Mar 6, 2018
There is, in view of the high number of tabled demands, an urgency to review the current Algerian industrial policy. It concerns all those car assembly plants.
The automotive sector is experiencing restructuring, mergers and relocations of large groups, with high production capacities. In the face of all these global changes, what is the profitability threshold for all the Algerian car assembly mini-projects?
The national fleet is 8.4 million of vehicles in 2016, of which more than 65% are tourist vehicles according to the Ministry of Transport giving an average of 1 vehicle for 7 citizens in 2016 against 5.7 for 2015 and 4.75 for 2014. About 53% of this park has an average age of less than 10 years, while 37% are over 20 years old. More exactly according to the ONS, the official statistical body cited by the Algerian Press Service, the national fleet had 5,986,181 vehicles at end 2016, compared with 5,683,156 vehicles at end 2015, up 5.33%, corresponding to an increase of 303,025 units. According to the Ministry of Energy, by end of 2016, Algeria would use nearly 15 million tons of road fuels of which more than 350,000 tons of LPG. There are also several questions to which any coherent economic policy must respond in order to avoid the failure of many of the manufacturers who would have in the meantime reaped huge profits to the detriment of the Treasury.
Car assembly plants set within global changes
So, what is the future when according to some analysts, the size of the Chinese car market, not to mention India, if one remains in the current consumption model, should be multiplied by ten. The experts from the International Monetary Fund (IMF) provided the picture of a World park of 2.9 billion passenger cars by 2050; this vision starting from the assumption of an increase in household income especially from emerging countries especially those with large populations such as Russia, India or China.
So about 77.83 million cars should have been sold in 2017, against 74.38 million in 2016 according to international estimates. Meanwhile, world production of cars in 2015 was 90.68 billion of which
- China: 24,503,326 vehicles (+ 3.3%), –
- United States: 12,100,095 vehicles (+ 3.8%), –
- Japan: 9,278,238 Vehicles (-5.1%), –
- Germany: 6,033,164 vehicles (+ 2.1%), –
- South Korea: 4,555,957 vehicles (+ 0.7%), –
- India: 4,125,744 vehicles (+ 7.3%), –
- Mexico: 3,565,469 vehicles (+ 5.9%), –
- Spain: 2,733,201 vehicles (+ 13.7%), –
- Brazil: 2,429,463 Vehicles (-22.8%), –
- Canada: 2,283,474 Vehicles (-4.6%), –
- France: 1,970,000 vehicles (+ 8.2%), –
- Thailand: 1,915,420 vehicles (+ 1.9%), –
- United Kingdom: 1,682,156 vehicles (+ 5.2%), –
- Russia: 1,384,399 Vehicles (-26.6%), –
- Turkey: 1,358,796 vehicles (+ 16.1%), –
- Czech Republic: 1,303,603 vehicles (+ 4.2%), –
- Indonesia: 1,098,780 Vehicles (-15.4%), –
- Italy: 1,014,223 vehicles (+ 45.3%), –
- Slovakia: 1,000,001 Vehicles (+ 3.0%),
- Iran: 982,337 vehicles (-9.9%).
So, the international constraints for Algeria are there. The situation of the global car market is evolving through being an oligopolistic market, depending on purchasing power, infrastructure and the possibility of substitution of other modes of transport, in particular the collective specific to each country according to its transport policy, having known since the crisis of October 2008 major upheavals, mergers succeeding takeovers and various equity acquisitions. Currently, the largest multinationals are General Motors despite its recent restructuring, closely followed by Volkswagen and Nissan, which since its alliance with the French manufacturer Renault, Chrysler, FIAT, Honda, Mitsubishi and Mazda share the limelight of the top six global manufacturers, all of which have a production capacity of over four million vehicles, accounting for 61 percent of the global automotive market, followed by South Korean Hyundai, Daewoo, Kia; Sang-Yang and Samsung have joined the ranks of independent builders, able to finance, design and produce their own vehicles and that European multinational companies are the most Important manufacturers of spare parts and the largest manufacturers of trucks, including Mercedes-Benz and Volvo. In the rest of the world, most car manufacturers are subsidiaries of American, Japanese and European manufacturers. In countries like Malaysia, China and India, production is managed by local companies, but always with the support of large foreign groups. We observe two opposite tendencies that are happening at the same time: The location of the production in certain geographical areas and on certain countries and the relocation; And for what is The location of world car production, it focuses on the Regional over three Areas: Europe, North America and Asia. In addition, on each of them the manufacturing is located on some Countries; In Europe, the main manufacturers are Germany, France, the United Kingdom and Italy, all belonging to the European Union. In North America, production is mainly concentrated on the United States, and in Asia it is in Japan and South Korea and for world exports of automobiles, the concentration is even higher, since it is limited Mainly in two areas : Europe and Asia. And that the near future with the loss of competitiveness of some countries for the benefit of some emerging countries (Russia, India, China, Brazil) we should witness the reorganization of world production of vehicles in relation to the levels of training of The size of the factories and with the research carried out by the motor companies and clearly, the factories which will maintain themselves on each country will be the most competitive, the priorities of the leaders of the car manufacturers being thus: technology and innovation with notably automation, especially in Japan, whose labor cost is about ten times higher than China’s, ethics and corporate governance, collaborative approach, best strategies for success, environment and globalization. Future technological prospects taking into account the new Ecological Challenge, (hybrid, electric cars) taking into account the new model of energy consumption which is slowly in place, the crisis of October 2008 foreshadowing important Strategic and economic upheavals, as China is on the move to become the world leader in Clean cars All categories thus taking advantage of the first plans “Greens” of the United States, Europe and Japan. In the short term, we are moving towards optimising the operation of petrol and diesel engines, with a reduction of 20/30% of the consumption, because for electric cars, the lithium resources for the famous lithium-ion batteries are Limited and that electric motors require magnets that are also manufactured with rare metals, a market of 70/80 million vehicles per year that cannot absorb large Volumes in electric cars and that for another ten years the engines Classics should remain in the majority. To make things even less amenable, the US will slap a tax on cars made on the continent if the European Union (EU) retaliates against its recently adopted tariffs on imports of steel and aluminium.
To be continued shortly.
Feb 26, 2018
On the visit of Turkey’s president to Algeria, today, we have assessed both countries’ commercial and various other exchanges between them.
Algeria is one of the leading trading partners of Turkey’s ranking 32nd in terms of volume and Turkey is one of Algeria’s top ten external trading partners.
Trade between the two countries reached almost $5bn, that is without taking into account all that informal trading.
According to the World Bank, the Domestic Product Gross (GDP) of Turkey in 2016 was US $863 billion for a population of about 80 million, whereas, Algeria’s was $156 billion for a population of about 41 million inhabitants.
We have on the one hand a diversified productive economy with a primacy of the private sector and on the other, a mainly oil and gas dominated rentier economy.
Trade exchanges between Algeria and Turkey were up to $5 billion in 2012. The volume of Trade between Algeria and Turkey reached in year 2015, $4.107 billion, according to figures of the Algerian Customs. In 2016, according to the same Customs statistics, sales of Algeria to Turkey consisted mainly of hydrocarbons with $1.23 billion or 4.27% and imports represented $1.93 billion or 4.14% or a total $3.16 billion. In 2017, we witnessed a slight progress where according to the Customs statistics, exports for the first nine months in 2017 were from $1.35 billion and imports $1.51 billion, finishing by end of 2017 at about $3.5 billion.
All this data must be placed within the context of the respective exchanges between the two countries.
Turkey’s imports of goods were $198.16 billion with services of more than $22.21 billion or a total of $220.37 billion. Exports were $142.55 billion worth of goods plus $37.63 billion for services giving a total of $189.18.
As far as Algeria is concerned, in 2016, imports of goods were $48 billion and $47 in 2017 with about $10 million for services. Exports of goods and services in 2016 were $29 billion and $34 in 2017.
As a matter of fact, the amount of trade as reported between both countries that is worth three to four billion Dollars in total imports-exports would look relatively modest, to say the least. Yet, there are innumerable opportunities for an intensified cooperation.
Currently, Turkish businesses hold contracts and projects in Algeria worth more than $6bn with about 796 Turkish companies, employing more than 28,000 people, are present in Algeria, activating particularly in the building, infrastructure and public works industry with also in certain projects in the textile industry.
But, there is need to recognize that as per the responsible leaders of both countries having already expressed their commitment to give new impetus to bilateral relations, particularly in the fields of tourism, agriculture, certain industrial segments and renewable energies, they also agreed, in this context, to seize the opportunity of holding the next session of the bilateral joint commission to further implement these cooperative actions. As far as we reckon, this is far from the potential of either countries.
Recep Tayyip Erdogan, in the picture above is from TSA Algerie of February 26th, 2018
Feb 16, 2018
This is a summary note relating to the last report of the Bank of Algeria on the economic and financial situation of the country at the end of 2017. It is a photograph of Algeria’s economic and financial situation as it stands today.
1.- According to the Governor of the Bank of Algeria in his business note dated February 12th, 2018, on economic and financial indicators, the growth rate was only 2.2% in 2017 (compared to 3.3% in 2016). This rate in our view barely covers the demographic growth rate. The Algerian population exceeded according to the Office of National Statistics to 41 million inhabitants in January 2017, the labour force being estimated at about 11 million and demand for employment in addition to the current overestimated unemployment stock including non-productive or very low productivity varies between 300,000 and 350,000 per year.
Employment is based on the rate of growth and the structures of productivity rates, with a significant change in the profile of the growth rate structure, that according to the IMF, could be extrapolated to an unemployment rate of 13.2% in 2018. Because employment is not created by decree or with overstaffing in the administration: public or private companies are not competitive in terms of cost/quality within the framework of international values.
2.- Out of a total of exports, the Bank of Algeria’s report notes an amount of US$32.9 billion in 2017 compared to $29.3 billion in 2016; non-hydrocarbon exports were only $1.3 billion (70% of hydrocarbon derivatives) against $1.4 billion in 2016. Exports of hydrocarbons declined in volume after an increase of 10.8% in 2016 while their value increased to $31.6 billion as at end of 2017 compared to $27.9 billion in 2016.
As for imports, legal transfers of capital and currency outflows of services not included, despite all restrictions they were $48.7 billion in 2017 compared to $49.7 billion in 2016, a decrease of $1 billion only compared to 2016. The prognosis is for an import of goods that could be $30 billion in 2018.
Could it be realistic when we know kthat the economic area is represented by 83% of small trade-services, and the industrial sector accounts for 6.3% of GDP; 97% of these enterprises are small SMEs and that most of public and private enterprises operate at more than 70/75% with imported raw materials?
3.- As a result, the trade balance deficit was $15 billion, and the overall balance of payments deficit closed at $23.3 billion in 2017 compared to $26.3 billion in 2016. This gives a hard currency outflow representing all services whose amount fluctuated in 2010 and 2016, between 9 to $11 billion, plus all legal capital transfer of foreign firms of $8.3 billion. On the budgetary level according to the central Bank, the actual budgetary revenues at the end of September 2017, were 4.74 trillion Dinars (DZD) versus DZD3606 billion in September 2016 and the budgetary expenditure remained quasi-stable at DZD5.535 trillion of dinars; or a deficit of DZD795 billion. It should be noted that for the IMF in its 2017 report, the public debt is estimated at 12% of GDP and the external debt would not exceed 3% of GDP.
4.- Foreign exchange reserves closed at $97.3 billion as at end of 2017 compared to $56 billion in 2005, $77.78 billion in 2006, $110 billion in 2007 to $138.35 in 2008, and $147.2 billion in 2009, to $157 billion in 2010, $188.8 billion million in 2011, $190, 66 in 2012, $194 billion in 2013, $179.9 billion in 2014, $144.1 billion in 2015, from $114.4 billion by end 2016, to $97.3 billion at end 2017. The Foreign Exchange Reserves amount by end of 2017 should have been lower since many foreign company invoices were not honoured, and this would affect year 2018.
Unconventional financing would also increase this dynamic with all new project financings accelerating the outflow of hard currencies by those companies strongly dependent for their operation on outside Algeria input. The country has a respite of three years to avoid a return to the IMF and thus to put in place a competitive productive economy and assume a real strategy off-hydrocarbon rente. These keep the Dinar rating at more than 70%. If the foreign exchange reserves tended towards $20 billion, the Bank of Algeria would be forced to rate the Dinar at about DZD200 an Euro, not to mention the on-going discrepancy with the informal sphere where the Dinar stood as at February 13th, 2018 between DZD206/208 an Euro.
5.- As for the official inflation rate, between 2016/2017, it approached the 6% with all subsidized goods whose amount increased under the Finance Act of 2018 by about 8% compared to 2017. This rate is biased for not considering that nowadays, the basket which must preside over the calculation of the index must be historically dated. In addition, there are approximately $17 billion for unconventional financing only for 2018: In cases where this amount or a significant fraction would go to unproductive or low-value-added expenditure, it will be expected to cause an inflationary surge, which will necessarily require an increase in the interest rates of primary banks, if they want to avoid bankruptcy, which will slow down productive investment and speed up speculative action.
6.- So, to avoid an uncontrolled inflationary process, arises the problem of subsidies. In the face of the previously reviewed budgetary tensions, the success of any targeted subsidy operation would involve three actions.
- First, this operation is technically impossible without a reliable real-time information system, highlighting the distribution of national income by social strata and regional distribution and / or how to tell the rich from the poor.
- Secondly, this operation is also impossible without quantifying the informal sphere which allows for the consolidation of income, existing different data or that one refers to the gross domestic product (between 40/50% according to the ONS), compared to employment (more than 33% of the labour force according to the Ministry of Labor) or the money supply. Per the governor of the Bank of Algeria dated February 12, 2018, who holds, I quote: “The money trust circulating in the economy until December 31, 2017 was DZD4.78 trillion and on these DZD4.78 trillion, about DZD2000 billion are hoarded amongst the private and / or economic operators, that is exactly 41.84%.
Therefore, to avoid confusion in the analysis of the money supply at the level of the informal sphere, the normal share held by personal-use households must be differentiated from the amount stored for speculative purposes.
- Thirdly, there is need to define precisely an institution that would be responsible for all traceability and to establish a balance which must be positive, otherwise this operation would have no meaning, both in Dinars and in foreign currencies. In 2012, in an operational report which I forwarded to the Government following a dossier made under my leadership, which I personally presented to members of the National Assembly’s Economic Commission on Fuels in 2008, I had advocated a National Chamber for Compensation authority to be responsible for establishing all intra-socio-professional and inter- regional transfers. (1)
7.- In summary, faced with the current situation characterized by social tensions, economists and politicians, before developing a socio-economic policy must recognize their limits therefore needing to know the historical movements, the anthropological, political, economic and social forces, often influenced by external actors; thus, to know the functioning of the society always on the move.
Hence the strategic importance of the dialogue where the natural place would be the Economic and Social Council as enshrined by the new Constitution which should bring together the best competencies and all the components of the representative society, where a realistic policy of targeted subsidies would be discussed and developed. The 2018/2025/2030 strategic objective will be to overcome the current status-quo.
ademmebtoul@gmail.com
Note
(1)-Audit under the direction of Professor Abderrahmane Mebtoul “For a new fuel policy in a competitive system” (Ministry of Energy 2007/2008) assisted by executives Leaders of SONATRACH, national experts and Ernst & Young (8 volumes 780 pages) where a volume was devoted to subsidies, and a new pricing policy, another volume on the development of new fuels from the Gas whose GPLc and the Bupro.
Feb 10, 2018
The Minister of Industry and Mines has declared on February 8th, 2018 that Algeria’s held gold reserves are 173 tons, as unchanged from 2009, but with a decrease in the production of ENOR, the state-owned gold mining company in 2017, by more than 800 kg compared to 2008/2010. For purposes of answering whether ENOR the Algerian gold mining Company is Profitable status, and in several of my contributions on this subject between 2009 and 2017-(please Google Mebtoul in Arabic-English-French) depending on the fluctuations in the price of the gold ounce, I had estimated it to be $9 billion in late 2008 and between six and seven billion between 2015 and 2017.
According to the World Gold Council (WGC) annual report, the annual world gold demand amounted to 4071.7 tons in 2017, down 7% from 2016. According to this report, the total reserves in 2016 of the top 100 holding countries were estimated at 32,813 tons. According Cheatssheet.com Business, the ten countries with the most important reserves of gold in descending order are as follows:
- India officially holds 557.7 tons of gold, this represents 6.7% of its reserves.
- The Netherlands owns 612.5 tons of gold, which represents 55.2% of its reserves.
- Japan has 765.2 tons of gold, which represents 2.4% of its reserves.
- Switzerland has 1040 tons of gold which represents 7.7% of its reserves.
- China has 1054.1 tons, which represents only 1% of its reserves. But according to the same website, other sources advance between 2000 to 3000 tons of gold.
- Russia has 1208.2 tons of gold which represents 12.2% of its reserves.
- France has 2435.4 tons of gold which represents 65.6% of its reserves.
- Italy has 2451 tons of gold which represents 66.6% of its reserves.
- Germany has 3384.2 tons of gold which represents 67.8% of its reserves and finally,
- The United States that abolished the gold standard in 1971, has nearly 8133.5 tons, representing 72.6% of its reserves.
This data for all sorts of reasons could differ slightly for those of some countries.
Algeria ranked 25th worldwide and 3rd amongst the Arab countries in its gold reserves estimated in 2016 to be 173.6 tons, and according to the WGC unchanged from 2009. It is behind Saudi Arabia’s 322.9 tons and Lebanon’s 286.8 tons.
In Africa, Algeria is first, ahead of South Africa (29th), Libya (31st), Morocco (59th) and Tunisia (77th).
To determine the intrinsic value of the 1 kilogram of gold ingot, we must multiply the price of an ounce of gold by 32.15, then apply the Euro/Dollar exchange rate.
The monetary value of gold as converted into Dollars between 2009 and 2017 caused the loss of more than $2.5 billion of its monetary value to the Algerian stock, which I had estimated, in 2009, at $9.75 billion. On February 8th, 2018, an ounce of gold is quoted at $1314.10, and with the average value, this stock could be about $6 billion, that represents 6.25% as at end of 2017 giving the exchange reserves between $96/97 billion.
Then, one would wonder where is the additional production of the Amesmessa gold mine? 
With this recent data in mind, Algerian opinion needs to be enlightened, about the stock of Algerian gold reserves, which has not moved since 2009, while Algeria has embarked on gold mining in Amessmessa.
The gold-producing company can either sell to the central Bank of Algeria to increase its stock of gold or export it or again sell it directly to jewelers. The first option was discarded. Since the gold stock has remained unchanged since 2009.
On January 30th, 2010 in a statement to the Algerian Press Service, the Director of the ENOR, the gold mining company had officially declared: “The Amessmessa deposit, located at 460 km west of Tamanrasset, will benefit from a development plan with the objective of gradually increasing its gold production to three tons of gold annually.”
The partnership with the Australian company Gold Mining Algeria (GMA), having left Algeria, it was not conclusive to produce under the contract between 3000 and 4000 kg annually; I quote the statement made in London in January 2007 from the CEO of GMA : “The Tirek and Amesmessa mines can produce about 28.5 grams of gold per ton of soil.”
However, for this period, the company’s exports between 2009 and 2010 were in the order of 848.49 kg of gold, while the local market consumed only 208.78 kg of gold. Today in February 2018 according to the Minister of Industry and Mines, ENOR, a subsidiary of the SONATRACH Group should have in 2018, a gold production which should be up to 286 kg, compared to 137 kg in 2016.
An important regression of more than 800 kg between domestic consumption and exports in 2009/2010, which explains the structural deficit of this company which according to the Minister of Industry would have been to 1.4 billion Dinars (DZD) in 2016, DZD600 million in 2017 with a forecast of DZD400 million by end of 2018.
Recently, according to the Minister, the Government had decided to clear DZD2 billion of debts in favour of ENOR and to allocate it a long-term investment credit of DZD3 billion despite the wage costs far exceed the revenue.
However, it is necessary to avoid misinterpretation, to specify that the stock of gold or currencies in general do not create wealth, these are a means of exchange.
On the contrary, hoarding and speculation in refuge values such as gold, certain currencies or raw materials is harmful to any economy. Having foreign exchange reserves or gold is not necessarily the wealth of a Nation. There are countries with little or no foreign exchange reserves held by central banks but with significant development, with capital being transformed into productive capital. This is a necessary condition but not sufficient to secure the investment and especially for the rentier economies countries to avoid a greater slippage of the value of the Dinar compared to the currencies where there is a correlation of approximately 70% between the present value of the Dinar, and this stock of currencies via the oil rent. With exchange reserves of $20 billion, the official Algerian Dinar would float to more than DZD200 a Euro and DZD250/300 a Euro on the informal market. It is thus far from being a sufficient condition for sustainable development and above all from an ephemeral hydrocarbons-based rentier economy.
The central problem for Algeria is to transform this virtual wealth into real wealth through a non-hydrocarbon development based on business and knowledge, all conditioned by a new governance model.
ademmebtoul@gmail.com
Jan 12, 2018
The latest report of the World Bank anticipated an increase in the rate of growth of Algeria’s economy but it also reckons that it would still be drawn back by its large public expenditure through notably its newly adopted unconventional financing. It should rather opt for a transitional mean of development, with sustainable growth to be driven by competitive companies. For several decades, the Algerian economy has been dependent on hydrocarbons export revenues and all its yearly Finance Acts were based on the oil price evolution. With the fall of the prices of oil in mid-2014, trade balance and the balance of payments begun experiencing strong tensions. Algeria whose OPEC quota is 1.2 million of barrels per day to which it is necessary to subtract the 50,000 barrels per the agreed OPEC / non-OPEC production reduction must be especially attentive because the gas component supply contracts, that represent more than 33% of SONATRACH’s earnings would expire between 2018 and 2019. Meanwhile, there is a massive entry of new producers into the oil world market and the price as at January 10th, 2018 is $2.92 per MBTU, more than 30% compared to the previous year. . The price of Brent was quoted on the morning of January 11th, 2018 at $69.45 and at $63.92 for the WIT. And it looks as if the price would stick to that higher band of $60 for the foreseeable future. The Ten reasons for oil prices to be higher than $60 per barrel are enumerated below.
– The First reason, Is that the World’s northern hemisphere is going through winter.
– The Second reason, as rightly pointed out in the January 2018 report of the World Bank, it is a resumption of growth for 2018 that could turn to stagnation for 2019 if no reforms were undertaken. The global economy in Europe, the USA and particularly China and India, will go through changes in the way of growth. In the case of Algeria, it is the fact that the Government plans to revive public expenditure in particular in the building – infrastructures that made the WB revised the growth rate, thus a cyclical action based on oil exports revenues and the mastery or not of the unconventional financing.
– The Third reason, is the respect of the OPEC members quotas as agreed upon in December 2016 in Vienna with prospects of renewal of the agreement, notably of Saudi Arabia.
– The Fourth, is The non-OPEC agreement between Saudi Arabia and Russia, these two countries producing more than 10 million barrel per day.
– The Fifth is the political situation in Saudi Arabia where we have yet to see clear in the action of the Crown Prince in his fight against corruption, with the fear of internal political tensions
– The Sixth is the sale of some of ARAMCO, Saudi Arabia’s state oil company, in 2018; this IPO project, which could concern 5% of its capital and which could be the biggest IPO in history and bring back $100 billion to the kingdom.
– The Seventh is the omnipresent tension in Kurdistan; this area producing about 500,000 barrels per day together with the decline in Venezuelan production, tensions in Libya and Nigeria and the unpredictable speeches of the American president with regard to the agreement with Iran on its nuclear though mitigated by the Europeans.
– The Eighth is the current tensions in Iran as well as between Iran and Saudi Arabia that could lead to disagreement in OPEC’s leadership.
– The Ninth is the weakness of the Dollar in relation to the Euro.
– The Tenth is the declining U.S. stocks, a relative decline in US production, with a recovery announced during the first half 2018.
In the short term, the above nine reasons can affect the price of oil either way, with however some factors being more predominant than others. The minister of energy of Saudi Arabia has Indicated that the desirable price should not exceed $60 to avoid a massive entry of shale US oil and gas whose marginal deposits, that are the most numerous, become profitable, thus flooding the market. The IEA has just indicated, that if in 2018 the price held at more than $60, the American production would exceed that of Saudi Arabia for the first time. For the IMF, the barrel should be best at an annual average of $56. As far as Algeria is concerned, an increase of one Dollar would bring in an annual average of between $500/600 million additional and at $60 it would be up to $6 billion/year.
As noted by Gulf Business Oil prices hit multi-year highs on Thursday despite warnings that a 13 per cent rally since early December was close to running its course. Brent crude futures rose $0.27 to $69.47 a barrel at 10:39am GMT, its highest since an intra-day spike in May 2015. US West Texas Intermediate (WTI) crude futures were at $63.94, up $0.37 to their highest since December 2014.
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