Algeria to fully play a major role in the region

It is bound to reforms of diversifying its economy and modernising its business environment.

A visit of Johannes Hahn, Commissioner for European Neighbourhood Policy and Enlargement Negotiations in Alger, Algeria today and tomorrow is notably to reiterate the EU support to the country in differentiating its economy.  This is in a way to acknowledge that Algeria to fully play a major role in the region, it is bound to reform.
So as per the European Commission, ahead of the mission, Commissioner Hahn said: “The European Union will continue to support Algeria in its efforts to diversify its economy and modernise its business environment. The EU-Algeria Partnership Priorities adopted earlier this year put a strong emphasis on economic matters. It is now time to translate these priorities into concrete actions and reforms“.

Taking up the ideas made at my Conference at the European Parliament on “the Maghreb facing geostrategic challenges” and after some concern about Algeria breaking off the agreement with the European Union, Algerian officials were clear. These have reiterated that there is no question of that happening but it is rather negotiating for a win-win partnership.

Cooperation for shared prosperity

At different visits both in Algiers and in Brussels, the Algerian and European parties reaffirmed the common determination to enhance relations proclaimed ambitions. The will would be to “densify” this cooperation, according to the Algerian Minister of Foreign Affairs, for whom “assessment called for by the Algeria does not call into question the agreement, but try to fully use it in a more positive interpretation sense of its provisions allowing a re-balancing of the cooperation links.

As per the European Union side’s ‘constructive’ discussions, I received an official invitation from the EU’s Ambassador of the European Union to Algiers to join in as an independent international expert for a working dinner on the occasion of the 3 day visit (July 19 through 21, 2017) of the European Commissioner in charge of the European neighbourhood policy and the enlargement negotiations, Johannes HAHN.

Thankful but sadly unable to honour this invitation for personal reasons, I nonetheless received from friends in Brussels a copy of the EU proposals to the Algerian Government. The terms of the Association Agreement stipulate that “the will to intensify political dialogue of high level, in a context of revitalisation of relations of cooperation, through the joint assessment of the implementation of the association agreement and the definition of the priorities of the partnership, adopted during last March 13 Association Council on the revised European neighbourhood policy.”

My view has as always been that Algeria and the EU have for objective to consider ways and means of implementing all conclusions of the joint assessment of the agreement including diversification of the Algerian economy and promotion of exports of nonhydrocarbon and productive investments.

According to the EU side, promising bilateral relationship in the field of energy, in business and trade activity, has an unexplored, even if potentially encumbered by red tape and persistent political decisions. However, the situation in the country remains dependent on the evolution of the oil markets and oil exports related revenues, recalling that energy cooperation, based on a specific Protocol, would be at the center of the cooperation with the EU.

It is as such, that the Council of Ministers as of October 6, 2015 considered necessary to reassess both economic and commercial aspects of the Association Agreement with the EU that have not achieved the expected objectives of the European investment in Algeria.

While article 54 of the Agreement for the promotion and protection of investments stipulates that cooperation is the creation of a favourable climate to investment flows and is realized through the establishment of harmonized and simplified procedures of the mechanisms of co-investment (especially between small and medium-sized enterprises) as well as devices for identification and information on investment opportunities favourable to investment flows and establishing a legal framework promoting investment, its protection, avoid double taxation and promote technical assistance actions of promotion and guarantee of domestic and foreign investment.

Algéria with Europe Trade 

The official 2016 exports balance sheet show a decline to $28.88 billion in 2016 against $34,66 billion in 2015, or a fall of 16.7 percent. Non-oil, marginal exports fell to $2.063 billion in 2016 against $2.582 billion in 2015 (-20,1%); over 50% of these being made up of derivatives of hydrocarbons.

As far as imports are concerned, these also declined but at a lower rate to $46.72 billion in 2016 against $51.7 billion in 2015, down 9.62% giving a trade balance deficit of about $18 billion before adding all services and legal transfers of capital.

Trade recorded during the first quarter of 2017, $15.42 billion in total imports and $11.92 billion in exports, an increase of 36.94% compared to the same period in 2016.

From geographical distribution point of view, the members of the EU are the major trading partners of Algeria that imports for 49.21% of its products and exports 68.28% mainly hydrocarbons.

In 2016, according to the Algerian Customs, China in 2016 was the leading trading partner of Algeria, with a market share of close to 18%. France came second with a share of 10.15%, followed by Italy with 9.93%. Spain and Germany were respectively in the 4th and 5th position in this ranking.

For 2016, Algeria’s customers were Italy with a market share of 16.55% of the exports and  Spain coming second followed by the United States and France.

During the first four months of 2017, Italy was the main customer with a share of 18.01% followed by the 12.02% of Spain and France’s 10.89%.

China, which is the main supplier, has shipped 20.47 percent of imports, followed by France with 8.49% and Italy with 7.02%. If China is the big beneficiary of Algerian imports, the deficit in trade between the two countries is huge between 2007 and 2016 while official reviews were always headed towards Europe.

Deepen the reforms

In order for Algeria to negotiate, it implies some change in the prevailing bureaucratic tendencies of the Algerian State that are incongruous today in the 21st century.  It is no more the State’s role to invest but rather to play a role of regulator like reconciling economic efficiency with a deep social justice; the economic operators being driven by the logic of profit.

The concerns being certainly legitimate because tariff cuts produced a drop in the short-term depending on sources of between $1.5 and 2 billion a year as a result of the EU’s tariff relief.

The situation of Algeria as mono exporter does not help, so are the majority of the OPEC countries; these are members of the WTO. The great challenge for Algeria would definitely be to accelerate the overall reform so as to allow it pull some comparative advantages of its insertion in the internationally institutionalised division of labour.

To benefit from the positive effects of the agreement with Europe towards a possible WTO membership, there is need to first tidy up the Algerian economy but for that, there are obstacles to a fully comprehensive reform of all its segments.

Any operational analysis should connect the progress or the refusal to the reforms by analyzing strategies of the social presence of each tendency; the Government’s policy forces happen to be lying fluttered between two conflicting social forces. On the one hand, partisans of the logic of rentier as supported by proponents of import and on the other, those of the informal sphere that is unfortunately dominant and with a minority entrepreneurial logic.

This might explain how Algeria finds itself in this interminable transition, neither in competitive social market economy nor in an administered economy; progress of reforms being inversely pro portional to the oil price and the value of the Dollar and reforms being tentatively made with inconsistency when the oil price drops. This explains also that despite successive devaluation of the Dinar, to meet the reality of deficit budget and boosting inflation imported, 5 dinars in 1974 a Dollar to 120 Dinars a Dollar in 2017, it has been impossible to boost non-oil exports showing that blocking is systemic.

GDP growth rate is directly and indirectly at 80% through the building and infrastructure development sectors and so is the employment rate, all as pulled by public expenditure through the oil and gas exports revenues which gives wealth creation companies of public or private wealth (often in debt with respect to public banks) a negligible part. Infrastructure being only a means towards an end, the recent experience of Spain that bet on this segment must be carefully meditated by the Algerian authorities. So, in order to attract any investment, the Algerian Government should implement regulatory mechanisms to attract promising investors and avoid for as much as possible any changes in the legal frameworks and any bureaucratic administrative actions that are not only not transparent but source of demobilization and potentially scaring investors whether they are local or international.

Without chauvinism, Algeria has potential options for moving on and unlike some pessimistic forecasts predicting a worst-case scenario for year 2020, it, subject to good governance and a reorientation of its economic policy, has the ambition of its choice.

It can become a player in determining the stability of the Mediterranean region and Africa, conditioned by its economic and social development within regional spaces, analysis supported in my international interviews including Radio France International (RFI) of 27/02/2016 and by the American Herald Tribune of December 28, 2016 and Radio International Mediterranean Midi1 of January 14, 2017.

Successful structural reforms allowing Algerian recovery is possible, but for this, a reform of all structures must be intended to encourage value-added creation investment from the overhaul of all land and property estates, finance, customs, tax, administration and a renewed social welfare regulation systems. There is urgency to specific objectives and a new institutional organization in order to give greater coherence to the management.

In summary, Algeria for the United States of America and for Europe is politically a major player in the region’s stability whereas economically although it holds significant potential, it realistically has little export options outside its hydrocarbon resources to both Europe and Africa in the light of the embryonic state of the productive sector?

Let’s avoid rushing to conclusions by giving a total of $7 billion accumulated losses over several years and thus mislead the public opinion. Customs duties shortfalls as a result of the Association agreement with the EU (with the Dinar being devalued by 20% in 2017) were accounted to be $1.27 billion in 2015 and 1.09 billion in 2016.

Contradictory debates in association with all components of society, tolerating the different sensitivities and the need for social cohesion seem to be the only way to overcome the present multidimensional crisis, because the social adjustments could eventually be painful. The macroeconomic framework seeming to be relatively stabilized in Algeria could be fleeting without deep structural reforms, the decline in the price of hydrocarbons and the risk after the exhaustion of the Reserves Fund that of foreign exchange reserves between 2019 and 2020.

ademmebtoul@gmail.com

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