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Algeria and Libya Country Risk Report 2016

  • February 2016
  • -
  • Business Monitor International
  • -
  • 53 pages

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 ViewsAs 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.

Table Of Contents

Algeria and Libya Country Risk Report 2016
BMI Index 6
BMI Risk Index - Algeria6
BMI Risk Index - Libya7
BMI Index League Tables 9
Executive Summary - Algeria 11
Core Views11
Key Risks11
Chapter 11: Economic Outlook - Algeria 13
SWOT Analysis 13
Economic Growth Outlook 14
Austerity, Within Limits14
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 19% this year, down from an annualised 33% between 2010 and 2014
GDP By Expenditure Outlook 16
TABLE: GOVERNMENT CONSUMPTION FORECASTS16
TABLE: PRIVATE CONSUMPTION FORECASTS16
TABLE: FIXED INVESTMENT FORECASTS17
TABLE: NET EXPORTS FORECASTS17
TABLE: OBSTACLES TO FOREIGN INVESTMENT18
Investment Climate 18
A New Liberalisation Drive?18
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 12: 10-Year Forecast - Algeria 21
The Algerian Economy To 2025 21
Business Environment Reforms Crucial For Long-Term Growth21
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 21
Chapter 13: Political Outlook - Algeria 23
SWOT Analysis 23
Domestic Politics 24
Constitutional Reform A Sideshow Compared To Oil Pressures24
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 24
Long-Term Political Outlook 26
Stagnation Or Upheaval: Government's Unpalatable Choice26
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 14: Operational Risk - Algeria 29
SWOT Analysis 29
Executive Summary - Libya 31
Core Views31
Key Risks31
Chapter 21: Economic Outlook - Libya 33
SWOT Analysis 33
Economic Growth Outlook 34
Dire Outlook For Economy Over Coming Years34
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 35
TABLE: PRIVATE CONSUMPTION FORECASTS 35
TABLE: GOVERNMENT CONSUMPTION FORECASTS 35
TABLE: FIXED INVESTMENT FORECASTS 36
TABLE: NET EXPORTS FORECASTS 36
Fiscal Policy And Public Debt Outlook 37
Huge Deficits Ahead As Reliance On Reserves Continues37
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 37
Chapter 22: 10-Year Forecast - Libya 39
The Libyan Economy To 2025 39
Protracted Crisis As Political Instability Is Elevated39
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 39
Chapter 23: Political Outlook - Libya 41
SWOT Analysis 41
Domestic Politics 42
One Step Forward, Two Steps Back For Peace Deal42
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 42
Long-Term Political Outlook 43
Fragile Federalised State To Emerge43
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 43
Chapter 24: Operational Risk - Libya 47
SWOT Analysis 47
Chapter 3: BMI Global Macro Outlook 49
Global Macro Outlook 49
Downside Risks Gather Momentum49
TABLE: GLOBAL ASSUMPTIONS 49
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 50
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 50
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 51
TABLE: ALGERIA - MACROECONOMIC DATA and FORECASTS 53
TABLE: LIBYA - MACROECONOMIC DATA and FORECASTS 53

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