The Maghreb facing of new global issues: the weight of the informal sphere

In a July 28, 2017 interview by FRANCE24 TV, Paris of Dr Abderrahmane Mebtoul and in answer to whether the return to a State economy with the recent imposition of import licenses, the Algerian Government by introducing these import licenses for a number of goods and services to limit transfers of currency in this period of fiscal pressures has any meaning. Always concerned by the informal economy vs. economic development in Algeria, Dr A. Mebtoul’s answer was: To avoid misinterpretation, the program of the new Prime Minister is part of the guidance of his Excellency Mr. the President of the Republic. It is not guided by any administrative management style of the 1970s now in 2017 but merely a procedural strategy that cannot be assimilated to the old licenses of import of the 1970s and1980s. According to several official releases from the Algerian Government, taken over by the Agency Press Service, Algeria will comply with international trade rules that include quantitative restrictions when a country of balance of payment is facing some difficult conjecture.

Anyway, the strategic objective of the Government is to review the policy of subsidies and to integrate all capital into the real economy. Without an integration of the informal sphere which goes beyond the simple economic aspect and refers to all geo-strategic schemes from socio-economic mechanisms that assume another governance model without which, this policy may have a limited impact.

The subject was already covered by a study undertaken in December 2013  under my direction was destined to the French Institute of International Relations (IFRI, Paris, France).

The proposed article below is on the same was written by Hakima Kernane and published in the French monthly ARABIES magazine on June 6, 2017 under the titled Algeria: informal sphere, scourge of the economy.

The informal economy, a sizable part of the country’s gross domestic product (GDP), has always been considered to be a major obstacle to the development of an all domestic production and economic diversification.

“Trade in the Tote’, which designates the commercial black market activities, is a very well-known expression of the Algerians. In the streets of the capital and elsewhere, vendors offer various products and whether presented on the shelves of stores or on the ground on public spaces, to local residents and passers-by, the black market products find always buyers.

Everything flows: shoes, clothes, food, perfumes and spare parts products, etc… “Informal activities are flooding the market, in the open and to the knowledge of all. Participants in the parallel economy do not think nor care about economic development but “only to make quick and easy gain,” says Lynda, Manager of a cosmetics business.

For economists, the informal market is part of those economic activities that are unregulated by socio-professional, tax and legal standards. It’s an underground economy that escapes the national accounts and the regulation of the State. “The barons of the informal sector are not incorporated into any logic of production. Their activities are untraceable and unfair. The informal economy encourages rapid enrichment,” says Hamid, a business leader.

Port Said Square in Algiers, is the main informal currency exchange central market where the Euro would buy nearly 190 Algerian Dinars (DZD) whereas per the Central Bank, it was at the end of 2016, between 115 and DZD117.  The European single currency is of interests of course to all importers, businessmen or tourists, seeking in the currency black market”, says a salesman.

For its part, Mahjoub Bedda, president of the Finance Commission of the National Assembly believes that the informal market of currencies size is alarming. “It would be between 15 and 20% of the value of imports, corresponding to about $7 billion in 2016”, he said. The generalization of the cash and the absence of modern means of payment tend to amplify the persistence of the scourge. “This market gangrenes the country’s economy” said he emphtically.

Omnipresent in shops, services, building and construction and manufacturing activities, the informal economy represents according to official figures nearly 45% of the GDP, which corresponds to a value of some $125 billion. In the same context, the conclusions of the study conducted by the Office of National statistics (ONS) show that the informal economy employed 1.6 million people in 2001 as compared to 3.9 million in 2012.

These numbers consist of 45.6% of the total non-farm workforce, including 45.3% in trade and services, 37% in the building and public works sector and 17% in manufacturing.

Also, in December 2013, according to the above mentioned study for the Institute of International relations (IFRI), the informal sphere controlled more than $ 55 billion in 2012.

To enable the eradication of informal economic activities, the Government has implemented two key measures: the obligation of the use of cheques in commercial transactions for an amount greater than DZD1 million, from 2014, and permission to deposit money in banks without prosecution, subject to flat tax and that it comes not unlawful actions in 2015.

According to experts, there are two forms of informal activities: that of producing and that other of marketing. “There is a case of differentiating the informal productive sector, which creates value, from that of the speculative market sector, which is based on transfer of values”, says economist A. Mebtoul in a column published in the press.

To reorganize the market, Governments have implemented new features:

  • Dismantling of informal markets,
  • Strengthening of commercial infrastructure and
  • Easing of the requirements for trade registering.

“The period 2016-2020 will certainly be characterized by economic and social adjustments”, explained A. Mebtoul.

So, close to the ground, operations such as the following are being pursued.

Data collection

This is to determine all relevant details of all informal markets and allow the public authorities to establish appropriate strategies of containment and / or elimination.

Restructuring of the markets

Launched by the authorities four years ago, all informal market sectors reincorporation / recuperation is still ongoing.

What are the most appropriate measures to reorganize and legalize the activities of the underground economy?

This calls for the lifting of the barriers to investment and the implementation of public policies with better economic prospects.

Fiscal pressure

According to a study by the Organization for cooperation and development (OECD), tax can have an impact on growth generally. According to many experts, the fight against the informal market is not easy to implement. Globally, the fight against tax fraud is one of the priorities of Governments. To achieve this, the OECD countries have implemented a strategy that is to strengthen the legislative framework, to reorganize the administration and grow the collaboration and coordination of data exchange between State institutions. Thus, it is important to note that an effective fight against the informal economy, which represents a shortfall in important for the Treasury, the social security and the pension system, also requires the involvement of all stakeholders, including civil society.