Algeria

Despite strong growth of nearly 9% in the non-oil/gas sectors, owing mainly to the excellent performance in the agricultural sector, which grew 17%, overall economic growth in 2009 was 2.2%, down 0.2 percentage points from 2008. This moderate growth, which was not sufficient to ease unemployment and poverty in the country, was due to the drastic decline in government revenue from oil and gas exports, which are the country's main export products. The expected upturn in global demand in 2010 and the consolidation of the public investment programme (PIP) through the 2010-­14 plan is projected to increase growth to 3.9% in 2010 and 4.3% in 2011. Inflation, which was contained at 3.9% in 2008, increased markedly in 2009 to 5.7% as a result of the spiralling costs of fresh food products, which rose by 20% during the same period.

The real sector had mixed success in 2009. While both oil production and oil exports fell, agriculture was one of the drivers of growth outside the oil and gas sector, notably thanks to unprecedented cereal production. The industrial sector remained stagnant, while growth was good in the services, infrastructure and construction sectors, pulled by strong public demand.

Despite the constraint of reduced tax revenue, especially from oil, fiscal policy remained expansionary, resulting in a relatively high budget deficit, the first deficit in a decade. Based on a reference price of 37 US dollars (USD) a barrel, the annual budget benefited in particular from the significant resources that had accumulated in the revenue-regulation fund, FRR (Fonds de régulation des recettes), which by the end of 2009 had reached more than 4 800 billion Algerian dinars (DZD) , the equivalent of about 50% of GDP. Algeria adopted a relatively conservative monetary policy, with prudent management of bank liquidity and official foreign-exchange reserves. Algeria's external position has markedly deteriorated since 2008, with a sharp decline in the current-account surplus due to imports that remain too high and a drastic fall in export revenue. The external financial position remains good however, with a stock of foreign-exchange reserves equivalent to more than three years of imports and low foreign debt. The exchange rate of the national currency remains close to its equilibrium value.

With regards to structural reforms, those already made are being consolidated and further efforts are ongoing. The business environment has improved because the public sector has been boosted to generate a favourable macroeconomic environment. In the private sector, reforms are in progress with a goal of promoting private initiative, development and the modernisation of the banking and financial sectors as support to the development of the private sector. Remarkable progress has been made in infrastructure, and reforms are continuing to strengthen capacities for the evaluation of major projects, in particular through the CNED, the national equipment fund (Caisse nationale d’équipement pour le développement), so as to improve expenditure efficiency. Reform of the agricultural sector, the second most important production sector in Algeria after the gas/oil sector, seems to have progressed significantly. This sector needs a real recovery in order to support the national food-security strategy. Institutional reforms are also being consolidated, and the country is now enjoying an overall state of security.

Social reforms are moving along swiftly. Substantial progress is observed in the areas of human development (health and education) and in the fight against unemployment and poverty, which is encouraging with respect to Algeria’s reaching the Millennium Development Goals. Generally speaking, access to basic education is performing well: the gross enrolment rate for mandatory schooling (6-12 years old) reached 111% in 2008. The health system is clearly improving despite the persistence of chronic and/or communicable diseases. Life expectancy at birth increased from 67.3 years in 1995 to 75.7 years in 2008, one of the highest levels in the region.

The authorities were counting on economic growth of 3.5% in 2009. However, the actual growth was only 2.2% (compared with 2.4% in 2008), which was not sufficient to curb unemployment and reduce poverty. This mediocre performance was due to oil and gas exports which fell by more than half. The weight of the oil and gas sector as a percentage of GDP and of public revenue was an aggravating factor for the crisis, but the FRR reserve funds were used for a countercyclical policy, which involved financing the fiscal deficit and a significant part of the PIP.

Other than oil and gas, economic growth was 9% thanks in part to record cereal production. In 2010, public investment will drive overall growth, especially in infrastructure and services, and should recover to almost 4% (5.5% outside oil and gas). Nevertheless, Algeria must diversify its economy further through sectors that generate jobs, such as industry and agriculture. In this regard, the measures envisaged in the complementary finance act (LFC 2009) could reignite these two sectors in the medium term, provided that they are used correctly to promote and protect domestic production to replace imports.

Thanks to an excellent cereal crop, the agricultural sector, which produces almost 7.6% of the country's wealth, grew by more than 17% in 2009, according to initial estimates. The Rfig credit (Rfig means "companion" in the local Arabic dialect), which consists of a seasonal interest-free loan from the Banque de l'Agriculture et du Développement Rural (BADR), also contributed to this strong growth, as did  support for farm inputs, which helped farmers reduce their costs and increase competitiveness. The producer prices of cereals, which have been aligned with international prices since 2008, thus offer farmers profitable prices that provide them with an incentive. The prices of a quintal of durum wheat, common wheat, barley and oats have been set at DZD 4 500, DZD 3 500, DZD 2 500 and DZD 1 800 respectively. On average, there are between 3.2 million and 3.5 million hectares under cereal cultivation, about one-third of the total agricultural area. Thus cereal production, which accounts for nearly 32% of crop production, rose to more than 60 million quintals in 2009, between 30% and 40% of which was barley. This is a significant increase in production compared with the 17 million quintals produced in 2008. Olive crop production in 2009 was 4.9 million quintals (2.5 million in 2008), citrus fruit production was 8.5 million quintals (6.97 million in 2008), and fodder crop production reached 40 million quintals (19.5 million in 2008). Good rainfall combined with the measures taken in the context of the 2008 agricultural framework law boosted the sector. The elimination of DZD 40 billion of farm debt, agricultural-production and breeding bonuses worth DZD 200 billion for a year and new production contracts made with the governments of the wilayahs (provinces) all contributed further to the growth in the sector. Other measures related to the legal mechanism for farming on land belonging to the state (2.8 million hectares) will be implemented following the passing of a law on long-term concessions for agricultural use, which aims to stabilise farming and protect rural areas, especially farmers.

The strong growth of the construction materials sector and the mining and quarrying sector do little to hide the state of the rest of the industrial sector, especially manufacturing, which is struggling to recover. Growth in the industrial sector remained weak in 2008, at 3%, and its contribution to the total value added barely reached 5.5%. According to the most recent available figures, iron-ore production in the public sector grew by 4.3% to 2.08 million tonnes in 2008, compared with 1.98 million in 2007, while production of phosphate by the public sector stagnated at 1.81 million tonnes during the same financial year. Turnover for the industrial sector as a whole grew by 16% in 2008, thanks mainly to private production of aggregates and salt. Gold production increased in volume to 657 kilogram’s in the first seven months of 2009 (worth USD 20 million), against 600 kilograms in all of 2008. No fewer than 978 mining licences were granted in 2001, the year in which the mining act was passed. With a view to boosting the sector, the national mining agency, the Agence nationale du patrimoine minier, issued calls for tender to carry out airborne geophysical surveys in southern Algeria for diamonds and uranium, of which it is estimated that there are around 30 000 tones of reserves.

With growth of 9.3% in 2009, the construction and hydraulics sector which accounts for 11.7% of GDP still benefits from public contracts.   It is estimated that it will receive USD 57 billion in investments as part of the 2010­-14 plan.  Nevertheless, the sector has been affected by the rising cost of cement and the shortage of construction materials.  A new development plan for the sector aims to increase total production to 20 million tonnes of cement and 7 million tonnes of aggregate by 2013, and to set up a new integrated public group comprising 18 subsidiaries, 12 of which would be dedicated to cement production.

The oil and gas sector accounts for close to 55% of GDP and 62% of total government revenue. Oil production fell yet again in 2009, by almost 9% (-­0.9% in 2008). If this contraction in supply continues in 2010, it will affect the country's revenue in the context of an upturn in global demand (+1.7% according to the International Energy Agency) and in prices. Over the past few years, crude oil production has struggled to surpass 1.45 million barrels per day, and production is expected to fall by nearly 15% to just 1.25 million barrels per day in 2009, mainly due to Algeria's voluntary reduction of 200 000 barrels per day to respect its Organisation of Petroleum Exporting Countries (OPEC) quota. The country's overall oil and gas reserves remain high, at 40 billion barrels of oil equivalent (boe), of which oil alone accounts for 14.7 billion barrels. The development of the gas fields discovered in the regions of Illizi, Gourara, Tuat and the Ahnet Basin will increase the country's export capacity of gas to 85 billion m³ per year by 2013, compared to 63 billion m³ in 2009. Various facilities for the production and transport of oil and gas were finished in 2009, including the condensate distillation unit in Skikda, which has an annual capacity of 5 million tonnes, and the 646-kilometre Haoud El Hamra/Skikda pipeline, which has an annual flow capacity of 11.4 million tonnes. Representing almost two-thirds of the USD 45 billion investment plan due to be implemented by the public operator Sonatrach (Société nationale pour la recherche, la production, le transport, la transformation et la commercialisation des hydrocarbures) during the period 2010-­12, projects have been launched for the processing of raw hydrocarbons, most notably refining, gas liquefaction and petrochemicals. Sonatrach also plans to invest USD 1.3 billion internationally over the next five years. Tenders have otherwise been launched for oil exploration licences for 30 new blocks spread over 69 000 square kilometres.

In terms of revenue, the share of foreign companies associated with Sonatrach rose from USD 3.9 billion in 2007 to USD 4.8 billion in 2008, while additional revenue of USD 2.6 billion has been collected by the Treasury through a windfall-profit tax introduced in 2006. In terms of oil taxes, Sonatrach paid the treasury some DZD 3 193 billion (USD 45.6 billion) in taxes in 2008 and DZD 3 296 billion (USD 47 billion) in 2009 in back taxes for fiscal years 2006 and 2007. Amongst Sonatrach's overall expenses is the gross payment to its partners, which for the fiscal year 2008 amounted to DZD 538 billion (approximately USD 7.69 billion).

The services sector grew by 8.6% and accounted for 23% of GDP in 2009. Trade, transport and telecommunications remain the main pillars of the sector. Revenue from tourism rose by 37% in 2008. A 15-year tourism-development strategy aiming to offer 75 000 beds began in 2008, and fiscal-support measures were introduced as part of the LFC 2009, including a cut in VAT on tourism services from 17% to 7%. The authorities hope these measures will attract more than 3 million tourists in 2015, compared with 1.8 million in 2008.

Public demand, especially for equipment, remains the main driver of growth. In the first half of 2009, total investment reached USD 15.94 billion (10% of GDP), USD 12.5 billion of which was public investment and USD 2.3 billion was private investment. Foreign direct investment (FDI) totalled USD 1.1 billion for the same period. Rising inflation and the LFC 2009 ban on consumer credit for durable goods – particularly motor cars – caused private consumption to contract, until the minimum wage was increased by 25% in January 2010. Foreign demand (essentially energy products) fell drastically in 2009, and total exports reached only USD 43.68 billion, representing a 44.91% decrease from the 2008 figure of USD 79.29 billion. Imports of goods fell by 0.95% from USD 39.47 billion in 2008 to USD 39.10 billion in 2009.

The fall in exports, which are mainly oil and gas exports, had an adverse affect on total government revenue. Oil taxes account for 62% of government revenue (77.2% in 2008), while ordinary taxation accounts for 38%. Ordinary taxation grew by 23% in 2009, indicating a marked improvement in the tax-collection rate. Close to 45% of this improvement came from taxation on the 1 500 companies that fall under the authority of the department for large enterprises (DGE). The largest increases in taxation came from corporate tax (60.1%), VAT (13.4%) and customs duties (11.1%). Strongly affected by the fall in the average world price of oil exports (USD 45 per barrel in 2009, compared with USD 99 per barrel in 2008), total government revenue in 2009 was DZD 3 751.2 billion, compared with DZD 5 187.06 billion in 2008. Expenditure, meanwhile, rose during the same period to DZD 5 476.6 billion, including DZD 2 813 billion in equipment credits, a figure that testifies to the budgetary effort made to support economic recovery. The treasury's deficit was financed through non-bank resources, while the budget deficit (8% of GDP) was absorbed by FRR resources. In 2010, the authorities aim to reduce the tax burden and support small and medium-sized enterprises (SMEs) through interest relief and tax ratios aimed at increasing the tax base and at further increasing the share of ordinary tax revenue.

Passed in 2009, the LFC planned a DZD 68 billion increase in administrative appropriations to cover the increase in grants for students and for trainees in vocational training, as well the increase in benefits to victims of terrorism. The draft budget for 2010, which is still calculated based on oil prices of USD 37, will plan on revenues of DZD 3 081.5 billion. Expenditure will be slated to go to the capital budget for DZD 3 332 billion and to the administrative budget for DZD 2 838 billion, including DZD 1 600 billion for the administration of public services. The remaining current expenditure shall be allocated to social policy, including DZD 230 billion to cover the increase in the national minimum guaranteed wage (SNMG) and the new salary system for civil servants, DZD 453 billion to subsidies for health, water, electricity, gas and transport, DZD 260 billion to subsidies for basic food commodities, and DZD 100 billion to combat unemployment and foster job generation; the rest will be allocated to pensions, school and university grants, retirement benefits, compensation for victims of terrorism and health insurance funds.

At the end of June 2009, bank liquidity had seen a sharp reduction, down 10.4% in the first six months of the year to DZD 2 549 billion from DZD 2 845 billion at the end of 2008, in a context of stabilisation of the country's net external assets, which in 2008 had been the main source of money creation. Inflation in the first ten months of 2009 was 5.8%, mainly because of higher prices for fresh agricultural produce, as the state was unable to be in command of the regulation-and-control systems for fruit and vegetables. Inflation thus became endogenous, and was no longer generated by the rise in the prices of imported agricultural products as it had been in 2007 and 2008. Food prices rose 7.8% overall during the first ten months of 2009, with fresh produce rising 20.7%. The prices of services and manufactured goods rose by 6.4% and 2.1%, respectively, over the same period, contributing to the general rise in inflation. The authorities hope to reduce inflation to about 3.5% in 2010.

The M2 money supply shrank in the first half of 2009, mainly because of a 1.13% fall in primary-bank deposits, especially those from the oil and gas sector, which fell 26.6% because of the fall in world oil prices and the sector's own-financing needs. The decline in M2 money supply is new for Algeria and highlights the magnitude of the economic shock suffered in 2009. Outside the gas-and-oil sector's deposits, however, the M2 money supply grew 4.74% in the first half of 2009, mainly at private banks.

Credits to the economy rose 6.1% over 2009, after a 5.4% rise in the first six months, confirming the sustained recovery of credits to the economy, even though the 22% growth target was not reached. Credits to the state were very weak, with the treasury being a net creditor of the central bank (DZD 152.5 billion) and the banking sector. Outside the purchase of public-sector liabilities by the treasury, the rise in credit is estimated to have been 7.4%. Medium- and long-term credit rose by 12.9%, while short-term credit fell by 2.2%, reflecting companies' need to finance their investments, in particular in the water and energy sectors. In fact the relative share of companies rose from 54.5% at the end of December 2008 to 58% at the end of June 2009. Half of the credits to the economy went to the private sector, but mainly to a small number of major enterprises. The development of credit to SMEs remained below the expected target, reflecting the reluctance of banks to take the kind of credit risk associated with this type of enteprise, in particular those with accumulated liabilities.

Despite the stagnation of currency reserves at USD 144.3 billion at the end of June 2009 (as against USD 143.1 billion at the end of 2008) and the M2 contraction, the Bank of Algeria pursued its policy of sterilisation of excess bank liquidity by resorting to absorption of liquidity and interest-bearing deposit facilities. At the same time, the central bank's intervention rates were reviewed in March 2009 and fixed at 1.25% for absorption of liquidity on three months, 0.75% for absorption on seven days and 0.30% for deposit facilities. Reserve requirements were set at 8%, while their interest rate at the Bank of Algeria was limited to 0.50%. The weighted average rate on the interbank market was fixed in a range between 3.1% and 3.6%.

Monetary authorities also took measures to facilitate and improve banking intermediation in order to channel available savings to sectors outside the gas and oil sector, the private sector in particular. All the same, the monetary-policy goal for 2010 is to control excess liquidity and inflationary pressures in a context of rising world demand and prices for oil and gas.

With oil and gas accounting for more than 97% of Algeria's exports, after the fall in world demand for raw oil and gas and the decline in the international prices of these commodities, the global figure for exports fell in 2009 to USD 43.68 billion from USD 79.29 billion in 2008, a 44.91% fall. Imports of goods fell to USD 39.10 billion in 2009 against USD 39.47 billion in 2008, a 0.95% decline when the government had targeted a 5% fall. Imports of industrial capital goods amounted to USD 15.04 billon, up 14.9%, semi-finished products to USD 10.24 billion (+2.34%) and agricultural capital goods to USD 0.23 billion (+31.61%). The only fall in imports was in food products, which declined 25.6% to USD 5.81 billion in 2009 from USD 7.81 billion in 2008. Cash payments were made for 74.39% of the imports, credit arrangements were made for 13.2% of them, own foreign-currency accounts were used to pay for 4.73% of them, and the rest were paid through other sources. The trade surplus thus dwindled to USD 4.58 billion from USD 39.82 billion in 2008.

The value of imported services remained high in the first half of 2009, at USD 5 billion, almost the same figure as for the first half of 2008. USD 1.4 billion went to imports of services related to construction and USD 1.46 billion to imports of technical services for enterprises, usually for public infrastructure and to meet the needs of oil companies. Although the services deficit, which had worsened in 2008, reached semester-on-semester stability starting in the first semester of 2009, it remains high in a context of such strong contraction of export receipts.

Despite the shock of the global crisis, Algeria's external financial position remains strong, with official reserves equivalent to more than three years of imports. The net external financial position also grew stronger as the medium- and long-term external outstanding debt improved to USD 3.9 billion at the end of June 2009 from USD 4.3 billion at the end of 2008, which allows the Algerian economy to somewhat cushion the effects of the external shocks on its major balances. The government has also drastically reduced internal public debt to DZD 750 million in June 2009 from DZD 1 170 billion in 2008. Considering the impact of world oil prices the real effective exchange rate for the dinar remained close to its estimated equilibrium level of about DZD 73 to USD 1. The Bank of Algeria continues to intervene on the interbank foreign-exchange market to correct differences between the nominal exchange rate and the real effective rate.

Algeria's main markets in 2009 were the United States (USD 9.26 billion), Italy (USD 6.29 billion), Spain (USD 5.32 billion), France (USD 4.63 billion), the Netherlands (USD 2.62 billion), Turkey (USD 2.06 billion) and Canada (USD 2.01 billion). France remains the main supplier with USD 6.14 billion, followed by China (USD 4.69 billion), Italy (USD 3.68 billion), Germany (USD 2.74 billion) and the United States (USD 1.99 billion). Overall, the European Union (EU) is the main trading partner, accounting for 55.8% of imports and 60% of exports. Trade with other Maghreb nations fell to USD 518 million in 2009 from USD 770 million in 2008,  but it has grown with other non-Arab Maghreb Union (AMU) Arab countries to USD 949 million in 2009 from USD 776 million in 2008.

Since Algeria joined the Greater Arab Free Trade Area (GAFTA) in January 2009, imports from this zone have risen 28% to reach USD 693 million, while non-oil exports to the same zone have fallen 63% to barely USD 50 million. Algeria's Ministry of Commerce has drawn up a "black list" of 1 141 products from the GAFTA for which imports to the Algerian market will be halted until 2014. Otherwise, Algeria's talks to join the World Trade Organization are held up over the question of energy prices on the domestic market.

The business climate is still affected by complex bureaucracy and sudden changes to public policies. Certain indicators have improved, however, such as those concerning: the terms and conditions for granting building permits and the obligation to complete construction work within the established deadline; the adoption of a new civil code for procedures, which reduces the time needed to process lawsuits and includes the computerisation of the courts; the reduction of the cost of land and property transactions and the non-taxation of capital gains on the stock market. Much remains to be done, however, to adapt the business climate to accepted standards, as is made clear in the World Bank's 2010 Doing Business report, in which Algeria has lost two positions year-on-year to 136th in the ranking. The country is doing better in terms of competitiveness, however, having risen from 99th in 2008-09 to 83rd in 2009-10 in the World Economic Forum's global competitiveness ranking. Much effort is still needed to combat corruption. In its latest report, Transparency International calculated Algeria's Corruption Perceptions Index (CPI) as 2.8 and ranked the country 111th in the world and in 10th position amongst the 18 Middle East and North AFrica (MENA) countries.

The regulations on external trade brought in through LFC 2009 also carries the risk of a negative effect on the perception of the business climate among entrepreneurs, in that the law imposes an almost systematic recourse to a letter of credit as the only way to pay for imports. Nevertheless, specific adjustments are provided for companies importing raw materials and equipment. LFC 2009 also obliges foreign importers limited to purchases for resale to transfer 30% of their capital to Algerian partners.

LFC 2009 aims to foster business start-ups by extending the exemption period by two years for the IRG (impôt sur le revenu global), or indiciary global tax, and the occupational and business tax for young entrepreneurs who have generated five permanent jobs. It has also extended the exemption period from three to five years for the IBS (impôt sur le bénéfice des sociétés) tax on company profits for promoters having generated 100 permanent jobs when launching their project. In addition to the establishment of a DZD 1 000 billion (more than USD 14 billion) national investment fund, it was also decided that a USD 1 billion investment fund should be set up in each of the 48 wilayahs with a view to contributing to the capital stock of new SMEs. To further reassure the financial system, the guarantee provided to young investors by the guarantee fund for loans to SMEs shall now be treated as a state guarantee and be increased from DZD 50 million to DZD 250 million.

To support infant industries, the CNI (Conseil national d'investissement) national investment council may grant, for a period not exceeding five years, exemptions or reductions on duties and taxes, including VAT, on locally produced goods. Furthermore, 32 000 tradesmen have already benefited from the operation launched in 2007 to set up 150 000 premises for professional or commercial use. The planned institution of 14 integrated development industrial zones should provide international operators with the necessary services to set up in Algeria and enable the country to boost FDI in strategic sectors.

Concerning reform of the banking and financial sectors, the authorities have stepped up banking supervision and regulation, improved financial intermediation instruments and encouraged non-bank financing by boosting the Algiers Stock Exchange. This reform will be extended through the establishment of performance contracts with the directors of public banking institutions and the extension of staff training and improvement of methods. Furthermore, the Bank of Algeria now obliges banks and financial institutions to apply interest rates and commissions according to the limits set by the key interest rate and the "excessive rate" that must not be exceeded, and obliges them to comply with prudential management ratios. LFC 2009 dispensed with consumer credits and obliged banks to increase their social capital from DZD 2.5 billion to DZD 10 billion. This should encourage banks to set aside a larger proportion of their resources to finance the real economy.

In the public sector, the industrial strategy prioritises structural projects in the automotive, chemicals, fertilisers, electronics and Information and Communication Technologies (ICT) sectors. The state has decided to allocate DZD 600 billion to cover the tax liabilities of the enterprises that came out of the restructuring process, which will be grouped into 13 public holdings. The major public enterprises in the automotive, pharmaceutical, electronics, air transport and rail transport sectors will be prioritised in the distribution of investment in technical and managerial modernisation. Almost 3 000 private companies will also be eligible for funds for upgrading. To avoid the practice of cost overruns and re-evaluation, the CNED development fund now has to evaluate major public-equipment projects and propose funding only for mature projects. LFC 2009 also stipulates that, starting in January 2010, foreign investors may not hold more than 49% of the capital of a project, with Algerian partners holding the rest. The law also establishes the state's pre-emption right on the transfer of assets by any foreign investor and obliges all foreign companies based in Algeria to maintain a permanent foreign currency surplus.

Public investment in infrastructure remained strong in 2009. The 1 200-kilometre east-west motorway, most of which was operational in 2009, is being completed, and work on tramways in the major cities (Algiers, Constantine and Oran) is progressing well. The first underground line in Algiers should be operational in 2010, and work on the second line has started. International calls for tender have been issued for the construction of a 1 300-kilometre high-speed train line. In addition to the modernisation and electrification of existing railways, work has begun on 400 kilometres of new railways. The 250-kilometre Medgaz gas pipeline between Algeria and Spain will start functioning in 2010 and will have an annual transit capacity of 8 billion m³. An interconnection capacity of 7 billion m³ to transport gas also to France is expected to be built once the gas pipeline between France and Spain has been completed in 2015. This interconnection will enable Algeria to increase its exports to Europe. Concerning public utilities, the national electrification rate rose to 96% in 2008 (from 88% in 2000), and electricity consumption is rising by an average of 5.8% per year. The public operator Sonelgaz hopes to increase the total installed capacity to 12 771 megawatts by 2012 (from 8 502 megawatts in 2008) by opening around 30 new power stations. The national penetration rate of gas supply rose from 29% in 2000 to 43% in 2008, and should rise to 57% by 2011. Since 2000, gas consumption has been rising by an average of 3.1% per year. The supply of drinking water and irrigation water will benefit from the upcoming completion of no fewer than eight new dams and six seawater desalination plants, especially the Magtaa plant, which will be the largest desalination plant in the world.

All action related to the management of natural resources and environmental protection is now conditioned by a national development plan. In 2009 the government adopted measures to preserve water resources by passing a law on water. A new development fund for renewable resources will be constituted through oil taxes, and the contribution of solar power to the country's energy resources will be increased.

Significant reforms have begun in the agricultural sector. A plan to boost the agricultural economy and rural areas, known as the 'Renouveau de l'économie agricole et renouveau rural', has been granted DZD 1 000 billion (USD 14 billion) for the 2010-14 period. The law regulating the concession of state-owned land provides for the creation of joint-stock agricultural companies to attract bank investment thanks to mortgage and pledge guarantees on land and equipment. The reactivation of the national agricultural transactions office will help to promote a dynamic agricultural real-estate market. In 2008, the authorities also set up a mechanism to regulate the main speculative markets, such as the potato market and the red- and white-meat markets, to stabilise producer prices and consumer prices. The national dairy industries office, meanwhile, has been told to encourage local production of raw milk to substitute imports of powdered milk. Finally, a new mechanism for equipment leasing has been introduced to complement the Rfig mechanism for seasonal loans.

Overall tax revenue has been increasing in recent years thanks to improved revenue collection from ordinary taxation and oil taxes. In 2008 tax revenue rose by 57%, thanks mainly to improved revenue collection from direct taxes, registration fees and stamp duty, tax on turnover and customs duties. The rate of revenue collection of oil taxes increased by 76% during the period. Non-tax revenue, which consists mainly of windfall revenue and various budget products, has increased every year since 2000. In 2008, tax revenue accounted for nearly 92% of total revenue, mainly because of the large contribution of oil taxes.

Supplementary finance and fiscal obligations are set out in annual finance laws, which are often amended through complementary finance acts, or LFCs (Lois de finances complémentaires). LFC 2009, for instance, introduced several amendments affecting external trade, at the risk of introducing protectionist measures in the eyes of investors. A new tax law shall be instituted in 2012 to replace and bring together the five existing laws on direct taxes, indirect taxes, turnover tax, registration fees and stamp duty.

Ordinary taxation (direct and indirect taxes, customs duties, VAT on imports, and registration fees and stamp duty) accounted for close to 37% of total tax revenue in 2009, the equivalent of approximately 9% of GDP. This contribution will rise to 43.4% in 2010, thanks mainly to better collection of taxes and a broadening of the tax base. The remaining tax revenue consists of oil taxes.

The tax on civil service wages and salaries is a withholding tax, while for the IBS and the IRG tax statements need to be filed. IBS is 25%, IRG is between 10% and 25%, and VAT is 17%.

The investments law provides tax exemptions for projects launched in the remote Hauts-Plateaux and Sud regions. LFC 2009 provided a cut in VAT for tourism services from 17% to 7%, and cut IBS to 19% for production, tourism and public works. LFC 2009 also extended the exemption period by two years for IRG and local business tax for young entrepreneurs who commit to opening five permanent jobs, and from three to five years' exemption from IBS for promoters opening 100 permanent jobs when launching their project. These tax exemptions are not, however, always reflected in the prices of products sold by companies benefiting from them.

The measures to support infant industries include giving the CNI the capacity to grant, for up to five years, exemptions and reductions on taxes and duties, including VAT, on locally produced goods. The government also plans to reduce employers' contributions for first-time job seekers from 34.5% to 24.5% in wilayahs of the Nord region, 20.5% in the Hauts-Plateaux region and 16.5% in the Sud region. Since 2008, the tax authorities have assimilated the transfer of profits of branches and subsidiaries of multinational corporations as dividend payments, thereby making them subject to a tax rate of 15%. The authorities have also introduced a specific 20% capital-gains tax on the transfer of assets or company shares by non-residents.

The tax administration designs fiscal policies, which are promulgated by the finance ministry once they have been adopted by the parliament. The modernisation and simplification of the tax system led to the introduction of VAT, IBS and IRG, which has resulted in fewer taxes and a lower tax burden. In 2006, fiscal registration through a tax identification number (NIF) was made compulsory. This made it possible to identify taxpayers and their non-moveable assets, track transactions and the transfer of funds from overseas to Algeria and vice versa, and to monitor taxpayers over space and time. This new instrument enables external-trade operators to carry out operations through a one-stop customs facility. In 2006, to increase effectiveness, three departments were set up: the DGE (Direction des grandes entreprises) for large corporations, the CDI (Centre des impôts) for SMEs, and the CPI (Centre de proximité des impôts) for private individuals. Regional and wilayah centres throughout Algeria are empowered to charge taxes, issue rulings on local disputes, and pay out VAT and IBS reimbursements.

The tax authorities, which were organised by tax category, have opted for a system based on missions (assessments, inspection and disputes) designed to be multipurpose and decentralise management. The tax authorities remain undermanaged, however, especially locally, and the general level of wages of civil servants is generally considered too low. Companies do not manage their VAT well and few companies keep evidentiary analytical accounts. Experts were brought in to set up an online tax-filing system for the DGE. This system will eventually be extended to taxpayers in order to improve compliance with tax obligations.

Tax collection is much lower than it should be because of the poor management of the tax authorities, especially at the local level, and the tax evasion resulting from the almost complete lack of invoicing of commercial transactions, especially in the informal economy. Another factor limiting tax revenue is the absence of management of wholesale markets and the freedom granted to operators, especially in the agricultural sector, to sell large quantities of goods outside these markets. The informal economy, which is estimated to account for more than 35% of economic activity, and self-employed workers, most of whom pay a fixed tax, are also significant factors underpinning the low tax revenue. Despite attempts by the authorities to formalise these two categories, they are reluctant to make their accounts transparent, blaming high taxes, harassment from tax agents and the high cost of formalisation.

Nevertheless, the tax base is growing, and thanks to the improved business climate, the number of taxpayers has increased. Administrative rigidities, however, penalise new investors and the formalisation of informal activities. In Paying Taxes 2010, a study carried out by PricewaterhouseCoopers in cooperation with the World Bank, Algeria was ranked 168th out of 183 countries. According to the study, the low tax burden in the country is not necessarily generating higher economic activity, since the overall fiscal system is disorganised. Nevertheless, measures such as the single fixed tax, the improvement of interest rates, exemptions and the payment of a proportion of employers' contributions by the state has enabled more SMEs to be set up and many companies from the informal economy to come "out of the woods". By obliging foreign trade operators to have an NIF, the authorities have been able to clean up the sector and eliminate more than one-third of fictitious or informal importers.

Because of the volume of imports, the external sector is frequently subject to attempted corruption, tax fraud and capital flight, often related to false declartaions of quantities of imports and the prices of transfers. The authorities therefore decided to impose the almost systematic use of a letter of credit as the only way to pay for imports starting in 2010, and to call in international firms specialising in pre-shipment inspections in order to improve monitoring of transactions, ensure more accurate declarations of the quality and quantity of goods declared, confirm the origin of products, put an end to false declarations of customs value, and combat counterfeit goods. The mining and quarrying industries are subject to the general scheme of the profits tax. Only the oil industry is subject to a specific tax scheme, on the initiative of the national authorities alone.

Elections for the partial renewal of the member of the Conseil de la Nation (the Senate) were held at the end of December 2009. Out of the 48 seats due for new election, 45 were won by the "Presidential Alliance". A so-called "semi-universal weekend" (Friday and Saturday, instead of Thursday and Friday) was also introduced in 2009. Aimed at responding to concerns over the efficiency and ability to react of domestic and foreign entrepreneurs, this measure should enable the country to increase trade with other countries by more than USD 1 billion. Security in Algeria has improved considerably, and the provisions in the peace and reconciliation charter continue to be deployed, but the state of emergency remains in effect.

Algeria has made significant progress in improving its social indicators and is on track to reach the Millennium Development Goals (MDGs). Generally speaking, access to basic education is improving: in 2008, the gross enrolment rate for compulsory education had reached 97.4% for 6 year-olds and 95.28% for 6-to-15 year-olds. According to the latest United Nations Development Programme (UNDP) figures, Algeria had a combined gross enrolment rate of 73.6% and was ranked 89th out of 182 countries. Enrolment in secondary schools is higher among girls than boys. This is because among boys there is a higher drop-out rate at primary school (10.3% in 2008) and a repetition rate of 14.4%. In higher education, the gross enrolment rate among girls (25.3%) was also higher than boys (24.4%) in 2008. The literacy rate for adults over the age of 15 improved in 2009 to 75.4%, from 70% in 2008. The sector acquired 361 new primary schools, 402 new middle schools and 137 new high schools in 2009.

In addition to the opening of three selective postgraduate schools (grandes écoles) and preparatory classes for the grandes écoles in 2009, the authorities plan to create an Institut algérien des mines in the southern city of Tamanrasset to train mining engineers and technicians. A Conseil consultatif de la communauté algérienne à l'étranger was also set up in 2009 to encourage the Algerian diaspora to contribute to the country's development. The Research Institute on Sustainable Human Development as part of the United Nations University (UNU-IRADDA) was also set up in Algeria in 2009.

The number of healthcare staff increased in 2009. There is now 1 general practitioner per 1 457 inhabitants, 1 specialist per 2 052 inhabitants, 1 pharmacist per 4 492 inhabitants, 1 dental surgeon per 3 241 inhabitants, and 1 paramedic per 370 inhabitants. The hospital infrastructure consists of 7 304 healthcare centres and 2 beds per 100 inhabitants. During the 2005-09 5-year plan, 778 new healthcare centres were opened, including 112 hospitals with between 60 and 240 beds each, 303 polyclinics and 80 treatment rooms. For the 2009/­10 academic year there were nearly 10 000 additional places for paramedical training, and a healthcare management college, the École nationale de management et de l'administration de la santé, was set up to improve the management of healthcare centres and the maintenance of infrastructure and facilities, and to ensure good governance of the healthcare system. The Chifa smartcard introduced in 2008 continued to have good take-up in 2009 and will eventually be extended to everyone covered by public health insurance. The personalised card makes it possible to identify those covered by public health insurance, and their conditions and medical profiles to be accessed. Card holders can also obtain a quicker reimbursement of healthcare costs. The card facilitates better control of the name of medical products throughout the country and should encourage the use of generic drugs.

During the next five-year plan, the authorities are determined to promote greater hospital hygiene, reduced hospital waste and nosocomial infection, increased intake of women in labour into public maternity hospitals, a greater number of local and emergency healthcare centres, and the development of higher levels of care and ancillary services. The prevalence of HIV/AIDS remains low, and patients are provided with antiretroviral therapy. These efforts will be necessary to improve Algeria's Human Development Index, which according to the latest UNDP report placed Algeria 104th out of 182 countries. These efforts will also help to reduce maternal mortality, which despite falling slightly thanks to an increase in assisted births, remains high (92.6 deaths per 100 000 live births in 2006), and will enable the country to achieve all the MDGs by 2015.

The most recent UNDP Human Poverty Index (HPI­1) ranked Algeria 71st out of 135 countries, with an index of 17.5%. In this area too, efforts are needed to reduce the proportion of people dying before the age of 40 to below 6.4%, reduce illiteracy among those aged 15 and more (24.6%), provide access to improved water to 95% of the population and reduce the prevalence of underweight children under five to below 4%.

Unemployment remains high, at 10.2% (more than 25% among adults under 30), but employability conditions, coupled with the policy of promoting business start-ups, are tending to improve. LFC 2009 also sets out a number of tax, banking and institutional incentives intended to promote activities for job and income generation, particularly for young people.