Banking shifts, defense budgets, tourism gains

Defense and public finance: A spending gamble with economic trade-offs

Algeria’s defense budget remains one of the most aggressive in Africa, consuming a disproportionate share of public funds. In 2025, the country allocated the second-highest percentage of its spending to arms purchases, trailing only Ukraine. This reflects a long-standing priority rooted in regional tensions, particularly with Morocco, and a broader strategy of self-reliance in security.

The defense buildup is not just symbolic. Algeria has invested heavily in modernizing its military, acquiring advanced systems to counter perceived threats. Yet this spending diverts resources from other critical sectors. While the government justifies the outlays as necessary for sovereignty, economists argue that such allocations could strain public finances, especially as oil revenues—historically a cushion—face volatility.

The military’s influence extends beyond procurement. Defense contracts often favor state-linked enterprises, limiting competition and innovation. Meanwhile, civilian infrastructure suffers from underfunding, creating a structural imbalance. The question remains: Can Algeria sustain this level of defense spending without jeopardizing economic diversification?

Banking and SME finance: Bureaucracy stifles growth

Algeria’s banking sector is at a crossroads. While digital transformation has begun—such as the recent move to online business registration stamp duties—operational inefficiencies persist. Small and medium-sized enterprises (SMEs) struggle with cumbersome transaction processes, high fees, and limited access to credit.

The central bank has taken steps to streamline procedures, but progress is slow. Banks remain risk-averse, preferring to lend to state-backed projects rather than private ventures. This reluctance hampers entrepreneurship, as SMEs—key drivers of job creation—face liquidity constraints. The result is a stifled private sector, unable to capitalize on Algeria’s untapped potential.

For businesses, the friction points are clear: delayed approvals, opaque lending criteria, and a lack of digital integration. Without further reforms, Algeria risks falling behind neighbors like Tunisia and Morocco, where SMEs thrive with better financial support.

Energy and diversification: Hydrogen bets and oil dependencies

Algeria is doubling down on energy as a cornerstone of its economy, but the strategy is evolving. Traditional oil remains dominant, with recent funding from Afreximbank for the Hassi Bir Rekaiz project reinforcing intra-African energy ties. Yet the government is also exploring green hydrogen, partnering with Siemens Energy to develop ammonia exports.

The hydrogen push is part of a broader effort to diversify beyond hydrocarbons. However, the transition faces hurdles. Oil projects still require massive investment, and green energy initiatives are in early stages. Meanwhile, Petrofac’s ongoing civil work at Algerian sites signals continued reliance on conventional energy—despite global pressure to shift.

The dilemma is stark: Algeria must balance short-term oil revenues with long-term green ambitions. Success depends on whether hydrogen projects can scale before oil revenues decline. For now, the energy sector remains a mix of old and new, with no clear dominant path.

Tourism: Targeted upgrades meet media exposure

Algeria’s tourism sector is undergoing a quiet revival, driven by infrastructure upgrades and strategic media campaigns. A recent Washington Post feature highlighted the country’s coastal beauty, while National Geographic’s Sahara road trip brought international attention to its desert landscapes. These efforts aim to position Algeria as a niche destination for adventure and cultural tourism.

Yet challenges remain. Visa restrictions, inconsistent marketing, and underdeveloped hospitality infrastructure limit growth. The government has focused on high-value tourism—luxury resorts, eco-tourism, and heritage sites—but mass-market appeal is still lacking. Without broader reforms, Algeria risks attracting only a small, elite segment of travelers.

The media push is a step forward, but execution matters. If upgrades align with demand, tourism could become a new economic pillar. For now, it remains a work in progress.

Border security: Crackdowns on smuggling networks

Algeria’s southern borders have become a battleground against migrant smuggling. Recent operations—including arrests of Moroccan nationals linked to human trafficking—highlight the government’s intensified efforts. These crackdowns reflect both humanitarian concerns and security priorities, as smuggling routes pose risks to national stability.

The operations are part of a larger strategy to curb illegal crossings into Spain and Libya. Algeria has long been a transit hub, and tightening controls aligns with EU pressures to stem irregular migration. Yet the approach raises questions: Are these measures effective, or do they merely displace networks rather than dismantle them?

For entrepreneurs, border security has indirect implications. Smuggling-related instability can disrupt trade and logistics. A stable border regime, however, could improve Algeria’s reputation as a reliable transit partner.

Diplomatic moves: France re-engaged, Morocco isolated

Algeria’s foreign policy is in flux. After years of strained relations, France has seen a cautious thaw, with both sides renewing ties amid shared security and economic interests. The shift comes after a period of deep friction, described by analysts as the worst crisis since 1962.

Meanwhile, Algeria’s rivalry with Morocco shows no signs of easing. Recent arrests of Moroccan nationals over smuggling have fueled tensions, reinforcing Algeria’s diplomatic isolation of its western neighbor. The government’s stance remains firm: Morocco is seen as a threat, both economically and geopolitically.

Domestically, the Hirak movement’s anniversary has tested the government’s stability. While some political prisoners were released, protests continue, signaling unresolved grievances. The regime’s response—reforms in universities and limited concessions—has done little to quell dissent.

Urban and cultural diplomacy: Anniversaries and city ties

Algeria is leveraging its cultural heritage to strengthen international relations. The 30th anniversary of ties with Kazakhstan was marked by a cultural showcase, part of a broader strategy to deepen soft power. Similarly, Independence Day celebrations in 2027 will feature urban diplomacy, with Algerian cities forging partnerships abroad.

These efforts aim to counter negative perceptions and attract investment. Yet the impact depends on execution. Cultural diplomacy alone cannot offset economic or political challenges. For entrepreneurs, city-to-city collaborations could open new business avenues—but only if backed by concrete policies.

Key takeaway for entrepreneurs

Sources

• We are Tech
• MEED
• The Washington Post
• Caspian Post
• National Today
• Fuel Cells Works