Conditions for boosting the privatisation process via the Algiers Stock Exchange are reviewed by University professor and international expert, Dr Abderrahmane MEBTOUL.
The aims of the privatisation, whether partial or total of the Algerian economy do not come to be questioned. The process is a must, however, it needs to be addressed as a matter of urgency. Proposals of strategies are made, notably through my experience as Chairman of the National Council of Privatizations between 1996/1999 complemented by numerous tours in the USA, helping to formulate the conditions for the success of the privatisation process via the Algiers Stock Exchange, to imply clarity in the objectives and means of implementation.
The urgency of a strategic vision
At a time of the coronavirus pandemic and the world going through new socio-economic changes in technological and organisational models including shock waves that according to the IMF, the World Bank, and the OECD, global growth will not be felt before the end of 2021. Furthermore, subject to the control of the epidemic, all domestic companies using the State’s handouts for their survival and all of the state-owned enterprises suffer from a structural deficit. Indebted to banks, some whose production techniques, are obsolete and do not meet new technologies and international standards, it is mentioned in this particular context to address the large budget deficit. The observation is the lack of dynamism of the public sector, the consolidation supported by the public treasury having far exceeded 100 billion dollars at constant prices between 2000/2020. The cost of the numerous restructurings between 1980/1999 and the ensuing remediation period of 2000/2020, resulted in more than 95% of the domestic companies returned to their inception status. Whereas with this, capital-money, it would have been more sensible to create a whole new and performing economic fabric. These are only announcements because, being an eminently political process, any decision on such a sensitive and complicated subject must first have the approval of the Council of Ministers certainly after consultation with the Security Council because it commits national security. Privatisation should not be confused with complementary de-monopolisation, both eminently political, moving towards the disengagement of the State from the economic sphere so that it devotes itself to its role as a strategic regulator in a market economy. Privatisation is a transfer of ownership from existing units to the private sector, and de-monopolisation is about fostering new private investment. The objective of de-monopolisation and privatisation must reinforce the systemic transformation of the transition from an administered economy to a competitive market economy. A legal text is not enough (this is only a means) and becomes a decoy if there are no coherent objectives clearly defined with pragmatism and a return to trust.
Privatisation can only be successful if it is part of a coherent and visible global socio-economic policy and if it is accompanied by a competitive universal and sustained dialogue between the social partners. It should be aimed at putting an end to perpetual legal instability. The renovation of the Ministry of Finance through digitisation of all systems of taxation, banks, land and customs duties would surely put an end to the central and local bureaucracy that as a significant constraint of an administered economy would be best be accompanied by the overhaul of the socio-political system. Also, the decentralisation around large four to five regional poles, not deconcentration would help.
Moreover, the impacts of all trade agreements between Algeria and the European Union, Africa and the Arab world, as well as all international ones would be of a win-win type only if Algeria has public or private companies that are competitive in terms of cost/quality. In any case, all of these agreements have domestically economic, social and political implications.
The four conditions for boosting the privatisation process
Are our managers aware that there is a global privatisation market where competition is perennial, and the determining factor is a demand for goodwill and not just supply? The success of this process to prevent certain predators from being interested only in the real estate of these companies and not in the production tool involving five conditions?
The first condition, its impact on the reduction of the budget deficit where according to the Finance Law of 2021 more than $21.75 billion in 2021, against the 2020 close of $18.60 billion and an overall projected treasury deficit of $28.26 billion, artificially, which is in principle filled by higher production and domestic productivity; to boost non-hydrocarbon exports and contribute to the establishment of a competitive market economy far from any monopoly, whether public or private.
The State, as a regulator and guarantor of social cohesion, especially at a time of budgetary and tensions domestic and at our borders should enforce the contract between employers and employees so that the logic of profit does not undermine the dignity of workers. Nevertheless, never forget that the most incredible moral devaluation in any society is being unemployed or assisted. The important thing is not to work in the national, international or state-private sector, the critical thing for our children is to find a sustainable job within the framework of social protection.
The second condition was a good preparation of a company X for privatisation, assuming transparent communication, as some executives and workers had heard the news in the press, which increased social tensions. Transparency is a fundamental condition for the acceptance of both the population and workers in the spirit of reforms linked to profound democratisation of society. The takeover of companies for executives and workers requires the creation of a risk bank to accompany them because they possess the technological, organisational and commercial know-how a hardcore of skills must constitute the basis of any reliable unit.
The third condition will be to avoid filialisations that were not operating in the past—sticking with bureaucratic power, being the basis for the success of both the partial opening of capital and total privatisation, the wealth in the accounts being often undefining. Lack of an updated land registry poses the problem of the non-existence of reliable title deeds without which no transfer of ownership can be carried out. As there is an urgent need to have transparent real-time accountings of public, private companies, that meet international standards, all measures will be ineffective especially for stock market valuation the actual sale price varies from time to time.
The fourth condition, time overlap of different institutions between selection, evaluations, tender notices, transfer to the stakeholders, then to the Government for the issuance of the final title of ownership would best be not arduous. It may discourage any takeover because mobile capital is invested only where economic and political obstacles are minimal. In this context, it is imperative that long bureaucratic circuits avoid a clearly defined synchronisation and that the current conflicting legal texts should be reviewed, which can lead to endless conflicts, hence the urgent need for their harmonisation with international law. Empowerment will need to be specified where it is necessary to determine who has it to request the undertaking of a privatisation operation. It is vital to prepare the transaction, to organise the selection of the purchaser, to authorise the conclusion of the transaction, to sign the relevant agreements and finally, to ensure that they are carried out correctly.
The four conditions for boosting the Algiers Stock Exchange
In lethargy since its inception, the ASE was built up like a stadium without players through administrative injunctions, like all the loss-making state-owned enterprises.
However, the revitalisation of the stock market implies three conditions.
First, the lifting of environmental constraints gives bureaucratic obstacles that cannot be a reliable purse without competition, avoiding legal instability referring to the rule of law.
Second, a stock exchange must be based on a renovated banking system. However, the Algerian financial system for decades has been the place par excellence for the distribution of the hydrocarbon rent and therefore a considerable challenge of power, and therefore the revitalisation of the stock market necessarily requires the overhaul of the financial system. Indeed, despite the number of private operators, we have a public economy with managed management, all activities whatever their nature feeding on budget flows, i.e. the very essence of financing is linked to the actual or supposed capacity of treasure. It can be considered that the banks in Algeria operate not from local market savings but by the recurrent advances from the Central Bank of Algeria that is refinanced by the public treasury in the form of reorganisation not only for the recent period but having to count the costs of restructuring between 1980/1990. This transformation is not in the scope of the company. However, it moves into the institutional field (distribution of the annuity hydrocarbons), and in this relationship, the Algerian financial system is passive. Bread 90% of these companies its returned to the starting box showing that it is not a question of capital money, real wealth can only assume the transformation of currency stock into capital stock, and there is the whole development problem.
Thirdly, there can be no stock exchange without the resolution of all deeds circulating shares or bonds. The urgency of the integration of the informal sphere cannot be underestimated. Issuing title deeds is vital as there can be no reliable stock exchange without clear and transparent accounting modelled on international standards by generalising audits and analytical accounting in order to determine the cost centres for shareholders. This raises the problem of adapting a socio-educational system, which does not exist as financial engineering. The balance-of-payments services item with foreign exchange outflows between 2010/2019 is between $9/11 billion per year, in addition to foreign exchange outflows from import goods. There are a few rare exceptions; it turns out that accounts Algerian public and private companies from the most important to the simplest in the State that would not pass the most basic audits due diligence. For example, SONATRACH needs new strategic management like the majority of Algerian companies, with clear accounts in order to determine costs by sections, where we are witnessing the opacity of its management which is limited to delivering consolidated global accounts covering the essentials without distinguishing whether the surplus accumulated is due to exogenous factors, international prices or good internal management. As a primer, we propose partial privatisation of a few profitable national champions to initiate the movement to enable the establishment of a stock market index consisting of volume and quality, acting as incubators of companies eligible for the stock exchange and attracting investors looking for financing and know-how.
The fourth condition is monetary stability and legal and monetary stability and the resolution of bad debts and debts, with state-owned banks crumbling under the weight of bad debts and the majority of state-owned enterprises in structural deficits, especially for the currency-denominated part involving transparent mechanisms in the event of exchange rate fluctuations. The simultaneous depreciation of the dinar against the Dollar, the main currency of exchange, does not respond to real values because their quotations are inversely proportional, has the essential aim of artificially filling the budget deficit, akin to an indirect tax. Indeed, on October 15, 2020, on the Stock Exchange, the Dollar is quoted at 1.2144 Euro, against 1.16 in June 2020, a depreciation of 5%, allowing a rise in the price of Brent by 5%. In reference to the June 2020 quote, the price of Brent quoted on December 15 at $50 would be $47.5 at constant prices, thus not having experienced a real increase in terms of purchasing power parity against the Euro and thus an increase in the import bill in euros in the same proportions. Thus, the current Government projecting for 2023 about 185 Dinar one Euro and 156 Dinars per Dollar and taking a 50% deviation from the parallel market we will have about 300 Dinars a minimum Euro in 2023 subject to the control of inflation otherwise the gap would be larger. They were compared to more than 200 Dinars in mid-December 2020 with a projection of 240/250 Euros at the end of 2021 in as to open borders and the inevitable increase in interest rates of the banks’ priorities to avoid their bankruptcies. In this case, it is illusory both to attract the savings of emigration via the banks that one wants to install with foreign exchange costs, as to capture the money capital via the informal sphere via Islamic finance. How do you want a trader with this monetary instability to appear on the stock exchange knowing that the value of the dinar will fall by at least 30% if not more in two to three years, depreciating its assets?.
The partial or total privatisation can be the process, with economic, social and political recompositions of power for a controlled liberalisation in order to avoid the squandering of public assets for the benefit of speculators interested mainly in real estate assets. It involves the transparency of specific objectives, the removal of bureaucratic obstacles, land, banks, the informal sphere, taxation, legal and monetary stability, essential criteria for any national investor.
International cooperation to combat trafficking and terrorism, factors in destabilizing the MENA region by University professor, international expert Dr Abderrahmane MEBTOUL is given on the occasion of U.S. Defense Secretary Mark Esper’s Maghreb tour in Tunis, Algiers and Rabat.
This visit is officially aimed at strengthening ties with these three North African countries to combat terrorist threats. This visit to Algiers follows that of the head of the US Africa Command (Africom) Army General Stephen Townsend. It is not an insignificant visit because the United States of America considers Algeria, through the actions of its armed forces and its various security services, as a critical player in the stability of the Mediterranean and African region.This is because the stakes in the MENA region foreshadow significant geopolitical and geoeconomic reconfigurations. This region has become a sensitive area with significant rivalries between Russia, China and Europe.
With recent geostrategic tensions, traffic has increased in particular with the conflicts in Iraq, Syria, Mali, Niger and Libya. Transnational crime refers to organized criminal networks and consequently to terrorism that benefits from the sale of illegal goods. These international illicit markets, anonymous and more complex than ever, generate billions of dollars each year. This threat is worrying, not only for Algeria but also for the world and especially Europe. In the Sahel, armed groups have increased their capacity for nuisance, diversified into terrorists, insurgents, criminals and militias with a convergence that unites these groups. The most troubling aspect of the connection seems to be how the illegal drug trade undermines efforts to pursue the political reforms and development needed to stem the radicalization and rise of terrorist groups in several already fragile African countries. There is a deep vulnerability of states in the region characterized by poor governance and strong population growth. Only the Sahel, which will see its population double in 25 years, and has more than 100 million inhabitants by 2020. This growth affects human security, especially food security in the region as a whole. This is compounded by inequalities that promote radicalization, due to a combination of factors related to the individual, his relationships, his community and his relationship to society. Nevertheless, there are economic issues, where the Sahel is a space with critical departmental resources. Hence the foreign interference that manipulates different actors in order to position themselves within this strategic corridor and to take control of wealth are numerous. Libya, a wealthy country with a population of no more than 7 million, is an example where different foreign actors clash in interposed groups. The Sahelian arc is rich in resources: after salt and gold, oil and gas, iron, phosphate, copper, tin and uranium are all riches feeding the lusts of powers wishing to ensure control. The drug trade, for example, has the potential to provide terrorist groups with recruits and sympathizers among impoverished, neglected and isolated farmers who can not only cultivate on behalf of traffickers but also popularize and strengthen anti-government movements. More recently, with the impact of the coronavirus epidemic, this situation of vulnerability is likely to increase. The world of tomorrow will never be the same again because of the geostrategic implications in the political, social, security and economic fields at the level of North Africa and Black Africa. In an interview given to the American Herald Tribune of 23 April 2020, the author said: “We Have Witnessed a Veritable Planetary Hecatomb and the World Will Never Be the Same Again.”
In the face of these complex geostrategic situations at the regional level, international coordination is needed, including Maghreb integration, a bridge between Europe and Africa thus contributing to shared prosperity for the Mediterranean and African region to reduce migration flows. (see two important works coordinated by Professor Abderrahmane Mebtoul and Dr Camille Sari (from the Sorbonne) were published between 2014/2015 at Paris Edition Harmattan “The Maghreb facing geostrategic issues” – volume 1-dealing of institutions and governance (480 pages) and Volume 2 of the economic strands in different aspects (500 pages) bringing together for the first time -36 international experts, military-political scientists, economists, lawyers, sociologists, historians, Algerian-Moroccan- Tunisian- Mauritanian and Libyan- European).
Faced with these new geostrategic challenges that are upsetting the planet, international terrorism takes advantage of the dysfunctions of state regulation and has at least five characteristics in common. First, on networks often established in large geographic areas where people, goods and money circulate. Second, command control and communication. Third, is their need to process large amounts of money, launder them and transfer them across countries and continents. Fourth, criminals and terrorists tend to have private armies, hence the need for training, camps and military equipment. Fifth, terrorists and criminals in the Sahel region share common characteristics: frequent clandestine operations seeking legitimacy in supporting populations with the use of durable guerrillas to control territory and populations; sixth, contempt for international norms, the rule of law, or the notion of human rights, and a desire to kill those who oppose them; seventh, these guerrillas also create specialized cells specializing in the use of the media and the Internet to disseminate their propaganda and their demands. Thus, we have different forms of transnational organized crime that is an ever-changing industry, adapts to markets and creates new forms of illicit trade that transcend cultural, social, linguistic and geographical boundaries, and knows no limits or rules.
The combination of these various elements in too complex patterns induces a climate of increasing insecurity conducive to the destabilization of the states of the region with different forms of trafficking numbering eight interdependent. First, the traffic of goods amplified for some countries that subsidize necessities such as Algeria, accentuated by distortions in exchange rates. Secondly, the “black” market for weapons and their ammunition, necessarily derived from the “white” market since each weapon is manufactured in a legal factory, is a theme that allows us to understand the wills of power of various geopolitical actors around the world. Arms trafficking is regulated by states that profit from it and the advantage of arms trafficking for terrorists is that they can both use it and make a profit. The best prevention remains a sales control, a contractual framework, i.e. define beforehand the use of weapons and the establishment of international conventions on the sale of automatic or non-automatic firearms. Thirdly, the rise of drug trafficking at the regional level has implications for all of North Africa and Europe where we can identify actors with geostrategic implications where drug traffickers create new national and regional markets to transport their products. In order to secure the transit of their goods, drug traffickers resort to the protection that terrorist groups and various dissents can provide, by their perfect knowledge of the terrain, thus contributing to their financing.
Moreover, according to some intelligence sources, if drug traffickers were a country, their GDP would rank them 20th in the world. Fourth, human trafficking is an international criminal activity in which men, women and children are subjected to sexual exploitation or exploitation through labour. Fifth,as we are currently seeing in the Mediterranean through migrant trafficking, which is an organized activity in which people are displaced around the world using criminal networks, many smugglers do not care whether migrants drown at sea, die of dehydration in a desert or suffocate in a container. Each year, this trade is valued at billions of dollars. Sixth, the trafficking of natural resources which includes the smuggling of raw materials such as diamonds and rare metals (often from conflict zones) and the sale of fraudulent drugs that are potentially lethal to consumers. Seventh, cybercrime, which is linked to the revolution in information systems, can destabilize an entire country militarily, security and economically, encompassing several areas, including increasingly exploiting the Internet to take private data, access bank accounts and sometimes fraudulently obtain strategic data for the country. Digital technology has transformed just about every aspect of our lives, including the notion of risk and crime, so that criminal activity is more effective, less risky, more cost-effective and more accessible than ever. Eighth, money laundering is a process in which money earned by a crime or an illegal act is washed away. It is a matter of hiding the origin of the money to use it after legally (investment, purchases). The multiple tax-havens, clearing companies (also Off Shore) allow hiding the origin of the money.
This different traffic linked to the importance of the informal sphere produces malfunctions of the state apparatuses, in fact, governance, the weight of bureaucracy that maintains diffuse relations with this sphere and exchange rate distortions, representing in Africa according to the latest ILO-2020 report – more than 75/80% of employment and more than 20 50% of gross domestic product (GDP) (Study of Professor Abderrahmane Mebtoul – French Institute of International Relations (IFRI) Paris December 2013- The informal sphere in Maghreb countries and its geostrategic impacts). The main determinants of informality can be summarized as follows. First, the weakness of formal employment is obvious. This is a factor that explains the evolution of the informal sector in both developed and developing countries. As a result, the supply of formal jobs in the labour market can no longer absorb all the demand as the labour force; particularly the unskilled labour force is growing at an accelerated rate. Second, when taxes are numerous and too high, businesses are encouraged to hide some of their income. Third, the weight of regulation or the complexity of the business environment discourages business registration. Where the institutional framework is not conducive to the creation of businesses in a formal way, entrepreneurs prefer to operate in the informal sector and avoid the burden of regulation. Fourth, the quality of public services provided by the government is an important determinant of the informal sector because it influences the choice of individuals. Individuals active in the informal sector cannot benefit from public services (protection from theft and crime, access to financing, protection of property rights). That is one of the drawbacks of this sector. Fifth, as a result of economic policy, the primacy of bureaucratic administrative management is required when transparent economic mechanisms refer to governance are required.
In short,Algeria’s security is at its borders; with Mali, 1376 km; with Libya 982 km; with Niger 956 km; with Tunisia 965 km as can be imagined not an easy task. It is because the reading of the threats and challenges facing the world and the region is based on the need to jointly develop a collective and effective response in a strategy on international terrorism, human trafficking and organized crime through drugs and money laundering. All safe for security has limitations that exist dialectical links between development and security. Also, the fight against terrorism implies, first of all, an internal development, linked to new governance of Africa, of regional sub-integrations where inter-African trade according to the UN only exceeds 16/17% in 2019, and to put an end to this inequality where a minority takes over a growing fraction of the national income giving birth to misery and therefore terrorism, referring to the morality of those running the show.
In the face of new global changes, what is the exploitation of phosphate and iron in Algeria? University professor, international expert Dr Abderrahmane MEBTOUL elaborates.
At the last Council of Ministers, debates turned to the recovery of iron and phosphate deposits appropriateness. This is not novelty; as a young advisor to the Minister and Industry and Energy between 1974/1977, we discussed such projects within the framework of many studies. Furthermore, since then, how have all these studies in both foreign exchange and Dinars with no conclusive results cost?
The commercialisation of both iron and raw phosphate and derivatives depends as much on the strategy of a few global firms as on internal strategic management. Other factors like the cost of operations as well as the growth of the world economy play an essential role here.
The case of phosphate– As much as for iron, or energy-intensive cement units, the essential input is natural gas having to make arbitrage between the transfer price on the international market and the transfer to the units to generate a high added value. So the cost price of a tonne of ammonia at 4 Dollars/mmBTU would be 114 Euros per tonne, and on the contrary at 7 Dollars, we will have 200 Euros per tonne with a decrease in the last ten years of 10/15% depending on the geographical area. The price of derivatives is wildly fluctuating the urea fertiliser having been quoted between July and September at about 260 Euros per tonne. The increase in the world’s population and the demand for food are a determining factor in the growth of the phosphate market. Competition in the global market is very intense and relatively integrated, with the presence of limited vital players who get a significant share of global revenues. Key speakers include Russia’s Eurochem Group AG and PJSC PhosAgro; Canadian Agrium Inc. and Potash Corp. of Saskatchewan Inc. Norwegian Yara International ASA; C.F. Industries Holdings Inc. and Mosaik Co.; India’s Coromandel International Ltd.; Moroccan giant OCP S.A. and Israel Chemicals Ltd. According to a U.S. geological survey on phosphate rock 2019, mining production (+ réserves) en 2018 thousand tonnes is distributed as U.S. réserves 27,000-production (1,000,000) – Algéria réserves 1,300- production (2,200,000); the Global Total réserves being 70,000 (70,000,000).
The price per tonne of raw phosphate fluctuates; April 2020 $72.50 per tonne, in March 71.88, in April $70.75, in May at $72.90, and in June/July 2020 $75,000 per tonne, having been rated in October 2019 at $77.50 for sheet metal, in January 2020 at $72.50 per tonne. According to the World Bank, the general and medium-term trend in phosphate prices remains downward, and crude phosphate would trade in 2020 at around US$80-85 per metric ton, DAP around US$377.5 per metric ton and TSP at nearly US$300 per metric ton. According to the global rating agency, phosphate rock prices remained on average at $100 per tonne (at no charge onboard) in 2019/2020 and prices per tonne of phosphate rock (at no charge onboard) remained at $110 in the long run. Thus, if Algeria exports three million tonnes of raw phosphate annually at an average price of $100, a very optimistic assumption about world prices, at constant prices 2020, for 30 million Tonnes, it would get three billion Dollars and less than 2.5 billion Dollars at current prices. It must be said that in this sector, the expenses are very high (depreciation and salary expenses in particular) a minimum of 40%, thus making the net profit to about 1.8 billion Dollars for a price of $100 and less than 1.4 billion dollars for a price of $70. In the event of an association with an international partner, the net profit remaining for Algeria would be slightly more than 900/700 million dollars for both scenarios. We are far from profits in the field of hydrocarbons. To increase net profit, it is, therefore, necessary to embark on highly capital-intensive processing units with massive investments and medium-term profitability with the export of noble products, in the E.U., fertiliser/urea sold at more than 350 Euros per tonne in 2014. It was rated on an annual average in 2017 at 270 Euros per tonne. In April 2018, it was at 260 Dollars and at the beginning of May 220 to 250 Dollars per metric ton. In general, prices are very volatile, assuming perfect knowledge of the international stock market in order to avoid large losses in the event of low forecasts. Also, for a sizeable exportable quantity, this requires for Algeria, hefty investments and profitability in the medium term not until 2023/2025 if the project is in operation in 2020. Moreover, for a sizeable exportable quantity, this requires a partnership with international firms.
The Case of Iron – For September 20, 2020, iron is priced at 90 Euros per tonne, stainless steel 1921 Euros per tonne, steel 4520 Euros per tonne, aluminium 1364 Euros per tonne, scrap 148 Euros per tonne, zinc 1817 Euros per tonne, copper 5289 Euros per tonne, lead 1509 Euros per tonne.
As proof, in April 2019, the price of stainless steel was at an average of 2,598 Euros per tonne, rose by 2.8% year-on-year with stabilisation in May 2020 to 2600 Euros per tonne, being in high demand on the world market, depending on its destination and its applications, classified in four categories. Aluminium was at 1,460 Euros per tonne, down 9.4% month-on-month and 20.9%. The price of lead was at $1,658 per tonne, down 4.4% on a month-on-month basis and 14.5% year-on-year. The price of zinc was at 1,903 Euros per tonne, stable over one month and down 35.1% year-on-year. Furthermore, in November 2019, the price of steel was at $5,400 per tonne, down 23.6% year-on-year, and in May 2020, 4,740 Euros due to the coronavirus outbreak. In April 2020, the price of iron stood at $85 per tonne, down 4.7% month-on-month and 9.6%. International agencies estimate the world’s iron reserves at between 2018/2019, 85,000 million tonnes (M.T.). Australia leads with 23,000 MT, followed by Russia 14,000 MT, Brazil 12,000 MT, China 7,200 MT, India 5,200 MT, United States 3,500 MT, Venezuela 2,400 MT, Ukraine 2,300 MT, Canada 2,300 MT and Sweden 2,200 MT, Algeria according to Algerian reserves data would be about 3000 Tonnes but with exploitable deposits, estimated between 1,500 and 2,000 MT. The main iron ore producing countries are Australia: 39.8% (with 879 MT)- Brazil: 19.8% (with 436 MT) – China: 8.6% (with 191 MT) – India: 7% (with 154 MT) – Russia: 4.6% (with 101 MT) – Ukraine: 3.3% (with 73 MT) – South Africa: 3,2% (with 69 MT) – Iran: 2.6% (with 57 T – Canada: 2.2% (with 49 MT) – United States: 2% (with 44 MT) – Sweden: 1.2% (with 27 MT) – Kazakhstan: 0.6% (with 13 MT) – Other countries: 5.1% (with 113 MT) (Source: Natural Resources Canada). Steel is a fundamental product to our way of life and is essential for economic growth, the 10 largest producing countries between 2017/2018 are: China: 831,728,000 Tonnes, Japan: 104,661,000 T, India: 101,455,000 T, United States: 81,612,000 T, Russia: 71,491,000 T , South Korea: 71,030 T, Germany: 43,297,000 T, Turkey: 37,524,000 T, Brazil: 34,365,000 T and Italy: 24,068,000 T. In April 2020, copper was $5,058 per tonne, down 21.4% year-on-year. Evolution has not fundamentally changed since 2018. At a favourable price of $100 per tonne crude iron, for export of 30 million tonnes, we will have gross revenue of $3 billion. However, with this amount and more than 50% of expenses (the operating costs are very high), we are left with a net of the remaining $1.5 billion. This amount is to be shared with the foreign partner that in case of 30 million T, would be less than 800 million Dollars. This is because the exploitation of Gara Djebilet’s iron will require large investments in power plants, transmission networks, rational use of water, distribution networks that are lacking because of the remoteness of the sources of supply while avoiding the deterioration of the environment because the units are very polluting. Therefore, as with phosphate, only the transformation into noble products can provide greater added value for export. Because of the oligopolistic structure of the mining industry, at the global level, the only solution, if we want to export these noble products, is a win-win partnership with the reputable firms that control the segments of the international market that will not accept the restrictive 49/51% rule with bureaucratic burdens, with decisions taking place in real-time at the international trade level.
It is a question of avoiding the mistakes of the past by serious evaluations in terms of profitability and without a solid partnership, it is futile to penetrate the global market let alone the mining sector controlled by some international firms.
In the case of gold mines, let us avoid the unfortunate experience, with a massive liability, with the Australian company, Gold Mining of Algeria (GMA) where reserves of 173 tons have not increased one iota since 2007. All this raises the problem of mastery of strategic management. Like this drift of car assembly where we have now seen that it was a set for currency transfer traffic, going to predictable bankruptcies, after having perceived considerable financial and fiscal benefits. Like this utopia of dozens of cement complexes where we are currently witnessing the underuse of production capacity, the risk of plants cooling if storage is long-lasting, would increase the costs. The situation would result in unusable products for construction, except for those with points of support in Africa through their subsidiaries; otherwise, it would be difficult for other units to export, where, contrary to some discourse not based on any serious market research, market shares are already taken with many complexes being realised at the level of the Mediterranean basin. For this case, new construction methods worldwide are being saved from concrete round, cement and energy and as in Germany, is to use concrete to build roads often returning cheaper than imported bitumen. Algeria needs a strategic vision in which industrial policy must fit, in order to adapt to the new global sectors driven by perpetual innovation. Let us avoid utopias: Algeria will continue for many years to depend on hydrocarbons, with other raw materials making just an average profit to invest in democratic institutions, education, digital and energy transition. No country in the world that has relied solely on raw materials has succeeded in its development. Since the world is a world and this proves true with the fourth global economic revolution 2020/2030/2040 the prosperity of different civilisations has always rested on good governance, work and theoretical and applied research, a country without its elite being like a soulless body.
At a time, when important issues are being raised and out of the ordinary tensions are taking place concerning gas fields, Algeria faces geostrategic gas tensions in the Mediterranean. It is, in particular, the tensions between Greece and Turkey, challenging it where its primary gas market is, in Europe, and whose hydrocarbons with derivatives provide 98% of foreign exchange revenues in 2019, where the price of gas disposal has fallen by more than 75% in 10 years and providing 33% of its SONATRACH’s revenues. Here is an analysis of options for this unprecedented east Mediterranean situation as seen from Algeria.
Between 2018/2019, according to the IEA we have the following distribution 33.1% of oil, 27.0% coal, 24.2% natural gas, 4.3% nuclear and 11.5% renewable energy (hydropower 6.5%, wind 2.2%, biomass and geothermal 1.0%, solar 1.1%, agrofuels 0.7%).
Natural gas is derived from fossil fuels and is made up of decomposing organic matter that has been released into the soil for millions of years and is routed through pipes. We have liquefied natural gas as far as it is a natural gas that has been changed to a liquid state so that it can be transported and stored more easily. Because natural gas deposits are often far removed from many consumers of this energy, transporting it in a gaseous state is risky and expensive.
Also and by cooling it, it is possible to transform it into liquid natural gas, There are two main markets on which the world’s natural gas is traded. The most important is the NYMEX or New York Mercantile Exchange located in the United States, and the second, the NBP or National Balancing Point of the International Petroleum Exchange located in London. There are other smaller markets such as the FTT in the Netherlands or The Zeebrugge in Belgium. Between 2018/2019, before the coronavirus outbreak, according to Cedigaz, demand increased, strengthening its place in the energy mix. In 2018, international LNG represented a provisionally estimated volume of 311 Mt, according to Cedigaz, up 8.5% from 2017. LNG now accounts for more than a third of gas trade, with growth in LNG imports concentrated in Northeast Asia (China and South Korea), where gas plays an increased role in electricity generation and heating. China contributes the most to the growth in global LNG demand, with more than 60% of the total increase in trade.
Proven world reserves on a total of 197.394 billion cubic meters of gas (data from 2018/2019) we have in descending order: Russia 47,800 billion cubic meters, Iran 33,500, Qatar 24,300, USA 8,714, Saudi Arabia 8,602, Turkmenistan 6061, Venezuela 5702, Nigeria 5,284, and China 5,194 and for Algeria between 2500 and 3000 according to the statement of the current Minister of Energy before his appointment and the communiqué of the Council of Ministers of 2014, the data of 4500 being those of BP of the years 2000. The top 10 countries producing natural gas in descending order are. Russia alone accounts for 20% of world natural gas production. It is also the largest exporter, second with the shale gas revolution becoming an exporter in Europe, the United States of America, followed by Canada (third place) and Qatar fourth, with Iran downgraded following US sanctions, followed by Norway, China, Saudi Arabia, and Algeria, which ranked ninth. These data should be interpreted with caution because thousands of deposits can be discovered, but not profitable according to financial standards depending on operating costs and the evolution of the international price itself depending on the demand and competition of substitutable energies As for some experts who speak of an OPEC gas market in the image of OPEC oil, it should be stressed that the gas market is not in this month of August 2020, a global market but a market segmented by geographical areas while the oil market is homogeneous, due to the preponderance of pipelines, being impossible to meet the same criteria, the solution being cooperation within the FPEG which consists of 11 member countries (5 in Africa (Algeria , Egypt, Equatorial Guinea, Libya, Nigeria) – 2 in the Middle East (Iran, Qatar); – 3 in South America (Bolivia, Trinidad and Tobago, Venezuela) and Russia, 9 non-member countries with observer status: Angola, Azerbaijan, the United Arab Emirates, Iraq, Kazakhstan, Malaysia, Norway, Oman and Peru, the United States, one of the world’s leading gas producers, are not part of the FPEG.. To one day reach a gas market that meets oil market standards (daily listing), the share of LNG would have to increase from 30% to more than 80%. Until then, because investments are hefty, everything will depend on the evolution between 2020/2030/2040, on-demand for LNG which will depend on the new global energy consumption model that is moving towards the digital and energy transition with an increase in the share of renewables, energy efficiency and between 2030/2040 hydrogen which risks degrading a large part of the transition energy.
What about the current tensions in the eastern Mediterranean regarding the energy sector which is not immune to OPEC’s action, but indirectly affecting the price of energy and the market share of Algeria towards Europe its principal customer, recalling that there is a gas organisation independent of that of OPEC.
A friend, the polytechnician Jean Pierre Hauet of KP Intelligence, France rightly notes that the energy scene comes alive in the Mediterranean with at least two significant fields of manoeuvring which it is interesting to try to understand the ins and outs that explain the current tensions, especially in the eastern Mediterranean. The first theatre is that of renewable energy (wind, concentrated solar, photovoltaic) which has been characterised by the launch of major initiatives based on the idea that technical progress in direct current transmission lines would allow taking advantage of the complementarity between the electricity needs of the countries of the north and the availability of space and sun of the countries of the South. At the time, we were talking about 400 million euros of investments and the satisfaction of 15% of Europe’s electricity needs. Today, the Desertec project is instead at half-mast, due in particular to the withdrawal of major industrial players, Siemens and Bosch, and the consummate disagreement between the Desertec Foundation and its industrial arm the Desertec Industrial Initiative (Dii). Dii continues its ambitions to integrate European, North African and Middle Eastern networks, while the Desertec Foundation now seems to favour bilateral initiatives in Cameroon, Senegal and Saudi Arabia. The second theatre of operations is recent: it relates to the discovery from 2009 of deep offshore gas resources in the eastern Mediterranean, which explains the current tensions. Large companies that used to operate other more accessible, profitable fields or near facilities nearby, on land, are now turning to the eastern Mediterranean, off Egypt, Israel, Lebanon, Cyprus and Turkey, all countries that do not necessarily have good neighbourly relations. Because several gas deposits have been discovered off the coast of Egypt, Israel, Lebanon or Cyprus, at the heart of the so-called Levantine basin, it is estimated by the US Geological Survey at 3,452 billion cubic meters (m3). “For the producing or future producing coastal states, this gas resource offers the opportunity to achieve energy independence and a way to bail out their economy through potential exports” according to the Mediterranean Foundation for Strategic Studies in a well-documented report. That is why Turkey is conducting research. Even if Greece and part of the international community accuse it of having entered the Greek maritime space, international law is unclear in this situation which does not delineate borders and geographical boundaries. Gas resources can be found on or offshore limits of a country or in either transboundary or not clearly defined boundaries reservoirs, and the Turkish initiative could be the beginning of a long series of tensions that could transform regional balances. Because geological formations do not know the political borders, oil and gas companies have explored the marine subsea soils of neighbouring countries. This was followed by the uncovering of the Leviathan field (2010) also off the coast of Israel, Zohr (2015) in Egyptian waters, then Aphrodite (2012), Calypso (2018) and Glaucus (2019) around Cyprus. Exploration of Lebanese and Greek waters is not advanced. Athens has already allocated parcels to ExxonMobil, Spain’s Repsol or Total. On February 19, 2018, a historic $15 billion contract between Egypt and Israel provided for the supply of natural gas from the Tamar and Leviathan offshore reservoirs to Egypt, according to a report by the Mediterranean Foundation for Strategic Studies (FMEN). To ease tensions, although the countries of the Mediterranean all face the problem of energy security, it is above all a question of strengthening cooperation especially in the energy field, which can represent a vital link between the north and the South of the Mediterranean.
What is the case for Algeria where according to SONATRACH’s balance sheet in 2019, it makes up about 33% of its revenues, to which must be deducted the costs and the share of partners dependent on natural gas in order to have the net profit? The structure between natural gas exports through the two major Medgaz pipelines via Spain capacity, of 8 billion cubic meters gas and Transmed via Italy between 35/40 billion cubic meters of gas, currently under capacity, represents about 75% of the total towards its primary market Europe. LNG about 25% that provides it with more flexibility, Algeria is strongly competed against between 2020/2025 by the American, Russian, Qatari LNG. The latter has installed large capacity two to three times that of Algeria and for the gas piped by Russia the North Stream (55 billion cubic meters of capacity and the South Stream (capacity of 63 billion cubic meters gas), not forgetting as previously highlighted the discoveries in the Mediterranean. Nigeria and Mozambique are important producers with the latter country having the largest reserves in East African countries, with nearly 5 trillion cubic meters, on two offshore blocks in the province of Cabo Delgado in the far north of the country. By 2025/2030, Mozambique is likely to become the fourth-largest gas exporter in the world behind the USA, Qatar and Australia. In order to export to Asia, it will have to bypass the entire cornice of Africa posing the problem of profitability, in addition to the operating costs is added an exorbitant transport cost, unable to compete with Russia with the Siberian China gas pipeline, called “Power of Siberia”, more than 2000 km at the Chinese border, transporting 38 billion cubic meters of Russian gas to China each year by 2024/2025, a contract, estimated at more than 400 billion dollars over 30 years, signed by Gazprom and the Chinese giant CNPC, signed by Gazprom and the Chinese giant CNPC. Not to mention Iran and Qatar close to Asia. In the end, everything will depend for Algeria to enter the global market of cost requiring new strategic management of Sonatrach whose operating account for several decades depends fundamentally on external factors beyond its internal management, the international vector price, which led the president of the republic to demand an audit of this company. As for the world price between 2007 and September 2020, it fell by more than 75%, much more than for the oil. It has gone from 15/16 dollars for the GLN to 4/5 dollars and $9/10 for natural gas (GN). It has fluctuated between 2019/2020 between $1.7 and $2.5 per MBTU, in the open market. And recently between January 2020 and September 2020, we will have to take into account the dollar/euro rating which has depreciated by more than 11%, due to the uncertainties of the US economy and especially the swelling of the budget deficit bringing it back to the constant price thus having to draw the currency balance
In short, energy is at the heart of the sovereignty of states and their security policies. The world is moving during 2020 through 2030, inevitably towards the digital and energy transition with a new model of energy consumption and knowledge imposing on our leaders a cultural renewal far from the material mentality of the past that cannot lead the country with expensive projects, uncertain profitability to the impasse. Economic dynamics will alter global power relations and affect political recompositions within and regional spaces, hence the importance of understanding geostrategic energy issues and appropriate solutions, far from unrealistic discourses.
In the face of new global energy changes, going through these traumatic times, and after 60 years, what future for OPEC, can we expect of this organisation.
OPEC was established on September 14, 1960 and celebrated its 60th anniversary with a declining share in both energy decision-making and global marketing. With the coronavirus outbreak despite a substantial drop in production, prices are struggling to recover to 2019 levels. With a crisis like no other, since the 1928/1929 crisis, at a time when the interdependence of economies was low, no expert, able only to develop scenarios, can predict whether consumer and investment activities will be able to rebound, depending on the control of the epidemic. However, a high growth rate in 2021 compared to a negative growth rate in 2020 would mean it recovers, and in any case, the level of 2018/2019 will not be reached until 2022. However, the growth of the world economy and the future energy consumption model for 2020/2025/2030 are the fundamental determinants of the price of oil/gas, as the market has experienced ups and downs have not yet reacted favourably to the various OPEC decisions.
OPEC was created on September 14, 1960, at a Baghdad conference mainly on the initiative of the Shah of Iran, the Saudi Abdullah Tariki and the Venezuelan Juan Pablo Pérez, with initially only five member countries: Saudi Arabia, Iran, Iraq, Kuwait and Venezuela. Other producers joined such as in Africa, Algeria joining in 1969 was the first country to nationalise its hydrocarbon production; Angola: member since 2007. One of the largest areas of exploration, mainly conducted as production by the major oil companies of the OECD; Congo: the last member country to join the organisation (in the summer of 2018); Gabon: a member who left the organisation in 1995 and rejoined it back in July 2016; Equatorial Guinea, a country that joined OPEC in May 2017; Libya: member since 1962. Immense potential for untapped exploration due to the conflict in that country; Nigeria: OPEC’s least nationalised oil industry. In South America: Venezuela a country with the world’s largest oil reserves thanks to its oil sands resources but currently experiencing a severe political and economic crisis; Ecuador, which was a member of OPEC between 1973 and 1992 and then again in 2007 In the Middle East: Saudi Arabia as a founding member. The traditional leader of OPEC and the second-largest producer in the world with the largest conventional reserves; the United Arab Emirates, a member since 1967, a significant producer; Iran, founding member, OPEC’s second-largest producer and fourth-largest exporter of crude oil in the world before sanctions; Iraq: a founding member with the world’s largest open-air reserves; Kuwait:a founding member, a unique deposit whose peak production is declining. Qatar, a country that announced that it would leave the organisation in January 2019, officially to focus on its gas production.
Since 1982, OPEC has had a system for regulating production and selling prices using a total amount of production (slightly more than 30 million barrels of crude per day). This volume of production, defined according to member countries’ reserves, is adjusted according to the needs of the consumer countries. The system of production quotas by member country was agreed in 2011 and negotiations have been expanded since the end of 2016 with other non-OPEC producers, Russia, produces as much as Iran, Nigeria, Venezuela, Algeria and Ecuador combined. However, the functioning of this regulatory system is affected by fluctuations in the price of the dollar, the transaction currency of oil: the purchasing power of producing countries decreases when the dollar falls and vice versa.
OPEC manages a quantification instrument: the OPEC basket (ORB) which sets a benchmark price based on the costs of fifteen crude oils type (one per member country). The different qualities type reflect the major crude exports of member countries (e.g., the “Arab Light“ of Saudi Arabia). This basket is competing with the WIT and the Brent, whose prices are usually only a few cents different. Production and price management is extended by periodic assessment of available reserves. For all these countries, oil and gas revenues contribute significantly to their development through taxation. Still, these being very fluctuating over time and depending on the number of inhabitants of a country. For example, according to the EIA (2019), oil revenues in 2018 amounted to $14,683 per capita in Kuwait (nearly 4.2 million inhabitants), compared to only $212/hab for Nigeria (-200 million inhabitants). When the dollar falls against other currencies, OPEC states see their revenues decline for purchases in different currencies, which reduces their purchasing power as they continue to sell their oil in dollars. Local constraints (political instability, wars) or international crisis (embargo, sanctions) also affect the availability of the oil resource and thus its price. Always according to the IEA, in 2018, OPEC states as a whole benefited from a total of about $711 billion in oil revenues compared to $538 billion in 2017, due to higher average crude oil prices and higher exports, where Saudi Arabia benefited of $237 billion in 2018, ahead of Iraq with $91 billion.
OPEC decisions have, for some time, had some influence on the world’s oil price. Beyond the economic context, OPEC’s action on oil price developments is closely linked to the geopolitical environment. The organisation’s influence, however, has diminished since the 1990s, as has its share in world oil production. 55% in 1970, 42.6% in 2017 and about 38/40% in 2019 and indeed an even lesser rate is expected in 2020. One example is the oil crisis of 1973 during the Yom Kippur War: OPEC’s embargo on Western countries that support Israel caused a fourfold increase in the price in five months from October 17, 1973, to March 18, 1974. However, this historical version of the first oil shock is highly questionable.
On the other hand, from 1983, the price of a barrel collapsed, and from then on, would no longer be controlled by OPEC for several years. The London futures markets (ICE) and New York (NYMEX) playing an increasing role in determining prices, took over the pricing process away from OPEC. Recall that on September 28, 2016, OPEC met in Algiers with a historic decision to limit crude oil production to a level of 32.5 to 33 million barrels per day. On November 30, 2016, in Vienna, its output from 1.2 million barrels per day to 32.5 million with an effective agreement as of January 01, 2017, and Russia’s commitment to reduce its production by 300,000 barrels per day. In May 2018, the Vienna meeting, the members signed the integration of another country: Equatorial Guinea, which then officially became the 14the member of OPEC (the sixth African country). It was in a particular context that on April 09 2020, the group of oil-exporting countries, comprised of the 13 of the OPEC and ten-member partner countries, negotiated a new agreement on a joint reduction in production: a 22% reduction in output from the ten non-quota-exempt OPEC countries (i.e. OPEP without Iran, Venezuela and Libya) and their 10 OPEC partners, the final agreement covered 10 million barrels per day less on the market during May and June, with reductions up to 8 Million Barrel per Day (MBD) between July and December 2020, and then to 6 MBD up to January 2021. The effort will be supported mainly by Saudi Arabia and Russia, the second and third largest producers in the world behind the U.S., which would each cut nearly 2.5 Mbj from a reference production smoothed to 11 MBD. The remaining 5 million barrels to be cut would be distributed among the other 18 countries in the agreement, depending on their production level over a typical reference month, which is October 2018. According to experts, discussions focused on this reference period, with each measuring its actual production capacity, having to decide whether or not to take into account condensates (hydrocarbons associated with natural gas deposits) in the reference period can also play on final quotas. The organisation hopes that the United States, the world’s largest producer, and other countries such as Canada, Norway and Brazil, will reduce their production to a total of 5 MBD. This is only a wish since the United States has indicated that it will not participate in this reduction,(the majority being private companies, U.S. laws prohibiting executive directives in the management of the private sphere) as the U.S. Department of Energy has declared that the country’s production is already declining, because the majority of marginal deposits, which are the most numerous, although costs have fallen by more than 50% in recent years, shale oil is no longer profitable below $40 per barrel
During the 1990s, OPEC’s influence with the importance of Saudi Arabia on oil price resulted in prices declining for three reasons: a) internal divergences and the violation of production quotas by some of its members, b) the failure to extend its zone of influence to new producers (Russia, Mexico, Norway, United Kingdom, Colombia) and c) the impact of the London and New York markets that significantly drive prices.
So sixty years after its founding, OPEC faces also three significant challenges that have persisted since the 1990s.
First, the resolution of new internal conflicts: the rift between pro and anti-American members exacerbates these conflicts. Saudi Arabia, a traditional U.S. ally, is facing Iran and Venezuela, two of the most overtly anti-American countries in the world, challenging its influence on the organisation. Beyond ideological differences, there are therefore two trends between countries for which OPEC must above all be the facilitator of a commodity market and those wishing to make it a more political weapon.
Secondly, the rise of Russia, wherewith more than 11.3 million barrels per day, produces as much as Iran, Nigeria, Venezuela, Algeria and Ecuador combined, having pledged since late 2016, alongside OPEC to cap its production to raise oil prices.
Third, the growing production of unconventional hydrocarbons in the United States, which makes it the world’s largest producer in 2019 with more than 12 million barrels per day, has reduced OPEC’s influence. However, its hydrocarbon reserves are announced as the world’s first. Still, it will all depend on the price vector and costs that may have large reserves but are not economically profitable. New deposits discovered, particularly in Canada or off the coast of Brazil, could disrupt the global distribution of these reserves and thus significantly reduce OPEC’s share. But the critical medium and long-term decline in its influence is the new model of global energy consumption that is emerging.
Years 2020 through 2040 could be impacted by the Coronavirus, as already shown by the reorientation of public investment in Europe. As per B.P.’s recent statement of September 11, 2020, companies should redirect their investments towards other alternative energies with the combination between 2025/2035 of renewable energy and hydrogen, the cost of which will be widely competitive compared to conventional fossils.
By 2030, lower dependence on oil is expected by industrialised countries. In contrast, conversely, OPEC countries remain highly dependent on oil, mainly due to the absence of a sustainable economic model that can replace the oil industry. Oil revenues account on average more than half of their Pia developed a “Vison 2030” to diversify its economy. The combination of these factors weakens the geopolitical influence of the OPEC institution and acts on the price level.
The price of oil in 2020/2021 is as always fundamentally dependent on the growth of the world economy.
For China, which is heavily demanding hydrocarbons and dependent on external markets at half-mast, industrial production is recovering very modestly. Such a decline is unprecedented in China since the country turned to the market economy in the late 1970s. According to the Asia-Pacific report released on April 8, 2020, the world’s second-largest economy could see its GDP growth limited to 2.3% over the whole of 2020, or, as per a darker scenario, be almost nil, at 0.1%. It is not to be compared to its 2019 estimated 6.1% for a population exceeding 1.3 billion requiring a minimum growth rate of 7 to 8%. As far as India is concerned, the demand for hydrocarbons will also be low because its economy is geared towards globalisation. The impact on its growth rate is evident and is still in a declining trend in 2019. After falling to 4.5% from 7.5% in 2018, it is accompanied by an increasing rate in unemployment. In addition to all potential health and social crises, its economy paralysis could lead to the breakdown of the supply chain of many global companies. India, with more than 4 million low-cost employees (Indian I.T. engineers are paid up to 5 times less than their Western counterparts) is the leading player in ICT outsourcing. Almost all of the major international groups delegate part of the management and maintenance of their digital tools to Indian companies. For the Euro area, dependent on more than 70% on hydrocarbons, the PMI (survey of business purchasing managers) saw the most significant drop on record, after reaching 51.6 in February 2020. This index is a figure that if it is below 50, it indicates a contraction, but if above, represents an expansion of activity. For instance, the President of the European Central Bank stated “In the economies of the Euro area, for each week of Lockdown, GDP‘s are shrinking by 2 to 3%. The longer it goes on, the bigger the shrinking of the economy.” Growth in the euro area and the E.U. generally will fall below zero by 2020. This necessitated a $1 trillion bailout from the ECB, plus $500 billion for all ancillary institutions. For the two leading European economies, according to officials, in France, the notices give less 9%. In Germany, the leading economic institutes have forecast that Germany, which plunged by 9.8% in the second quarter of 2020, double the co. Recorded in the first quarter of 2009 following the financial crisis. For the United States of America, the job market is deteriorating at an unprecedented rate, despite the government’s injection of more than $2 trillion. With data contradictions showing the extent of uncertainty, Morgan Stanley sees GDP fall by 30%, Goldman Sachs by 24% and JP Morgan Chase by 12%. The bailout package, which is more than 9% of U.S. GDP, is a mix of non-refundable aid and hospital loans, a massive increase in unemployment insurance for individuals. But this raises the whole problem of the health care system in the United States. According to the Kaiser Family Foundation, which specialises in health issues, the average cost of family insurance in 2018 was $19,600 (about 18,000 euros), 71% funded by the employer. To keep it, a sacked employee will have to support it in full. To avoid a significant increase in the number of uninsured (about 28 million in the United States), a dozen states, mostly Democrats, have relaxed the rules for subsidised insurance underwriting. For the global economy as a whole, and according to several international institutes, including the Institute of International Finance (IIF), Global Financial Sector Association, a note dated April 7, 2020, highlights the global economy is expected to contract by 1.5% in 2020 in the context of the COVID-19 pandemic, lowering its forecast from 2.6% to 0.4%. According to the report, I quote “our global growth forecast is now -1.5%, with a contraction of 3.3% in mature markets and growth of just 1.1%” in emerging markets, adding that there would be “enormous uncertainty” about the economic impact of COVID-19.” Over the full year, the IIF expects growth rates in the United States and the euro area to contract by 2.8% and 4.7% respectively. For its part, the IMF anticipates a “partial recovery” in 2021 provided the pandemic subsides in the second half of this year. That containment measures can be lifted to allow for the reopening of shops, restaurants, a resumption of tourism and consumption. According to the IMF, low-income or emerging countries in Africa, Latin America and Asia “are at high risk” where we have seen capital outflows from emerging economies more than triple that for the equivalent period of the 2008 financial crisis.
What are the prospects for the price of oil?
Global oil consumption in 2019 was around 99.7 million BDD globally, according to IEA data, and OPEC countries accounted for only 40 per cent of global crude oil production. China on a global consumption for the same period imported 11 million barrels or about 11/12% of world consumption. According to energy experts, a drop or rise of a dollar in the price of oil would mean an impact between 500 and 600 million dollars. If you take a median average of 550, the shortfall from this decision is $5.5 billion per day per year. It will therefore be a matter of establishing a currency balance of the net gain of this decision, assuming that, if the price falls to $30 or less, before this reduction, allowing the market price to be between $40/45 per barrel. If the barrel were less than $30/35, this decision would have had a very mixed impact. In September 2020, it seems that the market is reacting timidly after this reduction, knowing that the price increase will depend mainly on the return or not to ‘growth’ in the world economy. The primary determinant of demand, because the reduction of 10 million barrels per day is based on the assumption that global demand market declines by only 10/11% while the coronavirus epidemic has caused a drastic fall in global demand, up to 33% or about 30 million BPDs.
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