existing parallel rate for other
imports.  The Malek government has not yet indicated whether it
will pursue this course or choose some alternative means of
devaluing the dinar.


3.  Structural Policies

    The Algerian government approved a new investment code in
October 1993 which for the first time does not distinguish
between investments made by foreigners and investments made by
Algerians from funds held both locally and abroad.  The code
provides new investors a three-year exemption from the value
added tax on goods and services acquired locally or imported,
and a two- to five-year exemption from corporate taxes.  In
addition, the duty on imported goods has been reduced to three
percent, and a ceiling of seven percent is to be placed on an
employer's contributions to local social security.  Exemption
is also allowed from duties and taxes for goods purchased
locally from customs depots.  Finally, the government will
establish a new agency to receive and coordinate all investment
applications and thereby streamline the process for obtaining
government approval of new investments.

    The government enacted regulations in February and April of
1991 that abolished the monopoly rights formerly held by state
corporations to import virtually all products.  Importation of
goods destined for resale to third parties is limited to
dealers and wholesalers established under the regulations
adopted in August 1990.  These regulations, supplemented by an
April 1991 Ministry of Commerce order, permit private Algerian
and foreign firms to become distributors and wholesalers of a
wide range of imported consumer and industrial products except
clothing.  Subject to constraints, these wholesalers and
distributors may use hard currency obtained outside of official
channels to import goods, which may then be sold in hard or
local currency depending on the product and on whether the
goods are sold to retailers or consumers.

    The Algerian government also revised and streamlined the
tariff schedule in 1992, cutting the top tariff rate from 120
to 60 percent and the number of tariff categories from 19 to
six.  At the same time, taxes on imports were also
substantially changed.  In addition to paying the tariff,
importers must pay two other taxes:  a value-added tax, which
ranges from seven to 40 percent, and, in some cases, a
compensatory tax, which ranges from ten to 50 percent.

    For products that are not currently banned from import,
hard currency availability and financing terms remain by far
the most important constraints on purchases, even outweighing
such items as pricing and tax policies (see also Part 4
below).  The Algerian government is not promoting
counter-trade, particularly that which involves hydrocarbon
exports.

    The government has just issued a new decree reducing income
taxes paid by foreign technical and supervisory personnel to a
flat rate of 20 percent, down from the previous 70 percent. 
The new rate applies to personnel employed by foreign companies
working in most of Algeria's industrial sectors whose salaries
exceed 80,000 Algerian dinars per month ($1 = 23.56 dinars). 
It does not apply to foreign personnel employed by liaison
offices and joint ventures established in Algeria.


4.  Debt Management Policies

    Approximately 75 percent of Algeria's foreign exchange
revenues go to service the country's $26 billion foreign debt. 
The problem is not the size of the debt, which is manageable,
but with the bunching of short term payments over the next
several years.  The average maturity of the debt is only 3.5
years, as opposed to six years in 1985.  Despite the high debt
service burden, the government has maintained a good record of
debt repayment and has repeatedly expressed its commitment to
continue paying Algerian debts on time.

    Since 1991, the Government of Algeria has managed its
external debt by concluding three debt "re-profilings", the
Algerian term for refinancings, and seeking longer term trade
financing.  Through the fall of 1993, the government eschewed
seeking a multilateral debt rescheduling because this would
have required an agreement with the International Monetary
Fund.  The Government of Algeria was concerned that devaluation
and cuts in the budget deficit possibly required by the IMF
would have had unacceptable social consequences.

    As an alternative to rescheduling, the government concluded
three debt refinancings.  The first was a syndication organized
by Credit Lyonnais in February 1992.  The second was a decision
by the Italian government to refinance $2.5 billion in debt
maturing in 1991-93.  The third, announced by the Central Bank
in September 1993, involved the refinancing of about $175 
million in debt owed by four Algerian public sector banks to
three Japanese companies.  Local bankers express doubt that
further "re-profilings" will be possible until the Government
of Algeria first reaches agreement on an economic reform
program with the IMF.

    As part of its debt restructuring efforts, the Algerian
government also has sought to obtain more concessional
financing, such as bilateral lines of credit.  The government
requires that import financing terms exceed 18 months for food,
and 36 months for priority industrial and capital suppliers for
financing on the grounds that such financing, often limited to
the short term, is much more expensive than existing long term
credit.  Thus, imports are increasingly sourced from those
countries with lines of credit in place such as France, Italy,
the U.S., Japan, Belgium and Spain.

    The implications of Algeria's debt burden for American
trade are great.  Competitive financing has become essential
for sales to Algeria.  EXIM Bank and the Commodity Credit
Corporation have guaranteed or financed the great bulk of
American sales to Algeria.


5.  Significant Barriers to U.S. Exports

    In October of 1992, the Algerian government imposed a new
regulation limiting commodity imports.  Three separate lists
detail products which can and cannot be imported.  The first
list of priority imports includes items which the Government of
Algeria believes are strategic products not available in
adequate amounts locally.  They include basic food items,
medical supplies, and spare parts for exports of strategic
commodities such as petroleum and building products.  Importers
of these items have priority access to available lines of
credit.  The second list includes products which can be
imported but are not entitled to access existing foreign
currency or available credit lines.  These products are
considered nonessential and are produced locally, though often
of poor quality and in inadequate quantity.  They can be
financed through foreign currency accounts.  The third list
includes items considered luxury products which are banned
completely.  Agricultural products from the U.S. have always
been subject to an authorization from the Ministry of Economy
and are not affected by this regulation.

    In November 1992, the government of Abdesselam set up an ad
hoc committee to review all imports with a value exceeding
$100,000.  Figures from its inception through August 1993 show
that the ad hoc committee approved $6.8 billion of imports, of
which only $130 million, or 1.9 percent, went to the private
sector.  Surprisingly, the private sector had only requested
$700 million, a testament of how small the private sector
remains in Algeria.  The Malek government has indicated it
expects to replace the ad hoc committee with a more
market-based system but the timing and specifics are not yet
known.

    Recent economic reforms have modified but not eliminated
certain practices by Algerian government entities and state
owned firms that have impeded American firms from obtaining 
service contracts, particularly in the engineering, civil
works, and construction sectors.  For example, Algerian
government entities and state firms no longer automatically
favor other Algerian state firms over foreign companies in
awarding service contracts.  However, the ability of foreign
firms to obtain such contracts depends critically on their
ability to offer attractive financing.  Firms from countries
that have extensive bilateral lines of credit with Algeria have
an advantage over American firms in this regard.  In addition,
excessive demands for extra services or the acceptance of
responsibility, levied on the foreign companies in the past by
Algerian government agencies or state companies, have
diminished.  These agencies and companies are displaying more
flexibility on contract terms and conditions, enhancing the
ability of foreign firms to compete successfully and prove
their capabilities.

    Under the money and credit law adopted in April 1990,
foreign banks are allowed to establish branches in Algeria
after receiving government approval.  They must maintain the
same level of capital as Algerian banks.  One American bank,
Citibank, currently operates a representative office in
Algeria, which was established in early 1992.  Two private
Algerian banks also are being formed.  The insurance sector is
currently a state monopoly, but the government is considering
opening it up to private and foreign firms.


6.  Export Subsidies Policies

    Hydrocarbons continue to provide 97% of export earnings. 
Non-hydrocarbon exports remain limited because the products of
most public sector enterprises are not internationally
competitive, and because of the overvalued dinar.  Algeria's
budget deficit has thus far discouraged the government from
initiating any sort of export subsidy program.


7.  Protection of U.S. Intellectual Property

    Algeria is a party to the Universal Copyright Convention
and the Paris Convention on Payments.  The Government of
Algeria has a good record of respect for intellectual property
rights.  Generally, Algerian practice is to obtain
authorization and pay royalties for proprietary technology. 
Copying of patented technologies is generally beyond Algeria's
present technical capability.  As for trademarks, most major
international brands are unavailable on the local market.


8.  Worker Rights

    a.   Right of Association

    Algerians have the right to form and be represented by
trade unions of their choice.  Government approval for the
creation of a labor union is not necessary, although
considerable limits are imposed on union activities.  Unions
are not permitted to receive funds from abroad, and the
government may suspend a union's operations if it violates the
law.  Unions may form and join federations or confederations 
and affiliate themselves with international bodies.

    b.   Right to Organize and Bargain Collectively

    A 1990 Law permits collective bargaining for all unions,
and this right has been freely practiced.  The law also
prohibits discrimination by employers against union members and
organizers and provides mechanisms for resolving trade union
complaints of antiunion practices by employers.  It further
permits all unions, whether longstanding or newly created, to
recruit members at the work place.

    c.   Prohibition of Forced or Compulsory Labor

    Forced or compulsory labor is incompatible with the
constitution's provisions on individual rights.  The penal code
was amended in 1990 to ban compulsory labor explicitly.  This
ban is effectively enforced by labor inspections and penal
sanctions.

    d.   Minimum Age of Employment of Children

    The minimum employment age is 16 years.  Work inspectors,
who report to the Ministry of Labor, are responsible for
enforcing the minimum employment age by periodic or unannounced
inspection visits to the work place.  The minimum age is
enforced in the State sector, the country's largest employment
sector.  It is not effectively enforced in the agricultural
sector or the small private sector, but violations are not
widespread.  However, many children under 16 are also driven by
economic necessity into informal employment, such as street
vending.

    e.   Acceptable Conditions of Work

    The 1990 law on work relations defines the overall
framework for acceptable conditions of work, but leaves
specific policies with regard to hours, salaries, and other
work conditions to the discretion of employers in consultation
with employees.  A guaranteed monthly minimum wage rate for all
sectors is fixed by government decree.  Algeria has a 44-hour
work week and a government decree regulating occupation and
health standards.

    f.   Rights in Sectors with U.S. Investment

    A limited number of American firms are engaged in
commercial activities in Algeria, mostly in connection with the
hydrocarbon sector.  Conditions for workers at these existing
American investments as defined by the above-mentioned worker
rights are better than those prevailing in the Algerian economy
at large.


         Extent of U.S. Investment in Selected Industries

              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (Millions of U.S. dollars)

Category                                    Amount

Petroleum                                              45
Total Manufacturing                                     0
    Food & Kindred Products                   0
    Chemicals and Allied Products             0
    Metals, Primary & Fabricated              0
    Machinery, except Electrical              0
    Electric & Electronic Equipment           O
    Transportation Equipment                  0
    Other Manufacturing                       0
Wholesale Trade                                         0
Banking                                                 0
Finance and Insurance                                   4
Services                                                0
Other Industries                                        0

TOTAL ALL INDUSTRIES                                   49


Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

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