Wishing every success to the new Prime Minister Mr Abdelmadjid Tebboune (as reported by abcNews) and all members of his new Government in their missions, I would like to add that the challenges of the new Algerian Government lay before them and are a host of challenges that face any government in the 21st century anywhere in the world.
These are delivering services, engaging citizens and, rapidly commit to socio-economic demographics all unfortunately in the general lack of finance. The language of truth will prevail in the end because Algeria despite knowing that budgetary tensions of between 2017 and 2020 will be our daily lot and that we would no more live off eternal hydrocarbons based revenues based rentier economy.
What is the economic situation in this month of May 2017?
Realistically, 97% of foreign exchange resources come directly and indirectly from hydrocarbons exports; whilst the main economic fabric is made of up to 83% of small services/trade activities. The industrial sector represents only 5% of the gross domestic product with more than 97% being small units with no initiation in strategic management, and with about 70% of households and businesses needs sourced from overseas. The existing limits on restriction of imports, could lead to social unrest and double-digit inflation.
The document allowing an objective assessment is not the trade balance, but the balance of payments in addition to the value of imports of goods, taking into account services and legal transfers of capital. According to the documents of the IMF (provided by the Bank of Algeria), currency services outputs were $10.7 billion in 2013, $11.7 in 2014, $11.0 in 2015, $9.9 in 2016 with a forecast of $10.6 billion in 2017. The legal export of profits according to sources of the IMF was $8 billion in 2013, $8 in 2014, $6.5 in 2015, $3.1 in 2016 and a forecast of $3.7 billion in 2017, with an average between $4.5 and $5 billion between 2018/2020.
In this case at the pace of financial indicators of the first four months of 2017, in any event, the outputs of currencies besides the legal capital transfers, by end of 2017 $46,26 billion (goods) and more than $10.6 billion (services) or a total of $56,86 billion and tending towards $60 billion or more with the legal capital transfers. This amount of currencies going outside would be balanced by a barrel priced between $85 and $88. However, according to the IMF, the price of a barrel would vary between 50-55 dollars at constant prices 2017-2020, subject to respect to the OPEC/non-OPEC agreements .
Deep structural reforms
In order to avoid a gradual depletion of foreign exchange reserves in 2018/2019, it will be a matter to go for deep structural reforms such as fighting off the stifling bureaucracy by reforming all institutions, reforming the financial system, as well as reforming the educational system, pillar of the knowledge economy development, and finally solving the thorny problem of land ownership and reviewing the subsidies.
Indeed, subsidies are regressive showing their lack of fairness and the need to reform them: the wealthier, the more you benefit and keeping this policy would be more and more onerous. In a report the World Bank notes that on average worldwide, 20% of the richest have six times more than 20% of the poorest grants and recommends that social assistance programs must be targeted to help the poor and vulnerable households to cope.
Investments in industry, renewable energy, agriculture, tourism and new technologies
The world is at the dawn of the Fourth economic revolution with geo-strategic upheaval in political, economic, social and cultural spheres all in need of necessary strategies. Algeria should invest in segments where it has comparative advantages in terms of cost/quality in internationalized sectors avoiding unnecessary prestige but opting for those in the industry, renewable energy, agriculture, tourism and new technologies and define its strategic sectors accordingly if it is to ever attract potential investors.
For the building and public works sector that employ nearly two million people, it will be in the future to review the mode of construction, new materials to save more than 30% of energy as well as material. As just noted by the new Prime Minister, it will be about avoiding the stifling of entrepreneurs operating in this sector whilst encouraging them into training: so, pay contractors who have completed their works on time, as well as follow up all initiated projects while ensuring strict respect of the planned costing and specifications.
But beware, that with budgetary restrictions, the current mode of social housing where a housing unit is granted almost free is only source of social injustice notably for the middle classes. Furthermore, as per the slogan like ‘when the building goes, all goes’ prevailing during the period of the 1970s and 1980s, this is no longer relevant in the 21st century. Solving the housing crisis without a strategic vision of global development may lead to social tensions.
In summary, Algeria has full potential for emerging out of this situation: first the situation is different to that of the crisis of 1986 with foreign reserves totaling $106 billion and external debt of no more than about $4 billion in February 2017. It should quickly go to deep structural reforms and above all to have a strategic vision. Here, I would reiterate my wish of success to the new Government (1). It will have to avoid taking at all costs the temptation of the easy administrative management of the 1970s. Being in the era of globalization, economic laws being impervious to political slogans, the market economy does not mean anarchy but a State as a regulator, strong in the moral standing that would release all the creative energies. In order to mobilize the Algerian population aware of the issues, a discourse of truth is required: neither gloom nor source of collective neurosis but complacency to avoid the against e truths… ademmebtoul@gmail.com
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