The Economic & Geopolitical History of Algeria
A country that has been ruled by native Berbers, Phoenicians, Carthaginians, Romans, Vandal Germans, Arabs, Turks, and the French
Algeria, Africa's largest nation, boasts a rich cultural mix of Arabic and Berber/Amazigh heritage. Its economy declined by 10% from 2012 to 2022 due to a drop in oil prices in 2014. The name 'Algeria' originates from the city of Algiers, its capital, which was called 'al-Jazair' by Arab conquerors. With a population of 44 million, Algeria is geographically vast, covering most of Western and Central Continental Europe over the past decade. 91% of Algeria’s population lives on the Mediterranean coast, which is 12% of the nation’s landmass. Mainly Tuareg nomads live in the desert.
Algeria is an emergent upper-middle income country just like Mongolia, Iran, or Indonesia. As of 2023, the average Algerian makes $4960 a year. Below is a chart of Algerian living standards inflation adjusted from 19662-2022. Peak Algerian living standards was in 1986 and 2014, right before oil prices collapsed.
However, $4930 per year, doesn’t truly represent Algerian living standards. Since Algeria is a developing country, goods and services are much cheaper there, so if we adjust for purchasing power, the average Algerian makes closer to $17,000 per year. Subsidies by the state on essentials like food, electricity, and housing ensure basic needs are met. The economy is largely state-owned, with power held by a group known as 'The Power' (le pouvoir) - a mix of military officers, businessmen, and politicians. Even critics of the government concede “No one goes hungry”.
In terms of trade, Algeria imports machines from the EU, food from the EU & South America, medicine from the EU, steel products from China, and etc. In terms of exports, Algeria is a petro-state that exports billions in natural gas, crude oil, but also has refinery capacity to make propane and jet fuel. Over half of Algeria’s exports go to Europe.
European fossil fuel firms like Eni and Total are big investors in Algeria to supply more natural gas to Europe. Additionally, Algeria diversifies its economy by selling chemical products; in 2021, Algeria sold over a billion in nitrogenous fertilizer. This diversity reduces dependency on crude oil prices compared to Nigeria.
Algeria, historically a closed socialist economy reliant on oil exports, began opening up in the mid-80s per IMF mandates, but government-owned enterprises still dominate. With 400 government owned firms spanning various sectors, including Sonatrach in oil & gas.
However, Algeria faces challenges: lackluster agricultural productivity that is below the African continent average. high youth unemployment of nearly 30%, and it has corruption issues as shown with Honeywell caught red handed bribing Algerian officials to win business contracts with Algeria’s government owned oil firm, Sonatrach . Tensions with neighbor Morocco persist, tied to Algeria’s support for the Polisario Front, a group representing independence for the Sahrawi people of Western Sahara, which Morocco argues is land under Moroccan sovereignty.
In terms of resources, Algeria, with a lower population than Nigeria, boasts nearly 4 times the natural gas reserves per capita and 50% more crude oil per person..
In terms of shale gas reserves, Algeria has the third largest on earth with 707 trillion cubic feet.
Before French Algeria
Berbers settled Algeria around 1000 BC. Phoenicians from modern-day Lebanon arrived in the 9th Century BC. Around 600 BC, Algeria was part of Carthage, the enemy of the Roman Empire. By 146 BC, Rome destroys Carthage, leading to the emergence the Roman, Berber Kingdoms of Numidia and Mauretania.
In the 5th century, Vandals, a Germanic people, invaded and occupied the land from, 429 to 534 AD, followed by Byzantines until 697 AD.
By the 7th century, Arabs invaded, giving rise to Arab-Berber culture. Algeria was subsequently ruled by various Arab-Berber kingdoms, both foreign (like the Zirids, Almoravids, and Almohads from Morocco) and local (like the Hammadids). In the 13th century, Algeria became its own Kingdom in the Zayyanid Kingdom of Tlemcen.
![The kingdom of Tlemcen at the beginning of the 14th century.[2]](https://substackcdn.com/image/fetch/$s_!uyzl!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F7013157f-dcb2-4997-8ee2-242488c97295_1024x895.png "The kingdom of Tlemcen at the beginning of the 14th century.[2]")
In the 16th century, the Ottoman Turks took control.
The Turks established the Dey or Regency of Algiers, a semi-autonomous Turkish province run by pirates. Pirates captured European boats, took their treasure, and enslaved 1M Europeans over the centuries. However, Europeans could win their freedom by converting to Islam. The pirates of Turkish Algiers started to annoy France, so France decided to end Algeria piracy by annexing Turkish Algeria.
French Annexation of Turkish Algeria (1830-1962)
In 1830, France took Algeria from Ottoman Turkey, treating it as an extension of France rather than a colony. During 132 years of French rule, Europeans settled, known as 'pieds-noirs.' The whites were called “pieds-noirs (pyeh-nwahr) or “black feet” because Europeans wore shoes and the Arab-Berbers didn’t at the time. France aimed to demographically replace the Arab-Berber population (never happened). The French confiscated Algerian land, banned Arabic in schools, taxed Algerians at higher rates and denied Algerians political power. French-Muslims were second-class citizens, creating an apartheid-like state. Entire Muslim populations were deported into the desert to make way for European plantations and settlements in the cities of Algiers, Constantine , and Oran. 33% of Algeria became European who lived in villas, while the 66% of Arab & Kabyle Algerians were poor, illiterate, unemployed, and lived in slums.
Over 500K Algerians worked in France proper for menial labor.
Algerians could only be true French citizens if they renounced Islam, which few did. Algerian Jews, however, were granted French citizenship. France aimed to assimilate Muslims, but it had the opposite effect, as Algerians saw Islam and French culture as incompatible.
After WW1, some restrictions loosened, but most Algerians still lacked voting rights. In WW2, attempts to grant citizenship came too late, as Algerians rejected discrimination.
Additionally, French Petroleum Company (today part of French oil giant, Total) discovered enormous oil & gas in Algeria in the 1950 in the Hassi-Messaoud sands in the Sahara.
Algerian War (1955-1962)
Algeria was governed different than France’s other African territories. Algeria was considered to be part of the French nation-state. Morocco and Tunisia were “protectorates” that were still somewhat ruled by their Kings. Sub-Saharan Africa were just places of forced labor.
Algerians, under the nationalist groups - National Liberation Front (FLN) & National Algerian Movement (MNA) fought for independence against French rule with funding & logistical support of Nasser of Egypt, King Mohammed of Morocco, & Bourguiba of Tunisia. France did not want to relinquish Algeria. First off, Algeria considered to be part of France, and second off - oil.
This war, the Indochina war (Vietnam, Laos & Cambodia), and the Suez Crisis was destroying France’s national prestige. Considering Vietnam has been taken over by communists and the Soviets were allied with Egypt, France propagandized this war as a way to contain Soviet influence instead of imperialism.
The conflict led to 25K French soldiers and 1M Algerians died (Algeria’s population in 1960 was around 11M). This war shaped France's approach to retaining influence in Sub-Saharan Africa, which didn’t achieve independence until 1958-1960. Half a million French settlers in Algeria escaped to France. In 1962, an independence referendum was held, 99.7% voted independence.
Independent Algeria, pre-Civil War (1962-1992)
Ahmed Ben Bella (1962-1965)
Bella was the first President of Algeria after the nation gained independence from France. He played a crucial role in the Algerian War of Independence, and he was a WW2 veteran for the French Army. At independence, only 10% of Algerians were literate. He almost immediately made his country a one-party socialist state and adopted wide free education, redistributed land to 600K Algerian peasants. mass literacy, education, redistributed wealth, and health programs to crush diseases like Tuberculosis, trachoma, and other diseases that plagued the native Algerians during the French era. All of this was done using Algeria’s momentous amounts of oil & gas revenue and hundreds of millions of dollars in French aid.
He also used oil revenue to try to industrialize quickly, but this wasn’t as successful. He put tariffs to keep away foreign competition and put numerous price controls to make goods affordable for people. State owned firms received loans from government owned banks.
Morocco-Algeria War:
Almost a year into Bella’s administration, Morocco declared war on Algeria. Morocco wanted to annex Western Algeria, specifically the Tindouf and Bechar provinces used to be part of Morocco during the Moroccan Almoravid & Almohad Empires. In addition, both those provinces had large deposits of oil, iron and manganese. Morocco received weapons from France, and Algeria received weapons from Egypt, Soviet Union, & Cuba.
This war is the start of hatred between the two states. By 1965, Bella was deposed in a coup.
Houari Boumediene(1965-1978)
Post coup
Nationalization & Indigenization: Boumediene, post-coup, pursued socialist policies, nationalizing industries following the Soviet model. He established the state-owned firm Sonatrach, acquiring European assets. He created government-owned corporations, especially in oil, gas, heavy industry, and refining. In the 1970s, he also increased participation of Algerians in the energy sector by gradually making the Europeans transfer knowledge and technical skills to the native Algerian workforce. By the time the Europeans left, Algerian had the technical, managerial, and administrative positions.
However, the 2nd order effects of this policy was scaring away foreign direct investment. Post 1974 to 1995, foreign direct investment decreased from nearly 3% of GDP to 0%.
Land Reform: Boumediene did launched a massive land reform program of breaking up privately owned farms and redistributing government owned lands to landless peasants to make “socialist villages”.
Backing Sahrawi independence: Spain used to control the Western Sahara which it renounced in 1975. Algeria strongly supported Western Sahara's independence through backing the Polisario Front against claims by Morocco and Mauritania.
Supporting Revolutionary/Freedom Movements: Algeria provided significant funding for movements like the ANC to destroy apartheid South Africa, the Palestinian Liberation Organization against Israel, and decolonialization movements in Africa.
OPEC embargo: Algeria joined OPEC in 1969. It, along with other OPEC members, embargoed the West after 1973 due to support for Israel. This raised oil prices and benefited Algeria's economy.
Chadli Benjedid (1979-1992)
Benjedid succeeded Boumediene. By 1981, falling oil prices and rising unemployment exposed flaws in the socialist, government-owned industry model. Social unrest ensued due to job scarcity, housing, and food shortages. Rising fundamentalist Islam gained traction, providing a voice for frustrated youth. By 1986, hydrocarbon revenues were cut in half, which was most of the government revenues.
Algeria sought an IMF emergency loan, which required Algeria to undergo political and economic reforms.
As per IMF conditions, he had to make market based reforms (free floating exchange rate, reduced tarriffs) and democratic liberalization (free speech, free association, multiparty democracy etc.) as well. He allowed foreign investment into various sectors of the economy, but he required those companies to make joint enterprises with Algerian firms, which are usually state-owned. He broke up some smaller government owned firms, allowed private enterprise in some industries except strategic firms like the oil firm Sonatrach. He allowed private banks to exist for profit. A political party called the “Islamic Salvation Front” became a new political party.
But because he free floated the exchange rate, demand for Algeria’s currency depreciated since oil demand was still low in the 80s and 90s. Inflation eroded Algerian living standards.
By October 1988, Algeria had its largest riots since independence.
The riots caught Benjedid, the military, and others by surprise. His security forces quelled the protests, resulting in 500 deaths. Afterward, Benjedid’s party, the National Liberation Front (FLN), experienced a deep schism. Benjedid distanced himself from the party, implemented reforms, and allowed multi-party elections as per IMF loan conditions, legalizing the Islamist Islamic Salvation Front (FIS), akin to Egypt’s Muslim Brotherhood. Note that while all extremist jihadists are Islamists, not all Islamists are extremists. Islamists can be seen as advocates for a democratic state governed by Islamic laws, similar to a more religiously inclined George Bush Jr.’s Republican party.
In December 1991, the FIS won the first round of legislative elections (47.5% of the vote, 188 out of 232 1st round of seats). Fearing Islamist dominance, the relatively secular FLN government canceled the second round and arrested FIS members, triggering a civil war due to widespread discontent among the population.
From the “secular” FLN's perspective, they feared the Islamist FIS would dismantle the secular republic and establish a religious dictatorship, following the "one man, one vote, one time" theory. This notion suggests that Islamists might use democratic means to gain power but then impose a totalitarian regime. To date, this scenario has not occurred, as such an experiment has never been permitted. For those citing Iran, Ayatollah Khomeini rose to power through revolution, not elections like the FIS.
Algerian Civil War (1992-2002) “The Black Decade”
The conflict pitted Islamists, advocating for a prominent role for Islam in public life, against Secularists, who sought a separation of religion and state.
Mohamed Boudiaf (1992)
Boudiaf was installed to prevent the Islamic Salvation Front from taking power. He was killed a few months in office.
Ali Kafi (1992-1994)
Kafi, acting president after Boudiaf's death, faced Islamist conflict and the Algerian Civil War. He reversed some of the IMF reforms.
In 1994, Morocco and Algeria closed their border with each other, after Morocco blamed Algerian secret Services on an attack in Marrakech. The border closure still exists today.
Liamine Zeroual (1994-1999)
Due to low oil prices, the government struggled to service its debt since oil & gas are its main source of revenue. Algeria was in a debt crisis.
Zeroual aimed to strengthen ties with Europe, joining the Euro-Mediterranean partnership for a free trade zone. Now Algeria has preferential trade with Europe. He also made gas pipelines to Europe and Morocco.
Post Algerian Civil War (2002-Present)
Abdelaziz Bouteflika (1999-2019)
By 2002, the civil war ended, claiming 200K Algerian lives. This war spooked the entire Arab world, as many leaders then viewed Islamists as a threat to their regime. Bouteflika reached national reconciliation with the Islamists that renounced violence. However no amnesty was given to the Armed Islamic Group(GIA) which committed large scale massacres. A splinter group of GIA, left to Mali which helped start the Mali crisis in 2012.
Sovereign Wealth Fund: Bouteflika decided to take a page from the other Arab states in the middle east and create a sovereign wealth fund in the year 2000. As of October 2023, the fund has $16B.
Post-civil war, an unwritten social contract emerged: the government provides subsidies and jobs, and citizens accept autocracy. Soaring oil prices facilitated this arrangement.
Debt Relief & Russian friendship: In 2006, Putin erased $5B of Algeria’s Soviet debt, and in return Algeria bought Russian weapons from the firm Rosobornoexport.
War on Terror & Arab Spring: In 2007, Islamist militant groups make an organization to attempt to destroy Algeria and create an Islamic state. This made Algeria and American ally against the war on terror. Algeria had to fight militant groups at home and its neighbors in Mali, Mauritania, and Niger.
By 2011, was the Arab Spring, where Algeria’s neighbor Gaddafi was removed by rebels with NATO support. Because oil prices were high, Algeria was able to quell protests.
The social contract began to unravel after radicals attacked a natural gas facility in 2013 and the 2014 oil price drop. Since oil prices fell, Living standards drastically declined, with incomes nearly halved in real terms. Algeria is now depleting its foreign reserves to sustain living standards, having reduced from $200B in 2014 to $50B."
Industrialization Strategy:
Bouteflika tried an industrialization strategy to make cars in Algeria. He banned car imports in 2016, and set up partnerships with French Renault, German Volkswagen, and South Korean Hyundai and Kia. These firms would invest in return Algeria gave them free land, subsidized energy for their plants, and tax breaks and custom duty relief. The firms had to purchase goods from local Algerian suppliers to build a local supply chain. This strategy has had issues, the plants are buying from foreign suppliers and the cars made in Algeria cost more than imported cars. So people are still buying cars abroad which eats up Algeria’s foreign reserves.
Hirak Protests: Tired of Bouteflika's long tenure, Algerians, led by the “Hirak” movement, protested, resulting in Bouteflika's resignation at 82.
Abdelmadjid Tbboune (2019-Present)
Algeria's economy, heavily reliant on oil and gas, faced challenges during COVID-19. Some of the poorest Algerians are now burning their passports to escape to Europe along with other Africans.
Morocco Issues: Algeria and Morocco’s escalated after December 2020 due to Trump’s the Abraham Accords. Morocco acknowledged Israel as a country and in return America back Morocco’s sovereignty over Western Sahara. In addition, Israel provides Morocco drone technology & spyware. Algeria claims Morocco used Israel NSO Group’s Pegasus, spyware to snoop on the phones of Algerian politicians and generals, a claim denied by Morocco. These events have raised concerns about Morocco's growing influence. Additionally, Algeria claims that Morocco funds a separatist group in Algeria called “Movement for the Autonomy of Kabylie” (MAK) since Morocco supported Kabyle independence from Algeria. As a result, Algeria shut its pipeline that runs to Spain through Morocco, killing Morocco’s 7% royalty from all the gas Spain gets through Morocco from Algeria and all of Morocco’s natural gas supply. Luckily for Morocco, Morocco can buy cargoes of natural gas from Qatar, hand as been expanding solar polar. Morocco mainly relies on oil for energy anyway.
Amid the Russia-Ukraine war , Europe is reducing reliance on Russian gas. The EU is increasing imports of natural gas from Algeria. Algeria has new plans to increase production.
Natural Gas & Green Hydrogen: By 2030, Slovenia is planning to build a pipeline to Hungary to transport Algerian natural gas. If green hydrogen works, then Algeria could also be exported to Europe.
Shale Gas Production: Additionally, Chevron is partnering with Algeria's Sonatrach to explore shale gas production for European markets.
Right now, Algeria is trying to diversify revenue from oil & gas which will be a long process. To start, Algeria is trying to increase tourism by giving visas on arrival instead of making people go through lengthy bureaucracy. Algeria has many landscapes and ancient monuments to see.
Links are attached!
Also see: Algeria: a country study
Interesting and informative summary.
Always worthwhile reading your page.