=

Algeria
SEB MERCHANT BANKI NG – COUNTRY RI SK ANALYSI S September, 15 2008

important your attention is drawn to the statement on the back cover of this report which affects your rights.
Analyst: Jenny Nordgren. Tel : +46 8 763 96 05. E-mail : jenny.nordgren@seb.se

Rising hydrocarbon prices have contributed to significant surpluses in both the current account and
fiscal balance resulting in a large build-up of international reserves. The security situation, by
contrast, is still fragile and uncertainty remains about upcoming presidential elections.
Country Risk Analysis
päáÖÜí=éáÅâJìé=áå=ÖêçïíÜK=GDI grovll rebounded Iasl year lo 3.1 ° in 2007 from 2
° lle previous year according lo officiaI figures. Tle picI-up vas due lo a sIigll
increase in lydrocarbon produclion llal suffered from infraslruclure mainlenance
and upgrading as veII as deIayed projecls in 2006. In addilion, lle governmenl's
subslanliaI economic grovll supporl program for 2005-09 boosled aclivily in
conslruclion and infraslruclure. Ior a Iong lime, infIalion las remained modesl in
parl due lo food and fueI subsidies, bul in mid-2007 slarpIy rising food prices and
expansionary fiscaI poIicies, incIuding Iarge capilaI spending and pubIic seclor vage
rises, pusled up lle infIalion rale lo 5-6 ° cIearIy above lle 3 ° infIalion objeclive.
In response, lle cenlraI banI las ligllened monelary poIicy by raising inleresl rales
and increasing reserve requiremenls.

oÉÅçêÇJÜáÖÜ=çáä=éêáÅÉë=ëìééçêí=íÜÉ=Ä~ä~åÅÉ=
çÑ=é~óãÉåí=éçëáíáçåK=Rising oiI and gas
prices since 2002 and a sleady infIov of
remillances from AIgerians vorIing in
Lurope lave conlribuled lo a significanl
surpIus of lle currenl accounl baIance of
more llan 20 ° of GDI in 2007. In lle evenl,
foreign exclange reserves surpassed USD
100 biIIion in 2007 and nov covers around 3
years of imporl. Moreover, funds from lle
lydrocarbon slabiIizalion fund lave been
used lo prepay exlernaI debl reducing il from around 58 ° of GDI in 1999 lo
rouglIy 4 ° in 2007.
External position
0
20
40
60
80
100
120
140
160
2003 2004 2005 2006 2007 2008
15
20
25
30
35
40
International reserves (USD bn), lhs
Import coverage (months), rhs
=
eáÖÜäó=çáäJÇÉéÉåÇÉåí=ÉÅçåçãóK==Tle lydrocarbon seclor sliII dominales lle
economy accounling for aImosl 50 ° of GDI, 98 ° of exporls of goods and around
80 ° of fiscaI revenues maIing lle economy vuInerabIe lo oiI price fIuclualions. Tle
oiI and gas seclors are IiIeIy lo conlinue lo dominale lle economy in viev of lle
governmenl's pIans lo boosl oiI produclion from currenl 1.3 miIIion barreIs per day
(mbpd) lo 1.6 mbpd (revised dovn from 2mbpd) in 2010 and lo increase gas exporl
lo 85 biIIion cubic melers per year (cmy) from 62 biIIion cmy by 2010. AIgeria exporls
mosl of ils gas lo Lurope via pipeIine providing around 20 ° of Lurope's gas
consumplion and maIing il slralegicaIIy imporlanl lo lle LU. Since 2005, lovever,
efforls lo diversify lle economy lave inlensified vill lle Iauncl of lle Grovll
SEB Merchant Banking Country Risk Analysis September 2008

2
ConsoIidalion Irogram (2005-2009) vlicl aims al improving infraslruclure, lousing
and deIivery services as veII as generaling empIoymenl. Tle Iarge scope of lle
pubIic inveslmenl program - USD 150 biIIion over lle five-year period ÷ las
neverlleIess raised some concerns vill lle IMI aboul expendilure quaIily and lle
efficiency and lle risI of reaI exclange rale apprecialion llal polenliaIIy couId
undermine compeliliveness on lle non-lydrocarbon lradabIe seclor.
=
cê~ÖáäÉ=ëÉÅìêáíó=ëáíì~íáçåK Tle securily silualion las graduaIIy improved since lle
civiI var during lle 1990s. Hovever, lle securily silualion remains fragiIe as
refIecled in recenl lerrorisl allacIs by lle AI-Oaeda IinIed group AOIM (aI-Oaeda in
lle IsIamic Maglreb), incIuding lle mid-December bombing of lle UN leadquarlers
in AIgiers and severaI bombings during lle summer. IresidenliaI eIeclions viII be
leId in ApriI 2009 and Iresidenl BoulefIiIa (aged 71) is videIy expecled lo seeI a
conslilulionaI amendmenl in lle coming monlls lo aIIov lim run for a llird lerm in
office. Hovever, lle recenl bombings lave provoIed crilicism of BoulefIiIa's
amnesly offered lo miIilanls in 2006 and llere is a risI llal any increase in vioIence
viII be used lo undermine lis posilion llereby increasing uncerlainly aboul lle
presidenliaI succession.
--˘--

oáëáåÖ=ÜóÇêçÅ~êÄçå=éêáÅÉë=Ü~îÉ=ÅçåíêáÄìíÉÇ=íç=îÉêó=ÜáÖÜ=ëìêéäìëÉë=áå=ÄçíÜ=íÜÉ=ÑáëÅ~ä=
~åÇ=ÅìêêÉåí=~ÅÅçìåí=Ä~ä~åÅÉëK=qÜÉ=ÄìáäÇJìé=çÑ=áåíÉêå~íáçå~ä=êÉëÉêîÉë=íç=íÜÉ=
Éèìáî~äÉåí=çÑ=P=óÉ~êë=áãéçêí=ÅçîÉê=Ü~ë=éêçîáÇÉÇ=íÜÉ=ÜáÖÜäó=çáä=éêáÅÉ=ëÉåëáíáîÉ=
ÉÅçåçãó=ïáíÜ=~=ëáòÉ~ÄäÉ=ÅìëÜáçå=áå=Å~ëÉ=çÑ=~=ëÜ~êé=çáä=éêáÅÉ=Ñ~ääK=eçïÉîÉêI=ãÉÇáìãJ
íÉêã=ÅÜ~ääÉåÖÉë=êÉã~áåI=áåÅäìÇáåÖ=ÇáîÉêëáÑóáåÖ=íÜÉ=ÉÅçåçãó=~åÇ=ÄêáåÖáåÖ=Ççïå=îÉêó=
ÜáÖÜ=ìåÉãéäçóãÉåí=~ãçåÖ=óçìåÖ=éÉçéäÉ=áå=é~êíáÅìä~êK=aÉëéáíÉ=áãéêçîÉÇ=ëÉÅìêáíó=
Åçãé~êÉÇ=ïáíÜ=íÜÉ=íáãÉ=çÑ=íÜÉ=Åáîáä=ï~ê=áå=íÜÉ=NVVMëI=íÜÉ=ëÉÅìêáíó=ëáíì~íáçå=êÉã~áåë=
Ñê~ÖáäÉ=~ë=êÉÑäÉÅíÉÇ=áå=êÉÅÉåí=ÄçãÄáåÖë=Äó=íÜÉ=~äJn~ÉÇ~=äáåâÉÇ=íÉêêçê=ÖêçìéëK=^åó=
áåÅêÉ~ëÉ=áå=îáçäÉåÅÉ=êáëâë=ìåÇÉêãáåáåÖ=íÜÉ=ÉñéÉÅíÉÇ=êÉJÉäÉÅíáçå=çÑ=mêÉëáÇÉåí=
_çìíÉÑäáâ~=áå=íÜÉ=^éêáä=OMMV=ÉäÉÅíáçåë=ê~áëáåÖ=ìåÅÉêí~áåíó=~Äçìí=ëìÅÅÉëëáçåK==
=

hÉó=ê~íáçë OMMU
IopuIalion (miII.) 174
GDI/capila ($) 5048
GDI (°clg.) 4.8°
InfIalion 5.6°
Curr.Acc. BaIance/GDI 33°
Reserves/imporls (monlls) 37
Budgel baIance/GDI 13°
Governmenl debl/GDI 15°
dê~éÜW SIovaI Rep's risI profiIe is slronger on Iong
lerm faclors sucl as resiIience, absence of evenl risI
and informalion llan lle average for aII emerging
marIel counlries, bul somevlal veaIer on Iiquidily
and macro baIance.
bñíÉêå~ä=ê~íáåÖëW=
Iilcl: A (RC3)
Moody's: A1 (RC3)
S&I: A (RC3)
mÉÉêëW
TurIey
Morocco
Lgypl
dê~éÜW=AIgeria scores very ligl on Iiquidily and
macroeconomic baIance bul poorIy on resiIience due
lo poIilicaI inslabiIily and Iov income per capila.
Besides, lle securily silualion is sliII fragiIe and
informalion poor veigling on lle raling.
bñíÉêå~ä=ê~íáåÖëW=
Iilcl: n.a.
Moody's: n.a.
S&I: n.a.
0
2
4
6
8
10
12
14
16
Resilience
Liquidity
Information
Absence of event
risk
Macro balance
Average EM Algeria
eçï=íç=êÉ~Ç=íÜÉ=ÅÜ~êí\
Moving oul from lle
cenler reduces risI.






SEB Merchant Banking Country Risk Analysis September 2008

3
Key data: 2003 2004 2005 2006 2007 2008 2009 2010
GDP (mn US$) 68 85 102 116 134 174 174 175
GDP/capita (US$) 2134 2627 3115 3463 3969 5048 4986 4946
GDP (change) 6.9% 5.2% 5.1% 2.0% 3.1% 4.8% 5.0% 4.8%
Investments/GDP 19.7% 20.3% 20.6% 21.5% 22.7% 23.1% 23.4% 23.6%
Budget balance/GDP 6.4% 5.5% 13.7% 13.8% 11.9% 13.3% 9.1% 5.6%
Govt debt/GDP 43.8% 36.6% 27.3% 23.8% 19.0% 15.1% 13.6% 12.3%
CPI inflation (%) 2.6% 3.6% 1.6% 2.5% 3.6% 5.6% 4.6% 4.0%
Money demand (%) 14% 6% 7% 18% 19% 18%
Stock prices (%change)
Interest rates 2.7% 1.7% 1.4% 2.1% 3.1% 3.5% 4.5% 4.5%
Exch. Rate ($) 77.4 72.1 73.3 72.6 69.3 63.6 66.1 68
Trade/GDP (%) 62% 66% 72% 71% 71% 80% 84% 85%
Oil price (Brent) 38 54 65 73 117 113 101 89
Billions US $
Export of goods 26 34 49 57 63 98 100
Imports of goods 16 22 25 26 33 41 47
Other: -1 -1 -3 -2 0 0 0 0
Current account 9 11 21 29 30 57 53 46
as % of GDP 12.9% 13.1% 20.7% 25.1% 22.0% 32.8% 30.3% 26.4%
FDI 0.7 0.6 1.0 1.8 0.9 1.2 1.2 1.1
Loan repayments 0.4 0.4 0.4 0.4 0.4 0.3 0.3 0.3
Net other capital flows 0.3 0.9 -1.0 1.3 4.0 -38.4 -44.2 -42.7
Balance of payments 10 13 22 32 35 20 10
Reserves 33 43 56 78 110 145 165 175
Total debt 23.5 22.2 16.8 5.6 5.6 4.0 4.0 6.5
o/w short term debt 0.1 0.4 0.5 0.5 0.5 0.4 0.4 0.6
Source: OEF (Oxford Economic Forecasting) and SEB estimates
Rating history
Fitch (eoy) n.a n.a n.a n.a n.a
Moody's (eoy) n.a n.a n.a n.a n.a
S&P (eoy) n.a n.a n.a n.a n.a
Type of government: Presidential democracy
Next elections Presidential elections in April 2009
Other:
Latest PC deal Rescheduled debt 1994 and 1995. 2006 agreement to prepay this debt 06-11.
Latest IMF arrangements Extended Fund Facility (EFF) expired in 1998.
mÉíêçäÉìã=åÉí=Éñéçêí
.0
98
52
5
Exchange rates
Source: Reuters EcoWin
02 03 04 05 06 07 08
55
60
65
70
75
80
85
90
95
100
105
EUR/DZD
USD/DZD







SEB Merchant Banking Country Risk Analysis September 2008

4

aáëÅä~áãÉê=

`çåÑáÇÉåíá~äáíó=kçíáÅÉ=

Tle informalion in llis documenl las been compiIed by SLB Merclanl BanIing, a
division villin SIandinavisIa LnsIiIda BanIen AB (pubI) (“SLB¨).

Opinions conlained in llis reporl represenl lle banI's presenl opinion onIy and are
subjecl lo clange villoul nolice. AII informalion conlained in llis reporl las been
compiIed in good faill from sources beIieved lo be reIiabIe. Hovever, no
represenlalion or varranly, expressed or impIied, is made vill respecl lo lle
compIeleness or accuracy of ils conlenls and lle informalion is nol lo be reIied upon
as aullorilalive. Anyone considering laIing aclions based upon lle conlenl of llis
documenl is urged lo base lis or ler inveslmenl decisions upon sucl invesligalions
as le or sle deems necessary. Tlis documenl is being provided as informalion onIy,
and no specific aclions are being soIiciled as a resuIl of il: lo lle exlenl permilled by
Iav, no IiabiIily vlalsoever is accepled for any direcl or consequenliaI Ioss arising
from use of llis documenl or ils conlenls.

SLB is a pubIic company incorporaled in SlocIloIm, Sveden, vill Iimiled IiabiIily. Il
is a parlicipanl al major Nordic and oller Luropean ReguIaled MarIels and
MuIliIaleraI Trading IaciIilies (as veII as some non-Luropean equivaIenl marIels)
for lrading in financiaI inslrumenls, sucl as marIels operaled by NASDAO OMX,
NYSL Luronexl, Iondon SlocI Lxclange, Deulscle B∏rse, Sviss Lxclanges,
Turquoise and Cli-X. SLB is aullorized and reguIaled by IinansinspeIlionen in
Sveden: il is aullorized and subjecl lo Iimiled reguIalion by lle IinanciaI Services
Aullorily for lle conducl of designaled inveslmenl business in lle UK, and is
subjecl lo lle provisions of reIevanl reguIalors in aII oller jurisdiclions vlere SLB
conducls operalions.

SLB Merclanl BanIing. AII riglls reserved.