Algeria Is Open—Sort of

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Algeria has the advantage of entering the downturn in solid financial shape. With only about $4 billion in debt, it can afford to modernize rundown infrastructure and build tens of thousands of apartments and houses this year. Businesspeople in Algeria say the economy will continue to expand, although more slowly than the 5% pace set last year.

If oil prices don't bounce back, though, Bouteflika will have to figure out how to keep unemployment from rising dangerously. The official jobless rate is 13%, but it's far higher than that among young Algerians. And projects such as an $11 billion superhighway aren't creating many jobs; the road, spanning the country from east to west, is being built by Chinese companies with Chinese workers. So many young men hang out on the streets that they have earned the nickname hittists—a play on the Arabic word for "wall," as in what they spend their days leaning against. Many of them might once have gone to France in search of work, but that's getting harder to do as Europe tightens immigration regulations.

Algeria continues to present challenges for business. One major complaint: a bureaucracy that hobbles legitimate activity but does little to stop illegal imports or the hiring of unlicensed workers. The U.S. Embassy estimates that the black market makes up half of Algeria's economy, and executives grouse that bureaucrats pressure them for bribes. "The business environment is very difficult," says Slim Othmani, CEO of Rouiba, an Algerian fruit juice maker. "But the opportunities are huge."

While oil has clearly fueled the economy, it has proved to be a mixed blessing. Algeria supplies roughly 10% of Europe's gas and plans to boost its exports by about a third by 2012. But the sector is dominated by a state-owned enterprise, Sonatrach. Critics say the company employs relatively few people, and the huge revenues it generates—$76 billion in 2008—let the government drag its feet on economic reform. "We are too dependent on petroleum," says Réda Hamiani, president of the Forum des Chefs D'Entreprises, a business group. For most Algerians, he says, oil "doesn't create wealth."

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Reed is London bureau chief for BusinessWeek.