Market Research Logo

Algeria and Libya Country Risk Report Q1 2016

Algeria and Libya Country Risk Report Q1 2016

Core Views

Algeria's economic growth will slow markedly over 2016. Under the pressure of lower oil prices, the government will adopt a greater shift towards spending cuts and protectionism. These trends will weigh on investment and consumption over the coming quarters, and we forecast the economy to grow by only 1.9% in real terms - the weakest rate since 2009.

The Algerian dinar will continue to gradually weaken against the US dollar throughout 2016, albeit at a slower pace. Oil prices are not set for a quick recovery, and the trade fundamentals of Algeria's economy remain bleak – factors that will weigh on the currency.

However, the government will be reluctant to permit too great a slide of the dinar as pressures on households rise.

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

Algerian President Abdelaziz Bouteflika's fragile state of health will intensify the regime's internal divisions, with rival factions competing against each other in the battle for succession. This will nurture policy paralysis and weaken Algeria's already-limited pace of political and economic reform. However, whoever ultimately emerges as the next president is highly unlikely to change the structure of the regime or improve the system of governance.

Although the Algerian government has called for more foreign investment into the country, we expect FDI inflows to remain sparse in the years ahead. Foreign investors will remain deterred by numerous restrictions and Algeria's weak business climate, and we do not anticipate any comprehensive liberalisation of the economy.

Algeria is set to move into an even more protectionist direction in response to the fall in international oil prices. However, renewed steps to limit imports and strengthen the domestic production base will have highly limited success

Core Views As a result of ongoing political violence, a significant degree of productive capacity (both physical and human) throughout the Libyan economy has been lost. Road, housing and utility infrastructure have suffered considerable damage and will take years to repair under even the most stable of political environments. Moreover, given the importance of the hydrocarbon industry, damage to oil production and refining infrastructure will pose significant long-term challenges. Libya's political and security climate will remain volatile through 2016, as competing militias compete for control over the country's vast resource wealth. A lack of institutional capacity will hamper reconstruction efforts. Libya lacks the institutions necessary to carry out much-needed investment projects. Low oil prices, coupled with protracted political instability, will result in 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 security environment; and the state of the utilities sector – in particular, the provision of a stable supply of electricity. Rapid growth rates in 2016 result from base effects, and mask key structural weaknesses in the country.


Executive Summary
- Algeria
Core Views
Key Risks
Chapter 1.1: Political Outlook - Algeria
SWOT Analysis
Domestic Politics
Intelligence Chief's Fall Will Not Reshape Regime
TABLE: POLITICAL OVERVIEW
TABLE: POSSIBLE PRESIDENTIAL CONTENDERS
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.
Chapter 1.2: Economic Outlook - Algeria
SWOT Analysis
Economic Growth Outlook
Slowdown To Deepen In 2016
Algeria's economic growth will slow markedly over 2016.
TABLE: ECONOMIC ACTIVITY
GDP By Expenditure Outlook
TABLE: COMPONENTS OF GDP (% OF TOTAL)
TABLE: GOVERNMENT CONSUMPTION
TABLE: PRIVATE CONSUMPTION
TABLE: FIXED INVESTMENT
TABLE: NET EXPORTS
Fiscal Policy And Public Debt Outlook
2016 Budget: Protectionism And Tighter Fiscal Stance
Algeria's draft 2016 budget signals a shift to both protectionism and a tighter fiscal stance, with investment spending set to be
particularly affected.
TABLE: FISCAL POLICY
Currency Forecast
DZD: More Weakness Ahead As Fundamentals Stay Poor
The Algerian dinar will continue to gradually weaken against the US dollar throughout 2016, albeit at a slower pace.
TABLE: EXCHANGE RATE
TABLE: BMI CURRENCY FORECAST
Chapter 1.3: 10 Year Forecast - Algeria
The Algerian Economy To 2024
BE Reforms Crucial For Long-Term Growth
Achieving Algeria's long-term economic potential is far from certain, given Algiers' position towards foreign investment and the country's
vulnerability to low energy prices.
TABLE: LONG-TERM MACROECONOMIC FORECAST
Chapter 1.4: Operational Risk - Algeria
SWOT Analysis
Executive Summary - Libya
Core Views
Key Risks
Chapter 2.1: Political Outlook - Libya
SWOT Analysis
Political Outlook
Tentative Steps To Agreement, But End To Instability Remains Distant
The Libyan civil war will continue in the coming months given divisions between the Tripoli- and Tobruk-based regimes over a unity
government.
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.
Chapter 2.2: Economic Outlook - Libya
SWOT Analysis
Economic Growth Outlook
Economy To Remain Devastated By War
In line with the country's political turmoil, Libya's economy will remain in dire straits in coming years with recovery likely to be slow and
painful.
GDP By Expenditure Outlook
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT
TABLE: NET EXPORTS
TABLE: GOVERNMENT CONSUMPTION
Fiscal Policy And Public Debt Outlook
Huge Spending Cuts Coming
Libya's fiscal position is precarious and the rival governments in both Tripoli and Tobruk will remain reliant on international reserves. We
expect significant subsidy reform in the coming months, as well as a massive cutback in capital expenditures.
TABLE: FISCAL POLICY
Islamic Finance
Islamic Banking - Slowdown In Place
Islamic banking is set for continued growth over the coming five years as new markets begin to tap demand for shari'a-compliant
offerings.
Chapter 2.3: 10 Year Forecast - Libya
The Libyan Economy To 2024
Protracted Crisis As Political Instability Is Elevated
Relatively rapid real GDP growth rates in Libya over the coming decade will mask key structural weaknesses in the economy.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 2.4: Operational Risk - Libya
SWOT Analysis
Chapter 3: BMI Global Macro Outlook
Global Outlook
Exit The Dragon
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %

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