What impact does the EU/Algeria Association Agreement applicable on 1 September 2020 will have on the Algerian economy? For that, see HKTDC review; the image above is only for illustration.
Signed on September 1, 2005, the Free Trade Association Agreement with Europe, which also applies to Morocco and Tunisia in the Maghreb, is due to come into force on September 1, 2020, after a three-year delay at Algeria’s request. Having numerous implications for the whole of Algerian society, and therefore having to be considered in the socio-economic recovery plan, the Association Agreement with the EU provides for gradual tariff dismantling. It has an impact on any business creation. At the recently chaired Council of Ministers, the President of the Republic gave guidance to reassess the economic and trade aspects of the Agreement, which has failed to achieve the expected European investment targets.
The Association Agreement, based on several objectives, has strategic implications for the future of the Algerian economy. The principles of the Association Agreement are essentially similar to those found in the WTO. This world’s member countries account for more than 95% of world trade, and the majority of OPEC and non-OPEC countries with much higher production levels than Algeria, including Saudi Arabia and Russia are members of that organisation.
We have nine (9) impacts of this Agreement:
- The prohibition of the use of “price duality” for natural resources, particularly oil (domestic prices lower than export prices);
- The revision of rule 49/51% in any investment project, with Europe welcoming the recent decision to relax this rule, awaiting the implementing decree for clarification of what is strategic and what is not.
- The general elimination of quantitative restrictions on trade (import and export);
- The obligation to put in place quality standards to protect the health of both humans and animals (health and plant health rules);
- All commercial state monopolies are gradually adjusted for a period of negotiation.
- The urgent need to integrate the dominant informal sphere (50% of economic activity, 33% of the money supply in circulation).
- Economic cooperation will have to take into account the essential component of preserving the environment and ecological balances.
- concerning the impact on energy services, if these agreements can have little effect on the upstream hydrocarbon market, the same cannot be said about all downstream hydrocarbon products. That must be subject anyway to European and international competition and the opening up of the energy services market to competition.
The EU acknowledges that between 2005 and 2019 Algerian imports from Europe are about $320 billion and that Algerian non-hydrocarbon exports were only about $15 billion. But according to the EU, for any objective analysis, oil and gas imports must be included, (over 400 billion dollars between 2005/2019) which would give a balanced overall trade balance, that apart from the hydrocarbons, Algeria can export to Europe. If Algeria has not benefited from the Association Agreement, it is because structural reforms under an internal decision in Algeria have not been carried out. Europe being a regulatory institution, cannot force firms to invest in each country, the latter being attracted by the profit function of the business environment that Algeria must improve. For Algeria, it is Europe that has not fulfilled its commitments with a growing imbalance of its non-hydrocarbon trade balance committed to fostering a diversified economy and that Algeria has always advocated for the strengthening of dialogue and “dialogue” between Algeria and Algeria. European Union (EU) with a view to “densifying” bilateral relations in the mutual interest and balance of parts to face the common security and development challenges in a win-win partnership, not wanting to be seen as a mere market. To the concerns raised by the EU regarding its market share in Algeria as a result of the measures taken by the Algerian government in a very particular context, the balance of payments deficit, provided for by the Agreement would not be unique to Algeria as evidenced long before the coronavirus epidemic. For its part, according to the European Commission, there will be no question of revising the Framework Agreement, that applies to all countries that have signed the Agreement. Algeria should not be an exception, but not it is not only economic adjustments that would revive cooperation between Algeria and the EU to give this Agreement its full importance. Europe is not against a revision of the Agreement. Still, it wants the creation of a stable and transparent legal framework, conducive to investment, as well as the reduction of subsidies, the modernisation of the financial sector, and the development of the potential of public-private partnerships which are part of the necessary structural reforms that still need to be carried out. For Europe, geostrategically, Algeria is a crucial player in regional stability and energy supply. According to the EU executive in its report on the progress of EU-Algeria relations dated May 03, 2018, and in Reports between 2019 and 2020, the European Union welcomes Algeria’s security and defence efforts in the region.
So, what prospects to prepare Algeria for new global challenges? In August 2020, the analysis of the socio-economic situation highlights that the rent of hydrocarbons where oil/gas with derivatives accounts for 98% of the country’s foreign exchange inflows (noble products not exceeding $600 million in 2019). the unemployment rate, and the level of foreign exchange reserves that keep the dinar’s rating at more than 70% (our interviews Monde.fr/AFP Paris 10/08/2020 and France24/AFP on Accord 23/08/2020). It is that Europe remains a key partner for Algeria, as evidenced by Algeria’s foreign trade structure for 2019. For the main suppliers, Algeria’s top five suppliers account for 50.33% of total imports, China being the main supplier (with a large trade imbalance against Algeria between 2010/2019 ) contributed 18.25% of Algeria’s imports, followed by France, Italy, Spain and Germany with shares of 10.20%, 8.13%, 6.99% and 6.76%. For the main customers, during the year 2019, Algeria’s top five customers account for almost 50.85% of Algerian exports, with France being Algeria’s main customer with a 14.11% share, followed by Italy, Spain, Great Britain and Turkey with shares of 12.90%, 11.15%, 6.42% and 6.27%. In terms of the distribution of Algeria’s trade (import and export) by geographical area during the year 2019, the bulk of trade remains focused on traditional partners. The volume of trade with America, Africa and Oceania fell by 18.42% in 2019, compared with 2018 from $17.10 billion to $13.95 billion and Africa, contrary to some speeches, did not exceed $2.8 billion, and certainly down for 2020. European countries accounted for a 58.14% share of the total value of trade in 2019, amounting to USD 45.21 billion compared to USD 51.96 billion in 2018. Asian countries are the second largest trade flows with a share of 23.92%, from USD 19.07 billion to more than US$18.60 billion for the periods under review. So what are the prospects for Algeria to prepare for new global challenges (decentralisation, digital and energy transition)?
The future of the Algerian economy is based on seven strategic parameters (our interview website Maghreb Voices 18/10/2020):
- improve the business climate, where bureaucratic power discourages real investors, with greater coherence of institutions, around five to six main regional poles. A total decentralisation for the essential blockage in Algeria is the central and local bureaucracy that paralyses any creative initiative;
- the urgent reform of the socio-educational system, from primary to secondary and higher education, including vocational training, the pillar knowledge of the 21st century, land;
- the control of public expenditure, costs and the fight against overcharging and corruption;
- in the medium and long term, non-hydrocarbon growth must be part of the fourth global economic revolution based on the digital and energy transition;
- controlling demographic pressure and urbanisation for a balanced and supportive space;
- the reform requires the transparency of Sonatrach instead of production of the year explaining the audit demanded by the President of the Republic., for a turnover of 50 billion dollars, better management of 20% saves 10 billion e dollars per year;
- the urgency is the reform of the financial system and the overhaul of the financial system and in its fundamental component. Indeed, a rentier oligarchy used the customs system for overcharging for lack of a table of value linked to the international network, (price, cost/quality weight); the un-digitised state system favouring the squandering of land; the un-digitised tax system promoting tax evasion, the public banking system with huge loans granted without real guarantees, in addition to interest rate increases, without correlation with the impacts on wealth creation.
In summary, it should be realistic to avoid reasoning in terms of a nation-state because only internationally competitive public or private enterprises can export, with the regulatory state playing as a facilitator, with market segments controlled by large firms by large geographical spaces. I think that despite these cyclical differences, it is a matter as I pointed out a few years ago at a conference, at the invitation of the European Parliament in Brussels, to de-outsiderdom with relations because of the stability of the two shores of the Mediterranean and Africa. It requires us to undertake together (see our study IFR French Institute of International Relations Paris 2011 the Europe Maghreb cooperation in the face of geostrategic issues).
Our partners well received the President’s last speech on the desire for openness to the productive domestic and international private sector. The entrepreneur and direct operator state must gradually be erased to make way for a government exercising public power in its natural missions of arbitration and regulation. I am convinced that through productive dialogue relations between Algeria and Europe will find a solution guaranteeing mutual interests, which does not exist in the practice of sentiment business, the aim is to foster a win-win partnership. Algeria can establish a diversified economy and become a pivotal country and factor of stability of the Mediterranean and African region. In short, to project itself in the future, new governance is necessary.
University professor, international expert Dr Abderrahmane MEBTOUL, email@example.com