What path of development for the 2016 to 2030 Algeria ?
I would like to thank Mr Prime Minister for extending his kind invitation to me as an independent expert, to the Tripartite meeting of June 5th, 2016, where in its final resolution, it adopted the proposal of a follow-up Committee that I had already suggested back in November 2014 and which I recently renewed prior to the start of the tripartite. Algeria, Facing the fourth industrial revolution, and how to cope with its imminent upcoming, and during the meeting, the Prime Minister had a discourse of truth, avoiding both the free pessimism, as well as being lulled into complacency, reiterated that the country has, though subject to certain strict conditions, all potentialities out of the crisis.
We must nevertheless be aware of the seriousness of the situation: the cash-cow milking of SONATRACH days are over; I’ll stick to the growth model that engages the future of the country, hence its security.
1.– The growth model must clearly be the future challenge of Algeria which is to grasp the dialectical relationship between the progressive evolution of the State – annuity – market functions in the context of globalization, of the fourth industrial revolution and the new global environmental challenge. The rapport must be synchronized in time, by dated and precise quantification. It should not be based on a deterministic as if in linear vision and Algeria mastered all endogenous and external factors by offering a unique solution. As from my experience in international institutions, and as a universal rule, any realistic operational model, engaging the future of any country should provide decision-makers, and the society at large, assuming a social and political consensus, two to three scenarios, that depend on the evolution of different energy, economic, geostrategic mutations of a turbulent world.
Then, the model must, as a factor of adaptation to these changes, take into account the internal interactions between macroeconomic and macro-social frameworks, that themselves evolving through demographic pressure, atomisation of the family and the tribes, cultural impact of new technologies are shaping new behaviours. The purpose of the new governance, pillar of the new model of growth, must be to relieve all enterprise, be they public or private, local and / or international, without any distinction as stipulated in the new Constitution by the reform of the institutions (Decentralization with involvement of local actors), of the socio-educational system (improvement of the level of the knowledge-based economy), of the financial system (one-stop shops), and by the lifting of the constraint of land. Ultimately it is the rehabilitation of the competition, and moving far from any monopoly detrimental to both the economic sectors and all collective services through outsourcing.
All this implies a change in the functions of the State. According to the different budgetary constraints, (far from the Venezuelan type of populism that lead to bankruptcy of all State social welfare), it will be to reconcile economic efficiency with that of equity as per all economists whereas politicians speak of social justice policies. It is a social model that should be adapted to the new situations (Labour Code reconciling flexibility and fairness, with management of pension funds to prevent their implosion). This is by any mean unique to Algeria hence the importance of social dialogue.
2 – The repayment of the debt in advance which has been negotiated by the Ministry of Foreign Affairs, currently allows a margin of flexibility. Per the (central) Bank of Algeria, the exchange reserves of Algeria were $162.2 billion by end of 2010 against $148.9 billion at end of 2009, of $193.3 billion at end of June 2014, and $185,273 billion in late September 2014, $178.9 billion dollars at end of 2014 and $143 billion by end of 2015 and the Prime Minister announced that in May 2016 there is a relatively low external debt of $136 billion. Due to the weakness of internal productivity and production, the value of the Dinar is correlated with 70% of foreign exchange reserves that themselves come mainly from the production of hydrocarbons. At ten billion Dollars of foreign exchange reserves, the Central Bank would value the Dinar at more than DZD200 a Dollar with an impact on production costs on both public and private companies alike as well as on the purchasing power of households all outsourced from abroad. Therefore, it is a matter of maintaining the level of Reserves Exchange at a tolerable level. And this is how the issue of well-understood debt comes in where only competitive productive sectors should be concerned. You want to draw at any price on reserves could inevitably lead to a creeping devaluation of the Dinar. Thus for SONELGAZ, according to the APS as of June 5th, 2016, SONELGAZ Group is in negotiations with foreign creditors to contract credits for the purpose of financing its investment as, according to its CEO: “deficit is huge, we have no other choice but go to external debt. . . . For the moment, there are proposals, but we expect the financial conditions that will be certainly costly because despite the implementation of the bank overdraft bought back in late 2010 by the Treasury for DZD370 billion together with granted facilities for the financing of investment, the low income of the Group has generated, according to this assessment, a deficit of DZD98 billion, in 2015″.
Furthermore, we must be rather pragmatic avoiding decisions based on ideological reasons. Let us remember the Romanian communist experience, of one zero debt but an economy in ruins.
What is actually offered by those who are against targeted debt in case of the oil price fluctuating between $40 to $50 a barrel, the price of gas (more than 33% of the revenue of SONATRACH) being linked to oil, Algeria running as based on a more $90 per barrel in 2016 and as compared with the $110 of between 2014 and 2015 according to the IMF, but take advantage of the current low rates offered by the international institutions at levels fluctuating between 0 and 1% ?
3 – The economy war that some want to apply today, which was advocated in 1992 was a failure and has led the country right to the suspension of payments and rescheduling in 1994. Renewing this experience in 2016, would disconnect from both local and global realities those who defend the interests of Rentier annuity under false nationalist discourses can only lead to depletion within three years of foreign exchange reserves, and return to the IMF between 2018/2019 with implications of social and geostrategic tensions at the level of the region. While the Algerian people have been traumatized by recourse to the IMF in 1994, while it should analyse the bad policies of the time, the target debt is not synonymous with underdevelopment. It is the case of the majority of developed countries that are indebted but have powerful productive sectors, managing their debt with caution in order not to pass on this burden to future generations. Thus, the global public debt rises between 2014/2015 to almost $55,000 billion compared with $26,000 billion in 2005. If we add private debts, world debt reached even $100,000 billion according to a study recently published by the Bank of International Settlements.
By comparison, global GDP in 2013 was $74 000 billion. The American government debt rises in 2015 to $18,300 billion, or 110% of the national GDP. France’s debt has reached more than €2,100 billion by 2015 approaching 98% of GDP. The public debt of the Italy exceeds 135% of GDP, Portugal 130% and Japan 230% of GDP. According to international studies, household and corporate debt reached 270% of GDP in Ireland, 222% the Denmark. If one combines public and private borrowing, debt reached in 2015 approximately 270% of GDP.
4 – Four solutions are on offer for the Government of whose three are short term: either the budget deficit; reduce operating expenses and better manage expenditures by targeting segments with real added-value. In any case, avoid prestige investments, assuming also the easing of the ownership rule of 49 / 51% where in fact, Algeria bears all additional costs, or move towards a targeted external debt. But the lasting solution, and the great challenge in the medium and long terms is to have a strategic vision within the framework of the new global changes, in order to achieve both energy transition as well as the economic transition. One could not revive economic activity by a government Decree or neither through investment legislation without strategic objectives nor through State voluntarism of an obsolete vision of the rentier mentality.
The new model of growth must ensure the supremacy of the real sphere onto the financial sphere, by synchronizing these; whilst reconciling the economic dynamics and the social dynamics for the “right” distribution of national revenue between the different social strata, which cannot mean egalitarianism source of motivation.
Algeria is at a crossroads path. There is now some sort of consensus amongst international institutions and credible Algerian experts that Algeria is before the alternative of either deepening its structural reforms related to freedoms and social cohesion, or go straight back to the IMF (1).
Dr. Abderrahmane Mebtoul, University Professor, Expert International, firstname.lastname@example.org
(1) – Interviews with Professor Abderrahmane Mebtoul by TVEnnahar – TVDzair – TvChorouk of 4 and 5 June 2016 on the new model of economic growth in Algeria.