Market Research Logo

Algeria and Libya Country Risk Report 2016

Algeria and Libya Country Risk Report 2016

Core Views

Although Algeria is now turning to austerity, the country's remainingfiscal buffers will help to delay a more dramatic fiscal and economicadjustment. However, the next few years will see subdued growthand rising macroeconomic challenges. We forecast real growth toslow to 1.9% this year, down from an annualised 3.3% between2010 and 2014.

The Algerian dinar will continue to gradually weaken against the USdollar throughout 2016, albeit at a slower pace. Oil prices are notset for a quick recovery, and the trade fundamentals of Algeria'seconomy remain bleak – factors that will weigh on the currency.However, the government will be reluctant to permit too great a slideof the dinar as pressures on households rise.

While lower oil prices will put further pressure on the Algerian regimeover the coming years, we do not expect a return to the unrest ofthe late 1980s. The ruling elite will remain successfully in control forthe time being, despite the sclerotic state of the economy.

President Abdelaziz Bouteflika's fragile state of health will intensify theregime's internal divisions, with rival factions competing against eachother in the battle for succession. This will nurture policy paralysisand weaken Algeria's already-limited pace of political and economicreform. However, whoever ultimately emerges as the next presidentis highly unlikely to change the structure of the regime or improvethe system of governance.

Although the Algerian government has called for more foreign investmentinto the country, we expect foreign direct investment inflowsto remain sparse in the years ahead. Foreign investors will remaindeterred by numerous restrictions and Algeria's weak businessclimate, and we do not anticipate any comprehensive liberalisationof the economy.

Core Views

As a result of ongoing political violence, a significant degree of productivecapacity (both physical and human) throughout the Libyaneconomy has been lost. Roads, housing and utilities infrastructurehave suffered considerable damage and will take years to repairunder even the most stable of political environments. Moreover,given the importance of the hydrocarbons industry, damage to oilproduction and refining infrastructure will pose significant long-termchallenges.

Libya's political and security climate will remain volatile through2016, as competing militias compete for control over the country'svast resource wealth.

A lack of institutional capacity will hamper reconstruction efforts.

Libya lacks the institutions necessary to carry out much-neededinvestment projects.

Low oil prices, coupled with protracted political instability, will resultin minimal new investment in the oil sector over the coming years.

The economy's growth potential will depend on three key variables:the speed and scale of oil production; the state of the underlying securityenvironment; and the state of the utilities sector – in particular,the provision of a stable supply of electricity. Rapid growth rates in2016 result from base effects, and mask key structural weaknessesin the country.


BMI Index
BMI Risk Index – Algeria
BMI Risk Index – Libya
BMI Index League Tables
Executive Summary – Algeria
Core Views
Key Risks
Chapter 1.1: Economic Outlook – Algeria
SWOT Analysis
Economic Growth Outlook
Austerity, Within Limits
Although Algeria is now turning to austerity, the country's remaining fiscal buffers will help to delay a more dramatic fiscal and economic
adjustment. However, the next few years will see subdued growth and rising macroeconomic challenges. We forecast real growth to
slow to 1.9% this year, down from an annualised 3.3% between 2010 and 2014.
GDP By Expenditure Outlook
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
TABLE: OBSTACLES TO FOREIGN INVESTMENT
Investment Climate
A New Liberalisation Drive?
The Algerian government's efforts to attract greater foreign direct investment and lift the constraints on the private sector will lead to only
modest change in the years ahead, while attempts at privatisation will encounter several challenges.
Chapter 1.2: 10-Year Forecast – Algeria
The Algerian Economy To 2025
Business Environment Reforms Crucial For Long-Term Growth
Achieving Algeria's long-term economic potential is far from certain, given Algiers' position on foreign investment and the country's
vulnerability to low energy prices. While a growing, young population could significantly bolster growth, limited employment opportunities
could pose a considerable threat to Algeria's long-term outlook.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 1.3: Political Outlook – Algeria
SWOT Analysis
Domestic Politics
Constitutional Reform A Sideshow Compared To Oil Pressures
The constitutional reform package unveiled in Algeria on January 5 represents the regime's most significant political concessions in
years, but is already largely overshadowed by the renewed collapse in global energy prices. Popular discontent towards the regime, and
risks to Algeria's stability, will increase steadily over the remainder of the current decade.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Stagnation Or Upheaval: Government's Unpalatable Choice
Algeria's political stability faces challenges from Islamic radicalism, high unemployment and an unclear leadership future. While we
believe that economic reform is vital for future growth, the political consequences are unclear.
Chapter 1.4: Operational Risk – Algeria
SWOT Analysis
Executive Summary – Libya
Core Views
Key Risks
Chapter 2.1: Economic Outlook – Libya
SWOT Analysis
Economic Growth Outlook
Dire Outlook For Economy Over Coming Years
In line with the country's political turmoil, Libya's economy will remain in dire straits over the coming years with any recovery likely to be
slow and painful.
GDP By Expenditure Outlook
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal Policy And Public Debt Outlook
Huge Deficits Ahead As Reliance On Reserves Continues
Libya's fiscal position is precarious and the rival governments in Tripoli and Tobruk will remain reliant on international reserves.
Spending by both governments will have to be drastically reduced, but we still forecast fiscal deficits to continue until 2020.
TABLE: FISCAL POLICY
Chapter 2.2: 10-Year Forecast – Libya
The Libyan Economy To 2025
Protracted Crisis As Political Instability Is Elevated
Rapid real GDP growth rates in Libya over the coming decade will mask key structural weaknesses in the economy. The expansion will
remain highly dependent on the energy sector; however, elevated political instability will result in volatility in output.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 2.3: Political Outlook – Libya
SWOT Analysis
Domestic Politics
One Step Forward, Two Steps Back For Peace Deal
The rejection of the UN-sponsored peace agreement by the Tobruk government is a setback for ending Libya's civil war but does not
derail the process completely.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Fragile Federalised State To Emerge
We expect a fragile federalised state to emerge in Libya over the coming decade, following a potentially bloody transition. The country
will face multiple challenges to fundamental stability, and risks of a de-facto partition of the state are elevated.
TABLE: KEY UPSTREAM OPERATORS
Chapter 2.4: Operational Risk – Libya
SWOT Analysis
Chapter 3: BMI Global Macro Outlook
Global Macro Outlook
Downside Risks Gather Momentum
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: ALGERIA – MACROECONOMIC DATA & FORECASTS
TABLE: LIBYA – MACROECONOMIC DATA & FORECASTS

Download our eBook: How to Succeed Using Market Research

Learn how to effectively navigate the market research process to help guide your organization on the journey to success.

Download eBook

Share this report