Algeria Country Risk Report

Algeria’s GDP growth is expected to slow to +2.7% in 2025 from +3.0% in 2024. The downward trend in global natural gas prices is causing a gradual decline of Algerian growth from the +4% averaged between 2021-2023. As prices further relax and hydrocarbon production moderates due to lagging investment, economic activity is expected to continue to slow towards the end of the decade.

Inflation is projected to slightly pick up in 2025 to 5.5% y/y following a downward shift in the first half of 2024 from the 9% y/y recorded in late 2023 due to a drop in food prices caused by import relaxation during Ramadan. Yet, inflation has continued to increase since April 2024, mostly due to food price increases. 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.

After a full year of depreciation, the Algerian Dinar remained flat by end-2024 at .0074USD/DZD. However, according to some estimates, the parallel exchange rate of dinar to USD is expected to be more than 60% lower than the official rate. 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 were standing around USD200mn while today are hardly above USD60mn after touching rock bottom during the pandemic. However, relative to other nations, this remains an elevated number above 12 months of imports, providing a substantial buffer against external shocks, allowing the BA to keep an anchored exchange rate.

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 have been 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 the economic model, 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 play 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.