The Algerian government announced a new five-year investment programme last week, and is aiming to spend $262 billion between 2015-2019 in an effort to diversify its economy. As of yet, says Emirates NBD, there are few details on which projects will be included in the new investment plan, or which sectors Algiers intends to target.
The two previous five-year spending programs were valued at $286bn (2010-2014) and $200bn (2004-2009) respectively, with the latter focusing on the construction of a motorway, water desalination plants, and state-subsidized housing, according to Reuters. This announcement reflects a continuation of the government’s strategy of bolstering non-oil growth through heavy state spending, with the 2015 draft budget seeing government expenditure increase 16 per cent next year.
As a result of persistent underinvestment in the hydrocarbon industry however, export receipts from oil sales have been on a steadily declining path in recent years, resulting in smaller fiscal and current account surpluses. According to our data, oil export receipts have contracted in year-on-year terms in each of the last eight quarters, which has pushed the trade balance into a rare deficit in the first quarter of 2014. Although Algeria’s massive stock of FX reserves ($193bn as of June 2014) will help cushion against any prolonged fall in hydrocarbon receipts, authorities appear to have recognized the urgency of bolstering both non-oil export revenues, and domestic hydrocarbon production.
In late July, the state energy firm Sonatrach announced it had approved an $100bn investment plan to run between 2014-2018 which is aimed at boosting oil and gas output. Perhaps most encouragingly, the plan also appears to lay the foundation for foreign investment into Algeria’s unconventional shale gas reserves, which are estimated to be amongst the largest in the world. According to the Minister of Energy and Mines, such untapped hydrocarbon resources could amount to six times the present level of reserves, while the EIA has previously stated the country could have the third largest pool of technically recoverable shale gas in the entire world. Successfully exploiting these reserves would not only be a game-changer for Algeria’s hydrocarbon industry, but would also have significant implications for global energy markets.
A significant amount of foreign investment will be required to fully exploit these resources. However it remains unclear if Algiers has yet done enough to attract sufficient interest from international oil companies. Indeed, on August 28 it was announced that the bidding round for exploration blocks had been delayed a third time to late September.