Algeria's economy is controlled by its export trade in oil and natural gas. Until 1962 the economy was largely rural-based and complementary to that of France. Since freedom, production of oil and particularly natural gas has come into its own, and industrialization has proceeded rapidly.

The state dominates most areas of the Algerian economy. Gradual liberalization since the mid-1990's has opened up more of the economy to private domestic and foreign participation, but recent government actions impose stricter controls on foreign investment. Hydrocarbons are the backbone of the economy, accounting for roughly 60% of budget revenues, 30% of GDP, and over 95% of export earnings. Algeria has the eighth-largest reserves of natural gas in the world and is the fourth-largest gas exporter; it ranks 15th in oil reserves. Weak global hydrocarbon prices during 2009 contributed to a 40% drop in government revenue, although the government continues to enjoy a financial cushion provided by about $150 billion in foreign currency reserves and a large hydrocarbons stabilization fund. Algeria's external debt is only about 1% of GDP. The government's efforts to diversify the economy by attracting foreign and domestic investment outside the energy sector, however, has had little success in reducing high unemployment and improving living standards. A Complementary Finance Law, enacted in July, imposed tight restrictions on imports and required that new foreign investment must be in the form of joint ventures with at least 51% share of ownership by Algerian partners. That law and a January, 2009 ban on importing pharmaceutical products that are also locally produced have contributed to some domestic goods shortages and prompted foreign investors and businesses to reconsider activities in Algeria. Development of the banking sector, the construction of infrastructure, and other structural reforms are hampered by corruption and bureaucratic resistance.