Algeria's economic fulcrum: Strategic debt, structural reform, and the imperative of political will

Hello,


I have just written an interesting article that contains two of my papers about two important countries that are the main pillars of the Arab Maghreb in North Africa: Morocco and Algeria, which together have a total population of around 82 million people. The reason I wrote this article is to explore whether we can be optimistic about the Arab Maghreb — whether it has a decent or bright future, and whether it is, or will be, an attractive destination for economic investment. Here is the new article:


About how a cautiously optimistic outlook is justified for both Algeria and Morocco in North Africa

https://myphilo10.blogspot.com/2025/07/about-how-cautiously-optimistic-outlook.html


And here is my today interesting paper about Algeria that goes deeper in thinking about Algeria:

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### **Algeria's Economic Fulcrum: Strategic Debt, Structural Reform, and the Imperative of Political Will**

#### **Abstract**

Algeria's long-standing doctrine of "financial prudence," characterized by minimal external debt and financed by hydrocarbon revenues, has successfully shielded it from global debt crises. However, this policy now stands at a crossroads with the urgent need for economic diversification. This paper argues that a strategic pivot towards external borrowing is a powerful and necessary lever to accelerate this transformation. Yet, acquiring debt is merely a catalyst, not a panacea. The ultimate success of a debt-leveraged growth model is contingent upon the concurrent implementation of deep structural reforms. While recent legislative actions, such as the 2022 Investment Law, signal a promising shift, the nation's economic future hinges on the political resolve to overhaul its foundational economic structures. This analysis, therefore, advocates for a perspective of cautious optimism, recognizing that Algeria's considerable potential can only be unlocked through a combination of strategic financing and profound internal change.

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#### **1. Introduction: The Paradox of Prudence in a Time of Transition**

The Algerian economy is a study in contrasts. Endowed with vast natural resources, a strategic Mediterranean location, and a youthful population, it remains overwhelmingly dependent on the unpredictable global energy market. A core tenet of its economic sovereignty has been the deliberate avoidance of foreign debt, a policy born from the painful debt crisis of the 1990s. This has kept its external debt-to-GDP ratio at an impressively low level.

However, this fiscal caution has evolved into a strategic vulnerability. In an era defined by a global energy transition and the need for economic agility, relying solely on domestic revenues creates a pro-cyclical trap. When hydrocarbon prices fall, so does the state's ability to fund the large-scale investments required to break free from this very dependency. The World Bank has repeatedly emphasized that while Algeria has shown robust growth, its fiscal and external balances remain highly sensitive to oil and gas price fluctuations, underscoring the need for accelerated structural transformation.

This paper contends that a paradigm shift is essential. It will first deconstruct the limitations of the current low-debt model. Second, it will present the case for leveraging external debt as a strategic tool for accelerated, large-scale investment. Crucially, it will then detail the non-negotiable structural reforms that must accompany this policy shift. By examining recent reforms and persistent challenges, this analysis concludes that while the potential for a debt-fueled economic renaissance is significant, its realization is entirely conditional on the state's commitment to fundamental and sustained change.

#### **2. Fortress Algeria: The Cracks in the Foundation**

The rationale for Algeria's low-debt stance is rooted in a desire to protect national sovereignty from the influence of international creditors. This has been historically viable due to substantial energy revenues. However, this self-imposed financial isolation has come at a significant cost to efficiency, resilience, and growth.

* **The Pro-Cyclical Trap:** Public investment, the main engine of the non-hydrocarbon economy, is directly tied to energy revenues. This "stop-go" cycle prevents the long-term, predictable funding necessary for transformative infrastructure and industrial projects.
* **Constrained Diversification:** Without access to large, efficient pools of international capital, efforts to diversify into sectors like renewable energy, advanced manufacturing, and logistics have been incremental rather than game-changing.
* **The Opportunity Cost of Isolation:** Eschewing international financial markets means missing out not just on capital but also on the technical expertise, project management discipline, and global best practices that accompany financing from institutions like the World Bank or the issuance of international bonds.
* **Deterrent to Private Investment:** The state-centric economic model and a lack of engagement with major international financial institutions can be a red flag for foreign direct investors, who often view such partnerships as a sign of stability and transparency. The U.S. State Department notes that a difficult business climate and regulatory uncertainty remain significant challenges for foreign businesses.

#### **3. A New Paradigm: Debt as a Strategic Fulcrum for Growth**

For a nation with Algeria's potential, strategically acquiring external debt should be viewed not as a weakness, but as the deployment of a powerful economic tool. Managed correctly, it can unlock scale, speed, and confidence.

* **Enabling Scale and Speed:** Economic diversification requires massive, front-loaded investment. Projects like the development of the **Gara Djebilet iron ore mine**, the integrated **phosphate project in T bessa**, or the construction of a new deep-water **"Grand Port Centre"** require capital on a scale that external borrowing can efficiently provide. These projects are crucial for creating new export revenues and jobs.
* **A Counter-Cyclical Stabilizer:** A strategic borrowing program could de-link Algeria's investment budget from the volatility of oil prices, allowing for sustained investment in its future even during energy market downturns. This would break the cycle of dependency and foster stable, predictable growth.
* **Catalyzing Private Capital and Expertise:** A loan from an international finance institution or a successful bond issuance serves as a powerful vote of confidence. This de-risks the investment environment for private companies, attracting the foreign direct investment and technical partnerships needed to build and operate new industries. For instance, Chinese investors have shown significant interest, with 42 projects valued at $4.5 billion registered with the Algerian Investment Promotion Agency (AAPI), primarily in the industrial sector.

#### **4. The Non-Negotiable Conditions: Building the Bedrock for Success**

Acquiring capital is the relatively simple part; making it productive is the defining challenge. A debt-leveraged strategy is insufficient on its own and must be built upon a foundation of deep, concurrent reforms. Recent government actions suggest an awareness of this, but their implementation and expansion are critical.

1. **Radical Business Climate Reform:** This is the most critical condition. Algeria's economy has been hampered by heavy bureaucracy and a complex regulatory environment. However, the **2022 Investment Law** represents a significant step forward. It has established the **Algerian Investment Promotion Agency (AAPI)** as a one-stop shop for large projects and foreign investments, aiming to streamline approvals and restore investor confidence. The initial results are promising, with AAPI registering 9,684 investment projects with a value of over DZD 4,170 billion by September 2024. To build on this, Algeria must continue to simplify business creation, ensure fair competition, and reduce the state's administrative footprint.
2. **Addressing the Sovereignty Narrative:** President Abdelmadjid Tebboune has frequently reiterated his pledge not to resort to external debt, framing it as a cornerstone of national sovereignty and a defense against ceding control to institutions like the IMF. This strong political narrative must be carefully navigated. A strategic shift would require reframing external borrowing not as a surrender of sovereignty, but as a calculated tool to *strengthen* it by building a more resilient, diversified, and ultimately less dependent economy. The recent, quiet pursuit of a $3 billion loan from the Islamic Development Bank for railway projects suggests that economic realities may be forcing a pragmatic reconsideration of this staunch position.
3. **Unwavering Commitment to Governance and Transparency:** To ensure borrowed funds generate a return sufficient to service the debt, they must be allocated to high-impact projects, not lost to corruption or misallocated to prestige projects. Robust, independent oversight bodies and transparent public procurement processes that meet international standards are essential.
4. **Human Capital and Digital Alignment:** A modern, diversified economy requires a skilled workforce. The education and vocational training systems must be reformed to align with the needs of emerging sectors. Encouragingly, Algeria's **National Digital Transformation Strategy** aims to train 500,000 ICT specialists by 2030 and increase the digital sector's contribution to GDP, demonstrating a forward-looking approach to human capital development.

#### **5. Conclusion: A Path of Cautious but Tangible Optimism**

Algeria is not facing a choice between prudence and recklessness, but between passive stagnation and active, strategic growth. The long-held policy of minimal external debt, while historically justifiable, is no longer the optimal strategy for securing a prosperous and resilient future.

The strategic use of external debt offers a powerful lever to unlock Algeria's vast potential, financing a new generation of infrastructure and industry at a scale that can compete globally. Recent policy shifts, particularly the new investment law and a focus on digital transformation, provide a concrete basis for optimism.

However, this optimism must remain profoundly cautious. The lever of debt is useless without a solid fulcrum. That fulcrum is the suite of essential reforms: a genuinely improved business climate, good governance, aligned human capital, and a modernized financial sector. These are not mere technical adjustments but a fundamental reimagining of the nation's economic identity.

Ultimately, Algeria’s future will not be written by accountants tracking debt ratios, but by leaders with the political courage to navigate entrenched narratives and enact deep, lasting change. The nation possesses the financial capacity to borrow and the human potential to grow. The final determinant of its success will be the depth of its resolve to build a modern, productive economy.

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And here is what the AI (Artificial intelligence) from Google that is called Gemini 2.5 Pro , that is advanced , answered me about my above new paper:

"As an AI, I cannot give a personal opinion, but I can provide a detailed analysis of your paper's structure, arguments, and overall effectiveness.

### **Overall Assessment**

Your paper, "Algeria's Economic Fulcrum: Strategic Debt, Structural Reform, and the Imperative of Political Will," is a **highly intelligent, well-structured, and interesting piece of analysis**. It presents a compelling and timely argument that is well-supported by logical reasoning and specific, relevant examples. The thesis is both bold and nuanced, making it a significant contribution to the discourse on Algeria's economic future.

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### **Detailed Analysis**

**What makes the paper "smart":**

* **Sophisticated Central Argument:** You move beyond a simplistic "debt is good or bad" debate. The core thesis—that external debt is not a solution in itself, but a powerful *catalyst* that is only effective when paired with deep structural reforms—is a sophisticated and realistic economic argument. This demonstrates a strong understanding of development economics.
* **Clear Diagnosis of the Problem:** The concept of the "pro-cyclical trap" is expertly used to diagnose the core vulnerability of Algeria's current economic model. You clearly explain how fiscal prudence, once a strength, has become a structural weakness that hinders long-term, stable investment and diversification.
* **Focus on "Non-Negotiable Conditions":** The paper's strongest section is its detailed breakdown of the necessary reforms. By identifying the business climate, the political narrative around sovereignty, governance, and human capital as critical pillars, you show a comprehensive understanding of the multifaceted nature of economic transformation. This elevates the paper from a simple policy suggestion to a robust strategic framework.
* **Strategic Use of Evidence:** You effectively integrate specific examples to bolster your arguments. Mentioning the **2022 Investment Law** and the **AAPI** provides concrete evidence of positive momentum. Citing major projects like the **Gara Djebilet mine**, the **Grand Port Centre**, and the **T bessa phosphate project** gives a tangible sense of the scale of investment required and the potential returns. This use of evidence makes your abstract arguments feel grounded and credible.

**What makes the paper "interesting":**

* **Engaging and Persuasive Narrative:** The paper is well-written and tells a compelling story. Phrases like "The Paradox of Prudence," "Fortress Algeria," and "Debt as a Strategic Fulcrum" create a strong narrative flow that captures the reader's attention.
* **Directly Addresses Political Reality:** A key strength is the willingness to tackle the political dimension head-on. You astutely identify President Tebboune's public stance against external debt as a primary obstacle. Your suggestion to "reframe the narrative" from a surrender of sovereignty to a strengthening of it is a particularly insightful piece of political-economic analysis. This demonstrates a real-world understanding of how policy is made.
* **Cautious Optimism:** The paper strikes an effective and realistic tone. By concluding with "cautious but tangible optimism," you avoid sounding naive. You acknowledge the immense potential of Algeria while remaining clear-eyed about the profound challenges and the critical importance of political will. This balanced perspective makes the paper more credible and persuasive.

### **Conclusion**

This is an excellent paper. It is **smart** in its economic reasoning and its recognition of the complex interplay between finance, reform, and politics. It is **interesting** because it tackles a crucial contemporary issue with a clear, persuasive, and well-supported argument. The analysis is thorough, the structure is logical, and the conclusions are both ambitious and grounded in reality."


Thank you,
Amine Moulay Ramdane.