Algeria - The 1985-1989 Development Plan and the Medium

Report No. 6607-AL

AlgeriaThe 1985-1989 Development Plan and theMedium- and Long-Term ProspectsSeptember 30,1987

Country Operations Department IIEurope, Middle East and North Africa Region

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may not otherwisebe disclQsed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit: Algerian Dinar (DA)

Exchange Rate(Annual Average)

DA/USt

1980 = 3.83751981 2 4.31581982 2 4.59221983 = 4.78881984 - 4.98341985 5.02781986 - 4.7023

FISCAL YEAR

January 1 - December 31

FOR OMCIL USE ONLY

This report was drawn up after a mission which stayed in Algeria from14 June 1986 to 27 June 1986. The mission was headed by Mr. Ivan CHRISTIN(senior economist), assisted by Mr. Hasso MOLINEUS (senior loan officer). Thereport was drafted by the various members of the mission: the First Part wasdrafted by Mr. CHRISTIN; the Second Part was drafted by Mr. BALLESTEROS(Agriculture), J. L. REIFFERS (Industry), A. ODY (Fertilizer andPetrochemicals), assisted by Messrs. MAKONI and DELON, B. DECAUX(Hydrocarbons), Mrs. Z. LADHIBI and D. CR&IG (Electricity), R. KNIGHTON andPELLETEY (Transportation), B. LAPORTE on information collected by Mr.MERTAUGH, J. M. VERDIER, 0. DE MESSIERES, Mrs. VAUGRANTE and Mr. GERMANACOS(Education and Training), A. EL TOGBY and Mr. CHRETIEN (Housing and UrbanDevelopment). An additioial chapter devoted to the water treatment andconveyance sector and constituting a follow up to the many missions by theBank relative to the sector was drafted by M. A. BROOMHEAD. Mrs. SEMSARZADEH(research assistant) collated the general statistics and drew up theStatistical Annex for the Third Part.

This document has a restricte I distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authotization.

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ALGERIA

THE 1985-1989 DEVELOME PLAN

AND THE MEDIUM- AND LONG-TERM PROSPECTS

Table of Contents

SUMARY i

PART I - MACROECONOMIC PLANNING

CHAPTER I - ALGERIAN PLANNING: A RETROSPECTIVE

A. Preliminary Considerations regarding the AlgerianEconomic System and Planning Procedures I

B. The 1980-84 Plan: Performances, Strengths and Weaknesses 71. The Initial Plan 72. The Investment Program 83. Algerian Public Finances between 1980 and 1984 104. Money, Credit and Prices during the First Five-Year Plan 165. Balance of Payments and External Debt 196. Evolution of Employment and Income

during the First Five-Year Plan 24

CHAPTER E - THE SECOND FIVE-YEAR DEVELODPMENT PLAN (1985-89) 29

A. Description of the Initial Program 291. Starting Targets 292. Investment Program of the Second Plan 303. Expected Macroeconomic Developments 324. Financial Equilibria of the Economy 33

B. The Second Plan and its Adjustment to Adverse Circumstances 351. Collapse of the Oil Market 352. The Investment Program: A Necessary Reconsideration 363. The New Macroeconomic Trends 414. The Other Equilibria 425. Medium-Term Prospects for the Investment Plan 47

CHAPTER m - LONG-TERM PROSPECTS FOR THE ALGERIAN ECONOMY 49

A. Analysis of the Dynamic Forces in Algeria's Economy 49B. Organizational and Institutional Components 50C. Critical Conditions for Long-Term Growth 54

1. The Problem of Population Growth 542. The Problem of Foreign Trade 553. Productivity, Economic Efficiency and the Price System 57

D. Outline Plan for Restoring Economic Growth 59

ANNEX I 68

PART r - SECTORAL PLANS AND PROGRAMS REALIZATIONS AND PROSPECTS

CHAPTER IV - THE AGRICULTURAL SECTOR 70

A. Introduction 70B. Major Developments in the 1967-87 Period 72C. The 1980-84 Plan 74

1. Restructuring of the Socialist Sector Farms 742. Private Sector Support 763. Reorganization of the Service Agencies 774. Agricultural Prices 785. Public Investment 80

D. The 1985-89 Development Plan 811. Principles and Objectives 812. Implementation during 1985 823. Outlook for 1986-89 86

CHAPTER V - THE INDUSTRIAL SECTOR 89

A. General Panorama 891. The Economic Functioning of the Light Industry Subsector 912. The Economic Functioning of Heavy Industry 95

B. Chief Thrusts of Economic Policy Regarding the Sector 99C. Prospects and Recommendations 100

CHAPTER VI - FERTILIZER AND PETROCHEMICAL SECTOR 103

A. Background 103B. Present Situation 104

1, Fertilizer Subsector 1042. Petrochemical Subsector 1083. ASMIDAL and ENIP 109

C. Future Projects 1091. Fertilizer Projects 1102. Petrochemical Projects 111

CHAPTER VI[ - ENERGY: THE HYDROCARBON SECTOR 113

A. Hydrocarbon Resources 1131. The Discovery and Disposition of Crude Oil Resources 1132. The Status of Known Crude Oil Resources 1143. The Ultimately Recoverable Petroleum Resources 1154. The Status of Natural Gas Reserves 1155. Future Exploration, Development

and Recovery of Hydrocarbon Resources 117B. Production of Hydrocarbons 119C. Oil Refining 121D. Storage and Distribution 122 AE. Domestic Demand , 122F. Hydrocarbon Exports 124

1. Liquefied Natural Gas (LNG) Exports 1.252. Piped Natural Gas Exports 126

G. Investments in the Hydrocarbon Sector 127H. Summary of Issues 136

CHAPTER Vm - THE ELECTRICITY SUBSECTOR 138

A. Introduction 1381. The Sector 1382. Recent Developments 140

B. Energy Pricing and Demand Management 1421. Economic Supply Costs 1422. Comparison with Tariffs 1433. Demand Management 145

C. Investment 1461. Rural Electrification Targets 1462. Deferment of Major Projects 1463. Other Investment Savings 1474. Local vs. Foreign Costs 1485. Project Financing 148

CHAPTER IX - THE TRANSPORT SECTOR 150

A. An Overview 150B. Main Characteristics of the Sector 150

1. Road Infrastructure 1502. Road Transport 1513. Railways 1524. Ports and Maritime Transport 1525. Civil Aviation 153

C. Recent Trends 154D. Investment Program 1985-89 156

1. General 1562. Road Infrastructure 1563. Road Transport 1584. Railways 1585. Ports 1586. Airports 1587. Air and Maritime Transport 159

CHAPTER X - EDUCATION AND TRAINING 160

A. The Socio-Economic Context 1601. Introduction 1602. The Demographic Factor 1613. The Economic and Manpower Factor 161

B. The Educational Policy Framework 1631. Reorganization and Restructuring 1642. Reform of Curricula 1653. Teacher Education 166

C. The Specifics of the Second Five-Year Plan, 1985-89 1671. The Directives 1672. Present Status and Proposed Targets 1683. The Planned Investments 170

D. Conclusions and Recommendations 173

CHAPTER XI- THE URBAN AND HOUSUDG SECTOR 176

A. Regional Distribution of the Population 176B. Urbanization 176C. Objectives of the Five-Year Plans 177D. Physical Performance 178E. Financial Performsace 179F. Institutional Aspects 181G. Construction Enterprises 184

CHAPTER XII - WATER SUPPLY AND SEWERAGE 186

A. Water Resources 186B. Recent Sector Organization and Developments 187C. Current Service Levels 188

1. Water 1882. Sewerage 189

D. Public Investment Program 189E. Conclusions and Recommendations for the Future 193

1. Institutional Strengthening 1932. Cost Recovery and National Tariffs 1933. Sewerage and Pollution Control 1944. Integrated Watershed Management 194

ANNEX E 195

MAP

7 2509/p 1 Z- IS

MAIN A3RDVEAtINeS AMD ACRDMI

AGEP : Agence Nationale de l'Eau Potable et ?ndustrielle et de l'Assainissmnt(National Agency of Drinking and Industrial Water and of Sewerage)

APC : Assembl4e Populaire Coimwnale (Peoples CouMnal Assembly)

APW : Assemblde Populaire de la WiIaya (Peoples Assembly of Wilaya)

ASHIDAL : Entreprise Nationale des Engrais et des Produits Phytosanitaires(National Company of Fertilizers and Plant Protection Chemicals)

BAD : Banque Algerienne de Developpement (Algerian Development Bank)

BADR : Banque de l'Agriculture et du Developpoment Rural(Bank of Agriculture and Rural Development)

BDL : Banque de Developpement Local (Regional Oevelopment Sank)

CNEP : Caisse Nationale d'Epargne et de Prevoyance(National Savings Bank)

CACG : Cooperatives Agricoles de Comptabilite et de Gestion(Agricultural Cooperatives for Accounting and Management)

CAE : Comitd Alg6rien de l'Energie (Algerian Energy Commission)

CAPCS : Cooperatives Agricoles Polyvalentes Comunales de Services(Multi-Service Agricultural Communal Cooperatives)

CASSAP : Cooperatives Agricoles Specialisdes en Approvisionnements(Agricultural Cooperatives Specialized in Input Distribution)

CNAN : Compagnie Nationale Algerienne de Navigation(National Company of Navigation of Algerta)

CNPA : Centre National de Pddagogie Agricole(Center for Agricultural Education)

COFEL : Cooperatives des Fruits at des Legumes(Markettng Cooperatives of Fruits and Vegetables)

COPCID : CoopEratives Spicialisdes dans la Construction. l'Irrigation et le Drainage(Specialized Cooperatives for Construction, Irrigation and Drainage)

CPA : (CrEdit Populaire d'Algdrie) (Peoples Credit Bank of Algeria)

DAD DElEgation Agricole de DaYra (District Agricultural Service)

DAS : Domaines Agricoles Socialistes (Socialist Farms)

ENAFOR : Entreprise Nationale de Forage (State Enterprise for Drilling)

ENIP : Entreprise Nat ionale de la Pdtrochimie(State Enterprise for Petrochemicals)

ENTP : Entreprise Nationale des Travaux Petroliers(State Enterprise for Oil Development)

ENS : Ecoles Normales Superieures (Teachers' College)

ENSEP : Ecoles Normales Superieures de tlEnseignement Polytechnique(Teachers' College for Vocational Training)

EPLF : Entreprises Publiques du Logement familial(Public Enterprises for Family Hc'Jsing)

HYPROC : SociEtE Nationale de Transports Maritimes des Hydrocarbures etProduits Chimiques(National Company of Maritime Transportation of Hydrocarbonsand Chemical Products)

IDGC : Institut de Diveloppement des Grandes Cultures(Development Institute for Large-Scale Farming)

IPH : Institut Pidagogique National (National Pedagogical Institute)

MAP : Ministire de l'Agritulture et de la Peche(Ministry of Agriculture and Fisheries)

1EICP : Minist6re de lPEnergie et des Industries Chimiques et PdtrochimiquesMinistry of Energy and Chemical and Petrochemical Industries)

KNEF : Minist6re de l'Hydraulique. de l Environnement et des Forets(Ministry of Hydraulics, Environment and rorestry)

HILD Mtnistere de llIndustrie Lourde (Ministry of Heavy Industries)

MLi : Hinistere des Industriee Lsgeres (Ministry of Light Industries)

"OE : Ministire de l t Education Nationale (Ministry of Education)

NONE : Hinist6re de tlEnseignement Supenieur (Ministry of Higher Education)

MOVT : Ministsre de la Formation Professionnelle et du Travail(Ministry of Vocational Training and Labor)

HP : Hinistere de la Planification (Ministry of Planning)

MT : Ministsre des Transports (Ministry of Transport)

NAFTAL : Entreprise Nationale de Raffinage et de Distribution de Produits Chimiques(National Company of Refining and Distribution of Chemical Products)

OAIC Office Algerien Interprofessionnel des Cereales (Cereals Marketing Board)

OAMV : Offices d'Amnagemont et de Mise en Valeur(Agency for Land Use and Oevelopment)

OFLA : Office des Fruits et des Legumes(Marketing Agency for Fruits and Vegetables)

UNAB : Office National des Aliments du Betail(National Agency for Animal Feed)

ONANA : Office Nationav du Materiel Agricole(National marketing Agency for Distribution of AgriculturalEquipment)

ONAPSA : Office National des Approvisionnements et Services Agricoles(National Marketing Agency for Input Distribution)

ONLF : Office National du Logement Familial(National Agency for Family Housing)

OPaI : Office de Promotion et de Gestion Inmobili6re(Agency for Housing Development and Real Estate)

OPI : Offices des Perimetres Irrigues (Irrigation Management Agencies)

PIP : Progrmnme d'Investissement Public (Public Investment Program)

SOA : Secteur de Oeveloppement Agr1cole(Agricultural Development Sector)

SECAL : Soci6t6 des Eaux de l'Agglomeration d'Alger(Grand Algiers Water Supply Company)

SNTF : Soci1te Nationale des Transports Ferrovia1res(National Company of Railroad Transportation)

SONATRACH: Soclitd Nationale pour la Recherche, la Production. le Transport. laTransformation et la Comnercialisation des Hydrocarbures(National Company for Exploration, Production. Transportation,Processing and Marketing of Hydrocarbons)

SONELGAZ: Socilt Nationale de l'Electricit6 et du Gaz(National Company for Electricity and Gas)

SUCH : Service de l'Urbanisme. de la Construction et do lHabitat(Bureau of Urbanism, Construction and Housing)

ZUNN : Zones Urbaines d'Habitation Nouvelle (Urban Zones of New Housing)

72SOB/p17 1?

AGERIA -. COUNTRY DAT

NOh (1,000 km2): 2,381.7 PPULATilON IN 122M: 22.6 million /A b DENSIUI: 9.5/kSA(Resident Population)

POPULATION CHARACTERISTICS (1986) EDUCATION (1986)

Crude Birth Rate (per 1,000) 41.0 Primary School Enrollment Ratio 94.0Crude Oeath Rate (per 1,000) 10.0 Secondary School Enrollment Ratio /J 47.0

Population Growth Rate 3.2

Urban Population (% of total) 48.0 HOUSING AND CONSUPI (1986)

Age Structure (%) 0 to 14 years 47.0 Access to Sate Water (% of population) 85.015 to 64 years 49.0 Access to Electricity (% of all dwellings) 34.065 years and over 3.0 Passenger Cars (per 1,000 pop.) 1S.0

HEALTH AND NUTRITION (1986)

Population per Physician (1.000) 2.8Population per Hospital Bed (1,000) 0.4Per Capita Supply of Calories 2,'99Per Capita Protein Supply (grams/day) 72.0

GNP PER CAPITA IN 1905 Id. US12f600

NATIONAL ACCOUNS US dollar millions - 1974 pricesand exchanal rates Annual Growth Rates 1M1

As % ofI1s2 1984 lo8J GOP-198S If 3m 1im

Gross Oomestic Product 21,612 23.868 24.704 100.0 4.0 4.5 3.5Gains from germs of Trade -2,799 -2.807 -3,234 13.1 - - -Gross Domestic Income 24,412 26.675 27,938 113.1 2.2 4.5 4.7

Imports 7,228 7.299 6,875 27.8 1.0 1.8 -5.7Exports 4,907 5,219 5,342 21.6 -0.2 3.1 2.3Resource Gap 2,321 2,080 1,534 6.2 - - -Consumption Expenditures 15.235 16,611 17.037 69.0 2.6 6.9 2.6Investment (incl. stocks) 8.697 9.337 9,200 37.2 6.3 -0.6 -1.5Domestic Savings 6.376 7.256 7,265 29.4 7.3 -0.S 1.0National Savings 5,992 7.093 6,796 27.5 6.9 2.9 4.1

OUTPUT. EMPLOYMENT AMDPRODUCTIVITY IN 1l5 Value Added Emoloynent V.A. gar warker(at 1974 prices) IUS$MI JI 11 L J2IL 00L S USt lXL

Agriculture Ig 1.884 9.2 1,000 22.0 1,884 2.0Industry 13,194 65.0 523 1l.S 2s.228 27.4

- Hydrocarbons 4.766 23.5 92* 2.0 51,804 56.3- Others 8.428 41.5 868 19.1 9.710 10.5

Services 5.218 2$.7 1.518 33.4 3.437 3.7Unemployed -f 666 14. - -

TOTAL 20.297 100.0 4,539 100.0 92.063 100.0

fOVERNMENT FINANCE Central Government

M1illons of Dinars % of GOP1982 ISML 1984 1985 1Q21 4211 12M 1211

Current Revenue 77.6 87.0 102.9 106.7 37.4 37.2 39.6 36.9- Petroleum 41.S 37.7 43.8 47.8 20.0 16.1 16.9 16.5- Other 36.1 49.3 59.1 S9.0 17.4 21.0 22.7 20.4

Current Expenditure 41.5 45.0 52.3 60.8 20.0 19.3 20.1 21.0Current Surplus 36.0 42.0 50.6 45.8 17.3 18.0 19.5 15.8Capital Expenditure 61.0 76.4 78.0 72.4 29.4 32.6 30.0 25.0

- Central Government Investment 33.7 43.0 44.6 44.9 16.2 18.4 17.2 1S.S- Capital Transfer to Public

Enterprises IS 27.3 33.4 33.4 27.5 13.2 14.3 12.9 9.SExternal Borrowing (net) -111 39 -18 52 - - -

Ij Hid-year estimate based on 1977 population census results. Datum is for 1980/b Includes 999.000 Algerians living abroad. - nil or negligible/& 12-18 years of age. . not applicable/4 The per capita GNP estimate is that of the World Bank Atlas (preliminary)./I Includes part-time workers./I Includes only non-agricultural unemployed./g Includes investment loar disbursement, allocations for the working capital of enterprise,

and enterprises' debt reschc0uling. 7250B/pI9

ALGERIA COUNTRY DATA

MONEY. CREDIT AND PRUCE 191 1282 ..i3 .. 1.R4 1985---------(millions of dinars; end of period) -

Money and Quasi Money 109,1S4 137.890 165,927 194.717 223,860Claims on Government (net) 25,147 36,1S3 52,692 67,741 76,633Claims on the Economy 88,540 112,817 132,968 156,031 174.614

(Percentage or index numbers)

Money and Quasi Money as % of GOP 57.0 66.4 71.0 74.9 77.4General Price Index /a (0974-100) 220.3 229.7 244.9 260.4 280.0Retail Price Index /l (1974=1O0) 204.8 218.6 233.2 249.8 276.5Annual Percentage Change in:

General Price Index 12.2 4.3 6.6 6.3 7.5Retail Price Index /h 14.6 6.7 6.7 7.1 10.7Clatms an Government (net) 76.2 43.8 45.8 28.6 13.1Claims on the Economy 29.2 27.4 17.9 17.3 11.9

BALANCE OF PAYMENTS 1981. 1982 _1983 1984 i9as(Millions of US dollars)

Exports of Goods, NFS 14.674 14,145 13,510 13.448 13.669Imports of Goods, NFS 13,s90 13.277 12.548 12.189 11,614Resource Gap (deficit ; -) 1.084 868 962 1.259 2,055

Interest Payments (net) -1,287 -1,288 1.231 *1.343 -1,450Workers' Remittances (net) 274 300 171 1SO 132Other Factor Payments (net) -6 -26 7 6 4Net Transfers 25 -37 7 3 199Balance on Current Account 91 -182 -84 75 939

Direct Foreign Investment -1.4 -68 -12 -14 -2Net MLT Borrowing -75 -123 -580 -296 42Disbursements 2,479 2,812 2.697 2.949 3.299Amortization 2,554 2.935 3.276 3.246 3,258

Other Capital (net) -183 -282 -276 -132 -84

Overall Balance -43 -818 -694 -540 1,28STotal Reserves Minus Gold (end of year) 3,695 2,422 1.880 1.464 2.819

MERCHANDISE EXPORTS 1983 1984 _ 1985USS mi Z} US$ mi IX US$ mil 41

Crude Oil and Condensate 5,344 47.9 5,622 47.4 4,810 47.4Refined Oil Products and LPG 3.084 27.6 2.534 21.4 2.920 28.8Gas 2,535 22.7 3.412 28.8 2.167 21.4Agricultural Products 37 0.3 48 0.4 56 0.6Others 162 1.5 245 2.0 196 * .9

Total Merchandise Exports 11,162 100.0 11,861 100.0 10.149 %0.O

IBRD Lendine. September 30. 19R7 fUSS mil EXTERNAL DEBT. December 31. 1986 /c (USS mill

Disbursed 937.8 Total Outstanding and Undisbursed 20.884Undisburscd 954.3 Total Outstanding and Disbursed 14,777

Total Amount of Loans 2.345.0 DEBT SERVICE RATIO li9S li9B l9fl 1986

In X of Exports of Goods 32.8 33.7 33.1 63.9In X of Exports of Coods

and Workers' Remittance 30.1 33.3 32.8 62.3In X of Government Revenues 24.8 22.1 21.5 26.7

/I GOP deflator./b Grand Algiers Area Consumer Price Index./g Preliminary.

7 250B/p2lNovember 5 1987

SUMMARY

1. Macroeconomic Planing

1. The Algerian economy is guided and directed by a central planningbystem (currently on a five year basis), which itself has been broken downinto yearly less comprehensive plans. At present, it is situated in the upperrange of medium income countries with a per capita GNP of US$ 2,410 (1984).The country's efforts have chiefly been aimed at setting up a large industrialsector (53 percent of gross domestic product in 1984 as compared with 34percent in 1965) with particular emphasis placed on manufacturing industrieswhich on average progressed from 17.8 percent annually during the decade1973-1984: however, this rapid progress has started off from a very modestlevel. Such active industrialization has been done to the detriment ofagriculture whose share in the GDP declined from 15 percent (1965) to 6percent (1984), giving rise to serious food supply problems and criticaldependence on food product imports. With the population increasing at anannual average rate of 3.2 percent, one of the major concerns of the Algerianauthorities will be to overcome such a dependence.

2. The resources for such a strategy have largely been supplied, since1974, through exploitation and exportation of hydrocarbons (crude oil, andparticularly gas with the country having 4 percent of proven world reserves ofthe latter, ranking fifth in the world, and with only 17 percent of thereserves having been exploited). Algeria therefore has depended for up to 98%of its hydrocarbon exports to assure its foreign currency resources allowingit to achieve its final objectives for national integration through thetransitory resource (or deemed such) of purchasing abroad equipment,intermediate products, which local industry is still not capable ofproducing. The authorities have, however, implemented a clever policy indiversifying the production and export of hydrocarbons (besides crude:condensates, refined products, and gas), which has partly reduced itssubjection to risks inherent to one product dependency.

3. The first Five Year Plan (1980-1984) aimed at ambitious objectives:growth of gross domestic production at 7.1 percent per year, an investmentrate of 48.6 percent of the GDP. Such objectives were only partially achievedsince the GDP grew only by 4.3 per annum in real terms and the investment ratesettled at 38 percent. Most of these reduced performances (although notentirely negligible in absolute terms) were the result of two series ofcombined factors: (a) a downturn in the hydrocarbon market trend which madeit necessary, once the danger of a perilous slippage in foreign indebtedness(16 billion US dollars in 1981) was noted, to constrain imports that wereessential for maintaining a high growth rate for the industrial sector; (b)continued weaknesses in productivity in the production apparatus. At the sametime, Algerian authorities have become aware of the restricting nature ofcertain conditions necessary to the good functioning of the economy and havestarted to take steps to remedy the situation (e.g. restructuring ofindustrial enterprises and farming units, reorganization of distributionchannels for agricultural products). Also, during this period andparticularly after 1981 (the only year during which the Treasury had actuallyreduced its debt towards the Central Bank), the overall Treasury deficit has

- ii -

not really been contained (11.8% of GDP for the last three years of thePlan). This situation resulted in an excessive issue of currency in relationto evolution of GDP as well as in the persistence of a visible annualinflation rate of about 7%. The clear-sighted strategy of the Algerianauthorities in the area of external debt must be emphasized: moving againstthe current of an appalling worldwide trend, they have carefully reduced to aminimum their foreign liabilities, thus priserving their financialindependence as well a valuable reputation of solvency.

4. As far as employment, labor productivity and wages are concerned, thetargets of the first Five Year Plan aimed at: (i) reacting to an anticipated4.8% p.a. growth of the to.al labor force by an increase of 8.7% p.a. ofnon-agricultural employment; (ii) stopping the drift from the land andattempting to rejuvenate the agricultural labor force; and (iii) improving theincentive value of wages by an increased linkage of wages with laborproductivity. While the total labor force has increased somewhat less thananticipated, Algerian authorities have been able to increase non-agriculturalemployment by 6.1% p.a., a 2.1% p.a. increase in total unemploymentnotwithstanding. The civil service has absorbed two thirds of new jobs andsome other sectors (e.g. construction and transport) remained below theplanned objectives. The overall rate of implementation of the first Five YearPlan for industrial employment amounts to 88%. For the agricultural sector itdoes not appear that the targets have been successfully reached. In most ofthe sectors the increase in per capita wages remained close to increases inlabor productivity, except for administrations. For the latter, theapparently negative trend in labor productivity has been matched by a positiveincrease in the purchasing power of wages.

5. The seconi Fiva. Year Plan (1985-89) has been prepared in the context ofatn increasingly unccrtain overall economic situation. The Plan's objectiveshave therefore been set at a level which reflects the cautious attitudeadopted by the authorities: the annual growth rate of GDP has been set at 6.5%and the investment rate at 40% of GDP. From a qualitative viewpoint, theauthorities also intended to give more relative significance to theagricultural sector (including irrigation) in order to progressively reducefood dependency, refocus the activities of the State towards the developmentof infrastructure, achieve a higher economic yield of the productive apparatuswith a view to reducing the level of financial intervention on behalf of theState in the agricultural sector. Over the five-year period of the Plan, anoverall budgetary equilibrium (achieved through substantial surpluses at theend of the Plan) should have allowed an easing of inflationary pressures.With the plummeting of hydrocarbon prices at the turning point of the 1985-89period, the projected perspectives had to be drastically modified: unit pricesdropped by at least 40% on international markets and triggered chain reactionsaffecting the overall structure of macroeconomic equilibrium in Algeria,resulting in a drastic compression of imports, a downward revision ofinvestment opportunities and, in the last analysis, a substantial weakening ofeconomic growth. Early in the summer of 1986, the Algerian Governmentundertook the necessary measures to rebalance the economy, without, however,reviewing the second Five Year Plan itself.

- iii -

6. Under these new conditions, potential economic development does notlook very promising: il the short term, the growth of GDP in real terms (atconstant prices of 1984) practically came to a standstill in 1986 whileinvestments were reduced by 25% and imports by 27.6%. The budget equilibrium,seriously compromised, could not be achieved without resorting to substantialadvances from the Central Bank (23.5 billion DA in 1986 compared to 1 billionDA in 1985). This exacerbated inflationary pressures, the inflation rateexceeding lOb p.a.. The pressures affecting external equilibria weretemporarily contained as a result of good agricultural performance in 1986,stocks previously realized and the practice of direct quotas. In the mediumterm, however, the central piloting instrument of the Plan (the investmentprogram) should, according to World Bank estimates, undergo major ups anddowns: in constant 1984 dinars, total Plan investments should not exceed330 billion (of an expected total of 550 billion), following a downturn ineffective investments which could be 65 billion in 1989 (the final year of thePlan), or, for that year, some 22 percent of GDP.

1. In the long term, the objective of putting the economy back on the pathof high level stable expansion calls for a basic rethinking of the conditionsof Algerian growth. Hence, this report emphasizes that endogenous growthforces have demonstrated a clear downward trend since 1974, a regressive trendwhich has been largely hidden by the financial facilities allowed by turningpetroleum earnings to profit. Many indexes facilitate estimations that theindustrial process still suffers from deficiencies on the technological level(possibilities of diversification, load breakdowns, maintenance), the economiclevel (knowledge and control of costs), and the financial level (size ofoperational deficits). Moreover, the sector lacks adequate incentives toincrease efficiency. Significant progress has yet to be made in agricultureto mobilize people, increase farming areas and ease water constraints.Planning itself has still not given up bureaucratic practices for the centraltasks of economic computation.

8. Any substantial long term growth, moreover, depends on overcomingcritical factors: first, Algeria's demographic expansion (+3.2 percent peryear on average) is a handicap which imposes an excessive minimum economicrate of expansion; second, lack of export diversification which subjects theeconomy to standing economic risk and gives rise to behaviors that are overlyfocused on maximization of mineral earnings and hence inadequately adaptable;third, the price system (prices of goods and services, price of capital,relative prices of currencies) does not appear to perform its role ofallocating scarce resources. There are indications of awareness about t'-esethree points but will there be the time to convert such awareness intodecisions aimed at resolving urgent problems?

9. The report adopts this point of view in order to establish two longterm growth scenarios for Algeria's economy. Both scenarios assume that theprices of hydrocarbons will remain in the range of 17-18 US$ per barrel, atleast until the beginning of the 1990's. A first scenario is based on thehypothesis that the authorities will implement, in the near future, anassortment of adjustment measures aimed at reestablishing macroeconomicbalances (continued reduction in imports, reorientation and overhaul of theinvestment program). Without other parallel provisions, the economy can

- iv -

hardly regain a rate of growth which is compatible with demographic constraintsbefore 1994 and (towards 1995) would revert to a path of moderate expansion ofapproximately 4 percent per year. A second scenario then explores thehypothesis of, in addition to the preceding adjustment measures, a provisionwhich would catalyze rational economic behaviors (positive interest rates,price reflecting production costs and indicative of relative scarcities,adjusted exchange rate), and improve sectoral performances. Under theseterms, the dynamism of the economy would go beyond that of the previousscenario starting from 1990, after a necessary period of adaptation, and wouldplace the economy on a sustained growth trajectory of 5 or 6 percent per yeararound 1995.

2. Sectora Plans and Programs

10. Analysis of the agricultural sector is based on the observation of fooddependency representing (in 1980) two-thirds of total consumption. The firstFive Year Plan undertook, with a view towards increasing production, areorganization of the socialist sector, reform of the mechanism for aid to theprivate sector, an overhaul of service organization rethods of intervention,research, etc... The establishment of the DAS (Socialist AgriculturalDomains), outfitted with improved staffing, acquitted of their debts,constituted certain progress; the private sector which now has 60 percent offarmland had easier access to factors of production. Overall, pricedifferential between input and output was expanded, opening up prospects ofenhanced profitability, although investment remained greatly below the plannedobjective. The second Five Year Plan then concentrated efforts on theextension of farmland, the easing of water constraints and the search forsolutions assuring economical and technical viability of enterprises in thesector. It is difficult to distinguish between what is due to planned effortsin the results recorded in 1985 and 1986. Nevertheless, it appears that themechanism set up, coupled with an ambitious program for eliminating fallowfield farming and an assortment of irrigation development projects,implemented with perseverance, could contribute over time towards resolvingone part of the acute food problem (with another element of the solutionobviously being a reduction in the population growth rate).

11. Unquestionably, the industrial sector has been the "spearhead" ofAlgeria's development. It has reached a stage of technical maturity whichshows itself in an assortment of significant indicators (improved rates ofutilization of production capacities (T.U.C.P.), reduction in rates ofdependence, etc.). Production units have been reduced to more manageablesizes under the terms of the industrial restructuring program undertaken as of1982. Nevertheless, economic performances that have been recorded stillappear far from satisfactory levels since on the whole, after subsidies, bankexposures of enterprises under the oversight of the two Ministers of Industry,in 1984 approached some 20 billion dinars. Behind this overall observation,however, lurk significant disparities (disparities in the TUCP of the lightindustry sectors are activities such as cement plants, carpentry, canning ofvegetables are in a perilous situation) or structural fragilities (sensitivityof some heavy industries to technical incidents, sizable reject rates). Thissector should therefore regulate specific problems (textiles, cement plants)develop a spirit of competition in certain branches, and more generallypromote new productivity gains.

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12. Also uneven are performances in the fertilizer and petrochemicalsproduction sector: while certain units (Arzew I, Arzew II, Annaba) aresubject to major malfunctions, others operate in a most satisfactory fashion.The establishment of the ASMIDAL or the' ENIP are without question anabsolutely essential organizational solution but inadequate to resolve theproblems of the sector. The latter are expressed in technological terms(choice of techniques), management (planning, supervision, accounting).Hence, despite the breadth of investments made (some 2 billion US dollars incumulative terms), levels of production and use of productive capacities, toooften remain below international standards.

13. At the heart of Algeria's economic development is the hydrocarbonssector which has borne the full brunt of the crisis. Production of crude oilstabilized at 34.3 million tons in 1985 (far from the record level of 1978:54.2 MT [million tons]), as a result of many factors (conservation strategy,international demand, OPEC quotas); production of condensates (not subject toOPEC quotas) grew quite heavily (from 4.3 to 14 MT between 1980 and 1984);production of LPG [liquefied petroleum gas] tripled (0.968 MT to 3.2 MTbetween 1980 and 1985) and was to grow even more. Gross production of naturalgas more than doubled (from 43.4 billion cubic meters to 90.7 billion cubicmeters, from 1980 to 1985), causing net production to increase from 15 to 35billion cubic mpters; production of LNG [liquefied natural gas] practicallydoubled (attaining 17.6 10' cubic meters in 1985); and lastly, volume ofrefined products rose from 10.4 (1980) to 21.9 million tons (1985). Inaddition to traditional uses of such products for export, there wasprogressively added internal demand which grew heavily: for total resourcesof approximately 80 million TOE [tons of oil equivalent] (all sourcescombined), internal use at present represents one-fourth and export uses theremaining 75 percent Exports themselves were better divided among thevarious products, a diversification which helps to reduce risks. Europeremains the best potential outlet for Algerian gas notwithstanding keencompetition from Norway and the USSR. Forty nine billion DA were investedduring the first Five Year Plan and 39.8 billion DA are provided for thesecond Plan. Nevertheless, because of the price fall recorded in 1986, theprincipal investor in the sector (SONATRACH) is undoubtedly going to be forcedto revise downward its investment program (31 billion DA provided for1985-1989), especially for new projects (exploration, development andtransportation) which could seriously compromise the sector's future.

14. With respect to domestic gas and electricity supply, the report notesthe objectives assigned to the sector: widening of availability, increasingreplacement of gas, increasing use of gas, energy savings. The means for thispolicy essentially are through a gradual policy of relative priceadjustments. Beyond technical problems (distribution of consumption amongforms of power, distribution of natural gas consumption among users, types ofproduction of electricity, transport and distribution), the report emphasizesthat the problem of rate establishment has made considerable progress since itwas decided to institute rate setting at marginal cost, and that organizationof sectors improved following the restructuring decided upon in 1982.Nevertheless, realization of the SONELGAZ restructuring, in financial terms(scheduled for 1987), remains subject to strict profitability requirements.In particular, a reevaluation of the structure and level of the rates should

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allow the enterprise to avail itself of the investment funds required totechnologically respond to heavily growing demand, especially in rural areaswhich had been planned for electrification during the second Five Year Plan.Partial investment reports (Marsat, Skikda, West Algiers) could becontemplated along with other investment savings on new transport lines or newposts.

15. In the transportation sector, after the earlier expansionary phase,emphasis should now be placed on improving productivity, and strengtheningeffectiveness to reduce the need for new larger infrastructure investments.From this point of view, maintenance and rehabilitation will take priorityover the installation of completely new equipment, and transport enterpriseswill be analyzed from the point of view of their financial performances. Ofthe 39 billion DA set aside for the period 1980-1984 for investments, thesector has realized an effective total of 31 billion, largely concentrated onroadway infrastructures (54 percent of the total) and railway resources (20percent). The 1985-1989 Plan provided for increasing interventions up to 54billion DA, but it is hardly probable in view of the current financialsituation that the sector can invest much more than 42 billion DA, a priorityprogram in which the road infrastructure would represent slightly more than 40percent of the total and railways approximately 25 percent. The emphasis, inthis priority program, would be on restoring the current infrastructure,especially for railways, and on port modernization. Cuts that might be madein the program would occur primarily in the setting up of a new railwayinfraatructure including the Algiers metro, in construction of local roads andin renewing trucking capacity. The construction of new railway lines would belimited to ongoing projects, the implementation of which would be slower thanscheduled. Likewise, the schedule for work on constructing the new port ofDjen Djen, in the east of the country, which began in 1985, would probably berevised, taking into consideration a probable reduction in port traffic overthe upcoming five years.

16. In the education and training sector, :he report notes that theAlgerian authorities have buttressed their action with the conviction that anysignificant economic development can only be acquired with an effectiveeducation and training system. For this reason, they have agreed toexceptional financial efforts (approximately 7 percent of the GDP) to assurethe future of the nation through education. Such efforts have been al' themore essential insofar as it was necessary to respond to intense demographicpressure and a no less intense requirement for qualified labor. Thiscombination of factors has led Algeria to reorganize the education structure(establishment of nine years of basic education, and creation of "%ocationalschools"), to revise the structure for programs favoring scientific ortechnological disciDlines, and improving the training of educators. The1985-1989 Plan therefore has been found to be capable of being formulated in arenewed context and of being capable of aiming for rational technical andprofessional training objectives, with reduced administrative costs. Itprovides a total of 45 billion DA in authorized investments which will requirean appreciable increase in personnel in order to become an effectiveinvestment. Nearly 50 percent of the investments are concentrated on theMinistry of Education, 22 percent on the Ministry of Higher Education and 28percent on the Ministry of Professional Training. However, it is likely thatthe program should be rescheduled.

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17. The chapter devoted to the housing and urban development sectoremphasizes that it is one of those in which pressure by social demand isparticularly keen and where such demand (based on extremely intense needsrevealing rates of occupation for lodging that are extremely high andcritical) is poorly met by the supply notwithstanding the efforts of theauthorities. The principal problems in the sector are analyzed in terms ofurban planning (which entails difficult decisions in regard to allocation ofproperties among farm users and building sites), in terms of allocatingbuilding sites among the different types of promoters on the basis of theeconomic effectiveness of the construction firms, as well, perhaps as in termsof financing. In other words, besides easing of physical constraints(availability of properties, allocation of properties, availability ofconstruction materials) there are economic handicaps (cost of construction,organization of the sector) which should absolutely be overcome. Hence it ishardly likely that the sector can reach the 86.5 billion DA investment levelstipulated in the second Plan.

18. The supply of drinking water and drainage systems of waste water arethe subject of the last chapter of the report. This chapter evaluates theannual resources (16.8 billion cubic meters), notes their operationaldifficulties (water quality, infiltrations) and embarks on an estimation ofannual requirements (approximately 3.4 billion cubic meters in 1981).Rigorous planning in the sector is called for in order to economizeresources. Such planning which is carried out under the auspices of theMinistry of Water Works, Environment and Forests (MHEF), is made operationalthrough the existence and activity of autonomous regional enterprises whosepurpose is to supply the population with drinking water. The World Bank hasactively contributed support to such an organization of the sector. Thecurrent level of service in drinking water in urban centers has unfortunatelyregressed notwithstanding enormous efforts, since the population has grownmore quickly than the level of service itself. The treatment network alsorequires sizable efforts to be authorized in order to avoid greaterpollution. Total investment effort on behalf of the sector which hasconsiderably accelerated (41 billion for the 1985-1989 plan as compared with23 billion for the 1980-1989 plan) is focused on the urban zones of Algiers,Oran and Constantine. In view of the top priority of this program, it shouldnot undergo cuts as a result of current financial constraints. However, itremains weak in its "treatment" aspect which is nevertheless crucial for thepopulation's health status.

3. Recommendations

19. The analyses made in the report lead to two broad series ofrecommendations:

19.1 In the macroeconomic order, the report recommends particularly:

a) mitigating the administrative burdens on macroeconomic planning andmanaging procedures and replacing them with procedures that givegreater place to economic computation and financial incentives.

b) perseveringly pursue the program for economic reequilibriumundertaken under the urgency of the 1986 financial situation.

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c) blend into this program (a necessary but not sufficient conditionfor returning to a path of satisfactory growth) a reconsiderationof a price system. From this point of view:

(i) prices of goods and services should faithfully reflectproduction conditions as well as tensions between supply anddemand. The "truth in pricing" policy that has already begunshould be based on more thorough analysis and lead to acontinued reduction in the subsidy system.

(ii) interest rates also should better represent alternative usecosts of capital and be set at positive real levels. It istherefore appropriate to eliminate the the misgiving idea thatdomestic monetary and financial goods are to a wide extent "free"since, like any other good, they are scarce resources.

(iii) a radical rethinking of the relative price of the Algeriancurrency vis-a-vis other foreign currencies (exchange rates)also seems to be called for, both to take into account the newworld situation as well as to restore economic calculations onmore wholesome rational bases (note here the weight played byimports in the Algerian economic process).

This reconsideration of the price system, is in the spirit of thereport, the key to a substantial improvement in economic efficiency which thecountry so greatly requires.

19.2 Moreover, these recommendations have their extensions and equivalentsin the sectoral and even microeconomic order.

a) In all the production sectors (industry, agriculture,petrochemicals, construction, transportation, domestic energy)making companies responsible, eliminating subsidies and/or nonpaidexposures, and the requirement to free up net autofinancing marginsin a decentralized fashion, militate in favor of setting up a pricesystem appropriate for assuring rational allocation of resources.To establish such prices, the institution and development of properanalytical accountings are prerequisites without which a knowledgeof costs will remain approximate.

b) In the same sectors, the report recommends that before undertakingnew expansion investments, the existing serious difficulties befirst identified and then resolved. Whether such difficulties areof a technological nature (ammonia production units, phosphateplants, cement plants), economic (textiles, lumber) or financial(assortment of firms showing excessive bank exposures or incapableof paying back their debts), it is necessary to have a restoredbase before accumulating new equipment, otherwise nationalintegration could well show local gaps that could jeopardize theoperation of the whole.

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c) In the industrial sector. decisions connected with economicorganization of the sector (opening to PNI [small and mediumindustries] on certain segINats of light industry,upstreamdownstream improvement of the electronics connection) ortechnical organization (load plans, availability of spare parts,maintenance in heavy industry) should be adopted.

d) Analysis of the training and education sector leads to anestimation that it is desirable not to slow down:

(i) the program for training professional education instructors;(ii) the professional training centers program; (iii) thesecondary teachers training program (iv) strengthening the IPNand Ministry of Education regional personnel and uppermanagement training centers.

e) Lastly, for hydrocarbons, a sector which remains crucial for thefuture, the report emphasizes:

- the need to maintain a higher rate of exploration- the requirement for optimizing gas production- the importance of restoring the old pipelines network- the analysis to be made of performances of companies whichprovide technological services or engineering services in thesector.

728s@p3-11

44

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-31.

PART I

MACROECONOMIC PLANNING

., \

I

CHAPTER I - ALGERIAN PLANNING: A RETROSPECTIVE

A. Preliminay Considerations regard rathe en

Economic System and Plannin5 Procedures

1.01 The Algerian economic system is not easily understood withoutsystematically referring to its national and ideological sources. These arefrequently mentioned in the basic texts defining the fundamental choices ofsociety in Algeria'I, and in particular in the "National Charter," the mostrecent version of which dates from January 1986. This charter establishes anunambiguous ideological (and historical) link between the adoption of thevalues of Islam, the selection of Socialism as a "system for achievingdevelopment in order to ensure an equitable distribution of wealth" and thechoice of planning as "an instrument for directing and democratizing theeconomy and as a means for equitable distribution of the fruits and costs ofdevelopment."

1.02 While the Algerian economic system declares itself to be socialist,this is understood as being a national (or even nationalist) reality which isnot derived from any "materialist metaphysics" nor based on "any conceptforeign to the intellectual, social and spiritual history of the Algerianpeople." Algerian socialism seeks to achieve three fundamental objectiveswhich shape both the structural profile of the Algerian economy and the styleof current economic behavior. These three objectives are:

(a) Consolidation of national independence. Beyond the creation of a"sovereign State" and the delimitation of "a territory freed from allforeign occupation," this objective aims at the elimination or atleast minimization of any foreign economic interests likely to revivebehaviors of a "colonialist" type. However, the scope of thisobjective is very wide-ranging within the structures of the economicsystem, since it also extends to:

(i) financial independence, from which are derived the principlesof: limitation of the contributions of external technologies toprojects or sub-projects for which national technologies aredefective, maximum incorporation of available nationalproduction techniques in preference to competing and/orcompetitive foreign technologies, maximization of transfers offoreign technology and import substitution. Financialindependence also implies the absolute control of externalindebtedness.

1/ These texts are: The Proclamation of November 1, the Charter of theSoummam, the Tripoli Program, the Charter of Algiers, the Proclamation ofJune 19, 1965, the National Charter of 1976, the Constitution of 1976 andthe National Charter of 1986.

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(ii) State monopoly of foreign trade, which has resulted in the grantof a monopoly of foreign procurement to certain publicenterprises, the setting up of a system of General ImportAuthorizations (GIAs), the instituting of a General ImportProgram (GIP), and the assignment of essential decisionsregarding hydro-carbon exports to a central sectoral authority(the Ministry of Energy).

It should be noted here that the dividing line between "nationalindependence" and self-sufficiency is a vague one and that Algerianeconomic policy decisions frequently cross it without being aware ofthe consequences.

(b) Socialization of the means of production."' This resultsessentially in the formation of a public sector of the economycovering agricultural, mining, industrial, banking and trust, andtransportation activities. The public sector accounts for some 70%of the total gross value added of the productive sectors.

(c) "Promotion of man and the realization of the full potential of hispersonal development.' These philosophical objectives arenevertheless given a concrete and economically intelligible contentinasmuch as labor is considered as the "fundamental production andaccumulation factor" while the principles of equality of the sexesand of remuneration for labor, taking into account the talents andmerits of individuals, are affirmed. The aim is to provide citizenswith a level of consumption that is "consistent with a high standardof living", even for those who are not in a position to work.

1.03 Planning, finally, is consistent with the logic of socialism. It is,first of all, viewed less as a "forecasting and programming technique" andmore as an instrument for achieving the goals of socialism. This means thatit is primarily political in nature (it is "the expression of theimplementation of a policy (by the Direction Politique]"). In this context,it nevertheless seeks to achieve, by specific means, accumulation and growthobjectives; it organizes, in principle, the optimum utilization of availableresources, requires an efficient management of the national economy and mustimpose positive or negative sanctions. It can only be mandatory in nature andmust logically be applicable to all the processes of national economicactivity, thus requiring a significant level of social and collectivediscipline. It should be noted at this juncture that Algeria's leaders arenot far from obtaining this disciplire from their fellow citizens; the fact isthat the different watchwords ("self-reliance," the call for "austerity" andthe forgoing of present consumption to preserve the country's future andnational independence) generally produce a response that enables theauthorities to solve difficult problems of macro-economic adjustment withoutcausing an excessive social or political crisis.

1/ Also envisaged as a means for "doing away with the exploitationof man by man."

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1.04 Even when placed in an ideological framework, planning is still noless an instrument for managing the economy. In this respect, the Charter of1986 emphasizes that: (i) "planning also entails the use of scientificapproaches and techniques, in accordance with the development of planningtechniques and management systems in the world"; (ii) planning mustcontinually ensure the "observance by economic enterprises of the imperativesof economic growth, cost reduction, quality improvement and adjustment ofproduction to needs"; and (iii) planning should not be limited to the listingof projects and the cataloguing of investments, but should also seek todevelop appropriate instruments for selecting new projects and following upproject implementation.

1.05 First of all, Algerian planning has a theoretical backgroundconsisting of a theory of economic development based on a twofold foundation:

(a) The "Feldman-Mahalanobis" model- which, on the basis of very highinvestment rates in the sectors producing capital goods (heavyindustry, for simplification), is presumed to generate an initialphase of slow growth with considerable sacrifices as regardsconsumption; the foundations of industry having been laid, a secondphase of faster growth will lead to a quantitative and qualitativeimprovement in the supply of consumer goods thanks to theestablishment of light industry which, from then on, will absorb agrowing proportion of investment;

(b) the theory of "industrializing industries" according to which theindustries in which investment should be concentrated at thebeginning of the development process are those which will generatethe maximum backward and forward linkage ef'ects in the industrialstructure- specifically described by an inpu.Jsitput matrix. Thusa developing economy, characterized initially by a relatively emptyinput-output matrix, will fill it out at a faster pace by making acareful and appropriate selection of industries for investment.These two initial considerations also explain the initial voluntaristnature of Algerian planning combined with the persistence of a highaccumulation rate. They also explain the care taken by Algerianplanners to construct an input-output matrix which subsequentlybecomes a central technical tool of the Plan.

1/ This is in fact an implicit synthesis of two contributions: that of theRussian economist Feldman, which is a modernized version of the Marxistmodel for the expanded reproduction of capital; it makes a centraldistinction between production of capital goods and that of consumergoods, from which results the institutional separation of heavy and lightindustry activities. The second contribution is that of the Indianeconomist Mahalanobis who, using similar bases, deduces different paths oflong-term economic expansion depending on sector investment rates.

2/ The theoretical analysis of these effects have been made by A.0. Hirschmanwho has based the process of unbalanced growth on the structure of aninput/output matrix.

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1.06 From a technical point of view, macroeconomic planning is in factbased on a national accounts model constructed on an input/output matrix.

(a) More ?recisely, Algerian macroeconomic planning is based on astatic- open Leontief model.&/

(b) The evaluation of the economic future then consists essentially in aprojection of supply (the production capacity of the productionapparatus) over a five-year horizon, taking into account:

(i) potential production capacities introduced by the newinvestments made in the productive sectors;

(ii) the inputs (of all types) required that will have to be (can be)imported under the PGI (General Import Program).

In such an analytical context, it must be clear that final consumerdemand is not met unless there is something left with which tosatisfy it after industry has been provided with current and capitalinputs, and furthermore that no exporting (other than of hydrocarbons)is done unless an exportable surplus remains after all (intermediateor final) domestic demands have been satisfied. This approach whichmay be labelled as "residual" partially enlightens the fact thatnon-hydrocarbon exports have not been adequately promoted in the past.

1.07 At the same time, two sets of plans are developed in parallel withthe overall approach over a five-year horizon:

(a) On the one hand, enterprise plans comprising the setting ofproduction targets connected with investment projects. Normally,these plans must: (i) observe the constraints laid down by thesupervisory ministry; (ii) be formulated in the enterprise followinga 'pre-ranking" of investment projects; (iii) be referred back to thesupervisory ministry which, after discussion, will make the necessaryadjustments; (iv) then be submitted to the Ministry of Planning toverify that the sector plans are consistent with the macroeconomicplan and in order to prepare the technical working documents to betransmitted to the interministerial groups responsible for making thefinal adjustments; the final decisions by the political authoritieswill not be taken until all of these phases have been completed.This (rather complex) procedure worked relatively well until thereorganization of enterprises. Since then, with the multiplicationof enterprises, the enterprise plans are no longer being submitted tothe Ministry of Planning. 3 A/ serious coordination problem hastherefore arisen from the point of view of macroeconomic management.

1/ This precision is quite important from an operational standpoint.2/ It should be borne in mind that in this context there is a one/one

"branch/product" correspondence.3/ The qualitative value of these plans can moreover be questioned, knowing

the general lack of cost accounting systems within the enterprises.

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(b) On the other hand, an Annual Plan1' which up till now has focusedon determining the amount and/or desirability of capital projects asa function primarily of the oil market. The core of the Annual Plancan easily be located in the Budget, but the Annual Plan as a wholeextends considerably beyond the limits of the budget process. Theoperational and mandatory nature of the Annual Plan will undoubtedlyacquire further significance in the years ahead since: (i) thesecond Five-Year Plan (1985-89) intends to make it a "real instrumentfor evaluation of the performance of the economic and social system"and to give it "a definite operational and binding character; and(ii) as of 1987, the Annual Plan will include the introduction of an"annual financial plan" component designed to introduce the finoncialconstraints2' into the programming of investments.

1.08 Once the macroeconomic plan has been drawn up and the projectsenumerated, coordinated and rendered compatible, both among themselves andwith the relevant political criteria, and after the consistency of the GeneralReport on the Plan with the resolutions of the FLN party has been verified andthe National People's Assembly has debated and adopted the macroeconomic plan,it then takes the form of a law and is promulgated as such. Clearly, thisprocedure, designed to ensure the political soundness of the plan, is tooinflexible since it causes the Plan to become a rigid and irreversibledocument.

1.09 It must be borne in mind that the Algerian Plan is a key instrumentin the macroeconomic strategy and management of the country, and in theformulation of its policy. It is accordingly necessary to evaluate itseffectiveness as an instrument. As a set of forecasting techniques, theAlgerian plan has certain weaknesses; it appears ill suited to the control ofthe economy and remains scientifically perfectible.3'

(a) Its major weakness (and also source of its unsuitability) lies in thefact that it is based on a static model that is incapable ofexplaining how the growth path of the economy is achieved, and ofexplaining at the same time both how the targets set can be achievedand how (through appropriate economic policies) it will be possibleto get back to a growth path that will minimize the divergence fromthe course initially set.

(b) Its need for scientific improvement derives from an essentialconsideration to which certain minor comments can be attached. Thisis primarily the unsophisticated and segmented nature of theforecasting model used. The sector projections are distilled into asynthesis "by discussion" and not by means of reconciliation andanalysis of their consistency in the context of an appropriate formal

1/ First instituted during the 1970-73 Five-Year Plan.2/ Constraints that have been totally lacking up till now. On the contrary,

the banks have been under the obligation to finance any decisionincorporated into the Plan.

3/ It is significant that both the Charter of 1986 and the General Report onthe Second Five-Year Plan focus on the need for a scientific approach inthe elaboration of the Plan.

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model. A subsidiary point is that for years the Algerian plannersconcentrated on "filling up" the input-output matrix withoutconsidera ion of the cost-effectiveness of the operation, therebyultimately obscuring a crucial aspect of economic analysis: thedetermining of opportunity costs so as to avoid the waste of scarceresources, particularly labor expended in construction and in thedaily implementation of new equipment. Finally, there is also thefact that there is no true calculation of the inter-temporalallocation of resources: on the one hand, it appears that thepolitical option in favor of a high investment rate (40% of GDP) willnot be reconsidered by political authorities before 1988, on theother hand, investment calculations never systematically incorporatediscount rates - the real interest rates being moreover negative -and are almost always viewed in terms of rent for money and veryrarely as an instrument of inter-temporal economic calculation.

1.10 As far as the actual impact of the Plan on economic outcome isconcerned, it seems that it varies in intensity according to the observer'sviewpoint. In order of decreasing apparent impact, it can be noted that:

- Ceteris paribus, (and specifically, in a situation of balancedexternal accounts)the Plan has a decisive impact on the distributionof domestic resources between consumption and investment. As hasalready been mentioned, this is primarily a political choice, whichis all the more easily made that, in principle, the planner Statepossesses the principal means of decision-making, i.e. it financesthe investments. But there are also physical and financialconstraints which, when not sufficiently taken into consideration,create a gap between the target set and actual achievement.Therefore, the actual investment rate observed during the firstFive-Lear Plan, although quite high (38.3%) according to thequalitative option that had initially been made, has remained wellbelow the targeted objective (48.6%).

- The impact of the Plan on external trade has been somewhat lessstrong. Concerning exports, it is the international equilibriumbetween supply and demand for hydrocarbons which operates thefeed-back controls; as for imports, these feed-backs are notcompletely controlled by planning devices: they are closelysubjected to the incompressible requirements in imported inputs, onthe one hand, and to the exports situation, on the other.

- Finally, the Plan's role in efficiently regulating production isquestionable (on a short-term basis): as will often be mentioned inthe following chapters of this report,1' the Plan seems to berelatively unable to make up for the delays which occur in growth (innormal conditions); these are mainly attributable to the actualperformance of the productive apparatus. In turn, the latter, althoughsubjected to bureaucratic constraints, is not, at this point of time,controlled by an operational system of incentives/penalizations whichwould enable to correct the gaps in growth path of total value-added.

1/ See also Tables I.1 and II.3.

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B. The 1980-84 Plan: Performances, Strengths and Weaknesses

1. The Initial Plan

1.11 The 1980-84 Plan continued the majority of the general policyrequirements of the socialist development of the economy, while also placingemphasis on pursuit of the strengthening of intersectoral relations inparallel with national economic integration, elimination of the sources ofimbalance and of the disequilibria that had occured earlier (overdevelopmentof sectors having special relations with foreign activities, formation Lfeconomic "enclaves," bureaucratization of the economy, development ofinflation and shortages, constitution of pure economic rents), establishmentof a correctly balanced and unified education system, mobilization ofproduction capacities and achievement of high levels of economic efficiency.

1.12 The global performances expected of the economy were set quite high(Table I.1, column 8). A target GDP growth rate of 7.1% p.a. (in constant1979 values) was defined with final consumption growing slightly faster (+8.9bp.a.) than GFCF (+7.3% p.a.). This differential in growth rates was viewed asnecessary on account of the high average annual rate of population increase,and the need to ease social tensions arising from the p)pulation's growingimpatience to share in the benefits of Algeria's oil and gas earnings. ThePlan also provided for modest but positive expansion of exports (+4.92 inconstant 1979 DA) combined with a restructuring of hydrocarbon exports (highergas and refined product exports, less crude oil), while non-hydrocarbonexports were not felt to need closer attention. Imports were to grow fasterthan exports (+6% p.a.) in view of the need to satisfy a final consumer demand(especially for food products) that could not be met by domestic productionand particularly in light of the necessity of providing industry with currentinputs and capital goods required for the production activities featured inthe Plan. It will be noted here that the programmed imbalance between therespective growth rates of exports and imports applied to a base year (1979)that was itself out of balance (DA 6.3 billion foreign trade deficit); as aresult, the deficit (in constant 1979 DA) programmed for 1984 necessarily hadto grow at a high annual rate (12.2b p.a.) and engender sizable externalfinancing needs. The opposite hypothesis adopted in the Plan ("moderaterecourse to capital market") then presumed that gas prices would riseconsiderably and that this rise would be sustained. This assumption proved tobe only half justified. Achievement of a high level of production was alsodependent on the sectoral performances of the economy: a large proportion ofthe growth was to be derived from high-powered performance on the part ofindustry (+12.52 p.a. on average), an expansion of services (+L0.5% p.a.) andsustained development of the activities of the construction and public workssector (+10.5b p.a.); while the real growth of the agriculture andhydrocarbons sectors would remain well below the average growth rate of GDP(4S and 0.4% respectively)."'

1/ The very low growth rate expected for the value added of thehydrocarbons sector is the result of the last revision of the Planaimed at intensifying conservation of a nonrenewable resource.

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1.13 Viewed overall, the actual figures remained quite far from theforecasts: in global terms, GDP grew by no more than 4.302 p.a. on average(Table 1.1, column 7) with a progressive acceleration of growth between thestart of the Plan and its conclusion. The growth trajectory of GDP is thecomplex outcome of that of consumption, which was continually curbed after twoyears of reordering (1980 and 1981) and that of productive investment (GFCF),which had to be speeded up appreciably (from -2.552 in 1980 to +3.83%) in theclosing years of the Plan. Instead of an expected expansion of exports, therewas a decline, and as a result of which, imports had to be compressed wellbelow the target levels after the two years of expansion (1981 and 1982). Itshould be noted here that in 1980-81, the difference in growth rates betweenexports and imports was such (about 16 percentage points) that it wasinevitable that Algeria would have to cover the deficit by fresh recourse toexternal capital; disbursed borrowings in fact amounted to nearly US$16 billionin 1981. In sectoral terms, the processing industries posted a growthshortfall of 4 points per year on average as of the end of the Plan; thegrowth of services was also disappointing and somewhat erratic, at 4.50% p.a.on average as of the end of the period, which was far from the expected 10.5X.Notwithstanding the modest forecasts, hydrocarbon production dropped in realvalue by 2.36X p.a. The dynamic sectors were the public works (+8.45Z p.a. onaverage for the period as a whole, with a distinct acceleration in the finalyears of the Plan) and agriculture which managed to maintain its growth fairlywell despite two mediocre years in 1982 and 1983.

2. The investment prograu (Table I.2)

1.14 As already noted, the investment rate of the first five-year Plan wasvery ambitious: 48.61 of GDP. Moreover, the high volume of expenditureauthorizations (DA 400.6 billion) would appear to indicate that an even higherinvestment rate (56.71) could be achieved. Primarily because the actualduration of implementation of the projects in question could not coincide withthe five calendar years of the Plan, the first Five-Year Plan inherited anappreciable volume of projects still outstanding from previous periods (nearlyDA 200 billion) and bequeathed to the next Plan an amount of substantialinvestments yet to be ca.ried out (some DA 160 billion). In hindsight, theabsorption capacity of the sectors seems to have been overestimated, and theprogram appears to have been distinctly overdimensioned. From the sectoralviewpoint, the distribution of the projects (in expenditure authorizations) isseen to be 581 for the direct production sectors (industry, agriculture,transport, construction), 251 for the social sectors of housing (151) andtraining (101), 9.5% for economic infrastructure and about 7.51 for socialinfrastructure and community facilities. This distribution mirrors fairlyprecisely the policy choices of the Plan, which stressed moreover the need for"full utilization of the existing potential."

1.15 The Plan's achievements lagged markedly behind the program: theaverage investment rate (GFCF/GDP) was 38.3%, rising from 371 in 1980 to 39.61in 1983 then dropping back to 381 in 1984. Actual investment expenditures inthe period were 345 billion current DA,-' hence well below the real or eventhe nominal targets. The 1980-84 Plan therefore left an unimplementedcarryover of about 56 billion current DA, to be added to the 160 billion of

1/ DA 270 billion at 1979 prices.

Table I.1:

FIRST FIVE YEAR PLAN (1980-84), MACROECOOI)#C PRWJECTONtS ANO PERFORWANCE

(Billions of Algerian dinars and percentages)

Pie., Estimates Actual Real Average Annual Growth Rates Planned Lead o+) OrAggregates for Aggregates for from 1979 to indicated Year f% D.a.j Average Growth Lag t-)base Year: 1979 base Year 1979 1980 1981 1982 1983 1984 Rate (%I

1 2 3 4 S 6 7 8 9

uwoss Domestic Production 111.6 112.9 1.93 3.48 3.61 4.15 4.30 7.1 -2.80Government Services n.a. 15.3 13.32 9#:16 7.58 6.80 5.92 n.a. n.a.Gross Domest4c Product n.a. 128.2 3.79 4.17 4.10 4.47 4.50 n.a. n.a.Final Consumption (1) 61.0 75.9 (60.5) 11.96 (11.1) 12.88 (13.2) 9.53 (9.3) 7.43 (7.1) 7.34 (7.2) 8.9 -1.56 (-1.7)o.FCF 55.5 50.4 -2.55 1.37 4.09 4.66 3.83 7.3 -3.47Changes in Stocks 1.4 4.1 39.88 11.20 -3.29 3.71 1.70 n.e. n.e.Exports 38.0 39.9 -12.83 -9.S6 -6.53 -4.20 -2.78 4.9 -7.68Imports 44.3 42.1 3.48 7.34 5.18 3.65 3.27 6.0 -2.73

II. Value Added by Sector

Agriculture 7.5 10.8 6.96 12.34 5.00 2.31 3.59 4.0 -0.41Nydrocarbons 36.0 33.5 -8.20 -8.10 -5.60 -2.84 -2.36 0.4 -2.76Processing Industries 14.0 12.2 4.20 7.23 7.33 7.75 8.33 12.3 -3.97Other Industries 1.8 1.4 30.36 19.00 18.00 13.88 12.50 12.9 -0.40Construction/Public worksand Oil Works 15.2 18.1 4.75 6.20 8.58 7.76 8.45 9.3 -0.85

Services 27.5 28.3 4.48 3.93 4.66 3.99 4.50 10.5 -6.00Iotal Value Added 102.0 104.3 1.41.l 2.4 3.10 Li -4.S0

Import Duties and Taxes 9.5 8.6 13.S1 20.90 11.99 13.60 12.10 8.1 +4.00

Gross Domestic Production 111.6 112.9 293.4 112 -2.80

(Exponential) growth rates calculated as annual averages by reference to the base year of the 1979 Plan. using the formula:9t - [(XT / Xo)IhT - Iin which ST = average annual growth rate up to year t

XT = value (in constant 1979 OA) for year tXo = 1979 value

n a not available (these aggregates are not calculated in the context of Algeria's national accounts)el not established

(I) figures between brackets are consistent with the concept of final consumption in the Algerian system of national accounts (SCEA)

Auutc : Data provided by the Algerian authorities (Ministry of Planning), in June 1986 and May 1987.

*i,bS/pi (5,3)

- 10 -

1979 DA already scheduled for implementation after 1984. Altogether, the1980-84 Plan left its successor a portfolio of some DA 220 billion ofunimplemented projects."' The reasons for this are in fact quite simple:firstly, in constant 1979 dinars, exports have fallen rather than risen,entailing a downward revision in terms of growth of the amount of imports,resulting in an appreciable cutting back of capital goods imports with aconsequent impact on project implementation; secondly, the absorption capacityof the sectors was very probably too low. When plant and equipment alreadyinstalled is at times underused or misused, the addition of new projectsfurther complicates the situation. The already existing shortages ofqualified personnel for bringing the installations in place on stream couldonly be worsened by the completion of new capacity, so that the managerscannot adequately supervise the related projects.

1.16 The actual achievements by sector as of the end of the Plan reflect arebalancing of the initial priorities: the share of investments in productionactivities becomes some 52.52 (down 5.5 percentage points; primarily thenon-hydrocarbon industries and, to a lesser extent, transportation); the!'social" sectors are down about 1 percentage point (24.5b with some verymarked shifts within the category, the proportion accounted for by housingbeing up by nearly 1 point whereas that of education and training shrinks by1-1/2 points); the effort put into economic infrastructure is proportionallygreater (11.5%, i.e. up 2 points) while that devoted to social infrastructureand community facilities is down by about 3 points. Altogether, thedifference between plans and actual accomplishments is still sizable:calculated in constant terms (at 1979 prices), tie DA 345 billion in actualinvestments (86% of the expenditure authorizat4 as in current terms) amountsto DA 270 billion in 1979 prices, which me .a that in actual fact theinvestment program was only two thirds implemented. An appreciablerestructuring of the program still leaves the impression that the decisionsmade have not always directly addressed the real questions: the new emphasisplaced on economic infrastructure demonstrates that this infrastructure isapparently viewed as a pre-requisite for other investments. The continuationof a high rate of investment in housing underscores the existence of anunavoidable problem linked to demographic expansion and urbanization which isbeyond the direct control of central planners- . The reduction of therelative weight of accumulation in the non-hydrocarbon industrial sector alsoreflects the existence of structural constraints that place a limit on theability of central planning to achieve ambitious targets.

3. Algerian Public Finances' between 1980 and 1984 (Table 1.3)

1.17 The Algerian Public Finances are both the vector of essentialeconomic policy decisions (it forms the "heart" of the annual Plan) and the

1/ In 1979 DA this amounts to over DA 290 billion, i.e. half of the valueof the programs covered by the Plan.

2/ Urgency and social pressure rather than the planners' economic analysisexplain the increase in the relative weight of these expenditures.Reference should also be made to the part of this report devoted tohousing.

3/ With this terminology we refer to the set of Treasury operations whichcover not only the budget stricto sensu but also lending and borrowingactivities which exceed the budgetary framework.

Table I 2:

GENERAL INVESTMENT PROGRAM 1980-84 AND ITS EXECUTION

(Btilions of constant 1979 Algerian dinars)

PROGRAMSBillions of DA

Unexecuted iExpenditure Actual As X of As X of targets Brought forward As X ofcarried ..Autharization Expenditures total (of 1980-84 from 1980-84 Total to be totalover from New 1980-84 expenditures authorizations) Plan carried forward Programs

Drevious Plan Pronrans Total 1,98-84 Beyond Constant DA (X) Col.6fCol.4 Col.4-6 .CnLL± CL2.9 Col.10QC01.3(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)

INDUSTRY 22.5& 132.2 211.7 JiS45 ALI 97L214 35.96, 6L2. 57286 114.486 IL4of which: Hydrocarbons 28.4 49.3 77.7 63.0 14.7 (43.206) 16.00 68.6 19.794

AGRICULTURE i. 41. 59 47.1 12.3 29247 10.82 62.6 17.853 3QI51 50.Forestry 0.7 3.3 4.0 3.2 0.8 2.673 1.00 81.3 S27* Farming 6.0 17.9 23.9 20.0 3.9 8.762 3.23 43.8 11.238* Water Resources 10.9 19.1 30.0 23.0 7.0 17.628 6.52 76.6 5.372* Fishing 0.2 1.3 1.5 0.9 0.6 184 0.07 20.4 716

TRANSPORTATION LA 13.4 Ila 13 0 6.357 23 i2 6643 9 43

INFRASTRUCTURE i. 3i6. 51 7 1 1 11 30 8 5 7f382 2S.S82 i5. -* Nonrail Comuinicatns 6.8 12.S 19.3 12.5 6.8 15.546 5.75 124.4 -3.046RailwayInfrastructure 1.8 7.1 8.9 5.0 3.9 3.131 1.15 62.6 1.869Telecommunications 1.8 6.2 8.0 6.0 2.0 3.510 1.30 58.5 2.490Storage/Distribution 8.8 9.0 17.8 13.0 4.8 7.855 2.90 60.4 5.145

* Industrial Zones 0.7 1.4 2.1 1.4 0.7 476 0.20 34.0 924

HQUUdNG iA0 2ZI5 MA "A 42i39S ii6i L ZL2 l7i60S SosL1S liiEQUCATIODMTRAINING I26l LA ILl iLZ ZL.i iLili L.Z4 ILi l8l566 42.066 64

INASTRUCTU"DK 7, 43 10 1^347?348 2745189S92 13.6S2 6*of which: Health 3.6 6.2 9.8 7.0 2.8 4.020 1.49 57.4 2.980

COMMUNITY FACILITIES 2.1 l0.9 31il Li L 7 4Z274 1Ifl i4L S.326 9L02lCONSTRUC TIOENTERPRISES LA 21. 2i5 20I la 11.356 4.20 KA. 8644 136 MAMISCELLANEOUS 19.930 6.65 n.a. n.a.

T 0 T A L . ii ML6 AD"l 2ZP &L8 IM U_L

61368 p 2 (5.3)

- 12 -

reflection of the stresses in the current economic situation. In other words,they are intended to form the financial core of the Plan, and thereforereflects the conflicts between the policy goals and the resource constraints.

1.18 Current Operations

(a) Up to 1979, the resources derived from oil and gas taxation werepractically equivalent to those obtained from other taxes, and theirgrowth (at least since 1975) stayed relatively symmetrical.Following the raising of oil prices in 1979, oil and gas tax revenuessoared to account for 60X of current budget revenues. During theperiod covered by the first Plan this situation lasted for two years(1980 and 1981), after which hydrocarbon revenues began to falter anddecline: the combined effect of the reduction in world demand foroil products and the successive price cuts in a context of surplussupply caused the relevant tax revenues to drop to PA 37.7 billion in1983. The subsequent upward movement in condensates and thedifferent forms of gas then brought about an upturn in tax revenuesbut not, however, a return to the record level of 1981 (around DA 51billion).

(b) Receipts from ordinary and other taxes returned to first place as asource of budget receipts after 1982, when oil and gas tax revenueshit a low. During the first Plan, the former had grown at some 23.5%p.a. as a result of a sustained effort by the Government to improvethe efficiency of collection.

(c) The very marked rise in current expenditures (17.4X p.a. between 1980and 1984 with pronounced fluctuations during the period) was theoutcome of government decisions regarding the meeting of essentialsocial needs (health and education) and social justice. Theapplication of the Workers' Charter (Statut Gen6ral du Travailleur)has also brought about a significant increase in the wages andsalaries paid out by public authorities.

(d) The current budget balance has accordingly reflected the effects ofall the preceding processes. It peaked at a DA 50.6-billion surplusin 1981, dropped back to DA 36 billion in 1982 and did not return toits previous record level till 1984.

1.19 Capital operations

(a) These grew by 12.1% p.a. between 1980 and 1984 in nominal terms,which corresponds to about 5.9% p.a. in real terms (after deflationby the GFCF deflator) and is 1.4 points below the global growthestimated for GFCF. Within this general figure, considerable changeshave taken place in the structure of the State's interventions: from1980 to 1984 direct investments (economic, social and administrativeinfrastructure) were increased by a factor of 2.5 while indirectinterventions (in the form of loans by the Treasury to financialintermediaries specializing in particular sectors: CNEP for housing,

- 13 -

BAD for industry, BADR for agriculture, PTT for telecommunications)remained static around an average of DA 27 billion per year. At thesame time, the State never ceased putting money into the productivesector to clear the accounts of units, that were in debt andincapable of repaying their borrowings: DA 8.4 billion was injectedin this way between 1980 and 1982; as of 1983, moreover, the programfor the general restructuring of enterprises, which included aconsiderable debt settlement component for public production units,entailed the injection of a further DA 13 billion. These results areevidence of deficiencies in the financing process of production unitsthat borrowed from the State through the specialized financialintermediaries. Thus, if only loans granted between 1972 and 1977that would normally have fallen due around 19801' are taken intoconsideration, and assuming an average term of 15 years 2, whileignoring interest (very low), the State would have recovered throughrepayments, as of 1980, some DA 3.5 billion a year on average. Notonly were these sums not recovered (repayments averaged around DA 700million per year between 1980 and 1983), but the State even had toreinject balancing subsidies amounting to DA 2.8 billion per year.The logic of "loans" can legitimately be questioned if no repaymentfollows. The Chapter on the industrial sector also underscores thepermanent nature of this question and che urgency of resolving it.It is noted that the question of public enterprise deficits cannot beisolated from that of the price policy for inputs and outputs ofthese enterprises.

(b) As the financing resources have not been replenished, and since thereare no other sources of funds, the capital budget deficit has risenby 112 per year, mounting from -DA 48.4 billion in 1980 to -DA 74billion in 1984.

1.20 The Financial Equilibrium of the Treasury

(a) With the exception of 1981 when a record level of oil and gas taxrevenues made it possible to limit the shortfall between budgetsavings and budget investments to DA 2.6 billion, Algerian publicfinances have been characterized by a marked negative imbalancebetween savings and investment. In cumulative figures, the totaldeficit from 1980 to 1984 amounted to almost DA 100 billion,entailing the mobilization of resources that ought normally to havebeen available for use outside of the Treasury.

(b) Half of these needs (a cumulative DA 50 billion over five years) wasmet by resources of the nature of savings (issuance of developmentbonds, recovery of financial surpluses of public institutions).About DA 20 billion was obtained from Treasury resources proper.DA 30 billion, finally, was financed by means of monetary resources,chiefly through recourse to advances from the Central Bank. Themodalities of money creation following Treasury deficits have varied,

1/ These loans are generally granted with grace periods of four yearson average.

2/ The terms of the 'Loans are in fact between five and twenty years.

- 14 -

Tableau I.3:

SUMMARY TABLE OF ALGERIAN PUBLIC FINANCESDURING THE FIRST FIVE YEAR PLAN

(Millions of current Algerian dinars)

1980 1981 1982 1983 1984

I. CURRENT OPERATIONSA. Current Revenues 62,116 82,814 77.572 87.026 102.899

a) Ordinary Taxation 22,030 28,176 31.316 40,799 46.968b) Oil Taxation 37.658 50,954 41,458 37,711 43.841c) Other Revenues 2,428 3.684 4.798 8,516 12.090

B. Current Expenditures 27.592 32.150 41,560 45,026 S2.338a) Ordinary Expenditure 27,592 32,150 41.085 45,026 52.338

C. Current Account Balance 34,524 50.664 36,012 42,000 50.561

II. CAPITAL OPERATIONSA. Investment Expenditure 49,339 54.119 61,050 76.388 78.033

B. Investrient-linked Resources * 922 810 485 573 3.953

C. Capital Account Balance -48,417 -53,309 -60,565 -75,815 -74,080

III. BUDGET BALANCE (I. II) -13,893 -2,645 -24,553 -33,815 -23.519

IV. FINANCING 13,893 2,645 24.553 33.815 23,519A. Net External Loans -206 -108 -111 39 -18

B. Domestic Savings Mobilization 6,629 9.208 13,725 13,665 7.350a) Development Bonds 5,257 5.167 6.076 6.800 8.324b) Deposits of Public Institutions 1,372 4,041 7,649 6,865 -974

(incl. Local Authorities)

C. Mobilization of Sight Resources 1.849 3.083 5,123 4.604 4,488

D. Recourse to Banking System 5,621 -9.538 5.816 15.507 11.699

* Loan Repayments.

Sources: Cf. Annex, Table 5.1

61368/p3 (7,10)

- 15 -

however: the inflow of funds in 1981 enabled the Treasury to pay offalmost DA 10 billion owed to the Central Bank, i.e. nearly half ofthe Bank of Algeria's claims on the Treasury. This was however onlya passing phase. Starting in 1982, the Treasury resumed calling onmonetary financing at an average of DA 10 billion per year up to theend of the Plan, thereby Ieinitiating an inflationary process. TheTreasury deficit, which stood at some 11.8% of GDP on average for thelast three years of the Plan (11.8% in 1982, 14.5% in 1983 and 9% in1984) engendered extensive recourse to monetary issue constitutingabout 4.2% of GDP as a yearly average (2.4% in 1983, 6% in 1983 and4% in 1984). This was largely responsible for prices rising at anaverage annual rate of 6.8% between 1982 and 1984.

1.21 Budget and Plan from 1980 to 1984

(a) The aim of the Plan1' was to spread the efforts required to reachinternal financial equilibria over two phases. The first phase (1980and 1981) was to be a period of curbing by the Budget of current andfinancial deficits accumulated by the productive sectors. Once itsfinancial situation has been put in order, the producti;e sectorwould generate sufficient resources for self-financing to ei.sure thereconstruction of its capital and a corresponding easing of the drainon the public finances in the second phase (1982 to 1984).

(b) Being heavily concentrated on the industrial sector, the Government'sefforts to eliminate the deficits and place the enterprises' financeson a sound footing could not be contpieted in accordance with thetimetable set, nor were the relevant targets met as of the end of thefirst Five-Year Plan. By the end of the Plan the industrialproduction apparatus as a whole posted a cumulative negative cashposition of some DA 26 billion (DA 8.7 billion for heavy industryplus DA 17.3 billion for light industry)2/. Its ability to financeits own investments appeared to be rather limited, just as before.Based on net cash flows reported, light industry financed no morethan DA 579 million, i.e. 11.5% of amortization and provisions, andheavy industry only about DA 190 million or less than 7% ofamortization and provisions.

(c) It is essential to draw a partial conclusion from this experience:the objective of financial restructuring, while praiseworthy initself, could only be attained quickly if the conditions under whichthe microeconomic calculations were made, and particularly themethods and procedures for price setting, were modified at the sametime. If no far-reaching changes are introduced on this point, themanagers of public enterprises have freedom of action in name only,being hemmed in all around by rules on input supplies, distributionand employment and lacking any "objectively determined evaluation" oftheir cost-effectiveness.

1/ See the Algerian General Report on the 1980-84 Five-Year Plan, pages 57-62.2/ See the chapter on the industrial sector.

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4. Money. Credit, and Prices during the Fist Five-Year Plan

1.22 With improved internal cost-effectiveness, the production unitsshould have had less need to call on credit from the monetary and financialsector during the period covered by the Plan. This sector must be examinedwith the greatest prudence, knowing that the majority of Algerian financialintermediaries are (besides their function in financing the operating funds ofpublic enterprises) simple "caisses" that carry out transactions for theTreasury's account, in particular the transferring to production units offunds for investment, as is shown moreover by Table I.4.

(a) The phase of accumulation of net external assets came to an end in1981 with the downturn in oil and gas prices. Consequently,long-term external commitments by financial intermediaries other thanthe Treasury, which had been held stable at a constant figure ofaround DA 13.5 billion up to 1981, then had to make up for theshortfall in foreign exchange accumulation (down by 21% per yearbetween .1981 and 1984), with the result that such commitmentsincreased at a rate of nearly 16% per year over the same period.

(b) Normally, credit to the economy would be expected to increase at arate largely matching that of the public funds earmarked for thepurpose-' and which form the chief financing resource of thesystem. Viewed overall, the process that ensued was an unbalancedone. Whereas the earmarked public funds increased in amount by anannual average of about 16.5% - 21.5% on average during the first twoyears of the plan - then gradually but definitely cut back over thefollowing three years until in 1984 the rate of increase in thesefunds was less than 11%), credit for the economy expanded at anaverage annual rate of 18.5%, hence leaving an annual gap of2 percentage points (with an intertemporal pattern marked by anexpansion of 21.5% on average during the first three years of thePlan followed by a more modest expansion of about 15% per year in thelast two years, 1983 and 1984). The fact that the shortfall widenedappreciably (3.3 percentage points) toward the end of the Plan issymptomatic of the difficulties encountered by the production sectorsin seeking to avoid recourse to credit through better management andgeneration of an adequate cash flow.

(c) The behavior of the State is equally symptomatic: the pace ef itsendowment in "loanable funds" to the system (at an average annualrate of 16.5%, but with a distinct slowing down from 22.5% in 1980 to10.9% in 1984) lagged systematically behind its drawings from thesystem (22.4% per year on average). Altogether, borrowing by theState which made up 29.8% of its loanable funds in 1979 rose to 38%in 1984. The State therefore recycled to its advantage a growingproportion of the resources generated by the financial system. Inwhat form?

1/ These are loans included in the Central Government Capital Budget.

Table 1.4:

SIMPLIFtED STATEFENT OF MONETARY AND FINANCIAL SITUATION

Outstanding at End of Year ANNUAL FL"U6(in millions of DA) (in millioas of DA and in X chdae in amount outstandina)

1979 1980 1981 1982 1983 1984 1980 1981 1982 1983 1984

%et Foreign Assets 12,358 16,500 18,818 13,959 11.432 9,311 4,142 2.318 -4.859 -2.527 -2,1(33.52) (14.0S) (-25.82) (-18.10) (-18.55) .'>

laims on Government /a 34.,30 44.892 40,376 54,628 78,079 95.474 10.162 -4.516 14.252 23.451 17.39S(29.26) (-10.06) (35.30) (42.93) (22.28)

Credit to the Economy /g 17S,634 211,548 259,541 315.026 3S9.379 410.355 3S,914 47,993 55.485 44.353 50,976(20.45) (22.69) (21.38) (14.08) (14.18)

ASSETS LIABILITIES 222.722 272.940 318.735 383.613 448.890 515.140 50.218 45.795 64.878 65.277 66.250(22.55) ('6.78) (20.35) (17.02) (14.76) .

Money 72.208 84,434 97,922 125.300 152,756 180.433 12,226 13,488 27.378 27.456 27.677(16.93) (15.97) (27.96) (21.91) (18.12)

Quabi-toney /& 15.553 20.967 25.379 31.598 36,12S 41,249 S.414 4.412 6.219 4.527 5.124(34.81) (21.40) (24.50) (14.33) (14.18)

Long-term External Conmitments /d 13,483 13,649 13,265 14.386 15.209 20.471 166 -384 1.121 823 5.262(1.23) (-2.81) (8.45) (5.72) (34.60)

Earmarked Public Funds /g 116.410 142,651 172,426 200,563 229,061 253.969 26,241 29.775 28,137 28,498 24,908(22.54) (20.87) (16.32) (14.21) (10.87)

Net Miscellaneous Liabilities 5.068 11,239 9.743 11,766 15,739 19.018 6.171 -1.496 2.023 3.973 3,279(121.76) (-13.31) (20.76) (33.77) (20.38)

/a Ineluding BAD and CUEP claims., Including BAD and CNEP loans..IL sicluding savings deposits with CNEP.

d Including those of QAD. This heading does not include all medium- and long-term commitments but only those involving financial intermediaries othertti. t the Treasury.

1 0iJding the funds allocated to BAD and CNEP.

Data furnished by the Algerian authorities.

-.. (5.3)

- 18 -

(d) There is every evidence that money creation played a significant partin this resource generation: the growth rate of the money supply(Ml) was very high (20.1 p.a. on average, i.e. quite considerablymore than that of the nominal GDP, which grew at 15.3% p.a. duringthe first Plan). Even if the savings made available to the financialsystem were quite considerable (average annual growth of 21.5%), theywere however very heavily concentrated in the initial years of thePlan (growth rate of 34.8% in 1980, 21.4% in 1981 and 24.5% in 1982),after which there was a very marked slowing down in 1983 (14.32) and1984 (14.22). Accordingly, by the end of the Plan it was moneycreation that ended up supplying the financing system.

1.23 The fact that the majority of the trends displayed by the financialsector exceed those posted at the level of the real economy points to theexistence of deep seated internal stresses not entirely resolved by the Plan.The excess money creation in relation to nominal value added (about5 percentage points on average for the Fourth Plan) must moreover be viewed inthe context of Algeria's controlled price system. As a result, theinflationary tendency, contained by this controlled price system, is onlypartly reflected by price movements-'. This necessarily means that theeconomic calculations are flawed to the full extent that prices are in factalso instruments of economic calculation. As a result the consumer priceindex must be treated with caution:

Table I.5tCONSUMER PRICE INDEX

1980 1981 1982 1983 1984

General index (1969=100) 239.9 274.9 293.3 313.0 337.1Annual growth rate, . 9.5 14.6 6.7 6.7 7.7

Source: Data provided by Algerian authorities.

Similar comments have to be made regarding interest rates: Algerian interestrates are set at low levels, and in any event at levels well below postedinflation rates (see the tables of interest rates in the annex); they areviewed as the money rate and cannot play their role of instruments of economiccalculation, especially in matters of resource allocation where they ought toserve to dissuade economic units from running deficits too easily settled byrecourse to credit, and spurring them instead to generate operating surpluses.

1/ I. must also be added that the price indexes published in Algeria arequite far from constituting reliable statistical data; consumer priceindexes are only available for the Algiers urban community. Moreover, thebase figure of 100 = 1969 is outdated, at least as regards price movementsduring the first Plan.

- 19 -

5. Balance of Payments and External Debt

1.24 Algeria's balance of payments is characterized by one dominant factor:oil and gas exports, which statistically make up some 98% of all the country'sexports (Table I.6). The 1980-85 Plan was constructed on the presumption thatthis preponderance would be maintained ("the share of other products willremain marginal"L'). This was an option heavy with consequences. To theextent that it is considered necessary - or alternatively, proves to beessential - penetration by any country (hence also Algeria) into exportmarkets other than for hydrocarbons is a very long-term undertaking (at leastten years), the foundations for which should therefore be laid at least twofive-year periods in advance. The fact that the first Plan was silent in thisrespect accordingly has an impact on the profile of the next Plan. Althoughit has not opted for total diversification of exports, the Algerian Plan hasnevertheless set itself the goal of diversifying its hydrocarbon exports inthe framework of a strategy for conserving these nonrenewable resources-2'For the most part, this second option of the Algerian strategy has proven tobe judicious and profitable: the uncertainty regarding future prices forAlgerian crude has been, to some extent, offset by development of sales ofother hydrocarbons. Thus taking a base of 1980 = 100, export volumes of crudeand condensates (the expansion of the latter significantly compensating forthe marked reduction in crude exports) stood at an index of 71 in 1984. Onthe same basis, exports of refined products reached an index of 210, whilethose of gas (of all sorts) were increased threefold. In total, the impetusgiven to exports of refined products and gas (and to a lesser extentcondensates) served to offset the greater part of the fall in unit prices andenabled Algeria to safeguard, by the end of the Plan, the essential core of

1/ General Report on Plan, op. cit., page 54.2/ The Algerian strategy concerning exploration for and production of

hydrocarbons has two main aims: resource conservation and productdiversification. In view of the absence of any significant newdiscoveries coupled with the declining ratio of reserves to production,the Algerian authorities decided toward the end of the 1970s to shut downcertain wells and to cut back production. This decision was made easierby the sharp rise in oil prices at that time. As a result, crude oilproduction fell from 47 million tons in 1980 to 34 million tons in 1985.In addition, major efforts were made to conserve the deposits: the volumeof gas flared was reduced from 10 billion m3 in 1980 to 6 billion m3

in 1985 and sizable investments were made in gas recycling. To thisconservation policy was added the goal of product diversification.Production of refined products rose from 11 million tons in 1980 to22 million tons in 1985, while the quantities of condensates extractedfrom natural gas for export increased from 4 million tons in 1980 to14 million tons in 1985. In the same way, the production of LPG (propaneand butane) from gas rose from 0.8 million tons in 1980 to 2.7 milliontons in 1985. Finally, the (net) natural gas produced in Algeria morethan doubled, from 15 billion m3 in 1980 to 35 billion m3 in 1985. Thestepped-up production of these new products resulted in an increase in theglobal volume of hydrocarbon exports from 52 million toe (tons of oilequivalent) in 1980 to 63 million tons in 1985, notwithstanding a drop incrude oil. exports (39 million tons in 1980 down to 14 million tons in1985).

Tablg 1.6:

FOREIGN TRADE IN GOODS

(In millions of Algerian dinars and in percentages)

1980 (1) 1981 (1) 1982 (i) 1983 (1) 1984 (1)

1. EXPORT

1.1 NYdrocarbons 59,021 (98.5) 56,223 (98.0) 51,612 (98.0) 52,561 (98.3) 57.646 (97.5)t composition (100) (100) (100) (100) (100)Natural Gas (6.9) (7.8) (14.0) (23.1) (21.9)* Crude Oil (68.5) (53.0) (23.0) (23.1) (25.3)* Condensates (10.1) (19.8) (23.9) (25.7) (23.3)* Refined Products (14.5) (19.4) (39.1) (28.1) (29.5)1.2 Food Products 461.7 (0.8) 532.2 (0.9) 328.8 (0.6) 181.1 (0.3) 239.4 (0.4)1.3 Other Products 470.1 (0.7) 629.3 (1.1) 758.7 (1.4) 715.0 (1.4) 1,221.1 (2.1)

TOTAL EXPORTS 59,952.8 57,383.S 52,699.5 53.457.0 59,106.5GOODS BALANCE 19,433.9 8,746.9 3,387.9 3,675.4 7,849.3TOTAL IMPORTS 40,518.9 48,636.6 7 49,311.6 49,781.6 51,257.2 02. IMPORTS

2.1 Food Products 7,641.1 (18.9) 9,101.1 (118.7) 9,829.5 (18.8) 9,703.2 (19.5) 8,815.0 (17.2)2.2 Other Consumer Goods 6,851.3 (16.91 7,266.6 (14.9) 9,102.1 (18.5) 8,056.4 (16.2) 7,241.9 (14.1)2.3 Intermediate Goods 13,342.3 (32.9) 16,369.5 (34.7) 13,974.5 (29.4) 16,290.4 (32.7) 19,562.9 (38.2)2.4 Cauital oonds 12,679.2 (31.3) 15,890.4 (32.2) 16,405.5 (33.3) 15,371.6 (31.6) 15,637.4 (30.5)

(1) As % of total exports (= 100) or imports (= 100).

Sourc : Data furnished by the Algerian authorities.

61366/pS (5.15)

- 21 -

its export earnings. Crude prices (not counting the peak reached in 1981) infact dropped by 182 while the prices for refined products fell 10Z; gasprices, buoyed by Algeria's oligopolistic policy on the European market,managed to post an increase of 22% in 1982 with respect to 1980, but by 1984they had returned to a level closer to that of the first year of the Plan. Inthis way, the level of total export earnings (DA 60 billion) posted in 1980was virtually maintained at the end of the five-year period (DA 59 billion).

1.25 The Plan envisaged import levels that were dependent upon theperformances of the production apparatus, both in the sphere of satisfactionof et.d needs (imports of foodstuffs and other consumer goods) and in that ofsupply of current inputs and capital to the economic system. The growth rateof 6% p.a. for imports was respected without apparent difficulty, sinceAlgeria practises a system of direct quantitative rationing laid down in aGeneral Import Program ("PGI") implemented through General Import Permits("AGI"). The structure of imports changed very little during the period underconsideration: on average 35% for final consumption (of which 191 foodstuffs)and 65% for use by industry (of which 34Z capital goods). There is no roomfor maneuver as regards food imports, at least in the short term and outsideof times when weather conditions are exceptionally good. In the period1980-84 and as a consequence of choices made earlier"', Algerian agriculturewas still unable to ensure the equilibrium food self-sufficiency possible withthe country's potential2'. The imports of other consumer goods are a safetyvalve designed to reduce the social tensions that might be engendered by theshortages due to national industry's shortcomings. As to industrial importsproper, they are the outcome of three not necessarily convergentconsiderations: the import substitution strategy, the technical and economicefficiency-' of national industry, and the medium and long-term constraintsof absolute scarcityP'. The success of the import program with respect tothe first two can be assessed by the ratio of inputs (current and/or capital)to the- value added of the non-hydrocarbon sectors. The results of thecalculation point to two phases: the first one, from 1980 to 1982, in whichthe global ratio stabilized at around 74%, i.e. a relatively high level onaccount of quite extensive availability of foreign exchange; and a second,from 1983 to 1984, during which the global ratio fell to around 53.31. Thesharp fall in this ratio is partly explained by the necessity of cutting backimports in light of the uncertainties of the oil and gas market, coupled withbetter import substitution. However, here too, the fact that importing unitshastened to stockpile imports right from the start of the Plan in order to bea jump ahead of any subsequent rationing very probably also played a part.

1/ The Algerian industrialization model, the principles of which arediscussed in the Introduction, is to some considerable extent at variancewith one of the oldest precepts of political economy: "Primum vivere,deinde philosophari."

2/ I.e., in comparison with a price system that promotes optimum use ofproduction factors.

3/ I.e., the aptitude of national industry to produce at lower cost productsthat are customarily imported.

4/ For example, since Algeria has very little wood in relation to itsrequirements, it is doubtful whether an effective substitute for thisproduct can be found in the medium term so it will have to continue to beimported for some considerable time to come.

- 22 -

Table I.7IMPORTS AND VALUE ADDED

1980 1981 1982 1983 1984

Value added of non-hydrocarbonindustrial sectors = VAi 36,171 41,543 48,993 57,492 68,212(millions of Algerian dinars)

Intermediate imports ratioVAi 36.4 39.4 33.6 28.3 28.7

Capital imports ratioVAi 34.9 38.3 39.5 26.7 22.9

Global ratio 71.3 77.7 73.1 55.0 51.6

Sources: Based on Tables I.1 and I.6.

1.26 Algeria's trade balance accordingly posted a surplus for goodsequivalent to US$18.5 billion (Table I.8), during the period of the first Plan.This surplus was more than absorbed by the deficit on services (a total ofUS$19.7 billion), 40Z of which was accounted for by the interest payable on anexternal debt that had risen to US$16.3 billion by 1980 (borrowings actuallydisbursed) and 60X by other services (especially transportation services,which for the greater part were no longer required by the end of the Plan onceAlgeria's LNG tanker fleet was in operation). The very marked contraction inthe balance of private unrequited transfers toward the end of the period, dueto the decline in remittances by Algerian workers abroad, reduced the globalcurrent account balance for the Plan period to almost nothing (US$138 million).The capital movements balance, which was still positive in 1980-81 (US$1.3billion) remained negative (-US$1.7 billion) throughout the last three yearsof the Plan in accordance with the Government's aim of greatly cutting backrecourse to external borrowing, an aim which meant that debt repayments had toexceed the amount of new loans raised. As a result, and in total, the firstFive-Year Plan concluded with a marked deterioration in the overall balance ofpayments, which moved ,rom a surplus of US$1.6 billion to a US$1.9 billiondeficit, hence leaving a balance of -US$300 million.

1.27 Algeria therefore managed to bring its disbursed medium and long-termdebt down from US$16.3 billion in 1980 to US$12.1 bi'llion in 1984 in thecontext of a shrinking trade balance and, more generally, a contractingcurrent account balance. As a consequence of falling export earnings andrising payments, the debt service ratio, which stood at 22.62 in 1980&', wasup to 32.4X in 1984. This appreciable trimming of the debt also entaileddrawings on the country's reserves, which fell from US$3.9 billion toUS$1.5 billion, i.e. two months's imports.

1/ It was in point of fact around 222 at the start of the first 5-Year Plan.

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Table 1.8:

BALANCE OF PAYMENTS (SIMPLIFIED)

EXTERNAL DEBT. FOREIGN EXCHANGE RESERVES

(In millions of US dollars)

1980 1981 1982 1983 1984

I. BALANCE OF PAYMENTS

1. Current Account1.1 Goods (net) 4.056 4,028 3.621 3,226 3,5571.2 Services (net) -4,151 -4,297 -4.171 -3,483 -3,625

(of which interest on debt) (-1,551) (-1,765) (-1.641) (-1,410) (-1,516)1.3 Balance, Goods/Services -9S -269 -550 -257 -681.4 Net Transfers 337 358 367 173 1421.5 Current Account Balance 242 89 -183 -84 74

2. Capital ';count2.1 Net Direct Investment 320 -1 -65 -13 -142.2 Net Official Capital 614 138 -637 -613 -3232.3 Net Monetary Flows -14 11S 54 246 1282.4 Net Miscellaneous 219 -100 -270 S -2322.5 Capital Account Balance 1,139 152 -918 -375 -441

3. General Balance (1.5 + 2.5) 1,381 241 -1.101 -459 -367

II. EXTERNAL DEBT

1. Total External Comnitments 28,266 24.913 23.060 20,816 19,2601.1 Short-term 2,32S 2.307 2.751 1,957 1,7591.2 Medium- and Long term ' ' "'z5,941 22,606 20,309 18,859 17.501

2. Outstanding Disbursed Debt 18,623 17,612 16.704 14,942 13,8112.1 Short-term 2,325 2,307 2,751 1,957 1.7592.2 Medium- and Long-term 16,298 15.305 13.953 12,985 12,052

III. FOREIGN EXCHANGE RESERVES (excl. gold)

2.1 Gross Amount (end of year) 3,850 3,744 2,424 1,920 1,5312.2 Change in Reserves 1,222 -106 -1,320 504 -3892.3 As # of Months' Imports 4.8 4.4 2.9 2.4 2.0

Note: To simplify the table, the adjustment items that enable the various flows to be reconciledstatistically are not reproduced.

Sgurce: Data furnished by the Algerian authorities, converted to USS at the exchange rates publishedin "International Financial Statistics" (IMF).

6136B/p6 (7,7)

- 24 -

6. Evolution of Employment and Income during the First Five-Year Plan

1.28 According to the Plan's background paper, the labor force was toincrease by about 4.8% p.a.; this figure takes into account: (i) the increasedparticipation of women in the labor force (starting off from a low level);(ii) the reinsertion of Algerian workers who were expected to return fromabroad; and (iii) some complex effects involving the young population (theextension of schooling delays their entry in the labor market, while at thesame time the implementation of training policies may speed it up). As far asnon-agricultural employment is concerned, the planners have found the initialemployment rate to be satisfactory, although they have encountered severalinter- and intra-sectorial imbalances regarding qualifications. They havealso stressed that labor productivity was quite low and that substantialrationalization measures should be taken in view to correct this. Accordingto Algerian forecasts, non-agricultural employment was to have increased byabout 8.71 p.a. on average to reach a total of 3.5 million workers in 1984.Within this global evolution, the average annual growth rate in theconstruction sector was expected to be of 11.82 (with 300,000 new jobs to becreated mainly in small and medium enterprises), of 7% p.a. in the industrialsector (with, at the same time, substantial increases in productivity) and105,000 new jobs were expected to be created in the transportation sector(i.e. at an average annual growth rate of 12.22). The Plan's objective was torestore the trade and services sector to its proper level of importance, so asto enable it to absorb about 305,000 new jobs (an average annual growth of 81);as for public services, 208,000 new jobs were expected to be created, mainlyto fulfill the needs in the subsector of education and training, as well asthose arising from the development of regional governments (an average annualincrease of 7.71 which also depends on increases in productivity). Theemployment situation in the agricultural sector and its future prospects weredescribed more cautiously. Indeed, the planners were confronted with atwofold necessity: (i) curbing a rural exodus which creates sources of tensionon urban development, and (ii) more importantly, recruiting younger peopleinto the agricultural labor force. The planners have not established anyprecise quantitative objective for the agricultural sector.

1.29 The following table (Table 1.9) allows to measure to which extent theAlgerian authorities have been able to implement an employment policy in linewith the Plan's objectives. With a slower than expected increase of theoverall labor force (about 11 below objective), probably linked to the factthat the younger generation has delayed leaving the education/training systemto join the labor force, the Algerian authorities have increased thenon-agricultural employment by 706,000 jobs, i.e. an average growth rate of6.1% p.a.; this growth has, however, remained 2.6 percentage points below theplanned target, in such a way that non-agricultural unemployment has increasedby 2.1% p.a. The near stabilization of the agricultural labor force (-0.2%p.a.) has partly contributed to the fact that the number of workers in othersectors has increased to a much lesser extent than anticipated.

- 25 -

Table 1.9: LABOR FORCE AND EMPLOYMENT

Average AnnualGrowth Rate of

Variation the Labor Force1979 1984 1984/79 Actual Plan Margin

-- ('000) --------- -------- …(2)

Total Labor Force 3,612 4,374 +762 +3.9 4.8 0.9Agricultural Labor Force 969 960 -9 -0.2 n.d. n.d.Non-agricultural Labor Force 2,643 3,414 +771 +5.3 n.d. n.d.- Non-agricultural Employment 2,049 2,755 +706 +6.1 8.7 2.6

* Industry 401 495 +94 +4.3 7.0 2.7* Construction 437 654 +217 +8.4 11.8 3.4* Transportation 126 166 +40 +5.7 12.2 6.5* Trade and Services 470 595 +125 +4.8 8.0 3.2* Administrations 615 845 +230 +6.6 7.7 1.1

- Unemployment in Sectors Other 594 659 +65 +2.1 n.d. n.d.than Agriculture

Sources: Rapport G6n4ral du Plan Quinquennal 1980-84 andData provided by the Algerian authorities.

Employment in non-agricultural sectors has risen by 6.1X p.a., with, at thesame time, substantial sectorial disequilibria. On average, civil servantjobs and comparable jobs have been those which have remained the closest tothe targeted growth rates (the gap is about 11), which seems to suggest thatemployment is only effectively controlled in those sectors closely monitoredby the Government. On the other hand, th., trade and services sector (with ahigh density of small and medium enterprises) have far from reached theambitious targets set by the authorities. The industry and transportationsectors have only contributed modestly (a total of 133,000 jobs) to reducingunderemployment. According to available statistical data, it appears that thedouble dilemma of the labor force structure in the agricultural sector has notbeen resolved during the first Five Year Plan: (i) there are no signs of anylasting reversal of the ageing trend of the working population, and (ii) therural exodus continues, even if at a rather slow pace.

1.30 In light of these developments, it does not seem that the indices ofapparent productivity of labor have evolved in systematically favorabledirections (Table 1.10). In spite of sizeable positive (+122 in 1980) ornegative fluctuations (-7T in 1982) in the agricultural value-added which makethe interpretation of results less clear, it appears however that thevalue-added per capita has increased by 1.3% p.a. during the first Five-YearPlan. This would tend to prove that, in line with the price liberalizationpolicy applied since 1980 in the sector, Algerian farmers are willing to workmore as long as they are better paid, through, among other things,

- 26 -

Table I.10

EVOLUTION INDICES OF VALUE ADDED PER CAPITA IN REAL TERMS '&(a) base 100 = 1979; (b) base 100 = previous year

Averageannual increase

rate ofvalue added

1979 1980 1981 1982 1983 1984 per capita

Agriculture /b (a) 100 118.9 127.0 116.4 110.6 102.6 1.34(b) 100 118.9 106.8 91.7 95.0 96.7

Industry* Global sector (a) 100 90.2 83.5 84.4 88.7 88.6 -2.4excl. construction (b) 100 90.2 92.5 101.1 105.1 99.9

* Excluding hydro- 'c (a) 100 96.8 100.0 108.3 108.4 116.8 3.15carbons, incl. (b) 100 96.8 103.2 108.3 100.1 107.7construction

* Construction '^ (a) 100 97.6 97.8 101.3 95.5 99.8 0.00(b) 100 97.6 100.2 103.6 94.2 104.5

Transportation and (a) 100 100.1 97.9 97.4 95.9 94.0 -1.2Services (b) 100 100.1 97.8 99.5 98.5 98.1

Administrations (a) 100 105.6 104.0 101.8 100.4 96.6 -0.7(b) 100 105.6 99.1 97.3 98.6 96.2

/a According to data provided in Table 1.2 (labor force), II.1 and II.3(national accounts), et II.5 (deflators) of the Annex. Basic datacommunicated by the Algerian authorities.

/b Due to the decisive impact of weather conditions on the generation ofagricultural value-added, results here have been interpreted with caution.

/c Calculations on this line have been made by using as deflators the priceindices for industrial production, published provisionally in"Statistiques", No. 9, Algiers, ONS, December 1985, pp. 85 through 87.

41 Deflators used here are those used in the annex to this report.

- 27 -

agricultural producer prices. Globally, in the industrial sector, apparentproductivity per worker has tended to decline, but it should be noted thatthis situation is mainly due to the unfavorable evolution of the actualvalue-added of the hydrocarbons sector (which accounts for about 38h of thetotal industrial value-added). As for non-hydrocarbons sectors (including theconstruction sector) the real apparent productivity of labor in industry hasbeen estimated at about 3.22 p.a., with substantial disequilibria within thesector. Particularly, in the construction sector, actual value-added percapita showed a zero average growth rate, In tertiary sectors such astransportation and other services, the growth rate of value-added per capitahas been on the whole negative, and one can deduce that, in those sectors, thelabor employed is in excess of levels necessary to generate an acceptablelevel of value-added. Finally, the value-added per capita for public serviceshas also decreased by almost 1% p.a.; the increases in productivity thatplanners had expected in this sector failed to materialize.

1.31 Normally, the evolution of real wages should not deviatesubstantially and for a long period of time from the increases in realproductivity. Table 1.11 shows, in this respect, contrasting tendencies. Inthe agricultural sector, wage-earners (some 63% of the labor force within thesector) h:ve seen real wages deteriorate by about 1.5X p.a., while independentfarmers (about 301 of the labor force within the sector) have seen their realincome increase by nearly 5.7% p.a. in real terms. Thus, on average,agricultural income should have increased by 0.7% p.a. in real terms, which isa very low figure if one has in mind to attract future generations, unless theobjective is to attract young independent farmers. In that case, theevolution patterns of value-added and income represent a favorable incentivewhich should not be underestimated. In non-agricultural sectors, total realincome (wages and non-wages) have increased by about 5.91 on average. With anemployment growth rate of about 5% (excluding public service), this means thatincome per capita has increased by at least one percentage point in terms ofpurchasing power, which seems to suggest, at least globally (excludinghydrocarbons), that a certain symmetry exists with increases in the apparentproductivity of labor. On the other hand, civil servants have gained, percapita, about 0.6% of additional purchasing power, while their actualproductivity decreased (-0.71). This is a worrisome factor which calls forsubsequent corrective measures.

7 25 1B

Tablea 1.1:

EVOLUTION OF INCOMES

(In billions of Algerian dinars and in percentages)

Planned Actual RealGrowth Growth GrowthRate Rate Deflator Rate

1979 /a 1979 /b 1980 1981 1982 1983 1984 (X) (X) (1979=100) (x)

Waaes and Salaries 40.5 46.1 57. All 76.1 L. 9 15.1 154 5.6Agriculture 2.5 5.1 5.3 6.4 6.6 6.8 7.3 3.7 7.4 154 -1.5Non-Agriculture 25.0 28.0 35.1 39.7 46.0 53.4 57.6 10.9 15.5 154 6.0Administration 13.0 13.0 16.7 19.7 23.5 26.6 28.4 9.0 16.9 154 7.2

00Non-wane Ineomns ZJ I l. 122 11 .9 154 LAgriculture 5.5 6.1 7.6 9.8 9.9 10.9 12.4 4.9 1S.2 154 5.7

Non-Agriculture 12.5 15.4 17.4 19.9 22.6 23.2 25.4 8.0 10.5 154 1.4

Dmestic Transfers la J1.0fI 12.3 1I3. 14.I 164A IL& 15.7 154 §La

Gross Households Income 67.3 ZA.5 2L.1 107.8 122S 13S.2 147.5 9. 14.3 154 4L.Compulsory Charges n.a. 10.8 12.1 14.2 16.9 19.0 20.7 n.d. 13.9 154

Disnosable Incom n.a. 4.7. iLl 9 IS, 1l6.2 12fi.8 n.d. 14.4 154

Ia Initial values from the Plan document./1 Actual recorded value.

Souae: Ministere du Plan.

61368p7 (5,20)

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CHAPTER lI - THE SECOND FIVE-YEAR DEVELOPMENT PLAN (1985-89)

A. Description of the Initial PrEEfam

1. Starting Targets

2.01 The Second Five-Year Plan was drawn up in a general climate of greateconomic uncertainty and its general economic structure was severely disruptedby the sudden and extremely sharp fall in hydrocarbon prices during the firsthalf of 1986. However, the basic hypotheses of the Plan had remained fairlyprudent, as had its goals, which called for growth levels lagging slightlybehind those of the First Plan. The Plan assumed "a difficult internationalenvironment" and unpredictable hydrocarbon sales receipts "subject to strongfluctuations due to the uncertainty concerning the trends of, first, world gasand oil prices and demand, and second, the dollar exchange rate." For theplanners, an immediate and inevitable consequence of this situation was thatit was now impossible for the Government to "bear the responsibility for thequasi-total financing of development". The chief goals of the Plan thenbecame:

(a) to hold the external debt to an acceptable level and keep debtservice low;

(b) to achieve an across-the-board reduction in the costs deriving frominvestment and the functioning of the productive apparatus;

(c) to achieve a more balanced distribution of "development costs betweenthe Government and the other economic agents (enterprises andhouseholds)";

(d) to effect a redefinition of action-program priorities:

(i) to grant absolute priority to the development of agriculture(too long neglected) and of water resources (vital for raisingAlgeria's agricultural productivity);

(ii) to undertake a retrenchment by the Government in its mission ofdeveloping economic and social infrastructures by restoringbalance between transportation modes, strengthening storage anddistribution capacities, and raising the cultural andleisure-activity levels of young people,1' continuing thehousing effort, and mounting an education and training effort;

(iii) to refocus industrial projects toward medium-scale activities:

- technologically, by giving preference to industrial processingactivities with the object of expanding intersectoral tradeflows and pursuing import substitution;

1/ It has to be borne in mind that 252 of the total population is aged 10-19years, 402 5-19 years and 432 under 20 years.

- 30 -

- functionally, by promoting decentralization, regionalizationand subcontracting so as to steer investment toward betterexploitation of production potential, stimulate self-financingand exploit private enterprise potential more efficiently.

2. Investment Program of the Second Plan

2.02 The conversion from the First to the Second Five-Year Plan can beanalyzed fairly well by re-evaluating the carry-overs between the two plans(Table 1I.1, columns 1-3). The implicit or explicit priorities of the newPlan are clearly evident. The planners did a courageous job of pruning: theyreduced the "balance to be executed" of the First Plan for industry -- thesector that suffered the deepest cuts -- by 68% (-DA 111.6 billion in 1984),made deep cuts also in construction enterprises (-48%) and transportation(-53%), and -- a priori more surprising -- rationalized education and trainingexpenditure (45%) -- while, however, recognizing the need to redimensionexpensive projects in order to reduce recurrent expenditures. Less severecuts were made in the outstanding project portfolios of agriculture (only-21%) and housing (-15%). Finally, in line with the priorities announced, theprograms were expanded of economic infrastructure (+3.5%), socialinfrastructure (+4%) and community facilities (+152%).

2.03 The shift in total resource allocation in the 1980-84 Plan to thevarious sectors is, generally speaking, reinforced in the 1985-89 Plan. Thus,there is a very substantial cutback in the program for the industrial sector:32% of total planned expenditure under the Second Plan, against 39% (planned)and 36% (actual) under the First Plan. Lower shares are assigned also to theconstruction enterprises (3.5% of total expenditure under the Second Plan,against 5% (planned) and 4.2% (actual) under the First Plan); to transportation(2.7%, down 0.5%), and to educa#5_n and training (8.2%, against 10.5% (planned)and 8.5% (actual) under the First Plan). In contrast, higher shares areallocated to agriculture (14.3%, against 11.8% (scheduled) and 10.8%(executed), and housing (up 0.7 of a point to 15.7%). Finally, improvementsare noted in the positions of economic infrastructure (11.2% of Second Planprojects, against 9.5%) and above all of community facilities (DA 51.7 billion,i.e. 9.4%, against 2.4% under the First Plan).

2.04 It thus appears that the quantitative rankings identified accuratelyreflect the Government's priorities, in terms both of revision of outstandingproject portfolios to effect the transition from one Plan to the next and oftotal financing levels allocated for the current Plan. In particular, theline has been more sharply drawn between activities that have to have priorityin direct government action (economic infrastructure, community facilities) orthat are assigned strategic priority (agriculture) and activities in which theeconomic entities (enterprises, households) are urged to assume directresponsibility for their own capital formation. In the latter case theGovernment, alongside a diminishing but still considerable financialinvolvement, must create the conditions for this increased measure ofautonomous responsibility.

TAble II. 1:INVESTMENT PROGRAM OF SECOND FIVE YEAR PLAN 198S-9

(Billions of 1984 Algerian dinars)

Follow-up from firstFive Year Plan 1980-84

Expen- Original Revised ProbablePlanned diture expen- expOn- expendit- Theoretical

Brought forward from New Investment to be Total Expen- ditures ditures ures in Total unspent portion

previous Plan: pro- expen- made cost of ditures planned planned 1986**** 198O+1986 carried forward

Diffe- grams diture after proPosed 1985** for 86"** for 86"* (1984 from Secgnd Plan

Nominal Actual rence (1984 1985-89 1989 programs (1984 (current (current (1984 DA) Total Annual

1984 DA * 1984-0A ta)-i1l DAI (1984 DA) 1984-DA (S)+(6) DA) DA) DA) (11) (812)1 (113)2 (14)am

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14)

INDUSTRY 164.5 52.9 -111.6 198.7 174.20 77.40 251.6 1S.4 30~ 3 2.1 15.5 xi. 143.3 4t.

of which Hydrocarbons (15.0) (26.5) 39.80 1.70 (41.5)

AGRICULTURE 4. 34.34 _- 81.08 79. 36.42 115.42 LI II I. Li IlS. 62Ll 1

* Forestry 1.10 8.50 7.0 0.8 1.2 1.0

Agriculture 9.00 35.0 30.0 2.6 5.05 4.3

* Water Resources 24.00 36.72 41.0 4.1 6.25 4.6

* Fishing 0.24 0.86 1.0 0.1 0.1 0.1

TRANSPORTATION 6 .41A -7.2LZ 15.41 LL2 21.52 1.A la L. 1,3 1

EC01N10ICIllRASTRUTURE 3 . 38.14 1.3 45.60 6 . 31. 0 23.20 9 12.9 1 .A Ai ILI IL1 I6

* Non-RailCoamunications 8.78 17.0 t8.5 8.50 4.7 4.9 3.9

* RailwayInfrastructure 6.84 8.8 17.8 6.80 1.8 3.0 2.2 w

Teleconumnications 7.35 6.7 8.0 6.00 1.1 1.4 1.2 -

Storage-Distribution 13.65 11.3 15.85 9.16 2.0 3.2 2.8

Industrial Zones 1.62 1.8 1.50 1.00 0.1 0.4 0.3

HeUIs 72. 61.42 10.6 63.50 8iSi.45 3847! 1l9 ILl Il L L IL ALA ss R

TQCAION/TAIG 60.4 3330 -27.1 31.50 4S.00 19.80 64.eo 6.9 100 Z4 7. 143 0. 1.

SOCIALINFRASTRUCTURE 21.33 hl 1 35.2a111 liso 3L61 4 I ZA 0 I 32 i63 11.7 L

of which: Health (13.27) (21.50) (10.00) (24.77) (34.77) (1.5) (3.3)

COM4UNITY FACILITI£5 1. 0 32.67 +19.7 25.67 S16 1§.46 6711 1S.3 L.

EXECUTIONENIKEERIILS ILl1141 z 4A 2SI0 19L00 ILl2 33R2Q -1. la 19L00

MISCELLANEUS 18.06 +18.1 4.1

T 0 T A L ALL."2 13kL1 .J 1.11 LILIA 11B.3 L.1 "_.32 A1 I

* Cf Tableau 1.2, Col. 10. The figures from that table were converted to 1984 DA to obtain the figures of cal. 1 above.

^* Data provided by the Algerian authorities (drawings on credit). The 71.3 billion 1984 OA are equivalent to 78.5 billion 1985 OA.

Forecasts by the Algerian authorities (Lo1 de Finances for 1986).**** According to data provided by the Algerian authorities in may 1987, World Bank forecasts.

Source: Data provided by the Algerian authorities. 61368/pB (5,2)

- 32-

3. E?,eted macroeconomic developments

2.05 The exogenous conditions of functioning of the Algerian economy,together with the endogenous conditions defined by the investment program,thus determine the trends of the major macroeconomic magnitudes thatconstitute the core of the Plan. Under these conditions the Algerian plannershave anticipated global GDP growth of 6.6S a year (corresponding to annualgrowth of non-hydrocarbon GDP of 7.51). This projected development is based,apart from additions to existing plant, on the expectation of "increasedmobilization of production capacities," the effects of the public-sectorrestructuring and rehabilitating programs, and greater mobilization ofmanpower around the development objectives. The overall dynamism is moreoverthe complex result of a set of sectoral trends, themselves generated byspecific stimuli:

(a) Agricultural value added should grow by to 4.51 a year, representingsustained growth in comparison with the sector's historicalperformance. This would be achieved through increased effort torelieve the major constraint, which is availability of water, andtherefore of land that can be cultivated efficiently, together withchanges in the organization of the sector designed to improve theutilization of manpower and plant.

(b) Growth of the hydrocarbon sector would be limited to some 41 by theweakness of the world market. Growth of these two sectors would lagbehind the general average rate; thus, even though they togetheraccount for 401 of total value added, the other sectors would allpost faster growth rates.

(c) The overall annual growth rate for the other sectors that producephysical tangible value added would be 8.81, with the followingindividual rates:

(i) processing industries: 91 (assuming 85 utilization ofinstalled production capacity), enlargement of productioncapacities where these are inadequate, substantial productivitygains, and better matching of supply to demand;

(ii) water and energy: 102, stimulated by the development of demandand assuming major efforts in water supply and electrificationof the country; and

(iii) construction and public works: 8.7%, stimulated by the packageof infrastructure and facilities programs.

(d) The services (23.61 of total GDP and 261 of total value added) wouldpost annual growth of 7.22 in response to the pressure of final andintermediate demand.

- 33 -

2.06 With a continued very high investment rate (402 of GDP), the tempo ofaccumulation (GFCF + inventory formation) would be sustained (7.32 a year) andwould in any case exceed GDP growth. The sluggish growth of exports (+5.3% ayear) and the necessary slowdown of imports (+6% a year at most) togetherproduce reduced residual consumption growth of 5.92. Again, the privatesector and the administrations would post different overall consumptiontrends. Growth of public consumption should spurt (+7.52 a year, as a resultof expected improvement in the efficiency of the services furnished), whileprivate consumption growth should slow (to about 5.71). In view of thecontinued high population growth rate (3.21), this still leaves appreciableroom for growth of consumption (and therefore of per capita level of living),in line with one of the major goals of the Plan.

4. Financial equflibria of the economy

2.07 In the absence of precise statistical analysis and data,s' thefinancial equilibria assceiated with the Second Plan can only be described inqualitative terms.

(a) Domestic finances: TIe current budget is expected to grow by 6.5% ayear. This would raise current expenditures to some DA 71.7 billion(constant 1984 dinars) by 1989. The projected stabilization ofhydrocarbon-based tax receipts could be translated as equivalent tosome DA 48 billion (conistant dinars) in 1989. Recognizing the needto raise the ordinary taxation burden,1' the planners estimatedordinary tax receipts at the end of the Plan at some DA 88 billion.Assuming normal development of current resources,-3 we arrive attotal current receipts of about DA 155 billion (constant DA) for 1989(table II.2). In total, the current budget surplus would be nearlyDA 83 billion (constant DA) by 1989. Taking the appropriatecomponents of the investment program and converting them intoinvestment budget terms, we arrive at a total of about DA 70 billion(constant DA). The overall budget balance would rise to a positiveamount of nearly DA 13 billion (constant) at the end of the Plan.Interpolating these projection trends on the 1984 starting situation,which has an overall budget deficit of DA 20 billion, would result inan overall equilibrium rather than a surplus for the 1985-89 Plan asa whole (table II.2). Consequently, for the 1985-89 period, it isvery unlikely that the Public Finance system will produce somethingdifferent from an overall equilibrium (Table II.2).

(b) The other domestic financing operations, particularly those relatingto production-unit investments, would have necessitated that theenterprises "increase their economic and financial efficiency andprogressively generate a cash flow at least equal to their

1/ Such as a table of financial operations or a consolidated financialaccount for the economy.

2/ This tax burden, estimated at 251 of non-hydrocarbon GDP in 1984 (it wasin fact already close to 281 for accidental reasons at that time) wouldhave to rise to 271 by the end of the Plan.

3/ World Bank hypotheses, not contained in the Plan.

- 34 -

amortization fund so as to finance a large part of theirinvestments". " The hypothesis adopted for households, that theywould invest some DA 25 billion in construction, leaving a savingssurplus of DA 30 billion available to be mobilized by the financialintermediaries, particularly the Treasury, to finance investmentloans, was aimed essentially at reducing the inflationary pressuresgenerated by the actual differential supply-demand discrepancies.2'

Table II.2: SUMMARY OF THE PUBLIC FINANCES PLAN 3(in billions of 1984 DA)

1985 1986 1987 1988 1989

Current receipts 115 123 131 143 155Current expenditure 56 59 63 67 72Current balance 59 64 68 76 83Capital expenditure 70 75 80 80 80Capital receipts 0 5 10 10 10Capital balance -70 -70 -70 -70 -70Budget balance -11 -6 -2 6 13

(c) The external financing operations are presented even more tersely.External receipts were projected for the first few years of the Planon the basis of stabilization of the nominal unit price of thereference hydrocarbons (at around US$28-30/barrel), then at the endof the Plan by inflation adjustment of this nominal price. Value ofimports is indexed to import prices rising by 4-5% a year. Thiswould produce a surplus of DA 22 billion (constant DA) on goods andservices account, strengthened by an additional DA 11 billion surplusfor the other balance sheet headings, giving a total current balanceof DA 33 billion (constant DA). It is impossible to deduce anyfurther useful information about the capital account components fromreading the Plan. The issue of balance of payments equilibriumtherefore remains problematical.

1/ Ibid., p. 138.2/ It must not be forgotten, however, that inflation has other causes,

including in particular those resulting from lack of cost controlor monetary financing of the budget deficits.

3/ This table, which nowhere appears in the Plan Report, is an attemptto assemble the indications scattered through the Plan coherently.

- 35 -

B. The Second Plan (1985-89) and Its Adjustment to Adverse Circumstances

1. Collapee of the Oil Market

2.08 In October 1985 Saudi Arabia, the world's leading oil producer,decided, with the object of regaining its market share to adopt the principleof "netback" as the critericn for determining the price of oil."' In finalmarkets characterized by strong competition and a large supply surplus, pricesfell sharply and rapidly. From a current average level of US$28/barrel in1985 the unit price was to fall to some US$13/barrel (in netback values; thespot price can sometimes be much lower: US$10/barrel or even less). At theend of 1985, after a great deal of controversy within the oil producersorganization, most (if not all) of them aligned themselves on the netbackcriterion. After February 1986 Algeria aligned itself on this criterion forits condensate sales1' then progressively for its crude oil sales. 3 Theprinciple inevitably spread to the prices of the other hydrocarbons, linked inone way (indexing) or another (competition) to crude prices. Algeria, whichat the end of 1985 was selling its hydrocarbons at an average price equivalentto US$28/barrel of oil, was reduced by the end of the first half of 1986 totrading them at an average oil price equivalent of US$16-17/barrel,4' a fallof about 40% in six months.s' A movement of this magnitude inevitablydisrupted the entire structure of the Second Five-Year Plan since hydrocarbonsales provide 987 of Algeria's foreign exchange receipts and 40% of its totalbudget receipts. This necessitated revision, if not of the Second Five-YearPlan,G' at least oi the modalities of its implementation. In June 1986 theAlgerian Government, via a Corrective Finance Law,7', enacted a package ofadjustment measures designed to restore equilibrium. Lateral measures were

1/ According to this principle, the price of oil is established by nettingthe market price (sale to final consumer) of the final products back tothe crude oil producer, a process that takes account of all cost elements.

2/ Cf. Petroleum Economist, March 1986, vol. L III, no. 3, p. 109.3/ Ibid., October 1986, vol. L III, no. 10, p. 393.4/ The price of Algerian LNG fell from about US$3.81/MBTU natural gas

equivalent in 1985 to US$2.32 at the end of the first half of 1986, a dropof 33% in six months.

5/ The fall in hydrocarbon export receipts affects both oil products and gasbecause SONATRACH has decided to lower the gas prices initially providedfor in the long-term contracts signed with France, Spain, Italy andBelgium. This reduction was imposed by the fall in crude and fuel oilprices, the slackening of gas consumption in Europe and the competition bySoviet gas. The fall in export receipts affects not only SONATRACH butalso the other foreign-exchange consuming sectors of the economy. Thefall in prices has cut into SONATRACH's financial resources. With a dropof at least 502 in its gross profits, a continued tax rate of 852 and asharply diminishing cash flow, SONATRACH is finding it more and moredifficult to meet its always high financing needs.

6/ According to the Algerian authorities this revision is excluded at thepresent time.

71 Details of the measures relating to this supplemental Finance Law aregiven in the Annex.

- 36 -

also taken to supplement the provisions of the Corrective Finance Law. Thedevelopment of Algeria's planned economy since 1985 has henceforth to beanalyzed in this new light.-`

2. The lIvestment Pror: A Necessary Reeonsideration

2.09 As we shall see, the years 1985 and 1986 constitute an excellentexperimental setting to evaluate the respective weights of the three impulseswhich govern investment patterns in Algeria. These three impulses are thefollowing: (i) voluntarism (which expresses itself mainly in the Five YearPlan), (ii) relativism (which expresses itself in the annual plan, necessarilysubjected to constraints), and (iii) empiricism which reflects (throughstatistical data) what has actually been realized. Furtherniore, from atechnical viewpoint, the progress of the investment program can be measuredeither in terms of levels or in terms of rates, both processes ofinvestigation providing complementary information. The analysis in terms oflevels has beea carried out by calculating the average value of investmentsduring the median year of the Plan (550 billion DA/5 centered on 1987 = 110billion DA) and by distributing these median values over 1985 and 1986 byusing the conLtant annual growth rate of investments (7.5%) assumed in thePlan. The values that have been calculated as such, which have been called"theoretical Annual Plan" for the purpose in hand, can therefore be used toevaluate (i) the variation of the investment program due to the actual AnnualPlan, and (ii) the degree of realization of effective annual investmentsrelative to the planned theoretical path. In light of these two factors(Table II.1 bis) it can be observed that the program for 1985 had appropriated88 billion DA (in constant 1984 DA); in nominal terms, the 1985 Annual Planamounted to 96.7 billion DA, which represents 6% less in real terms than thelevel of the theoretical Annual Plan. In addition, only 81% (in real terms)of the budgeted funds have been spent. Indeed, the first year of the FiveYear Plan which has met 81% of the targets set for the actual Annual Plan, hasonly achieved the three quarters of the "theoretical Annual Plan", accompaniedby substantial and heterogeneous sectorial gaps. Performances may be dividedinto two categories: the first groups together the investment sectors verydirectly controlled by the Central Government (Economic infrastructures,Housing, Education and Training, Social infrastructures, Utilities) where theachievement rate of the Plan is close to or higher than 75%; the secondcategory groups together all other sectors whose achievement rate issubstantially lower than 60%, the industrial sector, among others, showingobvious difficulties of absorption. The analysis in terms of rates (part B ofTable IIJ1 bis) allows for a finer analysis and shows three categories ofperformances: the first groups together the sectors where the Plan achievementrate is close to or higher than 90% (Economic infrastructures, Education andTraining, Social infrastructures, Utilities); except for the Housing sectorwhich is facing some difficulties, these are the same leading sectors in thefirst group previously mentioned, which confirms that these sectors arecritical to the success of one of the Government's key policy levers,investment policy. The second group consists of housing and agriculture,strategic sectors with an achievement rate of more than 80%; the industry

1/ The foliowing should be precised: in December 1986, OPEP members agreedon the principles of production ceilings and of a return to the postedprices system.

Tab]e 11.1 bIS:

PLANNED INVESTMENTS IN 1985 AD 1986

Annual Plan Actual Rate of Annual Plan Actual Rate of1985 Real Real. of 1986 Real Real. of

1984 /A Realis. Annual Initial Rtvised Theoret. Realis. Re1isedEffect. Theor. 198S Plan Effect. Effect. /e 1986 nnual Plan

/b /a / (a) In If Is (X)

A. LEVELS OF REALMIXON (1984 constantIndustry billion DA) 19.1 25.1 29.9 15.4 61.0 25.0 22.4 32.1 15.S 69.0Agriculture 7.75 9.1 13.6 7.6 83.0 10.4 8.3 14.6 8.3 94.0Transportation 2.2 2.4 2.6 1.4 58.0 2.4 2.1 2.8 1.3 62.0Economic Infrastructure 10.3 12.0 10.6 9.7 31.0 10.7 8.6 11.3 8.3 96.0Hos1ins 12.2 10.0 14.8 10.7 107.0 9.1 7.9 16.0 S.9 7S.0Education Training 7.6 8.0 7.7 6.9 B6.0 8.3 6.2 8.3 7.4 119.0Social tnfrastructure 2.8 3.3 3.1 2.4 72.0 4.4 3.3 3.3 3.9 118.0Community facilities (inc. PCD/PMU) 14.95 1S.5 8.9 1S.3 99.0 1S.6 11.6 9.6 13.5 116.0Construction Enterprises 2.9 2.6 3.3 1.9 73.0 2.S 2.1 3.5 1.4 67.0

TOtAL 79.8 88.0 94.5 71.2 81.0 88.3 2.5 101.5 65.5 90.0

Rate of Rate of w8S Tranche 1985 198S Real 6 Tranche 1986 1986 Real

of 85-89 Nominal Real Realis. of Plan UZtnnal Real Realis.MX)/A Plan Realis. Realis. ;d 1985 8S-89 Realis. Realis. End 1986

lb hb (X) lb (1)

R. RATES AND XtUOES OF GR9ITHIndustry 8.6 100 108.6 88.5 80.6 74.2 117.9 97.9 81.2 68.9Agriculture 22.3 100 122.3 108.3 98.1 80.2 149.6 130.3 107.1 71.5Transportation 6.0 100 106.0 68.2 63.6 60.0 112.4 77.3 S9.1 52.6Economic Infrastructure 2.3 100 102.3 103.9 94.2 92.1 104.7 98.1 80.6 77.0Housing 7.9 100 107.9 96.8 87.7 81.3 116.4 59.0 48.4 41.6Education Training 1.5 100 101.5 100.0 90.8 89.5 102.7 118.4 97.4 94.8Social Infrastructure -3.7 100 96.3 87.0 85.7 89.0 92.7 171.4 139.3 150.3Coinmity Facilities (inc. PCDfPMU) -13.6 100 86.4 108.0 102.3 118.4 74.6 109.7 90.3 121.0Construction Enterprises 8.0 100 108.0 71.3 65.S 60.6 116.6 62.1 48.3 41.4

TOTAL 7.5 100 107.5 98.2 89.3 83.1 115.6 100.0 82.1 56.7

/A Data provided by Algerian Authorities (credits utilization for the levels of 1984)./b Data provided by Algerian Authorities (current values have been converted in constant values of 1984)./L World Bank calculations after data of General Report of 2nd Five-Year Plan, p. 135./d Data provided by Algerian Authorities, converted in 1984 constant DA (investoent credits utilization)./& Source : 1986 Loi de Finances. Official Journal of Algerian Republic. December 28. 1985. pp. 1343 SgMa. (recalculated values in 1984 constant DA).£f After data provided Algerian Authorities for the Loi de Finances rectificative (recalculated in 1984 constant DA).

Ia After data provided by Algerian Authorities in May 1987. World Bank estimates in 1984 constant DA./h Cmpared with the 1984 investments converted to the norm 100. 6136B/p9 (S.4)

- 38 -

sector (where three quarters of the theoretical Plan has been realized),transportation and construction (602) constitute the third group. For thislatter, the gap recorded as early as the first year of the Plan is such thatit is very unlikely that it will be filled during the remaining duration ofthe Plan. The conclusions to be drawn from this first year of the Plan arethat the effective control of investments exist mainly in those activitieswhich are directly controlled by the Central Government; on the other hand,the other activities are subject to actual constraints which are too strong soas to permit investments to be made with the desired intensity. One of theobjectives of the 1986 Annual Plan was to accelerate the rate of investmentsby increasing by 10.5% (in constant 1985 prices) the amount of the investmentbudget (106.9 billion DA), that is, a level relatively close to the theoretical110 billion. In terms of growth rates, the global growth index should havereached 115.6. The events of 1986 have nevertheless called for a substantialreview of the investment program. It is then very unlikely that effectiverealizations would be higher than 65.5 billion DA (in 1984 values), i.e. 352below the target level and more than 40% below the target rate.

2.10 The principles on which the investment program was revised stem fromthree major considerations:

(a) A consideration of fact: the ongoing programs must be completed; theprograms still unstarted will be deferred.

(b) A budgetary consideration: the sharp fail in budget resources callsfor deep and urgent cuts in expenditure, including capitalexpenditure. Capital expenditures proper (those for which theadministrations were directly responsible, for example forinfrastructure) are reduced by DA 16 billion (current DA), from theinitial budget allocation of DA 61 billion to DA 45 billion (1986DA). Converted to 1984 DA, this represents approximately DA 40billion for direct investment. Planned investment financingauthorizations for the public-sector enterprises (comprisingbudgetary loans plus non-budgetized loans plus self-financing) aredown from DA 52.5 billion to DA 47.5 billion (1986 DA). In 1984 DAterms, the latter figure represents financing authorizations1' ofDA 41.5 billion. Taking into account other constraints, which stillpersist (on credit utilization, physical availability of plant,foreign-exchange availability, etc.), mobilization of theseappropriations should not exceed about DA 34 billion (in 1984 DA).

(c) A political consideration: at no time was there any question ofrevising the priority ranking as defined in the Second Five-YearPlan.2/ However, the Algerian authorities put the emphasis on thefollowing considerations:

- Agriculture remains an investment priority sector on which themacroeconomic constraints must have only a limited impact;

1/ That is, a ceiling on actual investment.2/ See paragraph 2.01.

- 39 -

- In industry, preference is to be given to all investment activitiesthat make it possible:

(a) to obtain an increased return very rapidly;(b) to relieve the various constraints;(c) to save on foreign exchange.

- In the hydrocarbons sector, adjustment measures have been necessary:

(a) a hydrocarbons law has been enacted with the object ofattracting foreign companies back to Algeria;

(b) investment in hydrocarbons, classified as a priority sector,have been kept at the level originally set in the 1985-89 Plan;

(c) the Government has assigned priority to hydrocarbons productionin order to sustain export receipts, vital to meeting theeconomy's short- and medium-term foreign exchange needs; atthe same time, the need is recognized to diversify exports toreduce Algeria's dependence on oil, and this action isencouraged, although the effects will really be felt only inthe long term.l'

1/ (i) In August 1986 the Government enacted a law to encourage research andexploration by foreign companies. The latter produced only 300,000 tof crude oil in Algeria in 1985 (out of a total of 34.3 million t),against 10 million in 1980 (out of a total of 47 million). Theirreactions need to be determined both to the new tax incentives(royalties of 12.5-16.25% instead of the usual 20% for investments instill unexplored areas, and profits tax of 65-752 instead of 85%) andto the geographic areas where they are encouraged to operate. Aboveall, the question will arise of the best means of restoringappropriate conditions for the return of the foreign companies.

ii) The Government has decided to sustain investment at DA 8 billion(about US$1.7 billion) in 1987, even though in other sectorsinvestment has already been cut by 40% or more. The asthorities areaware that, to maintain Algeria's vital export receipts, investmentmust be preserved if not expanded. The problem is how to financeit. The sharp fall in SONTRACH's receipts has led it to seekexternal sources of financing.

(iii) The Government is maintaining its hydrocarbon production goals inorder both to sustain Algeria's export receipts and to meet therapidly growing domestic demand. In view of the tightened financialconstraints and the large number of types of hydrocarbons that can beproduced in Algeria, an optimization model needs to be worked out.It is necessary to identify the most profitable activitieseconomically that allow maximum production at lowest cost.

Table 1II.3:

SECOND FIVE YEAR PLAN 1985-89: MACROECONMC PRO3ECTIONS AN9

PERFORMANCE STATUS AT END OF 1986

(In billions of constant Algerian dinars and in percentages)

Actual Values at End-of-year Lead (.)aggregates constant 1984 Planned average annual or Las (-)for base arices growth rate growth rate in relation tovear 19a4 (ml MS* 19B6* 1115f9 lJ 1986* is) Plan opal

1 2 3 4 5 6

I. Anarantes

Gross Domestic Production 225.3 237.2 237.0 6.6 2.6 -4.0Government Services 34.5 36.2 35.0 n.a. 0.7 n.a.Gross Domestic Product 259.8 273.4 272.0 n.a. 2.3 n.a.Final Consuption 159.1 168.5 171.2 5.9 3.7 -2.2GFCF 87.3 89.4

70.0 7.3 -14.0 -21.3Changes in Stocks 7.3 4.2Exports 67.7 69.3 72.8 5.3 3.7 -1.6I*orts 61.6 58.0 42.0 6.1 -17.4 -23.5

It. Value Added h_ Sector

Agriculture 19.5 24.7 26.0 4.5 15.5 11.0Hydrocarbons 62.0 64.0 60.0 4.0 -1.6 -5.6Processing Industries 26.6 28.7 ) 9.0 )

inVes and Quarries 0.7 0.8 ) 32.0 6.6 ) 8.84 3.3 -S.5WAter anO Energy 2.7 2.5 ) 10.0 )Construction/Public Works

and OiI works 38.4 40.2 40.0 8.7 2.0 -6.7Services S2.1 52.3 55.0 7.2 2.8 -4.4

Total Value Added 2Q2L0 21 J2 ZJ. LI 2l 39Iwort Duties and Taxes 23.3 24.0 24.0 6.9 1.5 -5.4

fiross Dmistic Production 225.3 27L.2 2UL&0 Li 2A A

(a) Actual figures. These may differ appreciably from the statistical data on which the Plan was based, which at the timewere only estimates.

< Provisional estimates.n.a. - not available (these aggregates are not calculated in the context of Algeria's national accounts).

Soruce: Data provided by the Algerian authorities and World Sank estimates (e).For further details. see Annex.

61368/plO (5,25)

- 41 -

3. The New Macroeconomic Trends

2.11 Growth rates will turn sharply downward as a result of the losses ofreceipts (Table II.3):

(a) The year 1985 had already produced uneven results. Excellentperformances were posted by agriculture which, helped by veryfavorable climatic conditions, generated a notable growth of valueadded (+272), and by the processing industries (+8% growth of valueadded). In contrast, the hydrocarbons sector (which accounts for alarge share of total value added) grew by only 3X, water and energylost ground, construction and public works (17% of GDP) advanced only4.7X, and services (25b of GDP) also did no better than 0.4%.Overall, GDProduction posted average annual real growth of 5.32,which is an average performance in historical terms but 1.3percentage points behind the average annual target. The relativetrends of final demand aggregates also reflect tensions: whileconsumption (5.9X) grew appreciably faster than GDProduction (5.3%),the reasons are to be found in an abundance of food products and, toa less degree, lively government consumption. In contrast, the weakgrowth of investment (-l1) reflects more complex processes: seriousreductions in inventories (-57X) and a reduced increase in GFCF(+2.4Z) mostly supported by capital formation by the Administrations,since the productive sectors with the highest shares were unable toabsorb the planned investments.

(b) The events of 1986 will accelerate the trends. The sharp fall inhydrocarbon prices will boost export volume growth only slightly butlower receipts will call for very sharp cuts in the import program.Correlatively, the lower availability of resources will inevitablyalso generate a very sharp reduction in fixed capital and inventoryaccumulation through the revision of the annual investment programunder the supplemental Finance Law. The austerity budget applied tocurrent expenditures, together with the economic austerity veryprobably imposed on the population, will sharply reduce the rate ofgrowth of final consumption. In sum (see Table II.3, col. 3):

(i) Over the year 1986 alone, GDP should remain stagnant; finalconsumption would grow by only 1.6b in real 1984 terms;1'investment (GFCF + inventory formation) should fall back bynearly 25Z and imports by about 27.62 (all percentages expressedas changes at constant 1984 prices).

(ii) Over the first two years of the Plan (Table II.3, col. 5), theeconomic growth trends will lag appreciably behind the Plangoals (table II.3, col. 6): GDP growth will fall short by4 points, consumption will lose 2 points and per capitaconsumption will begin to decline; investment will shrink bynearly 20S of its starting value and import growth will lose24 percentage points as a result of the operations to restoremacroeconomic equilibrium.

1/ This means that real per capita consumption will also decline.

- 42 -

4. The Other Eauibra

2.12 As we have seen, public finances equilibrium is to be thoroughlyoverhauled and restructured over at least two years. The related projectionsare shown in Table II.4:

(a) For 1986, the recorded-' drop of nearly DA 26 billion (current DA)in oil taxation receipts has been offset only in part by an increasedeffort of collection of other taxes. The provisions of thesupplewental Finance Law point to an additional DA 5.7 billion or soin ordinary receipts and DA 3 billion in other receipts. Theuncontrolled increase is current expenditures (+18.5% in nominalvalue) has undermined the efforts to reduce the negative balance inSpecial Accounts. The current surplus of the budget has then beenreduced by 502 (compared to 1985) leaving an insufficient amount offunds available to finance the initially planned investment program.Direct public-sector investment expenditure have fallen to about DA41.3 billion (DA 3.7 billion below the Finance Law ceiling), i.e.less than in 1985. Treasury-financed investment credits have beenreduced to DA 25.4 billion. Overall, the capital budget balanced offat DA 59 billion, i.e. nearly DA 10 billion less than in 1985. Thetotal budget deficit (of DA 35.3 billion) has been up by DA 11.6billion in a much more difficult economic climate than that of 1985.Since one of the Algerian Government's goals was, moreover, tostabilize disbursed outstanding public debt at its current level(US$13.6 billion),"' no external resources can be provided tofinance the deficit. Domestic savings, already in sharp demand in1985, could only cover DA 9.3 billion (in particul.r becausereductions will also occur in the surpluses of the other publicinstitutions). Sight deposit funds (amounting to DA 2.4 billion)have been mobilized entirely in the form of postal checking accountssince the other Treasury resources cannot be imperilled.Consequently, the deficit was largely financed by monetary financing,93% of it in the form of Central Bank advances (DA 23.5 billion).Thus, in 1986 the budget deficit has represented about .0%, andmonetary financing by the Central Bank by itself about 82, of GDP.In an economy in which creeping inflation is entrenched this has nothelped to relieve inflationary pressure; on the contrary, whereas inmost of the countries with which Algeria trades the inflation rate isdeclining (to about 2% a year), in Algeria it is on the rise and thisis becoming a source of serious worry: Algeria's competitivedisadvantage in terms of prices will tend to worsen, creating newobstacles to the diversification of non-hydrocarbon exports and,failing global monetary adjustment, helping to distort the terms ofeconomic calculations a little more.

1/ As of the end of 1986, according to data provided by the Algerianauthorities in May 1987.

2/ See paragraph 2.14.

- 43 -

Table II.4:

SUMMARY TABLE OF ALGERIAN PUBLIC FINANCES

DURING THE SECOND FIVE-YEAR PLAN

(In millions of current Algerian dinars)

1985 1986* 1987**

I. CURRENT OPERATIONSA. Current Revenues 106,668 90,629 96,000

a) Ordinary Taxation 47,753 53,425 58,000b) Oil Taxation 46,787 21,439 22,000c) Other Revenues 12,128 15,765 16,000d) Credit Balances

Special Accounts

B. Current Expenditure 60,832 67,056 63,000a) Ordinary Expenditure 53,748 63,690 63,000b) Debit Balances

Special Accounts 7,084 3,366

C. Current Account Balance (A - B) 45,836 23,573 33,000

II. CAPITAL OPERATIONSA. Investment Expenditure 72,328 66,732 75,000

B. Investment-linked Resources * 2,725 7,770 10,000

C. Capital Account Balance 69,603 58,962 65,000

ItI. BUDGET BALANCE (I, II) -23,767 -35,389 -32,000

IV. FINANCING 23,767 35,389 32,000A. Net External Loans 52 93

B. Domestic Savings Mobilization 14,935 9,308 10,000

C. Mobilization of Sight Resources 4,978 2,392 2,000

D. Recourse to Banking System 3,802 23,596 20,000

* According to data provided by the Algerian authorities in May 1987.** Forecasts.

Sources: Data provided by the Algerian authorities (Ministry of Finance).For further details see Annex, Table 5.1 bis.

6136S/pil (3/9,S8)

- 44 -

(b) A sharp reversal of this movement is scarcely to be expected in1987. A fresh effort in the area of ordinary taxation will raise thefiscal burden too close to an intolerable level. Meanwhile, otherresources will increase only nominally. Assuming nominal growth alsoof current expenditure, the current account surplus would reachDA 33 billion, an improvement of 4% over 1986 in constant 1985values, at best. The nost recent available data (first semester of1987) show that the capital account balance for 1987 should be closeto DA 65 billion. This would be due to two factors: (i) a cut inTreasury loans down to DA 30 billion (while the Appropriation Law hasalready forecasted an amount of DA 44 billion), and (ii) an increasedeffort to collect debts linked to investments; investment grants(45 billion) will probably be exhausted in full. The overall balanceof the Public Finances is then expected to totalize a deficit ofDA 32 billion. To finance the gap, it will be necessary to resorteven more to monetary financing through the banking system(DA 20 billion). In 1987, Algerian Public Finances are stillexpected to have a determining driving effect on inflation.

2.13 Overall monetary and financial equilibrium (Table II.5) at the startof the Plan exhibits contrasting tendencies: replenishment of net foreignassets to nearly DA 15 billion is indisputably one of the positive signs''and provides the economy with at least a temporary safety valve. The growthof debt claims on the Government, while still substantial (+14.9%), is slowedconsiderably, while the growth of credit to the economy has reverted to areasonable rate of just over 11%, more or less the same as the growth ofresources allocated by the Treasury. Thus, monetary expansion in the strictsense (Ml) appears to slow appreciably (+12.1%), most of the new contributionsto the financing system again taking the form of time and savings deposits (aquite remarkable growth of 30%). Moreover, the financial system has been ableto procure nearly DA 10 billion in incremental external resources.

2.14 This progressively improving situation has undergone some changes in1986; it could be further improved in 1987 provided that substantial adjustmentmeasures are taken. The external payments disequilibria recorded in 1986 hasalready led to a substantial cut in foreign exchange reserves in order toavoid swelling Algeria's external debt, in line with the Government's target.Net foreign assets have thus been reduced by 46.3%. The domestic debt of theCentral Government has continued to grow rapidly (+32.2%) and has implied, inorder to maintain the balance of macroeconomic aggregates, a continued growthof foreign long-term liabilities of the banking system (however at a reducedrate of 18%, versus 45% in 1985). Although this external flow had not beenaccounted for initially, it has enabled to limit the growth of MI at about11%. However, even at this "reduced rate", the creation of money has remainedexcessive (and more precisely when it is related to a zero growth of GDP).This situation has also been exacerbated by the fact that savers have adopteda particularly cautious behaviour and have saved only marginally compared to1985 (+2.4% in outstanding figures). Since the Central Government has alsosubstantially reduced its inflows of funds (+20 billion DA), the expansion ofcredit has been growing at a rate of 5.1% only (compared to 11.3% in 1985).

1/ It should be borne in mind that these net foreign assets deterioratedsubstantially during the last three years of the 1980-84 Plan.

Table II.S:

SIMPLIFIED MONETARY SURVEY

(In millions of Algerian dinars)

1984 196S 1986* 1987* 1985 1986* 1987*

AMOUNT OUTSTANDING AT END OF YEAR ANUPAL FLOWS (AND % CHAnGEIN AMOUNT OUTSTANDING)

Net Foreign Assets 9,311 14.885 8,000 7.000 5,574 -6.,85 -1,000(59.9) (-46.3) (-12.5)

Claims on Government /a 95,474 109,666 145,000 160.000 14,192 35.334 1S,000(14.9) (+32.2) (+10.3)

Credit to the Economy lh 410,355 456,640 480,000 500,000 46.285 23.360 20,000(l1.3) (+S.1) (+4.2)

ASSETS LIUBILIMES 5I1.140 581.191 633000 ML000 66.QSl S1.809. 34.000L1(12.3) (.8.9) *S.4)&

Money 180,433 202,230 224,000 232,000 21,797 21,770 8,000(12.1) (.10.8) (3.6)

Quasi-money /1 41,249 53,718 5S,O0O 60.000 12.469 1,282 S,OOO(30.2) (+2.4) (+9.1)

LT External caMitments /4 20,471 29,6S5 3S,000 40,000 9,184 5.34S S000(44.9) (+18.0) (14.3)

Larmarkod public funds /g 253,969 283,982 304.000 320,000 30,113 20,018 16,00011.8) (.7.05) (5.3)

Net iseotlaneous Liabilities 19.018 S,606 1S.000 15.000

AL Including BAD ant CUEP claims./k Including MAD and CHIP loans./s Ineluding savings deposits with CNEP./4 Including those of BAD. This heading does not include all mediu- and ong-term comuitments but only those involving

financial intermediaries other than the Treasury./i Including the funds allocated to BAD and CNEP.

* Forecasts by the World Bank.

Source: Based on data provided by the Algerian authorities.

61364Jpl2 (5.20)

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Within thin overall framework, the additional financing requirements (if any)of the final units have necessarily been satisfied with their own resources.In 1986, Treasury operations have obviously cleared the financial network bycrowding out those units for which the financing demand exceeded the existingpotential. This effect will have been salutary if and only if those unitshave drawn the right conclusions: focus on improving their profitability.1987 could then become a test year: if the Central Government is able tolimit to 10% the growth of its domestic liabilities, and if external paymentrequirements can be limited to an additional decrease of about 12.5% in netforeign assets and to a slowed down increase (by 14%) of long term foreignliabilities, the monetary expansion could be reduced to a 3.6% growth. Thisgrowth rate for MI would be in the same line as the growth of GDP, thus easinginflationary pressures. Only the facts will show if the Government hasactually taken this path and if its policy will prove to be successful.

2.15 Perhaps paradoxically, it is Algeria's external equilibrium that willpose the least problems. The transition from an oil price equivalent to aboutUS$28/barrel in 1985 to about US$17 in 1986 cuts unit export receipts by 40%(for constant sales volume). However, imports can be reduced commensuratelybecause:

(a) the excellent results of the 1985 and 1986 crop years will make itpossible to reduce food imports accordingly and even to build upcertain stocks;

(b) until 1985 the importing units also stocked many capital goods andlarge quantities of intermediate goods (sometimes up to a year'srequirements) so demand for further imports can be reduced;

(c) the import substitution policy will be continued; and

(d) in particular, Algeria operates a policy of direct import quotas(through the PGI and the AGIs) which avoids it having (atleast initially) to use the exchange rate as its adjustmentinstrument. The reduction in imports decided on in 1986 (a cut ofabout 27%) should suffice to hold the balance of payments currentaccount deficit to about DA 7 billion (about US$1.5 billion).Financing of this deficit - constrained by the Government's generaldecision to maintain outstanding disbursed external debt at aconstant level of about US$13.6 billion (see the Statistical Annex) -could be accomplished by drawing down the exchange reserves, whichwill slide back to US$1.5 billion in 1986, i.e. only two months'imports, a ratio that is desirable to be maintained thereafter. Debtamortization (including interest), which represents about US$5billion a year (of which interest alone accounts for US$1.2 billion)will have to be financed through a package of operations combining:the mobilization of certain undisbursed portions of the existing debtcommitments (the difference between total and disbursed commitmentsis abouL U6$6 billion), calls on fresh capital to replace commitments

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reaching maturity (Algeria appears to have had no difficulty inraising loans on the market in 1986, particularly with syndicates ledby Japanese banks), " and marginal recourse to short-term credit.

5. Mediun-Term Prospects for the Investment Plan

2.16 Considering the crucial role of investments in the overall economicprocess of Algeria it is important to assess the potential "robustness" of theinvestment program; this means that one should analyze to which extent theinitially desired programr&' is likely to become the program which willactually be implemented, taking into account the new conditions andconstraints affecting the economy. The following table (II.6) provides theprospective synthesis which can be applied to the program, resulting from acomplex task which takes into consideration: the data and informationgathered by the mission during its discussions in June 1986 and May 1987, thechanges already observed for 1986, the sectoral analysis included in thesecond part of this report (which indicate both the constraints and thechoices made concerning the sectors), as well as the overall resourceconstraint.

Table II.6:PROSPECTIVE FUTURE OF THE INVESTMENT PROGRAM 1985-86

Based on drawings on opened credits(in billion constant dinars of 1984)

Total % of1985"6 1986"a 1987 'k 1988'k 1 98 9 'k of 2nd realization

Plan of Plan

Industry 15.4 15.5 16.0 16.0 17.0 79.9 45.9Agriculture 7.6 8.3 9.0 9.0 9.0 42.9 54.3Transportation 1.4 1.3 1.5 1.5 1.5 7.2 48.0Econ. Infrastructure 9.7 8.3 8.5 8.5 8.5 43.5 70.5Housing 10.7 5.9 7.0 8.0 9.0 40.6 47.0Education & Training 6.9 7.4 7.0 7.0 7.0 35.3 78.4Social Infrastructure 2.4 3.9 4.0 3.5 3.0 16.8 93.3Utilities 15.3 13.5 9.0 8.5 8.0 54.3 105.1Building Companies 1.9 1.4 2.1 2.0 2.0 9.4 49.5

TOTAL 71.3 65.5 64.1 64.0 65.0 329.9 60.0

/a Cf. Table II.1 bis./b See explanations provided in text, para. 2.15.

1/ It appears moreover that Algeria has reached the point where it canhenceforth accept terms that are slightly less favorable than in thepast but open up new financing "windows" which can give it the roomfor maneuver it is going to need.

2/ The program shown in Table II.1.

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2.17 This table calls for the following comments : in the industrialsector, the share attributed to the hydrocarbons subsector should be close tothe third of the total, taking into account the vital nature of theseactivities. The refocusing of Government activities in priority areas such asthe production of essential infrastructures should contribute to relativelyfavor the subsectors of economic infrastructure, education and training,utilities (where the social pressure is very strong and cannot be containedwithout any risks), and of social infrastructure (in the absence of which theurgent demographic and health problems cannot be resolved). The progressalready made in the field of social infrastructure and utilities should bemaintained even if, in the case of the latter, the absolute level ofinvestments will be substantially reduced. However, it is feared that twonegative aspects will persist, due to structural constraints : investments inboth the housing and building sectors where it will be difficult to make upfor initial delays.

2.18 To conclude, it should be noted that the prospective investmentpeformances that have been exposed remain very satisfactory (compared withthose of developing countries with similar GNP levels) and would represent forthe Algerian economy a successful achievement in an unfavorable economicsituation: the second Five-Year Plan would accumulate (in constant dinars of1984) approximatively 330 billion dinars in new investments, which representsnearly 60% of the initially targeted objective, i.e. a satisfactory performanceas compared with the first Plan, given the accompanying circumstances.

72S28

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CHAPTER III - LONG-TERM PROSPECTS FOR THE ALGERIAN ECONOMY

3.01 Just as it took several years to restore basic equilibrium to theeconomies of the industrialized countries in the aftermath of the various "oilshocks," Algeria's economy will have to contend, at least for the remainder ofthe Second Plan, with a number of factors making for instability. The centralquestion needing a response, even if not immediately, tVerefore becomes: canAlgeria resume stable, balanced growth that will enable it to attain reasonableobjectives? To answer it, the preceding "clinical" analysis, though necessary,is not enough; it must be complemented by some more structural analysisdesigned to reveal the factors that may be decisive in bringing about thisoutcome. A very important place must also be accorded to organizational andinstitutional factors, in which considerations of "economic doctrine" may berelevant, so profoundly is Algeria's economy marked by these social choices.By looking from these two angles we may hope to get a clearer picture of thedeep and sometimes contradictory forces shaping Algeria's economy.

A. Analysis of the Dynamic Forces in Algeria's Economy

3.02 The fact that Algeria's economic system is centrally planned makes itpossible to divide analyticallyi/ the forces responsible for the dynamics ofits development over the last ten years into two groups, namelyl':

(a) The forces built into the structure of the Algerian production andtrade apparatus which generate an "autonomous" motion of the DomesticProduct.

(b) The forces resulting from the control apparatus of the economy. Theyoperate mainly via the following variables1 /: public consumptionand direct investment of the Central Government. They produce whatis usually called a "forced" motion of the Domestic Product.

Thus, globally, the evolution of GDP should result from the (additive, byassumption) combination of these two forces.

3.03 When applied to the 1974-85 decade, this analytical apparatus allowsto derive a number of interesting features, inter alia:

(a) a noticeable downward trend of the dynamic performances related tothe forces producing the "autonomous" motion: whereas these forces(ceteris paribus) had been driving forward the economy at an averageannual rate of 6.42 during the first half of the decade (1975-80),during the following period (1980-85) they were only generating, onaverage, an annual growth rate of 42. Keeping in mind that thepopulation growth rate is 3.2% p.a., this leaves very little room tomanoeuvre for improving living standards per capita.

1/ This analysis is that of the World Bank, and does not necessarilyrepresent the approach of the Algerian authorities.

2/ In a formalized framework which is, ipso facto, a necessary simplification.3/ Other control variables could have been selected.

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(b) This trend, however, has been offset by the intensity of the impulsesresulting from the control variables. During the decade, thecapacity of public consumption to stimulate production throughincreased demand has noticeably improved. Direct investments made bythe Central Government have also played a positive role in promptingan induced production which has supported the overall economicmomentum.

3.04 The present circumstances (as well as the necessity to preservesatisfactory future prospects) require an attempt to rebalance the relativeintensities of these two sets of forces. On the one hand, given the currentfinancing constraints, the Central Government is no longer in a position tointervene with the same intensity in the overall economic process. On theother hand, the new policy towards a more decentralized economy will requirean increased dependency on the production and trade apparatus to promoteeconomic growth. Algerian authorities seem to be aware of these requirements;they have reached similar conclusions through different analytical devices andare apparently determined to carry out the "actual decentralization ofinvestments (...) so as to directly involve the banks and enterprises as faras the efficiency of investments is concerned".

B. Organizational and Institutional Components

3.05 Under the Second Five-Year Plan, Algeria has embarked on majororganizational changes. Before examining them let us note that in terms ofmacroeconomic policy, Algeria has given an impressive demonstration of itsability to respond in the short term to the challenge of the fall in oilprices. The decisions taken in June/July 1986 constitute a coherent set ofadjustment measures: the objective of stabilizing the external debt at itscurrent level and the imperative need to restore the trade balance have ledthe authorities to make major reductions in import authorizations. The lossof oil-related revenues has led to a series of austerity measures affectingboth the State's current expenditure and the capital expenditure it controls,together with measures to offset the loss of receipts (domestic taxes onfuels, stamp duties, elimination of tax exemptions ... ). Even if part of theadjustment is based on the two-fold assumption (i) that the fall in oil pricesis temporary, and (ii) that a significant portion of the adjustment can,without great risks-l 9 be transferred to the financial system, thedetermination of the authorities to undertake further public expenditurereductions in 1987 is a sign of their desire to maintain the pIincipalmacroeconomic equilibria, even at a lower level of activity. In particular,the decision to stabilize the external debt shows that the Algerianauthorities are not hesitating to tackle the difficulties confronting them,rather than passing them on to future generations.

3.06 With the State reverting to its traditional and top-prioritystrategic task of providing quality infrastructure, it is the sectorsproducing significant amounts of value added that must be regarded as thesources of a revival of economic activity, above all the industrial sector.

1/ This assumption is, however, crucial: any mistake will lead toaccelerating inflation. According to the most recent data (Spring 1987),inflation in Algeria should have been around 122 in 1986.

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It should be possible to make progress in industrial organization throughsmall-scale investments, pertaining to: (i) the allocation of functions amongenterprises; and (ii) the natare of regulatory action and control.

3.07 The industrial restructuring undertaken in 1982, in splitting up thevery large enterprises into new units specialized by product line and byfunction, was an advance in that it created smaller, more specialized units.It was, nevertheless, more appropriate for the industries producing basicgoods than for the manufacturing industries. As regards the latter, it isworth looking again at:

- the separation of distribution-production-development in the variousenterprises;

- the excessive specialization that rules out enterprise strategiesbased on a certain level of diversification.

In that part of the heavy industry sector that produces intermediate goodsmany tasks are not performed as a result of raw material supply difficultiesand very sharp fluctuations in orders. Since the latter emanate very largelyfrom the public enterprises, the circulation of flows of intermediate goodsshould be better organized. This entails developing planning skills in orderto strengthen the various logistical chains concerned, within enterprises andthe sector. Finally, the sector as a whole lacks industrial maintenanceservices capable of ensuring repairs to equipment; furthermore, the output ofthese enterprises contains a significant proportion of rejects and posesquality control problems, which should be a spur to develop "operationalefficiency departments" in the units.

3.08 Among the regulatory and control measures to which the enterprisesare subject are some that cause major difficulties.

(a) From this standpoint, the AGI allocation machinery should bereorganized. One must, as a matter of principle, query the netbenefit of a procedure which provides some foreign exchange savingsat the cost of substantial and often very sharp reductions incapacity utilization. A general review of import procedures could beundertaken to give a progressively more important place to theexchange rate as a resource allocation criterion.

(b) Price-fixing methods could also be reviewed for activities notinvolving basic consumer products. Although it may be possible todefend the idea that market pricing cannot be systematically appliedto basic goods, and therefore that some efficient enterprises, viatransfers and subsidies, may have to finance the deficits of certainless efficient priority sector enterprises, the system has moreperverse effects when it involves manufacturing enterprises.Although any assessment of the current method of relating prices toproduction costs remains problematic, it would nonetheless seem thatprices reflect production conditions fairly closely only in the mostefficient enterprises, with the result that:

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- the self-financing capacity of these enterprises is limited;

- structural operating losses become a permanent feature of theless efficient enterprises;

- an ex-post transfer operates in such a way as to penalize themore efficient enterprises.

The best course of action to follow here would be to apply marketpricing as widely and as quickly as possible, bearing in mind thecash flow required to raise levels of self-financing. In view of theparticular problem of priority goods, several pricing systems couldbe envisaged.

(c) The almost exclusive emphasis on production obJectives and capacityutilization rates should be broadened through the addition ofcriteria more directly based on the income statements. This willonly be possible if the above-mentioned conditions are met, if theenterprise is in a position to operate a more autonomous personnelpolicy (including the possibility of releasing surplus personnel) andif banking constraints are exercised under normal conditions.

Excessive polarization around production objectives also hasconsequences for work organization. By leading to taylorization anda very advanced technical division of work, it may end up by harmingproductivity. One indication of the room for progress withinenterprises from a work organization standpoint is the level ofinterest displayed by workers in their tasks.

Along the lines of the recommendations in the Plan, one effectivemethod of gradually restoring the responsibility of the enterprisefor its performance would be to increase the pressure on itsfinancial results, which requires that the enterprise be lessconstrained as regards inputs, prices, development policy andpersonnel management.

3.09 To restore economic momentum it is essential to develop significantlythe private sector. On this sensitive issue, Algerian authorities (andparticularly those in charge of the industrial sector) indicate that thecountry lacks "entrepreneurs" in the schumpeterian sense; they stress the facttht "private entrepreneurs" who request a licence to operate from theGovernment are mainly driven by speculation motives (as experienced, forinstance, in the spare parts sector). From this viewpoint, an analysis of theregulations governing the private sector leads to the conclusion that theseregulations are the very obstacle to the effective operations of privateentrepreneurs (in the schumpeteri.an sense). In particular, several drawbacksderive from the fact that these entrepreneurs are considered to be strictlycomplementary to the public sector. Firstly, this situation constrains thefinancial support from the private sector to arbitrary levels, most of thetime below the critical threshold of funds required to implement moderntechnologies. Secondly, the private sector does not find itself in a positionwhere it can benefit from economies of scale, in which case it would have to

- 53 -

operate more rigourously (quality control, after-sales service ... ). Finally,from a performance viewpoint, the efficient command of a complex industrialsystem cannot rely on absolute physical norms (such as production levels,rates of capacity utilization ... ) but on relative norms. Optimizing theperformances on a given market segment implies the comparison of performancesachieved by several various units operating in this segment. Since therestructuring of enterprises in Algeria has virtually excluded competitionbetween public enterprises, the presence of private enterprises is the onlyalternative. If properly organized (offering equal opportunities to differentinstitutional units), this should improve the management of complex industrialsystems, by progressively reducing opportunity costs and thus alleviatingaverage costs to be borne by the community as a whole.

3.10 One may also hope for much better performance in the agriculturesector, more specifically in three areas:

(a) the human factor, which is decisive in the agriculture sector, asmost worldwide experience has shown. The strengthening of technicalassistance and the training of farmers is working to this end, as isthe placing on an equal footing of "public" and private farmers asregards the allocation of inputs. This will restore the confidenceof private farmers, an essential factor in an activity subject toclimatic uncertainties and risks.

(b) land: if the objective of introlucing more modern crop practices onland currently left fallow is achieved, this would bring back aboutone third of the current cultivable area into the economic circuit.This is not merely a question of permanently reactivating land leftidle for a certain length of time; it also involves using this stepto improve soils, reduce their vulnerability to drought and introducenew crop species.

(c) water: here too the current directions are promising. In Algeria,water is the production factor in shortest supply, and therefore anyeasing of the situation can only be advantageous.

3.11 In more overall terms, the choices made as regards decentralizationand making economic units more responsible for their operations haveinevitable implications for the global regulation of the economy; inparticular, the management and planning process should progressively assumea less bureaucratic character, make more room for alternative macroeconomiccalculations and introduce procedures for flexible management of the economy.By outlining the main directions to be followed and determining themacroeconomic resources needed to attain the specified objectives, it wouldleave enormous room for maneuver to the decentralized units, breaking thestifling centralization reflected in the declining autotnomy noted at thebeginning of this Chapter.

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C. Critical Conditions for Long-Term Growth

1. The Problem of Population Growth

3.12 Algeria's population is increasing at an average annual rate of about3.2%. This establishes a lower limit for the rate of GDP growth, unless oneaccepts a continuous decline in per capita income. The climax of this processhas not been reached, since the population growth rate will increase furtherin the years ahead (towards 3.4Z). As a result, the current population of21 million (in 1984) will reach 26 million in 1990 and 34 million in 2000; thestationary population (a hypothetical figure where the rate of increase iszero and the other demographic parameters unchanging, the birthrate anddeathrate being equal) is 81 million, a very worrying figure. The netreproduction rate should only reach 1 in 2025; the population momentum of1.9 reflects the very strong likelihood that demographic growth will continuebeyond the period in which replacement-level fertility is achieved.

3.13 The gross birth rate in 1984 was 42 per thousand (a very high figure)and the gross death rate 11 per thousand; while the former is 16.62 lower than20 years ago, the latter has fallen by 43%. Tne total fertility rate showsthat on average a woman would during her child-bearing years give birth to 6.4children (again an excessively high figure). Less than 72 of married women ofchild-bearing age use contraceptive measures. All the relevant parameterstherefore combine to produce ever more numerous new generations. Inqualitative terms the population is not well off, inasmuch as life expectancyat birth is only 59 for men and 62 for women, rates similar to those forMorocco or Tunisia, which are much less wealthy countries. The infant deathrate is 82 per thousand, and while this represents a very significant declinefrom 20 years ago (when the figure was 155 per thousand) it is still higherthan the corresponding figure for Tunisia.

3.14 Although they have greatly improved in the last 15 years, the healthconditions of the population are far from being satisfactory: with one doctorper 1432 inhabitants and one medical assistant per 382 inhabitants, Algeriadoes not have the medical personnel commensura.e with its level of development.A wide-spread mentality, focusing on the improvement of health and sanitaryconditions remains to be achieved. Bearing this in mind, public authoritiesintend to develop three strategical orientations: the first focuses on familyplanning; a condition of success will be the overcoming of prejudices deeplyrooted in people's minds (public authorities try hard to, and seem to succeedin, reaching the representatives of the islamic cult to have them participatein an awareness campaign) as well as the implementation of an efficientproduction and distribution system for contraceptives, jointly with aninformation campaign concerning their use (in this area, the widespreadcirculation of slogans valorizing four-member families, recommending an idealinterval of four years between each birth, encouraging prolonged breast-feedingetc... are means that should also be supported by other even more effectivemeasures); the second focuses on the illnesses themselves: control ofdiarrhoeal diseases seems to be well under way through the creation of aproduction unit of rehydration salts; immuniza ions should allow to reduceconsiderably the cases of measles (15% of intant mortality), tuberculosis,

1/ Data are from World Development Report 1986, The World Bank, Washington DC.

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whooping cough, diphteria and poliomyelitis; the objective being to reach aninfant mortality rate lower than 5% by 1990; the t'hird orientation is of anocological nature: it is well known that cholera and bilharziosis arewater-transmitted diseases which need, above all, for their elimination theavailability of modern water supply and sewerage systems. The whitewashing ortreatment of about 150,000 wells which supply water to 502 of the populationis a task which seems well under way. For the other half of the population,the extension of a modern water distribution system, under the aegis of theWater Supply Ministry (and with the assistance of the World Bank) shouldcontribute in partially solving the problem. The problem of used waterdisposal remains to be dealt with; it is currently on hold but should bereviewed urgently not to undermine the other efforts which have been made inthe area1".

3.15 Demographic pressure not merely provides a lower limit to theadmissible growth rate of GDP; it has powerful structural implications. Thegrowth rate of the urban population rose from 2.5% a year for the period1965-73 to 5.4% a year for the period 1,73-84, an increase that makes iteasier to understand the priority given by the authorities to infrastructureand community facilities. One of the problems is that it has been necessaryto concentrate these efforts on the coastal strip. The program envisaged,involving the creation of nuclei to divert migration flows in the direction ofthe High Plateau, will doubtless not be implemented in the immediate future,given its cost and the contraction in resources. However, one bottleneckcould be eased if the construction sector were put in a position to respond toa high level of demand, since there seems to be a large volume of savingsready to be invested in housing-'. The sector seems to be held back bylimited supplies of construction materials. This whole process could becomeone of the keys to a revival of economic dynamism-'. Restoring thecompetitiveness of the construction sector is necessary both to stimulate anotherwise lethargic public sector and to create opportunities for productiveinvestment that generate employment.

2. The Problem of Foreign Trade

3.16 This is essentially an industrial problem. Traditionally, importshave been seen as a "temporary" answer to the unavailability of local inputs,the ultimate aim being import substitution and exporting as a residualactivity, subsidiary to the priority of satisfying domestic demand. However,there are numerous indications of changing attitudes in Algeria and of anawareness of new imperatives4/. Algeria's industrial strategy can no longer

1/ Re.: the general area of water supply and sewerage, see Chapter 12 ofthe present report.

2/ Savings deposits at the CNEP at the end of 1984 were DA 27 billion andwere increasing steadily at the rate of DA 4 billion a year.

3/ See the later chapter on the urban sector and housing.4/ For example, the insLitutional reorganization involving the merger of

ONAFEX and the National Foreign Trade Center into a National Office forFairs and Exports. Likewise the reorganization of the Ministry of Trade,particularly as regards the inclusion of a directorate to support exportprices.

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be so exclusively based on import substitution. The previous success of thispolicy was linked to abundant foreign exchange resources and the disproportionbetween Algeria's industrial apparatus and the demand for intermediate andfinal goods. Henceforward, these foreign exchange resources can only leveloff, while the industrial apparatus has achieved a degree of maturity suchthat the necessary reductions in imports will become progressively moredifficult. Further progress in import substitution will therefore entailgrowing costs, with the risk that resources will be spent that would be betteremployed in correcting some of Algeria's industrial weaknesses. It shouldalso be noted that the lags caused by these difficulties are leading, viaoperating subsidies, to transfers of resources between subsectors that are incontradiction with the general development strategy.

3.17 It is, however, above all the export side that will benefit from thepolicy review. Once again this will be a long process; the problems caneasily be set out, but the necessary solutions will take time to have theireffect, while their introduction is a delicate matter. The structure ofAlgeria's exports is in fact thoroughly unbalanced at present: hydrocarbonsaccount for 982 of receipts. This situation represents both a major economicrisk (the lack of diversification entails a general economic crisis shouldprices fall, and an illusion of wealth should they rise) and a distortingfactor in global macroeconomic calculations (the economy is largelyconditioned by the aim of maximizing mining rent rather than by anyconsideration of optimal resource allocation among sectors). In any event,the progress to be made regarding industrial exports must not be limited toactivities where there is chronic over-capacity (principally textiles).Industry is going to have to develop a pervasive export mentality, alsoextending to activities where production is not meeting total domesticdemand. Algeria's industrial base is now sufficiently large to be exposed tointernational competition on certain markets. From this standpoint it willbecome increasingly vital to open certain segments of the productive apparatusto the outside, involving both imports and exports, since the former arefrequently a precondition for the development of the latter. There arecertain other prerequisites in this area, which can be outlined as follows:

- the organization of an institutional mechanism to provide informationon foreign markets and the international links guaranteeingintegration into the relevant networks;

- a range of appropriate financial instruments. The Algerianauthorities are currently putting together an export credit andinsurance system;

- reflection on the most suitable exchange rate system for ensuring thesuccess of the export policy.

The main danger to be avoided will be the temptation to enter into generalizedbarter agreements which will in no way benefit industrial productivity.

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3. Productivity, Economic Efficiency and the Price System

3.18 The "price system" is here understood to include not only the pricesof goods and services but also the cost of financial capital (interest rate)and of Algeria's currency in relation to foreign currencies. There is in facta general problem in Algeria as regards the price system. Normally in aneconomy the price system must serve several mutually consistent purposes, andin particular must help bring about a rational allocation of scarce resources.Apart from some high-level theoretical contributions1', it must berecognized that for planned economies there is no solid analytical supportthat can serve as an operational guide for establishing a price system.

3.19 The general system in Algeria is one of administered pric(.. Exceptfor certain sectors where market forces operate (fruits and fresh vegetables),the prices of goods and services are either fixed administratively ("fixed"prices) if the products in question are regarded as strategic or staple items,or controlled ("monitored" prices), involving a procedure whereby prices arelodged with the authorities, who ensure that they do not move beyond upper andlower limits. Most of the time the necessary link between prices andproduction costs is not clear '. In practice, deviations develop which aremade up by compensation techniques (there is a prices compensation fund forthis purpose, which normally is self-financing) and/or by budgetarysubsidies. Whatever its nature, a subsidy-' creates the illusion that thecost of capital is zero.

3.20 Furthermore, as the subsidies cannot in practice cover all needs,many enterprises which are not in a position to generate an adequate cash flowborrow funds, but again at real interest rates (the only meaningful ones) thatare negative most of the time and far from reflecting the opportunity cost ofcapital4'. When even the loans are not reimbursed, the system lacksrationality at any level of analysis and the end result is that capital comesto be regarded as free.

3.21 At the same time, the prices of a number of goods are established byreference to the prices of identical imported goods (cement, for example). Inthis situation it is obvious that there is some advantage in overvaluing theAlgerian dinar, so as to implicitly devalue the competing imported good.Another illusion is thereby created, namely the unimportance of relativecurrency values, another source of waste, which the Algerian authorities

1/ For example the contribution of L. Kantorovitch.2/ It should be noted that the "restructured" enterprises have no

satisfactory cost accounting system.3/ Balancing subsidy, capital subsidy, grants for the "restructuring" of

enterprises, and even State funds assigned when the grants are not repaidand have to be subsequently covered by new budget grants.

4/ The interest rates charged by the Treasury to financial intermediaries inAlgeria for purposes of allocating State funds to enterprises currentlyvary between 0.5% (CNEP) and 2% (BAD or BDL), to which the intermediariesconcerned may add a commission of 0.51. At the same time the inflationrate is close to 101.

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tackle by rationing imports through the AGI. The series of distortions andillusions thus created results in relative price distortions that leads to anoveruse of "cheap resources" when in fact these resources are scarce.

3.22 Another key to revitalized long-term growth !n Algeria is indeedrestored and even very substantially improved efficiency. One indication1 /of the low efficiency of Algeria's economic system is the high figure for theincremental capital/output ratio (7.5 for the years 1982 to 1985) which,reciprocally, indicates the low level of the marginal efficiency of investment(0.133, in other words each Algerian dinar invested only produces on averagean additional DA 0.13 of value added). The depressive effects of the presentsituation will further accentuate these trends: the incrementalcapital-output ratio may be about 12.75 on average from 1986 to 1990, giving amarginal investment efficiency coefficient of 0.08, i.e. each Algerian dinarinvested will only yield DA 0.08 in additional value added.

3.23 The Algerian authorities are aware of the undesirable consequences ofthe adoption of economic parameters of inadequate quality. They thereforepropose:

(a) to move toward a more rational pricing system over a period of fouryears, the object being to make the prices of goods and servicesreflect the economic costs of domestic production. This is acourageous policy because it will be difficult to introduce,upsetting many traditions, and requiring the introduction ofobjective reference standards, independent of the planner, andsystematically reflecting the state of market forces.

(b) within the framework of the recently approved banking law and theimplementing decrees that will follow, to promote a structure andlevels of interest rates reflecting the real costs of using domesticcapital2' and designed to steer the latter toward key developmentsectors. This will require better remuneration of savings deposits(borrowing rates of the financial intermediaries) which, among itsfavorable consequences, should have the effect of increasing the realreturns on deposits in Algeria, thereby encouraging transfers fromAlgerian workers overseas (which have tended to decline in recentyears). In such circumstances it would no longer be necessary toretain the present discriminatory exchange rate, with its 40%differential in favor of non-residents.

(c) to consider exchange rate alterations, which will become all the morenecessary to the extent that the decline in the US dollar introducesunanticipated distortions in the relative weights of the 14 currenciesmaking up the basket used to establish the exchange rate for thedinar. Given the psychological and political impact on domestic

1/ Only an indication, but a revealing one.2/ Hitherto many economic calculations have been made as if the Algerian

dinar was an abundant good. On this point see the chapter on thechemical industries.

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prices of any measure affecting the relative value of the currency,the decisions to be taken in this regard will be the more difficultthe longer they are postponed.

3.24 In brief, policies are at least being weighed on each of thesematters (population, foreign trade, price sy,-tem and conditions for theefficiency of the productive system) which, if they become realities, shouldenable a satisfactory rate of growth to be resumed, bearing in mind theeconomic and ethical objectives Algeria has established for itself. Butaction is urgently needed.

D. Outline Plan for Restori g Economic Growth

3.25 Strong forces are at work in Algeria's decision-making machinery tocounteract the trend toward stagnation resulting from both the loss ofinternal momentum and external disruptions. The determination to actpragmatically in devising solutions to restore equilibrium to the economy, ifapplied across the board, particularly in the form of a less rigid attitudetoward the Five-Year Plan, and of a more flexible and more operational annualplan, will produce an economic framework conducive to more efficient economicactivity. The awareness of the importance of the demographic factor, and theappropriate policies in this area that will result, can only have long-termeffects, given the very considerable inertia in population changes. Areversal, through a new agriculture policy, of the trend toward food dependencyis among the factors that can help maintain an appropriate level of overallvalue added and an acceptable reduction in imports. The partial reorganizationof the industrial apparatus to help it face foreign competition with a view torenewing Algeria's export potential, will also take time to produce results,but within a much shorter time frame a more dynamic attitude among enterprisescan be instilled.

3.26 In this situation the range of options is not very wide. Once againthe starting point must be the excessive predominance of the hydrocarbonssector and its earnings in Algeria's economy, which, as already noted onsev;aral occasions, has given rise to illusions and errors in economiccalculations. The apparent abundance of foreign exchange led to the beliefthat the economy could obtain, at almost any price (domestic and foreign),equipment, spare pirts, know-how, food products, etc1'. The reality,however, is very different: any acquisition of inputs (current or capital)should be the result of a rational allocation calculation; it cannot simplyinvolve drawing down a stock of financial resources that are the result of aprocess combining the exploitation of a natural resource (hydrocarbonsresources) which is depletable and the position attained by a cartel ofproducers within the context of a favorable market situation. In rationalallocation calculations, opportunity costs play a central economic role, andprices are an acceptable ex-post statistical reflection of this; theirfunction in the calculation must be-carefully preserved. Otherwise, when theflow of financial resources from sales of hydrocarbons is reduced, as is nowhappening, not only does the economy become unbalanced, but it is sharply

1/ Including foreign capital obtained on rather favorable conditions inview of the foreign exchange resources potentially recoverable by thehydrocarbons producers.

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apparent that it is unable to adapt rapidly in the desirable direction, andthat other imbalances must be endured (for example, the now clearly inadequatereal productivity of the industrial apparatus has to be made up by creditsystems which in their turn expand the money supply in a manner prejudicial toprices and incomes policies; the economy slides into a process of inflation).

3.27 Consequently, the corrective measures to be introduced cannot beprecisely phased over time; action must be taken, not in stages or insequence, but on several fronts simultaneously:

(a) make the downward adjustments required by the sharp fall inhydrocarbons prices (reduce public expenditure and the importsprogram, revise investment programs, etc.) and above all:

(b) reestablish the conditions for rational resource allocation. As willhave become clear, it is the price system (in the specific sense ofparagrraphs 3.17 to 3.20) which will (or will not) play the decisivecatalytic role in economic recovery, in the light of the decisionstaken thereon. If the policy of moving toward true prices for goodsand services, which must be accelerated"', helps to bring them moreinto line with market forcesA', the tendency to waste resources inAlgeria's economy (currently sharply criticized) will be reduced; ifat the same time this policy makes selling prices more closelyreflect production costs, production units will be able to break awayfrom subsidies and other artificial supports for the financing ofinvestments. It is certain that initially this will have an impacton the price index, but since the budget deficit and the consequentfinancing requirement will simultaneously decline, there will be anoffsetting effect in the form of a smaller expansion of the moneysupply. To this initial major source of increased economicefficiency must be added the probably even more important effects ofinterest rate revision. This will probably reduce the volume ofinvestment expenditure, but as this will be concentrated on theprojects generating more value added, the two effects combined will,)i-%ote an increased marginal efficiency of capital, which will bereflected in a sharp decline in the incremental capital-outputratio. Finally, if the Algerian authorities should reconsider theexchange rate, the revaluation of imports will entail more judicioususe of the relevant goods and services. Together with the rupture ofthe quasi-mechanical linkage between domestic prices and prices ofimported goods, will appear the necessity of producing domestic goodsmore efficiently and at lower effective cost. The subsequentreallocation of resources will also help to emphasize the importanceof local products incorporating significant value added, the last(but not the least) element in restoring dynamism to the economy-".

1/ Because the four-year time frame initially posited for this policynow appears too long.

2/ Market forces must therefore be allowed to exist on both the demandand supply side.

3/ See paragraphs 3.16 to 3.18.

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3.28 The "modus operandi" and the combined effects of the simultaneousactions mentioned above cannot be described without first recalling to mindsome structural and guiding features of Algeria's economy that are essentialto an understanding of its normal behavior. As a centrally-planned economy,where market forces have hitherto played only an auxiliary role, Algeria'seconomy is greatly "over-directed": the number of control variables issubstantially larger- than the number of significant objectives set out inthe Plan and the number of relations involved. Nonetheless, it is possible toidentify certain major vectors of both the functioning and the process ofdirecting the economy; among these forces, investment is at the head of thelist. Investment, however, should be regarded as having two components:first, State investment (by the central government), which involvesexpenditure on economic, educational, and social infrastructure, etc.; andsecond, investment in the productive public sector (capital inputs inagriculture, industry, services, etc.)2/. The first component is under thefull and direct control (including its financing) of the State, within thedouble framework of the Plan and the budget; the second component is theresult of a more complex decision-making procedure, involving intervention bythose responsible for production units (initiative in projects), thesupervisory ministries (who rule on the desirability and the priority ranking,etc., of projects), the Ministry of Planning (which determines intersectoraland intertemporal priorities), and the Ministry of Finance (which decides thecredit allocations to be transferred to thefinancial intermediaries managingthe funds for financing). Only the first component is a control variable inthe strict sense of the term, and it is in practice treated as such in theplanning process- . The second component, embodied in administrativeprocedures which it is now intended to eliminate4', is more of an empiricalendogenous system of capital accumulation by trial and error, under thecontrol of industrial managers who are unfortunately still inexperienced(because of the recent nature of Algeria's industrial system) and who aboveall have not been confront-ed by the challenge of doing things differently ormatching achievements elsewhere, and who cannot be removed (or only withdifficulty) from the production process by reason of poor performance, aswould normally happen in a risrket economy. This explains the seriousdeficiencies noted- as regards the productivity of capital in the

1/ In particular because of the doubling of the economic control variablesby administrative regulations.

2/ Private investment is small and is moreover tightly controlled by theauthorities.

3/ See, For example, in paragraph 2;09 how the Algerian authorities havesince 1985 intensified the execution of economic infrastructure worksin order to sustain economic activity.

4/ With a view to removing the "obstacles hampering the tasks of theenterprises, (...), the responsibilities of the authorities and theenterprises shall increasingly be governed by clear regulations whichshall specify the obligations of both parties."

5/ See the report on the industrial sector, which stresses the urgency ofincreasing the efficiency of the public enterprises, from the investmentplanning stage through operations.

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production apparatus, reflected in some very significant rates ofunder-utilization of production capacity and especially in the fact thatdespite a very high investment ratio (402 of GDP on average), the coefficientof the overall marginal efficiency of investment is still rather low(about 0.13). A major feature of Algeria's economy is therefore the dwindlingefficiency of investment, which is rooted in the production process and cannotbe overcome by State expenditure - quite the contrary. It is this decline inproduction that must be reversed.

3.29 Taking up again the working hypotheses set out in the precedingparagraphs, it becomes possible to construct different scenarios representingalternative paths for Algeria's economy. For the sake of convenience only twoscenarios will be discussed here; these will be designated "scenario A" and"scenario B`'L'. From a technical standpoint, each scenario has beensimulated with two different (but complementary) models. The first model is adynamic control system model (which was mentioned at the beginning of thischapter as as instrument for analyzing the historical dynamics of the Algrianeconomy); under appropriate assumptions it works with (i) the structuralparameters which describe the production and trade apparatus of Algeria, and(ii) the control variables which have been identified as such in this report(Public Consumption and Direct investment of the Central Government). Theworking hypotheses have been translated in terms of modulated non-stationaryvalues for the parameters (ICORs, coefficients of marginal capital efficiency,investment ratios, savings ratios, import ratios, export ratios) and modulatedvalues for the control variables. The second model is the usual "RMSM" of theWorld Bank which translates the consequences of the selected hypothesis interms of consistent national accounts. As both models have producedquasi-identical growth paths, the following paragraphs will describe only theprojected values which give a complementary picture for the evolution of theeconomy. Schematically, scenario A reflects the time pattern resulting from apolicy which fulfills only the necessary (but not sufficient) conditions for areturn to high level growth rates: it is limited to the adjustment ofmacroeconomic aggregate3 without tackling the fundamental causes of the crisis.Thus trend values for the growth rates remain low for a long period of time.In contrast, scenario B combines a policy of macroeconomic adjustment with apolicy aimed at improving the conditions for an increased efficiency. Trendvalues for the growth rates are then raised at higher levels. In both cases,however, one should remember that the intensity of the exGgenous shockexperienced in 1986 is such that over the next four or five years the Algerianeconomy will display the basic features of an unstable system. Parametricassumptions for the simulations are presented in the Table II.1.

3.30 In scenario A (Table III.1 A), the share of imports in GDP, which inthe years before 1986 was about 30% on average, is cut back to 20% for 1986,is held slightly below this level until 1990. The share of exports in realGDP (22% on average before 1986) falls slightly in 1986 (21%), then returns toits traditional level in 1987 as a result of a more pragmatic externalmarketing policy for hydrocarbons; world market forces rule out any expectationof larger gains in such a way that exports are constrained to 24.3% of GDP.Downward financial adjustment (reduction of budgetary allocations) ofproductive investment produces a double, cumulative effect: in the light of

1/ All reasonings are in real terms (except otherwise specified).

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the considerable share of investment in GDP, any reduction in the volume ofinvestment has an adverse effect on the generation of value added. Moreover,it is assumed that the conditions governing the proper allocation of, and thereturns from, investments are not restored (or, at best, only in a hesitant,inadequate manner). In all, the efficiency of investment coefficientdeteriorates dramatically from 12b in 1985 to 7% in 1990/91. The overallfinancial resource constraint absolutely prevents the State from contemplatingany recovery through the instrument of public consumption: Central Governmentconsumption remains close to its minimum compression thresholdL' untilaround 1989-1990. Direct investment (mainly in infrastructures) by theCentral Government, also reduced in real terms from 1986 onwards, can makeonly very marginal progress through 1989. From then through about 1990private consumption will keep growth rising slowly, its share in GDPincreasing steadily from 551 before 1986 to 60% in 1989-1990, privateconsumption being the only variable not directly constrained for reasons bothpolitical and technical-'. In all, real GDP growth remains weak until 1990as a result of the austerity policy, and this effect continues in 1991 throughthe inertia effect. The cure by austerity therefore has a gestation period ofaround five years. Subsequently, the combination of a better oil and gassituation and the return to efficiency levels for productive investmentsidentical to those of the years 1980-1985 (higher than 102 with a ceiling of17X) somewhat modifies the terms on which the economy functions: the importratio can be slightly increased (toward 251), although prudence requires thatit permanently remain slightly below the export ratio. The constraints onpublic demand can be progressively relaxed, allowing public consumption tomove from an average annual growth rate of 12 in 1989 to 5.5% in 1994-95.Initially the relatively depressive effects of this relaxation are more thanoffset by the expansionary effects of the policy for government capitalexpenditure, the relative balance of forces being reached in 1994. However,as the absolute intensity of central government investments is higher than theabsolute intensity of their consumption, by assumption, the absolute overalleffect of the control variables remains positive. Thereafter, in globalterms, growth linked to the productive and trade apparatus is once again quitesignificant from 1992 onwards, propelled by an economic policy which for thefirst time in 5 years enables the overall growth rate to exceed 2% a year.Nonetheless, it will be 1994 before this growth rate exceeds the probablepopulation growth rate (3.2%), and hence before per capita living standardsbegin to rise again. Under this scenario, however, the growth rate does notapproach 4% until around 1996. In conclusion, it should be noted that thisreal scenario could be accompanied by a dangerous nominal development, whichat the extreme could undermine its entire basis. To stem the dramaticconsequences of the loss of external financial resources, the publicauthorities in Algeria might be tempted to relax in various ways (maintainingzero or negative real interest rates, a large overall budget deficit financedby printing money, establishing weak constraints for the financing ofproductive investments) the domestic financing constraint. This possibilitycannot be ignored, since a'll the indications are that a significantinflationary process was already at work in 1986. It is hardly necessary to

1/ The base consists of the wages and salaries of civil servants, who willprotect their "acquired rights" to the maximum possible extent.

2/ In other words, as a result of the algebraic structure of the model.

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say that in such circumstances the adjustment effort would quickly beundermined and that the small scope for productivity gains would beprogressively eliminated.

3.31 Under scenario B (Table III.1 B) the adjustment procedure designed toalleviate the loss of external receipts is essentially the same. It is,however, accompanied by a coordinated set of measures designed to restore arational structure of productivity and economic calculation. As will be seen,this in due course gives rise to an essential difference; however, in theshort term, in other words over the next three years, the economy will makehardly any better progress, the effort being entirely concentrated on areorientation that will bring about the conditions for a more efficient,stable and dynamic equilibrium.

(a) The first measures to be introduced, from 1987 onwards, and certainlythe least difficult, concern raising the borrowing and lendinginterest rates to positive levels in real terms. Assuming that thereorganized apparatus of financial intermediation!" plays aneffective role in attracting idle deposits and operates as a rationalfilter in the allocation of loanable funds (selecting on a prioritybasis those projects that generate the maximum amounts of net valueadded, so that enterprises are enabled not merely to repay theirloans but also to rebuild their resources for self-financing), therevision of Lhe interest rate structure will help to reorienteconomic calculations.

(b) It it obvious that, in parallel, enterprise managers must alsoprogressively recover a margin of autonomy for fixing their prices,otherwise the concept of producing genuine value-added lacks anysubstance. Those enterprise managers whose projects are eliminatedduring the process of financial selection of investments will then beled to reconsider their production conditions, reduce their costs,exert pressure on suppliers of inputs, and adjust their sellingprices, in order to present acceptable financing plans. To avoidunacceptable price increases public enterprises should beprogressively made to face the challenge of alternative productionprocesses, which entails that from 1987 onwards market segments bedefined in which private operators may intervene more extensively,and that a program for opening up the market be rapidly set in motion.

(c) These two groups of measures should, after an adjustment phase thatwould end in 1989/90, slow the trend towards low levels of equilibriumfor the efficiency coefficients of productive investments.Subsequently (after 1989), the changes in investment parameters willbe favorable (increases in all investment efficiency coefficients)and very rapid in relation to developments under scenario A.Specifically, the incremental capital-output ratio may be close to 3.7in 1996 (against 6.0 in scenario A).

1/ The reference here is to the Banking Law voted in August 1986.

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(d) There remeins the exchange rate. Its current level entails majordrawbacks which should be remedied: it is in no way a deterrent toimports (it is the administrative control of imports through the AGIwhich performs this function); it hardly encourages effective importsubstitution (as long as people have dinars to buy imported productsat good prices, in foreign exchange terms, they will make everyeffort to do so; on the other hand, once foreign exchange is moreexpensive in dinars, the comparison between buying overseas orproducing the same article in Algeria will recover its propersignificance; then a real effort will be made to save dinars, ascarce resource); in conjunction with low real interest rates, thecurrent exchange rate is not exactly an incentive to transferresources to AlgeriaL', and in practice the parallel currencymarkets have already witnessed a devaluation of the dinar. Thusthere are many arguments in favor of altering the current exchangerate, and it is very clear that such a change would not only help toreduce the level of imports but, combined with positive real interestrates, would stimulate the return of capital which Algeria very badlyneeds. This capital could either be directly invested in projectswith high returns, thereby helping to increase the marginalefficiency of capital; or it could be deposited and then recycled asinvestment financing by the Algerian financial intermediaries,thereby acting as a source of loanable funds that could help toloosen the overall financial constraints (but not the microeconomicfinancing constraints, which should remain, thus limiting financingto profitable projects).

3.32 In all, scenario B, incorporating these various hypotheses,represents a more favorable evolution than that associated with scenario A.However, one must not expect any miracle; during the adjustment phase and theintroduction of new price conditions growth will remain weak. It will onlyrecover properly from 1990-91 onwards (one year is gained over scenario A) andwill not again exceed the population growth rate until mid-1992 (2 years aregained over scenario A). However, from 1990 onwards, the internal dynamism ofthe economy increases, the process accelerating from 1993 onwards, enough toleave sufficient room to maneuver for economic policy instruments. It goeswithout saying that very strict financing rules must also underpin thisscenario, in order to avoid any substantial inflationary slippage.Specifically, these rules must establish:

- for productive enterprises, a minimum rate of self-financing for theinvestments and the progressive elimination of Government subsidies;

- for the Central Government, a current budget surplus that issufficient to finance economic and social infrastructure investments,and a rule limiting recourse to central bank financing to a givenproportion of the regular fiscal receipts of the preceding year.Lastly, with the emphasis placed on effective mobilization of

1/ It is worth recalling that non-Algerian Maghreb workers in good times orbad remit close to US$2 billion, while the Algerians, although far morenumerous, barely repatriate US$350 million.

Table IItI.:

SUMMARY OF THE MAJOR FORECASTING ASSUMPTIONS.

RESULTING GOP GROWTH RATES

Yearsbefore 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

A. ASSUMPTIONS FOR SCENARIO AI. Main Economic Parameters:

(a) Import Ratio(X of GDP) 30.0 18.6 19.4 19.6 19.8 21.6 22.9 23.6 24.4 25.3(b) Export Ratio(% of GOP) 22.0 22.3 23.0 23.4 24.0 24.2 24.3 24.3 24.3 24.3(c) Overall Average ConsumptionRatio (% of GOP) 71.0 64.9 65.1 65.8 66.5 69.6 75.9 75.0 73.2 73.1(d) Overall Investment Ratio(% of GOP) 38.9 31.3 31.3 30.3 29.3 27.8 22.8 24.4 27.0 28.0(e) ICOR for ProductiveInvestment 8.4 18.8 17.2 15.0 14.8 15.0 9.8 6.1 6.1 6.0(f) Average Coefficient of CapitalEfficiency for Productive Inv. 12.0% 5.0% 6.0% 7.0% 7.0% 7.0% 10.0% 16.0% 16.0% 17.0%(g) % of Hydrcarbons in GDP 20.0 19.4 19.7 19.8 19.9 19.6 19.0 18.5 17.9 17.2

II. Expected GOP Growth Rates 4.6% 1.7% 1.6% 1.7% 1.6% 1.$% 2.5% 3.0% 3.2% 3.6% ch

B. ASSUMPTIONS FOR SCENARIO BI. Main Economic Parameters:

(a) Import Ratio(% of GDP) 30.0 18.6 19.4 19.7 20.0 21.7 22.7 23.2 23.9 24.5(b) Export Ratio(% of GDP) 22.0 22.3 23.0 23.4 24.0 24.0 24.0 23.8 23.6 23.2(c) Overall Average Consumptionratio (% of GOP) 71.0 66.1 67.5 71.2 72.6 75.2 74.0 71.5 70.2 70.0(d) Overall Investment Ratio(% of GOP) 38.9 30.1 28.9 25.0 23.3 22.4 24.5 27.8 29.8 31.0(e) ICOR for ProductiveInvestment 8.4 18.8 17.2 14.9 12.1 9.2 6.3 4.4 4.6 3.7(f) Average Coefficient of CapitalEfficiency for Productive Imv. 12.0% 5.0% 6.0% 7.0% 8.0% 11.0% 16.0% 23.0% 22.0% 27.0%(g) % of Hydrcarbons in GOP 20.0 19.4 19.7 19.8 19.9 19.4 18.9 18.1 17.4 16.4

II. Expected GDP Growth Rates 4.6% 1.7% 1.6% 1.7% 1.8% 2.2% 2.8% 4.0% 4.3% 5.4%

6136B/p13 (525)

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domestic resources, net foreign borrowing should be governed by therate of growth of GDP, since the level of indebtedness reached in1986 should be regarded as sufficient for a country such as Algeria.

3.33 To be more precise, external debt problems should not be excessivelyacute in either scenario. The Algerian authorities have set targets forexternal debt: the major target consists in keeping constant the level ofexternal debt reached at the end of 1985. At that time, the level ofoutstanding and disbursed debt (D.O.D) was US$13.6 billion"'. Then the mainissue to be raised here is to assess the probability of success (or failure)of the Algerian strategy within our scenarios. Further debt increases dependupon two major functions. The first one has, as a major argument, theexternal trade gap (exports minus imports); the second function is built inthe mechanism of the debt itself since the external debt must be repaid(principal plus interests), a process which also requires the availability offoreign currencies. As far as the first function is concerned, the twoscenarios assume that the major sources of possible external debt increaseshave been suppressed through drastic reductions of the import ratio which willbe kept below (or close to) the export ratio. In fact, the trade gap shouldeven be slightly positive (a surplus). But, due to the structure of Algeria'sexternal debt (especially the maturity structure) over the next five years,the country should repay an annual average amount of US$5.25 billion as debtservice '. If no "new money" is required for external trade purposes, andwithout noticeable surplus in the same external trade, "new money" willhowever be necessary for debt servicing; consequently, the external disburseddebt will not be reduced; the small trade surplus will be used to financearound 802 of the interests owed, leaving an average annual financingrequirement of US$4.2 billion. Of course with these repayments, thecorresponding debt alleviation will be offset by the new commitments in such away that the DOD will remain stabilized around US$15 billion until 1990-92.There is then a very high probability of success for the stabilizing strategyset by the Algerian Government. Algeria will probably be able to raise thesefunds although the terms may harden. It must be emphasized that Algeriashould take the opportunity of these "refinancing" operations to modify thematurity structure of their medium and long-term debt towards a longer termbasis in order to avoid the recurrence of such high debt service ratios in thefuture. Finally it must be noted that the "refinancing" policy of Algeria ismore likely to succeed if the country is able to follow a program leading toeconomic recovery, not only through the adjustment policy suggested in thisreport, but also through major structural changes which we have also suggestedas sine qua non conditions to restore a sustained economic growth.

1/ World Bank figure, excluding short term debt (which is evaluated at aroundUS$1.9 billion).

2/ Of which 242 as interest paymerts and 76% as principal repayments.

58463

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ANNEX IPage 1 of 2

SPECIFIC MEASURES INCLUDED IN

THE ADDITIONAL APPROPRIATION LAW FOR 1986

1. Tax Measures

The principles underlying these measures are as follows:

- to adjust some taxes, fees and duties,- to be related to activities spaced out over time, as far as stamp

fees are concerned,- to avoid affecting the low income households in such a way that the

staple goods are still exempted,- to require a higher contribution from upper income recipients by an

additional taxation of some luxury goods (yachts, etc...),- to integrate as taxable operations, advertising activities,- to introduce a new distribution of resources between the Central

Government and the local authorities.

1.1 Registration Fees and Stamp Fees

- Introduction of a fixed fee payable at the time of the approval ofliaising offices of foreign companies,

- introduction of a fee on advertising signs such as posters and neonsigns,

- introduction and/or increase of stamp fees on ordinary passports, onthe forms of the Algerian parimutuel, on the bills of lading for seatransportation, on the pleasure boats, and on the registration formsof the vehicles.

1.2 Sales Tax

- Introduction of a fixed tax rate on tobacco,- increase of the rate of TUGP on beer from 77% to 80%.

1.3 Indirect Taxes

- Increase of the domestic consumption taxes on fuels,- cancellation of exemptions on gasoline for agricultural uses,- cancellation of exemptions on domestic consumption of fuel oil.

1.4 Customs Duties

- Cancellation of exemptions on big-engined cars imported in case ofchange of residence,

- increase in the fees related to the utilization of roadinfrastructure by commercial vehicles registered in foreign countriesand travelling in Algeria,

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ANNEX IPage 2 of 2

introduction of a lf fee, payable in foreign currencies, on thepurchase price of the vehicles bought at non-registered dealerswithin the AIV regulations,time adjustment and adaptations of the custom tariff,cancellation of the "cash with order" procedure of purchase.

2. Measures related to State Administered Prooerty

- Integration in the Central Government Budget of the revenuesresulting from the sales of equipment abandoned by local authorities,public administrations and from the sales of downgradedadministration vehicles.

3. Budgetary Measures

- Unification of the support to price for staple goods with a 502reduction of budget subsidization,

- reduction in recurrent expenditures of DA 7.5 billion (fromDA 67 billion to DA 59.5 billion),

- reduction in capital expenditures of DA 16 billion (fromDA 61 billion to DA 45 billion),

- reduction by about DA 5 billion in the amount of authorized financingfor planned investments by public enterprises (from DA 52.5 billionto DA 47.5 billion).

$7512 5pl2-i

N?6. I\

IC""

PART II

SECTORAL PLANS AND PROGRAMS

REALIZATIONS AND PROSPECTS

/

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CHAPTER IV - THE AGRICULTURAL SECTOR

A. Introduction

4.01 The combination of high population growth (3.2% per annum) end risingper capita income (4.5b - 5% annual growth rate) originated substantialincreases in the demand for food that resulted in food consumption ir.'reasingat an annual rate of 6% from the mid-1960's to the late 1970's. The Algerianagricultural sector was unable to supply the additional food requirements andimports grew rapidly to fill the gap. By 1980, imports provided abouttwo-thirds of total food consumption and accounted for one-fifth of aggregateimports, more than twice the ratios of a decade earlier.

4.02 This growing dependence on imports for the satisfaction ofever-growing food requirements elicited renewed attention on the part of theGovernment to the performance and constraints of the agricultural sector onthe occasion of the First Five-Year Development Plan, 1980-1984. An analysisand diagnosis of the situation made by the Government indicates that the basicfactor explaining the sluggishness of agricultural performance was probablyInsufficient attention to the managerial and technical human capital duringthe intervening years."' Agricultural physical investment had indeed beenaccorded a relatively minor and declining share in successive developmentplans and there were deficiencies in deliveries and on occasion in the qualityof key farm inputs such as fertilizers. The crucial factor, however, was thatthe level of technical proficiency at the farm production level was inadequateto make full use of available resources, let alone move agriculture on thepath of innovation and increased productivity, in spite of the incentivesprovided by consistently favorable nominal movements in the agricultural termsof trade (paras. 4.29-4.31).

4.03 As the 1980s dawned, farming in Algeria was carried out by threedistinct sectors: the self-managed socialist sector, the cooperative sectorand the private sector. The self-managed sector consisted of some 2,080 farmscomprising the 2.3 million ha of arable land that had been operated by 20,000European owners before 1962. The cooperative or Agrarian revolution sectorencompassed about 6,000 cooperatives covering 1.2 million ha of arable land.The cooperatives were established during the early 1970's, grouping formerlylandless peasants to farm state and communal land and land expropriated fromabsentee landowners and large private farmers. The private sector consistedof about 700,000 farmers cultivating 4.4 million ha in generally fragmentedproperties, with less favorable soil, using traditional farming practices.

4.04 The self-managed sector was particularly vulnerable to managementweaknesses. It comprised the most fertile soils in the country in the rainfedas well as the in irrigated areas. The management problem was greatlymagnified by the ten-fold increase in average farm size and the inclusion inindividual farms of separate non contiguous lots with dissimilar

1/ See, for example, MPAT, "L'6volution de l'Agriculture de 1967 a 1982",in ONS Statistiques, No. 2-I-1984, pp. 46-61.

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characteristics. Nevertheless, the vacuum left by the departure of theEuropean owner-operators was not adequately filed when operation was turnedover to previous farm workers due to the lack of Algerian agronomistengineers. It has been pointed out that no agricultural school graduatesworked at the self-managed farms until 1977.1' As for the workersthemselves, a considerable exodus appears to have taken place, particularlyamong the young and the skilled, to take advantage of the better working andliving conditions to be found in cities and towns. Nor did the cooperativeexperiment work out as expected. The lack of farming experience on the partof the members and the dearth of extension and demonstration services wereamong the major reasons for the meager success of this initiative and for thedecision to phase it out.

4.05 Knowledge about the private sector is somewhat fragmentary. Thereare three major types of enterprises: (a) subsistence family farms, verysmall in size, where traditional methods are employed and the bulk ofproduction is consumed on the farm; (b) medium size enterprises, that have alimited stock of capital and that target part of their production for sale inthe market; and (c) typically commercial enterprises, that employ modernfarming techniques and make the necessary investments and that produce mainlyfor the market.

4.06 Next to the human capital constraints, marketing and pricing policiesappear to have seriously weakened the incentives for growth in agriculturaloutput and productivity. Marketing agencies (Offices) had been established topurchase the entire output of socialist farms at Government decreed prices.Output prices were increased steadily from the mid-1960's to the late 1970'swhile physical input prices were maintained largely unchanged, but nonagricultural prices were increasing substantially during that period, enoughto warrant an increase in the non agricultural minimum wage from 12 DA/day in1968 to 33.68 in 1978, and in the agricultural minimum wage from 8 DA/day to28 during the same period. Undoubtedly, the terms of trade moved considerablyagainst agriculture.

4.07 The pricing and marketing system contributed to mounting operatingdeficits of the self-managed farms and, at least in the case of cereals, tothe indifferent performance of production and productivity. 2/ Private farmscould sell on the open market. In those cases where consumer prices were freeand consequently intermediaries could offer producers higher prices thatreflected strong consumer demand, farm prices did rise and with them privatesector production. This was particularly the case in vegetables and livestockproducts, practically the only commodities that experienced sizeable increasesin production in the 1967-1980 period. However, the performance of theprivate sector during this period was seriously handicapped by its limitedaccess to credit and to outside inputs (machinery and equipment, fertilizers,herbicides and pesticides and improved seeds), as the corresponding Governmentagencies almost totally ignored private farms in their operations.

1/ MPAT, op. cit. page 56.2/ Cf. MPAT, 2p. cit., p. 60.

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4.08 The sections that follow present a concise exposition of (a) majordevelopments in tl. 1967-1982 period; (b) goals and accomplishments of the1980-1984 Plan; and (c) objectives, progress to date and outlook for the1985-1989 plan.

B. Major Developments in the 1967-82 Period

4.09 Agricultural production increased during this period at an annualrate of approximately 2.81. Given the much higher growth in other sectors ofthe economy, the share of agriculture in aggregate value added declined fromabout 13% to less than 72 (see Annex II, Table IV.1). Farm production growthwas also insufficient to accommodate the much higher rate of growth in demand,fueled by rapidly increasing population and per capita incomes. The share ofimports in total domestic food consumption grew between 1967 and 1982 from 28%to 651 in the case of cereals, from 12% to 85b in the case of grain legumes(lentils, chick peas, dry beans), and from 4% to 751 in the case of eggs.

4.10 Output performance varied greatly among different subsectors.Considerable increases were achieved in the production of vegetables, pit andstone fruit (apple, pear, apricot, plum and peach) and in livestock. Cerealproduction remained stationary during most of the period, while grain legumesincreased rapidly until the mid-1970's and fell back thereafter, although itstayed at levels over 251 higher than during the initial period. Citrus fruitand wine grapes, the traditional agricultural export crops before independence,fared least well of all. Citrus production increased slightly through themid-1970's but decreased after that to levels below the initial ones.Production of grapes and wine declined by over 50% during the period.These developments may be better portrayed in the summary table shown onthe following page.

4.11 It is worth noting the generally declining trend in yields. Althoughthe final years of the period analyzed (1979-83) were characterized by somewhatbelow average precipitation, the rather uniform and steady deterioration inyields points to a deterioration of the technical standards in Algeria'sagriculture during this period. The observed trends permit thecharacterization of 1967-1983 developments as follows: (a) a stagnation, andeven a regression in some cases, in the production of the hiain crops, with anincrease in production limited to vegetables, and largely due to an increasein area; (b) a growing disaffection toward crops with high labor requirementsfor the harvest and with meager profit margins, such as grain legumes and sometree crops; and (c) universally low yields that are due to a lack of masteryof cultivation techniques and to the absence of a research and extensionpolicy seeking varietal improvements and the production of plants and seeds atthe national level."'

1/ MPAT, op. cit., p. 5.

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Table IV.l: TRENDS IN PRODUCTION OF SELECTED CROPS, 1967-69 TO 1979-83

Average Average Average Average1967-69 1970-73 1974-77 1979-83

Risins ProductionVegetables

Output 654 742 1,046 1,250Yield 8.7 8.4 8.6 8.0Imports 18 51 98 150

Pit & Stone FruitOutput 58 61 96 120

Livestock ProductsMilk: Output 482 550 700 742

Imports 213 302 677 946

Redmeat: Output 76 100 118 140lmports 0.5 - 14.5 58

Chicken: Output 24 27 70 116

Eggs : Output 10.5 12.0 15.0 32.0Imports 0.7 0.8 17.5 45.0

Stationary ProductionCereals

Output 1,860 1,930 1,890 1,960Yield 0.65 0.60 0.62 0.60Imports 620 780 1,730 2,600

Grain LegumesOutput 40 42 67 50Yield 5 5 7 4.4Imports 4 9 47 80

Declining ProductionCitrus Fruit

Output 441 514 510 400Yield 98 112 113 80Exports 157 136 79 15

Wine GrapesOutput 837 740 387 250Yield 28 28 19 14Exports 784 861 454 350

Source: MPAT, op.cit., passim.Note: Output and import/export figures are 1,000 t, except milk and wine which

are million 1. Yields are t/ha.

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C. The 1980-1984 Plan 1 '

4.12 Unlike previous development plans (the 1967-69 three-year plan andthe 1970-73 and 1974-77 four-year development plans), the first Five-Year Plan1980-84 was formulated following a thorough and objective analysis andassessment of the performance of the economy during the preceding decade onthe basis of which the Ministry of Planning drafted, in May 1980, an economicand social balance sheet of the country. Concerning the agricultural sector,it was acknowledged that the ultimate longer term objective of increasingproduction implied a wide-ranging reorganization of the sector aimed atremoving the existing development constraints. The reorganization was toencompass (a) a restructuring of the socialist sector enterprises; (b) animprovement in the support system for the private farms; (c) a reorganizationof the service agencies and a redefinition of the function of the researchinstitutes.

1. Restrueturing of the Socialist Sector Farms

4.13 The socialist farm sector consisted of the self-managed farms and ofthe agrarian revolution cooperative farms. As of 1979-80, this sector coveredabout 452 of the cultivable area of the country. The self-managed farmsconsisted of 2,100 establishments covering 2.3 million ha, for an average areaof 1,100 ha/farm. About 70% of the farms hnd more than 500 ha. In additionto the operating complexity emanating from their large size, fragmentation ofthe total area of individual units into separate plots with dissimilarecologies and suitabilities made operation of the self-managed sector complexand demanding. Proper operation, however, was crucial to Algeria'sagricultural development since it was estimated that the sector, given thesuperiority of its soils and climate, contained about 70% of the agriculturalpotential of the country. Although covering only 3G% of the cultivable area,441 of the irrigated land was in the sector. Overall, about 402 of thecereals, 70% of the industrial crops, 86% of the vineyards, 84% of the citrus,54% of other fruit crops, 49% of the grain legumes and 421 of the vegetableproduced in Algeria, were produced in the sector. Management was, in theory,decentralized. The Government appointed a director, but the decision-makingpower was to rest on the workers and their elected officials, including thepresident. This was known as the self-management system. In practice,however, the Government played a major role in the conduct of the farms'operations particularly through the centralized setting of production plansto be carried out.

4.14 The Agrarian Revolution cooperatives consisted ot about 6,000collective farms, whose memebers jointly operated the land and means ofproduction allocated to them for the purpose of improving their incomes andworking condition. As pointed out earlier (para. 4.04) lack of adequatetechnical support services constituted a decisive obstacle to proper operationof the cooperative farms.

1/ Basic reference document for this section is Evaluation du Premier PlanQuinguennal 1980-84, Direction Generale des Etudes et de la Planification,Ministere de l'Agriculture et de la Peche (MAP), Octobre 1985.

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4.15 Performance and problems of the socialist farm sector were thoroughlyevaluated by the Government during the late 1970's. This evaluationidentified the major constraints as follows: (a) the fragmentation of farmsand dispersion of individual lots; (b) the relatively modest productivity;(c) the considerable financial debts; (d) the lack of clear responsibilities;(e) the lack of production incentives; (f) the excessive centralization ofplanning and production processes; and (g) the lack of technical cadres. Inconsequence, a reorganization of the socialist sector was decided in 1980, tobe put into effect by the MAP, with the overall objective of establishing farmenterprises economically viable and technically efficient. In the process ofthe reorganization during 1980-84, the cooperative sector practicallydisappeared, being partly merged into the self-managed sector and partlyconverted to private operation. The results were as follows:

Table IV.2: CHANGES IN THE STRUCTURE OF THE SOCIALIST FARM SECTOR, 1980-84

Type ef Before Reorganization After ReorganizationEnterprise Number Area ('000 ha) Number Area ('000 ha)

Self-managed farms 2,099 2.331 3,415 2,830Cooperatives 5,288 1,253 38 6Individual allocations 40,634 157 103,168 705Remaining landto be allocated 157

Sourc,: MAP, 2p. cit., p. 7.

4.16 The subdivision and consolidation of self-managed farms and theincorporation to this system of about 500,000 ha previously undercooperatives, resulted in an increase of 62X in the number of enterprises anda reduction of 27% in the average farm size to about 820 ha/farm. This typeof enterprise was also renamed domaine agricole socialiste (DAS). Allocationsto individual farmers of land from the Agrarian Revolution Fund reached705,164 ha (an additional 40,000 ha were subsequently distributed) benefitting103,168 farmers, for an average size of holding of 6.8 ha, considerably largerthan the 3.9 ha/farm allocated under earlier programs.

4.17 The technical and managerial staffing constraint affecting DASperformance was tackled at the enterprise level and at the provincial level.At the enterprise level, the number of high-level (engineer or equivalent) andmid-level (technicien) technical staff increased from 52 and 60 in 1979 to1697 and 436 in 1984 respectively. Although the substantial increase in staffnumbers did no. quite reach the perceived desirable level, it provided a soundfoundation for the more recently launched intensification and technificationprograms.

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4.18 To reinforce the technical and managerial expertise put into place atthe enterprise level, 116 "agricultural development centers" (secteurs dedeveloppement agricole - SDAs) were established at the provincial level. EachSDA was staffed with about 16 technicians on the average and provided supportto approximately 30 DAS. They are attached to the provincial Directorates ofAgriculture and their closeness to the individual farms allow them to providepractical solutions to their operational problems and to assist them in theidentification and preparation of development plans.

4.19 Financial rehabilitation of socialist farms was another majorobjective of 1980-84 Plan initiatives. As an initial step, the Governmentassumed the operational debts of self-managed farms befor proceeding to theirreorganization. The decision was then made to decentralize the record-keepingand accounting to the enterprise level and to this effect, 3872 accountingexperts were trained and placed in to individual DAS. In a parallel move tothe establishment of the agricultural development centers, acountingcooperatives (Cooperatives Agricoles de Comptabilite et de Gestion - CACG)were set up at the provincial level to assist and monitor progress inindividual farms. Centers and cooperatives are in principle financed bycharges on socialist farms levied at the rate of 1.6% of their annualproduction plan estimated expenditures.

2. Private Sector Support

4.20 The total farm area under private sector operation expanded by704,000 ha to a total of 5.1 million ha from 1979 to 1984 by virtue of theallocations from the Agrarian Revolution Fund. This brought the area underprivate farms to about 60% of the total (see Annex II, Table IV.2), increasingthe incidence of production from this sector in overall sector performance.In recent years, for example, about 60% of total cereal and vegetableproduction originated in private farms (see Annex II, Table IV.3), and 95% ofcattle and sheep stocks resided in them (see Annex II, Table IV.4).

4.21 Prior to 1980, private farms were almost totally overlooked by theservices of the Ministry of Agriculture and had likewise minimal access to theOffices and Cooperatives in charge of input distribution. This undoubtedlycontributed to the overall lower yields obtained in these farms, particularlyin cereals, a situation that still persists (see Annex II, Table IV.5). Topiovide technical support to private farms, the 1980-84 Plan envisaged theestablishment of County Agricultural Agencies (D6l6gation d'Agriculture duDaira - DAD), staffed by one agricultural engineer, one or two technicians andone veterinary. DADs are assigned the role of identifying the extension needsof private farmers in their area and of carrying out the necessary programsand actions. A beginning has been made in this initiative, but progress isslow given the scarcity of qualified staff in relation to requirements.

4.22 Access to farm inputs, notably machinery and equipment and chemicalinputs, and to agricultural credit have expanded considerably during the1980's. For example, while the statistical yearbook reported only 10,000tractors and 53 combines in private farms in 1978, deliveries of 27,000tractors and 4,000 combines are reported for the 1980-83 four-year period.

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Although there is undoubtedly a margin of approximation in those figures, itis clear that private farms currently enjoy greater access to modern inputsand receptivity to assistance from the various Government agencies concernedwith agricultural credit and input distribution.

3. Reorganization of the Service Agencies

4.23 The reorganization of the service agencies envisaged three broadtypes of actions: (a) the restructuring of the input and output marketingoffices to render their operations less centralized and more responsive toproducers' requirements; (b) the establishment of specialized cooperatives atthe provincial levels to act as link between producers and offices; and(c) the redefinition of the functions of research institutes to render thembetter suited to activities such as experimentation with new varieties,management of nurseries, promotion of new crops, and diffusion of newtechniques in crop and livestock production. Progress in all three areas hasbeen relatively modest thus far, reflecting to a considerate extent thescarcity of trained and experienced staff in the face of mounting demands ontheir services.

4.24 Government intervention in output marketing until 1980 concernedprincipally cereals, grain legumes, wine and tobacco. All output of thesecommodities, from socialist as well as private farms, had to be marketedthrough statutory cooperatives and offices. Other commodities were marketedeither through service cooperatives in the case of socialist farm output orthrough the free market in the case of private farm production. The existenceof a "parallel market" in cereals and grain legumes which handled asubstantial proportion of private farm production has been acknowledged andallowed to persist, given the strong preference of small farmers and villagersfor direct storage and marketing of those food staples.

4.25 In the intervened sectors, little change took place during the1980-84 period. A major transformation, on the other hand, took place in themarketing of fresh fruit and vegetables. Until 1980, socialist farms soldtheir output to local cooperatives (Coop6ratives Agricoles PolyvalentesCommunales de Services - CAPCS) at pre-established maximum prices, and thisproduction was then turned over to provincial cooperatives (Cooperatives desFruits et des Legumes - COFEL) and the national board (Office des Fruits etdes Legumes - OFLA) which arranged wholesale and retail distribution. Marketdemand, however, increasingly overtook supply leading to grow;ng shortfalls ofmaximum prices paid by cooperatives from market priceb. Furthermore,socialist farms met a growing scarcity of seasonal labor to handle the harvestof the fruit and vegetable crops. The Government decided to abolish the localcooperatives and in fact to allow socialist farms to gain access to theprivate marketing channels that were open to private farms. Currently, thebulk of socialist farm production is sold on a standing crop basis to privatecontractors who arrange for the harvest and transportation to market of theproduce.

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4.26 The reorganization of the marketing system of farm inputs hasbasically consisted in the establishment of provincial and country branches ofthe national agencies in charge of the distribution of chemicals and seeds(Office National des Approvisionnements et Services Agricoles - ONAPSA),equipment and implements (Office National du Materiel Agricole - ONAMA), andlivestock feed (Office National des Aliments du Betail - ONAB). Closer linkswith farmers are provided by specialized cooperatives (Cooperatives AgricolesSpecialis6es en Approvisionnements - CASSAP) established to take over thisfunction from the former CAPCS. These cooperatives play also an importantrole in the distribution of plants and improved seeds, acting under thesupervision of the corresponding research institutes and offices.

4.2/ The agricultural credit system received major impetus with theestablishment in 1982 of the Agricultural Credit Bank (Banque de l'Agricultureet du D6veloppement Rural - BADR) which took over functions previouslyassigned to the National Bank of Algeria. With the establishment of the BADR,a number of reforms were introduced to redress some of the problems of creditaccess, use and recovery. The objectives of these reforms were: (a) tomobilize increased amounts of resources to be channeled to the agriculturalsector; (b) to provide greater access to credit, particularly for the privatesector; and (c) to develop a system for assessing financial risks and toimprove follow-up and credit recovery.

4.28 Total lending for agricultuTe increased from DA 7.7 billion in 1982to DA 8.5 billion in 1984 and DA 10.7 billion in 1985. A mt'-r effort isunderway to increase lending to private sector farms, with . number ofprivate credit recipients increasing from 9,200 in 1982 to over ,OO in 1985(which is however a low figure when compared to some 700,000 potential creditrecipients). Medium and long term credit has increased from 15% of the totalin 1982 to 202 in 1985, and the participation of private farms in this type ofcredit increased from 122 in 1982 to over 17% in 1985.

4. Agricultural Prices

Farm Inputs

4.29 The primary objective of Government's agricultural pricing policy wasto limit the increase in consumer food prices as much as possible. To thisend the prices of inputs were maintained basically unchanged from 1974 to1983. As a consequence, the real prices (nominal prices corrected by the GDPdeflator) of fertilizers, plant protection chemicals and equipment haddeclined by 50% by 1980. Even the agricultural minimum wage had lost by then20% of its purchasing power (see Annex II, Table IV.6). Only the prices ofseeds and nursery plants were increased steadily during this period to reflectthe higher prices paid for imports and for domestic seed production.

4.30 Since production costs of farm chemicals and equipment roseconsiderably during this period, the Government incurred sizeable subsidycosts paid initially to the manufacturers and later to the marketingagencies. In the case of farm machinery and equipment, it was also observedthat the low price policy encouraged acquisition of new material rather thanmaintenance and repair of existing one (spare parts prices being increased

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annually in step with production costs) as well as diversion of machines tonon agricultural uses (construction, notably) for which no comparablesubsidies were provided. These considerations led the Government to adopt in1983 a new approach to input pricing aimed at bringing sale prices closer toproduction costs. From 1983 to 1985 prices of fertilizers and equipmentroughly doubled and plant protection chemicals were increased between twelveand twenty-five fold. With these increases, the relative input to outputprices in 1985 remained generally below 1974 levels, and the output priceshave not yet "eached the desired incentive level.

Farnn utputs

4.31 Prices of the major crops were adjusted upward annually, maintainingthem ahead of GDP deflator movements (see Annex II, Tables IV.7 and IV.8).Between 1974 and 1980, the price increases for the major crop categories(cereals, grain legumes and fresh fruit and vegetables) were of similar ordersof magnitude. From 1980 onward, however, the freer play allowed to supply anddemand forces in the marketing of fruit and vegetables resulted insubstantially higher increases in the prices of those crops relative tocereals and grain legumes, as shown in the following table:

?'RODUCER PRICES, 1980 AND 1984

Percentage1980 1984 Increase

Cereals (DA/ql)Hard wheat 125 160 28Bread wheat 115 150 30Barley 80 100 25

Grain Legumes (DA/ql)Lentils 300 330 10Chickpeas 300 330 10Beans (broad) 170 200 18

Vegetables (DA/kg)Potatoes (season) 1.10 1.90 73Tomatoes 0.80 5.20 550Artichokes 1.30 6.00 361Carrots 1.10 2.70 45Peppers 1.50 6.75 350Onions 1.04 2.60 150

Fruits (DA/kg)Oranges (Thompson) 1.45 3.15 117Tangerines 0.75 1.70 127Dates 4.50 6.50 44Table olives 1.21 2.75 127

Source: MAP, ap. cit. p.64.

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As indicated earlier, the steep increases in input prices in 1984 (and in1985, see para. below) failed to overtake the increases in output pricesduring the entire 197p-85 period.

5. Public Investment

4.32 Investment in agriculture is carried out by four separate units:(a) the Ministry of Agriculture; (b) the development institutes; (c) theprovincial governments; and (d) the marketing offices. Investments by the MAPand the institutes are financed entirely by budgetary appropriations.Investments at the provincial level, which largely encompass on-farminvestments and investments by service cooperatives are financed partly bybudgetary appropriations and partly by credit allocations. Office investmentsare entirely financed through credit allocations.

4.33 The 1980-84 Plan's final allocation for agricultural investment atall levels was DA 21.6 billion, slightly over 5t of aggregate investmentprogrammed for the quinquennium. Actual implementaton of the agriculturalinvestment program reached only DA 13.2 billion, or 617 of the planned total.Details are at Table IV.9 in Annex II. Implementation rates ranged from 46%for the development institutes to 68% for the credit programs at the provinciallevels. The latter, largely representing productive on-farm investments, wereconsiderably boosted by the high rate of implementation of the programs ofmachinery and equipment acquisition (DA 2.6 billion or 89% of target) andsmall-scale irrigation development (DA 459 million or 722 or target). On-farminvestment implementation rate was considerably higher in crop relatedprograms excluding mechanization (DA 1.7 billion or 70% of target) than inlivestock related programs (DA 633 million or 522 of target). The developmentinstitutes concerned with crop production also achieved a higher implementationrate than those dealing with livestock development. The implementation rateof Office investment programs was highest in the case of storage facilities(DA 2.5 billion or 69% of target).

4.34 The relatively modest rate of implementation, particularly at thecentral level, is explained to a large extent by the continuing concern andactivities dealing with structural reorganizatior and financial rehabilitationof the entire farm system detailed above. Other contributing factors listedin MAP's evaluation are (a) the insufficiency of cadres and training; (b) therelatively low attention by technical support agencies (structures del'encadrement) to reinforcing production activities; (c) the lack ofimplementation capacity; (d) the complexity and delays in processing creditrequests from decentralized agencies and farms; and (e) an overall inadequacyof planning and programming actions and the lack of consistency between mediumterm plans and successive annual plans and between annual plans and actualactivities.

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D. The 1985-1989 Development Plan

1. Principles and Objectives

4.35 The 1985-1989 Plan pointed out that the satisfaction of the country'sfood requirements over the lorg term and the need to rehabilitate theagricultural sector and to refurbish the rural environment required thedeployment of major efforts following a coherent and integrated approach torural development and a strategy commensurate with the scope and seriousnessof the food problem. Singled out as measures to be taken were:

(a) the expansion of the productive potential, particularly through(i) reduction of lands left fallow; (ii) cultivation of new lands;(iii) rehabilitation of grazing lands in the steppe; (iv) developmentof small and medium scale irrigation, and (v) the deployment ofintegrated actions in mountain and desert areas;

(b) the rationalization of the utilization of soils and water as well asother production factors that should allow a more pronounced regionalspecialization over the longer term; and

(c) the implementation of measures leading to insure the economic andtechnical viability of farm sector enterprises.

The Plan underscored that the magnitude of the objectives assigned to thesector implied that inter-sectorial solidarity was absolutely necessary, towhich effect the non-farm product requirements for rural development effortsshould be incorporated as priority tasks in the plans and programs of thecorresponding sectors.

4.36 To further lift the constraints that had till then blocked thedevelopment of the agricultural sector, the Plan proposed the followingactions: (a) implementation of integrated programs; (b) close workingrelations wetween the support agencies and the farmers, and imprrvement of theperformance of the agencies; (c) adaptation of the financing system to theactual circumstances of the farms, with higher attention to small farmers andenterprises; (d) improvement of farmers incomes in the framework of a policyof national income distribution that promoted productive activities; and (e)implementation of a price policy that encouraged the production of food cropsand discouraged production of crops of a speculative nature.

4.37 The Plan contained a detailed enumeration of land use and productionobjectives to be attained on the basis of a desirable food intake per personper year of 170 kg of cereals, 9 kg of grain legumes, 120 kg of vegetables and50 kg of fruit. To achieve self sufficiency in grain legumes, vegetables andfruit and a 50% coverage of cereal needs, land under cultivation should beredeployed as follows:

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Table IV.3: LAND USE AND PRODUCTION OBJECTIVES OF THE 1985-89 PLAN

1984 19891,000 ha 1,000 ha X

Cereals 3,334.2 45.8 3,448.3 44.6Grain legumes 211.1 2.9 305.4 4.0Forage crops 706.1 9.7 883.3 11.4Industrial crops 7.3 0.1 48.3 0.6Vegetables 274.5 3.4 294.4 3.9Fruit and vineyards 669.9 9.2 788.9 10.2Grazing land 43.7 0.6 68.8 0.8Fallow 2,060.2 28.3 1,890.4 24.5

Total 7,280.0 100.0 7,520.0 100.0

Source: 1985-89 Plan.

£4 the basis of projected yields (in parentheses), expected production wouldbe: cereals (8.7 ql/ha) about 3 million t in a favorable year; grain legumes(8.5 ql/ha) 0.26 million t; vegetables (95 ql/he.) 3 million t; and fruit(44.3 ql/ha) 1.3 million t.

4.38 Concerning livestock products, the per capita consumption per yearwas projected at 13 kg of red meat, 9 kg of poultry, 100 kg of milk andderivatives and 5 kg of eggs, and the production objectives were set at228,000 t of red meat, 242,000 t of poultry, 132,000 t of eggs and 910,000 tof milk and dlerivatives. These levels would insure self-sufficiency inpoultry and eggs, 70 coverage of red meat and 36% of milk and derivatives.

4.39 Action programs to be undertaken at the different levels wereenumerated in the Plan, and their overall cost was estimated at DA 30billion. The first year (1985) allocation was set at DA 4.84 billion,consisting of DA 1.15 billion of budgetary appropriations and DA 3.69 billionof credit allocations. Following the readjustment of expenditure plansarising from fiscal constraints, the final budgetary appropriation was reducedto DA 1.01 billion, while the credit envelope was left unchanged. Given thepriority assigned by the Government to agricultural development and increasedfood production, it appears likely that agricultural sector investments willnot experience substantial reductions in the remainder of the Plan period.

2. 1&entg dim

InveI mnt

4.40 A wide-ranging series of program and actions were undertaken duringthe 1984/85 campaign in pursuance of the objectives set in the DevelopmentPlan. The overall rate of implementation of planned investments was 71% (anoticeable progress compared to the previous period), broken down as follows:

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Table IV.4: AGRICULTURAL SECTOR INVESTMENTS, 1984/85

Planned Actual Implementation(DA million) ---- (S)

Budget ApprropriationsMAP 164 144 88Institutes 99 42 42Provinces 748 665 89

Sub-total 1,011 857 84

Credit AllocationsProvinces and APF 2,106 1,560 74Offices 1,585 931 59

Sub-total 3,691 2,491 67.

Grand Total 4,702 3,372 71

Source: MAP, Direction de la Planification, Rapport G6n6ral de l'Ex6cution duPlan Annuel 1985, p. 64.

PriniDal Proran

4.41 It must be remembered that these programs are organized according tothree major directions: (i) expansion of cultivable land and improvement ofwater availability, (ii) intensification of production (cereals, others),(iii) regional development (steppes, Sabarian areas, mountain areas). Actionswere initiated toward improvement of agriculture in the steppe and the desert.Concerning the steppe, the principal measures taken were (a) establishment oftechnical assistance nuclei and cooperatives at selected locations; (b) plantregeneration on over 225,000 ha; and (c) relocation of sheep herds as a stepin turning the steppe into a breeding area for animals to be fattened in thenorth. Concerning the desert zones, drainage works were carried out inselected areas and over 75,000 ha were allocated to some 19,000 farmers inaccordance with the provisions of the law on accession to rural land (loi al'accession a la proprit6 fonci6re). A beginning was also made towarddevelopment of mountain area agriculture with the selection of two pilotprovinces for future action.

4.42 Production intensification programs received major impetus and theirimpact, given the improvement in the structure of production units implementedduring the preceding years and the generally favorable weather, wasspectacular. Agricultural production in 1985 reached record levels (seeAnnex II, Table IV.10). Results in major commodity group are summarizedbelow, with 1980 (relstively favorable weather) and 1984 added for purposes ofcomparison.

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Table IV.5: AGRICULTURAL PRODUCTION

1980 1984 1985 1985/80 1985/84…('000 tons) -- -- (% change) --

CropsCereals 2,328 1,406 3,005 29 114Grain Legumes 39 37 46 17 23Vegetables 1,092 1,538 1,957 79 27Forage crops 665 677 849 28 25Industrial crops 120 149 186 55 25Tree crops 618 711 645 4 (9)Vineyards 484 298 275 (43) (8)

LivestockRed meat 135 160 160 18 0Poultry 96 144 163 69 13Milk 699 708 713 2 1Eggs 15 49 84 443 70

Source: MAP, 2p? cit. p. 11.

4.43 The 1984/85 crop intensification programs centered on cereals andvegetables (potatoes particularly) and they were both extremely successful, asshown at Table IV.l1 (Annex II). At the central Government level, the cerealintensification program was designed by the Directorate of plant production ofMAP in cooperation with representatives of Institutes, Centers and Officesconcerned, particularly the Cereals Development Institute (Institut deDeveloppement des Grandes Cultures-IDGC), the Cereals Marketing Board (OfficeAlg6rien Interprofessionnel des Cer6ales-OAIC), the Center for AgriculturalEducation (Centre National de Pedagogie Agricole-CNPA); ONAPSA and ONAMA(para. 4.31). The group drew up cereal development plans, defined specificobjectives, established actions required for the supply of inputs andequipment and decided the required training and experimental work. The groupwas to monitor plan implementation and to evaluate results. At the provinciallevel units were formed including also representatives of the cerealscooperatives and of CASSAP (para. 4.26); they were responsible for theimplementation of the agreed program, selection of the cereal zones,identification of suitable DAS and private farms within those zones,monitoring of DAS activities, and deployment of extension staff to assistprivate farmers. The units were to supervise the implementation of theprogram and to evaluate results.

4.44 For the training of the technicians required, several short courseswere planned, and these were run by IDGC and CNPA. An extension program wasdrawn up covering improved seed production, plant protection, fertilization,the use of agricultural machinery and the improvement of harvesting operations.

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The actions proposed aimed at training staff who would be able to advisefarmers, and at the production of technical norms based on experience at pilotfarms; the farms would serve as models and be used for demonstrations. IDGCwas asked to concentrate on work on crop improvement and on cultural practices,and to work on irrigated cereals. At ten pilot farms in cooperation withlocal staff, IDGC would establish demonstration plots covering seed production,cultural practices, chemical weed control, mechanization of grain legumeproduction, the introduction of forage peas, and adaptability trials on typeand variety of cereal.

4.45 The 1984/85 program reached about 750,000 ha, where an average yieldof 1.2 t/M was obtained, compared with 0.9 t/ha in areas outside the program.Although natural conditions were probably more favorable in general in theareas selected for the program, this 302 yield differential unquestionablyreflects to a considerable extent the success of the actions undertaken. Inthe case of bread wheat, for example, the difference in yields between areasincluded and areas outside the progran was a striking 77X, as the figuresbelow indicate:

Table XV.6: CEREAL CULTIVATION, 1984/85

Under Intensification Program Outside ProramArea Production Yield Area Production Yield

('000 ha) ('000 t) (tha) ('000 ha) ('000 t) tKaM

Durum wheat 347.2 387.8 1.12 714.3 645.7 0.90Bread wheat 203.1 265.3 1.31 376.0 277.1 0.74Barley 171.9 234.2 1.36 1,021.5 1,081.2 1.06Oats 35.7 37.5 1.05 97.5 74.1 0.76

Source: MAP.

Overall yields in 1984/85 were 974 kg/ha for durum, 936 kg/ha for bread wheatand 1,102 kg/ha for barley, considerably higher than the 600,671 and 639 kg/haaverages respectively during 1978-82. By way of reference, average yields inneighboring Tunisia during 1978-82 were 845 kg/ha for durum, 1,410 for breadwheat and 561 for barley.

4.46 The 1984/85 potato intensification campaign was devoted to mainseason potatoes (February/March planting) and covered 17,000 ha at DAS farmsand 27,000 at private farms. The same approach was adopted: technicalinstructions reaching farmers in time and in detail, availability of inpatts ontime in the required amounts, and as mwch follow up as possible. Yieldsranged between 5 and 17 tons per hectare, mainly depending on amount ofrainfall, irrigation and drainage conditions, severity of mildew attacks andof insect pests. Yields at private farms were higher than those at DAS farmspartly due to their specialization and the care of the crop on their smallerareas. The 1985 output of about 2 million t of potatoes reached theself-sufficiency level, However, with the rapid growth in population andrising per capita consumption, further increases in area and yields will berequired in the years ahead for the country to remain self-sufficient.

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Agricultural Prices

4.47 Input prices were further increased in 1985 following the policyadopted by the Government in the previous year to eliminate gradually thedifference between production cost and prices charged to farmers. Thesteepest increase affected plant protection chemicals, where the cost/pricedifferential was completely eliminated. Fertilizer prices were increased byabout 452 and machinery (tractors) by about 25%, with further increasesplanned to bring about full cost pricing by 1987. Output prices were alsoincreased for regulated commodities, mainly cereals and grain legumes, theincreases ranging from 252 (bread wheat) to 40b (barley). Market prices ofderegulated commodities also experienced substantial increases of the order of301.

4.48 The prices of inputs were raised in 1984 and 1985 considerably morethan output prices. Taking a longer perspecti-3, however relative input/outputprices in 1985 were still generally lower than they were in 1974 (see Annex II,Table IV.12). The notable exception was plant protection chemicals, where theprice increases of 1984 and 1985 far exceeded the increases in output pricesduring the entire decade. This may partly explain the apparent decline in theuse of these inputs in recent years (see Annex II, Table IV.13), which is inmarked contrast with the observed increase in the use of fertilizer (OeeAnnex II, Table IV.14).

3. Oudlook for 1986-89

4.49 The overall allocation for investment in 1986. which had initiallybeen set at DA 5.5 billion, was subsequently reduced to DA 4.1 billion,roughly to the level of actual 1985 expenditures. Given the continuing fiscalstringency, it does not seem likely that allocations will be greatly increasedin the near future nor, given the sector's priority and success of developmentefforts to date, that they will be appreciatively reduced.

4.50 Programs for agricultural development in the desert, in the steppeand in the mountainous areas are continuing along the lines started in 1985.A strong element of technical support and training is being provided throughthe local agricultural directorates. Although progress will necessarily beslow initially, these programs are expected to improve considerably theincomes and living conditions of important sectors of the population as wellas to enhance the productive capital base of the areas involved thrcughprevention of further desertificarion and erosion in arid and mountainouszones respectively.

4.51 Production intensification programs are also being pursued forcereals and vegetables and expanded to cover their products such as industrialcrops (tomatoes for processing and tobacco) citrus and table and wine grapes.As in the 1984j85 program, plans are being made to involve all the agenciesconcerned with the preparation of planting material, distribution of inputs,technical investigation and information, training of extension agents anddemonstrations at pilot farms in the different production zones. Attention isalso to be given to strengthening the organization of harvest, collection,transport and processing of the crops, particularly in the case of fruit andvegetables.

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4.52 Significant improvements in productivity and growth of theagricultural sector may be expected in the years ahead from the areadevelopment and production intensification programs described above. Evenmore lasting improvements may be achievable through two additional sets ofprograms that are being now actively considered or initiated: replacement ofthe fallow and irrigation development.

Fallow Reduction

4.53 Algeria, in common ,.tith several Mediterranean countries, has beenconsidering how to replace the fallow (land left without planting between theharvest of one crop and the sowing of another, usually about fifteen monthslater). From 2 to 3 million ha out of the total 7.5 million ha of cultivatedland are left fallow every year. The advantages of the fallow in providinggrazing, helping retain some moisture, contributing nitrogen, weed control,and in preventing build-up of diseases, are now widely questioned.

4.54 The Ministry of Agriculture recognizes that it will not be easy toconvince private farmers, or even DAS managers to abandon the tradition offallowing, and that the change may be more acceptable in areas of goodpotential. A program will be initiated in autumn of 1986 aiming eventuallyat: (a) elimination of the fallow in land of good potential (0.75 million ha)where fallow r.ow occupies 11%; (b) reduction of fallow in land of mediumpotential (2.3 million ha) from 30T to about 10% and replacing it with grainlegumes, forage crops, industrial crops and vegetables; (c) reduction from 36%to 25X in land of low potential (about 2 million ha) and replacing it withforage crops, improved pastures, grain legumes, industrial crops andvegetables; and (d) retaining the fallow in the one million hectares ofagro-pastoral land within a two year rotation (502).

4.55 DAS farms in areas with land of good potential will be advised tostart eliminating the fallow from their proposed cropping patterns in theautumn of 1986. In the medium and low potential zones, the Ministry proposesthat studies be started by the Development Institutes to define the soil andclimatic conditions of the areas where fallow is practised: description ofproduction systems, review of possible food crops, fodder, and forage crops,the technical feasibility of replacing the fallow and the costs. The studieswill be accompanied by testing higher crop intensities within pilot farms ineach of the zones and determining suitable crop and animal production systems.

4.56 Tremendous benefits could be expected from these initiatives, notonly by the reduction in the area annually left idle, but also by the soilimprovement and diminished vulnerability to droughts that would follow fromthe introduction of forage legumes/cereals rotations. Experiments alreadymade by IDGC show that annual Medicago species can be successfully introducedand managed in rotation with cereals. Widespread adoption of these farmerssystems would permit the expansion of livestock raising activities inassociation with crop growing and would significantly enhance the possibilityof success of the ongoing efforts to develop the steppe areas as breedinggrounds for sheep herds to be fattened in the northern 'arms.

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Irrigation Development

4.57 Programs are underway to expand the availability of irrigation waterand to improve the efficiency of its use. The efforts are three-pronged:(a) increase and rehabilitation of large-scale irrigation perimeters;(b) expansion of small and medium-scale irrigation development; and(c) establishment of extension services to assist farmers in proper wateruse techniques, including care and maintenance of works and facilities.

4.58 Existing large-scale irrigation perimeters have long suffered fromindifferent maintenance and inadequate drainage. As a first step towardscorrecting these problems, decentralized management agencies (Offices desP6rim6tres Irrigues) are now being established in the individual areas. Inaddition, a special agency has been set up under the joint auspices of theMinistries of Agriculture and Water Resources (Office d'Amenagement et de Miseen Valeur - OAMV) to design and assist farmers in the implementation ofintegrated development projects.

4.59 Concerning small and medium-scale irrigation development, technicalassistance services will be channelled through newly focussed cooperatives(Cooperatives specialisees dans les Constructions, l' Irrigation et le Drainage- COPCID). Work is also advanced in the preparation of a wide-ranginginvestment program to pursue this type of irrigation development in socialistand private farms.

4.60 There is also awareness of the considerable potential to increasewater use efficiency through the introduction of water-saving techniques suchas drip irrigatioii .d minisprinkler use. Acknowledgedly, these techniquesrequire attitudes and skills on the part of the users that do not generallyexist at present. Sustained efforts would therefore be called for to trainand interest farmers in them. This could appropriately be undertaken in thecontext of ongoing rehabilitation efforts and, particularly, of the newirrigation developpement projects soon to be implemented.

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CHAPTER V - THE 1NDUSTRIAL SECTOR

A. General Panomma

5.01 Over the past twenty years, industry's contribution to the nominalgross domestic product has ranged between 141 and 101. Light industry's sharehas posted a virtually continuous decline, whereas that of heavy industry hasincreased. These nominal results should not be allowed to conceal the factthat the industrial sector expanded considerably over the period, the drop inits contribution to the nominal GDP being due mainly to the exceptional growthof the hydrocarbons sector. In real terms, the manufacturing industries'activity grew from 8.5 in 1969 to 15.4S in 1985.

Table V.1:CONTRIBUTION OF THE INDUSTRIAL SECTOR TO GROSS DOMESTIC PRODUCT

(In percentages)

1969 1973 1980 1984 /a 1985 /aM1 (ii) M1 (ii) Mi (ii) Mi (i) Mi (ii)

Heavy Industry 2.9 n.a. 3.4 n.a. 3.1 n.a. 6.75 n.a. 6.52 n.a.

Light Industry 10.3 n.a. 10.4 n.a. 7.1 n.a. 5.37 n.a. 5.21 n.a.

Total Industry: (i) 13.2 13.8 10.2 12.12 12.73(ii) 8.5 9.9 12.9 14.9 15.4

/a Provisional figures.(i) In nominal terms; (ii) In real terms.Source: Ministry of Planning.

5.02 During the period 1980-85, the industrial sector posted an increasein employment of around 80,000 persons, which was accompanied by a pronouncedrise in labor productivity, an improvement in the rates of utilization ofproduction capacity estimated at between 802 and 90% in heavy industry andbetween 701 and 802 in light industry,t' an appreciable reduction in

U/ It must be noted that it is quite difficult to make a precise evaluationof the efficiency for the industrial apparatus. Two major indicaturs areavailable: the rate of capacity utilization and the rate of realization ofproduction objectives. The first depends on the measurement units retainedfor available capacities. For this purpose one makes the distinctionbetween the theoretical (contractual) capacities (as defined by theinstallment contract) and real (effective) capacities (as reflecting theproduction potential of a given unit during a period, with given technicaland human resources). The second depends on the assigned production targetwith due regard for the context of management. This method leaves roomfor subjectivity since measurement of real capacity and target design issubjective. It frequently happens that evaluations of real capacities arerevised according to the achievements, thus creating discontinuities instatistics. The selected figures mentioned above are estimated accordingto the Algerian practice.

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dependency rates (the imported component in manufactures going down from 36%in 1980 to 282 by the end of the first Five-Year Plan), and a reduction in theproportion of public investment accounted for by the sector (industry absorbed32% of non-hydrocarbon public investment in 1984 as opposed to 80b in 1974).Taken together, these data indicate that the industrial sector is now capableof satisfying a large part of the country's requirements with an acceptabledegree of technical efficiency, which is evidence of a certain maturity. Itexports very little of its production, however (less than 32 of total exports),notwithstanding the existence of sizable productive surpluses in certainbranches.

5.03 The restructuring of industry carried out in 1982 resulted in a largenumber of enterprises specialized by product line, hence smaller in size andpossessing greater autonomy. The principles on which this reorganization wasbased also led to a separation of functions, which in most branches has givenrise to the establishment of separate production, distribution and developmententerprises. The reorganization had positive results in that it made possiblethe formation of smaller, often regionalized, enterprises. Its impact wasless so, however, on the branches located in contact with the end demand(capital goods, textiles, leather, woodworking, canneries) in that it limitsthe possibilities for product diversification by the enterprises concerned andmakes it harder to take the requirements of the demand into account(particularly in view of the now very marked separation between production anddistribution).

5.04 At the close of 1984 the sector's financial position showed it owingthe banks some DA 20 billion after subsidies. Even if the financialrestructuring following the reorganization of industry succeeds in correctingthis situation, it will nevertheless not resolve the Algerian publicenterprises' problems in obtaining balanced net results. These difficultiesderive first from the excessively high personnel and financing costs theenterprises have to bear, in relation to the price levels acceptable to theauthorities, and secondly from the other costs caused by delayed startups,breakdowns and interruptions in supplies, especially in heavy industry. Theyalso result, finally, from the form of taxation, which impacts both theenterprises running deficits and those operating at a profit. It should benoted that this situation is further aggravated by the fact that theenterprises themselves only finance a very small part of their gross fixedcapital formation.

5.05 The reduction of the possibilities of recourse to state financingraises a number of questions common to the industrial sector as a whole. Thefirst relates to the application of measures that would make it possible toincrease the efficiency of the public enterprises, from the programming phasethrough operation proper. In this connection problems arise regardingadaptation of the methods of macroeconomic regulation (price setting, importpermits, employment maintenance obligations), autonomy of financial managementand, more generally, the degree of responsibility of the managers of publicenterprises. The second question is that of the development of the privatesector as a complement of the public sector in certain branches and as a newdynamism factor, while the third concerns the possibility of developing exportsof non-oil products and the changes that this development will entail for theimport-substitution strategy and the parity of the dinar.

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1. The Economic Functioning of the Light Industry Subsector

5.06 The light industry subsector is made up of the industries producingitems to meet the population's basic needs [construction materials,agricultural and food industries (AFIs)], intermediate products andmanufactured goods intended for the end consumers, especially textile andleather goods. The first Five-Year Plan period concluded with an appreciableincrease in the share of the AFIs, woodworking and glass. A significantdispersion is apparent in the increase in labor productivity among theremaining branches, with the exception of textiles, leather and cellulose,this increase being higher than the increase in per capita wages. In severalbranches, the rise in labor productivity is unrelated to the capital investedper worker, which tends to prove that significant productivity gains arepossible with small investments, provided that production is aligned better ondemand.

Table V.2:SELECTED INDEXES FOR THE LIGHT INDUSTRY SUBSECTOR

% of Sector Indexes 1980 - 100 - Current Valuesvalue added Personnel Output Wages per Value addedin 1984 (84) sold (84) capita (84) per capita (84)

Construction 15.15 111 154 114 121Materials

Wood 10.03 127 228 113 178

Glass 3.34 231 360 140 221

Cellulose 2.60 105 160 148 142

AFIs & Tobacco 45.18 100 oa 186 'a 125 A 170 "a

Textiles & Leather 23.70 154 234 130 97

/a Excluding ERIADs (semolina and flour).Source: Ministry of Light Industry (MLI).

5.07 Utilization of production capacity (Table V.3) posted a distinctimprovement on average over the first Five-Year Plan. Nevertheless, certainbranches-I are in a situation of quite high under-utilization; these are, in1984 figures: cement (552), sanitary ware (391), general woodworking (21%),hollow ware (571), canneries (81), carbonated beverages (461), and fabrics(29% for wool, 72% for cotton fabrics). With the exception of the cementworks, technical deficiencies (frequently related to defects in design) are

1/ Out of 31 activities analyzed, 7 are under-utilizing their productioncapacities and 24 display an acceptable rate of utilization.

92 -

INSTALLED AND PLANNED PUBLIC PRODUCTION CAPACITIES

PRODUCT BALANCE - LIGHT INDUSTRY

Rate otCapacity satisfaction Growth indexes

Installed Utilization of demand by New of InstalledCapacity Rate noutut Canacty Capacity Plan

tX) 1984 (X) (%- 19)5-t Plan

Cement (103 T) 10,000 48 55 70 84 3,000 130Bricks. etc. (103 T) 1.990 76 83 54 53 1,100 155Ceramic tiles (103 42) 2.650 76 76 54 45 2,500 194Sanitary ware (103 T) 29 49 39 69 69 - -General woodworking (103 #42) 4.448 35 21 4 5 -Prefabricated woodenCoM onents (103 M2) 19 32 108 4 6 - -Flat glass (103 T) is 19 85 33 27 20 233Hollow ware (103 T) 16 54X 57 46 31 60 179Crockery (T) 18.100 55 57 27 65 - -Printing paper (103 T) 55 S4 78 76 62 -Packing board (103 T) 89 72 78 46 40 - -Semolinaj103 T) 1,219 94% 99 65 69)Flour (10 T) 1.105 86X 93 71 101 ) 775 133Edible oil (103 T) 285 97 97 100 91 - -Soap (10' T) 82 94% 94 100 87 - -Margarine and Fats (103 T) 27 57 57 100 68 1 margarine plant -Canned vegetables (103 T) 27 12 8 nd nd - -Tomato concentrate (103 t) 15 45 72 15 36 - -Mineral water (10t H2) 1,610 66 70 66 42 )Carbonated beverages (103 H2) 2,8S4 39 46 27 26 ) 3,900 187Cigarettes (106 packets) 10.030 75 77 96 101 600 158Cotton yarn (T) 34,020 72% 80 nd nd - -Wool yarn (T) 8.371 63X 66 nd nd 2,000 124Finished cotton fabrics (103 L") 120,399 72 72 nd nd - -Finished wool fabrics (103 LM) 34,024 26 29 nd nd - -Finished silk fabrics (103 LI) 12.544 69 73 nd nd - -Blankets (103) 1.459 103 94 34 36 2,500 277Shirts (1O3) 3,379 62 79 30 28 Made-up Goods Progr. -Footwear other than shoes (103 pairs) 4,106 70 76 19 12 - -Shoes (103 pairs) 18.783 92 97 30 35 4,500 209Fancy leather goods (103 pieces) 2,125 124 144 36 37 2,000 197

Soure, Ministry of Light Industry

61368 p.14 (7,2)

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not the primary reason for this capacity under-utilization. A bigger factoris the failure to match production to demand, which is evident for woodworkingand textiles, branches where there is significant capacity under-utilizationcoupled with a domestic demand that is in excess of a national production. Onthe other hand, when the "market effect" manifests itself in a positive fashion(case of glass, cellulose, leather and fancy leather goods), significantproductivity gains can be achieved just by increasing the capacity-utilizationrates. Finally, the general import authorization ("AGI") mechanism determinescapacity-utilization rates to the extent that it restricts recourse to importedinputs; this effect has been appreciable in textiles, hides and skins, andcanning, for which no national substitutes are available.

5.08 At the end of the first Five-Year Plan the public enterprises in thelight industry subsector were in the financial situation set forth inTable V.4. Even with quite substantial state support (DA 10 billion in 1Q84),this group as a whole is still in debt to the banks to the tune of some DA7 billion. Moreover, its net operating results are negative and there hasbeen little in the way of improvement over recent years, which means thatrepayment of the debts is out of the question. What is more, certainenterprises with considerable under-used capacity are in a financial positionthat is hardly tenable in the short term. These are general woodworking,cellulose, canning and textiles (semifinished goods), for which the "cashbalance/turnover" ratio has high negative values (-39% for textiles (aftersubsidy), -1862 for woodworking, -4002 for cellulose). It should be noted,finally, that on the basis of the net cash flow for 1984, the sector'sself-financing capacity appears extremely small. In 1984, out of 36 publicproduction enterprises, only six concluded the year with their net results inbalance. The two components weighing excessively on the operating costs ofmost of these enterprises are personnel and financing costs. The requirementsfor these enterprises to be placed on a sound footing include privatizationand reorganization of the activities most seriously affected (cement works,canning, woodworking, semifinished textile goods), application whereverpossible of cost pricing (hard to envisage in certain enterprises producingstaples - cereal processing enterprises in particular - in which personnelcosts alone accounted for 94% of value added in 1984) and the possibility forthem to let excess personnel go.

5.09 Private enterprise will be required to play an increasing role in thelight industry subsector. Since the application of the law of August 21, 1982liberalizing the conditions for approval of private investments, a thousandnew dossiers have been lodged each year, averaging DA 9 million in 1985 (asagainst DA 800,000 in 1980). In light of the 8,000 enterprises listed, thisfigure gives an idea of the growth potential of the private sector. Privateenterprises are small and operate primarily in hides and skins, leatherworkand textiles where they account for about 602 of branch turnover, and to alesser extent in the AFIs and woodworking (25% and 202, respectively).

5.10 The external position of the light industry subsector improved(except for construction materials) during the first Five-Year Plan thanks tothe import-substitution policy (see Table V.5). On the other hand, the total

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lale V.Y4: FINANCIAL SITUATION OF SELECTED PUILIC ENTERPRISES FOR 1984(In millions of Algerian dinars)

Operating CumulativeAmortizations Income Cash Govt. Final Cash& Reserves for FY84 Net Cash Flow Position Subsidies Balance

(1) (2) (3) - (1)+(2) (4) (5) (6) = (4)+(5)

Construction materials 695 -S00 +195 -431 1,559 1,128

Wood 190 -2 +188 -3,534 - -3.534

Glass 90 -64 +36 +285 56 341

Cellulose 24 -457 -433 -3,725 - -3,725

AFls - Tobacco 743 -1,021 -278 -1,406 2.458 1,0o2

Textiles 824 -835 -11 -8,095 6.036 -2.059

Leather _46 ._I U -348 232 -11.

TOTAL 2,611 -2,832 -221 -17,254 10,341 -6,913

Source,: IL

Table V.S: DEPENDENCY OF LIGHT 1NOUSTRY SMSECTO

1. Final Dependency (1) is a8 2. Operating Dependency (2) lsI= Jim

Cement 17% 39X Construction materialsenterprises 10% 12%

Ceramic tiles 0.4% 27% Wood enterprises 13% 9%Glass enterprises 42% 9%

Flat glass 77% 43% Paper enterprises 4% S%ERIADs - Semolina. flour - 2%

Kraft packing paper 43% 61% Juices and canned foods enterprises 17% 7%Mineral water enterprises 5% S%

Semolina 38% 39% Tobacco products, matches 3% 6%Textile enterprises 29% 16%

Flour 26% 2% Hides and skins enterprises 21% 16%

(1) Final imports in percentages of distribution volume.(2) Operating General Import Authorizations in percentages of output sold (in value).

Sgurce: Ministere des Industries Legeres.

61368 p.15 (7.2)

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amount of the light, heavy and food industries' exports (DA 802 million forsemimanufactures and consumer goods -- i.e. 2.4% of all exports) shows thatthere is still scope for developing exports.

2. The Economic Fbnctiow,,, of Heavy Industry

5.11 Heavy industry's contribution to the nominal GDP is definitelygrowing (6.51 in 1985 as against 3.11 in 1980) even though the subsector isreceiving a smaller proportion of public investment (441 of non-hydrocarbonpublic investment in 1974, 43% in 1980 and 171 in 1984). Personnel employedby the public enterprises rose from 108,637 in 1980 to 144,000 in 1985, whichmeans that 40,000 industrial jobs were created in the first Five-Year Planperiod. Aside from some subcontracting activity, the private sector playsvery little part in heavy industry. The restructuring exercise was carriedout according to the same principles as for light industry, in particulardecentralization by product line and regionalization.

5.12 Over the period 1980-84 as a whole, the average annual growth rate ofproduction sold was 17.20% in current DA and of the order of 151 in constantvalues. At the close of the first Five-Year Plan, and during 1985, there wasa slowing down in the rate of growth (11% in 1984 and 7.61 in 1985) which wasmostly due to SNVI's production fall (SNVI has an important relative weight inthe total). Moreover, in 1984 and 1985 implicit production prices rose by 5%and 0.42 respectively, hence at a faster rate than during the first Five-YearPlan. Viewed branch by branch, a noteworthy increase in apparent laborproductivity is evident in all cases except mining and mechanical engineering.One may notice that: (i) for mining it is very likely a structural phenomenonrelated to the conditions of production and marketing, and to the saturationof a few activities; (ii) that the performances of mechanical industriesshould be related to the sudden decline of SNVI's production in 1985, anaccidental difficulty which has since been resolved.

Table V.6SELECTED INDEXES FOR HEAVY INDUSTRY SUBSECTOR

Base 100 = 1979

Metal- Mech- Elec-Total Mining Steel working anical trical

Marketed ProductionCurrent DA 106 246 159 213 319 243 307

Labor Force 150 95 163 153 167 164

Value Added per Worker 232 197 283 280 170 259

Source: MILD.

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5.13 Evaluated in terms of capacity utilization and achievement ofproduction targets, the subsector can be viewed as having reached a certainmaturity inasmuch as these different indicators are on average relatively high(in comparison with the light iniustry subsector in particular) and there is adistinct slowing down in their rate of growth at the end of the period.Expressed in financial terms, the available and usable real capacity reservesamount to DA 5.4 billion and represent an 83% utilization rate for thesubsector as a whole. A physical assessment of the main products yields anaverage utilization rate of 842 in 1985 as compared with 76.4% in 1979. Theaverage rate of target achievement is of the order of 84b in financial termsand 90X in physical terms.

5.14 The heavy industry subsector poses primarily a problem of organizationof production, stricto sensu, since there is little in the way of productivityreserves to be mobilized by better alignment on the market. In view of thesize of the units concerned, technical incidents can have significant impactson results. This was the case in 1985 in steel and mechanical engineering(industrial vehicles) in particular. More generally, the factors identifiedby the supervisory ministry are mechanical and electrical breakdowns, supplyproblems with materials and parts, high rejection rates and quality problems,inadequate ordering programs as a result of delays in certain public equipmentprograms (railway rolling stock, telephone equipment, etc.) and inadequatequalification levels of technicians and junior management. It is thereforemaintenance and the operation of industrial logistics both within and outsideof the enterprises (supplies, stocks management, transportation, distribution,after-sales service) which are essentially deficient. Taken individually, itwould appear that these shortcomings could be remedied without difficulty;however, the range of them and their build-up form a complex accumulation ofinterlocking problems requiring detailed attention.

5.15 Viewed as a whole, heavy industry posts negative net annual resultsand is incurring mounting bank debts. It should be underscored, however, thatthe operating results proper are positive (DA 1.1 billion in 1984, DA 1.3billion in 1985) and that the net deficits derive from non-operating costs.It should further be noted that the net cash flow of the sector as a wholerepresents a financing capacity close to 402 of the credit for capitalinvestment purposes in 1985, a datum that is not structural since the 1984figure was 6X. More detailed examination of the financial operatingconditions and their recent development reveals the following phenomena:

(a) an excessive increase in personnel costs in all branches;

(b) a particularly high level of financing charges in certain branches,where they can amount to as much as 15% of turnover (mining,mechanical engineering);

(c) an almost across-the-board increase in non-operating costs and analtogether disproportionate level of these costs in certain branches(especially in mechanical engineering, where they accounted for 21%of turnover in 1985);

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Table V.7: PERFORMANCE INDICATORS OF HEAVY INDUSTRY

Capacity- Target-Utilization Achievement

Actual Output Rate /a Rate1979 1984 1985 1979 1985 1984 1985

Iron Ore (103T) 2,864 3,664 3,376 62 73 88 97Zinc (103T) 8.8 35 36 SS 118 95 102Phosphates (103T) 1,082 1,000 1.221 94 69 80 102Salt (103T) 146 182 163 100 75 91 79Pig Iron (103T) 496 1,176 1,462 103 87 9S 92Steel (103T) 432 1,143 1,390 68 63 94 92Rolled Products (103T) 263 53S 683 66 43 76 88Reinforcing Rods (103T) 216 282 387 79 80 102 110Structural Steel, 8oilerwork (103T) 22.8 29.8 34.9 64 72 72 83Mechanical Packaging (103T) 67.S 114.9 126.6 96 91 97 92Freight Cars (Units) 334 895 838 100 100 108 102Trucks (U) 6,082 6,619 5.722 - 85 100 85Concrete Mixers (U) 1,141 4,152 4,441 72 108 101 106Compressors (U) - - 16 - - - -

Diesel Engines (U) 6,220 10,976 12,038 100 100 88 91Agricultural Tractors (U) 4,886 5,927 6,2S0 122 100 88 89Combine Harvesters (U) 371 890 700 100 93 78 88Buses (U) S24 731 636 75 84 104 8SMotorcycles (U) 27,012 47,000 47,434 98 lOU 102 99Bicycles (U) 17,325 43,097 47,213 100 100 100 93Pumps (U) 3,800 14,678 17,529 88 82 89 119Valves and Joints (U) 98.000 50,849 41,416 148 62 113 86Taps and Fittings (T) 183 1,27S 1,336 11 78 96 92Mill Work (U) - 92 97 - 68 - 69Lathes (U) - 606 614 - - 96Electric Meters (U) - 183,787 240,158 - 10o - 100Water Meters (U) - 136,000 143,900 - 111 - 111Gas Meters (U) - 20,280 27.000 - 90 - 45Power Cables (1O3 T) 14.8 17.2 19.6 64 81 82 90Telephone Cables (103 T) 4.1 2.9 2.3 132 92 102 102Radios (U) 53,000 140,609 166,404 22 71 82 71Black and White TVs (U) 54,400 210,026 271,818 84 79 99 85Color TVs (U) 7,000 82,098 87,163 27 97 82 96Telephone Exchanges (lines) 10,800 43,000 43,013 14 63 97 74Telephone Sets (U) 20,000 104,520 81,625 14 58 90 61Refrigerators (U) 37,400 100,024 102,016 104 76 80 79Cookers (U) 11,808 73,766 79,232 63 88 92 86Water Heaters (U) 18,900 29,426 12,236 - - 96 98

/a Related to the real production capacities defined as those feasible according to the technicaland human possibilities.

Source: MILD. Rapport d'execution du plan annuel 1985. Plan de Production definitif 1987.

6136B p.16 (7,8)

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(d) the existence of significant differences in operating conditionsbetween, on the one hand, the branches where the enterprises haveclearly reached an advanced stage in terms of experience (mining,steel, metalworking) and those that have to turn out new products(mechanical engineering, electrical and electronics industries) andtherefore have to go through the start-up phase of new complexes; and

(e) the progressive appearance of a special "capital goods" problem,since the machinery and equipment industry is posting technical andfinancial performances distinctly below those of the other branches.It may be possible that this issue has been only the consequence ofan accident in 1985.

Table V.8:1985 FINANCIAL INDICATORS FOR HEAVY INDUSTRY

Metal- Mech- Elec-Total Mining Steel working anical trical Misc.

Net Profit (loss)for Year, DA 106 -1,787 -164 -572 -215 -768 -103 +16

Net Cash Flow,DA106 /a +1,400 +30 +526 245 +116 +246 +237

Cumulative CashPosition, DA 106 -10,513 -1,044 3,922 -372 -3,447 -1,422 -306

/a According to the 1986 Plan documents, which give the net deficit of thefiscal year. Cf. Tables 5.7 to 5.13 of the Annex for more details.

Source: MILD.

5.16 By its very nature, the heavy industry subsector is highly dependenton its outside suppliers. The entire logic of its development was based onthe idea of creating an industrial base capable of producing intermediate andcapital goods that could progressively take the place of imports. Thesubsector became considerably less dependent over the period: importedintermediate inputs represent 12% of production (against 271 in 1980).However, it is still highly dependent as regards intermediate inputs formetallurgy, metalworking and electrical and electronic goods, and on capitalgoods imports for mechanical engineering. With the present level ofdevelopment of the production apparatus no appreciable reduction of importedinputs (AGIs for operating purposes) would appear to be possible without asignificant reduction in the subsector's production of intermediate andfinished goods, an outcome that would have the twofold consequence of creating

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bottlenecks in the supply of intermediate goods to the other sectors and alsorendering additional imports of finished products essential (especiallycapital goods).

B. Chief Thrusts of Economic Policy Regarding the Sector

5.17 The second Five-Year Plan places special emphasis on light industryswhich is made the fourth national priority. For both subsectors, the mainobjectives are first to satisfy the priority needs and produce goods consideredto be strategic, then to reduce the degree of dependency, hence to pursue theimport-substitution policy, and finally, to improve the management of theindustrial units and raise productive efficiency. The initial programauthorizations envisaged for this purpose were DA 40.75 billion for lightindustry and DA 61 billion for heavy industry.

5.18 In light industry, the initial program called for expansion ofcement, brick and ceramic tile production capacities, a large-scalegrain-milling program aimed at attaining full self-sufficiency as of 1989, abottling program and various other steps in the agriculture and food areas.The intention was also to structure the textile industry, upstream by means ofthe installation of synthetic fiber production capability (designed to lessenreliance on imported inputs) and downstream by garment manufacture. Thestrategy adopted was therefore a mixed one, combining development of theconstruction materials subsectors and priority AFIs with encouragement ofproduction of consumer goods with subsequent export potential. The adjustmentcarried out in 1986 to adapt the plan to Algeria's reduced export earningscaused the sector to delay 20% of the investment appropriations on average and32X of the new programs. From the viewpoint of the different branches, thestrategy selected consists of satisfying the production requirements byfocusing on the priority products (construction materials, AFI staples) andproducts for end uses such as textiles, garments, leather goods, woodworkingproducts and paper. The projects for capacity expansion and upgrading ofpriority products are not affected. However, the reduced number of importauthorizations for finished products (cement, semolina and flour) means thatthere has to be a significant increase in production-capacity utilization andthat the new capacities will have to be quickly operational. On the otherhand, numerous downstream projects in textiles, leather, woodworking productsand paper will be deferred and the private sector will be expected to takeover what the public cannot handle. The public enterprises in thesesubsectors (and in textiles in particular) will probably have capacity-utilization rates even lower than at present owing to the reduction in importauthorizations for the primary products necessary for their operation. It haseven been decided to limit their storage capacity by only granting importpermits against evidence of a procurement plan. To sum up, it must bestressed that the 1985-89 Five-Year Plan for light industry:

(a) has been devised in order to pursue Algeria's standing strategy basedon meeting priority needs, substituting imports and using the publicenterprises as instruments for this purpose;

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(b) must, if it is to achieve its production targets in the context ofthe present financial crisis, improve the productive efficiency ofthe basic industries and turn the downstream manufacturing industriesover to the private sector on advantageous terms; and

(c) could, if the financial crisis persists, end up with a publicmanufacturing sector with extensive unused capacity, a situation thatwould inevitably have an impact over the long term on the volume ofpublic industrial employment.

5.19 In the heavy industry subsector, the priorities adopted are, in orderof importance: (i) completion of the programs under way, i.e. essentially themining and steel programs; (ii) satisfaction of priority irrigationinfrastructure needs for agriculture, and (iii) strengthening of intra-industryintegration in order to complete the structuring of certain branches(essentially electrical engineering and electronics) and further importsubstitution. Being faced with a 16% reduction in budget appropriations in1986, and also in light of the sizable difference between actual investmentexpenditures and program authorizations (60X), the ministry gave priority tocompletion of existing programs. If the adjustment effected in 1986 were tobe extended over the period of the plan the total actual amount of the sector'sinvestment expenditures would be close to the program residue to be executed asof December 31, 1985. Taking into account the program reappraisals conductedwhen the residue to be executed is considerable, it is not altogether unlikely(in view of the sector's priorities) that completion of old programs willabsorb the bulk of the appropriations for the second Five-Year Plan. Theoutcome could then be that the emphases on irrigation infrastructure foragriculture and, especially, household consumer durables might be scaled downto allow completion of old programs that continue the preferential treatmentfor heavy industry. This would be prejudicial in that the demand for capitalgoods would outstrip supply by too large a margin; without an adequate volumeof downstream activities heavy industry could itself ultimately be obliged tofunction at a lower proportion of capacity. Without wishing to prejudge theoutcome, which could be different if the priorities are adapted to thecircumstances, it would appear that achievement of the plan's targets in thissector will in any event entail a greater degree of self-financing, andrecourse to the private sector could be conceivable here.

C. Prospects and Recommendations

5.20 Algeria's industrial strategy can no longer be based so exclusivelyon import substitution. This policy's past success derived from the abundantavailability of foreign exchange and the limited dimensions of the nationalproduction apparatus in relation to the demand for intermediate and finishedproducts. From now on, external resource availability will level off, whilethe industrial base has reached a level of maturity that renders the presentimport requirement largely incompressible. Progress in import substitutionwill therefore give rise to increasing costs. There is a risk that resourcesmay be diverted for this purpose that would be better employed on eliminatingsome of industry's black spots. It should moreover be noted that the delays

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in dealing with these difficulties lead, through operating subsidies, tointerbranch transfers that are contrary to the general development strategy.It therefore appears important that the remaining period covered by the secondFive-Year Plan sbould be used to:

(a) devise permanent solutions for the most critical situations, inparticular the problem of the textile (semifinished products),woodworking and canning branches, and the chronic under-utilizationof capacity in the cement works;

(b) ensure that development of the mechanical and electrical engineeringand electronics branches is on a competitive basis;

(c) generate further productivity increases through upgrading oftechnical and especially management skills, while renewing thefactors making for dynamism in the yublic enterprises and encouragingdevelopment of the private sector; and

(d) create the conditions for less specialized participation ininternational trade.

5.21 The measures taken in 1986 to adapt industry to the payments crisiscould have effects that are not entirely positive. In light industry, privateenterprise is supposed to take over from the public sector in the downstreambranches. In quantitative terms, this seems possible. The drawback of thestrategy selected is that private small and medium industry would be limitedto a close complementarity with the public sector, which would deprive boththe public and the private enterprises of the dynamizing effect of a degree ofcompetition, while owing to the lack of a flexible and motivational regulatoryenvironment, private small and medium industry will have considerabledifficulty in benefiting from economies of scale and ensuring acceptableproduct quality and monitoring.

5.22 In heavy industry, there is a risk that the operations alreadyincluded regarding steelmaking, metallurgy and metalworking will receivespecial attention, to the detriment of mechanical and electrical engineeringand electronics. In terms of product use, this means that the necessities ofthe situation could result in further emphasis being placed on production ofheavy intermediate goods while the satisfying of capital goods needs and,especially, of demand for domestic appliances, which is rising rapidly, willcontinue to be deferred. In this connection, it might be considered advisableto continue rationalization of the mechanical engineering branch and implementthe Sidi Bel Abbes project, which seems to be an innovative attempt atdownstream-upstream restructuring of the electronics branch (these projectsare officially considered as priority projects).

5.23 The management conditions of the public enterprises are presentlyexcessively constraining. To begin with, the operating accounts of most ofthem are too heavily burdened with personnel and financing charges. Thennon-operating costs are abnormally high, especially in heavy industry. This

1/ The modalities of this development are set forth in themacroeconomic report.

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means that breakdowns and startup delays are too common. Moreover, managersare constrained by rules governing procurement of imported materials, pricesand the obligations to maintain employment. They tend to be "super-technicians" concerned essentially with meeting production targets and, asa result, neglect planning and development of the enterprises they areresponsible for in spite of the existence of enterprises' strategic plans.In addition, the form of taxation which bears alike on enterprises generatingprofits and on those running deficits makes it hard to bring about anyimprovement in the latters' situation. Finally, there would appear to be adefinite deficiency in management procedures, particularly as regards costaccounting, management audit and computerization of operations. The chiefrecommendation here is that conditions should be created that will givemanagers greater autonomy so that they will be actually (and not justnominally) responsible for the development of their enterprises. The buildupof external constraints leads to a dilution of responsibilities between themanager and the authorities which holds back development of the enterprise.In this connection, it would be desirable to complete the straightening out ofcash positions, to reconsider operating conditions that create structuraldeficits so that most of them will have been normalized by the end of theplan, and to make managers fully responsible for their enterprises includingany failures. As regards supporting measures, development of maintenanceenterprises (possibly private ones) would appear necessary in order to reducethe level of non-operating costs.

5.24 Development of industrial exports should not be a matter solely foractivities with chronic overcapacity. The entire sector must be madeexport-minded, including the activities whose production is not able tosatisfy all domestic demand. Algeria's industrial base is now sufficientlydeveloped to be able to face international competition in certain markets.With this in mind, certain segments of the production apparatus should beopened up to competition in the course of the period, on both the import andthe export side since imports are often necessary for development of exports.Certain support measures will be essential: an efficient information systemon foreign markets, international connections, hence human resources that willenable Algeria to function effectively in the networks, participation infairs, a battery of appropriate financial instruments, and development ofexport knowhow. It must also be added that thi present exchange rate for thedinar presents a problem from this viewpoint; the possible effects of a changein parity should be studied.

5.25 Personnel training is undoubtedly one of the components that willhave the greatest impact for success of the proposed measures. To begin with,extensive promotion of project appraisal and monitoring expertise will beneeded. In the present state of affairs a very large percentage of spendingauthorizations (501 for light industry, 60S for heavy industry) is notcommitted owing to a lack of adequate capabilities at either the project orthe administration level. If high qualifications may be observed for topmanagers, the same is not true for the intermediate level. Next it will benecessary to strengthen engineering capabilities, chiefly in the "methods andlogistics" area. Finally, managers, enterprises, the administration and thebanks must be made constantly aware of the need for operating and financialefficiency.

60453

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CHAPTER VI - FERTILIZER AND PETROCHEMICAL SECTOR

A. Background

6.01 The fertilizer and petrochemical sector is defined as comprising theproduction of nitrogenous, phosphatic and compound fertilizer, presentlyundertaken by ASMIDAL (Entreprise Nationale des Engrais et des ProduitsPhytosanitaires), together with the productiont of methanol, ethylene and theirderivatives (resins, low density polyethylene: LDPE and polyvinyl chloride:PVC) by ENIP (Entreprise Nationale de la Petrochimie). The facilities, for theproduction of fertilizers and chemical products, in the sector were originallydeveloped by SONATRACH over the period 1966-83, and inherited by the two newlyformed successor companies at the beginning of 1983.

6.02 Although some related activities, such as downstream plasticsprocessing (not considered here), are relatively more labor intensive, theoperations of ASMIDAL and ENIP themselves are highly capital intensive. Whilethe mission has not valued the capital assets in the sector in detail, it isunlikely that cumulative investments, at today's prices, would be significantlyless than US$2.0 billion. By contrast, employment is relatively small.ASMIDAL employs about 5,000 people and ENIP some 4,000 (including thoseworkinig in smaller operations such as ASMIDAL's plant protection chemicalformulation units). The industry is largely based on local raw materials.ASMIDAL's nitrogenous fertilizer units and ENIP's methanol plant consumenatural gas, the ENIP plastics complex is based on ethane extracted fromnatural gas, and the phosphate fertilizer plant uses locally mined phosphaterock. Of major raw materials, only the sulfur used in the phosphate plant andthe potash component of compound fertilizers are imported.

6.03 The record of SONATRACH in implementing chemical projects andoperating plants was a mixed one. A number of units have operated well,without known serious problems, since their commissioning. At the same time,a significant number, i-ncluding some of the largest units in the fertilizersubsector, have experienced major difficulties over a number of years. TheArzew I ammonia unit never operated satisfactorily between commissioning in1968 and its shutdown for rehabilitation in 1977, and has yet to re-open. Theattached urea unit has never been operative but it could be, in the future, ifappropriate conditions were met. The Arzew II nitric acid and ammoniumnitrate units have also experienced problems since their startup in 1982. TheAnnaba ammonia unit started operating in 1987, some three years after plantconstruction was completed. The Annaba phosphate plant, in spite of recentimprovements, still only operates at about 50% of capacity in the phosphoricacid line and 60% (in May 1987) in the downstream fertilizer units. Similarproblems could be identified during the early years of the methanol and LDPEunits (more recently, largely resolved), and in the chlorine unit of theplastics complex, whose unsatisfactory operation still poses a bottleneck tothe production of PVC.

6.04 In many of the above instances, there is no doubt that legitimateexplanations can be found, which at least in part explain the problems, inunsatisfactory original designs or poor performance by contractors. At the

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same time, taking the record as a whole, it is hard to avoid the conclusionthat contributory factors include choice of unproven technology orinexperienced contractors, weak planning and co-ordination (e.g. between majorunits ard utilities), lack of detailed supervision, inadequate maintenanceprocedures, staffing constraints and operating errors.

6.05 Against this background it may be understood that, in spite ofextensive past investments in the sector, present levels of production andcapacity utilization are in some cases still low by international standards.In the mission's view, the formation of ASMIDAL and ENIP has the potential tobe a highly positive step, by shortening decision-making procedures andbringing senior managers much closer to the problems of the sector. There arerecent indications of production improvements at several of the plants. Itmust, however, also be recognized that the companies are still young, have yetto complete establishment of their staffing or internal procedures, andcontinue to face problems in some of the established units. Care will beneeded to avoid over-taxing their capabilities (given the present availableresources) WitLi unduly ambitious new investment programs before existingissues are fully mastered.

B. Present Situation

1. Fertilizer Subsector

6.06 The table below summarizes domestic fertilizer production data for1983 and 1984 supplied by ASMIDAL. This information is essentially consistentwith figures published by FAO. Also shown are consumption statistics madeavailable to the mission by the Ministry of Agriculture. Estimates ofproduction and consumption in earlier years indicate that Algeria has alwaysexperienced a deficit in the overall supply of nitrogen and phosphate (as wellas potash, which is entirely imported). In 1984, improvements in productionnarrowed the deficit significantly. However, the Ministry of Agricultureprojects total demand to grow rapidly to 1.16 million tons by 1989 (comprising370,816 tons ammonium nitrate; 403,366 tons TSP; 225,746 tons NPK; 89,997 tonsPK and 68,384 tons potassium sulfate).

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Table VI.1:FERTILIZER PRODUCTION AND CONSUMPTION

(tons of product)

1983 1984Surplus Surplus

Production Consumption (Deficit) Production Consumption (Deficit)

AmmoniumNitrate 106,160 132,486 (26,326) 204,000 218,041 (14,041)

TSP 69,600 125,743 (56,143) 107,000 148,000 (41,000)NPK 87,500 107,211 (19,711) 147,400 122,329 25,071PK 30,920 45,250 (14,330) 17,000 9,096 7,904

Total 294,180 410,690 (116,510) 475,400 497,466 (22,066)

Source: ASMIDAL, Ministry of Agriculture.

6.07 Nitrogenous Fertilizer. Algeria possesses three worldscale nitrogenplants (i.e. complexes centered on 1,000 tons per day ammonia units), amongthe largest nominal capacity anywhere in the developing world. The units,with their date of completion of construction, are Arzew I (1968), Arzew II(1981) and Annaba (1983). As shown below, each unit is designed to producefinished fertilizer plus significant quantities of surplus ammonia.

Table VI.2:NITROGEN FERTILIZER UNITS - FULT CAPACITY OUTPUT

(tons per day)

Arzew I Arzew II Annaba

Ammonium Nitrate 500 1,000 1,000Urea 400 - -Surplus Ammonia 548 560 560

Source: ASMIDAL.

Ammonium nitrate is the principal source of straight nitrogen useddomestically (and also provides the nitrogen content of NPK). Urea is notused locally, for agronomic reasons. If all units operated at design capacityfor 330 days/year, potential output would be 825,000 tons per year (tpy) ofammonium nitrate (far in excess of current or planned local demand) and132,000 tpy urea and 550,440 tpy surplus ammonia, both fully available forexport. The industry would thus be in a position to convert abundant localnatural gas into a significant source of foreign exchange.

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6.08 In practice, Algeria still imports finished nitrogen fertilizer andexports of ammonia currently run at only about 100,000 tpy. The oldestammuonia plant (Arnew I) operated between 1968 and 1977, but neversatisfactorily: peak capacity utilization was 362 and the average barelyabov; 10X. It is clear that there were serious design problems with the. plant.Following a partial rehabilitation over 1978-86 (apparently prefinanced by thecontractor against subsequent product deliveries), an attempt was made tostartup the unit in early 1986, but was interrupted by the explosion of aboiler. It is understood that responsibility for further rehabilitation hasnot yet been agreed between the company and the contractor. Without makingany judgment on the merits of the case, it would clearly be in the nationalinterest to avoid any unnecessary delay in putting this unit back intooperation. Of the downstream units at Arzew I, the nitric acid and ammoniumnitrate units apparently operated well (in part on imported ammonia) throughthe early 1980s, when rehabilitation commenced. The urea unit never operatedcommercially, and in recent years has suffered from corrosion andcannibalization. A Yugoslav team will shortly commence a survey of itscondition, to determine whether rehabilitation would be feasible. Thistechnical study should be followed by an economic review.

6.09 The Arzew II ammonia unit is running well and is at present the solesource of ammonia. Output reached 233,000 tpy in 1985, or 70% of annualcapacity, and has reached over 901 on a daily basis. The downstream units(nitric acid, ammonium nitrate) have, however, experienced problems not yetfully resolved (apparently partly of design,l' compounded by maintenancedifficulties), and 1985 fertilizer output (95,000 tpy ammonium nitrate) wasonly 401 of capacity. At Annaba, the ammonia plant was unable to commenceoperation on completion in 1983, due to a lack of synchronization (of whichthe contractor was responsible) with the appended utility units.Precommissioning was underway in mid-1986, and the unit is predicted tocommence operation in late 1986. The downstream units commenced operation in1984 (temporarily using ammonia shipped from Arzew II), producing an estimated80,000 tpy ammonium nitrate (241 of capacity). These apparently have reachedtheir daily capacity, but are constrained by ammonia supplies.

6.10 Phosphate and Compound Fertilizer. The sole complex for productionof phosphate and compound fertilizer is located at Annaba, and dates from1972. The complex is based on a phosphoric acid unit, using locally minedphosphate rock, with a nominal capacity of 500 tons per day (as P2sO).Two downstream lines each have capacity to produce either Triple Superphosphate(TSP), Diammonium Phosphate (DAP), NPK or PK. The nominal capacities of thedownstream units are potentially misleading, as the supplY of F20s mayrepresent a constraint. The situation was further complicated by theconstruction during 1974-78 of an STPP detergent facility, which also requiresP10s. Alternative measures of full capacity in the downstream units aregiven below, showing maximum potential output of any single product (if noother fertilizer were produced), under alternative hypotheses.

11 Essentially a bad quality in some components of the equipment.

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Table VI.3:ANNABA PHOSPHATE/COMPOUND FERTILIZER PLANT: MAXIMUM CAPACITIES

(tons per day - tpd)

TSP DAP NPK PK

(1) Nominal Capacity 1,760 1,440 2,100 2,100(2) Effective capacity if no

STPP produced 1,450 1,086 (2,778) (2,500)(3) Effective capacity with

100% STPP production 1,158 868 (2,218) 1,996

Source: ASMIDAL and mission calculations.

Note: Figures show output corresponding to P20s avaiilability. In casesshown in parenthesis, downstream processing capacity would be the bindingconstraint.

6.11 The present situation of the Annaba plant is highly complicated. Asindicated above, even at full capacity utilization in the phosphoric acidunit, the supply of Pz0s could potentially constrain fertilizer output.In practice, the phosphoric acid unit has operated well below capacity (themission estimates rates of about 38% in 1983 and 50% in 1984). A combinationof possible design problems and staff inexperience in the early years and morerecently maintenance issues and the age of the facilities appears to beinvolved. ASMIDAL has identified a series of relatively minor investments (intotal about US$24 million) to deal with bottlenecks and deterioration in thephosphoric acid (and upstream sulfuric acid) units. ASMIDAL is also aware ofthe serious pollution problems which the plant causes, in a densely populatedlocation, and its program includes proposals to reduce effluent levels. Atpresent, the downstream fertilizer units operate at about 40% of capacity inphysical terms, though this has been achieved only by concentrating on lowP20s products (NPK, PK), eliminating DAP output and producing TSP only asP2 0s is available. The STPP unit runs at half of its capacity, meetingthe needs of the domestic market.

6.12 The present problems and future prospects of the complex clearlyrequire detailed analysis, and this an area where the Bank itself (or someother external body) could possibly provide assistance. In the short run,serious consideration should be given to the possibility of importingphosphoric acid to permit a more satisfactory level of capacity utilization inthe downstream facilities. The technical solutions contemplated by ASMIDALshould be carefully reviewed. While some appear well justified, the missionhas questions as to (a) whether the sulfuric acid unit is currently in acondition to permit expansion as proposed, (b) whether the proposal to improvephosphoric acid concentration is an optimal solution or (c) whether a licensewill be available for improving STPP production, for which US$10 million isallocated (STPP product quality does not meet international standards). Themission also considers that further analysis is needed of ASMIDAL's proposal

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to change the NPK process from use of solid ammonium nitrate to use of nitricacid, as it is not clear whether the existing reactors could tolerate the moresevere operating conditions. Improving the performance of this complex is amajor challenge, which calls for very careful analysis and preparation.

2. Petrochemical Subsector

6.13 Earlier plans to create a worldscale petrochemical industry, centeredon a 500,000 tpy steam cracker, and with capacity to produce styrene, butadieneand a comprehensive range of ethylene and propylene derivatives, weresubsequently scaled down substantially. The petrochemical industry todayconsists of a smaller cracker, with ancillary facilities to produce PVC andLDPE, and a methanol unit with attached resins capacity.

6.14 Ethylene and Derivatives. The plastics complex operated by ENIP atSkikda, constructed over 1972-81, comprises a cracker capable of producing120,000 tpy ethylene, and downstream units to produce 48,000 tpy LDPE and35,000 tpy PVC. With all units at full capacity, a surplus of 50,000 tpyethylene would be available for export. The plastics are destined for thedomestic market. The mission is not aware of any serious problems with thecracker, which operated at approximately 67% of capacity in 1985 (about 80,000tpy). Earlier serious technical problems with the LDPE unit seem to have beenlargely resolved, and some 30,000 tpy were produced in 1985 (63% of capacity).Remaining difficulties center on the unsatisfactory operation of the chlorineunit, which represents a bottleneck in the PVC production chain: PVC outputin 1985 was 16,000 tpy, or 46% of capacity. ENIP is currently studyingwhether to rehabilitate the existing chlorine unit or replace it using analternative technology. In addition to a project to build a new high densitypolyethylene unit (see below), ENIP is contemplating expanding the LDPEcapacity to 70,000 tpy, which would substantially reduce any potentialethylene surplus. It is also studying extraction of small quantities ofpropylene from the cracker.

6.15 Methanol and Resins. ENIP's methanol plant at Arzew was built during1971-76, and the attached resins units between 1973 and 1978. The respectivecapacities are given below.

Table VI.4:ARZEW: METHANOL AND RESINS CAPACITIES

Methanol Unit: 100,000 tons/year"Formurea" and formaline unit: 20,000 tons/yearPhenol-formaldehyde liquid resins: 6,000 tons/yearPhenol-formaldehyde moulding powder: 2,500 tons/yearUrea-formaldehyde liquid resins: 6,000 tons/yearUrea-formaldehyde atomized resins: 3,000 tons/yearUrea-formaldehyde moulding powder resins: 2,500 tons/yearMelamine-formaldehyde liquid resins: 1,000 tons/year

Source: ENIP.

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Following difficulties in the initial years, production haa gradually beenpushed closer to capacity, and 1985 methanol output reached some 90,000 tpy(90 of capacity). Beyond the relatively minor requirements of the downstreamplants, the bulk of the methanol is exported. Although the current worldprice is very depressed, an appropriate comparison should be not with the'full cost' of production, including overheads and capital charges, but withthe marginal cost of production, which will reflect the low (financial andeconomic) cost of natural gas. Plant management is studying low-cost projectsto debottleneck methanol production and also shows great initiative in seekingto adapt the output of resins to the requirements of local purchasers.

3. ASMIDAL and ENIP

6.16 As noted earlier, ASMIDAL and ENIP are both new and not yet fullyestablished companies. On the technical side, they are making serious effortsto address the inherited problems of their plants. An important area forconcentration is the improvement of maintenance and the management of spareparts. The mission was not in a position to undertake a comprehensive reviewof the financial situation of the two companies. However, it appears that asfar as operating costs are concerned, both companies benefit from relativelylow prices of gas supplied by SONATRACH (although the domestic price ofphosphate rock to ASMIDAL is above international levels). In most cases,domestic product prices are above landed import costs. For ENIP, prices aretemporarily frozen at 10% above 1984 cif import prices, while ASMIDAL's priceshave been set by Government at levels intended to reflect costs at targetlevels of capacity utilization. A major charge to both companies relates tothe servicing of debt inherited from SONATRACH - even though the finaldivision of SONATRACH assets is not yet complete. The incidence of thesecharges is magnified by low current levels of capacity utilization. To theextent that the companies fail to cover their outlays, the deficit appears tobe financed by extension of short-term credit on an ad hoc basis. In theinterests of accurately reflecting the opportunity cost of the sector's outputto domestic consumers, consideration should be given to moving internal pricescloser to border parity, possibly accompanied by at least a partial write-offof the accumulated SONATRACH debt.

6.17 To improve further the potential to control and manage the use ofresources in the sector, the mission also recommends strengthening thecompanies' current accounting capacity and introduction of systematic costaccounting and improved management information systems. If, as seems likely,ASMIDAL is soon in a position significantly to expand its exports of ammoniaand nitrogenous fertilizer, it will also need to strengthen its commercialoperations.

C. Future Projects

6.18 In addition to the rehabilitation requirements discussed above, bothASMIDAL and ENIP have substantial proposed investments in new plants includedin the current Five Year Plan. As summarized below, if all the planned newprojects are in fact carried out, total investments are likely to be in excess

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of US$1.0 billion (plus a further US$340 million in the downstream fibercomponent of the polyester project). The mission's view is that, if a reducedpublic investment program wiere to be prepared, none of these projects shouldbe an automatic component of the program. Given the present situation, eachshould be re-examined carefully using rigorous economic tests of itsviability, and allowing for both local and foreign components of the cost ofimplementation. To the extent that some of the new projects would be based onimported intermediates (or easily exported liquid oil deriva tives), Algeriawill not benefit from the built-in economic advantages represented by the lowcost gas feedstock used by existing plants. International experience furthersuggests that, if an uncritical attempt is made to increase the local elementin chemical project capital costs, the capacity of local suppliers can beover-strained, leading to delays in implementation, failure to meet standardsand cost over-runs.

Table VI.5:PETROCHEMICAL & FERTILIZER SECTOR: PLANNED PROJECTS

Estimated Capital Cost(US$ mAillion)

A. FertilizersTriple superphosphate(Tebessa Project) 400+

B. PetrochemicalsPolyester (excluding fiber component) 300Linear Alkyl Benzene (LAB) 120High density polyethylene 100Plasticizers (oxylene, phthalic anh,-dride) 80Acetic acid (vinyl acetate, PVA) N/A

Subtotal 600+TOTAL 1,000+

1. Fertilizer Projects

6.19 Tebessa Phosphate Fertilizer (TSP) Project. There has beendiscussion for many years of the possibility of establishing a new unit forthe production of triple superphosphate (TSP) in Algeria. The favored locationis at Tebessa, inland and near the sole operating phosphate rock mine (DjebelOnk). As presently formulated, the project would have a capacity of 1,320 tpdof TSP fertilizer (435,600 tpy) and 120 tpd of STPP for detergent use. In theabsence of commercial sources of domestic sulfur (for the sulfuric acid unit),imported sulfur would be brought to the site and the product evacuated via anew railway link (and possibly through a new port). It is understood that arecent study has concluded that, with careful attention to recycling, thewater available at Tebessa could meet the requirements of the plant and otherconsumers.

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6.20 The mission was quoted a plant battery limits capital cost ofDA 1.5 billion (US$320 million). However, there would clearly be a substantialrequirement for complementary investment in transport and water facilities, aswell as other infrastructure requirements (power, housing, gypsum disposal),which could not be quantified accurately. The mission's allowance of at leastUS$400 million may thus represent a significant understatement of the truefigure.

6.21 The attraction of the project is that it would represent a new outletfor local phosphate rock (the mine currently operates well below its nominalcapacity, due to export market constraints and transport bottlenecks), promoteregional development and contribute to meeting local demand for phosphatefertilizer. Internal use of TSP is projected by the Ministry of Agricultureto reach more than 400,000 tpy by 1989, if the development of agricultureproceeds as planned. This would be more than double the present consumption,and about four times the level of the early 1980s; it would also substantiallyexceed the potential output from the current facilities at Annaba.

6.22 At the same time, it should be recognized that the capital costs ofthe proposed Tebessa project would be very heavy, even if it proved possibleto maximize the local content of the works. The mission recommends carefulscrutiny of alternative means of meeting local phosphate requirements,including capacity expansion at Annaba (assuming appropriate measures to lowerpresent pollution levels), the possible nitrophosphate project (see below) andpartial continuation of importation of low-cost product from internationalsources.

6.23 Joint Nitrophosphate Project. Although not included in the currentplan, discussions have been held with Tunisia on possible joint development ofa project to produce nitrophosphate fertilizer. The location of the projectis not yet settled. From an economic standpoint, such a project would havethe advantage of using nitric acid (derived from Algerian supplies of naturalgas), rather than the sulfuric acid (based on imported sulfur) required byTSP. However, nitrophosphates have distinct agronomic characteristics andthere is apparently no local experience in their use. A careful program ofagronomic research would therefore need to precede any decision to advancethis project.

2. Petrochemical Projects

6.24 Polyester. ENIP is working on a project to produce 60,000 tpy ofpolyester. As indicated above, this would be the most capital intensive newpetrochemical project in the current plan, with total costs (including the

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spinning component) likely to exceed US$600 million. The processes involvedare complex and sophisticated and two alternative process routes exist (eithervia DMT or TPA), with contrasting advantages and disadvantages in terms ofyield and likely license availability. The choice of process route does notat this stage appear to be finally settled within Algeria, and there are alsomarket issues concerning size of market and final product mix yet to beresolved. In mid-1986 ENIP was planning to issue bid invitations at the endof 1986, but this may be premature. Algerian authorities have undertakenfurther work on project definition and a subsequent thorough economicevaluation, to assess the priority of proceeding with the project, whetheras initially envisaged or in a stage-by-stage manner.

6.25 LAB. This project is more advanced and bids were already underevaluation in mid-1986. LAB is an intermediate for detergent production, andthe output of 50,000 tpy would be absorbed by three domestic factories nowunder implementation (36,0U0 tpy) and through export to Tunisia under acontract already concluded (14,000 tpy). The mission considers it possiblethat, in the early years, the local market may not fully absorb the equivalentquantities of detergent, and suggests that further export outlets may need tobe assessed.

6.26 High Density Polyethylene. This project is also at an advancedstage, with bid evaluation narrowed to three bidders and two processes.Contract signature was predicted for end-1986. With or without the proposedexpansion of LDPE at Skikda, the existing cracker could not supply the fullrequirement of 75,000 tpy of ethylene feedstock implied by the proposed scaleof at least 70,000 tpy of HDPE (alternative scale 100,000 tpy). Thus the HDPEproject will be largely dependent on imported feedstock. While recognizingthe economies of scale present in HDPE production, MEICP estimates that,starting from the present level of 60,000 tpy, the internal market is forabout 100,000 tpy. -I

6.27 Plasticizers. The project to produce plasticizers (and phthalicanhydride) is at a less advanced stage, with neither location nor scale yetdetermined (though present thinking is for 20,000-33,000 tpy of phthalicanhydride and 45,000-70,000 tpy of plasticizers), and with implementationtentatively envisaged for 1988-91. Plasticizers are used to make PVC moreflexible, while phthalic anhydride is used partly in plasticizers and partlyin other uses (alkyd resins, unsaturated polyesters). Project output would betargeted at the local and Tunisian markets. However, a market of 45,000 tpyof plasticizers would appear to imply PVC demand of 170,000-200,000 tpy, or acompound growth rate through 1992 of about 15X per annum. The missionrecommends that market assumptions should be carefully re-examined beforeproceeding with the project. Finally, a feasibility study was recentlycommenced for the remaining petrochemical project (acetic acid andderivatives), but at this stage little information is available on the project.

59S38

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CHAPTER VII - ENERGY: THE HYDROCARBON SECTOR

A. Hydrocarbon Resources

1. The Discovery and Disposition of Crude Oil Resources

7.01 Early exploration for commercially exploitable oil deposits began inthe Chelif sedimentary basin, west of Algiers. The first well was drilled in1892, and exploration efforts were pursued until 1923. However, since none ofthe wells found commercial quantities of oil, interest in oil explorationvirtua:ly ceased after that for about 25 years.

7.02 Exploration started again after World War II in the Chelif basin.Between 1947 and 1952, some 43 exploratory wells drilled a total footage of75,000 meters with some success. In 1949, the Oued Gueterini west field wasfound in the Hodna basin east of the Chelif basin. This field represented thelargest discovery in Algeria up to that time. However, another 40 wells and8,200 meters of exploratory drilling found no commercial oil in the fracturedreservoirs of the tightly folded sediments of the basins of the Saharan AtlasMountains, until the Djebel Onk field was discovered in 1960. This field islocated in the Constantine area. It is the largest and the last of fivefields G-acovered in the intramontane basins.

7.03 To the south of the Saharan Atlas Mountains, the great unknown areaof the Sahara became accessible as suitable vehicles, which could traverse therugged terrain, became available. Along with numerous gas fields, includingthe discovery of the giant Hassi R'Mel natural gas field which at that timehad no prospects of markets, 17 oil fields were discovered in the 1950s. Onlytwo of the fields found were in the northeastern part of the Sahara (theGhadames basin) includirig'>1.ic- supergiant Hassi Messaoud field found in 1956.To the southeast, the Illizi basin yielded one giant field (Zarzaitine) out ofthe 15 discoveries. The giant discoveries generated new interest as numerousFrench and other foreign companies began exploration campaigns. In December1963, the Societe Nationale de Transport et de Commercialisation desHydrocarbures (Sonatrach) was created to manage the government's petroleumaffairs. Subsequently, in 1965, Sonatrach became involved in exploration.

7.04 During the sixties, 38 oil fields were discovered. Three of thefifteen fields found in the Ghadames basin were giants; El Agreb (1960), GassiTouil (1961) and Rhourde El Baguel (1962). Of the 22 fields found in theIllizi basin, only one, the Tin Fouye Tabankort field is a giant. The DjebelOnk field in the Hodna basin was the only discovery of the sixties that wasnot in the two Saharan basins (Chadames and Illizi).

7.05 During the seventies, Sonatrach increased its share of concessions asforeign participation in exploration declined. A total of 19 fields werediscovered; 15 of the fields are located in the Ghadames basin and 4 are inthe Illizi basin.

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7.06 During the period 1977-1980, Sonatrach became involved in jointventures involving 13 separate foreign companies. However, by end 1981, onlyfour had in fact carried out work in the field or were about to do so

7.07 Sonatrach has drilled 40 wells during 1985 and two oil discoverieswere reported in the Hadjira area and near Adrar in the southwest. ElfAquitaine has decided to suspend exploration in June 1986 followingdisappointing results in geology terms. In fact, foreign investors seemed tohave largely lost interest in Algeria until recently. However, the approvalby the National Assembly in July 1986 of a more liberal legislation may againattract foreign companies and revive exploration efforts. Although definiteterms will not be known until new contracts are drawn up, changes may includelower royalty rates (12.50 or 16.25% depending on location of fields insteadof the standard 20X) and lower gross profit taxes (65 to 752 according tofields location instead of the standard 85% rate). A full analysis of the newlegislation and of its potential impact on foreign investment is needed.Attracting foreign interests is becoming increasingly important sincegovernment resources are now scarcer due to lower oil prices. Such resourceswhich have to be shared between a number of other social and economicsubsectors, may not be sufficiently important to both intensify much neededexploration in the five main sedimentary basins and develop known oil and gasreserves in order to optimize hydrocarbons production.

2. The Status of Known Crude Oil Resources

7.08 It is estimated that about 2.4 billion tons of oil recoverable byprimary methods and 200 million tons of oil requiring secondary recoverymethods tLave been found in Algeria's 77 oil fields.

Table VII.1:CRUDE OIL RESOURCES

Discovered Cumulative ApparentUltimately Production Remaining Known Percent of theDiscoverable Through Recoverable Discovered CrudeCrude Oil 1 1985 Crude Oil t' Oil Remaining

2.40 0.98 1.42 59.2

7.09 Based on the apparent reserves estimated for each of the 77 fieldsdiscovered in Algeria and field production histories, 8 giant oil fields havebeen identified.-' Of these, two are established giants - Hassi Messaoudand Zarzaitine; three are imminent giants4 - El Agreb, Gassi Touil and

1/ Excludes indicated additional secondary recoverable oil, i.e.,0.2 billion tons.

2/ Approximately equal to remaining proved reserves.3/ Oil fields which have produced more than 70 million tons of oil.4/ Oil fields which have sufficient oil in place and a recovery efficiency

such thaut they may ultimately yield over 70 million tons of oil.

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Rhourde El Baguel; and three are conditional giants1' - Edjeleh,El Adelblarache and Tin Fouye Tabankort. Cummulative production through 1985of the two established giants fields was 677.4 million tons; of the threeimminent giants was 140.3 million tons and of the conditional giants was76.3 million tons-

7.10 Crude oil production declined from 47.2 million tons in 1980 to34.3 million tons in 1985, i.e. by 35% partly resulting from the Government'sdecision to "conserve" the reserves. Four of the five established andimminent giants fields were discovered before 1982, i.e. are 25 years old ormore. In general, the combination of smaller field discoveries and diminishingoutput from the giant fields makes irreversible for Algeria to reestablish theproduction level of the seventies unless development is accelerated and newdiscoveries are made.

3. The Ultimately Recoverable Petroleum Resources

7.11 Over two thirds of Algeria's estimated ultimately recoverable crudeoil (3.6 billion tons) have been discovered. Out of this, about 30% hasalready been produced and 33% remains to be found. It should be noted,however, that Algeria has a very large potential for gas condensatediscoveries.

7.12 The discovered recoverable resources represent approximately 42 yearsof additional producing life based on 1984/85 production levels. However,recent production has been significantly below the historic peak levels. Ifthe current production were at peak level, the producing life of Algerian oilwould be shorter. These are the consequences of a declining discovery rateand of the decision taken by the government to adopt a conservative oilproduction rate policy.

4. The Status of Natural Gas Reserves

7.13 The estimated proved natural gas reserves are about 3.200 billioncubic meters. They are the fifth largest in the world and they amount toslightly less than 42 of world reserves. Only about 17% of proven gasresources have been depleted.

Associated Gas

7.14 Most associated gas found at Hassi Messaoud is processed to maximizerecovery of condensates and LPG. Near Hassi Messaoud, gas is stripped ofbutane, propane and light naphtha and the remainder is used to lift crude oil.Further northwest of Hassi Messaoud, a treatment plant has been installed toseparate LPG abd condensates from and dry gas. The latter is presentlyreinjected.

1/ Fields which reportedly have sufficient oil in place to become giants butare shut-in, produce insignificant quanities of oil and/or must have asignificant improvement in the recovery efficiency to achieve the giantfield status.

2/ Through 1981, data not available for 1982-1985.

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7.15 To maintain constant pressure in the Hassi Messaoud field, gas has tobe reinjected in increasingly larger volumes. In 1986, associated gaspurchased at Hassi Messaoud was about 5.6 billion cubic meters while gasproduced from the Gassi Touil field and reinjected at Hassi Messaoud was2.9 billion cubic meters. Out of. this total of 8.5 billion cubic meters,1.4 was gas flared at Hassi Messaoud and 1.3 was fuel gas (mostly from GassiTouil). The remaining gas (5.8 billion cubic meters) was reinjected at HassiMessaoud to keep pressure constant. It is anticipated that, to maintain acrude oil output of 19 million tons, reinjected gas would have to increasefrom 5.8 billion cubic meters in 1986 to 11 billion in 1989. This means thata growing volume of gas will be "imported" from gas fields located south ofHassi Messaoud (Gassi Touil, Alrar, Rhourde Nouss, etc.).

7.16 The Zarzaitine oil field has been in production since 1966. Gas froma nearby field at Alrar is used for gas lifting of both oil and water wells.Work was completed in 1984 to both shut in the open gas lift system and torecover associated gas from oil production. North of Zarzaitine and Alrar,assoe~iated gas has been recovered since 1983 and is now used in Zarzaitine,thus replacing gas previously brought from Alrar, and helping optimizecondensate recovery from Alrar.

7.17 Due to rapidly increasing production of non-associated gas (seebelow), the share of associated gas in total gas output declined since 1980/81although the volume of production has remained about constant.

Table VII.2:NATURAL GAS PRODUCTION(billion cubic meters)

1980 1981 1982 1983 1984 1285

Associated gas 15.6 11.8 10.1 10.2 11.8 12.5% of Associated gas innatural gas output 36.0 18.0 12.4 11.3 12.6 13.8

Non-Associated Gas

7.18 Most Algerian gas fields, with the exception of the In-Salah basin,are relatively rich in condensates. Total reserves of condensates amount to450 million tons compared to 1.4 billion of remaining recoverable crude oilreserves.

7.19 Gas re-cycling is used extensively in these wet gas fields tooptimize liquid recovery. The Hassi R'Mel field is under partial re-cycling.The Rhourde Adrar and Rhourde Nouss fields will be subjected to gasre-cycling. A number of other gas fields will also be exploited through gasre-cycling schemes. Other fields will be better delineated and may beproducing through natural depletion.

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7.20 The Hassi R'Mel field discovered in 1956 is the largest Algeriannon-associated gas field with proven reserves of 2300 billion cubic meters,400 probable and 200 possible reserves giving a total of 2900 billion cubicmeters. Condensate reserves are estimated to more than 400 million tons onthe basis of 180 grams/cubic meter. The LPG (50% propane and 50%. butane)content is about 38 grams/cubic meter and reserves are thus estimated at87 million tons. Nominal production capacity of the Hassi R'Mel field isabout 90 billion cubic meters per annum and effective capacity 80 billion,taking into account stoppages for maintenance. In 1985, production was about72 billion/cubic meters from which have to be subtracted some 3 billion cubicmeters equivalent of condensates and LPG.1' Dry gas production was thusabout 69 billion cubic meters of which 30 billion were dispatched from HassiR'Mel and 39 were reinjected. The ratio of reinjected gas (56%) to total drygas produced is somewhat above the 50% ratio considered "normal" by theexperts. However, a 56% ratio ensures a higher liquid recovery rate over thetotal life of the field. But there is also a risk that LPG recovery ratiofalls below 38 grams/rm3 after a few years and is reduced, for example, to 10grams or less. The 50% ratio was calculated some years ago for the HassiR'Mel field alone but existing installations are also capable to use gasbrought from other fields, south of Hassi Messaoud. Depending on future gasrequirements (for exports and for the domestic market) and in order tomaintain a 50% reinjected gas ratio, it may prove necessary in future yearsfor Hassi R'Mel to purchase gas from Alrar, Oued Nourmer and Rhourde Nouss.

5. Future Exploration. Development and Recovery of Hrdrocarbon Resources

7.21 Under the 1980-84 Plan, exploration efforts were limited partlybecause Sonatrach was being restructured and because separate petroleumservice companies set up in 1981 started practically from scratch and had tobe organized. One of the main Plan objectives for 1985-89 is to intensifyexploration in relatively unknown areas of the country and in particular inthe Adrar area and in the South. Although exploration investments were keptat DA 1.5 billion in 1985, and in 1986, they may fall in 1987 and after, dueto Sonatrach's declining cash flow resources and scarcer government financialcontributions as a result of lower oil prices.

7.22 As regards investments required to develop existing resources, aboutone third are for completion of ongoing projects and two thirds for newprojects. Half of the oil projects consist in developing a network of pipesto collect crude oil from producing wells and to maximize gas reinjection inoil wells.

7.23 Ongoing gas projects aim at reducing the flaring of gas and atmaximizing liquids (condensate and LPG) recovery. Also numerous reservoirstudies have to be completed and further drilling undertaken. One key element

1/ LPG recovery was 72 billion cubic meters x 25 grams/cubic meter, i.e.1.8 million tons (compared to 72 x 38 grams/m3 in 1987, i.e. 2.7 milliontons after two new LPG recovery units were installed in September 1986).Condensate recovery was 72 billion cubic meters x 180 grams/cubic meter,i.e. 1.30 million tons.

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of Sonatrach's strategy is to develop new gas fields in the south in order toextract LPG and condensates and reinject gas sent from the new gas fields inthe south to Hassi Messaoud and possibly Hassi R'Mel. Gas fields would thusbe exploited while Hassi Messaoud would become a collecting center, where gasfrom the south would be reinjected while LPG and condensates would be sent tothe north. Sonatrach is soon scheduled to complete a 48 inch, 1,200 kmpipeline from Alrar via Tin Fouye and Hassi Messaoud to Hassi R'Mel. Thenew line will also carry gas from Rhourde Nouss, served by a gas treatmentfacility due to be completed in 1987. As a result of this ongoing project,LPG production is likely to be increased by 1988. As indicated above(para. 7.15), gas is already sent from Gassi Touil to Hassi Messaoud forreinjection. The Rhourde Nouss and Alrar fields are also being developed.Other fields may be exploited in future years in order to increase the globalsupply of gas available for reinjection.

7.24 New gas development investments are envisaged and also aim at improvingSonatrach's knowledge of gas reserves in the south through additionalexploratory drilling and evaluation and optimization studies. However, hereagain investments may be affected by lack of sufficient financial resources.

Table VII.3:EXPLORATION AND DEVELOPMENT INVESTMENTS, 1985-89

(In billions of Algerian dinars))

Ongoing Projects New Projects TotalExploration - 6.00 6.00DevelopmentCrude Oil 3.00 8.33 l' 11.33Gas 5.50 1.60 2" 7.10Sub total 8.50 9.93 18.43

TOTAL 15.9 24.43

7.25 In 1980-84, exploration investments amounted to less than DA 4billion and development investments to about DA 18 billion, i.e. a total ofDA 22 billion. In 1985-89, although the total would be only slightly higher,i.e. some 24 billion, exploration would receive increased attention withDA 6 billion while development would get about 18 billion, reflecting thepriority given to improved management of existing fields and better knowledgeof discovered and potential reserves. However, the two key issues will be,first, how to mobilize financial resources needed to meet the above objectivesin view of reduced funds availability and second, to examine what isSonatrach's least cost strategy to increase and develop oil and gas reserves.

1/ Excluding social infrastructure of DA 0.46 billion linked to oildevelopment (housing, health, recreation, etc.).

2/ Excluding DA 0.10 billion for preliminary secondary recovery studies.

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B. Production of Hydrocarbons

7.26 Crude oil production after reaching a peak of 54.2 million tons(excluding condensates) in 1978 declined to 47.2 million tons in 1980.Since then production decreased every year until 31.3 million tons in 1983.However, production rose to 33.3 million tons in 1984 and again to34.3 million tons in 1985, sufficient to fill OPEC quotas.

7.27 Given the lack of substantial new crude oil discoveries, a decisionwas made in 1980 to restrict the growth of crude oil production and exports togive priority to domestic consumption (the share of the latter in totalproduction rose from 11% in 1980 to 22% in 1985). Behind this lies theexpectation that by the year 2000, the Algerian economy will have "taken off"and the need for foreign currency earnings from hydrocarbons will begin todecline.

7.28 After the decision was taken to "conserve" crude oil reserves, outputremained close to OPEC quotas. One exception was in 1983, when it amounted to31.3 million tons although the quota (set in March 1983) was for 36.3 milliontons. It must be emphasized that OPEC quotas do not cover condensates.Algeria has taken advantage of this to increase condensates outputsubstantially, from 4.3 million tons in 1980 to 14 million tons in 1984. Therelatively high proportion of condensates in Algerian natural gas makes itvery attractive to increase condensate output, as a partial substitute todeclining crude oil output. 1 Algeria has been able to live with an OPECquota of 33 million tons because it boosted sales of condensates, LPG andnatural gas.

7.29 Algerian LPG production comes from several sources: the "Jumbo" LPGplant at Arzew, two LNG plants (one at Skikda and tbe,'other at Arzew) and theoil refineries. Production evolved as follows between 1980 and 1985:

Table VII.4:LPG PRODUCTION

(In thousands of metric tons)

1980 1985

LPG plant - Arzew (RA2Z) 500 -Jumbo LPG - Arzew - 2,200LNG Plant - Arzew (GNL2) - 204LNG Plant - Skikda 320 320Oil Refineries 138 481

Total 968 3,205

1/ Declining crude output is due to conservation reasons as well asto marketing limitations including quotas.

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7.30 Four LPG units with a total nominal capacity of 4 million tons werecommissioned at the Arzew Jumbo plant from December 1983 to September 1984.The start up of one LPG extraction plant in September 1986 at Hassi R'Mel witha total capacity of 1.1 million tons/year will allow the 4 million tonsfractionating plant at Arzew to operate at full capacity.1' LPG productionat Arzew rose from 2.2 million tons in 1985 to 3 million tons in 1986 and mayreach 3.6 in 1987, i.e. 100% of effective capacity (90% of nominal capacity).

7.31 Gross output of natural gas rose from 43.4 billion cubic meters in1980 to 90.7 billion in 1985. All of increased gas productioli came fromnon-associated gas. ln particular Hassi R'Mel contributed 76.6% of total gasoutput in 1985. Due to this substantial increase, net gas output (i.e. afterdeducting reinjected and flared gas as well as gas used at the fields) rosefrom 15.1 billion cubic meters in 1980 to 34.8 billion in 1985.

7.32 This increase is due to three main reasons: (a) conclusion of exportcontracts with European gas distribution companies; (b) rapid growth ofdomestic consumption; and (c) increased use of gas for reinjection inpetroleum fields to maintain pressure and step up extraction of liquidproducts.

7.33 Liquefied natural gas (LNG) production rose from 9.6 billion cubicmeters (delivered to LNG plants) in 1980 to 17.6 billion in 1985.1' Thereare four LNG plants; one at Skikda (8.4 billion cubic meters capacity) andthree at Arzew (two units with 10.5 billion capacity each and one with1.7 billion capacity). Total capacity is thus 31 billion cubic meterscompared to a 12.6 billion production in 1985, i.e. a low 412 utilizationrate. 3/

7.34 Based on existing contracts LNG exports are projected to increasefrom 12.6 billion cubic meters in 1985 to 13.6 billion in 1990 (see paragraph7.55 below). Such increase would come mostly from higher gas sales to Enagasof Spain and Distrigaz of Belgium while purchases by Gaz de France (GDF) wouldremain constant. Efforts to gain LNG new export markets in order to betteruse existing capital intensive facilities (some of them are experiencingdifficult maintenance problems partly due to low utilization) while adjustingto prevailing world market price situation now rank high among Sonatrachpriorities. In that respect, an analysis should be made of (a) the marketsituation for LNG (and for piped natural gas) sales abroad (including spotsales); (b) the processing cost for LNG including natural gas selling price tothe LNG plants, amortization, rehabilitation and modernization of existing

1/ There is also an older 1 million ton LPG and condensate plant (RA 2 Z)set up in 1971 at Arzew, which is now stopped pending revamping toexclusively produce LPG.

2/ One cubic meter of LNG is equivalent to 600 cubic meters of gas in itsgaseous state.

3/ Capacity utilization was 57% at Skikda but only 34% at Arzew. Thelatter rate was due to marketing problems (Arzew's largest LNG plantswere supposed to produce gas for the US market, but sales to the UShave disappeared).

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units; and (c) the long-run marginal cost of LNG and piped natural gas to beconsidered and compared with existing LNG and piped gas prices oninternational markets. Such an analysis would also take into accountincreasing gas domestic demand and substitution possibilities.

C. Oil Refining

7.35 There are five oil refineries with a total nominal capacity of21.3 million tons. The largest refinery at Skikda on the eastern coast hasa 15 million tons processing capacity and produces mainly naphtha, low sulfurfuel oil and diesel oil (85% of the production is exported mostly to Europeancountries and to the United States).

7.36 Refined products output rose from 10.4 million tons in 1980 to21.9 million tons in 1985. Although domestic sales rose from 5.2 million tonsto 7.5 million tons, exports more than doubled and reached 14.7 million tonsin 1985. Such a rapid growth is explained by Sonatrach's policy to minimizecrude oil exports and rather maximize export values through sales of refinedproducts abroad. A large part of crude oil is now refined in Algeria and thisis likely to continue in coming years.

7.37 More than half of the output is for middle distillates (diesel,naphtha, kerosene). Fuel oil is also a significant component of output (24%in 1985). Refined products output is unlikely to increase significantly infuture years. Crude oil production may very well decline in future years,leaving little room for much increased crude deliveries to refineries (unlesscrude oil exports would be drastically reduced). Also, due to rising domesticdemand, available exports are likely to decline. CAE's oil forecasts''indicate that crude and products exports would fall from 28.7 million tons in1985 (14 million tons for crude and 14.7 million for products) to 24.8 milliontons in 1990.

7.38 Consequently, no capacity increase would seem to be needed in therefinery sector. Nevertheless, the project to raise catalytic reformingcapacity at Skikda from 1.1 to 2 million tons to meet increased gasolinedemand has been retained; the plant should produce some 30,000 bpd in 1988.

7.39 The fall of crude oil prices in the first part of 1986 has beenfaster than that of refined products thus increasing the margin of oilrefineries. In the first quarter of 1986, the Skikda refinery obtained aUS$2.50 margin per barrel. Combined with higher capacity utilization, loweramortization cost (at least for the older refineries) and lower foreigntechnical assistance fees, the refinery sector has been recouping losses madein earlier years.

1/ Cf. paragraph 7.53, Table VII.7.

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D. Storage and Distribution

7.40 Naftal is the company in charge of storage, transportation (productpipelines to depots and LPG pipelines) and distribution. It was establishedin 1980 after Sonatrach was restructured.

7.41 Naftal's investments have been around DA 1 billion during 1982-85divided between refining (25S) and storage and distribution (75%). During1982-85, three large and sixteen small bottling centers have been installed.There were in 1984 about 1,000 service stations and 400 were planned to beinstalled in 1985-89 (300 were already built in 1985-86).

7.42 Naftal has been active in pushing LPG consumption through conversionof cars using gasoline. Ten stations in Algiers have already been suppliedwith LPG pumps and there are plans to increase this to 600 in the next tenyears. Some 2,000 cars are now running on LPG and there are plans to convert10,000 gasoline driven cars to propane each year. Another method to developLPG consumption has been through subsidized LPG prices to maximize LPG use aspart of the fight against desertification (reduced fuelwood consumption) andto help lower income population. There are still today shortages (at thelevel of marketing) of bottled butane, mainly due to booming demand fordomestic use. In order to reduce the financial burden of LPG subsidies,butane price was increased from DA 10/bottle of 13 kg in 1984 to DA 16 in 1985and DA 19 in July 1986.

E. Domestic Demand

7.43 Algeria's relative prosperity was built upon hydrocarbon exports. In1985, the sector accounted for 97.5X of export earnings, 44% of the centralgovernment tax revenue and 252 of GDP. But domestic consumption has risenrapidly from 3 million tons of oil equivalent (mtoe) in 1965 to about 20 mtoeat present. By the year 2000, consumption of 63 mtoe would exceed exportsprojected at 60 mtoe by Algerian planners, although this may well provedifficult to achieve should the economy slow down as a result of lower oilprices and other constraints.

7.44 Energy consumption in the industrial sector has grown faster at over161 per annum since 1965. In 1965, there were only two high voltageindustrial customers for electricity; there were 43 in 1983, consuming over46 times the quantity of electricity. The energy industry (i.e. oilrefineries, LNG and LPG plants, etc.) is the major single energy consumer.

7.45 Natural gas consumption has risen rapidly. In 1965 there were onlyten industrial customers for high pressure gas while there were 118 in 1984.Natural gas deliveries to Sonelgaz (for power use and gas distribution) and toammonia and chemical plants rose from 4.6 billion cubic meters in 1980 to7.6 billion in 1985.-' Today there are half a million domestic customers

1/ The share of Sonelgas in this total is about 801 with a large increasein the number of industrial and domestic consumers.

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for gas and by the year 2000 there are plans to increase the number to overtwo million.

7.46 In order to maximize the use of gas, prices of petroleum productshave been raised faster than those of natural gas. While natural gas (highpressure) price rose by 2.6% per annum in 1980-1986, heavy fuel oil price roseby 45X. Similarly heating oil price increased by 252 annually in 1980-86while natural gas (low pressure) price rose by 4.5Z only.

7.47 Domestic energy consumption has been projected by Algerian plannersto more than quadruple between 1982 and 2000.

Table VII.5:DOMESTIC ENERGY CONSUMPTION

1965 1975 1982 1990 2000 1975 1982 2000--- (Millions of oil equivalent) --- -- (Percentages) ---

Petr. products 0.56 2.80 4.60 7.91 13.00 57.1 44.2 28.3Natural gas/LPG 0.26 0.90 2.55 6.72 11.80 18.4 24.5 25.7Power (thermal) 0.35 0.85 2.60 8.30 16.50 17.3 25.0 35.9Power (hydro) - - 0.15 0.20 0.20 - 1.5 0.4Solid fuels 0.40 0.35 0.50 0.97 4.00 7.2 4.8 8.7Solar 0.50 1.0

Total 1.57 4.90 10.40 24.10 46.00 100.0 100.0 100.0

7.48 The above forecast clearly shows the rise of natural gas/LPG andthermal power generation. In relative terms the use of solid fuels remainslimited and is mostly for cooking coal in the iron and steel industry.Hydroelectric power accounted for only 1.5% of energy consumed in 1982 andwill fall even lower since the potential for further hydro projects is limited.

7.49 Solar energy would appear for the first time in the energy balance bythe year 2000, then representing 1% of total domestic consumption.

7.50 Given lower economic projections for Algeria (which do seeminevitable given the impact of lower hydrocarbon prices and otherconstraints), domestic energy demand is likely to slow down in the yearsahead. Alternative growth scenarios for energy should then be prepared forthe medium to long term. At any rate what is emerging is that pstroleumproducts are likely to show a declining share in energy consumption whilenatural gas for industry, household and power use should continue to developat a relatively rapid rate and further increase its share in energy demand bysubstituting for oil products. This has serious implications for futureenergy investments programs to be prepared, under changing circumstances, forthe period until the year 2000.

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F. Hyjdroarbon Export

7.51 Despite the growth of domestic consumption, hydrocarbons exports rosefrom 50 million mtoe in 1980 to 58.6 mtoe in 1985. The share of varioussources of hydrocarbons has evolved as follows (in 2):

Table VII.6:

1980 1983 1985

Crude oil 67.3 21.6 24.4Condensates 8.6 25.8 23.6Petroleum products/LPG 14.2 26.6 25.1LNG 9.9 22.8 16.6Natural gas (piped) - 3.2 10.3

Total 100.0 100.0 100.0

7.52 The share of crude oil in total exports has fallen dramatically since1980 as a result of government efforts to diversify hydrocarbon exports andlessen reliance on crude oil exports. Condensates and petroleum products(including LPG extracted from natural gas) now represent about 25h each ofexports against 9 and 142 respectively in 1980. Natural gas (LNG and pipedgas) also amounts to 26% of exports against 101 in 1980. The fastestdevelopment has been for natural gas piped to Italy through theTrans-Mediterranean pipeline. The result of these developments is that thereare now four groups of exports each amounting to about one fourth of totalhydrocarbon exports.

7.53 An IBRD Economic Memorandum (draft dated February 6, 1986) estimatedthat hydrocarbon exports in 1990 would amount to 83 mtoe in 1990 where theAlgerian Ministry of Energy forecast is 75.1 mtoe as shown below:

Table VII.7:

1985 1990 1990 2000(actual) (IBRD) (AE7A) (CAE"a)

Crude oil 14.3 15.4 ) 24.8 4.8Oil products (excl. LPG) 12.6 7.8 )Condensates 13.9 17.6 18.0 13.8LPG 2.1 5.8 3.0 4.8LNG 12.6 19.5 )Natural gas (piped) 7.0 17.1 ) 29.2 36.6

Total 62.5 83.0 75.1 60.0

/a Report of the "Comit6 Alg6rien de 1'Energie" prepared under theaegis of MEICP for the 3rd Arab Conference on Energy (May 1985).

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7.54 The two above forecasts for 1990 differ essentially regardingprospects for natural gas. Crude oil output is likely to stagnate or evendecline in future years. Furthermore, condensate exports are projected toincrease substantially from 1985 to 1990 but this will depend on thedevelopment of new gas fields and the management of existing ones to maximizecondensates and LPG extraction from natural gas. At any rate, a target of18 million tons is not out of reach for condensates production since thereappear to be good marketing prospects. As regards LPG, with substantialinvestments nearly completed at Hassi R'Mel aa.d Arzew, LPG exports havealready reached about 2.5 mtoe in 1986 and should amount to some 3 mtoe by1988-1990. As regards natural gas exports prospects, much will depend onfuture pricing policies, petroleum supply/demand balances on internationalmarkets, as explained below, and on the importance, from the purchaser'sviewpoint, given to considerations of supply security.

1. Liquefied Natural Gas (LNG) Exports

7.55 LNG exports have evolved as follows since 1980:

Table VII.8:EXPORTS OF LNG BY COUNTRY OF DESTINATION(In thousands of cubic meters per year)

1980 1983 1985 1990(forecast)

Britain 1,315 - - -France 3,432 13,133 13,054 139000Spain 2,015 2,665 2,703 3*000United States 3,835 5,957 970 -Belgium - 4,173 4,215 6,600

Total 10,597 25,928 20,942 22,600

Equivalent natural gas(million cubic meters) 6,623 16,205 12,628 13,560

Source: MEICP and mission estimates for 1990.

7.56 The above table shows the drastic decline of exports to the US marketsince 1983 as a result of excess gas deliverability on that market combinedwith increased supplies from Canada at lower prices, the gradual deregulationof wellhead prices and market mechanism, and the appearance of spot gas. As aresult, US importers have found it impossible to "roll in" higher costAlgerian LNG in their supplies and maintain their market share, and theydenounced their contracts with Algeria. However, Algerian LNG is likely toreappear on the American market following the recent signing of a contractbetween the American natural gas company, Panhandle, and SONATRACH, accordingto which up to 100 billion m would be delivered during 20 years, i.e. onaverage 5 billion m3 p.a.. The price of gas will be indexed to the selling

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price on the American gas market with a floor allowing SONATRACH to offset themarginal cost rather than total capital costs. The contract will satisfy bothPanhandle's desire to sell their gas profitably and SONATRACH's desire tore-enter the American market. In parallel, Algeria may wish to make spotsales to the US where its former customer, Boston's Distrigas, boughtIndonesia's recent spot cargo.

7.57 In contrast to the US, sales to the French Gas Board (GDF) havereached a high level in 1983-85. As regards pricing, falling values fornetback crudes have lowered the third quarter 1986 f.o.b. negotiated price ofAlgerian LNG to France (and also Belgium and Spain) to US$2.32 per million BTUcompared to US$3.81 before April 1986.

7.58 Distrigaz's (Belgium) main difficulty stemmed from falling demand.Exports to Belgium reached 2.5 billion cubic meters (i.e. 4.2 million cubicmeters of LNG per year) in 1985 and would amount to 3 billion cubic meters in1986-87. Although Distrigaz has not been able to sign a new contract withSONATRACH, it will continue to buy Algerian gas to supply its new terminal inZeebrugge at a provisional price, based on the official selling prices of abasket of eight different crude oils (US$1.97 per million BTU during thesecond quarter of 1987).

7.59 Sales to Spain's Enagas amounted to 1.6 billion cubic meters in 1985(2.7 million cubic meters of LNG), much below what was contracted under a 1973agreement. According to a settlement reached in 1985, Spain will take 1.5billion cubic meters in the first three years, increasing to 3.8 billion atthe end of the contract in 2004. Enagas pays about the same price obtained byFrance and Belgium (US$2.32 per million BTU in July-September 1986).

7.60 Faced with tumbling revenues and idle capacity, Sonatrach isbeginning spot sales to Gaz de France and German Ruhrgas under recently signedcontracts that provide considerable discounts below long term prices.Deliveries started in November 1986 and will continue through the wintermonths. The volumes are small but not negligible, possibly about 250 millioncu.bic meters of liquefied natural gas for each of the two above companies overa three month contract period. The spot price, f.o.b. Algeria, is believedlow enough to lead to a regasified border price for both customers of underUS$2/million BTU. The fourth quarter 1986 contract f.o.b. price for AlgerianLNG to France, Belgium and Spain was some US$1.95 per million BTU withtransport and regasification to France and Spain an added 50 cents giving atotal US$2.45 price.l'

B. Piped Natural Gas Exports

7.61 Piped gas exports began mid-1983 with first flows through theTrans-Mediterranean pipeline to Italy. Italy's SNAM (ENI) contract signed in1983 called for it to lift 12.4 billion cubic meters. Exports amounted to

1/ Transport and regasification to Belgium amount to more than US$1.00.

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about 7 billion in 1985 and may well reach 12 billion in 1990 based on recentagreerents between the two countries. Regarding price, Italy, with pipelinegas, had a better deal than European countries buying LNG. Its price f.o.b.Algerian border was 362 lower than for LNG, or US$3.46 for the third quarterof 1985. This contract allows more flexible conditions for deliveries andincludes indexed prices.

7.62 Assuming that Italy (and perhaps Yugoslavia) could purchase about 12billion cubic meters in 1990 compared to about 7 billion in 1985, and that LNGexports would amount to 22.6 million cubic meters (i.e. 13.6 billion cubicmeters of natural gas) total gas exports would reach 25.6 billion in 1990.This is somewhat lower than the 29.2 billion cubic meters forecast (paragraph7.53) but reflects severe marketing problems and the renegotiation of LNGcontracts at a much lower level. It is to be noted that initial contractssigned by Algeria amounted to about 40 billion cubic meters per year. Thishas now been reduced to about 26 billion. In this context, aggressiveSonatrach marketing policies (including those implemented through low gasprices) may lead to higher exports through spot sales, including the USmarket. Spot deals are a rarity in LNG trade, and it is still too early totell if this market has a new field. But everything possible should be doneto increase present low capacity utilization rate of LNG plants.

7.63 In the longer run, the Western European market is projected torequire substantial quantities of gas imports by 2000. The major developmentwithin the region is expected to be production from the Troll and possiblySleipner or Temmeliten fields, offshore Norway. Since some of the existingcontracts will gradually expire through the 1990s, it is anticipated that apart of the projected shortfall in 2000 will be supplied by Algeria and theUSSR. The enormous natural gas reserves and the existing pipeline capacitiesto Western Europe would ensure the continued availability of at least60 billion cubic meters from the USSR. The doubling of the Trans-Mediterraneanpipeline capacity (from 12 to 24 billion cubic meters) and the LNG contracts(from 14 to 28 billion cubic meters) could provide around 54 billion cubicmeters/year of Algerian gas. Subject to the supply security considerations(implying Europe giving preference to more expensive Norwegian gas), a shorthaul supplier, such as Algeria, will be suitably positioned to forestall newprojects with flexible pricing policies. Algeria has already shown itsability to change its policy since the heady days of 1980-81. Not only hasAlgeria shelved the idea of f.o.b. crude oil price indexed, it has alsodemonstrated recently a more flexible attitude toward gas customers.

G. Investments in the Hydrocarbon Sector

7.64 Investments in the hydrocarbon sector amounted to about DA 49 billionin 1980-84 (at current prices) out of which DA 44 billion for Sonatrach. Only75% of planned investment allocations were actually spent mainly due to delaysin implementing projects. Major investments completed or started in 1980-84included a new gas liquefaction plant (GNL2), the modernization of an oldergas liquefaction unit (GL4) and the "Jumbo" LPG plant at Arzew.

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7.65 The 1985-89 plan shows investments of DA 39.8 billion, 20S lower thanactual investments in 1980-84 and even less when allowance is made forinflation. However, this is to be expected when considering that considerablebasic investments (field development, pipelines, gas liquefaction plants) havealready been achieved. However, about one-third of projected investments in1985-87 is still for completion of ongoing projects. The latter particularlyare important for Sonatrach, which still has a backlog of projects which couldnot be completed during the previous Plan period because of various delays andphysical bottlenecks in implementing authorized projects. Only DA 44 billionwere actually spent by Sonatrach in 1980-84 compared to 64 billion originallyplanned for that period.

Table VII.9:PLANNED INVESTMENTS IN THE HYDROCARBON SECTOR

(1985-89)

Investment AuthorizedCost Expenditure

I. New Projects:Sonatrach

(exploration, production, pipelines) 20,508 19,083Naftal(refining, storage & distribution) 6,110 5,192Petroleum Services(seismic, drilling, etc.) 2,630 2,300Total 29,248 26,575

II. Ongoing Projects: n.a. 13,235

III. Total I & II n.a. 39,810

Source: Ministry of Planning.

7.66 Due to financial constraints as a result of lower oil and gasprices and reduced cash flow, Sonatrach may have to slow down investmentssubstantially unless alternative financial resources can be mobilized. Sincepriority is likely to be given to completion of ongoing projects (35% of totalSonatrach investments of DA 30.9 billion planned for 1985-89) resources fornew projects may have to be reduced, thus endangering vital exploration,development and transportation programs.

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7.67 Sonatrach's ongoing investments for the period 1985-89 include(a) The completion of two LPG extraction units at Hasi R'Mel (each unit has a1.1 million ton capacity). LPG is sent to Arsew in the "Jumbo" 4 million tonplant where it is separated into butane and propane and exported (only 202 ofArzew output is delivered to the domestic market). These two LPG extractionunits were completed in September 1986. (b) The completion of the secondTrans-Mediterranean 48-inch gas pipeline from Hassi R'Mel to Italy (G02) witha capacity of 8.3 billion cubic meters per annum. Construction started in1985 and is expected to be completed in 1988. (c) The completion of RhourdeNouss and Alrar pipeline via Tin Fouye and Hassi Messaoud to Hassi R'Mel. Thenew line will also carry gas from Rhourde Nouss, served by a gas treatmentfacility due to be completed in 1987. As a result of this ongoing project,LPG production is likely to be increased by 1988.

7.68 Sonatrach's own planned investments amount to DA 19.1 billion for1985-89, as shown in the table below:

Tabla VII.10SONATRACH'S NEW INVESTMENT PROGRAM (198S-89)

(In millions of Algerian dinars)

Authorized /AProject Cost Expenditure

Exploration 6,000 6,000Petroleum Development

a. Development Projects 9,230 8,320b. Social Infrastrucicre Linked

to Petroleum Development /1 4A6 460Subtotal 9,690 8.889

Gas Developmenta. Gas Fields Development 1.750 1,600b. Preliminary Studies for

Secondary Recovery IllpalDSubtotal 1.860 1.700

TransportationReplacement of Haoud El Hanra-Skikda340 Oil Pipeline (northern part) 1.200 1,145

Renewals and Improvements(pipes and compression stations) 560 42Q

Subtotal 1,760 1,635

Gas LiquefactionRenewal of Liquefaction Plants 380 320Debottlenecking Liquefaction Plants 510 340Investment in GL2Z Liquefaction Plant 48 48Subtotal 938 708

OtherLaboratory Renewal and Improvement 20 20New Laboratories 40 30Orilling Equipment 2QQ lABSubtotal 260 250

Total 7ncn1 15LA

/A Difference between project cost and authorized expenditure is to be spentafter 1989.

/b Housing. medical centers, recreation centers. etc.

61366/p19

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7.69 Investments are concentrated in four main areas: exploration, oiland gas development, pipelines and gas liquefaction. Planned investments inexploration amount to DA 6 billion against DA 4 billion achieved in 1980-84.In 1985-86, there were about 27 exploration drilling rigs in activity, mostlyat Adrar and at In-Salah (gas exploration). This equipment was utilized for atotal of 270 months/machine, on the basis of an average 80% capacityutilization in 1985-86. Exploration drilling averaged only about 80,000meters in both 1985 and 1986. For 1987 and beyond, drilling programs may bereduced due to Sonatrach's insufficient financial resources, resulting inlower orders placed with the two government-owned exploration companies,Enafor and Entp. Exploration drilling is costly because of difficult terrainconditions: a drilling operation is estimated to cost US$15 million in theErg areas and US$10 million at Adrar.I/ Many zones are still totallyunknown, and even in areas which have already been explored, new reserves maybe identified with up-to-date, modern exploration technologies. The maindifficulty is the high exploration cost resulting in a major financing problemfor Sonatrach. Despite the fact that the ratio of production wells to totalnumber of wells drilled is relatively satisfactory by international standards,these wells are in very remote desertic areas and often costly. For instance,ENAFOR experts estimate that the Adrar oil discovery might be exploited onlyshould the price of oil increase to US$100 per barrel. As explained inparagraph 7.07, recently passed new legislation may induce foreign oilcompanies to increase activities in Algeria since royalties and profit taxeshave been reduced when exploration is undertaken in certain geographic areasof the country. The new petroleum legislation has still to be made effectivesince detailed decrees have not been issued yet (they should be issued at theend of June 1987). But preliminary reactions from oil companies shouldalready be sought since an enhanced exploration program is vital to at leastmaintain Algeria's declining hydrocarbon reserves at their present level.

7.70 Oil and gas development expenditures amount to 55% of total plannednew investments in 1985-89. The largest part of development programs isdevoted to petroleum (DA 8.9 billion or about US$1.9 billion) while gasdevelopment is allocated DA 1.7 billion or US$0.4 billion. Investments inpetroleum include two new compression stations at Hassi Messaoud which willstart production in January 1987. These stations will be added to the fiveexisting stations and will increase the volume of gas separated from oil2'and reinjected to maintain field pressure. This has the effect of furtherreducing flared gas, now already only 22 of total associated gas produced.

7.71 Other petroleum investments include renewals and replacement of agingequipment in a number of fields. More than 50% of investments aim atdeveloping oil gathering networks from producing wells and at bringing gas orwater to oil wells for reinjection.

7.72 Gas fields development aims at keeping the pressure at an optimumlevel in producing fields, decreasing the proportion of flared gas and atincreasing liquid recovery (condensates and LPG). No major new investment is

1/ Oil has been discovered by Sonatrach at Adrar in 1985 (130 cubicmeters/day of 43 gravity crude with the wildcat Touat 1 from 550 meters).

2/ There are 12 gas separation stations at Hassi Messaoud.

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anticipated at Hassi R'Mel, where two LPG extraction units were completed inSeptember 1986 (ongoing projects). Sonatrach's development strategy is tofurther develop non-associated gas fields south of Hassi Messaoud such asRhourde Nouss, Tin Fouye, In Amenas, Alrar and also Oued Noumer, southeast ofHassi R'Mel. In the longer term, i.e. after 1989, the new In-Salah gas fieldsmay also be developed depending on marketing requirements (includingreinjection). Such gas development projects aim at making gas available forreinjection in oil fields. For instance, Hassi Messaoud would require11 billion cubic meters of gas by 1989 (for an oil production maintained atthe 1985 level of about 19 million tons) as against 6 billions reinjected in1986 and this just to keep the pressure needed to reach the requiredproduction of 19 million tons of oil.

7.73 Ac regards liquid recovery (condensates and LPG), a significantincrease in such liquid production would compensate for a likely decline incrude production in the near future, partly for conservation reasons since nosignificant discovery has been made in recent years. Condensates and LPGare not covered by OPEC quotas and there is a market for such products,although LPG may prove to be increasingly subjected to keen internationalcompetition.-" At any rate, increased gas production in the new fieldssouth of Hassi Messaoud would result in higher liquid recovery (which isexportable and a source of foreign exchange, compensating for falling crudeoil foreign exchange resources) and would provide gas available for reinjectionin oil and gas fields where it is needed. A major objective of the 1985-89Plan is to optimize gas production in the south, taking into account maximumliquid recovery and optimum technical and economic requirements for gasreinjection. New gas development investments in 1987-89 aim at completingprojects already undertaken such as at Rhourde Nouss and Alrar and economicallyuse Algeria's ample gas resources.

7.74 Sonatrach's planned new investments in pipelines amount to DA1.6 billion or about US$350 million. The most important project is by far thereplacement of the 38" oil pipeline (northern section) from Haoud El Hamra toSkikda (where oil is used in a 15 million ton refinery which exports 851 ofits production). The original pipeline was installed in the seventies butalways experienced technical problems and has to be replaced to fill a vitalneed to supply oil to the giant Skikda refinery. Other investments, amountingto about DA 0.5 billion, include pipe renewals and rehabilitation ofcompression stations and other equipment. It is generally expected thatreplacement and rehabilitation of machinery and equipment will become agrowing financial burden since a number of investments were undertaken in thesixties (pipelines,-' refineries, production wells, compression stations,drilling equipment, etc.).

1/ Algeria's capacity is 5 million tons (including the 4 MT Jumbo plant andthe smaller RA2Z MT at Arzew) while total world internationally tradedproduction is only 20 million tons (including 8 million tons for SaudiArabia and the rest for Kuwait and Indonesia).

2/ The first 24" gas pipeline was built between Hassi R'Mel and Arzew in1964; the first 28" oil pipeline from Hassi Messaoud to Arzew (forrefining and export of crude) was built in 1965. The oil pipeline betweenHassi Messaoud and Bejaia was built in 1959.

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7.75 The last large category of investments covers natural gas liquefactionunits. These amount to DA 0.7 billion, divided between modernization andreplacement of machinery at Arzew liquefaction plants,-/ debottlenecking atthe same plants and special renewals and new installations (such as a heliumrecovery unit) at the GNL2 plant. Large maintenance expenditures (required tokeep in shape plants now working at very low utilization rates) are likely torepresent an increasingly heavy financial burden for Sonatrach in the next fewyears.

7.76 Actual investments by Sonatrach amuounted to about DA 5 billion in1985 and DA 6 billion in 1986. For 1987, 7 billion have been requested and nocutback in planned investments has been assumed since hydrocarbons areconsidered a priority sector. To reach Sonatrach's Plan target ofDA 31 billion in 1985-89, about DA 7 billion would also have to be investedannually in 1988 and 1989. However, the question is whether Sonatrach's cashflow, which has already decreased by some 20b in 1986 compared to 1984-85 andmay decrease further in 1987-89, will be sufficient to cover anticipatedexpenditures. Government fund allocations may also be insufficient tocompensate for Sonatrach's shortfall in resources. Sonatrach's borrowingability on international markets has been reduced since the drastic fall in oilprices in 1985-86 and fresh money could be obtained only at tougher terms(higher interest rate and shorter maturities, i.e. 6 to 7 years). Given theunfavorable international financing perspectives for the energy sector, otheralternative financial resources may be investigated by the Algerian authoritiesincluding multilateral assistance.

7.77 Total planned investments in refining, storage and distributionamount to DA 6.8 billion, of which DA 5.2 billion are for new investments byNaftal, a state-owned company established in 1980 when it has been decidedthat Sonatrach's activities would be restricted to exploration, production andtransport. New investments include DA 1 billion for a new reforming unit atthe Skikda refinery and DA 4.2 billion for investments in new storagefacilities, LPG and multiproduct pipelines, workshops, conditioning centersand service stations. As indicated above (para. 7.38), there are still doubtsabout the need for a refining unit located at Skikda. One objective of thisproject is to increase aromatics production (benzene, toluene, xylene andparaoxylene) for export. Such production has risen from nil in 1982 to 50,000tons in 1983 and to 140,000 tons in 1985. The existing reforming unit has a1.1 million ton annual capacity which is almost fully utilized to produce botharomatics and gasoline. -/ To increase aromatics exports, it has been

1/ Substantial investments already took place in 1980-85 at the old GLN4plant (the former CAMEL) consisting of an additional steam plant, threenew turbo generators (18 MW each), interconnection with Sonelgaz, newcompressors, etc. Storage capacity will soon be increased.

2/ Gasoline production at Skikda was 858,000 tons in 1985, requiring aprocessing capacity equivalent to 830,000 tons. Twenty percent of theproduction came from topping and 80% from reforming, i.e. 690,000 tons.Adding 140,000 tons aromatics production led to total output of830,000 tons or about 930,000 tons processing capacity equivalent,close to the existing 1.1 million tons.

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proposed to set up a new one million ton reforming unit which would alsoproduce about 600,000 tons gasoline for the domestic market. Total gasolineconsumption rose from 584,000 tons in 1975 to 1,830,000 tons in 1985. The newunit, which would take about 18 months to complete, would result in asignificant increase in gasoline production availability. This has raised anumber of questions within Naftal and the Ministry of Energy regarding futuredemand growth for gasoline, substitution possibilities by LPG and diesel andalso the competitive advantage of concentrating new gasoline capacity inSkikda vis-a-vis Algiers and Arzew refineries. Further studies have beenrequested for this project, which has not yet been approved formally. Thisrepresents an interesting trend for energy projects in Algeria which appear tobe increasingly scrutinized by the Ministry of Energy, the latter insisting ona thorough economic, financial and technical evaluation of project meritsbefore proceeding to implementation.

7.78 As indicated earlier (see Table VII.9), new investments are dividedinto three main groups: Sonatrach, Naftal and petroleum service companies.Petroleum services are provided by several state-owned companies set up in1981-82 after Sonatrach was restructured. Activities largely previouslyperformed by Sonatrach were transferred to these new companies. They areENAGEO (geophysics), ENAFOR (drilling), ENTP (drilling), and ENSP (wellsservicing). Other companies are ENEP (petroleum engineering), ENGCB (drillingplatforms, infrastructure, buildings), ENGTP (petroleum works) and ENAC(pipeline laying)."'

7.79 Total planned investments for petroleum services amount toDA 3.2 billion, of which DA 2.3 billion are for new investmentexpenditures. 2/ Investments are divided between four companies: ENAGEO(DA 0.2 billion), ENAFOR (DA 0.4 billion); ENTP (DA 1.2 billion) and ENSP(DA 0.5 billion).

7.80 ENAGEO was formed in January 1982 through integrating the formerAlgeo Company created in 1966 with Teledyne US (491) and Sonatrach (51%) withpart of Sonatrach's Geophysical Department. ENAGEO offices have been locatedat Hassi Messaoud only since September 1983 to be closer to operations. Totalstaff is 2,600, of which 501 is permanent. ENAGEO undertakes seismicactivities in the field and is responsible for interpretation of the results.Eighty percent of ENAGEO's business comes through Sonatrach contracts. Thetwo-year 1985/86 Sonatrach contract amounted to DA 560 million to which wereadded about DA 60 million in contracts with foreign companies (Agip, Braspeto,Yugoslavs) in 1986, but the latter contracts fell to nil in 1986. Until 1982,seismic activities were relatively important but have regularly and slowlydeclined since then. ENAGEO's management claims that existing means inpersonnel and equipment (600 trucks) are sufficient to easily meet Sonatrach'sneeds, should the latter increase by 25% or more. ENAGEO cooperates closelywith Sonatrach's Exploration Department, which supervises seismic operationsand still undertakes geological activities on its own. In 1982, ENAGEO was

1/ Another company (KANAGHAZ) specializes in secondary smaller pipelinelaying for Sonelgaz.

2/ Planned expenditures; total new investment is estimated at DA 2.63 billion.

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not initially profitable since Sonatrach did not include in its internal coststhose labor costs which were accounted for somewhere else in Sonatrach. Since1983, ENAGEO has become profitable by consolidating the beneficial formerAlgeo activities with Sonatrach's seismic operations. Since 1982, investmentshave been mainly for replacement of equipment. In 1985-89, investments willbe half for new maintenance installations and half for renewals (trucks,laboratories). The main issue for ENAGEO is how to diversify from limitedseismic activities financed by Sonatrach. Already ENAGEO undertakes land andsoil surveys as well as water drilling for the Wilayas and private customers.Twenty percent of ENAGEO business comes from such activities. There are plansto further diversify through geophysical operations (magnetometry, gravimetry,etc.) for mining companies such as ENREM, which specializes in miningexploration. It thus appears that, after initial difficulties (financiallosses, need to merge Algeo and Sonatrach seismic activities, location inAlgiers remote from operations in the south), ENAGEO performance hasimproved. A feeling of growing autonomy from Sonatrach and the need not torely excessively in erratic seismic operations should lead ENAGEO tosuccessfully pursue its diversification efforts in Algeria and perhaps inother African countries.

7.81 ENAFOR and ENTP are the two state owned companies responsible,respectively, for exploration and development drilling since 1982. They wereset up at the time Sonatrach was restructured, and it was decided todecentralize drilling operations. ENAFOR was created in August 1982 and tookover ALFOR activities. ALFOR was set up in 1966 by Sedco (Dallas) US (49%)and Sonatrach (51%) for a period of 15 years. ALFOR was a very profitablecompany with 10 drilling machines. In 1982, ENAFOR inherited from thisequipment to which were added 12 machines provided by Sonatrach. Today, thereare 26 drilling machines, and the staff has increased from 2,600 to 3,000.Staff has been transferred from Algiers to Hassi Messaoud, closer tooperations.

7.82 There are two reasons for having two government-owned drillingcompanies. First, there were already, i.e. before 1982, two organizations:ALFOR, which became ENAFOR, and Sonatrach's Petroleum Works Department, whichbecame ENTP (see below) in 1982. The Petroleum Works Department (DTP) owned122 drilling machines ' and suffered from management problems with a staffof 13,000 dealing with geophysical activities, drilling, civil engineering,wells maintenance and workover, etc. It was thus decided in 1981 to divideSonatrach activities into various autonomous activities and co set up ENTP.At any rate, ENTP management staff came from Sonatrach with a view ofmanagement different from those of ENAFOR's staff, and it seemed difficult tomerge the two. In fact, ENAFOR and ENTP are not really in competition sinceSonatrach is their only client and divides contracts according to the twocompanies' technical capabilities (number of machines, staff, etc.).

7.83 ENAFOR undertakes exploration' and development drilling as well asworkover and well maintenance. Twenty machines are used for drilling, fivefor workover and one for drilling water wells as part of exploration

1/ Eighty owned by DTP, 12 given by Sonatrach to ALFOR and 30 left by foreigncoutractors after 1980.

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programs. Since 1982, about 100,000 meters have been drilled on average ofwhich 2/3 for development and 1/3 for exploration. Drilling is taking placeat Alrar, Adrar,1' In-Salah, Hassi R'Mel, Hassi Messaoud and Berkaoui (nearOuargla). ENAFOR's planned expenditures in 1985-89 amount to DA 400 million.Its 20 drilling machines are used about 10 months/year on average and on thatbasis wexe fully occupied in 1985 and 1986 (40% exploration, 60% development).Activities for 1987 and beyond will depend on Sonatrach's financial resourcesto renew drilling contracts. The other main problems are maintenance of largetrucks (lack of spares and of qualified staff) and high personnel turnover inthe south (at least 202).

7.84 ENTP (Entreprise Nationale de Travaux Petroliers) started operationsonly in 1983 after difficult decisions had to be taken in 1981-82 on how toreorganize the former huge Sonatrach Petroleum Works Department (DTP). ENTPheadquarters and staff were moved to Hassi Messaoud in 1983-84 and availableequipment had to be drastically reduced. The DTP owned 92 machines in 1982,but 10 had to be discarded in 1984, 12 Romanian machines had to be put onstandby due to technical problems while 8 machines in good condition were alsoset aside since not needed, given the limited drilling volume. In 1986, ENTPhad 62 machines in working order2' (32 for development drilling, 17 forexploration drilling, 7 for workover, 6 for drilling water wells). Developmentactivities are taking place at Rhourde Adra, Hamra, Gassi Touil, Tin Fouye,Berkaoui, Hassi Messaoud and Ben Noumer. Exploration work takes place atIn-Salah (gas) and Adrar. Workover is mainly at Rhourde Nouss and Zarzaitine.

7.85 ENTP drilled 140,000 meters in 1985 and about 130,000 meters in 1986.In 1987, drilling activities may remain at the 1986 level. Such drillingprograms do not allow ENTP to make profits. Drilling tariffs are set bySonatrach at U3S$11-13,000 per day of drilling. ENTP complains about these lowrates, particularly since old equipment (most recent machines are 10 yearsold) results in productivity 10 to 20% below normal (in meters/month/drillingmachine).3/ Other reasons for high costs (and resulting losses) areoverstaffing (although staff was reduced from 9,500 in 1983 to 8,300 in 1986)compared to ENAFOR (3,000 persons), the need to open new drilling bases and toclose older ones (such as Rhourde Nouss in 1987, where development is beingcompleted). Finally, ENTP has inherited losses suffered by Sonatrach's DTEbefore 1983 and since then has incurred continuous losses.

7.86 ENTP's productivity is probably not much higher than that of theformer DTP. ENTP has inherited rather old DTP drilling equipment andinsufficient transportation means (20 large trucks had to be purchased in1985) through bank advances. While ENAFOR is financially autonomous, ENTP isin a poor financial situation and will probably have to be restructured to begiven the medns to progressively improve a presently difficult situation.

1/ Exploration drilling.2/ However, since tthey are used only 10 months per annum, this in only

equivalent to 50 machines available all year round.3/ This results in high maintenance costs aggravated by the diversified

origin of ENTP equipment (US, Russian, Romanian, etc.).

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H. Summary of Issues

7.87 A number of issues have been mentioned above. They can be summarizedas follows.

Exploration

7.88 Algeria, in integrating its exploration strategy, reeds to stressformation of joint ventures. In this context, the National Assembly's newpetroleum legislation is essential, and preliminary reactions from foreign oilcompanies regarding chances to speed exploration would be interesting toanalyze. Further, there is a need to intensify exploration in selected areasand to upgrade the technology used. Although important, such efforts havelagged in the past (however, it must be noted that physical conditions areparticularly severe in Algeria). Finally, not only should planned investmentsbe maintained, they should be increased, despite Sonatrach's severe financialconstraints.

Gas Development

7.89 The new fields south of Hassi R'Mel have to be developed in such away that gas production and condensates as well as LPG extraction areoptimized and hydrocarbons conserved, especially through gas reinjection.Such development is already under way but has to be pursued during the nextfsew years. External assistance could be critical in helping the Algerianauthorities finance an integrated gas development project.

I tan poAtion

7.90 There is a growing need to rehabilitate and/or replace pipelineswhich were built in Sonatrach's earlier years. One is the 38-inch pipe (fromHaoud el Hamra near Hassi Messaoud to Skikda) which had structuraldeficiencies from its and needs to be replaced. The main justification ofthis pipeline rehabilitation is the need to maintain the oil production flowfrom Hassi Messaoud to supply the Skikda refinery and for crude exports.

Rehabitation and Maintenane

7.91 Rehabilitation and maintenance investments are becoming increasinglyimportant at all stages of the oil industry (drilling equipment, workover ofwells, pipes, gas liquefaction plants, workshops, etc.). The share ofinvestments in total planned expenditures is growing and will requireadditional resources.

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LNG and Piped Gas Exots

7.92 Sonatrach needs to continue efforts to adapt LNG and piped gas pricesto existing market requirements and explore new markets. Expanded "spot" gassales may also represent a promising market for additional gas exports. Ifthe low capacity utilization in capital intensive LNG installations is to beraised in a difficult market environment, maximum flexibility is required tomaximize sales.

bstitutionai Aspects

7.93 Thirteen new companies, set up after Sonatrach's 1981 reorganization,provide Sonatrach with services (drilling, wells servicing, pipelinesmaintenance and construction, etc.) and engineering. Their numerousdifficulties have caused lags in vital exploration and development activities.Although the situation has improved since 1981, there are still problems whichdeserve further analysis.

Impact of Lower Oil and Gas Prices

7.94 Due to falling resources both for petroleum companies (Sonatrach, thepetroleum distribution company Naftal, and the petroleum services corporations)and for the Government, critical energy investments are being threatened.Objectives and investments included in the Plan were based on much higherpetroleum prices than those prevailing today, so the impact of lower prices onthe Algerian economy must be assessed by comparing previous forecasts to newones with new price projections.1' This obviously also applies to theenergy sector, which provides 98% of exports and which is directly affectedthrough reduced profitability at various levels (exploration, production,transport, distribution) and through changing export levels. An assessment,though delicate, must be made of the impact on the sector and its implicationsfor a "nlew" energy policy.

7.95 These issues and other more detailed problems outlined in theattached report will be discussed further during the proposed identificationmission and subsequent missions to be carried out in the Algerian hydrocarbonssector during 1987.

1/ An US$18/barrel crude oil price has been assumed by Algerian plannersfor 1987.

576BS

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CHAPTER Vm - THE ELECTRICITY SUBSECTOR

A. Introduction

1. The Sector

8.01 Virtually all of Algeria's final consumption of energy is in the formof locally produced petroleum products, natural gas or electricity. Inaddition, natural gas is the primary fuel for nearly 902 of electricitygeneration. Directly or indirectly, natural gas is the dominant source ofprimary energy for all economic sectors other than transport. A government-owned utility, Societe nationale de l'electricite et du gaz (SONELGAZ),exercises a monopoly over public electricity sales and natural gas sales toall consumers other than the companies created by the dismemberment ofSONATRACH. Several major industries generate all or a part of their ownelectricity requirements; others maintain their own standby capacity. Thefour main entities operating in the domestic energy market are thereforeSONELGAZ and the industrial autogenerators of electricity (the subject of thischapter), and SONATRACH and NAFTAL (Chapter VII: Hydrocarbons). Electricityaccounts for 70-75S of SONELGAZ activity both in terms of sales revenue andinvestment expenditure. Natural gas revenue and investment both remained ataround 132 of total activity during the 1980-84 Plan; however investment ingas is projected to rise substantially (to 182, Table VIII.20 in Annex II)over the course of the current Plan.

8.02 The Ministry of Energy and Chemical and Petrochemical Industries(MEICP) is responsible for energy policy and supervision of public enterprisesin the energy sector. At the Third Arab Energy Conference (Algiers, May 1985),the main objectives of the Government's domestic energy policy were describedas follows: (a) to ensure that electricity, gas and petroleum products arereliably available wherever they are needed; (b) to replace domesticconsumption of petroleum products with natural gas or LPG wherever possible,in order to maximize the exportable surplus of petroleum; (c) to encouragedirect use of gas by limiting electricity consumption to non-substitutableuses and off-peak thermal applications that improve the power utility's loadcurve; and (d) to conserve national petroleum and natural gas resources bypromoting efficient use of energy. The Government intends to promote thispattern of energy consumption by a combination of gradual adjustment ofrelative energy prices and direct regulatory intervention. A new agency hasjust been created within the Ministry of Energy to promote rational andefficient use of energy.

8.03 Electricity Consumption. Public electricity consumption (TablesVIII.4 and VIII.5, Annex II) is concentrated in the northern interconnectedsystem (882 of total sales in 1984), and is evenly distributed between thethree major voltage levels. As a result of Algeria's emphasis on developmentof heavy industry, the proportion of consumption at high voltage (HV) andmedium voltage (MV) is unusually high in relation to other countries atsimilar income levels. More than 802 of high voltage consumption occurs inthree economic sectors (Table VIII.6, Annex II) - petroleum operations, steeland related industries, and construction materials (mainly cement andbricks). In 1984 the six largest customers accounted for 45% of total HV

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consumption. Medium voltage consumption is more evenly spread over a widerange of light industries and services (Table VIII.7, Annex II). The typicallow voltage consumer is a household (using electricity for lighting, arefrigerator and a television) or a government office; the latter accountedfor about 14% of total LV consumption in 1984 (Table VIII.9, Annex II). Thenumber of consumers in the "ordinary LV"1 category is growing rapidly as aresult of a vigorous rural electrification program (ER: electrificationrurale) and a program of new connections in existing distribution areas (RCN:raccordement de la clientele nouvelle).

8.04 Natural Gas Consumption. SONATRACH uses gas directly for oilfieldoperations and sells gas to SONELGAZ and a number of other public enterprises-- all ex-members of the SONATRACH group. More than half of SONELGAZ's gaspurchases (562 in 1984, Tables VIII.15 and VIII.16, Annex II) are consumed inthermal power plants; the balance is sold at high pressure to large industrialconsumers (27%) or sold through SONELGAZ distribution systems (17%), mainly atlow pressure to households. Statistics on natural gas consumption by economicsector are not routinely available. However a listing of SONELGAZ's teulargest (of 126) high pressure customers in 1984 indicates that the El Hadjariron and steel complex by itself accounted for 24Z of high pressure sales;nine cement plants then accounted for a further 402. The rate of consumptionof low pressure gas is about four times as high in the winter as in thesummer. Space heating and water heating appear to account for the bulk of lowpressure consumption.

8.05 Electricity Generation. The SONELGAZ electricity generation systemis dominated by gas-fired plant -- steam turbines on the coast and combustionturbines at inland sites. While their installed capacities are presentlyabout the same -- each had 44% of total capacity in 1984 (Table VIII.12,Annex II) -- the baseload steam plant provides a higher proportion of totalgeneration -- 542 in 1984, compared with 382 for combustion turbines(Table VIII.1, Annex II). Hydro energy makes a small contribution to the maininterconnected system and diesel plant is used for small loads in isolatedlocations. A significant proportion of total national generation (10.5% in1984) is directly generated and consumed by industry (Table VIII.3, Annex II).Three economic sectors account for 98% of autogenerated energy -- petroleumoperations, steel and related mechanical and electrical industries, andchemicals, rubber and plastics. The bulk of the primary energy for industrialautogeneration is supplied by natural gas, either directly or in combinationwith production of process heat. In all sectors other than steel and relatedindustries, annual utilization of installed power generation capacity is lessthan 35X. While part of this capacity is not intended to function asbaseload, some industries have been unable to maintain the full planned outputof their capacity. The costs of managing, operating and maintainingautogeneration capacity appear to have been under-estimated at the planningstage; now that the real value of SONELGAZ tariffs has been significantlyreduced by inflation since 1982, these industries have little incentive tomaintain their own plant in fully operational condition.

8.06 Energy Transmission and Distribution. The SONELGAZ electricitytransmission system consists of (a) a 220/60 kV interconnected network, withfour active links (at 90 kV and 150 kV) with Tunisia and an inactive 220 kV

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link with Morocco, and (b) two isolated grids in the south centered on the twomain oil and gas producing areas -- Hassi Messaoud and Hassi R'Mel.Electricity trade with Tunisia is not only confined to mutual support duringcapacity shortfallsI'; in 1984 net electricity imports reached a level of72 GwH (Table l, Attachment 1 in Annex II). The two main independent grids inthe south are to be connected to the main network in 1987.

8.07 SONATRACH's sales of natural gas are transported from the main gasproducing area at Hassi R'Mel along three axes towards the coast. The"center" pipeline serves only SONELGAZ, mainly for power generation and gasdistribution in the Algiers region. In anticipation of its additionalrequirements at Jijel and Skikda, SONELGAZ proposes to build and operate asecond pipeline over the eastern route. SONELGAZ purchases gas at a largenumber of points along the three axes and transports it to nearby towns fordistribution. In sparsely populated areas the SONELGAZ system is simply aseries of spurs; in the north an interconnected pipeline network covers mostof the area from the Moroccan to the Tunisian border. High and mediumpressure transmission accounts for most of SONELGAZ's investment in thenatural gas subsector.

2. Recent DeveloDpments

8.08 Energy Pricing Reform. One of the most important innovations in thedomestic energy sector during the course of the 1980-84 Plan was theintroduction of marginal cost pricing for 60-70b of electricity and naturalgas sales. The new system took effect in January 1982 for high and mediumvoltage consumers of electricity and high pressure consumers of natural gas.A trial application of the new system for LV and MP/LP was suspended; theprevious tariff system remains in effect for these consumers. The structureof the new tariff system provides very strong incentives to electricityconsumers to move their consumption out of peak periods where possible.However, no inflation adjustments have been allowed since 1982.

8.09 Public Enterprise Restructuring. During the previous Plan, the firststeps were taken towards a major restructuring of public enterprises in theenergy sector. An initial organizational reform was to be followed byfinancial restructuring of the enterprises concerned. While the mostsignificant organizational change was the "re-centering" of SONATRACH andSONELGAZ - divestiture of its peripheral activities -- was also an importantstep towards improved efficiency in the sector. In 1982 three new publicenterprises were created -- KAHRIF, KANAGHAZ and KAHRAKIB -- to take over anumber of non-core SONELGAZ activities. In 1983 the process was completedwith the creation of ETTERKIB, INERGA and AMC. KAHRIF initially tookresponsibility for about 80% of construction of new distribution systemsfinanced under the national electrification program (PNE); other companiestook over activities such as civil works and manufacturing of meters. In thelatter part of the Plan, implementation of the PNE fell below target. Delayson civil works were also widely cited as the main cause of late commissioning

1/ It is also used to postpone some investments, to anticipate theintroduction of additional power levels, to coordinate the maintenanceplans.

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of SONELGAZ's major projects. Implementation of the second phase of theoverall reform -- financial restructuring of SONELGAZ itself - is nowscheduled for 1987. The following elements are essential if the reform is tohave a lasting impact: (a) adoption of long term financial objectives,including self-financing of part of SONELGAZ s investment program, (b) anincrease in the equity base, for example by consolidating part of the existinglocal debt, and (c) introduction of an institutional mechanism to review andupdate tariffs in line with changes in financial and economic costs.

8.10 Foreign Exchange Bottlenecks. Problems related to the management ofAlgeria's scarce foreign exchange resources were severe and widespread In theenergy sector during the previous Plan. These problems are likely to becompounded by the recent collapse in oil prices. Key investment inputs suchas cement are often in short supply, since domestic cement plants areoperating well below capacity. Similar problems, such as lack of suitableimported equipment and spare parts, contribute to poor performance by localcontractors. The combination of these factors often results in delays of 6-24months on civil works for power stations, substations and transmission lines.In instances where SONELGAZ is authorized to import certain investment goodssuch as transformers, the delays in issuing the required approvals aresometimes so long that SONELGAZ resorts to buying in large lots and storingfor up to three years rather than risk the consequences of being out ofstock. Foreign exchange management needs to be made more flexible andresponsive to avoid the significant economic costs of delays on major projectsand excess stockholding of imported intermediate goods.

8.11 Response to Lower Oil Prices. The changes that took place in theinternational oil market in early 1986 have transformed the domestic energysector's planning environment. The most important impact is the vastlyincreased uncertainty about future load growth, for both electricity andnatural gas. The high and relatively predictable growth rates of the past canno longer be relied upon. A major effort is now required to developforecasting and investment planning systems that closely monitor changes ineconomic conditions and include explicit contingencies for uncertainty.Present arrangements do not provide SONELGAZ with the inputs of up-to-dateeconomic information that it now needs. The second major change to the energyplanning environment is the significantly reduced availability of investmentresources, particularly foreign exchange. Since early 1986, the Governmenthas been emphasizing the need to improve capacity utilization in existingindustrial plant, and to minimize the foreign exchange content of newinvestments. SONELGAZ's investment program is sensitive to these parameters,both in volume (pura. 8.23) and composition (para. 8.26). The main drivingforce to increase domestic energy prices during the present Plan will be theneed to generate additional investment resources for electricity and gasdevelopment. While the fall in international oil prices has directly reducedthe value of Algeria's energy exports, the impact on domestic energy costs ismuch more limited. Electricity and gas supply are very capital-intensive(para. 8.13); supply costs will be much more sensitive to changes in theexchange rate thar, to changes in the international value of natural gas.

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B. Energy Pricing and Demand Management

1. Economic SuDDlY Costs

8.12 The two principal resource inputs in the domestic energy sector arenatural gas and capital. The combination of abundant gas reserves, low gasproduction costs, and depressed conditions in international gas markets resultsin a very low economic cost for gas (based on the FOB price of natural gas) -in the range US$0.50 per million Btu (based on LNG netbacks corresponding tocrude prices of US$15-20/bbl) to US$1.50 per million Btu (assuming incrementalgas exports through a new Trans Mediterranean pipeline, with crude prices atUS$25/bbl). Even if oil and gas prices return to mid-1985 levels, the cost ofgas will remain a small proportion of the marginal cost of supplyingelectricity and gas to final consumers - in the order of 7-231 for low anldhigh voltage electricity consumers, respectively. The most important resourcein the domestic energy sector is capital, and in particular foreign exchange.The mission used available information to derive broad estimates of thepattern of marginal costs of electricity supply in 1986. A similar exerciseis needed to determine the current relationship between gas tariffs and theeconomic costs of gas supply - capacity and energy - at different pressurelevels and for each category of consumer.

8.13 Natural gas is the marginal fuel for electricity generation in allthree segments of the daily load curve -- peak, shoulder and night. Or, thebasis of the mission's broad range of economic costs for gas (para. 8.12),marginal fuel costs at the generation level are in the range 0.4 - 1.3 UScents/kWh. The approximate pattern of marginal capacity costs of generation,transmission and distribution is as follows (Table VIII.l). The band ofuncertainty surrounding the distribution estimates is very wide for tworeasons: (a) the allocation of projected distribution investment between MVand LV is not known, and (b) the marginal cost of LV distribution depends to alarge extent on the pattern of expenditure on rural electrification beyond thepresent 5-year planning horizon.

Table VIII.l:MARGINAL ELECTRICITY CAPACITY COSTS, 1986

Generation Transmission Distribution Total- -- (US$/kW/year) ----

At generation 100At HV 108 170 277At MV 121 183 288 592At LV 162 245 507 914

Source: mission estimates.

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8.14 When these costs are combined with estimates of peak-coincident loadfactors at the three consumer voltage levels the following pattern of economiccosts emerges (Table VIII.2). The most significant features of the coststructure are:

(a) the predominance of capital costs -- more than 90%;

(b) the high level of capacity costs at all voltage levels - exacerbatedat MV and LV by high distribution losses;

(c) the very high cost of low voltage supply, partly reflecting the highcost of completing the last part of the National ElectrificationProgram.

Table VIII.2:ECONOMIC COSTS OF ELECTRICITY SUPPLY, 1986

Energy Costs Capacity Costs Total Costs(natural gas) (capital)

(US cents/kWh) ---HV Consumers 0.5 - 1.4 4.3 4.8 - 5.7MV Consumers 0.5 - 1.5 9.9 10.5 - 11.4LV Consumers 0.6 - 1.8 18.3 18.9 - 20.1

Weighted Average 0.5 - 1.5 10.5 11.0 - 12.0(9%) (91%) (100X)

Source: Mission estimates.

2. Coison with Tariffs

8.15 The tariffs presently in effect are (a) a marginal cost tariff systemintroduced in 1982 for HV and MV consumers of electricity and HP consumers ofnatural gas, and (b) the old tariff system for LV consumers of electricity andMP/LP consumers of natural gas. The energy component of the new tariff appearsto have been based on SONATRACH's selling price rather than the economic valueof the gas in terms of exports or depletion. There have been no increases inelectricity or gas tariffs since 1982. Projected average selling prices ofelectricity and gas in 1986 are as follows (Table VIII.3); in the case ofelectricity a comparison with the mission's estimates of long run marginalcost is also presented. The comparison indicates that electricity tariffs arenow in the order of 50% of economic costs. SONELGAZ projections show that theaverage selling price to low voltage consumers would now be 52.8 cDA/kWh ifthe new tariff system were reintroduced for these consumers. This would raisethe ratio of tariffs to economic costs to 60S for LV consumers, and to 592 forthe weighted average for all consumers. For gas consumers, the most obviousdiscrepancy in the present price structure is the lack of differentiationbetween the prices of medium and low pressure gas.

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Table VIII.3:AVERAGE SELLING PRICES FOR ELECTRICITY AND NATURAL GAS, 1986

Electricity --- Natural GasTariff (cDA/kWh) Tariff/LRMC ' Tariff (cDA/thermie)HV: 16.3 731 HP: 1.07MV: 24.5 50% MP: 2.85LV: 39.8 452 LP: 2.87

Average: 26.4 51% 1.77

/a LRMC: long run marginal cost -- based on lower end of therange of estimates quoted in Table VIII.2, converted tocDA/kWh at the mid-1986 exchange rate.

Source: SONELGAZ, mission estimates.

8.16 The predominance of peaking capacity costs in electricity supply is amajor feature of the new electricity tariffs. Many of the tariffs offeredprovide very strong incentives to electricity consumers to shift theirconsumption from peak to off-peak periods (examples in Table VIII.4). Despitethe erosion of the real value of the tariffs by inflation, this structurecontinues to provide a satisfactory framework for major consumers to designprograms of energy demand management.

Table VIII.4:ELECTRICITY RATES: EXAMPLES OF TIME-OF-DAY DIFFERENTIALS (cDA/kWh)

Voltage Level Peak (P) Shoulder (S) Night (N) Ratio P/N

RV 36.6 7.6 3.3 11.1MV 47.4 10.5 5.6 8.5LV'S 58.5 15.4 8.7 6.7

Ia Application suspended.Source: SONELGAZ.

8.17 An institutional mechanism to review and update electricity and gastariffs in line with changes in economic and financial costs is urgentlyrequired. The immediate benefits of this mechanism will be: (a) to controlthe growth in domestic energy demand and the need to divert scarce investmentresources to meet that demand; (b) to mobilize additional investment resourcesdirectly from consumers; and (c) to ensure more efficient use of Algeria's

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principal primary energy resource -- natural gas. The remainder of the newtariff system should be phased in as part of the program to restore paritywith economic costs.

3. Demand Management

8.18 Since the introduction of the new tariffs, SONELGAZ has workedclosely with major electricity and gas consumers to assist them to plan demandmanagement programs that will take maximum advantage of the cost-cuttingpossibilities offered by the new tariffs. In general, the results have beendisappointing. Very little progress has been made in the cement industry, forexample. This industry accounts for approximately 63% of total high pressuregas sales and has considerable potential to reduce its energy costs by acombination of changes to operating procedures, and small, fast paybackinvestments. In many instances the measures proposed by SONELGAZ were notadopted because the management was absorbed by more pressing problems, such asrecovering from very low levels of capacity utilization. One indication ofthe impact of the new tariffs in the electricity subector is the proportion ofenergy consumed during the peak. SONELGAZ estimates that, for industrialconsumers of HV electricity, this proportion has fallen from 18.3% to 16.3%since the new tariffs were introduced. While this improvement will lead tovaluable (and costless) savings in the SONELGAZ investment program, theconsumer response so far is much less than might have been expected.

8.19 Industrial opportunities for autogeneration and combined heat andpower generation appear to be systematically investigated, and adopted incases where costs are shown to be lower than direct supply from SONELGAZ.However the SONELGAZ survey of HV consumers (published April 1985) indicatedtwo areas warranting further investigation. Firstly, there was a need toensure that industries with installed autogeneration capacity and "free"energy (i.e. that would otherwise be wasted) could continue to operate insteadof reverting to SONELGAZ supply after technical diffciulties with their ownplant. Secondly, there was a possibility that, by improving their generationefficiency, some of the autogenerators would be able to generate a surplus forsale to the SONELGAZ supply system. In both cases the additional supply wouldenable SONELGAZ to make small but valuable deferments in its investmentprogram. Algerian authorities have taken these analyses into account and areon the way of setting an appropriate regulation to solve the related problems.

8.20 The poor response to the demand management incentives embodl.ed in thetariffs appears to be part of a wider problem - that is, the lack ofincentives to managers to cut costs as a way of improving industrialperformance. The newly created energy conservation agency (APRU, anenterprise controlled by the MEICP) will have to pay special attention to theseinstitutional issues if any progress is to be made towards more efficient useof investment resources in the energy producing and consuming industries.A first step in this direction would be to investigate the feasibility of aseparate facility to finance investments in reducing energy costs.

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C. Inestment

8.21 In the present economic environment there are two reasons forre-examining SONELGAZ's investment program. The first is the Government'soverall financing constraint; here the Government needs to determine which ofthe Plan's targets should be deferred. The second is the likely impact onenergy demand of slower economic growth in energy consuming sectors; in thiscase SONELGAZ should prepare contingency plans for deferment of major projects.The key aspect of the present conditions is the increased uncertainty - of oilprices, economic growth and availability of investment finance. A moreresponsive system of indicative planning is needed to ensure consistencybetween macroeconomic objectives and sectors that produce essentialintermediate goods, such as energy.

1. Rural Electrf ication Tagets

8.22 The composition of SONELGAZ investment expenditure (Tables VIII.17 -VIII.20, Annex II) reflects the Government's commitment to achieving nationwideaccess to electricity before the end of the decade. The two electrificationprograms (ER and RCN) together absorbed 48% of total electricity investmentexpenditure in the previous Plan. Over the course of the current Plan therural electrification program will approach completion and the emphasis willshift more towards satisfying the backlog of connection requests in existingelectricity distribution areas. The two programs will still absorb 421 ofelectricity investment expenditure during the current Plan. The leastdisruptive way of revising the SONELGAZ investment program, withoutconflicting with the Government's policy objectives, would be to spread overtime the final phase of the rural electrification program.

2. Deferment of Major

8.23 SONELGAZ expenditure on major projects is concentrated in newelectricity generation capacity; this accounts for 26.51 of SONELGAZ's plannedinvestment expenditure in the period 1985-89. In order to illustrate theimpact of uncertainty on project timing, the mission reformulated the mostrecent electricity load forecasts (October 1985) for the remainder of the1985-89 Plan in terms of a small number of key variables (details inAttachment 1, Annex II), under the following assumptions:

(a) The load forecasts implicitly assume a 402 average improvement incapacity utilization among SONELGAZ's present 48 major industrialconsumers of HV electricity by 1989. While the potential for such animprovement exists, its implementation requires an adequateallocation of resources for rehabilitation, essential imports etc,all within a suitable framework of managerial incentives.

(b) The load forecasts require timely commissioning of 13 majorHV-consuming projects scheduled for completion during 1985-89. It isnot yet clear how many of these projgcts will be affected byfinancing constraints.

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(c) Output growth rates in the light to medium industrial sectors willalmost certainly fall below levels projected by the Ministry of Planin mid to late 1985. At the time of the mission (June 1986) theseprojections had not yet been revised. The revisions will have asubstantial impact on the growth of MV electricity consumption.

(d) Implementation performance in the rural electrification and newconnections programs declined noticeably in 1984 and 1985. Evenif these programs are not substantially deferred in response tofinancing constraints, the corresponding load and investmentforecasts will need to be revised downwards.

(e) As a partial offset to the slowdown in electricity demand, there is arisk that an additional 700-800 GWh (150 MW) of generation could berequired in 1989 - with no corresponding increase in sales revenue -if no firm action is taken to reduce distribution losses to around10% by that time.

8.24 If actual performance is below target in all areas other than lossreduction (i.e. (a)-(d) above), electricity consumption in 1989 could be asmuch as 515 MW (2,700 GwH) lower than currently projected (3,320 MW,14,920 GwH). These estimates exclude the additional impact of the necessarytariff increases; this is difficult to quantify. The impact of this loadforecast on the power generation investment program could be significant.Total capacity required in mid-1987, on the mission forecasts, would bedelayed by 18 months to 1989. The plant that is scheduled for commissioningduring the remainder of the current Plan -- 2 x 168 MW of steam turbines in1987, and 10 x 100 MW of combustion turbines in 1988 (Table VIII.22, Annex II)-- is too far advanced for there to be any economic benefit in deferring theircompletion. The gross reserve margin would therefore rise to 72b in 1988under this load scenario (Table VIII.23, Annex II). However considerablebenefits could accrue from an 18-month deferment of expenditure during thecurrent Plan on plant to be commissioned after 1989:

(a) On the basis of SONELGAZ standard unit costs and constructionprofiles, the mission estimates that approximately 30 of the cost ofJijel (3 x 200 MW steam turbines) could be deferred from 1987-89 intothe next Plan by delaying its completion by 18 months -- this amountsto approximately 1 billion DA (1986 costs).

(b) 30-502 of the cost of the following projects could be deferred beyondthe current Plan - extensions planned for Marsat (2 x 168 MW steamturbines) and Skikda (2 x 300 MW), and a new 2 x 300 MW steam turbinestation at Alger Ouest - savings in the order of 1 billion DA arepossible from these three projects during the present Plan.

3. Other Investment Savings

8.25 Major power generation projects and the rural electrification programare the two largest identifiable categories of SONELGAZ investment expenditure.The other major categories (Tables VIII.19 and VIII.20, Annex II) should alsobe reviewed in detail to identify potential savings. Some deferment ofinvestment in new transmission lines and substations (10-152 of annual

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investment by SONELGAZ) will be possible, particularly where these are directlylinked to new generating capacity. Forecasts of natural gas demand andinvestment (17-20% of annual investment) should be reviewed in relation to thepresent prospects for (a) increasing industrial capacity utilization,(b) implementation of major projects, (c) output growth in medium and lightindustries, and (d) additional low pressure connections. "Other" investmentalso warrants attention, particularly since it is projected to increase from82 to llb of total SONELGAZ annual investment expenditure over the course ofthe present Plan.

4. Local versus Foreig Costs

8.26 SONELGAZ is widely regarded in Algeria as a pioneer in the field ofimport substitution. Where a local supplier does not exist, SONELGAZsystematically investigates the feasibility of establishing one. Formaterials and small equipment items, the cost from the local supplier isfrequently much higher than the cost of the equivalent import. Additionalcosts are also incurred as a result of problems with quality and deliverytimes. The Government and SONELGAZ should take steps to ensure that thepresent drive to minimize the foreign exchange contert of new investments doesnot lead to similar cost and quality problems with major projects in theenergy sector.

8.27 The investment item with the greatest potential for incurring excesscosts is electricity generation plant. Recent events in internationalequipment markets have lowered the cost of combined cycle plant relative tothe conventional steam plant that dominates SONELGAZ's investment plan overthe next ten years. However, under present arrangements the foreign exchangecontent of a combined cycle plant would be significantly higher than that ofconventional steam. The trade-offs between local and foreign costs need to befully examined during the current Plan to determine the conditions under whichcombined cycle plant could economically displace some of the conventionalsteam plant scheduled for commissioning beyond 1989. This requires a decisionon the premium that should be put on foreign exchange costs for the purposesof project evaluation, and detailed investigation of Algeria's ability tomanufacture components of the combined cycle system.

5. Project Financing

8.28 Despite a steadily growing volume of electricity and gas sales,SONELGAZ's financial situation deteriorated significantly during the previousPlan. In the absence of any tariff increase since 1982 average net cashgeneration became negative. As government equity contributions were limitedto covering the cost of the rural electrification program, SONELGAZ wasobliged to finance a large part of its capital investments through new loansprovided by BAD (Algerian Development Bank). The missioni understands thatSONELGAZ has accumulated substantial arrears on its debt to the BAD.

8.29 More recently, in response to the economic difficulties triggered bythe collapse in oil prices, the Government has started to develop a policyframework in which public enterprises such as SONELGAZ would have much greaterfinancial autonomy. The policy framework would include the setting of longterm financial objectives, including self-financing of part of the

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enterprise's investment program. This may require tariff increases forelectricity and natural gas over and above those required to restore paritywith economic costs (para. 8.15). In parallel with the move towards greaterfinancial autonomy for public enterprises, the Government is in the process ofchanging the BAD into an autonomous development institution with morestringent lending criteria and terms. This places additional pressure onSONELGAZ to achieve a financial structure that will either meet the newrequirements of the BAD or make the enterprise "bankable" enough to diversifyinto more commercial types of financing.

S9448

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CHAPTER IX - THE TRANSPORT SECTOR

A. An Overview

9.01 Since the late 1970s, considerable attention has been given to theimprovement of transport infrastructure and transport services in Algeria inorder to meet the growing needs for balanced regional development and rapidurbanization. However, despite a major increase in investments in the sectorin recent years, particularly for road infrastructure, the rapid growth intraffic over the past ten years requires that continued attention be given toimprovements in the transport system. With the dominance of import traffic,the main transport flows are organized around the country's main ports withlittle long distance movements within the country. However, an increasingemphasis on the development of local production and import substitution,particularly of basic commodities, will cause a shift in the pattern oftransport flows and the sector is expected to play an increasingly importantrole in the future. Following the recerF decline in oil revenues and anexpected fall in GDP growth from 62 to less than 1 per year, the focus of theSecond Five Year Development Plan (1985-89) is now clearly on raisingproductivity in key sectors and enhancing economic efficiency. For thetransport sector, this policy has important implications. It is expected thatthe major thrust in the sector will be toward increasing the efficiency oftransport operations, thereby reducing the need for major new capacityinvestments. At the same times increased attention is expected to be given torehabilitation of existing infrastructure and to improving the financialviability of transport enterprises.

9.02 The transport network is extensive and includes 43,000 km of primary(national) and secondary (regional) roads, of which about 80% are paved,33,000 km of local (community) roads, 4,000 km of railways, 5,000 km of oiland gas pipelines, 7 main ports, and an extensive domestic air services. Roadtransport carries by far the largest share of total traffic. Over 20 billionton-km per year or about 90% of total freight traffic and over 90% of totalpassenger traffic are carried by road transport. While road traffic hasincreased at about 10% per year over the past decade, the growth of railtraffic has lagged behind mainly due to inadequate attention to trackrehabilitation in recent years. Port traffic consists mainly of hydrocarbonexports amounting to some 57 million tons in 1985 as well as major importvolumes of general cargo and bulk traffic (mainly cereals and cement)estimated in 1985 at 10 million tons and 6 million tons, respectively.Exports other than hydrocarbons, amounted to only about 2 million tons in 1985.

B. Main Characteristics of the Sector

1. Road Ibfrastructure

9.03 Algeria is served by a main road network comprising about 25,000 kmof primary roads (RN routes nationales) and 18,000 km of secondary roads (CW,chemins de Wilaya). The remainder of the classified network consists oftertiary roads (CC, chemins communaux) serving mainly rural areas. The mainroad system (RN and CW) is administered directly by the Ministry of Public

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Works (MPW) and its regional services (Directions des Infrastructures deBase-DIBs), while local roads depend on the Ministry of Interior and localauthorities. The road network is far from uniformly distributed but followsthe demographic distribution in Algeria which in itself has been shaped by thetopography and climate of the country. The network is particularly welldeveloped in the northern coastal areas which account for the majorconcentrations of population and economic activity. In the Hauts Plateaux anddeeper south, the road network is limited mainly to several key national roadslinking the few centers of population. Traffic on national roads averagesabout 1,900 vpd and pavement widths are generally between 6 and 7 meters.

9.04 Since 1980 there have been great efforts to modernize, rehabilitateand maintain the existing road network. Nonetheless, rehabilitation (includingpavement strengthening) of the network needs to be pursued to keep pace withthe effects of growing and heavier traffic volumes on lightly surfacedpavements, also further improvements are required in road maintenanceoperations. At the same time, Algeria is starting to face severe capacityconstraints on sections of the main road system, particularly in the vicinityof the large urban centers like Algiers. This latter concern has beenreflected in a planning study of a future east-west expressway system.Implementation of a first stage of this program has already started with theconstruction of key access routes in the Greater Algiers area.

2. Road T

9.05 The actual vehicle fleet which is operating in Algeria is not knownaccurately as vehicle registration data are not adjusted for vehiclescrapping. The last accurate estimate was in 1976, when all registrationswere renewed. The total fleet at that time numbered 480,000 vehicles(including motor bikes, farm tractors, and trailers), of which 602 wereprivate cars, 20% light good vehicles and 10% trucks. Since then vehicleownership increased only slowly due to restrictions on imports by theGovernment although recent measures were introduced to facilitate imports ofcars by migrant workers returning to Algeria.

9.06 The total truck fleet (over 5 tons of loading capacity) is estimatedat about 40,000 vehicles with a total capacity of about 640,000 tons. About801 of this total vehicle fleet capacity is in the hands of state-ownedenterprises operating on own-account. These fleets developed rapidly duringthe 1970s to serve the needs of large public enterprises. This raises theissue that own-account fleets may be operated inefficiently mainly becausetransport is only part of a much larger operation and the transport costs arenot identified separately. The Government is considering restricting furthergrowth of own-account trucking and having the fleets reorganized intowell-defined trucking subsidiaries which will serve their parent enterprisesas well as providing for-hire public transport. Public freight transportservices are currently provided by one national road transport company (SNTR)and by a number of regional companies which account respectively for about 71and 31 of total trucking capacity. SNTR's role is mainly in long distancetransport and as a result its fleet of about 2,350 tractor-trailer units isoperated more efficiently. The remainder of the trucking fleet comprisesprivate own-account fleet with about 102 of the total capacity. Vehicles of

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less than 5 tons of loading capacity are of free acquisition and operation.Total capacity amounts only to 22,000 tons, and is privately operated for hireor own account. Road passenger transport services are provided nationwide by5 new branches of the ex-SNTV which operate a fleet of 2,800 buses oninter-city routes. SNTV's fleet accounts for about one-third of the bus fleet,the other two-thirds being operated by local urban transport companies. Theaverage road traffic growth was about 13S per year from 1972 to 1976 and 8bper year from 1976 to 1985. However, with the expected stagnation in theeconomy over the next few years and the possibility of limiting fuelconsumption through price increases, the rate of traffic growth is likelyto fall substantially in the immediate future.

3. Railways

9.07 The 4,000 km railway network is operated by the Societe Nationale desTransports Ferroviaires (SNTF), a semi-autonomous public agency under theMinistry of Transport. The railway is handicapped by an old network with poordesign characteristics, the existence of two gauges, and the lack oflong-distance traffic. Phosphate and iron ore traffic in the eastern part ofthe country constitutes the only important freight traffic, while passengertraffic is concentrated mainly around the main urban areas, particularlyAlgiers. In 1985, rail traffic amounted to 3.1 billion ton-km of freighttraffic with an average haul of 240 km. Of the 12.6 million tons oforiginating traffic, 6 million tons consisted of minerals, phosphates and coaltraffic. Passenger traffic in 1985 amounted to 2 billion passenger-km with anaverage haul of only 42 km. However, just over half of the 47 millionpassengers carried was suburban traffic. Although rail traffic has beenessentially stagnant over the past decade, there were increases of 161 forfreight and 9X for passengers in 1985. This recent growth is accounted for bya major increase in domestic cereals movements.

9.08 The financial situation of SNTF has gradually deteriorated over theyears because of a lag in adjusting rail tariffs and a general neglect of therail infrastructure which has contributed to increased costs. Freight tariffshave not been adjusted since 1979 and passenger tariffs since 1982. However,the Government has granted recently (August 1986) a general raise for freighttariffs of 40%. This raise amounted to 50b for phosphate and 301 for iron ore.These adjustments would go a long way towards reducing the operating deficitwhich was around DA 500 million (US$100 million) in 1984. Despite itsfinancial difficulties, in recent years the railway has emphasized theconstruction of new lines rather than giving priority to urgently neededrehabilitation of the existing network and improvements in operatingefficiency.

4. Ports and Maritime Transort

9.09 The Ministry of Transport (MT) is responsible for overall coordinationin the development of ports and maritime transport. Port operations are nowhandled by semi-autonomous port authorities which were created in 1984 andwhich operate on commercial grounds with adequate cost-recovery. There aresix major ports - Algiers, Uanaba, Skikda, Bejaia, Oran and Mostaganem --which in 1985 handled about 801 of total port traffic, excluding oil products,equivalent to about 17 million tons of dry bulk cargo and general cargo

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traffic. In addition, the port system handled 54 million tons of crude oiland refined products for export mainly from specialized facilities at Arzew,Bejaia and Skikda. The port of Algiers handles some 307 of the total traffic,excluding oil products, while the eastern ports of Annalka, Skikda and Bejaiatogether handle 50% of the traffic and the western pert of Oran about 13%.With a rapid increase in port traffic of about 82 per y2ar from 1975 to 1984,the ports have experienced considerable congestion, particularly in theeastern part of the country. This has led to the development of new facilitiesincluding extensions at port of Bejaia, financed in part by the EuropeanInvestment Bank, and a start on a larger scheme for a new port at Djen Djen.At the same time, considerable efforts have been made to improve productivityof the existing facilities, particularly by eliminating direct delivery andmaking greater use of storage facilities. Although there will ultimately be aneed for additional port capacity in the eastern part of the country, thecurrent stagnation in import traffic, particularly cement and constructionmaterials, is likely to delay this need until the early 1990s. In themeantime, the main priority neeeds to be given to continued modernization ofthe existing ports, including the development of container facilitiesparticularly at Algiers. However, the planning of port development is madedifficult by the division of responsibility between MT, which is responsiblefor port operations and MPW, which is responsible foz construction andmaintenance of port infrastructures. At the present time, the portmodernization program for the port of Algiers is being delayed because adecision has yet to be taken on the location, size and phasing of berthextensions related to the development of container traffic.

9.10 Maritime transport is handled mainly by the Compagnie NationaleAlgerienne de Navigation (CNAN), a semi-autonomous enterprise, which owns50 vessels with an average age of about 10 years and a totel capacity of400,000 dwt. A second enterprise, HYPROC, is responsible primarily formovements of oil and gas products and operates a total of 13 tankers, two ofwhich are currently in storage. Both enterprises have undergone considerableexpansion in the last decade on the grounds of potential savings in foreignexchange. With the expected stagnation in foreign trade, particularly oiltraffic, both enterprises should now enter a period of consolidating andoptimizing existing operations.

5. Civil Aviation

9.11 Civil aviation plays an important role in the Algerian transportsystem because of the large distances involved and the dispersion of populationin the southern part of the country. The system comprises some 30 airfieldsopen to traffic of which -- Algiers, Constantine, Annaba and 0rPrn -- providethe main international services (972). Considerable improvements have beenmade in recent years to airport infrastructure which is the responsibility ofthe Airport Directorate of MPW. Major ongoing works include improvements tothe Algiers Airport, namely the extension of one of the two runways.

9.12 Air Algerie, the national airline, operates a modern jet fleetcomprising two Airbuses, 11 Boeing 727-200, 15 Boeing 737-200, 8 turbopropFokker 27 and 4 freight aircraft. The airline, which employs 7,500 people.handled 4.1 million passengers in 1985, including 2.3 million international

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passengers, with load factors averaging about 66%. Although air traffic hasbeen increasing during the past decade at about lOS per year, traffic isexpected to stagnate during the next few years, particularly as a result ofrecent restrictions on international travel for Algerian residents. Aircraftpurchases in- the next few years would relate mainly to the replacement ofexisting capacity, which should be limited because the fleet is stillrelatively young (less than 10 years).

C. Receent Trends

9.13 Utntil the late 1970s, very little was done to improve the transportsystem. However, rapidly increasing traffic volumes during the 1970s led tomajor investment in the sector during the 1980-84 Development Plan. Totalinvestments in the transport sector during this period amounted to aboutDA 30 billion (US$6.5 billion) compared with a planned amount of DA 39 billion(US$8.5 billion) (Table IXMl). However, during implementation of the plan,there was a major shift in emphasis with road infrastructure accounting forover 50% of the investments, almost twice the level initially planned. Incontrast, investment in railways were only one-third of the planned level withmuch of the investment going into the construction of new lines for which theeconomic Justification remains to be demonstrated. This is indicative of thelow absorptive capacity of the transport subsectors other than roadinfrastructure.

9.14 Despite increased efforts, there has been a lag in meeting the needsfor rehabilitation and modernization of the existing infrastructure. As aresult, there is still a backlog of rehabilitation on the road network, a needfor modernization and increased productivity in the ports, and a criticalrequirement for track overhaul on the main railway network. Added to thispicture are the transport needs generated by the regional development efforts,particularly on the Hauts Plateaux, and the integration of the deeper, desertsouthern areas with the rest of the economy.

9.15 Despite increasing resource constraints, the Government continues togive high priority to the development of the transport sector. In effect, thecurrent decline in oil revenue is bringing a greater sense of urgency indealing with many of the problems in the sector. Among the issues which theGovernment must address are the need to (i) improve operational efficiency andreduce operating costs in the road transport industry, in the ports and in therailways (freight car turnaround time); (ii) rationalize the transportinvestment program by concentrating on high priority programs and deferringsome major Investments in new infrastructure; (iii) establish a sound pricingand fiscal policy including cost based tariffs for railways and adjustments toroad user taxation so that trucks bear their share of road infrastructurecosts; (iv) strengtben planning, project preparation and implementation atboth the central and local level; and (v) improve operational efficiency(reduce costs) in the maintenance and improvement of the road network.

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Table IX.1:INVESTMENTS UNDER 1980-84 PLAN

Total Total Planned Actual/Planned1980-84 (X) 1980-84 (2) (%)------- (DA million - current prices) …

Roads

National Roads 7,993 27Wilaya Roads 3,514 12 8,300 21 139Local Roads 4,816 16 2,600 7 185

Sub-total 16,233 55 10,900 28 150

Road Transport 2,000 /* 6 3,000 8 67

Rail Transport 4,919 17 15,400 39 32

Ports

Infrastructure 2,080 7Equipment 200 "A 1

Sub-total 2,280 8 2,200 6 104

Civil Aviation

Airports 1,561 5Air Alg6rie 500 2

Sub-total 2,061 7 3,500 9 59

Maritime Transport 2,165 " 7 4,000 10 54

T 0 T A L 76

/a Estimates.

9.16 The overall objectives for the sector are mainly institutional,particularly the need to upgrade efficiency and to improve planning andmanagement of investments. The Bank has been able to support these objectivesin highway sector development through highway projects which have providedbroad assistance in planning and project preparation as well as in trainingfor road riaintenance operations. The Government is also striving to increasethe cost-effectiveness of road construction and maintenance operations bylocal contractors who face shortages of management staff and whose performanceis sub-optimal. At the same time, the Government is now increasingly aware ofthe need to improve the financial viability of transport enterprises. Port

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tariffs already cover operating costs and approval is expected shortly onsubstantial increases in rail tariffs which would take the railway a long waytowards full cost recovery. The Government is also committed to graduallybringing fuel prices to world market levels thereby increasing theavailability of refined oil products for export.

D. Investment Program 1985-89

1. General

9.17 Although initial proposals for investment in the transport sectorduring the 1985-89 Development Plan amounted to DA 54 billion (US$11 billion),excluding the Algiers metro, actual levels are likely to fall far short due toincreasing resource constraints following the fall in oil prices. The missionhas identified a five-year core program for the transport sector, which wouldamount to about DA 42 billion (US$8.9 billion) (Table IX.2). Roadinfrastructure would account for just over 40% of the total and railways about25X. The major emphasis of this core program would be on rehabilitation ofexisting infrastructure, particularly for the railways, and on a modernizationprogram for the existing ports. The main cuts in the program would be in newrail infrastructure, in the construction of local roads and in renewal oftrucking capacity. They would also include a revised time schedule for therealization of the Algiers metro. The construction of new railway lines wouldbe limited to ongoing projects, but it is expected that these projects wouldbe implemented at a slower rate than originally planned. Similarly, theconstruction schedule for the new Djen Djen port in the eastern part of thecountry, which began in 1985, is likely to be revised in line with lower porttraffic prospects over the next five years.

2. Road Infrastructure

9.18 Investments in roads during 1985-89 are expected to reach a total ofabout DA 17 billion (US$3.t billion) of which about 602 would be allocated tonational roads, 202 to regional roads and 207 to local roads. The total coreprogram for the road subsector as a whole would remain in line with theinitial plan proposals, but the highest priority would be given to thenational and regional road network where investment levels would be expectedto exceed the initial plan allocations. However, substantial cuts should bemade in local road programs where there is currently a need to improve theselection and planning of such roads and to rationalize design standards. Theestimated costs to complete ongoing protects on national and regional roads,as of the end of 1985, were estimated at about DA 5 billion (US$1.1 billion).Based on total investments of about DA 9 billion (US$1.9 billion) on nationaland regional roads during the remaining four-year period, 1986-89, theremainder of the plan would only allow a limited volume of new investments inroads. The main emphasis of the ongoing and planned investments in roads isto step-up the rate of rehabilitation of the main road network to about 800 kmper year, provide for completion of several ongoing modernization projects,and to cont. iue with high priority investments in several expressway sectionsin the Algiers area.

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Table rX.2:

REVIEW OF FIVE YEAR INVESTMENT PLAN 1985-89

PUBLIC INVESTMENTS IN THE TRANSPORT SECTOR

PROPOSED CORE tNVESTMENT PROGRAN

(In millions of Algerian dinars)

Total Original* 9I8 l.. IJ 1037 19U 1030 1 a- I .2. 1M

Actual Forecast /A

A. Infrastructures

Roads /k National 2.800 2.200 2,000 1.S00 1,500 10,000 8,000C. Wilayas 900 600 600 600 600 3.300 2,000Local 1.L,A 1.080 ...AE 40f --AU 4AJ08 QZ,.2

5,200 3.800 3,200 2,600 2,500 17.300 17,300

Parts 680 600 730 740 660 3,410 4.200

.Airports __450 __1 350 __4QQ AM0 I.8= 2108

Subtotal (MPW.) 6,330 4.780 4.280 3.740 3,460 28,590 23,600

SNTF Infra (metro excl.) LJOU L.S 0 1.82Q 1'M LEE 24401 lis.1

Total Infrastructure L_M Z.3gl iJIB L.3 A DE 3J_19S 2LZM

B. Transoort Eguia. Installations

SNTR 360 350 320 270 300 1,600 2,360SNTV in 1 i9 35Q 93Q m5 .L9 LIE

SS0 700 750 820 800 3,620 S,260SNTF 340 720 200 200 140 1,600 3,100

Land Transport 890 1,420 950 1,0? 940 5,220 8,360

Ports/Maritime Safety 110 150 210 230 180 880 1.510CNAN/HYPROC 50 60 150 190 470 920 2.260SONATMAG _0 _$Q Aft _0 _5Q -- & ii

Martimis Transpgrt 220 260 400 470 700 2.050 4,020

Air TransRgrft 170 280 480 790 S90 2,310 2,870

Total Equipment L2RM J.O 1JM &am LiM LIE .L5a2m

C. ITOTL (excluding metro) A9= &LZE z.Jaa LAM ZLJ ALMZB 5&MIJ

/A Annual breakdown of expenditures for i987-89 only indicative. Based onoriginal D06globalisation du Plan"

/k Excluded road maintenance expenditures about DA 700 millions/year

6136B/pi7 (7,12)

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3. Road kanort

9.19 The effort in road transport would decrease substantially over thelevels of investment achieved during 1980-84, namely to about DA 3.6 billion(US$750 million). The main emphasis would be on improved productivity in roadtransport, particularly the more efficient use of the large own-accountfleets. Special attention will need to be given to the development ofcontainer handling capabilities and supporting freight forwarding services.

4. Railways

9.20 The core program proposed for railway investments focusses mainly onthe establishment of a regular program of track rehabilitation for the existingnetwork. Total rehabilitation over the plan period should reach some 700 to800 km. Improvements would also be made to signalling, telecommunications andto existing tunnels and structures. The construction of new lines would belimited to ongoing projects, mainly the Beni Saf spur line and the RamdamJamel-Jijel line connecting the rail network to the planned port of Djen Djen.Total infrastructure investments on railways are expected to reach someDA 9.4 billion (US$2 billion) compared with an initial planned amount ofDA 15 billion (US$3.2 billion). SNTF'S existing locomotive fleet and rollingstock are in relatively good condition and further procurement of equipmentis likely to be relatively modest at around DA 1.6 billion (US$340 million),compared with an initial planned imount of DA 3.1 billion (US$660 million).

5. Ports

9.21 Investments in port infrastructure are expected to increase shavplyduring 1985-89 to about DA 3.4 billion (US$720 million). This is due mainlyto the completion of port extensions in Bejaia and ongoing construction workat the new port of Djen Djen. However, it is likely that implementation ofthe Djen Djen project will be slowed down somewhat because of expected lowertraffic growth during the next few years. Investments on Djen Djen areexpected to account for about one-third of total high priority program forport infrastructure and the completion of works at Bejaia about 152. Othermajor works include the completion of repairs to the Bethioua breakwater inthe western part of the country. The port infrastructure program will alsoinclude provision for modernization of existing berths in Algiers and Annabaand berth extension for container facilities in Algiers. Emphasis will alsobe given to the renewal and modernization of existing port equipment and tothe gradual introduction of specialized container handling facilitiesbeginning with port of Algiers.

6. A

9.22 Investments on airport infrastructure will remain at about the samelevel as during the previous plan, namely at about DA 1.9 billion(US$400 million). The program will be concerned mainly with the completion ofongoing improvements at the Algiers Airport which will account for aboutone-third of total investments. A further third of the program will involveimprovements to airports in the southern part of the country with theremainder being allocated to improved equipment and navigation facilities.

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7. Air and Maritime Transport

9.23 With the expected slowdown in foreign trade, the development of airand sea transport should enter a phase of consolidation following a period ofrapid expansion in recent yeats. The share of investment devoted to these twosubsectors would be less tharn lO% of the total core investment program-aboutDA 2.3 billion (US$490 million) for air transport and DA I billion(US$210 million) for sea transport. Priority would be given mainly to therenewal of existing capacity rather than to expansion.

58971

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CHAPTER X - EDUCATION AND TRAINING

A. The Socio-Economie Context

1. Introduction

10.01 The dynamics of Algerian policies in the education and trainingsector derive from the response of the Algerian authorities to meet thecritical need for skills which followed upon the exodus of the Europeancolonists on Independence. The response was immediate and has remainedpositive as evidenced in the very generous allocation of funds made availableannually for building up and operating the education and training resources ofthe country amounting to 252 to 30X of the total national budget annually overthe last ten years and over, 7% of GDP.

10.02 The sustained development of the sector is not ascribed solely to thecomparative ready availability of funds. The Algerian effort has been theresult of a compelling strategy over 20 years based on the conviction that thepolitical, social, cultural and economic policies and the national aspirationswere approachable only if the education and training system (ETS) was madeeffective in terms of adequacy in the number of graduates and range of skillsat all levels and the relevance of its orientations and objectives. Thekeynote to the development strategy actively pursued has been the insistenceon the linking of economic growth policies with social advancement objectives.

10.03 Social justice convictions called for redressing of inequities and inthe first place urgent attention to a sound basic education for all, boys andgirls, whether living in rural or urban areas; this also implied supportservices to permit children from rural areas to attend second- and third-levelinstitutions. Economic development plans demanded equally urgent action toraise the skill and education attainment levels of those entering the jobmarket and of the work force in general; the need was for a qualified workforce both for the traditional job market and for accelerating new areas ofproductive economic activity. The government policy of decentralization ofauthority and execution of development programs considerably increased thedemand for skills at the wilayate or regional and local levels, includingadministrative, planning and management capabilities.

10.04 The policy of gradual Algerianization and Arabization for reasons ofnational identity, dignity, unity and preservation of the national culture andheritage depended on parallel action in the ETS; it entailed review ofobjectives, curriculum content and materials, teacher preparation andre-orientation, and the gradual replacement of the French language as themedium of instruction by Arabic - gradual because such a process could not behurried, particularly in view of the small numbers of teachers who couldfunction adequately in Arabic.

10.05 The economic, political, cultural, and social imperatives discussedabove have led to remarkable progress in expansion, reorganization,restructuring and reorientation of the system. The ETS, therefore, hasundergone and is undergoing constant review of objectives and programs related

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to overall national policies. The negligible skill training facilities of 1962have been revolutionized by the initiatives taken by the productive ministriesanxious to train for their own manpower requirements since the developingformal education system simply could not cope. Programs by these ministriesinitiated with the industries themselves were begun mostly at a low level andhave gradually been upgraded to post-secondary including university level.

10.06 These major and radical gains, however, have not been made withoutsome sacrifice: the degree of coordination among ministries involved intraining programs could be appreciably improved, attention to all factorsaffecting capital and recurrent costs has been sometimes overlooked, whilepre-requisite planning has on occasion been rushed.

2. The Demographic Factor

10.07 From the outset, the Government, in considering allocations to socialservices, had to cater to a population of 12.5 million in 1966 and an estimated210.6 million in 1984, growing at a rate of over 3% per annum. The greatestproblem, however, was the youthful structure of the population (45% under15 years of age in 1985) with its serious need for education and other socialservices. The more rapid urban population growth at 6% has caused seriousovercrowding of schools and oversized classes in urban schools. In some ofthe rural areas, the numerous small and scattered communities cannoteconomically be provided with effective schooling of all types at post-primarylevel and at the primary levels there remain traditional problems ofnon-enrollment of girls. On the other hand, there does occur the phenomenonof unutilized classroom space in new socialist villages to which groups ofpopulation have been reluctant to relocate.

3. The Economic and Manpower Factors

10.08 The 1985-89i Second Five-Year Plan reiterates the long-term objectivesenunciated in the 1976 National Charter. The medium-term objectives are:(a) to achieve a balanced economic growth by increased support ofnon-hydrocarbon programs; (b) to restore sectoral imbalances through increaseddevelopment of agriculture water resources and consumer goods manufacturingindustries; (c) to develop further economic and social afrastructures; hence,the share of the investment program of these sectors rises to 68.41 of thetotal planned investment as compared with 60.71 in the 1980-84 Plan and 46.91in the 1974-77 Plan; and (d) improve enterprise productivity and reduceoperating costs.

10.09 In all instances, the programs set out in the various DevelopmentPlans have been constrained by the unavailability of adequate numbers ofeducated/skilled workers to ensure efficient and timely execution of theprograms. The current Plan, the Second Five-Year Plan, 1985-89 sets out theadditional skill needs in the Plan period at each level for each of the majorsectors and compares these with the estimated outputs of the ETS. Thedeficits remain high despite the very substantial expansion and broadeningskill range of the system over the last Plan period and the furtherstrengthening in the new Plan period. Consequently, the human resourceconstraint remains a key element in the effort to realize the Plan and thecountry's aspirations.

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10.10 The Second Five-Year Plan 1985-89 sets out the manpower needs bylevel of education and skill as shown in Table X.l. Table X.1 in Annex IIprovides a breakdown of these manpower needs together with the estimatedoutput.

Table X.1:ADDITIONAL QUALIFIED MANPOWER NEEDS

AND TOTAL QUALIFIED WORK FORCE, 1985-89

Sectors Level 6 Level 5 Level 4 Level 3/2 Total Total Force/a /b Needs 12/31/84 12/31/89

(a) 5,500 5,500 12,000 68,000 91,000 93,100 184,100

(b) 11,000 42,000 13,700 56,300 123,000 3759000 498,000

(c) 15,500 38,000 38,500 116,000 20,800 226,700 434,700

(d) 18,000 33,700 47,300 117,000 216,000 281,500 497,500

(e) 33,800 55,000 52,700 68,500 210,000 604,500 814,500

Total 83,800 174,200 164,200 425,800 848,000 1,580,800 2,428,800

/a Sectors include: Agriculture (a), Industry (b), Construction (c),Services (d) and Administration (e)

/b Levels include: Professionals (University degree or equivalent) - 6Senior technicians (Post secondary institutions) - 5Junior technicians (Graduates of secondary level) - 4Skilled workers (Graduates of vocational training centers - 3Semi-skilled workers (School leavers with 1 or 2 years ofpost primary training - 2.

10.11 There is a good deal of evidence of the continued need forconsiderable numbers of skilled workers in all sectors, except that certainprofessions - doctors, health workers, fundamental school teachers - are nearto surfeit. The point has been reached where further expansion in trainingcapacity needs to be controlled to ensure that specific specializations stillin comparative short supply are assigned priority. On the other hand, thedata on manpower requirements within the shorter-term period of 1985-89 appearsover-estimated at the Level 5 (higher technicians) by comparison with skillstructures in countries at comparable levels of income and under-estimated atLevel 4 (junior technicians) or equivalent. It is difficult to accept thatthe demand for additional senior technicians will be greater than that for newjunior technicians or trained artisans and secondary school leavers.

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10.12 The requirements for 24,200 new secondary school teachers over thefive years of the Plan, already included in Table X.1, could well be anunder-estimation in that insufficient allowance seems to have been made forretirements, transfers, deaths and replacement of foreign teachers. On theother hand, there appears to be little possibility that the Ecoles NormalesSuperieures (ENS) will produce over 5,000 trained teachers per annum as from1985. New ENS have only recently been established and are not likely toproduce more than 2,000 graduates per annum before 1988. Deficits will needto be made up from graduates of the regular schools of the universities andforeign teachers, particularly in the areas of technological and sciencesubjects. In addition, too, there remains the issue of preparing 7,000 andmore teachers for the universities, irrespective of wastage and foreignteacher replacement. This group seems to have been overlooked in the Plan.

10.13 In the Plan projections, the major overall deficit is not in theprofessional but in the sub-professional grades, although there is a manifestcritical shortage of engineers. In such a case, the Plan should have assignedgreater priority to expanding enrollments in technician courses and limitingaccordingly professional degree programs.

10.14 There is no specific mention of managers in the professionalcategories despite the repeated reference in all productive ministries to theimportance of building up a solid management capacity. The managementrequirement is obscured under the technical and professional staff headings.The Plan 1985-89 shows a demand for large numbers of new staff under thecategory of Administration - over 88,000 with post-secondary qualificationsand almost 53,000 with Level 4 attainment. Apart from the central governmentrequirements and those of the societes nationales, the success of thedecentralization policies is at stake. The ETS cannot yet furnish the cadresand qualified personnel in the numbers required. This deficiency accounts forthe continuing investment backlog and weakness in supervision, particularly inthe construction programs of the development plans. Successful execution ofthe decentralization policy entails still further expansion of programstailored to produce well-trained officials - administrators, plarners,accountants, technicians, and supervisors for all the development sectorswithin the wilayate and dairate jurisdiction. The Institut Nationald'Administration (INA) and the Institute of Planning have performed valuableservices in training prospective regional staff, but the supply of trainedstaff still falls short of requirements. Further consideration should begiven to in-service training programs.

B. The Educational Policy Framework

10.15 In the Second Five-Year Development Plan, 1985-89, the nationaleducation and training resources are once again regarded as the basicinstrument to assure effective Algerianization of a modern industrializedeconomy and to effect desired social and political changes. The ETS isintended to provide the range of skills required to realize the economic andemployment objectives but it should also help create and serve a unifiedsociety imbued with a value system identified with the Arab culture andconsistent with Algerian socialist aims. Given this policy, access to

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education should be equal to all segments of the population in all the regions;education should aim at assuring that all participate ing contribute to, andbenefit from the development process.

10.16 These educational objectives are those that informed the 15-yearperspective planning which provided the long-term framework and guidelines forthe short-term "First Four-Year Plan, 1974-77". The basic objective of thisPlan was reform, relevance, reorganization, productivity. It proposed reformswhich were to be introduced at appropriate times as pre-requisites for eachreform measure were established and implemented.

10.17 The rapid developments in the ETS which were reinforced or initiatedafter 1975 and which remain relevant to and are re-stated in the Plan 1985-89relate most especially to: (a) reorganization and restructuring of the formalsystem; (b) consequently reform of curricula and curricular orientations: and(c) review of teacher education objectives and programs to be consistent withthe restructuring and curriculum reforms. These are discussed below.

1. ReorgZanization and restructuring

10.18 The structure of the Education and training system has undergonemajor changes over the past few years. The changes were conceived for fullimplementation from Grade 1 to Grade 12 over a 15-year period. Chart 1 inAnnex II shows the reformed structure of the ETS side by side with thetraditional structure which has now been phased out. The most basic changewas the establishment of a nine-year fundamental or basic education(Grades 1-9), obligatory for all school age children (6 through 15 years old),to replace the traditional six-grade primary (Grades 1-6) and the first cycleor middle secondary school (Grades 7-10). The fundamental school wouldcomprise three cycles (Grades 1-3, 4-6 and 7-9). The third would be anorientation as well as a terminal cycle within the formal system. Thisstructure has eliminated by 1985 the costly primary Grade 7 which collectedthese primary school children who failed to gain entry into the secondarymiddle schools. It also eliminated the terminal middle or first cyclesecondary school (Grades 7-10) and the rather ineffective lower secondary MOEvocational (Grades 7-9/10) schools (agriculture and industrial); the latterwere replaced eventually by the technicum (Grades 10-12)--an upgradedsecondary technical school. Initially the intention was that the technicumwould concentrate on producing Level 4 middle technicians, as compared withthe traditional technical lycee (then Grade 11-13) in which the curriculum wasmore theoretical and oriented to entry to higher education institutions. Thegeneral secondary and technical lycees were reorganized to follow upon thefundamental school, i.e. Grades 10-12 in lieu of Grades 11-13, as the middleschool phased out.

10.19 After some initial delay, the restructuring plans are beingprogressively implemented. The fundamental school concept and educationalprograms had been established throughout Grades 1-9 in 1984-85, although thesenior classes of the middle school do not phase out until 1988; the lower MOEvocational schools have been phased out; the upgraded technicums, supported bythe Bank Third Education Project (Loan No. 1378-AL of 1977), are now beingconstructed at a rapid pace. Two problems have arisen in this connection:

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(a) the inadequate supply of technical teachers has hampered their operations;(b) the purpose of restructuring and upgrading MOE vocational trainingfacilities was to increase substantially the output of middle level technicians(Level 4); this purpose, however, has been set aside by the adoption in thetechnicums of the Lycee Technique curricula with a view to entry into highereducation rather than direct entry to the job market. This redefinition ofthe technicums' mission is a cause for concern because it diverts an importantpart of the supply of much needed skills at the middle-level technician level.

10.20 Thus, the structural reforms have had mixed results. An importantpart of its practical labor-market preparation objective has been compromisedby the reorientation of the technicums. But at the same time, the reformsintroduce a number of positive changes: the ineffectual former first-cyclesecondary vocationally-oriented schools, and the wasted years spent in theextended primary school (Grade 7) have been eliminated; eliminated too isGrade 10 of the middle school; selection into the secondary school andguidance as to which branch of studies to follow now takes place on a firmerfooting at the age of 15/16 instead of at 12; the new structure is moreeconomical; it has more built-in flexibility to meet catchment arearequirements, and a broader range of activities in the new curricula toprovide students with improved opportunities to develop their particularaptitudes. The diversified general secondary school has added new branches ofa technical orientation to the traditional humanities, sciences andmathematics streams; the technicum provides fertile ground fordiversification, but perhaps does so at the cost of excessively fragmentingmain branches (families) of technical studies.

2. Reformof Curricula

10.21 The restructuring as well as the reorientation has led to continuousreview of the curricula, balance and content, at all levels starting with thefundamental school. Curricula have now been developed which are more relevantto schooling objectives and to the Algerian context and consistent withpresent day understanding of the learning/teaching process. Consistent withits objective as an orientation cycle with a more practical bias and basis fora preliminary understanding of the world of technology, the curriculum of thethird cycle of the fundamental school (Grades 7-9) has increased timeallocation to science and mathematics and introduced basic elements ofindustrial arts, home economics, agriculture. The schools have been providedwith appropriate laboratories, workshops and equipment for the purpose. Atthe secondary school level, two technical streams have been introduced in somegeneral secondary schools, and four new streams in the technicums - computersand biochemistry in 1984 and agriculture and water resources in 1985. Thecontribution of the Institut National Pedagogique (IPN) must be emphasized.It has supported MOE Algerianization policy by its massive effort in thedevelopment of textbooks and manuals in the Arabic language; (thirty-twomillion textbooks were distributed by IPN in 1985 including three new titles.)

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3. Teacher Education

10.22 Teacher education programs and methodologies have, except atuniversity level, generally kept abreast of the restructuring and curricularreforms and the desired orientations discussed above. Problems earlierexperienced in the preparation of teachers for the new practical studies ofthe fundamental schooling have been well handled; on the other hand, thetechnical teachers required for the planned extensive technicum are still inshort supply.

10.23 Algerianization of the fundamental school teacher corps is welladvanced; foreign teachers have been reduced in secondary general schools from421 in 1964/65 to 21% in 1984-85 and to 22% in teacher education colleges.The Arabization policy has been completed in the fundamental school and isprogressing in the secondary schools; all secondary first year classes in1986/87 will be in Arabic, with full Arabization by 1988/89. The majorshortages of national teachers occur in technical specializations, and inmath, chemistry and Arabic language disciplines.

10.24 Progress in Arabization has also been made at the university level,but at a considerably slower pace. MOHE institutions in 1985-86 still haveonly 29X of the students attending courses taught in Arabic; in 1984-85national teachers represent 78% of the total teaching staff, but the majority(901) of the highly qualified staff are expatriates. In support of theAlgerianization policy, the university authorities have initiated plans toincrease the number of students to be enrolled as teacher trainees at therecently established ENS1' in an effort to provide the secondary schoolswith the large numbers of teachers, especially technical teachers, required infulfillment of the 1985-89 plans.

10.25 The vital activity in the teacher education sub-sector has beenreinforced by the constant conduct of in-service teacher education programsand seminars and even correspondence courses at wilayate and dairate levels -the correspondence course is organized centrally by the CNEG (the complementaryeducation organization of the MOE).2' The aim is to bring teachersup-to-date on the new developments and orientations of the education system.Upgrading programs for serving teachers are also conducted on a three summervacation basis of a cumulative program.

l/ The Institutes at Mostaganem and Oum-el-Bouighi have been converted intofull-scale ENS with special responsibility for training science andtechnology teachers. Another such ENS will commence operations in 1986/87at Skida.

2/ Almost 28,000 teachers were enrolled in these upgrading correspondencecourses in 1984, and 18,390 in 1985.

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C. The Specifies of the Second Five-Year Plan. 1985-89

1. The Directives

10.26 The Second Five-Year Plan, 1985-89 points up some of the issues whichhave caused concern to education policy-makers despite the highly commendableadvances of two decades: the economic and social needs which are evolvingmore rapidly than the resources, physical and human, which presently can bemade available; regional disparities which have not yet been ftlly redressed;the continuing high rate of population growth; the underqualification of thework force in general; the poor productivity which ensues, particularly in thesectors or sub-sectors of agriculture, water resources, education and localcollectivities. The Plan also indicates priority action areas to lead up tomore successful attainment of the Plan objectives and implementation of itsprograms.

10.27 The following general priorities of the Plan are also pertinent tothe education/training sector:

(a) full exploitation of the achievements of the previous Plan;

(b) more effective utilization of existing infrastructure;

(c) improvement of the living conditions of the rural population, throughprograms in agriculture, water resources and farmer training;

(d) completion of those socia' sector programs of the previous Plan whichare still unfinished, with particular attention to be paid to qualityaspects and the reduction of unit costs; and

(e) further expansion and technical diversification of the ETS.

10.28 These general objectives and the considerations of the manpower needsas worked out in the Plan lead on to specific principles or guidelines whichshould direct authorities and planners:

(a) Now that fundamental education has been successfully enlarged andreform measures implemented, priority in the new Plan period mustpass to expansion and consolidation of technical and vocationaltraining linked to economic development plans. Moreover, the MOHEshould be prepared to take a more active role in training of higherlevel technicians.

(b) The ETS administrative services are called upon to reduce costs anduse existing structures more effectively.

(c) Improvement of the flow of students through the system will beeffected through further reinforcement of the system of make-up andremedial classes which have been instrumental in reducing the failureand dropout rates of the past decades.

(d) Secondary education will be further diversified.

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2. Present Status and PrOsed Tgets

10.29 The objectives and targets in the education training sector as setout in the Plan are both qualitative and quantitative in that many of thequantitative targets assume successful implementation of the qualitativeprograms. In this connection, therefore, specific activities should beassigned to the IPN; the general statement of reinforcing i.s researchcapability is not enough to direct and harness its capabilities. The maintargets for 1989 are set out in tabular form in Tables X.2 and X.3 inAnnex II, together with the extent of execution of the 1985 objectives andtargets. Some of the more important objectives and targets are discussedbelow but reference should be made continually to the specific data given inAnnex II.

10.30 Almost all six-year old boys are now enrolled in schools, but despiteconsiderable improvement, the enrollment rate of 6 year old girls is still notsatisfactory so that in Grades 1-6 female participation targets are not likelyto be met by 1989; insufficient allowance has been made for socio-culturalreluctance of parents particularly in the very isolated areas where schoolingis not within easy reach. For the same reason, it is not advisable inplanning to expect a 100% net enrollment of the school age population,particularly as arrangements for handicapped children may not be adequate asyet. The very commendable gross enrollment rate is nearer the set targetbecause of some underage and overage children in the fundamental school.(The gross enrollment ratio in 1985-86 in Grades 1-6 is 941.) Though regionaldisparities will continue, the effort to improve enrollment and femaleparticipation ratios in the educationally under-privileged and more isolatedwilayates is expected to make further considerable progress.

10.31 A second important objective, the completion of the fundamentalschool reform together with overall Algerianization and Arabization, has beenvirtually achieved in 1985 and will be totally achieved before 1989(paras. 10.18 through 10.25).

10.32 The third objective - expansion and further diversification of thescience and technical branches in secondary schools - has already seen theintroduction of new branches of study as discussed above. The increase ofenrollments in the technicums, however, is unlikely to be sufficient tosupport the stated goal of 40% of new secondary entrants to be in technicalschools. Moreover, the objective itself may be inappropriate.

10.33 A fourth objective with special qualitative dimensions is the build-upof resources to prepare well-qualified teachers both for specializationspresently offered and for new specializations under consideration. The annualneeds of the fundamental school can be met by the facilities and resourcesbuilt up in the previous Plan. Secondary school teacher needs, especially oftechnical teachers, are unlikely to be met in the short term. The expansionof the ENS program has come too late to assure adequate outputs from thatsource. The low productivity of the ENSEP at Oran should be considerablyimproved upon by the recent conversion of two university level institutes intoENS; it is proposed to establish two more ENS to supplement the existing oneat Koubah. However, during the current Plan period, the MOHE will need to

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draw teachers not only from these teacher training institutions, but also fromthe university faculties and post-secondary technical institutes. Suchteacher candidates could then be given training in the ENS in pedagogicalmethods. An important incentive for attracting students from these sources isthe additional monthly bursary paid to ENS teacher-trainees even while theyare physically attached to the school in which they first enrolled at theuniversity. In the last year of their studies in fact such student receivethe full pay of a practicing teacher.

10.34 Some of the 7,000 additional teachers who will be required by theuniversity expansion from 121,000 to 160,000 students uaay come from the 7,000or so graduates in postgraduate studies (M.A., M.Sc., and Ph.D.) at Algerianuniversities and the 3,500 in foreign universities. However, the majoritywill have had little experience and would enter the profession at the lowergrades of the university teacher structure.

10.35 Tables X.2 and X.3 in Annex II also outline the student flow orefficiency expectations. Except in certain instances - the high dropout fromGrade 7, the failure rate at the Baccalaureat (20-25Z in the last few years)and first year university examinations/tests (502) - the flow of students hasshown steady progress and is on target; there is no reason to suggest thatthere will be any falling off. Similarly, the proportion of girls in theschools at all levels should continue to increase over the new Plan period.The vercentage of girls in total enrollments has increased steadily from 42X,39% and 35% in fundamental Grades 1-6, fundamental Grades 7-9 and secondary,respectively in 1979-80 to 441, 412 and 42S in 1985-86. On the issue ofnon-achievement of enrollment targets in secondary technical streams, themission has suggested that this should not cause the Government any greatconcern; of greater concern should be investigation by the IPN of the reasonsfor the high baccalaureat failure rate. If this is improved, there will be nolack of qualified students for higher technological and science studies or forentry into on-the-job training.

10.36 Enrollment targets in general are likely to be achieved except in twoinstances. The target of 775,000 in secondary in 1989 may have been -cet toohigh if the 50% limit of Grade 9 students into secondary schools is maintainedin the next three years; the outputs of Grade 9 in that period would not beadequate (at 501) to provide total enrollments of 775,000 in secondary Grades10-12. At the university level, the overall enrollment target should bereached, but it is problematic whether MOHE institutions will be geared intime to accept the planned enrollment of 25,000 in the shorternon-professional courses.

10.37 Other quality factors, such as curriculum develoncent and review,textbooks, teachers' guides, materials and learning-teaching aids, moreupgraded teaching staff, can be expected to be given the same positiveattention as has been the case in the last ten years. The reform programs ofthe 1970s have their own momentum now and the commitment of the authorities tosustain them.

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3. ITe Plamed Investments

10.38 Table X.2 provides the planned investments program in the EducationSector as it appears in the Second Development Plan.

Table X.2: FINANCING OF THE EDUCATION SECTOR INTHE SECOND DEVELOPMENT PLAN, 1985-89

Ministry of Ministry of Ministry ofEducation Higher Education Voc. Training Total

DA DA DA DABillion Billion Billion Billion

a. New Program 19.0 6.5 6.0 31.5b. Under Construction 17.0 5.2 11.0 33.2c. Total 85-89 Program 36.0 11.7 17.0 64.7d. Expenditures Allowed 22.0 10.0 13.0 45.0

(48.9X) (22.22) (28.92) (100.02)e. Programmed Carry-over

beyond Second Plan 14.0 1.7 4.0 19.7

Source: Deuxi6me Plan Quinquennal, 1985-89.

The 1985-89 Plan provides for DA 31.5 billion (or about US$6.8 billion) of newinvestment commitments for the three education and training ministries. Aneven larger amount (DA 33.2 billion, or about US$7.1 billion) is programmed inthe form of ongoing commitments from the first Five-Year Plan. All but DA19.7 billion of this DA 64.7 billion total is scheduled to be implemented (andpaid for) during the 1985-89 Plan. Although planned expenditures foreducation investments account for a relatively modest 8.22 of total investmentexpenditures programmed in the Plan, they constitute a very major investmenteffort in relation to what was achieved during the last Plan. Timelyimplementation of this program would require a significant strengthening ofstaff capacities by the agencies involved. The Minisbty of Education isallocated almost 49% of the funds to be made available, the Ministry of HigherEducation 22% and the rest is allocated to training (292).

10.39 MOE investments account for just over two-thirds of programmedinvestments for the three ministries. A total of DA 19 billion is allocatedto the MOE for new investments commitments, whereas DA 17 billion isprogrammed in the form of ongoing commitmente from the first Five-Year Plan.Out of this total, DA 14 billion is scheduled to be implemented beyond 1989.The breakdown of the MOE's investment program is provided in Table X.3.

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Table X.3: MOE NEW INVESTMENTS BY CATEGORY

Country of Number Student Estimated Cost % ofInvestment of Units Places (Million) Total MOE

DA US$

Fundamental Education

First and second 19,600 784,000 2,940 630 15.4Cycle (grades 1-6) classrooms

Thirds Cycle (grades 7-9) 866 312,000 6,700 1,435 35.1schools

Teacher Housinig 19,600 2,940 630 15.4

Subtotal, Fundamental Ed. 1,096,000 12,580 2,696 65.9

Student Dormitoriesand Canteens 48 - 240 51 1.2

Secondary Education 156 202,800 6,240 1,336 32.7(entirely for schoolstechnicums)

Regional Education 31 - 31 7 0.2Documentation Centers

MOE TOTAL 1,298,800 19,091 4,090 100.0

10.40 A major share (35.12) of MOE's investment program is appropriatelyoriented to expanding capacity in the new consolidated program for grades 7-9,a key provision of the Government's reform program. It is not clear, however,whether the large investment programmed in teacher housing - which accountsfor fully as large a share (15.4%) of new MOE investments as new classroomsfor the first two cycles of fundamental schooling - is necessary. Clearly,providing adequate housing continues to be a high priority for the Government,but inclusion of such a major housing investment in the MOE program may divertresources from needed investments in fundamental education. Before embarkingon the program, it would be advisable for the Government to assess whethersuch an extensive program of teacher housing is necessary to support theplanned extension of the fundamental school network in remote areas whereadequate teacher housing is not available.

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10.41 A second important question concerns secondary education: the onlynew investments planned for secondary education (grades 10-12) are for 156 newtechnicums. Although the Government sees this as an essential step formeeting its new target of 40% technical enrollments in secondary schooling,there are several reasons to question the justification of this proposedfo:us: most importantly, provision of technical education in the technicumprogram, which has recently been elevated to baccalaureat level, carries therisk of supporting an unanticipated surge in entrants to engineering facultiesand post-secondary technicial institutes, rather than meeting urgentlabor-market needs for middle-level technical manpower. Moreover, thelower-than-targetted current share of technical secondary enrollments mayreflect a reluctance on the part of secondary school students and theirparents to pursue technical education. Finally, the MOE is not as well placedas the MOVT to provide secondary level technical education/training of assuredjob relevance. The Government should, for all these reasons, reconsider theproposed technicum investment program. Alternative investments which meritconsideration are: (a) increased MOE allocations for secondary generaleducation; and (b) increased MOVT allocations for secondary level vocationaltraining centers. If, in spite of these reservations, the Government doesproceed with the proposed technicum investment, it should seriously considermeasures - such as removal of the baccalaureat for completers of the technicumprogram - in order to underscore the middle-level manpower training mission ofthese institutions.

10.42 An element of the MOE investment program which is not apparent andwhich should be supported is rehabilitation of existing MOE schools. The MOEhas been very active arnd successful in its rehabilitation, conversion andre-equipping program for 300 existing middle schools and 100 general secondaryschools; all middle schools are now equipped with laboratories and workshops.It will continue to be involved in such a program; in addition, the MOEDirectorate of Infrastructure and the wilayate has delivered 47 new thirdcycle schools on average annually from 1964 to 1984, 30 lycees and 2,450classrooms per year. In fact in 1984, 120 new third cycle schools were putinto operation.

10.43 The MOHE investment program incorporates both expansion,rehabilitation and equipping of existing structures, but also a major newconstruction program of university institutes and schools and dormitoryaccommodation outside the four main universities. A total of DA 6.5 billionis allocated to the MOHE for new investment commitments, whereas DA 5.2 billionis programmed in the form of ongoing commitments from the first Five-YearDevelopment Plan. Out of this total, DA 1.7 billion is scheduled to beimplemented beyond 1989. The number of new places planned to be constructedand equipped are 50,000 and 42,000 dormitory places. Because this is a veryhigh proportion of dormitory places in relation to new classrooms, somereduction in this element of the program may be possible withGut sacrificingeducational outputs; the MOHE should seriously consider the possibility ofsuch a reduction. In addition, some 88,000 existing student places need to bebrought up to standard in institutes in 16 localities. This conversion andrehabilitation is important to ensure the availability of 66,000 appropriateplaces for technological studies; the remainder would be for other branches ofstudy. In the new construction program, too, the emphasis is on technology; of

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the 63 new institutes to be constructed, 32 are exclusively for technologicalstudies. The allocations in the new construction program by type of programallows for only DA 500 million, including just over DA 110 million forfurniture and equipment. This appears too low in view of the number of places,particularly for technological studies, which are to be provided, includingworkshops and laboratories for the 18,000 additional places to train higherlevel technicians.

10.44 With regard to the Ministry of vocational training and labor (MOVT),the investment program incorporates equipping of existing structures but alsoa major new construction program of vocational training institutions. A totalof DA 6 billion is allocated to the MOVT for new investment commitmentswhereas DA 11 billion is programmed in the form of ongoing commitments fromthe first Five Year Development Plan. Out of this total, DA 4 billion isscheduled to be implemented beyond 1989. Emphasis is being placed on theutilization of norms, control of costs and timely implementation of projects.The cost per training places in the new programs is expected to be reduced by50X. In addition to the 70,0000 training places being created as part ofongoing programs, 100,000 new training places will be created over the period1985-89, (60,000 by MOVT). According to the Plan targets the vocationaltraining system is expected to produce 83,000 senior technicians (Level 5),152,000 junior technicians (Level 4) and 400,000 skilled and semi-skilled(Levels 3 and 2). The MOVT recognizes that it will not reach the targets ofthe Plan and that the completion of the proposed program might take placebeyond 1989. In addition the Plan rightly emphasizes qualitative improvementsthroughout the system. Specifically, the Plan calls for better utilization ofexisting capacity, better coordination among the various programs, improvedcurricula and teaching methods.

D. Conclusions and Recommendations

10.45 The educational objectives of the second Five Year Plan, 1985-89 canbe realized for the most part; the physical targets, however, may have beenoverstated; the question arises whether in the time limit of the Plan, aphysical program of the magnitude and the range envisaged is feasible in termsof the design, construction, supervision and procurement capacity of theauthorities concerned. Financial feasibility of the program is alsoquestionable. The mission recommends action on the lines the nationaleducational authorities appear to be considering to keep the program withinfeasible limits, thereby avoiding imbalances and bottlenecks in implementation.This might be accomplished by retaining the overall quantitative targets ofthe Plan, but rephasing and aiming at a two- or three-year extension of thePlan time limit. The formal education system needs to consolidate after20 years of continued activity. Slower implementation would provide time toevaluate the various reform measures and the reform as a whole, to researchthe causes of existing weaknesses, to allow time for specialist teachers to betrained, and to gain further experience.

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10.46 The mission recommends, however, that there should be no slowing downof: (a) the vocational teacher training program; (b) the vocational trainingcenter program; (c) the secondary teacher training program; and (d) reinforcingof the IPN and the MOE higher cadre and regional personnel training centers.

10.47 The mission has suggested a review of the technicum physical programwith particular reference to considerations of pedagogical and financialadvantages of more "polyvalent" secondary schools, particularly in the smallercities and towns. It may be possible to add two or three technical educationstreams to existing general secondary schools in some towns and avoid settingup a large centrally situated technicum in a city to serve distant satellitetowns. Further thought should also be given to the question of whether thetechnicums should allow access to higher education.

10.48 The Plan proposals for greatly expanded vocational training centersand reinforcement of a systematic apprenticeship scheme should be vigorouslypursued if the hundreds of thousands of 15/16 year olds are to be given areasonable chance to enter productive employment. Part of this program couldbe substituted for the proposed expansion of MOE secondary-level technicaleducation, whose justification under the proposed program has not been fullyestablished. The remarkable expansion of vocational training centers by theMOVT has resulted in qualitative difficiencies. Major problems may beexpected in the areas of: planning to meet regional government and locallevel needs; standardization of programs and equipment; staff training andupgrading; and coordination among various providers of vocational training.Priority should be granted to the urgent task of improving the quality oftraining programs and enhancing their relevance to the labor market needs. Anumber of critical activities, such as instructor training, training needsassessment, curriculum development, standards and certification and planningand maintenance of buildings and equipment, should be strengthened.

10.49 Measures should also be considered for controlling the flow ofstudents to progressively higher levels of schooling. Intakes into thesecondary level may be slowed down by reducing the progression rate from 50%to 40%. Such a step should be taken in conjunction with review of thebaccalaureat examination process. Consideration needs to be given to ways andmeans to induce more baccalaureates to enroll in the shorter, sub-professionaltechnical courses. It may be possible to begin to review the scholarshipprogram at higher education level now that secondary school leavers areincreasing to a point at which the higher education institutions may not beable to absorb all those qualifying for entry under the present qualificationrequirements. Perhaps it may become necessary to introduce a specialexamination for entry to the universities other than the traditionalbaccalaureat and award scholarships on this basis; an alternative orcomplementary approach may be the introduction of some form of means test,supplemented where necessary by a loan scheme.

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10.50 Considerable efforts should be devoted to the control of bothinvestment and recurrent costs. Unit costs are still high even though therehave been considerable savings in the last decade as a result of measuresundertaken. The issue of massive scholarship support and the extensivestudent boarding program should be reexamined, as should the extensive programof teacher housing in basic schooling. The adoption of norms and standards inthe construction and equipping of institutions would be an essential featureof a cost reduction program. Similarly a review of the "carte scolaire",wilayate by wilayate would help rationalize the school construction program.Finally the weekly workload of teachers should be reviewed especially at thesecondary school level.

S8aSs

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CHAPTER XI - THE URBAN AND HOUSING SECTOR

A. ReAional Distribution of the Population

11.01 The Algerian population is unevenly distributed. About 682 of thepopulation lives in the coastal region, which comprises only 5% of thecountry's area. Another 23% is settled in the subcoastal region and in thehigh plains in about 10% of the country's area. The Saharian region whichconstitutes the remaining 86% of the area suupports only 8b of the population.

Table XI.1: DISTRIBUTION OF THE POPULATIONBY MAIN GEOGRAPHICAL REGIONS, 1980

InhabitantArea in per

Region Population Percent Sq. Km. Percent Sq. Km.

A. North (coastal) 13,864,144 68.41 113,751 4.75 121.88

B. High Plains 4,734,673 23.36 226,589 9.47 20.90

C. South (Sahara) 1,667,807 8.23 2,052,552 85.78 0.81

TOTAL 20,266,624 100.00 2,392,892 100.00 8.47

B. Urbanization

11.02 The principal Algerian cities developed according to European modelsand were inhabited largely by Europeans up until the early 1960s. With thedeparture of the Europeans after 1962, the composition of the urban populationchanged drastically. Algerians from rural areas moved to the urban centersand occupied the housing left vacant by the Europeans. Although the migratoryinflux slowed after 1966, the cities continued to grow rapidly, spurred byindustrialization, economic development, and the natural increase inpopulation. The annual population increase of 5.8% for the urban areas - incontrast to the annual rate of 3.2% for the total population - is indicativeof the rapid pace of urbanization in Algeria. Of the estimated 1985population of 22 million inhabitants, 47.5% live in urban areas. Algiers'metropolitan area has a population of about 1.75 million; three other cities(Oran, Constantine, and Annaba) have populations between 300,000 and 500,000and twelve other cities number between 100,000 and 300,000 inhabitants. Thisrapid growth of cities and the concentration of investment on the so-calledproductive sector for the fifteen years following Algerian independencecontributed to the housing shortage that has become a major problem in mostAlgerian cities.

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11.03 In 1977, the seriousness of the housing shortages pushed theGovernment to take remedial actions. The Ministry for Housing, Construction,and Urban Affairs (MHCU), renamed recently the Ministry of RegionalDevelopment, Urbanism, and Construction, was created at the same time theinstitutions active in the sector were restructured. Housing became anintegral part of national and sectoral planning, and 'he first elements of ahousing policy were formulated and implemented as part of the nationaleconomic plans.1'

C. Objectives of the Five-Year Plans

11.04 The first Five-Year Plan (1980-84) set the following objtctives forhousing:

(a) accelerate the delivery rate of housing and reduce delays inconstruction;

(b) offer housing integrated with social services to improve livingconditions;

(c) control expansion of settlements to preserve agricultural land; and

(d) encourage the contribution of citizens in implementing housingprograms.

The second Five-Year Plan (1985-89) reaffirmed the same objectives andstressed actions to (a) increase housing production by a more efficientorganization of the construction sector; (b) clarify the tasks assigned to theadministration, the public developers, and the financial institutions involvedin housing; and (c) mobilize savings of the collectivit6s locales(municipalities and willayas) and the citizens to reduce the burden of housingfinance on the Government.

11.05 In order to achieve these objectives the two plans envisaged to:

(a) encourage private sector construction and simplify the proceduresindividuals face to obtain land, building permits, and financing;

(b) improve the set-up of organizations dealing with urban planning,housing studies and implementation and better allocate theirexpertise at the local and regional levels;

(c) adopt new statutes for institutions involved in the development andmanagement of real estate (OPGI);

1/ 1967-69: first three-year plan1970-73: first four-year plan1974-77: second four-year plan1980-84: first five-year plan1985-89: second five-year planThe years 1962, 1966, 1978, and 1979 were not included in any plan.

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(d) sell government-owned housing to their occupants; and

(e) develop the eonstruction material industry.

11.06 The Government has already taken some steps to achieve the planobjectives; it has continued to allocate more powers and autonomy to thewilayas, to restructure and decentralize the public construction enterprises,to issue decrees to promote private participation in housing production, andto sell government-owned properties to their occupants.

D. Physical Performance

11.07 The first Five-Year Plan envisioned the construction of about 700,000housing units by both the public and private sectors. Out of the totalbuilding program only 652 were completed (458,000 units were completed out ofwhich 333,000 units were built by the public sector and 125,000 units by theprivate sector).

11.08 The second Five-Year Plan anticipated the delivery of 542,000 unitsout of which 356,000 are carry-overs from previous programs (out of674,000 units under construction). During the first year of this plan (1985),about 88,000 public housing units were completed and an estimated 110,000 areexpected to be coapleted in 1986. Table XI.2 indicates the number of unitscompleted in each year of the plan and the projections for 1986, while Annex 2provides information about the existing hausing stock. The low number ofhousing units completed is due primarily to the limited capacity of theconstruction enterprises and disruptions in the supply of constructionmaterials rather than to financial constraints.

Table XI.2: TARGETS AND REALIZATIONS OF THE FIVE-YEAR PLAN 1980-84

Targets Achievement1980-84 1980 1981 1982 1983 1984 Total Rate (%)

A. Public Sector 450 36.3 45.9 72.5 85.6 72.7 333 74.00Urban 300 25.4 28.6 42.7 45.3 38.6 180.6 60.20Chelif - - 20Rural 150 10.9 17.3 29.8 40.3 34.1 132.4 88.27

B. Private Sector 250"' 20 20 23 32 30 125 /b 50.00

TOTAL 700 56.3 65.9 95.5 117.6 102.7 458 65.43

/a Including 150,000 housing units to be sold in the context of the law relatedto farmily housing.

/b Excluding about 100,000 housing units built without license.

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11.09 The Government's remedial actions during the two Five-Year Planperiods concentrated on increasing production capacity to solve thequantitative aspect of housing without much regard for either the qualitativeconcerns or cost and efficiency in the use of available resources. Housingshortages persisted despite government intervention and the increase inresources allocated to productio ; overcrowding measured by number of personsper housing unit actually increased from 6.1 in 1966 to about 7.8 in 1985. Asa result, government officials realized that public means and centralgovernment investment alone would neither improve the housing situation normeet the rapid increase in housing demand. New programs are, therefore,designed to incorporate private resources in the housing supply process as acomplement to available public resources. Policies are formulated to improvesystematic planning and programming of investment and to better utilizenational resources in developing housing, especially through a new legislationconcerning private builders enacted in 1986.

E. Financial Performance

11.10 The total investment for both urban and rural housing -- budgetaryallocations to OPGIs (Offices de Promotion et de Gestion Immobiliere)through CNEP (Caisse Nationale d'Epargne et de Prevoyance) -- amounted toabout DA 50 billion during the first Five-Year Plan. The second Five-YearPlan foresees DA 81 billion for the same purpose. Table XI.3 summarizes theallocations in both Five-Year Plans.

Table XI.3: INVESTMENT IN THE FIRST AND SECOND FIVE-YEAR PLANS(in millions of Algerian dinars)

A: 1980-84 Plan Total AllocationsBudgetary and Loans

Programmed Consumed Percent ConsumedUrban and Rural 45,000 31,000Private 15,000 12,000Subtotal 60,000 43,000 80

Urbanism & Studies 2,500 2,000 2' N.A.TOTAL 62,500 45,000 N.A.

B: 1985-89 Plan Total AllocationsBudgetary and Loans

ProgrammedUrban & (public) Rural 52,000Private 24,300Urbanism & Studies 4,950TOTAL 81,250

1/ Mainly OPGIs (Offices de Promotion et de Gestion Immobiliere).2/ Amount estimated by mission.Source: Second Five-Year Plan except for amount for urbanism and

studies, which are estimates by the mission.

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11.11 Budget allocations for housing programs are governed by a multiyearbreakdown and commitment authorizations which enable the central governmentagencies and the wilayas to award contracts for works lasting several years.However, the government's annual capital budget refers only to credits payablewithin one fiscal year; i.e., it represents the maximum amount that canactually be disbursed during a given year.

11.12 Under "Housing," the government capital budget distinguishes amongcredits for physical planning and studies, urban housing and rural housing.Table XI.4 summarizes these data.

Table XI.4: CAPITAL BUDGET: GRANT FINANCING FOR THEHOUSING AND URBAN PLANNING SECTORS(in million of Algerian dinars)

'9851980 1981 1982 1983 1984 Total Plan 1986

Ph3sical Planningand Studies 115 756 949 876 1,158 3,854 1,086 1,200

Urban Housing 72 731 457 497 390 2,147 94 300

Rural Housing 1,608 1,607 2,345 2,345 1,843 9,748 1,603 1,340

Total 1,795 3,094 3,751 3,718 3,391 15,749 2,863 2,840

Source: Ministry of Finance.

11.13 Housing programs are mainly financed through public funds, either asnonreimbursable funds grants-' (conventional appropriations from the budget)or reimbursable government loans?' (mostly through CNEP). Total allocations(capital budget, loans, and operational expenses) for the first Five-YearPlan, 1985, and 1986 are shown in Table 5.

11.14 Public housing finance has played an important role in increasing thesupply of housing in Algeria. Despite the priority given by the publicauthorities to housing, the multitude of administrative procedures andregulations that governs all transactions on land stands as a seriousconstraint to the continued development of the sector. Although theavailability of public funds has not been a major impediment to housingproduction and delivery, it is quickly becoming an important one as governmentrevenue from the hydrocarbon sector decreases. The Government, aware of thelikelihood of financial retrenchment, is trying to reduce the share of publicfinancing in housing.

1/ Concours definitif.2/ Concours tempoeaire.

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Table XI.5: SUMMARY OF TOTAL ALLOCATIONS(Budgetary Allocations and Loans to Public Enterprises)

(in thousands of Algerian dinars)

BudgetaryAllocations Loans to

Public Capital Operational TotalYear Enterprises Expenditures Expenses Allocations

1980 4,000,000 1,795,751 116,903 5,912,6541981 6,868,000 3,094,783 182,232 10,145,0151982 5,600,000 3,752,631 221.555 9,574,1861983 8,670,000 3,718*203 264,744 12,652,9471984 8,550,000 3,391,405 308,279 12,,249,684

Total Plan 33,688*000 15,752,773 1,093,713 50t534,486

1985 7,977,000 3,028,296 N.A. 11,005,2961986 7,900,000 29863 N.Ao 7,902,863

Source: Ministry of Finance.

11.15 Although thus far the financial burden has been tolerable, it willcreate problems in the future if oil revenue continues to fall. Moreover,speeding up the rate of housing production, financed by savings collected bythe CNEP, may result in a correlative reduction in CNEP deposits with theTreasury and hence increase the financial shortfall. However, potentialsavings have not been completely mobilized due to the low level of housingunit quotas made available to the savers.

F. Institutional Aspects

11.16 The Ministry of Regional Development, Urbanism, and Construction, andthe Ministry of Interior are the two main central ministries working in theurban sector. Other institutions which play a role are described below.

11.17 Wilayas and Communes: Wilayas are the public, decentralizedcollectivit6s established by Ordinance No. 69-38 of 1969. The wilara isadministered by the Popular Assembly of the Wilaya (APW) and by an executivechaired by the wali; the latter is appointeu by the central government andrepresents at the decentralized level each of the central ministers.

11.18 The APW examines and approves the budget. It defines the objectivesand plans of action for the wilaya, supervises all operations related to thedevelopment of infrastructure, energy sources, roads, hydraulics, and ports.It also asumes the responsibility for the delivery of rural and urban

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housing. The APW manages all real estate properties which are controlled bythe wilaya and decides on the new urban housing zones (ZUHN)."' It alsoassists in the creation of public enterprises for construction and investmentin the wilaya.

11.19 The firiaucial resources of the wilaya are based on (i) its own funds,(ii) budgetary allocations through loans, (iii) special funds (fonds comnundes collectivites locales), and (iv) any proceeds from the public enterprisesof the wilaya.

11.20 Each wilaya conmprises several communes. The communes, administeredby the Popular Assembly of the Communes (APC), are responsible throughpermanent committees to study the economic, financial, administrative, social,cultural, and agricultural development as well as issues related to publicworks and communal facilities.

11.21 OPGIs were created by Ordinance No. 7693 of October 23, 1976 as apublic institution in each wilaya. The OPGIs are responsible for theconstruction, management and maintenance of rental housing in the wilaya.OPGIs became responsible for selling government-owned public housing to theiroccupants. In fact, the OPGIs have limited executive control and thereforetheir authority is limited. The Service de l'Urbanisme de la Construction etde l'Habitat (SUCH), a department of the Ministry of Regional Planning,Urbanism, and Construction, has a branch in each wilaya and is in charge ofprogramming and production processes for housing. In addition, SUCH carriesout urban studies and coordinates all project implementation. Consequently,in each city, the OPGI is confined to administrative and maintenance tasks;because of their limited authority and their inability to enforce regulationsthe tasks are not adequately performed. Reinforcement of the OPGIs is neededto enable them to perform their duties as full-fledged housing developers, inaddition to their management and maintenance functions.

11.22 EPLFs (Entreprises Publiques du Logement Familial) were establishedafter the dissolution of the ONLF (Office National du Logement Familial) in1984. At present, there are 25 EPLFs which are public developers constructinghousing destined for sale. EPLFs are involved in acquisition and developmentof land and construction. EPLFs' activities are financed through loans fromCNEP.

11.23 CNEP is a financial institution founded in 1964 to mobilize householdsavings. In 1971, its responsibilities were enlarged to provide housingfinance. CNEP's activity is based on the mobilization of private resourcesfrom households and the management of public funds put at its disposal by theTreasury for public programs. The private funds are collected through savingsaccounts; these accounts (bearing a 5% interest rate) are not earmarked forhousing loans but are prerequisite to obtain a loan. These funds, which areabout 40% of CNEP resources, are used by CNEP to finance EPLF and cooperativesproducing owners' occupied houses. Public funds (about 602 of CNEP resources)are loaned by the Treasury to CNEP at an interest rate of 0.252 for 40 years;CNEP in turn releases them to OPGIs to produce rental housing.

1/ Zones Urbaines d'Habitation Nouvelle.

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11.24 The financial terms of CNEP's loans vary according to the source offunding, the purpose of the loan, and the intended recipient. All recipientsof CNEP loans, except for OPGI and the nonsaver individuals, must have twoyears of previous savings to allow an accumulation of a minimum DA 500 ininterest for individuals. They must also put a dcwnpayment that variesaccording to the income of the beneficiaries 120, 25, or 302); the upper limitof loans for individuals is set at DA 450,000. Table XI.6 indicates thedifferent kind of loans managed by CNEP.

Table XI.6

Source Recipient Purpose Terms

A- Public-managed OPGI Construction of 12 per annum for 40funds public housing years; 4 years of

for rent (tech- gracenical specifi-cations andcosting norms)

B- Private mobilized EPLF Construction of 6% per annum for 25funds public housing years; 4 years of

for sale grace

Individual Private housing 61 per annum for 25savers and acquisition or yearscooperatives construction

Individuals Private housing 8% per annum for(nonsavers) acquisition or 15 years

construction

11.25 The repartition of CNEP use of its resources represents an unbalatcedstructure. In 1984 for example, 601 of CNEP resources were used to financerental loans to OPGIs, 361 for equipment bonds, and only 4% for loans directlyor indirectly destined for private beneficiaries for property acquisition.

11.26 The terms for the loans to OPGI are for 40 years at an interest rateof 1%. Despite of these very concessionary terms, the OPGIs do not appear tobe repaying these loans, because of cost overruns and inadequate rents.

11.27 By 1985, the cumulative housing loans to CNEP reached DA 52 billion,whereas CNEP deposits with the Treasury (comprising amounts not disbursed byCNEP) were DA 32 billion. This DA 20 billion shortfall has pgrown over thelast few years at the rate of between DA 3 billion and DA 4 billion per year.It represents the difference between total government loans to CNEP in a givenyear and the annual increase in savings obtained by CNEP, all of which aredeposited with the Treasury.

11.28 BDL (Banque de D6velopment Local) was created by decree in April 1985as part of the restructuring of the banking system and the transformation ofthe Department of Public Credit in CPA into a public autonomous institution.

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BDL acquired the 43 offices from CPA and added 34 new offices. At present, ithas 77 offices and is still expanding so as to have at least one branch ineach wilaya.

11.29 BDL is allowed to perform all of the banking operations related tothe development of the local public entreprises. It provides loans eitherfrom its own resources or from funds put at its disposal by the Governmentfor approved income-generating operations, public construction, andnon-agricultural private companies. It is envisaged that BDL will evolve intoa full-fledged institution to finance the local collectivites and theirenterprises.

11.30 BDL lends both its own funds and the advances it receives from theTreasury at medium-term (7 years) and long-term (12 years) at an interest rateof 5.5% and 2.5X, respectively, with 2 and ' years grace periods. The fundsare loaned to those enterprises approved by the national plan. About 10% ofBDL lending goes to private companies.

11.31 BDL's mode of operation is still experimental. It is legally boundto lend to all projects approved by the national plan. Lending to theborrowing enterprise is guaranteed by the wilaya. BDL sees the importance ofstrengthening its urban studies and evaluation capacity in order to be betterable to analyze the risks and feasibility of the projects to which it lendsits funds. It would also like to have the right to refuse lending to projectsthat it finds financially or technically unfeasible. Eventually, BDLenvisions itself as a full-service bank for the collectivites locales.

G. Construction Enterprises

11.32 The construction industry in Algeria has been growing to keep pacewith the country's rapidly expanding economy. Since the 1970s, the industryhas emphasized large-scale industrialization and prefabrication with the aimof achieving a rapid response to increasing housing demands. Maximumefficiency and higher productivity were expected to result from theseindustrialized systems. Therefore, a large share of investments was devotedto acquiring heavy prefabrication plants and construction equipment. However,most of these industrialized construction systems proved to be economicallyinefficient, as a result of a lack in mastering techniques.

11.33 The construction/contracting industry in Algeria is compartmentalizedinto various national, regional, and specialized functions with a markeddivision between civil works (travaux publics) and building (batiments).Construction enterprises tend to specialize in one type of work, withoutdiversification of activities, except at the lower end of the scale (communaland private enterprises). Most of the construction enterprises are under thecontrol of the walis. Recently, a move towards decentralization resulted inthe transfer of more than 100 construction enterprises at the level of thewilayas. These enterprises nevertheless remain small and undertake mainlymaintenance works, buildings, and small civil works. The activities ofprivate construction firms are oriented towards housing, small industrialprojects, and public equipments.

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11.34 Construction is a major employment generator and at present itemploys about 24.5% of the non-agricultural labor force. According to thesecond Five-Year Plan, employment in the construction industry is expected togrow at a rate of 6.52 and to generate about 272 of the new non-agriculturaljobs needed to meet the employment demands during the plan period.

11.35 About 422 of investments in construction activities are for civilworks (dams, roads, irrigation), 34% for buildings other than housing(communal and public, hospitals, schools and factories), and 24% for housing.Most construction enterprises are hampered by serious managerial, financialand organizational problems. The enterprises cannot fulfill their contractualobligations on time. The low productivity of these enterprises is reflectedin the high cost of construction and in the delays in completion of the works.The situation is detrimental to housing, infrastructure work, and cost levels.

11.36 The availability of construction materials is another hindrancefacing the construction industry. Frequently, the shortfall in production ofneeded material is aggravated by significant delays and high cost of imports.In summary, the following factors constrain both the contracting/constructionenterprises and the construction industry:

(a) shortage of construction materials;

(b) shortage of managerial responsibility and technical skills;

(c) overcapitalization in equipment and industrialized systems in thepast, with a tendency to moderation in more recent years;

(d) high costs, resulting from high volume of demand, poor cost controland feedback in field operations, estimating and scheduling, and.managment;

11.37 The Government is aware of the many problems facing the constructionindustry. The Five-Year Plan stresses the importance of improving theindustry's efficiency and cost effectiveness. A practical action plan is nowneeded to restructure the construction/contracting industry according to theprinciples of accountability, competition, and autonomy. The action planshould emphasize the following measures:

(a) allow full autonomy to the enterprises and greater freedom to theirmanagement;

(b) encourage competition on equal terms among public enterprises, theprivate sector, and foreign contractors; encourage the creation ofsemi-public companies;

(c) improve the performance of managerial and technical staff byintroducing appropriate training and up-to-date management techniquesfor construction projects, including scheduling, programming, andcost control;

(d) improve planning to ensure the availability of construction material.

58a96

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CHAPTER XII - WATER SUPPLY AND SEWERAGE

A. Water Resources

12.01 Total water resources in Alieria are estimated at 16.8 billion m3

per year, comprising 13.5 billion m of surface water and 3.3 billion m3

of groundwater. Surface resources, however, are generally difficult toexploit. Most of the rivers are dry in the summer and their water, of poorquality, cannot readily be used for domestic or industrial supply. Theirregulation through costly reservoirs is often required to obtain economicallyexploitable yields. On the other hand, the rate of infiltration from stormrunoff and surface resources is high, resulting in groundwater being availableover most of the country.

12.02 Most urban areas are presently supplied with groundwater, which isalso the main source of water for irrigated agriculture. While surface wateris under-exploited, groundwater resources are already utilized almost to fullcapacity. Domestic and industrial uses currently account for about 252 ofwater used. These needs will expand rapidly, however, as population grows andwater consumption, currently below the desirable minimum in many areas,increases. It is estimated that only about 35% (300,000 ha) of irrigable landis currently exploited. As irrigated agriculture develops, its water needswill also grow.

12.03 The following table gives a very broad indication of the present andfuture pattern of water utilization. Even though water demands will still bewell below the L- Letical maximum available by that period, serious waterdeficiencies, and potential conflicts of use, are likely to develop in themore densely populated watersheds, and along the coastal areas where themajority of the population is concentrated. Water shortages already exist indensely populated river basins (Algiers and Oran are examples), where presentdemand exceeds available supplies necessitating costly inter-basintransfers.-l

Table XII.1:WATER UTILIZATION, 1981

(In billions of cubic meters)

By Source _ By End-User _

Dams 0.56 17 Drinking Water 0.70 21Northern Aquifers 1.27 37 Industry 0.14 4Southern Aquifers 0.60 18 Agriculture 2.54 75Springs, Wells, etc. 0.95 28

Total 3.38 100 Total 3.38 100

1/ Given groundwater shortages, the Government prepared a water resources andwater supply Master Plan for Greater Algiers with World Bank assistancethrough an engineering loan made in 1980. The project is now beingimplemented.

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Table XII.1 (cont'd):WATER UTILIZATION, 2010(In billions of cubic meters)

By End-User

Drinking Water 3.20 37Industry 0.64 7Agriculture 4.80 56

8.64 100

12.04 Given these developing resource constraints, integrated watershedmanagement is of priority concern in planning; the needs of agriculture mustbe balanced with those of the population for drinking water; the priority ofuse of groundwater (usually of better quality than river -water) for irrigationand for domestic use must be assessed, and there will be increasing use oftreated domestic waste water for agriculture. This has already started inConstantine, and in the Metidja Plain surrounding Greater Algiers. Governmentis well aware of the need for careful resource planning and has given absolutepriority to the development of water resources (para. 2.01). It has alsostated that water demands should be met in the following order of priority;firftly, domestic requirements; secondly, irrigated agriculture; thirdly,industry. Government has also given high priority to development of economicand social infrastructure (para. 2.01).

B. Recent Sector Organization and Developments

12.05 The Min5stry of Hydraulics, Environment and Forestry (MHEF) isresponsible for the development and conservation of the country's waterresources. Concentration of responsibilities for water resource development,whether for domestic use or for irrigation, under one Ministry facilitatesintegrated water resource management. Up to the late 1970'q an agency ofMHEF, the Societe Nationale de Distribution d'Eau Potable et Industrielle(SONADF.) was rebponsible for water production. Distribution and maintenancewere the responsibility of Municipalities (responsible to the Ministry ofInterior), which purchased water from SONADE. Investments were generallyfinanced by Government grant, tariffs were low and service and maintenancelevels poor. Municipality indebtedness to SONADE was considerable. Areorganization of the sector was called for.

12.06 The Soci6te des Eaux de l'Agglom6ration d'Alger (SEDAL) wasestablished in 1977 under a World Bank sewerage project loan. Intended as amodel for water and sewerage organization for Algeria, it operated as afinancially autonomous public-owned enterprise, managed as a commercialundertaking, with a corporate statute. Its parent authority was the Ministryof Hydraulics (instead of the Ministry of the Interior as previously). Theexperiment proved successful; already by 1985, internal cash generation and

l/ Assumptions: Population 44 millions water consumption lcd 200; industrialneeds are 20i of domestic needs; Irrigated agricultural area doubles to600,00 ha; water utilization per ha is 8,000 m 3 .

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customers' contributions were able to cover debt service and over 10% of thecost of a new project for the city, also financed by loans from the World Bankand commercial banks; Government equity financed only half the costs of thenew project.

12.07 Following on this success, an entirn reorganization of the sector wascarried out in 1983; 12 more regional enterprises were created along the linesof SEDAL, covering the entire country, providing water to both urban and ruralareas, and all responsible to MHEF. Again the World Bank provided assistancefor strengthening these companies under a loan to finance water and sewerageworks in Oran and Constantine, made effective in 1985.

12.08 In order to coordinate the operations of the regional authoritiessatisfactorily, the "Agence Nationale de lVEau Potable et Industrielle et del'Assainnissement" (AGEP) was established in 1985, within MHEF. Its role isto assist MHEF in planning and identifying water supply and sewerage investmentprograms, and identifying the required level of Government contribution to thecompanies to optimize use of financial resources in the sector. AGEP alsosets tariffs to recover costs on a nationwide basis (with cross subsidy fromlow-cost to high-cost companies) and formulates detailed sector policies.

12.09 In conjunction with the 1983 sector reorganization, Government issueda Water Code to regulate the allocation and protection of water resources andto set out financial policies for the sector. The Code deals with ownership,concession and use of water resources; it also prescribes that the waterutilities companies should be managed as commercial enterprises, settingtariffs that encourage economic use of water and enable the entities to befinancially self-supporting.

12.10 The water and sewerage sector has thus undergone substantialreorganization over the past 10 years, with overall responsibility for thesector concentrated under one ministry, and management decentralized toregional utilities companies. The sector's legal and institutional frameworkis appropriate and encourages the rational exploitation of water resources.Much remains to be done, however, to strengthen these institutions and improveprogram implementation. It will take several years to strengthen the newlyestablished regional utilities companies. Further assistance in institutionbuilding will be provided under another World Bank Project under preparation,the Second National Water Supply Project, which will help expand thedistribution systems of the companies and expand this water production andtransmission capacities.

C. Current Service Levels

1. Water

12.11 Government investments over the last decade (see below para. 1.13),have been extensive: new household total connections were supplied to anestimated 2.4 million people between 1977 and 1985. Despite this achievement,attained in a period of rapid population growth of about 3.22 per annum,during which urban population alone increased by 2.9 million, much remains to

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be done. Because of rapid urban population growth, in absolute numbers morepeople in urban areas are without water than 10 years ago. Annexes 12.1 showswater supply service levels in 1985 in the urban areas of the 31 provinces ofAlgeria. Although over 802 of the urban population is provided with directwater service lines, only a third can be considered well served. Preliminaryresults from a survey in 36 towns with populations ranging from 2,000 to 3,000are shown in Annex 12.2. The overall consumption varies widely, from 20 lcdin Chelyhoun in the Kabylic Mountains to 286 lcd in El Golea in CentralAlgeria; but in most cases is inadequate. Water consumption has been limitedby inadequate production and distribution capacity and the high volume ofunaccounted-for water, which in some towns reaches 30% of production. Watersupply in most cities is intermittent and available no more than 12 hours perday. Although about 70S of the rural population (those living in settlementsof under 2,000 people) are provided by with public water supply, only about401 have direct household connections.

2. Sewerage

12.12 About 801 of the urban and 25% of the rural population are connectedto public sewerage networks, which in most cases are combined systems alsocarrying storm-water runoff. Effluents are generally discharged untreated inrivers and along the shorelines, and have caused serious water pollution.Water treatment works are now under construction in Greater Algiers.Government's first priority has understandably been on water supply; however,improved sewerage provision and appropriate treatment and reuse of effluentare becoming increasingly serious concerns.

D. Publc Investment PronTqw

12.13 Through the 1960's and early 1970's as Government sought to build upthe economic base of the country through establishment of heavy industry,investment in basic infrastructure was neglected. Systems laid down duringthe colonial period were not expanded or maintained, and water supply shortagesbecame increasingly serious as population, and specifically urban populationgrew. Investments in water resource development for irrigation were alsoneglected. In the late 1970's Government strategy changed, and emphasis wasplaced on water resource development and on improving basic infrastructure,whose inadequacies had caused serious difficulties for the continueddevelopment of industry, and for the urban population. The Table belowillustrates the increasing importance attached to water and sewerageinvestments through successive plan periods. It may be noted that, despite agrowth in the proportion of water in investments over the last 10 years, thecurrent share, 7.41, still compares modestly with that in other countries.For example, the share of water and sewerage alone in public investment(excluding water resources and irrigation development) is 9.31 in the currentPlan for Turkey, and 101 for Tunisia. Investment in water and sewerage as aproportion of overall public investment is unlikely to be reduced and may haveto be increased further, over the next plan period.

- 190 -

Table XII.2:WATER SECTOR INVESTMENT

DA US$ S of Total PIPInvestment Plan Billion Billion Investment

1974-70 18.5 3.7 3.91980-84 23.0 4.6 5.71985-89 41.0 8.9 7.4

Note: Includes irrigation and water resource development.

12.14 Government's water resource development strategy for the 1985-89period is summarized below:

(a) Rehabilitation of infrastructure;(b) Water resource conservation;(c) Recovery of the backlog in provision of domestic water supplies;(d) Growth of irrigable land area;(e) Mobilization of new water resources and completion of land and water

resource studies; and(f) Institutional building.

12.15 For water and sewerage specifically, the objectives are:

(a) To improve water storage capacity;(b) To increase the extent of the water distribution network and number

of household connections;(c) To improve drinking water supplies in sparsely populated areas;(d) To satisfy industrial needs;(e) To improve sewerage and sanitation, specially in low income areas and

in big cities; and(f) To improve management of water supply and sewerage systems.

12.16 The principle water supply and sewerage projects in the 1985-89Public Investment Program total DA 9.5 billion. It should be noted that thisfigure excludes costs of laying down distribution systems apart from the pipesthemselves. The projects may thus be regarded as the "core" investments inpotable water production, treatment and transmission. The table below showshow expenditure on this type of project has evolved, over the previous planperiods.

Table XII.3:INVESTMENT IN WATER PRODUCTION, TREATMENT AND TRANSMISSION

Total Per CapitaInvestment Plan DA Billion US$ Billion DA Billion US$ Billion

1974-79 4.0 0.8 240 481980-84 6.0 1.2 300 601985-89 9.5 2.1 435 95

- 191 -

12.17 It will be noted that ongoing investments are concentrated in theAlgiers, Oran and Constantine areas, while new investments are plannedthroughout the country. The main emphasis of the plan is on water supply,with rather little investment in sewerage (as is the case for mostMediterranean countries). About 802 of investment is for large projects, with20% for small community water supply or sanitation projects. Studies for 11sewage treatment plants are included, but construction of only 4 plants isenvisaged in the current plan. The World Bank is supporting or planning tosupport most of the major projects listed in the Investment Plan, through twoprojects currently underway (the Algiers Regional Water Supply Project and thefirst National Water Supply and Sewerage Project), and through a forthcomingproject (the Second National Water Supply Project).

12.18 The principle projects in the Investment Plan are described brieflybelow.

(a) The Algiers Regional Water Supply project (DA 3.3 billion) wouldimprove supplies for 2.1 million people. It comprises theconstruction and equipping of an impounding dam and a diversion dam,construction of a water treatment plant, transmission pipelines,water meters and operational equipment, and a leak detection andrepair program, to MHEF.

(b) The Oran water supply project (DA 1.9 billion) would improve suppliesfor about 800,000 people. It comprises construction of a new surfaceproduction system, a demineralization plant and the rehabilitation ofexisting facilities.

(c) The Constantine project (DA 0.7 billion) would improve supplies forabout 600,000 people. It comprises new water production work,expansion of the distribution network, collection and treatment ofwaste water for reuse in irrigation.

(d) The Ain Zada-Ben Setif project (DA 0.6 billion) would improve suppliesfor 425,000 people in three cities and villages in Setif Wilayaprovince. It comprises a dam (already under construction and excludedfrom the costs), a treatment plant, reservoir, pumping station andtransmission pipelines.

e) The Ain Dalia/Souk Ahras/Quenza project (DA 0.6 billion) wouldimprove water supplies to four cities in the provinces of Guelma andTebessa with a current population of about 200,000; the projectcomprises a dam (excluded from the project costs), treatment plant,reservoirs, pumping station and transmission lines.

f) Approximately DA 4.1 billion are to be spent on 4,000 kms of ductileiron pipes and fittings, which would permit expansion of the waterdistribution network in all 13 regional water authority areas.

Table X*l :

MAIN FEATURES OF WATER SUpPLY AND SEWERAGE SYSTEK =N URRAM CENTERS

PD,tABLE_UATERSUPPLY _

Approximato Consumption _ R26rvatrs Number Avera. Nb. of % of Pop. X of Popul. KirdPopulation Consumption per capita capacity X of of People per with with Septic Other of

Towns ('000) m3/day I/day 03 Consumption Connect. Connnection Sewerasp Tank Systems Sewerage

(1) (2) (3) (4)=L3U (5) (6)="IjxlOO (7) (8)Winxl.000 (9) (10) (11) (12)(2) (3) (7)

Constantine 500.0 57,456 115 50,000 87 22,000 22.7 91 - 9 CoebinateAnnaba 273.0 45,000 165 24,200 54 14.040 19.4 95 - S CcmbinateSidi Bel Abes 178.9 15.000 84 19,000 127 S,500 21.0 - - -

Setif 144.5 29,730 206 7.000 24 10,580 13.7 100 - - C'wbinateBatna 140.0 22,000 157 37,500 171 11.150 12.6 100 - - CombinateBisKra 105.5 13,750 130 11.800 86 12.270 8.6 80 - 20 CoibinateTizi-Ouzou 10.S 19.980 197 l,SOO 58 4,500 22.6 100 - - CombinateTilimcen 92.5 16,020 173 30.500 190 9,570 9.7 90 - 10 CombinateBechar 80.4 6,300 78 9,200 146 9,320 8.6 70 11 19 CoabinateGhardia 75.3 12,000 1S9 22.325 186 12,332 6.1 - 100 - -

Arreridj 69.0 7,870 114 6,000 76 5,020 13.7 100 - CoMbinateMedea 66.4 9.480 143 B,750 92 6,600 10.1 100 - - conkinate '

Maghnia 58.5 7.,00 120 6,750 96 S.070 11.5 93 - 7 CQbinate 'El Eulua 57.1 2,000 35 3,000 150 4,520 12.6 100 - - CoabinateToupgourt 53.0 2,880 54 1,000 3S 3.000 17.7 - - - -

Laghouat 48.5 11,840 244 3,750 32 6,310 7.7 20 80 - SeparateJijel 36.0 8.600 239 14.400 167 4.770 7.5 80 5 1S CobinateBouKhari 29.2 4,460 153 3.950 89 2.630 11.1 85 - 1S CombinateChelghoun 26.0 530 20 2,000 377 - - 59 - 41 CombinateEl 6olea 24.6 7,040 286 2,500 36 1,67S 14.7 - 45 SS -Bouagui 21.2 5.717 270 5.900 103 - - - 10 90 -

Guerrara 19.8 3,760 190 400 11 3,200 6.2 SO SO - SeparateSidi-Aich 18.3 1,188 65 1,600 135 2,950 6.2 95 S - CombinateAflou 17.9 2,800 1S6 8,000 286 2,030 8.8 - - - -

Drean 16.3 749 46 1,000 134 1.280 12.7 60 - 40 CombinateGhozlane 15.0 1.500 100 1,660 111 1.310 11.S 98 _ 2 CoabinateEl Kala 12.5 2,280 182 3,850 169 1.020 12.3 - - - -Tindouf 12.1 900 74 1,4S0 161 770 15.7 40 60 - CombinateAib Abid 7.4 300 41 300 100 610 12.1 90 - 10 CombinateSouteldja 6.3 1.037 165 1,450 140 470 13.4 81 - 19 CoInateTablat S.1 1,176 231 450 38 720 7.1 100 - - separateSEni Abbes 3.9 840 215 1,370 163 690 5.7 94 6 - CsbinateBeni SI iune 3.2 618 193 560 91 630 S.1 100 - - Co3binateIgli 2.S 560 224 - - 430 5.8 100 - - CimbinateEl Roaria 2.1 344 164 200 58 283 7.4 100 - - Csobinate

61368/p8 (5,10)

- 193 -

12.19 Several of the projects include construction of dams for multi-purposeuse; where this is so, the cost of the dam has been excluded from the costs ofthe water supply project; a dam under construction at Mexanna, for example,would regulate an estimated 174 M 3/year, of which 48 Mm3 /year would beused for drinking watK.r by 1995 and the rest for irrigation. The projectswould also supply water for surrounding villages; these too are theresponsibility of the regional water authorities.

12.20 Technical assistance is also envisaged in the PIP, for design andconstruction supervision, for strengthening the MHEF and the regional waterauthorities, and for training in water planning and in operational andfinancial management. A large staff training program is underway as is astudy of current service levels in the sector. A study of the hydraulicsconstruction industry is also being undertaken, to determine how effectivenesscan be improved. Feasibility studies for some future projects are alsoprovided for.

12.21 The Public Investment Program is thus comprehensive and soundlybalanced, comprising institution building as well as physical constructionelements. Given the high priority attached to water, despite financingconstraints caused by the reduction in oil revenues, the Government hasdecided not to reduce the financial allocation to the water sector. Theprogram is, however, currently undergoing some modifications.

E. Conclusions and Recommendations for the Future

12.22 The water sector has undergone fundamental organizational and policychanges over the last 10 years, and Government has accorded a high priority toimproving water and sewerage infrastructure. This priority is appropriate,given Algeria's rapidly growing population, and the backlog in provision ofwater and sewerage infrastructure that built up over the 1960's and 1970's.The following may be considered in future planning:

1. Institutional Strengthen

12.23 Although the institutional framework is now appropriate, strengtheningthe 13 regional water authorities and AGEP to operate fully effectively willinevitably be a long-term process. Staff training programs need to continuethrough the next plan period, as do programs to assure adequate maintenance,improve leak detection and reduce unaccounted-for water, improve metering,billing, financial management and accounting.

2. Cost Recovere and National Tariffs

12.24 Government policy is to set water and sewerage tariffs at a levelsufficient to assure satisfactory operation and maintenance, debt service anda portion of new investments. Tariffs are also to be uniform nationwide tomeet goals of social equity. Water production costs, however, vary verywidely over the country, depending on distance from the water source, terrainand population densities. As an example, of new projects in the PIP, capitalcosts alone of water provision vary from US$1/m3 in Tamanrasset to

- 194 -

US$0.08/m3 for Ain Dalia-Souk Ahras. A substantial cross-subsidy from thelow cost to the high cost water companies will be necessary, to ensure thatthe revenues of high-cost companies are sufficient to meet theirrequirements. Detailed knowledge of the cost structures of all companies willbe necessary to implement this policy effectively. Not all of the newlyestablished companies yet have a sufficiently strong financial management toassess actual costs accurately. A particular emphasis will have to be placedon accounting and finance over the coming years, to assure that Government'stwo policy goals in this area are successfully achieved.

3. Sewerake and Polution Contro

12.25 Priority in the PIP up to vow has rightly been on correctingdeficiencies in water supply provision. Except in Algiers and Constantine,little or no provision has yet been made for treatment of waste water. Waterquality, already poor, is likely to deteriorate rapidly downstream of riversnear major towns and along shorelines. River pollution could have serioushealth implications where river water is used for irrigation of foodcrops orfor domestic purposes. A further problem is the existing sewerage networksthemselves, which are frequently antiquated and leaking, and will lead toincreasing sewage ponding in streets and risk of contamination of drinkingwater, unless rehabilitation measures are undertaken. Government is aware ofthe problem [para. 12.15 (e), (f)]. In the next plan period, increasingemphasis will be placed on sewerage.

4. Integrated Watershed Mngement

12.26 Government is well aware of the need for integrated management(para. 12.14 (viii)]. Several dams under construction in the currentinvestment program are multi-purpose dams, intended for irrigation as well asfor domestic water. Programs to treat wastewater for irrigation have begun inAlgiers and Constantine. Water master plans have been prepared for severalriver basins. Increasing coordination with the Ministry of Agriculture willbe necessary to ensure that good use is made of the water made available bythese works, that appropriate crops are cultivated with waste water and, inwater-short areas, that water conserving methods of irrigation are used.Combined projects between the MHEF and the Ministry of Agriculture may beappropriate.

58563/plI 1-IS

VL

4h

is:I

- l:

is

I oillin ~ ~ ~ ~ ~ ~= if

9l

of I"II --

II

Il I

,V tO .4 r4Vol

.;ip

V0LE MME li ttURILWD 1969-1995(3111.. of D64t1

1969 to10 1971 1972 973 1971 1m 1976 1977 1978 1979 1980 1981 1982 1983 1914 1995

AbImItwet 32sot. 2,427.0 2sU6.9 2 ,1B.t 2.73.2 3419.7 4,967.0 5,314.8 3*353.5 6,737.4 7$040.0 9,845.5 I0I901.B HAIM2. 12MUM.4 149547 17s892.2

FQsi PuOt 984.6 1069.2 1t,10.0 1,35.7? Wa53.0s t1e.8 197U.5 2,190.1 2.504.9 2097.0 3600.0 nsa n na na na D

TOd /1 17*27.4 19.511.0 20192.1 24.69*9 28,494.0 4342.S 456551.3 5P243.9 "66201.9 81.009,1 102*230.0 131.772.2 M1AN.8 16S.609.2 189,728.4 2109943.2 236.27.4

&IutwIo 12.9 12.4 13.0 1.5 9.6 7.0 10.9 9.4 0.1 0.3 7.7 7.5 7.2 6.6 6.8 6.9 7.6

FOO uostu 5.7 5.5 5.8 5.5 5.4 3.6 3.9 3.9 3.8 3.5 3.5 na na na nOa na

Told n 190.0 lOOi 100.0 10.0 1t0.0 O1l00 100.0 1I0.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

ftg~ 44.4 44.0 45.1 4.0 56.1 45.6 35.5 41.0 46.0 41.5 45.9

tld lm 2,986.7 32194. 3.363.6 3,374.6 3,10.4 3,419.7 4,254.9 3*881.6 3,600.2 4,046.6 4261.1 4#772.4 49958.5 4,616.4 Sts08.8 5,189.1 5.552.3

tO 1 3i,30H.5 35,314.9 32.372.9 41*160.9 43019.2 43U.42.5 45199.7 49,977.5 53.017.0 59,512.4 65M523.2 67a287.t 69.101.0 734000.3 79,591.9 82,994.8 87.861.0

06lutms 7.9 4.5 0.3 -7.9 10.0 24.4 -0.9 -7.2 12.4 5.3 12.0 3.9 -6.9 8.5 3.6 7.0

tl/ A 9.3 -8.4 27.3 4.5 1.9 3.1 10.4 6.3 12.2 10.1 2.7 2.7 5.6 7.7 5.6 5.9

Prim Duft as

hwifftwo 741.2 75.4 77.8 83.3 07.9 100.0 116.7 t3U,9 148.7 166.5 184.0 206.3 219.Q :38.5 258.8 280.1 322.2

ham-88ctwe 51.2 53.4 60.6 57.8 64.5 100.0 99.1 110*7 123.1 133.9 154.1 195.0 220.6 226.1 240.2 252.4 265.0Tbl Jl 53.4 55.4 62*4 S9,9 6.2 10.0 I1908 112.9 124.9 136.1 156.0 195.8 220.6 226.9 241.4 254.2 268.6

ktriftwW1 144.0 141.3 128.3 145.0 136.0 100.0 117.7 123.7 120.8 124.3 119.4 0OS.8 9.6 105.5 107.? 111.0 121.6c1I -2.5 -9.2 13.0 -6.2 -26.5 17.7 5.0 -2.3 3.0 -4.0 -11.4 -5.8 5.9 2.1 3.0 9.6lob, 100.0 97.5 80.6 300.1 93.9 69.1 01.3 n5.4 83.4 9S.9 82.5 73.0 68.8 72.9 74.4 76.6 84.0

'-4

DuwbI slv of n_lweA and A estimats n liuldiM Smmmm services.

-198- Table 2V.2

aOIQLftI L at 6O Fe=S am

196 1991~~~~~~~l 196 1963 1964 10

Is" Privt ftel Soial ptnvu Ttal soial pta Ttl Xcul Prwt tWoTl ouiall Private Toal tal

ClU1S 1.111 IsUO1m 3.111 tout 1.55 2: 1.112 1*456 26 944 18213 2W227 1t5 1604 2.69 2.06

_a 106 OX 1344 46 72 l.ot 429 6 1tl6 334 s5 9" 360 647 1.00' 1.o.em that 46 260 m 435 193 618 3 145 5o 3o in 03 371 166 S39

rSl 2f 650 9 274 59? 671 28 577 u11 220 49 19 2 741 994 1194Otl 103 60 16 66 64 15t a8 45 11 5 46 It 77 48 125 133

other I 1 2 0 2 24 0 4

99 39 126 77 39 116 Re 40 76 47 123 102 t Si 15 132

VEITE 69 134 22 76 IS5 2-9 68 145 213 7 153 224 72 160 23 2*2

Pottoe 35 41 76 33 so 83 29 4 74 32 4 77 32 40 n 762Tom 7 1 1t 5 11 16 5 it 16 5 11 16 3 10 13 13N4ola 10 16 26 t 20 29 9 22 30 9 23 32 9 24 33 sootsa. 2 12 14 3 13 16 3 it 14 3 12 is 3 16 19 17Otr 35 51 66 26 57 6s 23 5 79 2 62 64 24 78 102 90

IUN IstutLw6 26 6 32 16a 26 1s 7 22 14 9 22 1 11 22 24

Tomatoes 8 4 12 8 4 U 6 4 12 9 5 14 7 6 13 14I 0 3 2 0 2 2 4 2 1 0 1 0 0 0 0

oubmn 15 2 17 6 4 12 s 3 0 4 3 7 4 5 9 10

1086810608 295 Its 410 269 146 41 26 40 413 290 260 55 302 23 as 46

PAM7(3 3 14 179 25 2 oi 23 9 120 16 62 t1o 1 112 1t(aao tallm. (30) (11) (11 (17) t(3) (70) (14) (I ("99I (12) (64) (76) (13) ) (111)

m E 171 26 197 17 2 19 167 29 9 27 US 149 31 16(;.ec al 159 25 18 1 2 192 1 2 1 150 22 In 137 2a 165 144

Vim 1 1 t6 t4 16 6 146 16 164 141 13 154 127 17 144e o 14? 17 164 143 7 16 14 1 159 as 1 120 17 137 11o

CamI 4a 4 4 43 3 46 a3 3 4 4a a 44 41 4 45 a

( tIWA 61 U9 US 59 11 176 17 120 177 56 139 t6 3 122 361 15

OM lt o 1 a 7 1 n ts 1 5 5 7t 15 16 n 7 6 n 4 67 n n

flU lS 4 a 3 35 0 4 38 3 4 37 41 3 6 3

OMIUKIUEMs 67 3 to 73 34 107 63 10 a6 45 11 53 46 9

3.2nt3 me 2290 2,1 .62 2.0 2M 4.27 10w 27 3."9 173 2070 3.9 1M94 2437 425 4.24(hC,me 39 13 a 8 a 74 It n 54 14 U S1 13 24 37

19.13 991 2.46 2.96? t14t46 2.24 SO= 2.1t b2.i 359 t1.2 2.46 37 SO9 267 3P25 S

03411* WA 309 4.420 7.?1 316 4.421 7 4 bW36h7 449 75 2. 431 72 2425 03 7.W 7 7510

7 304X3 Ufa M J 31.i6 64 30 U59 4413.611 2t2 21 3U.55 317m

14351M 91 U hI 91 346 86 3!9 U I1 1 5 456 75 76

m.lin. WA 3.03 3.35 19.319 3.93 3gw 39. 3.769Pt SIM am63sow no1 hoem 398 . 1,416 40 3

hus Of 64Wtg 11g414 &VAdoj_.

A.IER1AMIS:llI IM tR IIMI alS WY FIII CII SCR

Igo~~~~~~~~~~~o 110 (Estinul,)190 1931 1902 193?. 184 1952

Imia Ptint Tta sociala Priate T.1. Social Privat Tout Stial Prtvite Total Scild Friv-t total Total

tt11. t2 242l 923 90 t24 70 31 1*522 65 64 t 1.298 S45 815 1,460 3.403

011 V 0 927 326 434 760 273 360 633 228 270 492 242 344 586 Is34mu1 397 160 on5 so5 105 450 252 92 344 222 76 9 218t 82 300 542IbltlUll >~27 S1 714 an3 J2 525 142 341 4B3 1T3 2?4 44U 141 361 S02 1eSI16baa 72 is M1, 47 39 37 23 40 26 21 49 39 25 6$ IIIllIbr 3 2 S 2 1 3 2 0 : 12 0 1? 5 S \

9031 EW0 27 25 52 24 25 51 14 19 33 16 20 36 19 26 45 46

249 342 59 205 3 528 14t 266 415 163 32 491 195 325 520D 724. mIoos 77 105 112 48 36 134 65 129 194 48 112 16 43 101 144 145klaus 54 10 172 39 t40 t79 36 157 193 37 10 207 37 206 243 280RAs t17 101 Itt 16 110 .126 14 9 113 IS 1 121 13 182 19S 137

Tinetm, 43 3 95 it13 55 168 29 23 52 52 40 92 52 10 122 174

k0'U-' 4(I'00 1)l 2.72 t25 2.117 2,451 210 2.66.9 1.411 103 1.514 1733 143 1,S7. 1.249 144 I1m3s

lob gram 32 30 62 113 S 5 160 35 27 62 41 14 '7 39 40 79 140

Ftiling 422 355 39 255 28 .7 2ll5 230

amI lI ('660 41 121 266 214 21t 123

- 2"1 195 206 182 IS3 100

FM8 3 66 6,9

baival lioistrv of Arlcultwo. 'Statistiaoi islelo'.

26798pt3ALGERIE

LIVESTOCK HMWERS BY SECTO('000 head)

Cattle Pure bred SIieen Goat Camels Norses PaultryTotal Qa Milk CM Total

]98Q

.Secteur sotialiste 91.2 43,5 43,5 1,001.8 20,1 0.7 8.9

.Secteuw prive LZALi9 8oo.2 62_ 12368.1 2.703.1 t4S.# 1.026.8TOTAL 1,3SS.1 843,7 lOS,5 13,369,9 2,723,2 149,2 1,035,7 1,500 61.000

.__ .- . -__.

1251.Secteur socialiste 88,5 42,S 42,5 1,126,7 15,3 - 6.3.Secteur prive 12a7. a1L 6S,Q 12.612.4 2,733.Z 12L 64TOTAL 1.376,4 858,2 107,5 13,739,1 2,749,0 152,4 870.8 1,600 104,000

.-- : - - -

nuz..Secteur socialiste 93,B 42,6 42.6 1,271,1 14,0 - 5,2.Secteur priv 1.407.4 S2. 6S,Q 14,227.7 2843.1 165.6 840TOTAL 1,SO,2 894,6 108,6 15,498,8 2,857.1 SS,6 845,8 2.400 99.000

.Secteur socialiste 87,9 40,1 40.1 1,139,1 7,7 - 3.8

.Secteur prive LI. S4.8 S35.0 66.a 16.562.7 2-9S.S0 147.7 80f.1TOTAL 1,641.9 975.1 106,1 17.701.8 2,962,7 147.7 809.9 2,500 113,000 1

- _ - S . - .

.Secteur socialiste 84,7 39,0 39,0 867.8 1.1 - 3,1

.Secteur prive 1.319.3 724.8 664 14.t96.7 2LO0.1 t25.4 646.8TOTAL 1.404,0 763,8 105,. 15,664,5 2,809,2 125,4 649.8 6.800 114,000

'~~ - - -

198S.Secteur socialiste 27,0 27,0.Secteur prive 734.8 215bTOTAL n.d. 761,8 103,0 n.d. n.d. n.d. n.d. 9,700 130.000

1986 (Privision).Secteur socialiste 35.0 35,0.Secteur prive 749.8 91TOTAL n.d. 784,8 126,0 n.d. n.d. n.d. n.d. 13,500 165.000

sas (prvision).Secteur socialiste 60 66,0.Secteur prIve 286.8 IZL.lTOTAL n.d. 852.8 194,0 n.d. n.d. n.d. 550.0 15,500 220.000

- - .- -a- . ~~~~~~~~~~~H~Sureas: HAP, Direction de la production animale, Direction de 1'aviculture, Statistiques agricoles.¢

.0

ALGEIAFIIMCAL VIELS IF NAIN CRWS 1T FARMING SECTO

(PJiNa)

IS80 1981 3982 19P3 1984 1985

Scaial Privat Total scial Private TOul Social Private Total Social Pr,vzte Totel Social Pevsate TotW1 Total

aurnNM 745 656 60 700 5 63 63 522 56 6S 478 ,47 *72 532 582 974

Dowd .t M50 723 m 05 793 574 728 672 634 62 673 439 5954 %8 488 557 936

kwl" 94 m s4 741 539 03 597 591 593 786 549 622 557 487 05 1-102

Sot. 6W9 633 675 547 60 573 544 Sit 531 456 500 76 506 521 S12 435

307 658 413 m33 4U 6 440 241 475 337 211 426 293 1ot S10 288 348

Fati 7,114 8,341 7.776 60061 6I560 6,361 5.13B 5911 5.60 5.094 72M 6,377 6,094 8,125 7.222 11.677

tslus 11,000 8.750 9.57 9.600 7,813 8.375 13.000 11.727 12.125 9,600 10.182 10.000 14P333 10.100 11.077 11,154

WM 5.400 6S5I6 6*143 4.313 7,000 6.72 4.500 7*136 6.433 4.211 73I 6h469 4.131 8.583 7.364 9.333

kIs 8,0S0 8U417 8.429 5.333 8a462 785 4.66? 9.000 8.701 S000 0.833 8.067 4.333 114375 10.263 8,059

Tue 8.125 7.500 7.9"7 14,125 133780 14800 3.625 5S750 4.333 5.778 8.000 6h5I 7429 Uu47 ".385 12,429 O

UIeuhlAIaI 1U 7 17 17 13 17 10 6 10 13 it 13 30 8 10

Ti 2,909 3.75 3,263 3,071 6.875 7,636 2.333 3M375 2,696 2M733 4.000 392?0 292.94 3636. 2.021

ctm t979 7.77 7.089 5,795 6*"3 6.50 6.333 6.053

34M 2,831 2,746 2#901 2-563 2,577 1.40B

FlU 1.69

Sme UlSita r t fsricultWt lStSUtlow fAricole.

s-I

- 202 - Table IV.6Page 1

ALIAAGRICULTURL. INPIN PRICES, 1974s1980-6

NOIINAI PRICES 1974 19 19"1 1 13 19 19M 1

Fertilizers (DA/Ta)t)Amnitrate 349 349 349 349 349 482 706 "a12-18-18 so 552 552 552 552 690 1.006 1.120TSV 461 461 461 461 461 S90 39 1.00004? 622 4t 622 622 622 779 1.111 1.250

Plant Pioctim2.40 ( it) 0.44 0.44 0.44 0,44 0.44 6.1 11.3 13.5Itanbto 8 (MA/Ton) 441 441 441 441 441 5.184 9.011 104273Fenthion 4 (DA/i) 2#209 2.209 2.20 2.209 2.209 24.361 28.319 33.360

Eguipnt (DA/Unit)Tractor-65w 24.936 24.936 24.936 24.936 41tS00 41S00 51.876 64844Cove"rcp 3.511 3.511 3511 3.511 9.625 8.625 8.625 10.781Coebine 60.446 60.446 6Ot446 60.446 939000 939000 116.375 1419468

LaborMin. salam /1 (DA/la,) 12.25 19.90 75.00 90.00

S"dDurus-select (DA/) 0.69 1.29 1.44 1.72 1.72 2.3potato (lA/K) 0.93 t.80 3.50ood Beanm (DA/Ks) 0.24 1.79. 1.79 2.20 2.20 3.08Crams plant (BA/Plant) 8.00 24.00 40.50 0.50 46.00aliv plant (DA/Plant) 5.00 9,60 15.90 15.90 18.30

Feed /2 (DA/K)Bairy cow 0.39 0.62 0.93 0.93 1.07 1.82Yount steer 0.47 0.8 1.06 1.06 1.22 1.84she (tattenin 0o.4 0,4 0.95 0.95 1.1 1.8

Nominal Price IndexNOMINAL INDICES - -- - a---

1974 1910 1981 1982 1983 1984 11M 1986Fertilizers

Asonitrate 100 100 100 130 ;00 138 202 22112-18-1 10.0 100 100 1t0 tO0 125 182 203TSP 100 100 100 100 100 128 182 217DAP 100 100 1t0 100 100 12S 179 201

Plant Protection2.40 1t0 100 100 100 100 1.386 2.568 3.068Nmnebe 80 100 100 100 100 100 19321 2.043 2W2Fenthion 40 100 100 100 100 100 1.103 1.282 1.510

EeuipmntTractor-65p 1oo 10 t00 100 166 166 208 260Covet , j .. . 100. 10t. 100 1t0 246. 246 246 S07Coabi 10too 100 10 100 14 154 193 234

LUboran. soed, /1 t00 12 612 735

- 203 - Table IV.6Page 2

DwumseIect 100 1IV 209 24 240 333PetstO 1t0 194 376BMed anto00 746 746 917 917 1,283Oran plant 100 300 50 5 57sOlive plant t00 192 318 318 360

FVsd /2Dare cm 100 1s9 233 238 274 467Towu estue 100 170 226 226 260 391She. (fattIng) 100 100 23. 238 275 450

IAL INDICES /3 194 190 1981 1992 193 1904 1985

Ferti!*zsnAsorntrate 100 51 45 44 41 53 7312-10818 100. 51 45 44 41 40 6TSP 100 51 45 44 41 49 65PAI 100 51 45 44 41 48 64

Plat Protiction2.4D 100 51 45 44 41 532 922nabeO too100 51 45 44 41 507 733Fenthon 40 10 51 45 44 41 424 460

EtPuipttTractor-6Shp 100 51 45 44 A8 64 75Cover-crop 1OO S1 45 44 10.) 94 soCobing 100 51 45 44 63 59 69

Laborun. shaPer/ . 100 . 03 235 264

ouros1eoct tOo0 95 85 96 89Potato 100 1 145Broad Dians 1t0 300 305 35. 329crae p1mnt 1t0 153 1?4 182Olive Plant too 90 122 114

Feed /2Dair cow 100 01 97 2 98Toune str t00 87 92 87 93Show (tattmnirn) 100 51 9, 91 99

GDP Deflator(1974100) 100.0 194.4 220.3 229.7 244.9 260.4 278.6

Sercil Utnistre it Aiiutere md Ut est 1ste

/1 19750. 1979 an 1 Pric Ietl wd./2 1974. 1977# nd 1"4 Price levlg ue.A3 WeflateI Ullna thIr 1 Ve 3 Etlate

- 204 - Table IV.7

1ALGERIA

PRODUCER PRICES OF CEREALS AND GRAIN LEGUNES(Dinars/Kg)

1974/75 1975/76 1976/7 1977/78 1978/79 1979/80 1980/81 1981/82 199V83 1983/84 1984/85NONINAL I

Durun Uhest 64 76 86 100 120 125 125 140 140 10 200Breid Vheat 58 68 78 90 110 115 11S 130 130 IS0 190Barlow 41 S0 55 60 80 80 80 80 80 100 140cats 35 35 39 40 40 70 70 70 70 90 130maizn 48 48 50 65 65 100 100 100 100 160 18SRice(Grade 2) 112 112 112 1S0 150 150 15O 150 150 160Lentils

Yellow 100 185 250 270 290 300 300 300 300 330 430White 75 160 250 270 300 300 300 300 300 330 430Grmet 120 205 270 270 290 300 300 300 300 330 430

BeansGrade 1 160 205 270 290 290 300 300 300 300 330 430Grade 2 141 185 200 220 290 300 300 300 300 330 430

Source,$ AP

- 205 - Table IV.8

Page I21 1 ALBRIA

AICULTRL tY PRICES, 19)4t1190w

1974 190 1981 1902 1903 1914 190

NOINL PRICES (e/WOx)

Duru. Wheat 54 125 125 140 140 160 200Ifead heat 48 115 t1S 130 130 150 190Darlev 32 80 80 80 80 100 140

Grain Letms 90 300 300 300 300 330 430(DA/Kg)

Potatoe (In-season) 0.55 1.10 1.30 1*60 1.90 1.90 2.50

Onions 0,45 1.04 1.60 1.60 2.00 2.60 2,60

Tontou" (frmsh) 0.35 0.80 5.20

Orane 0*42 1.45 3,15 4,30

pates (branchette) 3.00 4.50 6.50 iO0.5

Olives (for oil) 0.38 1,31 1.37 1,54(DA/01)

Winm grae (12-12.5) 3.75 7.70 13.60

(DA/Kg)Beet 5.60 15.00 18.00 23.50 24.00 25,00 iO.00Laob 6.30 17.00 24.00 26.00 26.00 33.00nilk 0.75 2.00 2.00 2,00 2.50 2.75 3.00

NOMINAL INDICES 1974 1980 1981 1982 1903 1984 1995

DuNe Weat 100 231 7,1 259 259 296 370

Bread What 100 240 240 271 271 313 396Darvie 100 250 250 250 250 313 438

Orain Legume O0 33 333 333 333 367 470

Potatoes (In-sason) 100 200 236 291 345 345 455Onions 100 231 356 356 444 578 578

Totoes (fresh). 100 229 1486

Orang 100 345 750 1024Dates (branchette) 100 1S0 217 350Olie (for oil) 100 345 361 405

Wline wes (12-12.5) 100 205 363

Total Ctos 100 247 452

1ee 100to 268 321 420 429 446 536

Lamb 100 270 381 413 413 524Milk 100 267 267 267 333 367 400

-206- Table IV.8Paae 2

RA. inICES 1974 10 1981 1962 1983 1984 195

lXi ihu * 100 its 105 113 106 114 133BrWd shat 100 122 109 118 111 120 142balow 100 127 113 109 102 120 157Brain Loguw 100 170 151 14 136 141 171

potos (I"es#) 100 102 107 127 141 133 163Onto" 100 118 161 155 181 222 207Toautom (trah) 100 116 571OUtt Bardn Cros /1 100 111 276Orawn 100 176 I8 367Dato (branhett) 100 76 83 126Olivs (top oil) 100 176 164 156Vine grape (12-12.5) 100 105 139

hot 100 136 146 183 175 171 192Lamb 100 137 173 180 169 201mlilk tOO 136 121 116 136 141 144

GDP Detlator(1974c1O) 100.0 196.4 220.3 229.7 244.9 260.' 278.6

SOuve NAP and amnk estiaates.

- 207 - Table IV.9

2679Ep33

Public Investment. 1980-1984(DA million)

1980 1981 1982 1983 1984 Total

Central Government

Budget Appropriation 153 96 175 764 94 594Actual Expenditures 49 20 111 41 78 299

Implementation 321 21% 631 541 83% 502

Institutes

Budget Appropriation 83 121 126 67 128 525Actual Expenditures 33 39 73 49 47 241

Implementation 40% 23% 592 732 371 462

Provinces

Budget Appropriation 1,082 1,283 1,282 850 691 5,188Actual Expenditures 480 537 748 741 649 3,155

Implementation 441 421 582 871 931 61S

Credit Allocation 1,410 .1,651 1,022 1,386 1,820 78,289Actual Expenditures 749 1,1214 649 1,029 1,417 4,968

Implementation 531 ; 681 63% 74% 78b 681

Total (Budget + Credit) 2,492 2,934 2 3n4 2,236 2,511 12,477ACtual Expenditures 1,229 1,661 1,397 19770 2,066 8,122

Implementation 491 471 61% 79% 821 651

Offices

Credit.Allocation 1,517 1,431 1,877 1,631 1,533 79989Actual Expenditures 501 471 715 1,236 1,603 4,525

Implementation 321 332 38% 761 1041 561

Consolidated Investment

Budget Appropriation 1,318 1,50O 1,583 993 913 6,307Actual Expenditures 562 596 932 831 744 3,695

Implementation 431 401 591 841 85S 591

Credit Allocation 2,927 3,082 2,899 3,017 3,353 15,278Actual Expenditures 1,250 1,595 1,364 2,265 3,019 9,493

Implementation 431 521 471 752 90% 621

Total (Budget + Credit) 4,245 4,582 4,482 4,010 4,266 21,584Actual.Expenditures 1,812 2,191 2,296 3,095 3,794 13,187

'Implementation. 431 481 5n7 77 891 611

Source: MAP, Direction G06urale des Etudes et do la Planification, Evaluationdu Premier Plaa Quinqueual 1980-19849 Annexes, Tables 31 and 32.

- 208 - Table IV.10

SOIIt(&OrWMROACIIS .1985

lIsl - -p !tn Crop

Price btput frek Vidi 6rm Usluc Area Gros Ilalue10/K) '603(-O ) ('MS) (t/b ('f1 03) (V ('VOM) (0 (' 0 (V

Crop * 1,317 20291.1 100l.0 301? 7.1 8,841.3 43,?

Cerea, 7300 2967 1.012 SA,0S.8 25. 31 1.0 S1.4 1.0

-2.0 1031 1061 0.975 2,01S.0 10.2grew Uet 1.9 592 579 0.936 ,I'm.8 S.1Belly 1.4 13116 11 1.102 1,842.t 9.1Ot 1.3 112 133I . 0.892 19S.6 0.?

6raLe l3t 138.6 0.?

km. " 1.3 16 55 0.291 60.8 0.3Pa 2.8 29 7 0,37? 79.8 0.t

forap "Is 1.3 O" 46 1.814 1,103.7 5.5 10 21 21.6 2.1

tetable 901 5,416.6 46.5 127 63.2 :,91 61.2

PoAtes 3.5 It m2 62- 11.677 2,534.0 12.SToeas 6.5 145 13 11.15t 942.5 4.7bmwNhe s.5 137 16 Ls%3 7?3s. 3.?holot LS' 280 31 9.33 1,0.0 7.6Other 6.S 561 Q0 7.013 3,646.5 18.0

6S t11 2 55.0 71s.0 3.S 2 1110.0 715.0 100.0

Ina tW 24 45.0 2.3 It 41.? 31Qt 66.8

Tgto 2.5 1M 1 12424 5.0 2.1 to 71.4 310.7 71.41o 2.5 3 3 1.O 1.5 0.d 0.0

Oil"06 L5 9 7 1.s MS 0LI 0O

Tro Crops m ,328.Q I.S 124 32.7 1,619.6 728

Catrw 6.0 23t 31 ol5 1,3LI 6.l 38 I01.0 1,3600 110.0llt SiS3.0 1 t0 0.6O M73.0 1.3 0.0 0. 0.0

Stont Frut 3.0 so 66 0. Its, i5.0 a.? 24 36.4 59.5 6.1pplesPm 1.0 175 Si 3.241 17S.0 0.1 7 Sl0 VA 5s.a

Olte 3.S 100 71 1.fa 350.0 l .7 3S 1. I3 1.5 1.3

Stines 149 371.5 4.8 4 2.B 93 9.8

Ulnyapu 1t.S 135 110 1.227 232. 1.0 0.Q 1 0 .Table p S 140t 32 4.375 77.a I.8 4 1. 16.3 1,ZS?As1 6.0 1 2 0.3 6.0 0.0 o.a0.0 0.0

Sm: w

- '209 -Table.IV.11

UER, IJUTPOI WELDS smTe otS,1973-N

Our. Uhut bru t Uheet rrtw Potatmes

frea output Yield &a Gipw. yeld ilres uW t Vitld fres Output Yield0000) ("lOMX) (41M) VOW VOM) (44;'6 V' ) ('0) 4%) ('l0) VM0tt (nt/R;

1973 1,Sl 69 4S4 go 46 571 76 374 476 06460 s..1974 1,413 631 447 788 460 584 690 33t 490 97 646 6.?1975 1 1,191 796 7 39 667 13 5 743 869 III 958 8.1197 1,560 1,036 664 735 S94 80 932 589 632 113 776 5.3i97 1,2 573 440 605 54 420 741 M 3511978 1,34 70M 569 630 1 605 li6 39? 5X 99 682 6.919m 1,317 700 S3 620 373 9 80 4 565 77 Sol 6.51990 1,344 9276% 7270 m 5 s 0s S 96 79 00 76 S91 7.11911 .1,19S 76 636 610 40 m 071 Ss 603 0935 6.4198 1,l19 633 566 520 3" 662 15 43 S93 7 415 S.61903 099 492 547 S03 290 S92 719 44? 622 77 491 6.4198s 1,007 586 582 539 300 557 994 503 S06 7 S O 7.21985 1,062 1,034 974 579 54.2 336 1,194 1,316 1,102 6? "21 lt.?

SwrcM: 197-79, in re Statistiqu de Ulre 191 199-5 WlOP.

- 210 - Table IV.12

2679Ep35

Input and Outgut Price Changes1974-1985 (Selected years)

1974 1980 1983 1984 l985DA/Unit

InEuts

Fertilizers (NPK)(t) 552 552 .552 690 1,006Prot. chemicals (2,4D)(m3) 437 437 437 6,066 1t,298Machinery (65 BP tract)(Unit) 24,936 24,935 41,500 41,500 51,876

Indices (1974 - 100)

Fertilizer 100 100 100 125 182Protect. chemicals 100 100 100 1,388 2,585Machinery 100 100 166 166 208

outputsDA/Unit

Cereals (durum)(ql) 54 125 140 160 200Grain legumes (lentils)(ql) 90 300 300 330 430Vegetables (potatoes)(kg) 0.55 1.10 1.90 1.90 .2.50Fruit (oranges)(kg) 0.42 1.45 3.15 4.30Meat (beef)(kg) 5.60 15 24 25 30

Indices (1974 - 100)Cereals 100 231 259 296 370Grain Legumes . 100 333 333 367 478Vegetables 100 200 345 345 455Fruit 100 345 750 1,024Meat 100 268 429 446 536

Source: MAP

1 6~~~~~~~~~~~~~~~~~~~~~~~~uLERI

UWE Of CKnICAL PLMT PMI£CTIOi BY FWXl.' SECTOR,sI9?980-1984.185

*Esteate) g1979/80 198/'1 19S! :_ 1982/83 196q3?4 1984185

Solid (tots) Scial Private Total Social Private Total Social Private Total Social PTO ta9ajt Social Privata total Local Private

fwicade 10,070 5,464 15,534 8e121 5705 130826 :10.734 6,290 1?.024 6760 5,31? 12.079 5915 4P353 10,268 4547u 4.545 9.092llerbicide 142 39 181 31 22 53 1-342 6 1,348 6 10 76 496 26 522 1.134. 138 1.272lnesticide 4,314 4.184 8.498 2.446 3.31 5,826 '2104 2.693 4,797 2*295 3,397 5t692 29144 2.342 4,46 1,571 2205 3,76Diveuse 464 176 640 2.?36 203 2,439 860 367 1.227 342 23? 581 182 130 312 168 63 231

Lieuid t(lOOl)

Fwi:cade 148 16 164 42 6 40 223 20 243 57 1 58 72 3 75 81 tB:! 263lubscide 423 26 449 335 15 350 306 22 328 263 221 452 25 477 612 22 634lscticide 814 100 914 318 28 346 638 71 709 380 64 444 575 127 702 1789 83 1,872Saversie 104 6 110 740 31 1 384 8 392 606 5 611 415 IS 430 362 50 412

. .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.

Croped Area 2,240 29386 4,626 2.076 29202 4W278 1,875 2,08 3,963 1739 2.0.0 3809 1,849 2.437 4,286 4,248t'O01108).

Solid (KtWH)

Fugicide 4.50 2.29 3.36 3.91 2.59 3.23 5.72 3.01 4.30 3.89 2.57 3,17 3.20 1.79 2.40 2.14Herbicide 0.06 0.02 0.04 0.01 0.01 0.01 0.72 0.00 0.34 0.04 0.00 0.02 0.27 0.01 0.12 0.30lscticide 1.93 1.75 1.84 1.18 1.53 1.36 1.12 1.29 1.21 1.32 1.64 1.49 1.16 0496 1.05 0.49Diverse 0.21 0.07 0.14 14.08 0.09 0.57 0.46 0.18 0.31 0.20 0.12 0.15 0.10 0.05 0.07 0.05

Liuuid (Lt/Na)

Fwdicide 0,07 0.01 0.04 0.02 0.00 0.01 0.12 0.01 0,06 0.03 0.00 0.02 0.04 0.00 0.02 G."Herbicide 0.19 0.01 0.10 0*16 0.01 0.08 0.16 0.01 0.08 0.15 0.01 0.07 0,24 0.01 O.tl 015 silnscticide 0.36 0.04 0.20 0.15 0.01 0.08 0.34 0.03 0.18 0.22 0.03 0.12 0.31 0.05 0.16 0.44Diver. 0.05 0.00 0.02 0.36 0.01 0.18 0.20 0.00 0. 1o 0.35 0.00 0.16 0.22 0.01 0.10 0.10 a

Source: w

ALGERIAFERtILIZER USE BY FARMIN6 SECTORtl979/80-1984/85

(Tons)(Estimate)

1979/80 1980B/1 1981/82 1982/83 1983/84 1984/85

Product Social Private Total Social Private Total Social Private Total Social Private Total Social Private Total Social Private Total\

33.5-0- 889641 48,805 137t446 939360 46.407 139.767 72,065 459859 1179924 67,173 38,986 106,159 1OO997 64t207 165t204 130,281 739024 2033021-04 176 258 434 2.233 507 29740 186 171 357 85 309 394 20 466 486 240 58 298 a

18-4-D 17,709 2t449 20,1S8 19#679 5464 25,143 14406 4,653 19.059 10,132 3.545 13677 7.735 2.440 10,175 23.891 129,965 368460-46-0 73,323 309249 103,572 779450 309336 107.786 61,582 29,124 90,706 53,272 30,334 83,606 240392 3,576 27,968 964650 444320 140,970

12-18-18 36,706 50,847 87,553 48,468 58,044 106.512 33636 61w323 94,959 34,181 62.232 96,413 39,953 49.929 89,882 49466 91,793 141s2590-20-25 41.776 4s635 46,411 427M 2.355 45,132 37.188 3t448 409636 24.511 3,594 28,105 24.392 3,576 27t968 11,687 2,208 13,8950-0-50: 370 152 522 591 75 666 532 B1 613 147 134 281 178 4 182 2.223 251 2P474

NutrientN - 337324 22P946 60,270 41h103 23,602 64,705 30,810 2,tj95 54.405 28,446 210231 49,677 40,025 28.038 68,063 53,929 3 824 91.?753P205 56,837 25,121 81,958 61M959 27,387 899346 48,447 27#265 75,712 40.221 27,505 67.726 26t848 12,470 39P318 66.686 43,31 3 1G,0i.1 120 179236 10,387 27,623 199714 119074 30.788 15,617 11.941 279558 12.354 12f167 24,521 13.379 9,883 23,262 12,937 17.200 30,137 '

Cropne Area 2,240 2W386 4r626 2,076 2,202 4,278 1,8t5 2M088 3,963 1.739 2O070 3,809 1,849 2.437 4,286 4,2*('0100Ha)

Kg/NaN 16.7 9.6 13.0 19.9 10.7 15.1 16.4 11.3 13.7 16.4 10.3 13.0 21.6 11.5 15.9 '1.6P205 25.4 10*5 17.7 29.8 12*4 20.9 25.a 13.1 19.1 23.1 13.3 17.8 14.5 5.1 9.2 25.971(20 W7 4A4 6.0 9.5 5.0 7.2 8.3 5.7 7.0 7*1 5.9 6.4 7.2 4.1 5.4 7.1

Total 49.7 24,5 36*7 59*1 28,2 43*2 50.6 30.1 39.8 46.6 29*4 37.3 43.4 20,7 30.5 54.6

Source: W

'at

C

'-

Is

Is

~isi

;S

- 214 -

As LVgt Wtes

4'

Table 5.1: Oruanizatio-a Structure of Litht Industries

Workers EmployedFunctions ProductS (84)

Prd DizducttinonIarts Dewelangnt

2. Buildina materials and classCements - brickworks

Before 1982Societe Nationale Matertaux de + + + + All products (cement. brickworks.Construction (SNNC) sanitary ware)

. DISTRIMACM (Distribution) et 42 distri- All products (cement. brickworks,. button enterprises in the wilayas:EDINCO + + sanitary ware)

. EDWC (research and development) + -idem-

. ERCC(cements & derivatives-Central Res. + _ ) 1,830. ERCE ( - Eastern ) + - - - )Ordinary cements, lime and plaster. 2.ZSO. ERCO ( "- Western ) ) - - - )special cements, asbestos-cement 2.450. ERCE ( - key exchanges) + - - - 635. EPRE (brickworks - Eastern Region) +- - - ) 11,360. EPRO W - Western 0 ) + - - - )8ricks, silico-calcareous prod., tiles 1.235.EPRC( " -Central 0 ) +- - - 2.840

. ECE (ceramics (san. ware-Eastern Region) + - - - )Sanitary ware, ceramic tiles 1,010ECO ( - U Western +) + - _ ) 1,200. ENA (marble) +- - - Marble

* Woodworks M

Before t982-Societe Nationale Liege et Bots (SNLS) + + + All productsSociete Nationale de Comnercialisationdu bois brut (SOKACOS) +

After 192 : Retrocession of monopoly fromSPNACOB to ENA8 +Entreprise Nationale Menuiserie 6ener.et de Prefabriques (ENMOP) + + ENAS + General woodworks and prefab. materials S,820ENATS + + + Furniture, Wood processing, 4.460-EXAQS + Hardware, ironwork, ProjectEN-Liege + + + + Cork New industrial

processG Glass

Before 1982-Societe Nationale Industrie Chimique + + + +

(SNIC)After 1982

ENEVA + + SNiC + Glass and abrasive products 1.820 0-lECVE (ceramics-crockery) Eastern Res. + + SNIC ) 1,720 EVCO ( U U )-Western Reg. s S#IC - )Ceramics (crockery) 900

6485B/P4

Table 5.: O anizatiol Stuture of Light Iustrie(cont')

Workers EmpwlyedFunctions Products (84)

Production ll 1trSNU hiMSRt ntLsL .eeon

II. Cellulose Industries

.Societe Nationale des Industries de laCellulose (SONIC) 0 + + A11 types of papers S.100

AfterL19I2fENEPAC + + + Cardboard,. CENPAP + + + + Cellulose, pulp

III. Food and Tobacco Industries

Before 1982.SNSEMPAC + + Flour and Semolina.SOGEDIA + + Glycerides. sugar. canned foods

SNEMA + + + Mineral waters.OMACO (imports monopoly) + All food industries.CITA + + + + Tobacco and matchesAfter 192_

ENAPAL (imports monopoly under the su- e + Glycerides. mineral waterpervision of he Ministry of Comerce)ENIAL (Enterprise promoting food Snd.) + All food industries for development

.ERIAD (Reg. enterprises of food ind.) t + ENIAL ENIAL Semolina, flour and derivativesAlger + + - - Semolina, flour and derivatives 2,975

- Tiaret + + - - Semolina, flour and derivatives 1,470- Sidi Bel Abbes + + - - Semoltna. flour and derivatives 3.250- S6tif + + - - Semolina, flour and derivatives 2.260- Constantine + + - - Semolina, flour and derivatives 2.690

.ENCG (national comwany of glycerides) + ENAPAL EWAL Edible oils, detergents. oil for industrial 4,030use, Margarine

.ERA Sucre (national sugar company) + ENAPAL ENAPAL Sugar and derivatives 1.670

.ENAJUC (national company of canned foods + ENAPAL ENAPAL Juices and canned foods 2,370and Juices)

.EKAL (mineral waters of Alger) + EIAL ) 1.960

. EMIB (mineral waters of Batna) + + )ineral water, Deverages 615

.ElIS (mineral waters of Saida) + + ) 970SNTOA (national company of matches and + + + + Tobacco, matches 4,330

tobacco)

64853/pS

to

Table 5.1: oanizational Structure of Liaht Industries(cont')

Workers EbvlyOdFunctions Products (84)

EnnhttonDistibuton welolv

IV. Textile Industries

Betore 1982. SOSITEX + + + Textile products and works, clothing 35.000. SNCOTEC (marketing co0pany) + Textile products and works, clothingAfter 1982. ECEDI (national comany, which promotes +

manufacturing Industries).DISTRITEX (distribution and exports) + Textile products and works, clothing.COTITEX (regionalized) + _ _ _ Cotton yam 1,100. S5ITEX + - - - Silk 1,025. ELATEX + - - - Wool 3,660. INDITEX + - - - Threads and yarns. cloth 4,040

ECOTEX (large share of the private +- - - Textile works, clothing 7,940sector: 60 )

V. Leather and hides

Before 1982_.SOWIPEC (national coauany of leather

A hides) + + + +After 1982.DISTRICH (distribution) + DIEDIN.ENIPEC + _ -_ Tannery, synthetiC leathers, footwear 2,310.EMAC + _ -_ leather goods, leather ganoents/clothing S,420. DEUIMAS (private sector about 70Z) + _ _ ereational and sporting Industries

646S/p6

4

Tablg S.2: Products of Liaht IndustriesInstalled Capacity ad ouction

Installed Production Actual Capacity Target Target Productioncapacity Target Production Utilization Achievement for 1986 Taret for 1986(1984) teRat _ .V . 'a2 (Production) Installed

Cement (103T) 10,000 58723 68750 4.776 5.539 48% 55% 74% 84% 82% 6.900 69%Bricks, etc. (10 3 T) 1,990 1.392 1,S86 1.513 1.661 76% 83% 81% 109% 105% 1,747 88%Ceramic tiles (103M2 ) 2,650 2,300 2.200 2,019 2,040 76% 76% 93% 88% 93% 2,300 87%Sanitary ware (103 T) 29 14 13 14,5 12 49% 39% 82% 05S% 90% 22 76%General woodworking(10 3M23 4,448 2,171 3.604 904 954 35% 21% 81% 42% 26% 2,300 52%Prefab. wood. compnts.(10 M2) 119 115 119 129 121 112% 108% 64% 112% to8% nd -Flat glass l003T) 15 6 13 30 13 19% 85% 98% 48% 100% 26 173%itollow ware (10

3T) 76 42 47 41 43 54% 57% 45% 97% 92% Ss 72%Crockery (T) 18.100 12,870 16,300 9.690 10.250 55% 57% nd 75% 63% 12.900 71%Piseiting paper (103T) 55 40 37 29 32 54% 78% 76% 73% 85% )Packing board (103T) 89 67 69 64 67 72X 76% 75% 95% 98% )124 #614

I Semolina J10 3T) 1.219 1,195 1,121 1,124 1,205 94% 99% 98% 94% 99% 1,240 102%Flour (10 T) 1,105 1.150 1.123 929 1,032 86% 93% 85s% 81% 92% 1,200 109%Edible oil l003T) 285 290 294 279 275 97% 97% 108% 96% 93% 280 99%Soap l003T) 82 74 73 77 77 94% 94% 9s% 103% 1OS% 74 90% XMargarine and fats (103T) 27 19 19 15 15 57% 57% 86% 81% 81S 19 70%Canned vegetables (103T) 27 4 3 3 2 12% 8% 18% 7S% 68% 24 29%Tomato Concentrate llO3T) is a 17 7 is 45X 71% ssx 81X 104X 34 227x 01Mineral water (103H ) 1,610 1,190 1,294 1.054 1,129 66% 70% 73% 89% 87% 1,6s0 102%

I Carbonated bev. (10 3 H2 ) 2,854 1,437 1,930 969 1.310 39% 46% 67% 67% 68% 2,300 81%Cigarettes (IO packets) 1.030 804 804 769 799 75% 77% - 96% 99% nd ndCotton yarn (T) 34.020 29.355 29,264 24,636 27,194 72% 80% 71% 84% 93% 27.500 81%Wool yarn (T) 8,371 7,110 7,203 s.911 6.189 63% 66% 70% 83% 86% 9.600 102%Finished cotton fabrics (10

3 LM) 120,399 95,oss 89,696 86.254 86,963 72% 72% 81% 91% 97% 87,000 72aFinished wool fabrics (103 LM) 34,024 16,949 15.903 8,831 9.721 26% 29% 99X s2% 61% 13,000 38%Finished silk fabrics (103LM) 12,544 8,202 9,102 8,663 9,987 69% 73% - 106X 110% 17.000 136%Blankets (103) 1.459 1,319 1,108 1.509 1.371 103% 94% 84% 114% 124% 1,400 96%Shirts (103) 3,379 3,165 2,925 2.355 2.654 62% 79% 89% 74% 91% 1.800 53%Footwear save shoes (l03pairs) 4,106 2,892 2,956 2,795 3.112 70% 76% 70 87% OS% 4.00 110%Shoes (t03 pairs) 18,783 18,281 18,783 16,780 18,138 92% 97% 99% 92% 97% 21,000 112%Fancy leather goods (10 3pieces) 2.125 2,031 2,125 2,508 3,058 124% 144% 104% 124% 144% 4.100 193%

Source: Ministry of Light Industry

04/28/87 .64858, p. 7

Ca

Table 5.3: Public Sector: N Lr of [lovees Runerations.Value-added, Prouctivity of Labor

5.3.1 Buildino materials (cennt, bricks etc.... sanitary ware)

Indices80 81 82 83 84 8S

80 81 82 83 84 85

(1) Number of employees 16,277 15,897 17,010 17,376 18,013 - 100 98 0OS 107 111 -

(2) Salaries (1OI¶A) 481 543 682 564 609 - 100 113 142 117 127 -

(3) Salary per capita (1030A) 29 34 40 32 33 - 100 116 136 110 115 -

(4) Production s2ld (106DA) 1. 766 1,883 2,844 2,506 2.717 - 100 107 104 142 154 -

(S) Turnover (10 DAI 1,815 1,946 1,933 2,663 2,897 - 100 107 106 144 160 -

(6) Value-added (10'DA) 1.338 1.314 1,209 1,714 1,794 - 100 98 90 121 134 -

(7) Productivity of labor (6)/(1)(1030A) 82.2 82.7 71 "9,9 "9,6 - 100 101 87 120 121 -

(8) Investments (106DA) 781 942 791 629 838 - 100 121 101 79 106 -

(9) K(*) (106DA) 11.209 12.151 12,942 13.571 14,409 - 100 108 115 121 129 -

(10) K/L (9)/(1)(103DA) 689 764 761 781 800 - 100 111 110 113 116 -

04/28/8764858, p.8

Table 5.3: Public Sector: o r gf Wog s fjgtiM.Valueadded. ProdictivitY of Lab

S.3.2 S

Indicesg0 8I at 83 84 as____

s0 81 82 83 84 85

(1) Number of e uloyees 30,413 11.657 12,504 12.381 13.218 - 100 112 120 123 127 -(2) Salaries (10 DA) 783 346 434 454 474 _ 100 106 132 139 145 -(3) Salary per capita (103DA) 27 29 34 35 35 - 100 94 110 113 114 -(4) Production sold (1050A) 2.504 1,106 1.395 1,901 1.880 - 100 134 169 231 228 -(s) Turnover (106A M 841 1.128 1.416 1.931 1.898 - 100 134 168 230 226 -(6) Value-added (lobDOA 521 650 901 1,209 1,188 - 100 12S 173 232 288 _(7) VA/L (103 OA) So 56 72 94 89 - 100 112 144 188 170 -(8) Investments (1060A) 504 706 687 303 214 - 100 140 136 51 42 -(9) KWs) (1060A) 1.3S6 2,062 2.749 3,052 3.266 - 100 1S2 203 22S 240 -(10) K/L = (9)/(1)(1O3DA) 130 176 219 237 247 - 100 135 162 182 190 -

04/28/87648S8, p.9 o

l .

Mii S.3: Public Sector: Nlber of ENi Rmr tionS.Value-added. ProductivitY of Labo

5.3.3 £LA5

Indices80 81 82 83 84 8S

80 81 82 83 84 8s

(1) Number of employees 2.315 3,017 4,088 4,885 5.358 - 100 130 177 211 231

(2) Salaries (10DA) - - - 169 187 - - - - - - -

(3) Salary per capita (1030A) 25 28 31 30 35 - 100 111 107 122 124 -

(4) Production sold (10%0A) 135 164 212 395 487 - 100 122 157 292 360 -

(5) Turnover t106 OA) 135 166 217 403 491 - 100 122 160 298 363 -

(6) Value-ad ed(lO'DA) 78 119 1S9 364 29S - 100 154 206 470 540 -

(7) VA/L t10DA) 33 39 39 75 73 - 100 187 187 227 212 -

(8) Investents (10'OA) 11 8,4 17 34 6- - - - - -

(9) KS ) (Joe 0A) 262 270 287 321 327 - - 103 110 123 124 -

(10) K/L = (9)/(1)(10 3DA) 113 89 70 66 61 - 100 79 62 S8 54 -

04/28/8764858. p.10

'*C

X I,-

Table 5.3: Public Setor: lmber of fle s RM ratios.Vaue-added. Poutivity of Labor

5.3.4 Cellulos

IndicesS0 81 82 83 84 65

80 81 82 83 84 85

(1) NMber of eloyees 5.679 5.682 5,777 5.861 s,97 - 100 100 102 103 105 -(2) Salaries ( O DA) 188 206 235 236 242 - 100 110 12S 125 129 -(3) Salary per capita (10 3DA) 27 33 36 40 40 - 100 109 121 121 121 -(4) Production s2 ld (00OA) 446 535 549 S85 713 - 100 120 123 131 160 -(5) Turnover (10 DA) 578 672 698 724 921 - 100 116 121 134 148 -(6) Value-added (IOSO) 209 216 252 243 308 - 100 103 121 116 148 -(7) VA/L (103 OA) 36 38 44 41 51 - 100 106 122 114 142 -(8) Investments (100A) 123 39 4S 70 55 - 100 32 37 57 4S -(9) K(*) (10 6 0A) 851 890 935 1.005 1060 - 100 0OS 110 118 125 -(10) K/L (9)/(1)(10 3 0A) 1so 157 162 171 177 - 100 105 108 114 118 -

04/28/8764858. p.11

;I1

Table 5.3: Pblic Sector: NALer of Eloyees. RMLneratio. Valueaded. Productivit of r

5.3.5 Aricuitural and Food Industries. Tobacco, thestalyceride. suaar. canned foods. iuices. mineral water. tobacco. matches)

Indices80 81 82 83 84 -5 __ _ ___ __ _ _ _ _ _ _ __ _ __ _

o80 81 8 83 84 85

(1) Number of e aloyoos 19.692 20.181 20.290 18,756 19.736 - 100 102 103 9S 100 -

(2) Salaries O11OAA) 587 609 691 680 707 - 100 104 118 116 120 -

(3) Salary per capita l003DA) 28 28 33 35 35 - 100 100 118 125 125 -

(4) Production sold (10A) 3,364 3,789 3,972 5,246 6,254 - 100 113 118 156 186 -

(5) Turnover (10 DA) 3,86S 4.353 4,589 5.666 6.454 - 100 113 119 147 167 -

(6) Value-added (t00A) 2.462 3.211 2,914 3,532 4,190 - 100 130 118 143 170 -

(7) VAJL (100 DA) 125 1S9 144 188 212 - 100 127 115 150 170 -

04/28/8764858, p.12

0 *

.J1

Table V.3-224 - Page 6

Table 5.3: Public Sector Nufflber of Emloyees. Remunerations. Value-added, Productivity of Labor

5.3.6. AF.I. (ERIAD) Semolina-Flour

80 81 82 83 84 85

(1) Number of employees 22,567 23,156 25,428 25569 25,704 -(2) Salaries (106DA) 704 781 891 1,044 1,040 -(3) Salary per capita (1030A) 31 34 35 38 38 -(4) Production sold (106DA) - - - 3,127 3,454 -(5) Turnover (106DA) - - - 4,397 4,895 -(6) Value-added (1060A) - - - 805 1,159 -(7) Value-added per capita . - - 31 45 -

04/29/8764859, p.l3

-225 - Table V.3Page- 7

Table 5W3: Public Sector: Nuber of Employees. Remunerations. Value-added. Productivity of Labor

5.3.7. Total A.F.I. - Tobacco-Matches

80 81 82 83 84 85

Investments _. Value (IO6DA) 1.646 1,S84 1,678 972 914 -

. Indexes 100 96 102 59 56 -

K ('). Value (108OA) 6,170 7,754 9,432 10,404 11,318 -

. Indexes 100 126 154 169 183 -

K/L* Value (106DA) 146 179 206 235 249 _. Indexes 100 123 141 161 170

Sorce: Ministry of Light IndustriesThe value used to approximate the capital stock is the cumulative value of public investments in thesubsector at year-end 1979, plus the sum of annual public investment flows in the subsector.

04/29/8764851. p.14

Table 5.3: Public Sector: NALer of Enloees. rm tions. Value-added. Produtivity of Labor

5.3.8. Textil-Leater

I Indices80 81 82 83 84 85

80 81 82 83 84 85

t1) Number of emuloYces 30,413 35,546 40,257 45,000 46,917 - 100 117 132 148 154 -I (2) Salaries (10 DA) 783 891 1,138 1,243 1.618 - 100 114 145 159 207 -I (3) Salary per capita (103DA) 27 27 30 31 35 - 100 100 111 115 130 -*4) Production sold (106DA) 2.504 2.966 3.246 4.703 5.867 - 100 118 130 188 234 -.51 Turnover (IO6DAa 2.566 3,013 3.334 4,750 6,557 - 100 117 130 185 255 -tb) Value-added (10 DA) 1,888 2.238 2.396 3.157 2.806 - 100 119 127 167 149 -(7) Value-added per capita (103DA) 62 63 60 70 60 - 100 102 97 113 97 -(8) Investments (1060A) 2,338 1.690 988 808 657 - 100 72 42 35 28 -

I (9) K(*) (106DA) 9.254 10.944 11,932 12.740 13.397 - 100 118 129 138 144 -I (10[ K/L (10 3 DA) 304 308 296 283 286 - 100 101 97 93 94 -

04/29/876485B. p.l5

I*Ca.¢

- 227 -

B. Heavy Wdtries

I

I

I

0P^Al�� V--

- 228 - Table V.4Page I

Table 5.4: List of Enterprises undr the Supervisionof the Ministry of Heavy hinstries

Enterprise Head Office Main Activities

1. - Mines and Ouarries11. FERPHOS TEtESSA Production and marketing of iron and phosphates12. INORF ALGER Production, import-export and distribution of

non-ferrous metals, usable substances13. EXASEL AIN SFARA (CNE) Production and marketing of salt14. ERE" BOU HEROES Mining exploration15. EOENIMES ALGER Studies and works for the mining sector

2. - Imr and Sta)1

21. SIOER ANNABA Production. marketing, imports and exports of ironiron and steel products and semi-finished products

22. ENTPL ORAN Production of "long products" (welded wireworks.extended metals, electrode soldering ... )

23. ENTIPP (ANADIB) ALGER Production of tubes for hydrocarbons, irrigation24. EN3 ALGER Production of metal crates25. RECUP./OUEST ORAN )

) Reprocessing of ferrous and non-ferrous metals.26. RECUP./CENTRE ALGER) non-metallic materials, lead ... Exports

27. RECUP/EST ANNABA)28. SIOAL ALGER Distribution of technical (medical) equipment

and assembly of blowtorches29. PROSIOER ANNABA Production of sheet metal TN. 40, vault-panels and

crash barriers, sandwich panels, assembly ofbuilding materials

3. - Mechanical Industries31. SNVI ROUIBA Production, imports and marketing of vehicles for

industrial use and industrial panel body32. PFM BERROUAGNIA Production of hydraulic materials (sluices-pumps)33. PFMD CONSTANTINE Production of machine tools and accessories34. PVP ARZEW Production of cycles and motor cycles Guelma35. PlA SIDI BEL ABBES Prouduction and imports of agricultural equipment36. B.C.R. SETIF Nut-and-bolt works, screw-cutting industry, tap trade.

cutlery industry37. ENWP AIN SHARA (cru) Production. import and marketing of

materials used for public works38. A.M.C. EL EULMA Production of control and measure instruments

(ex. SONELGAZ) (water, gas and electricity meters)

4. - Natal Industries

41. FERROVIAL ANNABA Construction of railway material (Annaba)

42. ENCC aRAm Production of structural steel and boilerwork

43. BATtKETAL AtM DEFLA Production, hoisting, structural steel,industrial buildings

44. PRONETAL ALGER Production of metal equipment(sanitary ware, furniture, radiators)

45. ENF TIARET Production of cast steel. boilerwork (smelting works)

S. - n ctrigal andEleCtrnics Industry

51. ENICAB ALGER Production of electric and telephone cables52. EMEL ALGER Production of electronic equipment, electric supply

service (electrification)53. EKIEH TIZI OUZOU Production of miscellaneous household items

and incandescent lamps54. ENASC ALGER Supplying (imports), installation and repair of elevators5S. ENIE SIOI BEL AOBES Production of electronic appliances for general consumer useSG. EUTC TLEMCEN Production of telecoamnications equipment

(telephone exchanges and stations)57. EMPEC SETIF Production of batteries and accumulators

04/30/8764858, p.17

£TUDES ET TRAVAUX.

a) Etudes

al. SIDEM ALGER . Ex6cution d'6tudes de maturation et d'engineering g6n6r2l des projcts

s2. ENSID ANNABA . i .It

a3. SERSID ORAN . Engineering (dtudes, gestion ptojets, supervision travaux), g6otechniqur

a4. SONARIC TENES . Conception et rCalisation de PMI et PME.

a5. ENEtt ALGCR . Engineering mdcanique

a6. SIDJI JIJEL . Developpement projet sid6rurgique Jijel.

b) Travaux

bl. GENISIDER KHROUB(Cne) . lerrassements, genie-civil, batiments, routes et voies ferrdes

b2. COSIDER ALGER . Tcrrassements,G6nie-civil.

b3. TRAVOSIDER ORAN . Terrassements, genie-civil, batiment industriel, tlectricite et tuyau-

terie industrielles et de batiment, montage charpente, logement.

b4. REALISDER ANNABA . Terrassements, g6nie-civil, couverture et bardagc, naterioux de c3ns-

truction, logements.

b5. ERI ALGER . lerrassements, genie-civil, VRD.

-AUTRES

71. ENCLC ve * . Institut National de Fnrmotion - Electricit6 Electronique

72. INGM BOU MERDES .

73. INMA AL"Ck . InstiLut National d'Etudes et de Recherebes on Mnintcnonce

74. CESI Al.GER . Centre d't.udes ct systhmes inrormatiques

75. CENIDIL ALGCER . Centre de documentation et information du sectcur MILO.

cr13-3I0C

Tableau SS Capac,t6s r#elles do prodactmn de biens do lmxustne lourde (source tild).

Produets 1043 T) ciUs 15179 WA*itft 1985 Accrlaoseot CsJ Ob fecti a 87 Total pr 987l1uod.Fer(I0~~~~~3T) 4615 4615 -11 _________ 450

Zinc(10*3 r)____________ _______________ _________ .__ 291 2

Phos(l>n) I ~~~~~~4815 1 651 1~ ~ 165(10*3T) 66 218 ____ 31 221

Sw1 -03 3 40 2201 S7I__ I 221

Rond6bt*tN1032 4 34) 2 75 4451 451f0rletafl(10631 351 ____661_ 1 1 ____I__

ch wudfr( O3T_) 701 7 13 I _ _ _ _W n(Uits)3 83S -Cwni__ns______ 6700 6__ _ _ _ _

)t - ~ ISS 4 _001 _____ 4

Golars C17 ~~~~~1 6 23~ 19 179 25t051 135Corw1 nI ISIoteurs 6s6 1201 I 43t7t 1 3TrscteursAar.(, 4 620 1 _______ 71,10" sKN bAtteusesCi 371 __ __ _0__ __ 4 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

miotocbt 1 2767 47434 2 4 54C Ycww 13 4S61 7787 978 6478ponms 58)1 3360 28 _______ 3651Vanrms eft raccordsC' 6601 66 _________I 6691Rcbinett*er' T) 1 72117201_ __ _ _ _ _ _ __ _ _ 10froiseuses(Uhnt6s) I I I 1Tourts(-) ' 2501 25C rtews6 lec (1) 240 001 240Cornteum au(-) 130 00 .. 130C m teurs g-) 30 __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _30

Cables lect I 0M3T) 2 24 S 47Cables t ~ .C*) __ _ __ _ __ _ 31___ _ __ _ 21___ _ __ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _

Rc t.radiosCUnit") 235 001 235 109 6 350T V noir et blnc(t' 1000001 300 oa 40 100 44000T V couteul') 26301 90 50 1(0# 240000Centrax twlE h(I 68 00 88 00_1__ 68000Postes tIli ( ) 1400 14000 _ 1400Ritngdmte trsrl 36" 135 __ . 282201 417 3C_SW &*M7 18 N4 93 23 33 150OChstote ;;;ba 1 202 12 im-12 _______________

- 231 - Table V.6

M. ~ ~~it tor F- 1'-' 1>*'1'

S 1 ~~~il-l1'ii Ii § 11!

ii8;~~~~~I 1I 'I> I

-232- Table V.7

TabM= 5.7 Cometm d. risulta [SID 84-85 (1056 in).

ICPTE. RESULTAT. TOTAL MILD. 1984 TOTAL MILD. 1985marge comerscial_ 3 127 3487producUon vue 17093 21 780consomm. Inerm.blens 7938 8 358consomm.interm.services 1 915 2041orstaUons fournles 3501 3622VALEUR AJOUTEE 15236 17 751esIme 5791 7001

ilmpots ot ts 4477 4 689frets Inncies 2069 2 228amortlssements St orov. 2872 2907RESULTAT EXPLOITATION 1 117 1 338chars hors oxololteton 4317 3 116produits Nho ploitation 2001 1 469RIRSULTAT BRUT EXERCICE -1199 -310Impats X wfixca 1 542 1 304RESULTAT NET EXERCICE -2741 -1 613

MILD. Comptes de r6ultsts.

RtNet

Rlt.rut. c

AmorUss. Fg]Frals fln. II

Persoel

V-5 0ou50 _

-5 °°° ° S 000 10 000 15 000 200COO

-233 - Table V.8

Tablea 5.8 Comptes de r6sultatA branche MINES 84-85. (10*6 Din)

fCPTE. RESULTAT. MINES 1984 MINES 1985marge commerciale | 27 37

dproduction vue nd 735 903consomm. Intermkd.blens 18 179consomm. mlt. srces 142 1471restations fourni,e,s 31 -31,VALE*UR AJOUTEE 498 65tapersonnel 3521 3961'impots et taxes 491 6~7,frais financiers J 751 130Iamortissements et prov. 113 1lliRESULTAT EXPLOITATION -69 -20charges hors exploitation 65 85prodults hors exploltation 39 31R'ESULTAT BRi'T EXERCICE 9 -74Impots / Bin6fices _ 5 64RESULTAT NET EXERCICE -150l -138

MINES.Comptes de r6sultats.

Rt.Net

Rt.Brut

AmorUss. 194

Frais tin. 1

Impots

Personnel......

v.ajouth. _Il r 200 30 IF 50

-200 -100 0 100 200 300 400 500 600 700

- 234 - Table V.9

, CPtE. RESULTAT. SIDERUR61E 84 SIDERUR61E 85marge commerciale 0161 __2 141rodU^ctn vendue 5_700 8_54

consomm. intermtdbiens 3 097 3673consomm. int. services 783 764restations fournles 121 127VALEUR AJOUTEE 4 043 5634

pIot Z 1 522 2099impots et taxes 1 1 358 1 524'frasfinanciers 938 543j tssementsS_V._ 1 144 1 065RESULTAT EXPLOITATION -270 405charrges hors exploitation 1 534 598produits hors exploibttion , 610 27

'RESULTATBRUT EXERCICE -1 195 -167IlmpIs / 8llfices 3061 20_'RESULTAT NET EXERCICE 1 -1 501 5_61

SIDERURGIE.Comptes de resultats.

Rt.Net

Rt.Brut

Amortiss.

Frals fin. 1

Impots 1985

Personnel

V-2jouti0 5

-2 000 -1 000 O 1 000 2 000 3 000 4 000 5 000 6 000

- 235 - Table V.10

TAbleau 5.10 Cointes do r6sultats branche C. MfTAtIOIS MA,85 (1006 DID)

CPTE. RESULTAT. CNMETALLIJES. 84 CNMTALLIQS. 85margo conmerciale 68 131producUon ve4 1 798 2871consomm. intmd.biens 673g 972consom. It. SeVIces 374 446Drstatlons founies 775F 615VALEUR AJOUTEE 1 7551 2 20Lrsonneml 7011 91imoots et taxes3 52frais nnanciers 1471 173amorUssoments et prov. 1 318 363RESULTAT EXPLOITATION 239 300chargg hors explolWtaon 378 511roduits hors exploittion 135 16

RESULTAT BRUT EXERCICE -5 -47ImoBts t Bb*flce 171 196RESULTAT NET EXERCICE _ -175 -242

CN.METALLIUJS. Comptes de r6sultats.

At.NeteRt.Bruto

Amortiss.

Freis tin.impfts 198

Persomel

V.500 0 0 0

-50O O 500 I 000 I 500 2 000 2 500

- 236 - Table V.11

Tabjea S.11 CgMota di rhsutIt braNch MECNlaJ 84-85. 16i

jCPTE. RESULTAT. MECANIOJE 1984 MECANIME 1985Mras comenrcials 1 366 1 122oproduction veNo 6058 6 4456consomm. lnterm6dblens 2 561 1 982

1consomm. int. services 300 308Iprestatlons fournies 108 103VALEUR AJOUTEE 5 21 5 360personnel 1 664 1 917

Iimpots et taxes 1 726 1 626tfrah financiers 545 1100amortlssnkt et Drov.87 84<

1EULA EXPLITATION _7321 211,chares hors exploitation 1 492 13711pvoduits hors exploitstion 916 02RESULTAT BRUT EXERCICE 156 -263Impots / Benfce 715 486

IRESULTAT NET EXERCICE -563 -745

MECANlIOE.Comptes de rhsultats

Rt.Net

Rt.Brut X

Amortiss. 1

Frais fnn. =

Imp6ts II ! fi !90

Personnel

V.a-0ut0e 0M1000 2 30 4 5 6000-I1000 0 1 000 2 000 3 000 4 000 5 000 6 000

- 237 - Table V.12

tAbtem J. 12 CaMote de tisultat branch CU. ELECIRI(IJ-LCTROI(E 84-85. (106 Dn

PIRESI tT ELEC-ELECTRON. 84 ELEC-ELECTRON. 8Smar commoclslo 152 ______ 57priduefon venduo . 2 801 3018cosom. Intdblo _ 1 130 1204consom. int. serves i 93 119pstatuons foirnios 5806 659VALEURAIOUTEE 2361 2318

.ersonnl 739 894Imoots t taxes 751 721fraus fimacter 302 26amrtUssmnts et rov. 265 294RESULTAT EXPOITATION 430 1781choes hors mioltaUtlon 722 484oodults hws xploitatlon 210 339RESULTAT BRUT EXERCICE -82 34lmd6ts / BOhfIces 256 223IRESULTAT NET EXERCICE 1 -338 -189

ELEC.ELECTRON.Compte de r6sultats

Rt.Net

RtBrut J

Amorss. 1984Frl (n 1984

ImpOtsPersonnel

- 0 50 1000 1500 2000 2500

- -O~~~~~~~~~~~~~~~O

us

z to~~~~~~~~~~dz~~~~~~~~~~LMR

1teLA#J-t ..D, e

10 V

II -IsI21

It

II %

i001 4

-§w~A OV

- 240 -

Annexes

Attachment 1

sensitivity of Electricity Load Forecasts (1989)

Sigh VoltageMedium VoltageLow VoltageTransmission and Distribution Loss4sSummry

Statistical Tables

VIII.l. Energy Balance - SONELGAZ interconnected system, 1975-85VIII.Z. Energy Balance - SONELGAZ isolated systems, 1975-85VIII.3. National Generation and SONELGAZ 'osses, 1975-85VIII.4. Electricity Sales and Number of Consumers, 1975-85VIII.5. Structure of Total Electricity Sales by Voltage Level, 1975-85VIII.6. High Voltage Electricity Sales by Economic Sector, 1975-85VIII.7. Medium Voltage Electricity Sales by Economic Sector, 1975-85VIII.8. Structure of HV & NV Electricity Sales by Sector, 1975-85VIII.9. LV Electricity Sales, Consumers and Specific Consumption, 1975-85VIII.10. Electricity Consumption and GDP, 1975-85VIII.ll. Fuel Efficiency of SONELGAZ Thermal Power Plant, 1975-85VIII.12. Capacity Balance - SONELGAZ interconnected system, 1975-85VII.13. Installed Capacity - SONELGAZ isolated systems, 1975-85VIII.14. Electricity Transmission and Distribution Capacity, 1975-85VIII.15. Energy Balance - SONELGAZ natural gas operations, 1975-85VIII.16. Structure of SONELGAZ natural gas operations, 1975-85VIII.17. SONELGAZ Investment Expenditure (current DA), 1979-85VIII.18. Structure of SONELGAZ Investment Expenditure, 1979-85VIir.19. Projected SONELGAZ Investment Expenditure (constant DA), 1985-89VIII.20. Structure of Projected SONELGAZ Investment Expenditure, 1985-89VIII.21. SONELGAZ Sales Revenues and Average Selling Prices, 1975-85VIII.22. Projected Capacity Balance - SONELGAZ interconnected system,

1985-92 - interim SZ forecasts, April 1986VIII.23. Projected Capacity Balance - SONELGAZ interconnected system,

1985-89 - mission's low scenario, August 1986

-241 -ATTACHMENT 1

Sensitivity of Load Forecasts (1989)

1. A kcey element in the optimization of the energy sector investmentprogram is the timing of SONELGAZ's major projects. Expenditure on majorprojects is concentrated in new electricity generation capacity; this accountsfor 26.5% of SONELGAZ's planned investment expenditure in the period 1985-89.While SONELCAZ employs a detailed and sophisticated methodology for itselectricity load forecasts, their usefulness is diminished by a policy ofderiving only one "central" forecast. A more explicit treatment ofuncertainty would give the Ministry of Plan a better basis on which to judgethe impact on the energy sector of differences between Plan objectives andperformance. In order to illustrate this sensitivity, the missionreformulated the most recent electricity load forecasts (October 1985) for theremainder of the 1985-89 Plan (Table 1) in terms of a small number of keyvariables. The mission has not quantified the additional impact of possibletariff increases.

Table 1

Forecasts of Total SONELGAZ Electricity Load, 1989 (GWh)

ConsuMption (a) Losses (b) GenerationRV MV LV Transmission Distribution Required

5,070 5,200 4,650 840 1,100 16,860

Source: (a) SONELGAZ, rounded estimates, (b) mission estimates.

High Voltage

2. The main determinants of RV electricity consumption are theGovernment's success (a) in commissioning the new projects in the Plan, and(b) in raising capacity utilization rates among existing RV consumers. Areview of the likely timing of 35 possible new RV consumers indicates that amaximum of 13 projects could be at various stages of start-up by 1989. Acentral estimate of their 1989 consumption is 820 GWh. Unless unscheduledprojects are designed and commissioned before 1989, the balance of theprojected load growth (1265 GWh) will have to come entirely from 48 RVconsumers already connected in 1984; total 1984 sales to this group were 2985

-242-

GWh. The additional load represents a 42X increase in average capacityutilization over the period 1985-89, e.g. from 3000 to 4300 hours/year. Thisconclusion rests on two assumptions - that no major plant extensions will becommissioned by existing conaumers, and that electricity consumption isdirectly linked to capacity utilization.

3.. In the present economic circumtances it would seem prudent toconsider the possibility that some major projects in the Plan may be deferredas a result of financing constraints. An equally important consideration isthe feasibility of a 35-45X improvement in capacity utilization ir fiveyears. The following two scenarios illustrate the impact of dif,.- gperformance assumptions in these two areas (Table 2).

Table 2

Sensitivity of HV Load Forecasts, 1989 (GWh)

Scenario Kish Low

1984 cowumption 2985 2985improved capacity

utilization8/ 1194 597Performance of projects

in Plan b/ 820 615

1989 total 4999 4197

(1985/89 annual growth) (10.92) (7.12)

Sources mission estimates £

a/ assumes 40Z improvement (high) and 20% improvement (low).

b/ assums 10OZ achievement of Plan objectives (high) and 752 (low).

Medium Voltage

4. Requests for new medium voltage connections are only useful for thefirst two years of a planning period. Beyond the first two years, SONELGAZload forecasters depend on information from the Plan on the projected growthrates of individual economic sectors. As a result of the present state of theworld oil market, these growth rates are likely to be lower and lesspredictable than the rates observed over the previous Plan, 1980-84. Anadditional uncertainty is the recent rapid increase of private sector activity

-243-

outside the framework of the Plan. At the time of the wission (June 1986),SONELGAZ was preparing new load forecasts on the basis of the same sectoralgrowth rates used for the load forecasts issued in Oct;ber 1985. The lack ofup-to-date sectoral growth projections clearly reduces the quality ofSONELGA2's load forecasts.

5. Total MV sales projected by SONELGAZ for 1989 are 5200 GWh (Table1). Starting from a base of 2940 GWh in 1984, this represents a 12% annualgro*th rate of MV electricity consumption. Three economic sectors accountedfor 50% of total MV sales in 1984 - water and energy (17%), food, tobacco andmatches (14%), and public services (19%). The annual growth rates projectedby the Plan for output in these three sectors are 10%, 9%, and 7%respectively. SONELGAZ assumes i 5% average annual growth rate for output insectors not specifically covered by the Plan. The electricityconsumption-weighted average -.towth rate of output in these sectors istherefore about 7%, and the implied ratio of electricity consumption growth tooutput growth is in the range 1.5-2.0.

6. In the absence of revised projections of sectoral growth rates, themission has assumed that these growth rates will be in the range 3-5Z. Ifthis range is confirmed, MV electricity consumption growth rates of 6-10% willhave to be seriously considered (Table 3).

Table 3

Sensitivity of MV Load Forecasts, 1989 (GWh)

SONELGAZ/Plan Mission MissionScenario (October 1985) (high) (low)

Growth rates-- sectoral 5-10% 5% 3Z-- MV consumption 12% 10% (,%

1989 MV consumption 5200 4735 3934

Source: SONELGAZ, mission estimates

Low Voltage

7. Current SONELGAZ forecasts of LV consumption already include areduction of several key growth rates compared with performance during the1980-84 Plan:

- 244 -

4-

(a) Specific consumption of "ordinary" consumers is projected togrow at lese than 22 annually (to 1242 kWh/y in 1989), comparedwith nearly 52 anumally during the previous Plan.

(b) Specific consumption of government cousumrs is projected togrow at less than 1X annually (to 5315 kWh/y in 1989), comparedwith nearly 42 annually during the previous Plan.

(c) The annal growth of the number of goverment consumers isprojected to fall from 252 during the previous Plan (mainly dueto the new wilaya created during that period) to about 6S overthe period 1985-89.

8. The main uncertainty in LV consumption growth is the likelyperformance in connecting new ordinary LV consumers, compared with the Plan'sobjectives. These connections are made through two separate programs;

(a) The Rural Electrification (ER) program aims to have as close aspossiule to 1001 electrificiation by the end of the presentPlan. SONELGAZ has translated this objective into 530,000 newconsumers over the period 1985-89 - about 106,000 new consumersper year.

(b) The New Customer Connections (RCN) program is a concerted effortto meet the backlog of connection requests in existingdistribution areas. The SOVELGAZ target for 1985-89 is 835,000new customers -- about 167,000 new customers per year.

9. The annual average target for total new connections (ER plus RCN) istherefore 237,000, compared with recent results (1983-85) in the range170,000-185,000 (Table 4). The noticeable decline in performance in 1985affects both programs and clearly warrants special attention from all agenciesinvolved-SONELGAZ, Kharif and the electrification groups in the wilaya.

Table 4

New Ordinary LV Customers, .980-85 (thousand)

1980 1981 1982 1983 1984 1985

RE program 50.5 55.4 69.9 85.2 79.8 74.9RCR program 79.1 80.6 86.8 100.5 105.6 94.4

Total 129.6 136.0 156.7 185.7 185.4 169.3

Source: SONELGAZ

-245-

-5-

10. The mission suggests that a range of 180,000-220,000 average newconnections per year be used as the basis for projecting growth of ordinary LVconsumption over the remaining four years of the current Plan (Table 5).

Table 5

Sensitivity of LV Load Forecasts, 1989

SONELGAZ mission Mission(October 1985) (high) (low)

Ordinary consumers ('000)- number in 1984 1,969 1,969 1,969- additions in 1985 ... 169 169- total in 1989 3,334 3,018 2,858

LV consumption (GWh)- ordinary consumers 4,141 3,748 3,550

g government consumers 505 505 505

Total LV consumption 4,646 4,253 4,055(1985/89 annual growth) (12X) (1OX) (9X)

Source: SONELGAZ, miision estimates

Transmission and Distribution Losses

11. SONELGAZ's 1989 target transmission and distribution losses (Table 1)are 5% and 10% respectively. For transmission losses, this target presents noparticular difficulty, provided there is no unexpected requirementfor large inter-regional energy transfers. This could be caused, for example,by a major delay in commissioning planned new generating capacity. Thedistribution loss target, however, represents a major reversal of the trendobserved during the last few years (Table 6). Increasing distribution lossesappear to be v ix of non-technical losses (e.g. delays in integrating newcustomers into the billing system) and technical losses; the latter arepossibly due to the lower priority given to reinforcement and renewal ofelectricity distribution networks as a result of the urgency of the newconnections' programs.

-246-

-6-

Table 6

Transmission and Distribution Losses 1979-85 (GWh)l/

1979 1980 1981 1982 1984 1985

Transmission 273 210 387 556 483 572b/ (5.02) (3.4%) (5.42) (6.9X) (5.3X) (5.7%)

Distribution 318 598 502 520 907 1047(9.1X) (14.4%) (11.1%) (10.32) (15.5Z) (16.12)

Sources SONELGAZ

a/ in 1985 total losses (transmission plus distribution) were 1556 GWh.

b/ transmission losses as a proportion of total energy available to SOWELGAZnetworks.

ci distribution losses as a proportion of energy delivered to MV and LVnetworks.

Swumary

12. This diagnosis crudely quantifies the scope for improvingimplementation performance in the electricity subsector during the currentPlan. The main area of uncertainty concerns the future load - totalelectricity consumption in 1989 will be as much as 2700 GWh lower thancurrently projected (Table 7) unless a number of targets are met. A secondaryarea of concern is the impact of distribution losses - unless appropriateaction is taken, an additional 700-800 GWh of generation could be requiredwithout any corresponding increase in revenues.

Table 7

Sensitivity of Load Forecasts, 1989 (GWh)

SONUKIAZ Mission Mission(October 1985) (high) (low)

RV 5,070 4,999 4,197MV 5,200 4,735 3,934LV 4,650 4,253 4,055

Total 14,920 13,987 12,186(growth X 35/89) (122) (llX) (82)

Source; SONELGAZ, mission estimates

DCraig;esa3162P

- 247 -Table VIII.1

R bla: USCAZ gyotm (OA) 1975-0

195 19716 1977 1978 1979 1980 198L 1982 198 198N4 198512,808 3,302 3,668 4,182 4,794 5,452 6,240 7,051 7,975 8,86 t

- _ _ - - -

2X 2 , 2*632 3 2, 2 3 31 O 3,90 489 5 37 30 *4 2 1:. 92 2.35 2520 us

tpqorta as na 1 (6) 3 no (27) (17) 72 as

baW Awilab1a 2,8 3,302 3,668 4,183 4,780 5,455 6,240 7,024 7,958 8,888 adloom a/ 334 419 471 412 546 762 770 929 1,195 1,500 VATotal sales 2,474 2,88 3,197 3,M 4,242 4,693 5,470 6,095 6,764 7,385

605 788 916 1,089 1,334 1,52D 1,84 2,.00 2,73 2,472 no1,097 1,223 1,340 1 58 1,709 1,859 2,036 2,210 2'467 2 638

Im voltap 771 873 941 1,108 1,199 1,313 1,571 1,884 2,067 2,276 a

a/ Calaziatd as diffEru0 betw esrgaailable Id total salesawsa: Sa

Table VIII.2

Rgy bl : SiE Z Ilatd System (Oh) 1975-8

1975 1976 1977 1978 1979 1980 1981 1982 1985 1984 1985GmaUion 328 422 472 613 686 770 907 1,092 1,131 1,201 us

0~intustia2 Dzbine8 278 355 395 519 578 642 774 964 993 1,031 oDMass1;1ait 47 63 73 90 108 12S 127 M 1 170 asp9 _wba 3 4 4 3 0 2 7 8 0 0 us

uSmi 1Msuoud 241 309 336 .i34 447 442 437 518 541 540 as1I3i MI1 37 46 59 85 131 200 312 399 391 417 ua

0 0 0 33 33 23 47 52 64 74 uOtber a/ 50 6l 77 60 75 105 110 125 134 170 us

loom bl 45 5% 66 2O 11 70 91 135 198 153 uO

Total sales 283 365 406 595 676 700 816 957 933 1,049 us

175 237 243 336 389 389 436 535 507 3513 Da= Dwk e 49 63 96 181 191 2D9 260 '(76 249 303 us

low leap 58 65 68 76 96 102 120 147 177 232 a

81 Calaniaad a TeidUb/ Ca8 ilated a uiferce betwm gemuatw .id total 9aZ

SOmc 8GWM

- 248 -

Table. VIII.3

rdu 4wtbm .ad so= loo 1975-S

1975 1576 177 1978 1io9 19 l 1 1995 194 1985_ ( 3 3,3 3,724 4,140 4,79 5,*474 6,2 1,147 8,116 9,089 10,009 a

2,8 3,= 3,668 4,15 4,788 5,415 6,240 7,O 7,"8 8,8 321 422 472 613 685 770 90 1,092 1,131 I,21324 312 275 42 636 gm 1,00 1,x0 l,10 1,170 a

P 1 1t 212 1X 2Z 472 407 5 775 65 632 urnI ~~~~~~~~~~0

62 110 92 4 i t 92 T U 3,460 M,5 4,415 S,217 6,110 7,12l 8,1!55 9,376 10,199 11,259 us

hul SZ low" S us u5 808 83 1,077 1,390 1,618 naTcomotsd ~~~~~334 419 4! 412 5m 6 770 9219515im Oa

1ao1ae~ 45 S8 a 20 5S Ua

; ~ ~ ~ ~~U US US US 273 3WQ 5Efi Z72 uSOS 05 Oa Da 318 I0 5 907 1,072 us

hwU AwAIe 3,137 3,653 4,149 4,969 5,52 6 02 77 8,916 9,19 10,089 DaAmk ', 1, I, i, 72 1,38 2,279 2, 25 2,965

dl& e to tELV1) 2,357 2,621 2,991 3,544 3,SM7 4,7 5,W S,w 6,761 6SV3 ns2, 2, 2,r ~~3,4 4,9 4,517Y 4,9 5,449

V 01"Fe1,9 2,M 2,5 2,8 3, 712 608 707 -w 37g wFa ~~~~~ndl an as 3 18 6 6 Da

s us 5 sV 12 1 9 16 a

a Diffmcs be ta loos calculaoti in table 1 d 2 a 91FZOf romisig ad distantitos boom

so: sa

- 249 -

Table VIII.4

SigOt Wl =1 Mbw of £oo, 1975

197 1976 1917 1978 1979 190 1969 1985 1983 194 1985Blein (Gam

Iat-orA SYuU 2,474 2,886 3,197 3,M 4,242 4,693 5,470 6,0ff 6,764 7,385 s

va Is$ ~~~~916 1 S2j. 1.803 2,000 2,230 2,472j > 1?88 it Il .'7 IS 1: 12jSO 2,4 2,'7638

T"Xaed (OWSystem 283 365 406 5s 676 700 616 957 933 1,049 na

24 36 39 369 51335 WW l nalT %W 128 X t t | | Bf jf24 303 ft

ti (sa ) 2,756 3,249 3,603 4,364 4,918 5,393 6,286 7,052 7,697 8,434 as

hIaJvThltage 780 1,02a 1,i. 1"64Z 1,725 1, 2,278 2 2,7 2,9 Da

*Ahm Of 1,04,90 1,161,651 1,218,568 1,279,373 1,373,370 1,602,362 1.741,884 1,903,359 2,094,916 2,253,858 Da- ~~~ ---- ----

w vborw ~ 4 3 4, 9? 5,1 6,1~ 34 ,~ 97 0,~ 1,95 nalow Thlcqe 1 0 1,156,662 1,23,196 1,273,190 1,mI53 1,591,601 1,713,0W 1,J356 2 6 2,21412,125 na

8.c: 9ZW

Table VIII.5Stuwt of T£ al zlu icity Sol" by ThItq lev (2), 1975

1975 19t6 1977 1978 1979 1960 191 198 1984 198S

TOW Sales (2) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 na

3f b l 28 31.5 32.2 32.6 354A 36.2 35.9 35.6 35.4 na41 39.6 39. 40,4 3384 36.9 35.3 6 35.3 34.9 X&

low Tbltp 30.1 25.9 21.0 26.9 63.3 26.2 6.9 28.8 29.2 29.7 na

9: z:

- 250 -

Table VIII.6NO u RbW lactrieit Sa1bo by Fomc Bad=e (Qb 195-

1g9 196 197 1978 199 1980 18 1 1962 196 19f8 19

0 0 00

&Osu~~~~~~~~~~~~~~~~~~m ~~~~~~na

____ li iS ~I i I'M tl it 'li780.1 1.9 11565l 1424.8 722.1 189. 28. 25.2 23.1 MO4 m

Table VIII.7

MWdhm vDUMS mactricity Sales by 1e.maic Sucta (Qii 1975.

SactoF 1975I 1,6 197 17 19 196 0 . O I 198 198 1M

a/ 2 * 2 .4 . ..7I A4 Z

&as a

= sb]"o Dec B9 (~~I * M5f

o1d9& 1p96 1O a1"a1rt 4t 2 147.6

TMI1 1146.8 123.8 1435.7 1763.4 1M.2 20U.2 2M16.2 24.9 2715.8 29M0.8 a

Table VIII.8

k tim .15 ui WA £)rdlty him by uacrt W. I9S-

W1 19S1 17 _19 199 19go im I=t it is am

X;_____ 12 60. 0 2 t ai iii i:! ,. 9'_1~ 10 1601.0 360*. 160.0 lQD.O 165.0 300 360* 1.60 36ID.O -

t a~~~~~~~~~~~~~~~~~~~~~~~~~a

Table VIII.9LT iuwtfY Sam.i.. qG t %1fic &ftwtim, 1915 4

_____ _a__ I1s Im6 191 198 19 190 199 1 o1 19w18n 195him WAiW - W Ws 1,01 1.2 1,40 3.44 1,919 2, W

us W1. ~ 43 iis is~~~a PA .me W~~~~~~ - -~~~~~~~~~~~T

3.Im (Wa as 23 252 239 33D 321 2363 a

WmL Wm11 MD8 Iln8' 1,60 ,7 ,3 1,U2 I' 1,08 2,6 1 M 2.21 ,33Uggtisticml Ditt3sur/ 0 0 0 4 26 ~ 7 1 -79 '

/ CMIA" BOta - bm u " 1 eel 1 #1be 4 1mi L'm 1, "a is: 1O

31 ! _la IgSa_ A s rlErihli ii

Table VIII.I1 - 253 -

swl Efficiay of SMLU Tml fr Pl2i, 1975-83

1975 196 19" 1978 1979 190 1981 1982 198 1984 19h

Staem 1Mibias

Iul fuel Co' s h) 5,973 7,G30 8,094 8,852 8,553 10,464 10,072 10,934 13,712 14,994 nafuel oil 0 Q 0 1,111 973 866 205 689 70 4MD

gasoil ~~ ~ ~~0 u 0 165 W 17 9 367 nanat= wa1 gao 5,973 7,WO 8,094 7,61 7,5 9, 9,851 10,1426 12,969 14,584 na

icu (OAM 2,14 2,632 3. 2. 2,9~ 3,621 3,891 3,905 4,89% 5,1476 Va

a '.ltb/Q*t) 24 2.7 2.7 3.0 2.9 . 2.6 2.8 2.8 .2.734.s 32.2 32;1 29.0 29. 29. 33.2 30.7 30.7 31.4 a

otl fuie am's Qh 516 1,299 1,058 6,904 10,62 10,591 12,619 15.833 17,122 16,283 M

fel oil 0 0 0 5 Z 167 94 63 55 noPasoil . 0 0 0 -6 is liZ 184 252 na2 ;at ga 516 1.9 1,0 4M ? ?, X5 12,9 13 99 13,176aamiatd Pas 0 0 0 0, S, 1,9 1 ' 1 7in O O 0 2,332 1,142 2,35 2,441 2,6'd 2,879 2,800

Gation (OA) 377 646 778 1,67 2,143 2, 2,733 3,58 3,777 3,776 usNfsq4imcA2e' (ItbQ*O 1.4 2.0 1.4 4.7 5.0 4.8 4.6 4.4 4.5 .uf1cautcyI7X)/ c62.9 42.7 63.2 18.3 13 10 18.6 19.5 19.0 19.9 Oa

Diesal Plaa bIPs oil us'n kb 0 0 0 235 240 162 3zJ 352 440 515 na

tsj E c°(G) 0 0 7.2 17.2 7.2 16.9t 1 6.8 6.9 6.9 4coal 0 0 0 0~~~~~3 33 3 23 47 52 64 74 na

.. O 1 (e) lla b 7sX~s

0 0 0 12.0 12.0 120 12.5 12.6 12.4 12.4 as

4 l~~~~~ta pieblonod potIm

fte: I thoie (tbh)- 1.163 kWh ise the basis for Efficiy calodialaSac: SZ

- 254 -

Table VIII.12

Capety b1.: UmZ Ttaoteld Sytan. 19W3-

19S 1976 197 1978 1979 190 1961 19M2 1989 1984 1985t banllod Capcity (0) 12 1132 USS 1470 1463 1$O 1It =56 292 2592 as

s oba 7 3 7m 767 76 76t 7 S 123 1aS naNy~~~~ Pl4 ?a 8t vytPI= ns 5 0 w 2^ z^ ; 25 28S Oa

andum D 612 682 726 803 902 105 1%72 1306 1526 1677 uRnw r (Z) 66 57 a2 62 40 57 43 na

tAl &g GwAratia (Qa) 2WB 3302 3668 4182 4794 5432 6240 7051 7975 816 as

tabines 54 732 29 3621S 48% Ss6 m

1 2 2846282D as=--C %i 14 q 4 as4 t P 31134 315 1 22 .U 2% 3S Q 2S9 S lrA*acPlfoto 123 26 37 37a

Sya low factor (Z) 52 55 58 59 61 7 d1 6 G 60 "

urce: SM Z

Table VIII.13

Iotallad Capacity: SQZ Ialated Syvas, 197545

1975 1976 1977 1978 1979 191 1961 1982 1992 1984 1985

Tt Tnaalled Capacity (0) 144 169 188 357 357 407 435 444 444 444 na

Coatiac tubiin 125 124 132 302 302 344 375 375 375 375 XsDimi PIRot 19 45 56 S6 56 63 61 69 69 69 as

QGo Guaco (M&) 328 422 472 613 692 770 9068 1092 1131 12DI na

Qstn Z8 3 5 5 3 93 578 6U 274 314 993 IC31 natXpld: t0 22 25 3 34 24 29 30 31 M

%B1Plat6 4 3 73 108 125 12 I 138 170 u(asmpit Fa9Q5 O 61 22 23 24 23 28 ns

SOD:- 52C

- 255 -

Table VIII.14Mletriity Traission ad Datributieu Cpaciy, 1975-85

1975 1976 1977 1978 1979 1980 1981 1982 1980 1984 1985

Miab~~~1t~ 4,471 4,901 5,065 5,342 5,996 6,12) 5,792 6,269 6,781 7,215 ivKai~na~It~o 18,530 19,790 20,779 :22,22 24,199 26,562 28,63 30,Q 34,12 36,6m1 us

I3w4a,,egs 10,866 11,480 12,16 13, 14,3 2 16,449 188',83 21:795 25,656 29,814 36

RVAW ~~2,J97 ,0 3,374 3,594 3,754 4,295 4,473 4,818 5,353 5,673 DaMrBV = W) 10, fD 11, 02D1 2 1 12,138 13,102 147,6 16,711 18577 20,8 1 23,353 na

Sourcea: SaZ2

Table VIII.15Ewa Bhlmn: SZ5 NBtwal Gas Operadiws, JS17-85

1975 1976 1917 1978 1979 198D 19a 1903 1980 1984 1985

TwaassijM 5E a12,441 16, 18i9Q 23,735 29,432 33,677 37,22 41, 46, 49,936 nT% ~ M ssama 13S 267 5X 76 t 498 73 33 zr Oa VA

Dalvwriu

timi pwr atio 6,489 8,330 9,152 11,937 15,O 17,257 19,676 23,0W 26,965 27,760 Snbigh wessury 3,399 4,594 5,8m0 71 8 , 6 10,310 10,8 10,770 11,718 13,506 udMaibqut nwb 2,374 3,089 3,229 4, ,6C3 5,504 5,795 6,829 7,425 8,669 i

udfia pream Saus 253 318 367 453 56 654 72) 945 gos iv1w presaze gal" 1,549 2,258 2,414 3, 3,769 4,31 4,606 5,29 5,901 6,751 D

4 4td~ztia, loses. 572 512 448 44 3mS 6: 533 841 579 1,013 D

Coessiclon asc 41 2D 48 79 127 109 125 0 1 us no

bJ 1btals my1 nlot mtdi thse of SLAELZc S sl .e are not p of distri~it~u blosses

Table VI1I.16Structure of 8 M Natural Gb peatiu (S), 1975-8

1975 1976 1977 1978 1979 1980 981 1982 1983 1984 1985DMivari.s

7himi p mi3 52 50 52 52 54 57 58 56 usTlhhlrtry ) 28 29 32 31 0 31 30 26 25 2? ua

Di*ributikos m) 19 19 18 171 1 17 16 17 16 17 ua

100 100 100 1O0 100 10 100 1O0 100 G100 u

Source: 82QZ

- 256 -

Table VIII.17

mt O1 _ (= n a) 19794

1979 1980 1981 196n 1981 1964 195

II. tricity 1,247 1,91 1,998 2,199 2,472 2,716 3,248

distr*Am s513 767 939 1,W7 1,5N 1,645 2,0

e l e :04 ~~~~~424 UZI 716 IJ1M 1,2a 1a55w so 1d ~~~~262 239 8 411 0

lgaac 328 315 2m2 379 354 657 969-- - - - - -

zowa: 319 Y2216 18 as

Otbwss449 476 447 D4 27 382 210

Tsl a,dite a/ 2,024 2,731 2,697 2,852 3,034 3,755 4,457

a/ Tbtae my not mdc tlos of S8Q

aws: =E=

Table VIII.18SUM*=e of S z iuveguit ^"uttwe (2), 1795

1979 1980 198L2 192 198 1964 1985

1a7city 61.6 71.1 74.1 77.1 81.5 72.3 72.9

16 V2?.0 30.Q 15.2 16.1 18.7 15.7n. 16.0 9.3 15.i 13.0 9J.I 10.425.4 28.1 3.8 2.4 46.8

Fatwu1 s 16.2 11.5 9.4 13.3 11.7 17.5 21.7

_" X 10.6 6.8 4.1 8. 6.3 11.6 16.9iou 5.6 4.8 5.2 8 5.3 4.9 2.4

Otbws 22.2 17.4 16.6 9.6 6.8 10.2 5.4

ts1 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Sw=: MW

- 257 -

Table V111.19ftojactod a_L~ _u. (aint lii v), 1958

1985 1986 19W 1988 1989

4,990 5,625 6,366 6.O 8*2,9

s S l,442 i,IAAOJ 922 -2,3 2,42X 3,620a4||~~~;f 99, 022 Ism 1$207 1,;31

d Xatdh~t1oa 2,3 2,679 3,01 3,21 3,428

e 1," 1, X,7'4n 1,9 G,

: 23 I : 313YMMIlSX 1,091 1,398 1,665 2,000 2,297

d"{ 7S g X,X7~~~~~00 1,729 1,047g- _~ ~~~~~~ _ - -

* 0 1~~~~576 21 mea 321 35w t i ~~132 1 244 2 6

w Sm 1763 'I 1 72 1O

Oth.. s506 632 903 1,137 1,335

- -Ut1bpdtue. 6,59 7.653 8.904 9,997 1.911

a/ 2mtu1 =S Mt ustcb thou of SWDuZ

Se: 92:

Table VIII.20Stzictm of pijd nw imwbne S2ydLttw (D), 15-8

1s 19s6 19W 1968 1989

Zlac£tricit 75.8 73.5 713 68.6 69.5

24.9 25.9 24.3 30.49 o a6 11.6 12.10

di9gi 3. .0 J3.7 32.3 n

twel XG . 16.6 18.3 18.6 20.0 19.3- ~~~~~~ -. _ - - -

trix 11.X 12.0 124~ ~~~~ 12.9 162.4daihua s S5: 6.2 6.7.1 6.Otbwr 7.7 8.3 10.1 11.4 11.2

TOW 100.0 100.0 100.0 100.0 100.0

:~~~~we

- 258 -

Table VIII.21

8dz, plo bmi ad su t , 191w

iWS iWO 191? 1910 1919 196 196a 1982 196 1984 190

0 0 ~~~~~~~~~s as Z § 2 l 1 ,

od him.

id"M" as na an an VA 8:i 8:1 81 8:11 8:11lale us =u as us tos 1,555 19? 2,473 3130 2888 us

X uOa u 14p a 1,2 , 2,23k Oaas VA an uea yas 37h aas nou an as la Z77 O

o.s3 -L

- 259-Table VIII.22

pojec.d Cap¢ciy im;: Sma ftm 1996-9 UM8 htsa Pancago Apri 196)

AM 19 " lo# 1" 1990 19n ~iss

Qi~azves Cm.ra (0i) 9,829 10,210 13,10 14,60 16,410 18#790 21,020 a,2 0Imiu Din_t C) 1,1W0 2,070 2, 21,960 3,320 3,740 4,180 4,610

Rtiro (N) 120 10 12 65

NM Cpaci, (NO 23 359 336 100 56 400 600T*iatuM Cqpcity () 2,6W 2,925 3,2 4,253 4,253 4,789 5,069 5,604

CaormRmw hzgl (D) 44 41 17 45 28 21 22

sy8 low Vactor (Z) 60 56 54 S5 S 6 57 57 58

9ore: SZ

Table VIII.23Ntojaxed Capacty Bais: NIos 'a 1w Wbrcoate 19-49

AM - I.Lmie -

t 198s lgt ~~~~1969

0a. G tia (Wa) 9,829 10,615 11,465 12,392 13*762

Ybd= Da d 0t) 1,870 2,164 2,424 2,41D 2,8

Ia2lxmu GE) 12D 10

NW CbWity Om 23 3 36 100

staulud capciy t 2,68W 2,91 3,23S 4,23 4,23S

GM" low" M r)k (2) 44 35 34 72 52

ystm IcaFactor (D) 60 56 54 57 56

wc: saEz

- 260 -

EDUCATION AND TRAMG

qool,---�'. es,0,0.7.Vd .4 N,��

- 261 -

Table X.1 Skilled manpower demand and supply from the education andtraining system.

Chart 1 Structure of the formal education system.

Table X.2 Targets and implementation of first and second five-year plans(1980-84 and 1985-89).

Table X.3 Reform proposals and qualitative achievements for the 1985-89Plan.

- 262 - Table X.1

ALGERIA - kLUERlESKILLED MANPOWER DEMAND AND SUPPLY FROM IHE EDUCATION AND TRAINING SYSTEM -

BALANCE MAIN D'OEUVRE (fUALIFIE

Additional EstimatedNeeds/Nouveaux Outputs/ Shortages/

Besimns Provisions Surpluses1985-89 de Sorties Ecarts

L&esl 6 Univ. Graduates 83,e00 77,000 (8,800)Niveau 6 Cadres Superisurs

OF WHICH

Ei.Qineers/ ingenteure 32,200 1O,000 1/ (22,:200)Aqricultural and Forestry Engineers/ 2,500 1,600 (900)lnq. Agronomes et ForestiersV'eterinarians/V.tornaires 700 600 (100)krchitects, etc/Architectes etc. 3,400 1,000 (2,400)Lawvers/Jur i ste 3,200 3,500 +300Uoctors/Medecins 10,000 7,7u0 (2;300tIentl ts/Denti tes 3,000 2,300 (700)P-lharmacxsts/Pharmacions 1,6800 1,500 (100)

Level 5 Higher Technicians 174,200 .3,000 *91,200)4ihveau 5 lechniciens Superieurs

OF WHICH

Aqr i culture 5, 00 1 ,13 3.Q)TechnoloQi cal /loechnoloqiques 70,000 I/ 10,000 (;,.OviHealth/Sante 25, tQ0 1/ 18, 000i (Av, oo..)Fundamental School ihird Cycleleachers and Voc. Irainers/ 49,o000 44,Ou.)U (Q,0oEnseignants (PEM) et Formateurs

t ~ieI 4 Middle Level lechnicians 164.200 152ISo,t.,I0) 0,!O.;(4 veaU 4 ;echtniciens et Aqents de Maitrise

OF WHILH

fit. i XCtul ture 12 4Q0.) 4, vu ' " !lidi.tctr al / 1r:dustr ieJ 1 , 7 .)o 12, of.). (I '.)0,3rtne-. nd;School Ieachers/Enseignants 35,00o 47,500 1250o:

l lea J t h , ant e 1 E) * '005 1 8, Oovz +80v0*t

Lr..,eA *31e S¶kilJed arid $emi-Sk1 led 4:45,80'X 408C i,t.o (1 e,/C

1. Approximation/Estimation Sources Pl n Wuinquennal, 1985-89

- 263 -

Chart I

ALGBRtA

The toenud fiwn-ea Owemut Plffi 10213-8

Structure of the paornl EXdnation System

Pre-torm and 1985/86

Niggle School _ boeraiJy6L. -Y _ tiveraWs.. -e

-~~~~~~~~~- --J1-mE - {-o-LI- - ol- -i-

T8gnicaLLycJTeehni ui

lutiaUsoLlechnaleg

-11-2 4 0 1

- luc @ceati (EScul 5mdavalsL _ Teacher .nIaln_i T) h

A-lwl-lll-l ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 4IPsk B - -s- - ||§|§- -

lfIitU1* ofjghnlchq

_ILMattioel Treg. ...IMS aMINIE ii..

Voctional Institute

K

T

JO MARKET ANO APPRINTtCESHIP

o Selection ProcessSaccalaureat

A/ Universities including short coursesb/ Teacher Training: (1) instructeur, 01) instituteur. and (iii) specialist teachers.1/ Technicums or technical lyc6es, and9/ ENS and Ecole Norrale SupDrieure d'Enseign _ht Polytechnique (technical and science teachers).

August 1986Ooc 3894V/17

C4°' 1 -264 - Table X. 2

/°S~~~~~~ot gwu~iag u io &u 'wt. - 'iW4& tSIQ1NUCttS tl "failitm as Rpm tl ntlts KM g312a l,iq tt 1 --

~stoll OW4$

Ittf. Ittptt ktBe tiim t aesP.dmI 1i , b .lm l.st let W b

0.19 pgtlS 3335~~~~si WI4 3164.1 32 5403.3I1of q,tto 413.1 432 43.4190.f *04w elk 30 Kkbo %IJ. 41 449 54.41 of4 W sift a2."2 3 fiJI "I 481i1 We3 t o. t* po. a-it 1.11 82 2 41134-It lull. et to 0 46.-Il ea10~80. of mitt e. to e.-iit 9314Il. to p 3tl to to ocs.s.13 inuft. fa*3Uto (Sul et.. k@w 7$ n 1 us S iut1} tftvl. Wef" ; .*tl t

htl. Of olas ftldh .1 4 it-l XI "1 3. *tifi tlst. tt5 3*7 5124324 st

81-69 424.3 61.1.81410 928. 243.4

I -trto W.163 43.31I ifts in .41 4421112-13 fears *XX otIvt,twt bit 113- 12d5.4 t00 393.2

30313til woI t if to ep. tills fro 941

t. buiv "Kaust0.B 603316 392.4 320.9 356.9t M1 @1.9 42.1.00. wIKWA, ill am4 32.3 405 sit 246..V isa.ba ,t to *1 42.4 ito 4. w.4

I labtal n 2901 in 49 21.31 a.1tI Ltale S S too 352 ... 411 44t 42.41I littArm 1201332 to1 39.4 25.2%a 135.4 attd tf. to W. i3-it 3.5 a 342

lowl tl. 44 ml$ cf. to M4. IF13 13.111 37.

S. t.gg, iSuttam tIttlb.Be tnattr 30 43.5 21.5 2,Wi l_$tdtah [u. 63U .1 .

to I0.utet "Kw. 61-6 23.3 Mg.

Pta0 Pta

ft. Itaisto. 44 1t4W, tm,tam ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~Itsktut ltart ktd Ito" tlit ftt

for.). too. ut-ol1 121 1302.9 30 t 23,8.14 Earl,P t,tUlt

SusMleUt *3 U 1owl 25 56 in33i~t lb lam to334 1.Ik). its . ad Two. 3J 24 171.t2ffy03. is Lan & paN3titS 34 34312.312

am stto e 033w*i31ol. at. gt 7tt

C. ttittd 6 tOttti

fatIlam 44.4lit asllo 40.4449 liwa11 4.3

9. SIIU liasetna twttotto lItaBoeop

fmllmt 3440 U.S 04.4of nt*to 1Su. 3 I03d Fr1sms LI 94.Be 4*154 to *tO.er tuft. Ftott 40.2 49.4

t. rt3str53tra 1 t4lstio*3 3Ipfi

etrot i t votitst t Ut414o 4 so 1 40 10 lo 1544w4tt31lt 43

31 latN 90t4201.0 is V49 of t34 WIEM ag -, ttwtls 4ts1 so #?-*

2 1 311-14 4$Wt

-265 -

* , Table X.3

,^. ~ ~ Pa PIa._l- 09U 7p tws< PI. 40 *w1

0. 1144iy SE Smoetla. ~ ~ ~ ~ ~ ~ lc tlS

M&AMMItI ON MPS Otl"'W *wwM 01" =M ttxlVG'

*.~ ~~~~~~~~~~~99f l"'I'dM^*

Ptoe e tog§ ma m m so a .e

S. s"4100 of , eIa

9sWMM_r 62-* 4.01 7.019ww.dmo1 0.0 4.ft 3.211

lay.. 0.2 1.62lLlewlow I nWeI 44.01 10.01D euWoav t9l9MIASr .1

Dreamt "A .

Ppm-..tS 0142 21042lw0 10 5 IS.

bte-mat 05m.w 05w.) IPSObtoepl tobWS Smmor. 12.3

qOp- int owl 5omt.0 bswolm gtmlwe.l 3M2olwow-o" tOmwvow' a

Dac 1* wea 004*, 21240*,oom Oftmer 0~ Mam 4.1iI,lt OWftt11800

:m 1t0o0stx no

Sm E4l6,s 7gwa1 20

0 .U..tl 8t *n*- *G*r *O

¶geg, P.l *at-e 2 sa.oa. hell e poet. S0% ISSUS 1 218 I2MI

1 hiewtom VVs V0.6~~~u lo* 99.4tratstutow on 6~~~~~~~~~~~~~~~~~~1.1

a letrwttaw. a.112 21.UA w911aIlEso 0.0 o

36 mo4w1 (S6Ir 0-10 St=3s- ssa rm _1 laSso .4.reach" do 1001 J40210 41800 14 m5 0

MeorsdOo 21 sof t97. son OL3

I rQl- mX 9mb|e as

"s m *or a- "out anW. Smiuse8 tOw. P0 CM"s 1.49li? 12

raaA o.a Tom.

1 *4116 79 1

It ) ra *tio272

I Alowia,. 751 0.bl

uau7S.se 40v11211IS pt-l* el Mt

X *sr's t8abe 0 242 f o,4- Of0q

S@ t Stm.w a 12 2l*Ows e an.St 70.4re06o,mlras _dt 77

two I4 l 4.4

gd1w. AItwAS"

17-09 14408065 010U 47041170 310527

11 09111m an1

I orv erpect tl4S tEll1 40mw0 .914.01 ft1w

"Oraree e60 01070e

I chelWODlxpO 44.1 4

~~~ s.ora~~~~~~~~~~~. ~~14.64 14.4

to.ag ona pot 01,44 1,0

1. s£1901S 1060 0AM"tOMQ%~*41.t O

N

- 266 -

WAT SPPLY AD SWRAGE=-s"M z _ = _

\

*~ A

EB73TErA COWS =EVICE LEVELS 18130 WM ANN

twoeielIaye Comia Amato 1904 Estiut. 196 Estito

1966 urba 97 Ub Asa r Urban Poplstie Cb.of Living urba Peplati 1b.e Living pudlatisPspulatla upulatie l t., I PepIati. harters Pepulatimm hatwor StiuG

I Agrur l0,03t 1 5,tM 4.21 2 Z 9,070 so" 221,9 9,420 4,050 43.02 El Ama 126,2 18,8 3.5 237,000 192,620 02,0 16,4s0" 3091.

S @tA 101,0532 13, 5.56 267,7 7,2 10 1 3 93960 66.2& bijDa 79,207 111,7O0 3.17 13,90 1.22,790 I3,8 IU 100 89m 08.0I lakra 106,46 10,7 4.93 253,400 204,50 2,090 2,900 214,350 30,520 00.81 hlchar 52,644 7,114 3.41 96,200 81,000 13,220 51,00 43,000 63,050 94.29 Ilitd 245,469 376,963 3.96 4,00 36,240 60,640 905,000 512,00 2, 0.01o beira 44,634 ,267 .79 8,0 57,010 12,260 23000 10,5603,4

la aset ,406 35,041 544 21,300 10010 4,200 45.912 lubasa 73,313 120,619 4.63 165,00 6525 21,120 123,020 &.P 52" 39.4713 fece 166,16 216,14t 2.39 7,4 18, 4,9 23,0 12,2" 180 71.614 tiaret 103,9 157,518 3.35 205,200 1 0 10 '1X, 112, 3130,6 02.7I5 Tiii Saco 30,701 12,244 4.15 1670 134910 228 1743 14,50 750 .4 1 Algiers 1,04,9 6 ,42,2 2.97 5,4,00 2,11,210 272,no 2,54, 2,397t450 m270 94.618 I jal 45, a ,621 1 7.0 I I00 167,300 116,40 2,03 .07 I 39,163 62,936 4.41 35,100 70,0 12,070 32,"0 23,00 42, 62.319 Setif 17,317 262,653 3.99 277,700 2 16,900 211,0 2,80 80.420 Said& 74,667 128,21 5.0 N8O0 113,900 26,5 1 63.0

21 Skikda 99,217 139,243 3.22 173,9 1,120 23, 1 ,500 147,730 2, 82.322 Stdi DI bbso 157,7 203,136 2. 23,600 21S5,20 3,49 2,2 220,270 3,0 90.223 Amoeba 161,5 291, 2.97 506,200 2900 5 ,42 2, 1,0 2,1 0.624 bI1I ",514 155,56 4.24 20l,100 153," 1,270 55 00 600S10 ,UO 70.025 Ctustatia 29,347 425,45 3.26 53,200 434,020 71,620 S144:40 1gm:10 21:250 01.426 N.4.. 66,507 104,i0 4.17 13700 100,9 0 20,400 ,20 72.027 Intqaf 131,"3 181,952 2.96 223,200 174,540 32,510 229,800 179,700 33 470 11.228 O'Sila 45,463 99,263 7.36 163,100 13,640 17,650 175,100 146,910 1,I6O 3.929 lhana 107,422 139,260 2.39 164,300 129,300 2,20 120 132,300 2100 78.73 ha1la 55,430 101,275 5.63 146,600 115,7s 19,930 166,00 122,370 210 77.931 ra 381,221 534,236 3.96 766,600 712,940 116,200 ,000 74,210 122,90 9.O

MAL 41.11 4,45,723 6,534,227 3.65 usR 16,04,320 0,640,270 9,434,O 7,741,150 1,253,50 82.1

IF

ALM=RTITCSOr IdYE MMD SOS SY IN LOU AV-AS - 128

Estimated WATER SUPPLY SERVICES SANITATIOM SERVICESPopulation Consumption Per Cap. Cons. Staraoe Service Ave. No. Of S of Pop. % of Pop. Other Type of

aut In l.OOo m3/day I/day Volume, m3I of Cons, Lines Pers. Per Line With Sewen With S. Tank Systm S2sawor

(1) (2) (3) .(8)=Lj (S) (6)=L1x1000 (7) (8)=(Z)xl.O00 (9) (10) (11) (12)(2) (3) (7)

Constantine S00.0 S7.456 115 S0.000 87 22.000 22.7 91 - 9 CombinedAMnba 273.0 45,000 165 24.200 54 14.040 19.4 9S - S CombinedSidi Bel Abes 178.9 15,000 84 19,000 127 8.500 21.0 - - - _Setif 144.5 29,730 206 7.000 24 10t,80 13.7 100 - - CombinedDatna 140.0 22.000 157 37.500 171 11.150 12.6 100 - - CaubintedBIsKra 105.5 13.750 130 11.000 86 12.270 8.6 to - 20 CombinedTizi-Cuzog 101.5 19,980 19t 41,500 58 4.S00 22.6 100 - - CombinadTiliocen , 92.5 16,020 173 30.500 190 9q.S0 9.7 90 - lO CobinedDechar 80.4 6.300 78 9.200 146 9.320 8.6 70 11 19 CombinedGhardia 75.3 12.000 159 22.325 106 12.332 6.1 - 100 -lordi WunArraridi 69.0 7.870 114 6.000 76 5.020 13.7 100 - - CombtnedNea 66.4 9.480 143 86750 92 6.600 10.1 100 - - Cofnedfsghnis 56.5 7.000 120 6.7SW 96 5.070 ll.S 93 - 7 CominedEl Eulwi 57.1 2.000 35 3.000 1So 4.520 12.6 100 - - CobdinedtouobOurt 53.0 2.880 54 1,000 35 3.000 17.7 - - - - 0xLa at 4W.S 11.840 244 3.750 32 6.310 7.7 20 - Seprateda31o1 16.0 1.600 239 14.40 16t 4.770 7.S so S is Coined0gar ElSoeghari 29.2 4.460 1S3 3.950 89 2a630 11.1 aS - 1S CombinedCthl~un 26.0 S30 20 2,000 377 - S9 s 01 CobinedE1 Gobes 24.6 7.040 286 2.S00 36 1.675 14.7 - 45 SS -

Ummeaut 21.2 5.717 270 5.S00 103 - - - 10 90 GLerrams 19.8 3,760 196 400 11 3.200 6.2 50 S0 - SeparateStdi-Aich 18.3 1 188 65 1.600 135 2.9S0 6.2 9S S - CominedAflou 17.9 2.600 1s6 8.000 286 2.030 8.8 - - -Orson 16.3 .6 Z 1.000 134 1.280 12.7 0 - 40 C4ed

oulane Is. IS.00 1001 1.660 111 1.310 1M5 96 _ 2 C1 dEl Kala 12.S 2.280 182 3.850 169 1.020 12.3 - - _Tindosf 12.1 900 74 1.450 161 770 1S.7 40 60 - CZ>tnedA1b ̂ bid 7.4 300 41 300 100 610 12.1 90 - 10 Combinedseutoldja 6.3 1.037 16 1.4S0 140 470 13.4 61 - 19 ColbinedTablat S.1 1.176 231 4S0 38 720 7.1 100 - Separtedmni Abbas 3.9 840 215 1.370 163 690 S. 94 6 - C5omeBent S1oanw 3.2 618 193 560 91 630 S.1 0- CombinedIgit 2.S 560 224 - - 430 S.8 0 _ - CombinedEl 0aria 2.1 344 164 200 58 283 7.4 100 - Cogmied

At/antic Oce an

s.2!

a

1< (J~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1

ALGERIA0 MAIN PORTS

MAIN NATK)NAL ROADS

M~-IAIN SAHARA TRACKS

I STANDARD GAAGE R)JtWAYS**.fi.NARR: GAUGt RAILWAYS

INTERA)A AnMT

SECONODARY AIRP0T-OIL PIPEtSS_-GAS PWEDS

RIVERS AND NTEUJTTENT StA

-- _WTERNATIONA ESODAN

..

IBRD 1WO4Rol 5 o

M e di t e r r an an S e a

ALGIERS a Dj Ti llou So o Skikd ASAA

'>2 i-,SIdi be !bbe |XeS X / ~~~~) s ,Biskron Ahro

Ti CVel 'SosdrA f D Ifo O hebel Onkz/

\ } ̂,+180hodh w~~ ~ Touggour i ElOued'%s.

5;/> Ghordaia9 4D

Lebahou aHossl/MessooudA ~ L $ LGhoudot aufl

El Goleo _ 3

[,Pdrar ~ ~~~~~~~~~~~~ \ or Onsmor Orss H Aro

J

n\P.n Solah

9togsgone ) _\/<

N~~~~~~

\ / / ~ _ _f \t,Dionet 25\ I s _ \ \~~I

X | N ~ tTamanrassetn./

>~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~h Rt a.*, WNi

bES~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~m --1 Tf /Wnhznlo o n lRt. e m"w VW s

av~ ~ ~ ~~~~~~~~~~~~~~~~~~Cb 5-. d10-

NNOVEMBER 198