RERTEJST1I TED

FILE C y E t IN0. E.A. 5

ONE IVEE Public Disclosure Authorized This document was prepared for internal use in the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized

THE ECONOMY OF Public Disclosure Authorized

August 15, 1955 Public Disclosure Authorized

Department of Operation Europe, Africa and Australasia CURRENCY EQUIVALENTS PAR VALUES 1 Algerian franc = 1 French franc Frs. 1 = .2857 U.S. cents Frs. 1 million = U.S. $2,857 Frs. 1 billion = U.S. $2.857 million U.S. $1 Frs. 350.0 CONTENTS

Page

Charts

Basic Data

Summary and Conclusions...... *.oe...***** i

Introduction ...... 1

Agriculture...... 3

cereals...... *...... *** & Wine...... Fruit and Vegetables...... 6 Other Agricultural Products...... 6 Livestock...... 7 The Paysannat...... 7

Minerals...... e...... ************************* 9

Industry...... oooo...... ooo.o..******** **** **** 11

Commercial and Financial Relations with ...... 14

External ...... *..*..... 0...... 15

Investment and the Public Finances....,.....,...... 16

Map

Tables

l. Ordinary Budget - Receipts 2. Ordinary Budget - Expenditures 3. Public Investment Program - Expenditures 4. Public Investment Program - Financing 5, Agricultural Production 6. Grain Production Since 1901 7. Production and of Wine 8. Industrial Production 9. Volume of External Trade ALGERIA

POPULATION GROWTH (MILLIONS OF PERSONS) 10 10

8 8

G 6 TOTAL

4 S 4

2 2 EUROPEANS

O I 1 1 1 1 0 1856 '66 '76 '86 '96 1906 'll '21 '26 '31 '36 '48 '54 ORDINARY BUDGET* (BILLIONS OF FRANCS) 100 100 FISCAL YEARS 80 80

60 60

40 -O40 MATERIALS

1--- 20PERSONNE - -- 20 1949/'50 1950/51 i951/'5? 1952/'53 1953/'54 1954/'55 1955/'56 *Net of transfers to capital budget FINANCING PUBLIC INVESTMENT (PERCENTAGES)

FISCAL YEARS 100 100 ALGERIA --- 0

600 S GRANTS I 40 -40 FRANCE 20, OAN 2 20 20 1949/'50 1950/'51 1951/'52 1952/'53 1953/'54 1954/'55 1955/'56 8/2/55 1053 IBRD- Economic Staff ALGERIA PRODUCTION OF CEREALS (THOUSANDS OF METRIC TONS) 2,500 TOTAL NALL OTHER 2,500

2,000 2,000

1500 500

N500 3.500

3,000 / 3,000

2,500 1 /2,500

2,000 2,000

1,500 -1,500

1,0001,000

500 OSPHTES500 0 0 400 400

300 ,' 300

/-. /

200 200 COALL

100 LA l100 Z INC S -- - /...

0O -- O 1916 '20 '25 '30 '35 '40 '45 '50 '55 8/2/55 1054 IBRD- Economic Stoff BASIC DATA

ALGERIA

Area: 2,190,000 sq. kms.

of which Sahara 1,866,000 sq. kms.

Population: end 1954 Total 9.4 million European 1.0 million

Major Products - 1954

Wines 19.3 million hectolitres Iron ore 2,923,000 tons Cereals 2.5 million tons 758,000 tons Fruit and vegetables 1.5 million tons Coal 303,000 tons

Trade - 1954 (billion francs2 Total expoorts 140 Total imports 218 of which of which

Wines 56 Fuel 13 Fruits and Raw materials and vegetables 18 semi-finished 43 Iron ore 11 Equipment 34 Grains and flour 8 Consumer goods 127

Trade vwith Prance - 1954

Exports 103 Imports 160

Retail prices - 1949 = 100 March 1955 131

Currency unit - Algerian Franc

1 Algerian franc = 1 French franc - i -

Summary and Conclusions

1. Algeria is a poor country with no natural communications and a population of diverse elements. It owes its political and economic unity to France. The three Departments are treated as part of France, Algerians are French citizens, elect representatives to the French Parliament and can move freely in and out of France. Goods and funds can also move freely, for Algeria is within the French and exchange control area and, since the Algerian franc is freely convert- ible with the French franc, Algeria virtually belongs to the monetary area of metropolitan France. Three-quarters of Algeriats trade is with France. A Govern- ment-General and an Algerian Assembly in Algiers provide for a measure of local autonomy. There is an Algerian budget which covers routine civil expenditures in Algeria. But the French Government remains responsible for Algerian affairs and policy and provides a growing proportion of the finance for current and capital expenditures. Algeria is most simply to be viewed as an economic region of France. The concept of Algerian creditworthiness distinct from that of France does not apply.

2. There are about 9.5 million people in Algeria. The main elements are 1 million Europeans, of whom four-fifths were born there, about 1 million Berbers, who live mainly in the mountain areas of Kabylie and the Aures, and about 7 million of mixed Arab and Berber stock. Arabs and Berbers alike are Muslims but the Berbers retain strong traditions of local independence. The European popula- tion is mainly urban, the Muslim mainly rural. The Muslim population has been increasing by about 225,000 a year. It is consequently a very young population and there are as many of school age as in the labor force.

3. In face of population pressure, Algeria can offer little new land, for there is generally too little rain. Mineral resources remain limited and industry is still of small proportions. Heavy emigration to France leaves unsolved serious unemployment and underemployment and migration to the towns only aggravates the need for housing. France has provided Algeria with a much higher standard of basic services than she could afford herself. The policy of assimilation implies higher standards of education and welfare, the costs of which are being contin- ually inflated by the rising numbers for which they have to be provided.

4. Since November 1954, there has been a series of terrorist outbreaks centered in the backward, often inaccessible and thinly administered regions of the Grande Kabylie and the Aures Mountains. The disorders themselves have remained local- ized but they are tying down disproportionately large numbers of security forces and police action is likely to be needed for a considerable time. But it is recognized that a remedy has also to be sought for the economic and social malaise which underlies the disorders, even if it does not directly cause them. A program has yet to be elaborated in direction and amount but it is already clear that the level of both social and economic investment is to be raised still further and probably by a substantial amount.

5, The disorders have focused attention on the fact that Algerian production has been too low and growing too slowly. The prospects for rapid growth in the future remain limited. Four-fifths of the population is occupied in agriculture. One-third of the farm land is owned by about 25,000 European farmers but the rest is cultivated by huslim peasants mostly using traditional methods. Cereals, vines and livestock each contribute about a quarter to the value of agricultural output. - ii -

Cereals cover three-quarters of all Muslim land but though the area has increased slightly over the last 50 years production has stagnated at about 2 million tons a year; vines took over the best land and erosion and exhaustion have offset improvements in methods. Good harvests in recent years may however in part reflect a reversal of the trend. Vines, almost wholly European, give at least the same return as cereals frum a tenth of the area. Heavy surpluses in Algeria and France pose serious market problems but under present conditions growers in Algeria are unlikely to reduce production on their own initiative. Fruit and vegetables, mainly European, contribute about a fifth of the agricultural product. Industrial crops are of minor importance.

6. The evolution of Muslim farming is hampered by conservatism, the frequent lack of land titles as a bpsis for conventional credit and a shortage of suitable instructors. But progress under the guidance of the Government's Paysannat pro- gram, thcug so fer 2mal3 in scale, suggest- that i.n time thera are cnsiderable gains to oe made. Vines howevei have reached tne limit of their expansion and the area available for other crops is strictly limited. Livestock probably offers the largest opportunities for improvement.

7. Minerals are accounted for very largely by some 3 million tons of iron ore and 700,000-800,000 tons of phosphates. %ith some lead and zinc they make up only 10% of Algerian . There is unlikely to be any great increase in proeuction in the north of the country and it remains to be seen whether the Sahara will produce minerals in commercial quantities. Over $30 million equiva- lent a year is being spent in the search for oil in the Sahara, but distance again poses a costly problem. A large strike would have major consequences for the franc area: it would not, at least initially, solve Algerian problems directly, as some high hopes have it, but would certainly help to pay for solu- tions.

8. Industry occupies only 10-15% of the labor force. Its growth has been based on processing agricultural produce, supplying agriculture and meeting the needs of a construction and public works program, Wartime separation from France created new needs for the consumer goods and equipment that France had supplied bat some of the plants then built ran into difficulties under stable peacetime conditions. The disorders have not checked the industrial recovery and expansion which, as in France, began early in 1954. Building and the building materials industry will be directly stimulated by the forced draft of an increased inflow of public funds for current and capital expenditure that is the consequence of the disorders. The disorders themselves have had little effect on and agriculture and private confidence has not been so seriously affected that important investment decisions have been put off.

9. The Algerian budget was becoming unbalanced even before the disorders broke out. Higher expenditures on new schools, hospitals and other social invest- ments had led to continually rising recurrent costs, wheroe rovenues rose more slowly. Algeria was less able to contribute to the finance of her own invest- ment program.and France has had to contributo a growing share. The direct costs of security measures in Algeria are being met by the French budget but the exten- sion of administration in the troubled areas and plans to increase still further social expenditures in order to relieve the deep-seated origin of unrest will aggravate the disequilibrium of the Algerian budget. Some redistribution of expenditures between the French and Algerian budgets has thus become essential. It would be in line with the pattern and traditions of French public finance that the Algerian Assembly should retain responsibility for Algeria's financial obliga- tions: in a narrow sense, the object of reorganization would be to enable Algeria the more surely to face up to them. THE

Algeria forms part of France and Algerians are free to move in and out of France. There are no restrictions on the movement of goods and funds. Although considerable administrative, including financial, autonomy is exer- cised by the Government-General in Algiers, policy remains the responsibility of the French Government. Moreover, France is to an increasing extent providing Algeria with funds which make possible a higher rate of investment and standard of welfare than Algeria could afford alone. In these circumstances, to talk of the creditworthiness of Algeria as distinct from that of France would be without significance. This report therefore confines itself to a survey of the Algerian economy and of its relations with the metropole.

Introduction

1. Algeria has been French for 125 years. At various times and in varying degrees, it had been Turkish, Arab, Vandal, Roman and Phoenician. At no time had it been Algerian. In 1830, Algeria was simply an unruly, nameless area between and Morocco, a land of warring tribal groups who had never thrown up a ruling house recognized by all of them, as Tunisia and Morocco had done. Politically, Algeria is a wholly French creation and there is no long- established, specifically Algerian, nationalist tradition. There is still con- siderable diversity among the population. The greater part is made up of more than seven million of mixed Arab and Berber stock, predominantly Arabic speaking and unified by Islam. But in the Kabylie and the Aures mountains, and in the Hoggar massif in the central Sahara, there live a million Berbers who are also predominantly Muslim but have kept alive their own language, customs and art as well as strong traditiona of independence and local government. There is an old established Jewish colony and in the Saharan Oases, Arabs and Berbers have mingled with Negroes from the French Sudan to form distinct societies.

2. The last century has seen the addition of a million Europeans, predom- inantly French but strongly tinged with Spanish elements in the west, with Italian and Maltese in the east. But there has been little new immigration since the first World War, when the European population was already nearly 800,000 and now perhaps four-fifths are Algerian by birth. This is a factor of considerable political significance; there is nothing temporary or provisional about the European population in Algeria. For them, it is home.

3. The European population is almost stationary. The Muslim population, by contrast, is accelerating. - 2 -

Muslim Population Growth

(in thousands)

1926 1936 1948 1954

Population (estimated) 5,150 5,600 7,400 8,400 Live births 154 197 279 390 Deaths 91 99 159 139 Increase + 63 + 98 +120 +251

Since 1948, the number of Muslims has gone up by an average of 225,000 a year or by over 2.5%. Rapid increase has made for a very young Muslim population. More than half is under 20 years of age. There are over two million children of school age (6-14 years), of whom about one-fifth are enrolled in schools. The male labor force is a group of about the same size - 2.2 million, and has increased by about 270,000 since 1948. Many have gone to seek work in Fiance, and there are now about 320,000 there, or one in every seven adult Algerian workers. Whole villages in the Kabylie live on the remittances of their sons in Paris or Marseilles. Other workers drift to the cities, or at least the out- skirts, where they huddle together in shanty-towns or tbidonvilles.'

4. It is, however, noteworthy that, despite a rapidly growing urban popula- tion, the disorders which broke out in November 1954 did not originate in the towns but in rural areas, principally the Grande Kabylie and the Aures, which combine population pressure and poverty with little or no French 'presence., They are, as the Governor-General has put it, areas which are "not only under- developed, but under-administered."

5. The affected areas are often particularly inaccessible. But the whole country offers a costly challenge to an administration, and its lack of homo- geneity is a principal factor in explaining the absence of an Algerian tradition. There are no natural communications from East to West or from North to South. Two mountain chains, the Tellian and Saharan Atlas, run roughly parallel to the coast, meeting in a series of upland plains and valleys in eastern Constantine, diverging and losing height across the country to the West. Towards the Moroccan border, the two chains are about 150 miles apart, leaving a vast expanse of dry plateau between them. South of the mountains, the Sahara stretches away for more than 1,000 miles down to the Sudan. Algeria is essentially a poor country and the rich coastal pockets around Bone, Algiers and Oran, and the foothills behind them that look so naturally fertile, had first to be cleared or drained and irrigated. The wealth that strikes the visitor's eye, the vineyards, orchards and wooded slopes, are a facade often only a few miles in depth inter- cepting the rain and screening the dry plateau country behind. Between Algiers and Bone, there is often no facade at all, for the Kabylie mountains come right down to the sea. Here is the "chateau d'eau" of Algeria, where over 70 inches of rain fall on eroded slopes, into high inaccessible valleys and course through deep gorges in sudden torrents. - 3 -

6. The Kabylie is the only important source of water power (unless it prove possible to exploit the Chott ech Chergui) but it lies over 150 miles from Algiers, the main consuming area, and nearly 400 miles from Oran, the second most industrialized region. Bone, in the opposite direction, is more than 120 miles away and 500 miles from Oran. In developing its system, Electricite et Gaz & Algerie inevitably faces transmission costs out of proportion to the amount of power required. But it is typical of Algeria that the cost of install- ing and maintaining basic services should be disproportionately high. The roads and rail routes that link the local economic centers of Algiers, Oran, Bone and Constantine have to pass through country which is not only often difficult physically but generates little or no traffic. North to South the problem is worse. Colomb-Bechar, a coal mining, administrative and military center, and the populous chain of oases from Biskra down to Touggourt both lie south of the Saharan Atlas range, 350-400 miles from the coast. The Algerian Railways operate more than 2500 miles of line, so much out of proportion to the traffic offered that they show a large and intractable deficit each year. The main trunk road network in the north is 5,000 miles long and there are another 10,000 miles of secondary roads maintained by the departments and communes. Transport costs are inevitably high and it is liable to be cheaper to send traffic to Bone and Oran from Marseilles than from Algiers.

7. In spite of its cost, Rrance has already endowed Algeria with an excep- tionally high standard of basic equipment. Rapid population growth at the Algerian rate would add heavy demands for social capital in any country. They are all the heavier in Algeria because France, which began by making Algeria French, is now trying to make Algerians frenchman. Since the second World War, French citizenship has been granted to all Algerians without regard to origin or religion. The school problem, the housing problem and the employment problem are all the more intractable because Algerians who have become Frenchmen look for progress towards French standards of living before they have begun to work like Frenchmen. Moreover, France had already decided, before the disorders broke out, that Algerian welfare should be substantially increased and is now proposing to accelerate the process. But since the economy offers few opportu- nities for comparable gains in employment and production, even under forced draft, France has, in effect, undertaken to support Algeria for an indeterminate period.

Airiculture

8. About four-fifths of the population of Algeria lives by the land and agri- cultural products account for four-fifths of Algerian exports. But the prospects of expanding production, even by enough to keep pace with the needs of a rising population, are limited. They are limited first by a lack of good land and a lack of new land. Algeria has too little rain, and there are wide variations from year to year both in timing and amount. Too often the rain is torrential, sweeping 4way the topsoil and raging destructively down river beds that a few hours before had no more than meandering trickles of muddy water. The 300 mm. (12 inch) line, which roughly marks the limit of land that will bear cereals with any reasonable hope of success, runs little more than 100 miles inland in the east and only 60-80 miles in Algiers and Oran enclosing an area of 10-12 mil- lion hectares. When allowance has been made for mountains, forest land and towns, about 7 million hectares at the most are left for cultivation.

9. There is still some new land to be won by irrigation or drainage but Algeria lacks Morocco's empty plains. About 120,000 hectares are irrigated (outside the southern oases). by large and small works. The dams already built have not yet been fully exploited and in due course other water can be tapped. There is also more land to be reclaimed on the plains of Bone and Oran. But it would be unrealistic to look to irrigation or reclamation to solve Algeria's shortage of good land, even if cost could be ignored.

10. Further, the pattern of landowning inhibits rapid advance. One-third of the cultivable land, that is, 2.3 million hectares, is owned by about 25,000 European 'colons'; three-quarters of their holdings are more than 10 hectares and 40% more than 50 hectares. The remaining two-thirds is farmed by more than half a million Muslim peasants of whom probably not more than 25,000 approach or equal the standards of European farmers. Three-quarters of them work less than 10 hectares, only partly within an exchange society and many at subsistence level. Less than one-fifth of Muslim-owned land is registered according to French law. About one-third is what might roughly be called collectively owned and about a half, while individually owned, is owned according to Koranic law or Kabylie custom and there is either no title at all or a title that at best is ill defined. A large part of Algeria's farm land thus offers no conventional basis for agricultural credit.

11. The table below summarizes the pattern of agricultural production:

Agricultural Production - 1954

Area Production Value (000 hectares) (million) (billion francs)

Cereals 3,470 2.4 tons 54 Vines 370 19 hectolitres 53 Fruits and vegetables 270 1.5 tons 35 Industrial crops 46 - 6 Livestock products - 53

12. Cereals. Cereals, wine and animal products each contribute a quarter of the value of agricultural production. Wine is almost entirely a European acti- vity; Muslim fellahs and shepherds produce most of the grain and livestock pro- ducts. Cereals cover three-quarters of all Muslim farm land and less than a quarter of European farms. But the one is hand sown with little or no prepara- tion and the other for the most part highly mechanized. Such is the disparity in yields that Europeans produce 40% of the harvests. Winter cereals predominate. - 5 -

European farmers produce two-thirds of the soft , which thrives on the light soils of the plains south of Oran. Muslims grow 90% of the , more resistant to drought than soft wheat, and produce three-quarters. Muslims also used to grow most of the hard wheat, particularly on the high plains of the southern Constantine, but European production has steadily increased.

13. Erratic weather makes harvests vary widely from one year to the next, par- ticularly on Muslim farms, for the timing and amount of the autumn rains largely determine how much the fellah sows. But over the years, the average size of the harvest has shown a disturbing stagnation. Between 1949 and 1954, the harvest averaged just over 2 million tons a year, or the same as for 1906-1910. Over the last fifty years the total area under cereals increased from a little under to a little over three million hectares. But vines displaced wheat on the best Euro- pean land and European wheat in turn displaced Muslim barley. Barley pushed further up the hillsides and south on the plateau, displacing sheep and goats. Muslim yields declined as they moved to poorer land and improvemeLts in methods were offset by soil erosion and exhaustion.

14. After the poor wartime harvests and the calamitous drought of 1945 - a harvest of 400,000 tons and the loss of every second sheep - it took five years to regain the prewar position. Since 1949 the weather has generally been favor- able but continued improvement may also reflect the first fruits of action by the Paysannat, that is, the Government service that deals directly with tradi- tional Muslim farming. Yields have increased only slowly and are still generally low. There are few areas where even the most careful farming can attain French yields. About 10 quintals per hectare is now average for European farms in a good year, compared with 7.7 in the 'twenties and 8.8 in the 'thirties. Muslim yields are generally no more than half as much.

15. Algeria used to be a consistent exporter of barley as grain and wheat as milled products. There is still a large surplus of barley but the combination of population growth and a shift in Muslim eating habits from barley through hard wheat to bread has cut down the surplus of hard wheat and made Algeria a frequent importer of soft wheat.

16. Wine. Using less than a tenth of the area, wines are equal in value to cereals in agricultural production and supreme among exports. When phylloxera hit the French vineyards in the 18801s, nothing stood in the way of Algeria's fortunes. Planting was particularly rapid between the'two World Wars: there were 181,000 hectares in 1914, 211,000 by 1930 and 396,000 by 1936, when nearly 18 million hectolitres of wine were produced and wine moved decisively into leading place among Algerian exports. The Algerian vineyards suffered severely during the second World War, but after regaining 14 million hectolitres in 1949, the maturity of earlier replantings and favorable weather in 1954 produced a record harvest of 19.3 million h1s., at the same time that French growers were struggling with heavy surpluses. Old discussions about the merits of wine growing in Algeria were reopened with renewed emphasis. But wine has now become a key sector of the Algerian economy, employing directly 350-400,000 men, with a payroll of perhaps 30-35 billion francs, and indirectly an extensive network of suppliers and services. - 6 -

17. French growers, particularly in the Midi, claim that the area under vines should be reduced. Algerian growers argue that Algeria's soil and sun make it the natural place to grow vines and that large quantities of French wine would be undrinkable without the strength of Algerian "vins de coupage" to bolster their poverty in alcohol. There is, they say, no surplus of wine, but only a surplus of bad, meaning French, wine. To the argument whether cereals shou3d replace vines, there are at least two potent objections. First, vineyards employ 8-10 times as much labor as the same area of cereals would, and Algeria has a labor surplus. Second, in spite of legislation unfavorable to Algerian growers, the price mechanism still appears to encourage wine and so far vines have given way only to irrigated citrus. But the area where that can be done is limited and it is unlikely that Algerian growers will voluntarily reduce the area by any significant amount.

18. Fruit and Vegetables. Algeria is a traditional source of , figs and dates, but only the last, notably the high quality "Deglet Noir", are of world importance. With a notable extension of citrus since the second World War, fruits now constitute about 10%o of the value of agricultural production. Two-thirds of Algeria's trees and virtually all the figs are Muslim owned. They grow widely over the north of the country but half are to be found in the Kabylie where they form the basis of the economy both as and as cash crop. The high- est quality oils and fruits for preserving come from European plantations in the Oran plains where about 4,000 hectares of olives are now being irrigated. With the extension of irrigated citrus from 8,000 hectares in 1928 to 11,000 in 1938 and 26,000 in 1954, fruits now contribute about 10% (20 billion francs) of the value of agricultural production. Almost all the fruit, two-thirds oranges, is grown in the Mitidja plain around Algiers, in the Cheliff valley and around Oran. Algerian citrus is protected from Spanish and Italian fruit on the Ftench market. Growers complain that they are not protected enough but at current Paris prices citrus growing should be quite profitable; growers have in fact continued to plant up to 1,500 hectares a year.

19. Market gardening, carried on predominantly in the coastal areas, particu- larly around Algiers, is a highly specialized industry of growing importance as employer and exporter. In order to prosper, Algerian growers have to rely on raising two crops a year and on hitting the off-season French and British markets for potatoes, tomatoes, , artichokes and French beans. New potatoes make up half the tonnage exported.

20. Other Agricultural Products. Industrial crops are of minor importance. The principal and oldest crop is tobacco,grown almost entirely by Muslims; 25,000 tons a year are sold to the State monopoly from 30,000 hectares in Kabylie, the Mitidja and the Bone plain. In the latter area, land has been switched from tobacco to cotton. Cotton has twice failed in the past but there are now 10,000 hectares of medium staple cotton subsidized by France and Algeria, and with guaranteed sales to the metropolitan industry. A small amount of Ashmouni is grown in the Cheliff valley. Algeria has about 4 million hectares of cork oak, found mainly in the Kabylie and Collo area, from which concessionaires export -7-

million between 50,000 and 80,000 tons of cork and corks a year. Algeria's 2 hectares of esparto grass ('alfal) that grows on the High Plateau is also exploited on a concession basis. Exports, almost entirely to the U.K., have varied from 100,000 to 235,000 tons a year, and fluctuate widely with changes in the price of wood pulp. are the five mil- 21. Livestock. The principal resources of the High Plateau lion sheep and three million goats which form the wealth and support of Algeria's rare. A 150,000-200,000 shepherds. Vegetation is sparse and water still more year, typical flock of 250 sheep is driven up to 10 miles in the day. During the move over enormous areas, wintering on the edge of the Sahara and moving they west and at the first sign of heat up to the region of Chott ech Chergui in the as far north as Setif and Souk-el-Arras in the east. The number of sheep has over for fallen somewhat since the turn of the century as grazing land was taken only crops. Cold, heat and drought periodically make severe inroads which are in 1945 slowly regained. In 1931, for example, over two million sheep died and the flocks were nearly halved and took six years to recover.

22. Mutton, wool and skins account for about a third of livestock production, improvident and almost all in Muslim hands. But the shepherds are ignorant and efforts have the potential of sheep farming is far from realized. Considerable already been made to make water-points, shelters and stores of emergency feeding stuffs. Attempts are being made to control over-grazing in the vicinity of at the present water sources. But the larger aim is to integrate sheep and crops and so increase their margin where the cereal lands have been pushed too far south number and value. By working forage crops into a rotation with cereals, experi- that mental stations have raised 200 sheep on 250 hectares and it is estimated there are over 2,5 million hectares which could be developed in that way.

23. The Paysannat. The improvement of Muslim agriculture, and more generally, of the lot of the Muslim peasant, is the responsibility of the Government-organ- in each ized Societes Agricoles de Prevoyance (S.A.P.'s), one of which operates major administrative area of the country. The SAPIs began as credit institutions. for Their sphere of activities has been widened and they now act as cooperatives conditioning and marketing major crops, providing storage, equipment pools, selected seed and materials. Each SAP has a trained agricultural officer (the agent technique) to supervise the work of the Secteurs d'Amelioration Rurale. The SAR's are the local units planned since 1946 to get into direct contact with the fellahs. Each SAR has, or is to have, a monitor to run its demonstra- tion farm or flock, to advise the fellahs on what to grow and how to grow it, and to control a small equipment pool that is rented out with an operator at nominal charge.

24. The Paysannat program is only nine years old and has still a long way to established go. But there are now about 200 SR's and 12 to 15 new ones are being each year. About a third of the peasant farmers in the country are now within the boundaries of an SAR, though fewer have been brought under the direct influence. The area actually ploughed with the aid of SAR machinery in 1954 was 103,000 hectares. A year earlier, the area described as being farmed or by improved methods as a result of SAR action was put at 300,000 hectares, - 8 -

about a fifth of the area within SAR boundaries and 5-7% of all Muslim farming land. The gains are put at 140,000 tons or an increase in yield of about 5 quin- tals per hectare, with a total value of 4 billion francs.

25. The SAR's in the sheep country have concentrated on exploiting the exten- sion of water points, dipping and inoculation programs, and providing breeding stock. They are credited with increasing the value of livestock products by about two billion francs a year, or by 4% of total livestock production. The resources made available to the SAR's are modest: they owned 418 tractors in 1954, one per 3,800 hectares, and 317 harvesters. These compare with a total Algerian park of 19,000 and 3,200 respectively.

26. The funds made available to the SAR's through the Fonds Commun of the SAP's are also very modest: in 1954 credit made available amounted to less than $20 equivalent per SAR member. Whereas the predominantly European Caisses de Credit Agricole derive a large part of their funds from savings bank activities and have large rediscount facilities with the Bank of Algiers, the Fonds Commun is dependent on budget allocations and bank loans raised under an Algerian guarantee. The following table shows the disparity in credit made available to the advanced and traditional sectors. Credit from banks and the Credit ALricole is based on conventional security and while it is freely available to Muslims offering secu- rity, the number who actually do so is relatively small (about the same number as European farmers).

Agricultural Credit Outstanding End 1954

(billion francs)

Medium and Short Long Term Term Total Banks 3.6 10.2 13.8 Credit Agricole 1- 1 20_5

Total above 9.0 25.3 34.3

S.A.P. Fonds Commun 3.2 1.9 5.1

Total 12.2 27.2 39.4

The whole problem of credit for Muslim farmers without conventional security, and sometimes even for those with it, is exceedingly complex. And credit without effective, which necessarily means supervised, use is likely to be wasted. There are less than 200 monitors in the SAR's and the difficulty of recruiting monitors is itself a severe brake on the conversion of traditional farming. - 9 -

27. But from small beginnings and with limited resources, the results already acieaved by the SkR':s point up the flet that a sector in which improve- ment is vital ies have ccnsid@rable potential. For example, th extension. t6 all ceireA1 land of progress made so far would 'mean about another million tons of -grain a %rear, and would roughly double Muslim-incomas from cerealsg The more advanied uso of grassland could bring praportionatoly higher returns.

Minerals

28. Algeria's mineral wealth is modest and minerals make up no more than a tenth of total exports. A wide range of ores is to be found but deposits have rarely proved large enough or near enough to the coast for commercial exploitation. Thus, of the 18,000 people employed in mining - itself only about 6% of the industrial labor force - half are to be found in four mines.

29. Iron ore makes up three-quarters of all mineral exports and the leading producer - La Societe de l0uenza - accounts for more than three- quarters of total production, with open cast mines at 1'Ouenza and Bou Kadra near the Tunisian border north of Tebessa, linked by 120 miles of electric railroad to the port of Bone. In the last few years, the capacity of the Ouenza mines has been stepped up to more than 3 million tons a year. Together with more modest re-equipment at other mines, Algerian capacity may be ex- pected to rise to the region of 4 million tons within a few years. How much is in fact produced will depend exclusively on foreign markets, since French steelmakers are geared to use local, principally Lorraine, ores. Algerian ores compete with Swedish and Spanish ores principally in the U.K., but also in , , and the . Production was cut back by about 14" in 1954 in face of falling orders. Lower exports and lower prices combined to reduce receipts by nearly a quarter. The first quarter of 1955 showed some improvement.

Algeria - Iron Ore Production and Exports

1938 1949 L2q 1951 1952 1953 l9_4

Production 000 tons 3033 2537 2573 2822 3096 3388 2923 Exports 000 tons 2755 2640 2458 2E41 3123 3250 2695 Value Billion fr. 0.3 4.7 4.4 5.8 11.3 14.2 10.9

30. Second in export value are phosphates coming from two mines at Kouif and Tocqueville in Constantine. The Kouif mine near Tebessa, also on the railroad to Bone, accounts for 90' of Algerian production and produces a 65_ suitable for transformation into superphosphate or for use directly in powdered form. The company sells through the North African "Comptoir des Phosphates" but is hard put to meet competition from Moroccan phosphate of 73/75W, and the cartel as a whole encounters severe competition from the . Algerian production is liable to decline in the next few years as the commercially useful deposits at Kouif approach exhaustion and the com- pany has for some time been studying a very large and easily worked deposit at Djebel Onk, 75 miles further south. But transport costs for raw phosphates - 10 -

would be too heavy and the company will presumably wait to see whether the found in the Tebessa area is going to be available in commercial quantities and so provide a cheap fuel for enriching processes.

Algeria - Phosphate Production and Exports 191.8 124 1924 1950 1951 1952 1953 1254 Production 000 tons 584 671 648 685 777 703 619 758 Exports 000 tons 486 609 570 608 695 602 538 687 Value Billion Fr. 0.4 1.14 1.25 1.49 2.22 2.12 1.82 2.21

31. Algeria was an active producer of zinc and lead, and before the First World War. Output from the many scattered mines slumped heavily between the wars and, at least so far as lead and zinc are concerned, has begun to recover only in the last few years. Extensive prospecting since 1945 has turned up only two new deposits of any size though traces are wide- spread. Most of the increase in the production of lead from 11,500 to 29,400 tons (metal content) since 1952 and of zinc from 4,200 to 10,200 tons (metal content) is due to the extension across the Algerian border of the very im- portant Bou Beker mines of the Moroccan Societe de 7ellidja.

32. The basic geological map of the north of Algeria is now said to be sufficiently complete for it to be unlikely that anything spectacular remains to be.found there and the resources of the Sahara have been attracting in- creasing attention. The basic problem of any mineral exploitation in the Sahara is the cost of transport. Flans have been at once prompted and com- plicated by the existence of Algeria's only coal deposits at Colomb-Bechar, on the northern edge of the Sahara, which suggest the possibility of creat- ing a center for processing heavy ores and defeating distance by shipping all metal and seri-finished products. Before the war, coal production never exceeded 38,000 tons a year. The occupation of France created urgent interest, the wartime extension of the normal gauge Mediterranean-Niger railroad from Bou Arfa in Morocco brought the colliery within 350 miles of the port of Nemours, and production was pushed up to 150,000 tons a year.

33. The experience of the war created a widely held conviction that Algeria's coal resources should be properly exploited on a permanent basis and since 1948, $6-7 million equivalent have been spent on mechanizing pro- duction. Output per manshift has been more than doubled and gross production has been brought up to 300,000 tons a year, a considerable achievement with a seam only 16 inches thick. But the cost of production is still 30% higher than in France, and the mines are faced with transport costs which run as high as $9 a ton to Oran and $13.50 a ton to Algiers, yet sell to consumers at French prices. They can do so only as a result of subsidies at the rate of $10 a ton from the French and Algerian budgets. The problem is therefore not only to raise the value of local ores but to raise the value of the coal. - 11 -

34. Several years ago, there were extensive discoveries of iron ore and non-ferrous metals in the area and preliminary plans were made to establish an industrial zone based on Colomb-Bechar. Further study seems to have taken the bloom off earlier promise. In particular, iron ore and copper have proven to be in smaller quantity than was at first thought and the very large iron ore field at Tindouf, is too far away to be considered. Only the manganese at Guettara - about 100 miles south of the railway - has so far been proved in exploitable quantities. A pilot company has been set up with the coopera- tion of the French steel industry to study the feasibility of a ferro-manganese plant at Colomb-Bechar.

35. The second line of attack is to look for high value ores that can stand the transport costs without having to be processed. The Algerian Government's Bureau Linier is focusing attention increasingly on the two crystaline massifs of El Eglab and the Hoggar in a search for wolfram, colombo-tantalite and uranium. These researches are encouraged by the fact that tin is already conmercially exploited on a small scale in the Air massif in northern Sudan.

36. For about three years Bureau Minier geologists have been sharing explorati of the Sahara with geologists from the oil companies. In 1946 SNREPAL _y began intensive prospecting in the Cheliff valley and north of the high plateaus. The only field discovered was at Oued Guetterini, now producing about 90,000 tons a year, and attention was switched to the !7ahara where the discovery of is apparently geologically plausible and statistically probable. Two wholly French companies and two including Shell have taken permits covering an area much larger than France and had spent about 16 billion francs up to the end of 1954. Information on results is ex- ceedingly well guarded and only their continued intensive activity lends credibility to the existence of petroleum. The capital of the four companies will be increased by a total of 12 billion francs during 1955. Gas has been struck in a number of areas, too remote for commercial use, except perhaps for the strike south of Tebessa which has aroused considerable interest.

37. Hopes that sometimes appear excessive are being placed in petroleum as a new source of wealth that would make up for less productive investment in other sectors. But the problem of distance would still have to be met and while a commercially important strike of oil or gas would indeed have major consequences, it would for some years be the franc area as a whole that would benefit directly and Algeria only indirectly. The development of an oil or gas industry in Algeria would, at least initially, not itself solve Algeriats development problems, but would undoubtedly make it easier to pay for a solution.

Industry

38. Up to the Second !4orld War industry had developed along three lines. The first was processing agricultural materials - flour mills and oil presses, tanneries, canneries, bottling plants and soap factories. There had also l/ Societe Nationale du Recherches et d'Exploitation des Petroles en Algerie - 12 -

been some development in industries catering to Algerian producers - fertili- zers, explosives, copper sulphate and insecticides, wrapping materials, foundry and sheet metal work. Thirdly, private building and public works had stimu- lated the local production of building materials - cement, bricks, paints and light structural steelwork. But there had been no incentive or apparent reason to make Algeria self-sufficient and, with few exceptions, machinery and con- sumers goods came overwhelmingly from France. Separation from France in 1942 thus created a vacuum which carried over into the early years of postwar scarc- ity and and encouraged the growth of new plants which included a pottery, wool and cotton textile mills, bottles and glassware, telephones, cables and light electrical equipment and a wider range of building materials and supplies.

39. qtabilization at the end of 1949 and the desire of French industry to recover former markets exposed the fact that a number of plants in Algeria had, naturally enough, been built regardless of cost and there were casualties both in 1949 and again in 1952 after the respite afforded by the Korean boom. Algerian industry followed closely the course of industry in France and gen- erally shared the stagnation of 1952 and 1953. Metal working and textiles in particular were working far below capacity. But, as in France, 1954 brought recovery from the second quarter on: in the first quarter of 1955, industrial production was 20% higher than the same quarter a year earlier. Again as in France, two factors were important - good crops and a high level of construc- tion. In the first half of the year, this was due primarily to private and municipal residential building under the stimulus of interest subsidies. Towards the end of the year, reconstruction in the earthquake stricken areas of the lower Cheliff valley around Orleansville began to exert an effect. In the latter half of 1954, hours worked in building and public works were up by 12% over the corresponding half of 1953, after having shown little change since 1951. Production of building materials responded by a jump of nearly 30%. In part, this increase reflected the growing self-sufficiency of Algeria, but there was also a marked gain in the total of materials available:

Industrial Production

150 = 100 1951 l l 1955/I

Total (excl.building) 117 120 122 133 125 149 Building 109 108 109 115 103 ... Building materials 126 132 134 162 133 163 Metal working 122 119 104 107 101 172

40. It is difficult to forecast the future pace and direction of indus- trialization. Without changes in the structure of agriculture as, for example, the development of the animal resources of the Hauts Plateaux, there is - 13 -

probably little scope for further processing agricultural products. On the other hand, continued efforts to equip the SAR's should stimulate the demand for the industries serving agriculture. Unless and until a cheap source of fuel is discovered, Algeria's present mineral production is likely to con- tinue to be shipped unprocessed. The most powerful stimulant in the past, however - the public works sector - seems certain to expand its requirements considerably in the next few years because of the new programs to accelerate social expenditures and to extend administration into areas hitherto left largely alone. The 1955/56 extraordinary budget already provides for an addi- tional 13 billion francs in sectors likely to make direct demands on construc- tion.

41. The Administration has for some time been working to attract private capital from France to set up new industries either to use Algerian materials or to supply needs which Algeria has hitherto satisfied wholly from imports. The glass works put up by St. Gobain is an example of the latter and the principal example of the former waiting for decision at the moment is a nitro- genous fertilizer plant based either on Algerian coal or possibly natural gas. However, a number of obstacles have to be overcome before metropolitan indus- tries will want to produce in Algeria, rather than supply the Algerian market from France. Power and fuel is more expensive than in France or Morocco. Transport is expensive and it can be cheaper to serve the Oran and Bone areas from Marseilles than from Algiers. On the other hand, labor is plentiful but of course requires training. Though the Administration is studying plans to reduce these costs directly, it has relied so far on financial advantages to offset them. A new plant approved by the Governor General is exempt from the Algerian profits for five years, can claim a rebate over 10 years of part of the transactions tax up to a maximum of the amount of the original invest- ment, can be authorized to borrow with the guarantee of Algeria and given a subsidy to bring interest charges down to 5%. It is not yet possible to see how far these measures may succeed and in this connection it should be noted that metropolitan France is also becoming conscious of her own under-developed areas and is considering similar incentives to tempt industry away from the Paris area. - 14 -

Commercial and Financial Relations with France

42. Algeria is directly affected by changes in the French economy, to which it bears what is best described as a regional relationship. In the first place, Algeria is within the French customs union. There are no tariffs between it and metropolitan France, whereas trade with foreign countries is subject to French customs regu1a tions. Commercial policy is made in Paris and Algeria is automatically included in French trade agreements with foreign countries. "Liberalization" measures in the context of O.E.E.C. trade policy apply as a matter of course to Algeria. Some of Algeria's most important products, notably wines and cereals, are marketed under metropolitan arrangements and on the same terms as metropolitan products.

43. Secondly, Algeria is effectively in monetary union with France. She forms part of the metropolitan exchange control area, has no foreign exchange reserves of her own and has no control over foreign exchange policy. Transfers to and from France and the rest of the franc area are entirely free of control. The Bank of Algeria acts as bank of issue for the Algerian franc but it is freely exchangeable with the French franc at par, and its separate existence is the result of historical accident rather than economic or administrative necessity. The French Treasury ensures the free convertibility of the Algerian franc by standing ready to lend French francs to the Bank of Algeria and so ensure its ability at all times to furnish French francs in exchange for Algerian francs even if its own franc reserves should be insufficient. Transfers to and from Algeria can be routed through the commercial banks or through the Post Office but in the last resort all transfers take place between the Bank of Algeria and the Bank of France. In practice, a considerable economy of trans- fers is possible as a result of local compensations in Algiers. The French Treasury, for example, tends to be in constant need of hlgerian francs, whereas the balance of private transactions is generally in favor of the French franc.

44. The Algerian banking system as a whole parallels that of France and in effect it is an extension of the French system. Most of the banks are indeed branches of metropolitan banks and close and frequent contact is maintained between management in Paris and Algiers. The principal metropolitan public credit institutions, Credit National and Credit Foncier, for example, have offices in Algiers. They make long-term loans directly to Algerian borrowers and facilitate the extension of medium-term bank credit by offering rediscount facilities to commercial banks as they do in France. But where in France they would in turn seek to rediscount medium-term paper with the Bank of France, in Algeria they do so with the Bank of Algeria. In France the Bank of France, in agreement with the National Credit Council, lays down credit ceilings for each bank. In Algeria the Bank of Algeria does the same in agreement with an Algerian credit council of which the Governor of the Bank of France is a member, as he is of the Board of the Bank of Algeria. The only important difference between the credit system of Algeria and that of the mainland is that the Algezian economy cannot sustain an independent money market through which a central bank could operate on the volume and cost of credit. The Bank of Algeria 0onsequently retains and exercises the right to make direct loans in competition - *h com- mercial banks and looks on its ability to do so as essential to its influence over local credit conditions. The Bank of Algeria is free to take its own decisions on credit policy, but as a practical matter it cannot follow a dif- ferent credit policy from that of France and limits its independence of action to adapting French credit policy to the different conditions of the Algerian economy. - 15 -

External Trade

45. Since trade and payments ,facilities make transactions with France rela- tively simple, it is not surprising that France should be by far Algeria's leading supplier and leading customer, providing about four-fifths of her imports and taking three-quarters or more of her exports. Algeria is in turn France's leading customer, taking 10-11% of French exports and providing 9-11% of French imports, ranking immediately after the United States and Germany. For some French products, Algeria is a particularly important market: she takes 80% of all French exports and 13% of all sugar produced. She takes 15-17% of all cars and trucks exported, 10-11% of all fertilizer and 40% of all edible oil exports. She provides France with 15-20% of the fruit and vegetable imports, a third of her imports of tobacco and virtually all her imports of wine and esparto grass.

46. Algeria was in trade surplus in a number of prewar years, but funds were provided to get Algerian reconstruction and reequipment under way as French industrial recovery made goods increasingly available, and a deficit, very largely with France, built up rapidly after 1948. As compared with 1938, the share of capital goods doubled, from 8% to 15-16% of total imports. Fuel and raw materials continued at about 25% and the share of consumers goods fell from 68% to 57-60%. Algeria normally runs a small surplus with foreign countries, a dollar deficit of the order of $15 million being exceeded by a sterling surplus of $25-30 million equivalent, based on sales of iron ore and esparto grass to the U.K.

Exports Imports Deficit (N millions)

1948 338 350 12 1949 304 438 134 1950 317 432 115 1951 383 583 200 1952 409 637 228 1953 397 574 177 1954 400 623 223

47. The trade deficit as such does not have the significance it would have in the case of a less dependent economy. Algeria's ability to import is in any case increased by 34 billion francs a year from emigrant workers' earnings and social security payments. But the preponderant factor is the large, and con- tinually increasing, flow of French Government funds. In the first place, there are direct French expenditures, part current, part capitaL, on troops and dofonse installations, on the principal airfields, the transcontinental roads, meteoro- logical services and research conters of general interest. France pays the salaries of senior officials and large sums for military pensions. Second, there are loans and grants to Algeria's capital budget. Third, and most recently, there are French Treasury contributions to the deficit in Algeria's current budget. As the summary table below shows, the total inflow of these funds in the last two years considerably exceeded the formal "current deficit" and in- creased the Bank of Algeria's holdings in French francs. - 16 -

Summary Balance of Payments

1953 1954 (bilion frans)

Trade deficit (f.o.b.) -51 -70 Algerian expenditures in France -19 -22 -70 -92

Financed by:

Emigrant remittances 32 34 French budget expenditures in Algeria 59 77 French loans and grants, net 24 21

Increase (-) in Bank of Algeria franc assets -27 -24 Errors and omissions (- in favor of France) -18 -16

Total financing 70 92

Investment and the Public Finances

48. The main lines of Algeria's financial organization were laid down more than 50 years ago, and the 1947 Statute of Algeria merely reproduced the finan- cial provisions of the Law of 1900 which segregated from the French budget those expenditures in Algeria that were to be financed through a separate Alger- ian budget, set up a separate Algerian Treasury and Caisse de Reserve. The Law also provided for representative institutions to vote the budget and authorize the imposition of , institutions which have evolved into the present Algerian Assembly. The Statute of Algeria reserves to the French Govern- ment the possibility of close supervision over Algerian finances. The draft budget, prepared by the Government General, has to be approved by the Ministries of Interior and Finance before being submitted to the Algerian Assembly and, after the Assembly has voted the budget, it is rendered effective only by French Government decree. Thus, while the Assembly has extensive powers to modify the draft budget, to impose and authorize financial guarantees, the Statute requires that the budget be balanced, makes certain expenditures, notably debt service, obligatory and requires that revenues be voted to cover them. If that were not done and should the Assembly refuse to vote a balanced budget, the reserve powers of the Executive could be brought into play.

49, The position with regard to the capital budget has been complicated by the fact that it has evolved from a public works budget into the annual instru- ment for carrying out the development program. The initial draft of the Four-Year Program is drawn up by the Algerian administration and includes the proposals of the nationalized industries. It is submitted to the Algerian Assembly for a - 17 - general expression of approval and passed through the Ministries of Interior and Finance to the Commissariat au Plan and finally to the Commission des Investissements, for a judgment on its relation to French financial resources and recommendations on financing. The Plan that emerges from this process has no effective force. To be put into execution it has to be translated into orthodox public finance terms, that is, into annual capital budgets. A draft budget up to the total of funds likely to be available is submitted to the Algerian Assembly for its opinion, goes through the procedure as for the draft Plan and then joins up with the ordinary budget to go through the routine budget procedure.

50. There is, however, a key difference, not so much between the Assembly's role vis-a-vis the two budgets, but in its effective powers. As with the ordinary budget, the Assembly is free to modify as it chooses, always with the proviso that funds must be available. But before the capital budget is presented to the Assembly in final form, the French Government has already decided what funds shall be made available and for what purposes, laying down in particular the credits available for each of the nationalized industries. The Assembly can propose changes, can refuse to borrow or guarantee loans for any specific purpose, but cannot say how metropolitan funds shall be spent. To try to change their direction may only result in the loss of credits.

51. So long as Algerian expenditures were by and large adjusted to the level of Algeriats own resources, a distribution of expenditures between the metro- politan and the Algerian budget which left Algeria all important civil expend- itures did not cause any problem and the condition of Algerian finances remained relatively satisfactory. Indeed, apart from a difficult period in the early 'thirties, the budget was frequently in surplus and Algeria succeeded in financ- ing a public works program with much smaller recourse to the Paris market than had originally been thought necessary.

52. French social and economic policies followed in Algeria since the Statute of Algeria was passed have changed the basic condition on which financial vi- ability had depended, since France has determined that Algeria's standard of welfare should be raised faster than the evolution of Algeria's own resources would have allowed. The consequences for the public finances did not, however, become fully apparent for some years. First of all, inflation gave a deceptive buoyancy to revenues and after 1952 various administrative measures were employed to bring more metropolitan help to finance Algeria's recurrent expenditures while leaving intact the formal distribution of the burden between France and Algeria.

53. In 1949 Algeria ran a budget surplus of over 9 billion francs on a total budget of 42 billion francs. In 1954, that is even before the disorders had affected the public finances, a small budget deficit had appeared. In 1949 Algeria financed about 45% of her public investment program: in 1954 only about 25%. In the course of five years, ordinary expenditures had doubled, after allowing roughly for the intervening changes in price, whereas revenues had not grown at the same rate and neither had private Algerian savings available to the Treasury through Treasury bonds and loans. The growth in recurrent expenditures is directly attributable to the recurrent costs of public invest- ment expenditures in previous years and to their financing. Every group was - 18 - affected but two can be singled out for particular notice. Of the increase in total current expenditure between 1949 and 1954 of about 55 billion francs, debt service accounted for over 9 billion and salaries for 24 billion. Algeria normally received no metropolitan aid for capital expenditures in the form of grants, unlike the Overseas Territories, and between 1948 and the end of 1954 had borrowed about 94 billion francs. Investment in education, public health and welfare generally has been running at the rate of 7-10 billion francs a year in recent years and has meant the creation of up to 1,700 new posts a year. Particular efforts have been made to develop the school system and since the end of the second World War the number of teachers has been increased from 8,700 to nearly 20,000, of which more than 6,000 have been engaged since 1950.

54. The turning point in Algeria's financial position came in 1952, the year in which the first Four-Year Program officially ended and the year in which France and hence Algeria regained stability after the Korean inflation. For the first time since before the second World kiar, revenues failed to exceed the estimates and what had passed for the rewards of conservatism were seen to have been the results of inflation. Thereafter the Reserve Fund lost the bene- fit of past surpluses and contributions to the capital budget out of current revenues were squeezed out by the growth of recurrent expenditures. Between 1952 and 1954 the various contributions from ordinary to capital budget fell from 13 billion francs to one billion francs.

55. Algeria's first Four-Year Plan had run from 1949 to 1952. The second Plan did not emerge from the Commissariat au Plan in Paris until mid-1954 and the capital budgets for 1953 and 1954 were put together out of unfinished items from the first Plan and anticipations of the second. Since the second Plan will doubtless be substantially modified before 1957 is reached, it would be artificial to compare the two Plans as such. The following table sets out year by year since 1949 the principal sectors of expenditures in the capital budget (including the nationalized industries) and adds expenditures by local authorities and chambers of commerce.

Public Investment by Fiscal Years

1949 1950 1951 1952 1953 1954 1955 (proposed) (billion francs)

Agriculture 7 12 12 12 12 12 18 Power, mining 11 15 14 17 16 16 14 Communications 5 7 8 11 8 9 11 Social and administrative 8 9 10 12 11 10 14

Total 31 43 44 52 46 47 58

Local authorities - 9 13 16 17 15 20

Total - 52 57 68 63 62 78 - 19 -

56. The pattern, as the amount, of the capital budgets remained remarkably stable from 1950 through 1954, with heavy payments for the Oued Agrioun hydro- electric station and the railways' diesel conversion program lumping in 1952. In view of price changes, the volume of public investment in 1953 and 1954 -.as, in fact, some way below the three years 1950-1952.

57. There have been no major shifts in the relative importance of the main sectors. Expenditure on agriculture remained at about one-fifth of the total. But over the period there was an important change within the agriculture pro- gram, away from concentrated expenditures on big irrigation works which were making irrigable land available faster than private land owners were developing it, and towards small-scale, widely-dispersed works more directly affecting traditional agriculture. But the repercussions of public investment on incomes and hence on public revenues were limited, since traditional agriculture responds only slowly, and mining possibilities have so far remained modest. The short range impact of the program on industry affected only that part directly geared to public works.

58. The present disorders make it exceedingly difficult to see how the economy is likely to progress, but what has happened since November 1954, when the dis- orders first began, offers some indications. First of all, there is no doubt that France intends to deploy whatever forces are necessary to restore and to maintain order. But if this means that the disorders are unlikely to spread, they are nevertheless unlikely to end quickly. Since the terrorists tie down a disproportionately large number of men, there will probably be substantial security forces in Algeria for some time to come. Second, France intends to open up the troubled areas and extend the scope of civil government. Third, to attack the social factors which encourage disorder, even if they do not cause it, France has decided to speed up the evolution of the Muslim population, to increase its opportunities for employment and further ex,and education and other social services. This will inevitably lead to sharp increases in the levels of both current and capital public expenditures.

59. It is important to know how the private sector of the economy is likely to react in face of insecurity on the one hand and the forced draft of higher expenditures on the other. The factor of probably the greatest long-run import- ance is that the European population by and large shows no signs of leaving Algeria, to which so many are deeply attached. Their presence is crucial to Algerian progress because it gives Algeria what very few underdeveloped countries possess - a pool of managerial and technical ability, enhanced by close ties with metropolitan France. Secondly, although the initial reaction to terrorism was to slow down commercial and real estate transactions and to defer equipment purchases that could be put off without difficulty, production by and large has been little affected. Sabotage in the fields and vineyards has been on a very small scale. The areas most directly involved are in any case poor, and else- where agricultural production has proved difficult to disrupt. Mining and industrial output have generally continued the expansion that started about six months before the disorders broke out and it may well be that construction and public works are already beginning to respond to the new needs of security forces and higher expenditures on roads, schools, water supplies and housing. But this has been the prime stimulus to industrial expansion in Algeria in the past, and without prejudging the Administration's program to attract industry - 20 -

from France, it seems reasonable to expect expansion to be focused on construc- tion, public works and their suppliers. On the basis of decisions so far pub- lished, funds available for public capital expenditures are already some 15 billion francs, or almost 251o higher, than in 1954. The amounts are likely to be higher in future years. Growth in incomes can be expected to be some- what faster than in the years 1952-54, if less rapid than in the inflationary period of postwar recovery that preceded them.

60. It is not however evident that the trend in the public finances will be reversed and revenues grow fast enough to overtake expenditures. But the assumption that Algeria was only in transitory financial difficulties and that the Second Four-Year Plan would restore financial equilibrium was giving way, even before November 1954, to a recognition that the existing distribu- tion of expenditures between the French and Algerian budgets would have to be reconsidered. The French budget has borne from the beginning the cost of security measures, but the current cost of extended administration and the recurrent costs of the long range program of social investment now being worked out have made that reconsideration imperative. There is a wide range of possibilities, Education, for example, might be transferred from the Algerian to the French budget. But it would be in line with the pattern and traditions of French public finance that the Algerian Assembly should retain responsibility for Algeria's financial obligations: in a narrow sense, the object of reorganization would be to enable Algeria the more surely to face up to them. 르 』eRD1212/R Table I

Algeria - Ordinary Budget

1938, 1949-55/6

W Receipts

Billion francs 1938 1949 1950/51 1951152 195?Z53 1953/54 1954/55 1955/56 OT7-11167- (est.)- (prop.)

I. Taxation

a) Direct taxes 245 7.5 10.0 10.2 13.6 15.4 16.9 17.3

b) Indirect taxes

Transactions taX331 14.2 17.6 22.8 25.0 26.5 28.2 27.5 Customs 288 1.1 2.5 2.6 2.7 2.6 3.0 3.3 Other indirectl/512 12.2 15.2 17.6 22.2 22.4 26.1 26.8 1130- 27-7- 35.3 43.0 49.0 53.8 58.5 T7

c) Capital taxes 238 2.7 4.0 4.7 4.7 5.7 5.6 5.2

Total taxation 1614 37.7 49.3 57.9 67.3 74.9 81.2 80.1

II. Other receipts

Public lands 2/ 61 o.9 1.1 1.8 2.0 2.3 1.9 5.0 All other 3/ - 254 3.3 3.4 4.2 5.5 7.1 7.2 11.7

III. Total ordinary receipts 1929 41.9 53.8 63.9 74.8 84.3 90.3 96.9

l/ Principally gasoline alcohol and tobacco taxes. Principally forests (cork). 1955/6 includes exceptional 2.3 billion francs from mines. 3/ Interest, fees, reimbursements. 1955/6 includes exceptional contribution of 4 billion francs from French Treasury.

Source: Direction Generale des Finances, Algeria Table 2

A1geria - Ordinary Budget

1938 and 1949-55/56

(ii) Exrenditures Billion francs 19 99/4 950/51 1951/52 1952/53 1953/5 J1954/55 1955/56 million (est.) (prop.)

Debt service 432 1.4 2.1 3.2 3.9 5.6 9.6 10.8 Wages and salaries 570 15.3 17.8 23.9 29.6 30.6 34.2 39.2 Pensions, social security 108 4.5 7.3 10.1 12.0 12.2 13.7 14.9 Materials and upkeep 227 5.3 7.3 8.7 9.8 10.9 13.3 14.9 Grants, subsidies and participations 2/ 30 0.7 1.0 1.7 2.2 2.9 4.2 4.4 Industrial services .1/205 2.1 3.6 5.3 7.9 8.3 8.6 '8.6 Transfers to extra- ordinary budget 6 5.0 3.8 6.2 6.3 3.2 1.5 - All other _29_ 1.3 2.6 3.1 4.2 .22 5. 4.0 Total 1,607 35.6 45.5 62.2 75.9 77.6 90.3 96.8

2/ 1949/50 budget covered 15 months because the start of the fiscal year was changed from Jan. 1 to April 1. Figures shown are at 12-month rate.

2/ Includes - interest subsidies for industry and housing 0.3 - 0.8 - Subsidy to H.S.O. 0.375 0.375 .425

/ Includes - subsidy to C.F.A. 6.95 6.95 6.93 - Subsidy to P.T.T. 1.32 1.7 1.7

Source: Direction Generale des Finances, Algeria Table 3

Alperia - Public Investment Program

(i) Expenditures

194Z50 1950/51 19L1/2 192/532 ;2Z4 1945 1955 (billion francs) A. Extraordinary BucRet

Economic 10.8 16.5 17.7 18.5 18.7 20.6 28.9

Social 6.7 7.4 8.4 9.7 8.7 8.2 12.6

Administrative 1.2 1.5 1.5 2.1 1.6 1.4 1.7

Reconstruction of Orleansville - 3.0 5.7

Total extraordinary bud8et 18.7 25.4 27.6 30.3 29.0 33.2 48.9

B. Nationalized Industries

Railroads 3.0 4.0 4.6 5.3 3.1 3.3 3.4

Electricity and gas 9.9 14.1 12.3 13.6 13.2 12.3 10.8

Coal _2, 0.1 0.2 0.2 Q4 0.3 -. 5

Total Nationalized indus. 13.3 18.2 17.1 19.1 16.7 15.9 14.7

Total A and B 32.0 43.6 44.8 49.4 45,7 49.1 63.6

C, Local authorities and .. 9.1 12.7 16.1 17.5 14.7 19.8 Chambors of Commprcnt=

Total A, B end C .. 52.7 57.5 65.5 63.2 63.8 83.4

Source: Direction Generale des Finances. Algeria Table4

Algeria - Public Investment Pro.ram

(ii) Financina l

~2~&L5 Z 190Jj195152 1952/53 1953/54 1954/55 1955Z!5

(billion francs) A. A1reria Funds

Crdinary budget 3.7 3.5 5.2 6.3 2.3 - - Reserve fund 3.8 5.4 7.5 7.1 4.6 1.0 3.3 Loans 2.5 4.5 4.5 5.0 4.8 4.5 6.0 Self-financing by nationalized indus. - 0.3 1.7 4.6 3.3 3.3 2.9 All other 2.4 3.2 2.4 2.2 1.1 2.6 1.3

Total Algeria Funds 12.4 16.9 21.3 25.2 16.1 11.4 13.5

B. French Funds

Grants2/ 1.0 1.0 0.1 0.1 0.9 7.5 8.2 Loans 17.6 25.1 22.2 23.1 27.2 28.2 39.7

Total French Funds 18.6 26.1 22.3 23.2 28.1 35.7 47.9

C. 'iIxed2/ .. 0.5 1.0 1.0 1.5 2.0 2-2

Total A, B and C 31,0 Al 4.6 49,4 45.7 A291 63.6

l/Excludes financing by local authorities 2/Inclcles rebate from 1949/50 - 0.9 1950/51 - 0.9 Algerian budget defence 1954/55 - 0.8 Contribution as follovs 1955/56 - 0.8 3/Consists of loans subscribed by retropolitan insurance coipanies operating in Algeria.

Source: Direction Generale dos Finances, Alperia. Table 5 1/ Algeria - Agricultural ?roduction

(billion francs) 1951 1952 1953 1954

I. Cereals 35.8 72.3 44.8 54.4

Wine 55.1 44.9 51.0 52.1

Fruit 15.0 15.1b 18.0 19.6

Market vegetables 13.6 18.8 18.9 15.5

Pulses 2.2 2.6 2.1 2.0

Tobacco ) 2.9 3.0 2.4 ) 4.1 All other ) 1.5 1.0 2.4

Total 1 125.8 158.4 138.8 148.4

II. Meat 20.8 20.3 19.6 22.1

Dairy produce 11.0 14.7 16.3 17.7

Poultry, eggs 6.6 7.5 7.5 7.8

Wool, skins 3.1 5.2 5.4 5.0

Total II l.5 47.7 48.9 52.7

Total I and II 177.3 206.1 187.7 201.1

1/ Valued at average price to grower. Excludes part held back as seed but includes farm consumption (1954 estimate: cereals 17 billion francs; fruit and vegetables 11 billion francs; wine 2 billion).

Source: Expose de la Situation Agricole de l'Algerie en 1954 Expose de la Situatfon Generale de i'Algerie, 1951, 1952 Table 6

Algeria - Grain Production Since 1901

(in thousands of metric tons)

Other Year Hard Wheat Soft Wheat Barley Cereals Total

1901-1905 avg. 658 165 865 110 32 1830

1906-1910 " 671 240 967 158 28 2064

1911-1915 " 668 264 927 207 32 2098

1916-1920 " 520 212 661 186 20 1599

1921-1925 " 533 194 670 195 14 1606

1926-1930 " 610 196 766 189 18 1779

1931-1935 " 623 269 748 133 15 1788

1936-1940 " 590 312 637 155 11 1705 1941-1945 " 464 260 482 142 7 1355

1946-1950 " 595 262 645 119 9 1630

1950-1954 " 796 328 816 130 17 2087

1945 161 82 114 43 4 404 1946 539 313 514 124 8 1498 1947 373 146 273 62 6 860

1948 642 265 742 117 11 1777 1949 677 270 890 142 9 1988

1950 744 319 802 152 10 2027

1951 621 252 560 130 11 1574 1952 867 325 1043 142 22 2399 1953 795 305 723 115 20 1958

1954 953 436 952 110 24 2475

Source: Annuaires Statistiques de 1'Algerie, 1950 and 1953, and Expose de la Situation Agricole de 1'Algerie en 1951 Table 7

Algeria - Production and Export of Nine

1901 - 1954

000 hectolitres

Production Exports

1901-1905 avg. 6273 ..

1906-1910 " 7929

1911-1915 " 7371 ..

1916-1920 " 6853 ..

1921-1925 " 8535 ..

1926-1930 " 10443 8791

1931-1935 " 18371 12945

1936-1940 " 16071 12230

1941-1945 9542 3045

1946 8230 8611

1947 8082 6746

1948 12h70 9462

1949 14412 8460

1950 14219 11971

1951 137h3 9680

1952 12318 11332

1953 14311 11496

1954 19300 (14278)

Source: Annuaires Statistiques de l'Algerie, 1939-51 and 1953 Table 8

Algeria - industrial Production

Selected Indices 1948-1954 and 1/1955

1950 = 100

Build- Total Building Total Elec- Chemi- Metal ing (excl. and public (incl. tricity cals Mining working materials building) works building)

Weight 5.2 3.3 8.3 9.2 16.0 59.2 40.8 100

1948 78 102 79 117 66 89 77 84 1949 87 104 94 102 66 89 86 88 1950 100 100 100 100 100 100 100 100

1951 114 131 113 122 126 117 109 114

1952 120 112 123 119 132 120 108 115 1953 132 122 137 10 134 122 109 117 1954 11 141 135 107 162 133 115 126

1953/I 134 106 140 107 119 119 106 113

1954/I 141 130 143 101 133 125 103 116

1955/I 149 151 158 172 163 149 .. ..

Source: Service de Statistique Generale, Algeria Table 9

Volume of External Trade

1949 = 100

I, Imports 1st Quarter 190 1951 1952 1953 1954 1954 1955 Fuel 117 134 140 143 156 180 172

Raw materials and semi-finished - for industry 104 113 110 98 11L 116 128 - for agriculture 135 146 118 134 140 136 161

Equipment 102 118 95 88 95 86 94 Consumer goods - durable 112 123 136 125 11 139 191 - other 116 151 149 152 144 143 137

Total 111 129 129 121 130 129 136

II. Exports

Consumer goods - foodstuffs 130 119 127 121 137 129 155 - other 115 150 159 171 169 145 101

Raw materials and semi-finished 128 178 208 212 228 199 213

Other 95 101 107 113 79 75 57

Total 129 130 142 139 153 140 171

Source: Service de Statistique Generale, Algeria