Avoiding rushing to the conclusion that a total accumulated loss of $7 billion, was consequent to Algeria’s association with the European Union (EU), we must look long and hard at the amounts of each year loss. According to the Algerian Customs statistics, the shortfall in duties, as a result of the EU and Algeria Association Agreement was worth $1.27 billion in 2015 and $1.09 billion in 2016. A 11th EU and Algeria Association Council Session will be held in Brussels on Monday March 13, 2017.
What prospects will there be at this Association Council session?
I have recently been recipient of the latest version of the partial revision proposed by the European Union following the Algerian revisions that comforts some Algerian proposals considered being not questioning nor amending the agreement framework.
This confirms the recent statement of an Algerian Department of Foreign Affairs official to whom the document containing 21 recommendations, would no doubt revive cooperation between Algeria and the EU so as to allow both sides to develop economic relations further and place these at the center of this cooperation, to give importance to this agreement and use its huge potential in its three components, e.g.: political, economic and human aspects.
As recalled in several of my contributions and echoing my conference at the European Parliament, after some concern of the international community following some Algerian media speculating on the end of this agreement, Algerian officials were clear in their response that for Algeria, it is not question of breaking the Association Agreement but only negotiating a win-win partnership, By the way and in addition to a good number of obvious questions, the above lowering of the Customs duties has on the other hand eased the import to consumers generally.
It will be to resolve any misunderstanding for a shared prosperity. At different occasions in both Algiers and in Brussels, the Algerian and European parties reaffirmed their common determination to enhance relations to maych their proclaimed ambitions.
The will would be to “densify” cooperation, according to the Algerian Minister of Foreign Affairs, who “claimed by Algeria that its evaluation process is not intended to about questioning the Agreement, but instead, to use it fully in the sense of a positive interpretation of its provisions thus allowing a re-balancing of the cooperation links,
On the European side, the talk was ‘constructive’ and bilateral relationships, in both the areas of energy as well as in the activity of business and trade, have unexplored, even if the potential were encumbered by red tape and persistent political decisions.
However, the situation in the country remains dependent on the evolution of the oil markets with sales that the country gets most of its revenues, recalling that energy cooperation, based on a specific Protocol, is at the center of the cooperation with the EU.
It is as such, that the Council of Ministers on October 6th, 2015 considered necessary to reassess the economic and commercial aspects of the Association Agreement with the EU that has not achieved the expected objectives for European investments in Algeria.
What is the evolution of trade between Algeria and Europe? And what can Algeria export outside its hydrocarbons that make up to more than 60% of its exports to the EU and ditto to Africa in the light of the embryonic state of its productive sector.
Officially, all exports declined to $28.88 in 2016 against $34.66 billion in 2015, or a fall of 16.7% whereas non-oil, of which more than 50% are derivatives of hydrocarbons fell to $2.06 billion in 2016 against $2.58 billion in 2015 (20,1%).
As for imports, these have also declined but at a lower rate to $46.72 billion in 2016 from $51.7 billion in 2015, down 9.62% giving a deficit in the balance of trade of about $18 billion; the amount of which there is need to add services and legal capital transfers. The balance of payments is the unique reference between 2014 and 2016.
It is a matter of deepening the reforms.
For Algeria, negotiating from a balanced position, would involve it changing its bureaucratic mentality. In this 21st century, it is the role of the State to regulate, and to reconcile economic efficiency with a deep social justice, investors and operators alike are driven by the logic of profit.
Concerns being certainly legitimate because tariff cuts are a shortfall in the short-term depending on sources between $1.5 and 2 billion a year as a result of the Tariff Relief, but we ought to think in terms of dynamic comparative advantages in the medium term.
Invoking the mono exporter situation of Algeria is no road holding; the majority of OPEC countries are members of the WTO. The great challenge for Algeria is to accelerate all comprehensive reforms for comparative benefit from inclusion in the international division of labour.
To benefit from the positive effects of the Agreement with Europe as much as from a possible accession to the WTO, a first clean-up of the Algerian economy would be necessary. The brakes to the overall reform are due to the fact of moving authority segments around that could explain the decline of the productive fabric. Any operational analysis should connect the advance or the brake to the reforms by analyzing the strategies of social presence; Government policy forces lying fluttered between two conflicting social forces. These are the rentier logic supported by proponents of import (actually only 100 controlling more than 80% of the total) and the informal sphere that is unfortunately dominant and the minority entrepreneurial logic.
This would explain that Algeria is in an interminable transition, neither a competitive social market economy nor an administered economy. The progress of reforms being inversely proportionate to the oil price and the value of the Dollar; reforms can only tentatively be made with inconsistency when only the price decline.
This explains also that despite successive devaluation of the Dinar, DZD5 in 1974 for a Dollar to DZD110 / Dollar in 2016 at the official rate, it has been impossible to boost non-oil exports showing that all blocking was and still is systemic related.
It is that 80% directly and indirectly from the growth rate of GDP mainly from Building and Infrastructure development and so is employment rate, that are all pulled by public expenditure coming from oil revenues that gives public or private wealth creation enterprise (often in debt to state banks) a negligible part.
Infrastructure being only a means, the unfortunate recent experience of Spain that bet on this segment must be carefully meditated by the Algerian authorities. Also, in order to attract investment, the latter should implement regulatory mechanisms to attract promising investors, avoiding periodic changes in legal frameworks, bureaucratic administrative actions not transparent source of demobilization and potentially scaring investors whether they are local or foreign.
In short, unlike some pessimistic forecasts predicting a worst-case scenario for the year 2020, Algeria, subject to good governance and a reorientation of its economic policy, has the ambition of its choice. For this reform of structures must intend to encourage creative added value investing through the overhaul of the system property, financial, customs, tax administration, and a new social regulation for the benefit of the poorest. There is urgency to specific objectives and a new institutional organization in order to give more coherence and visibility; otherwise we will always see the extension of the informal sphere to ever widening circles.
The macroeconomic framework relatively stabilized in Algeria would be fleeting without deep structural reforms, especially with the drop in the price of hydrocarbons, and the risk of exhaustion of the Regulatory Fund of foreign exchange reserves.
Paris, March 12, 2017