Algeria and the Complexity of its Energy Revenues
Samir Sobh Al-Hayat – 18/04/06, http://english.daralhayat.com/
It is no accident that President Abdelaziz Bouteflika, seizing the opportunity of his second year in office, noticed the failure in all steps for reform taken so far. The veteran politician went as far as to publicly admit that he was unable to instigate Algeria in eliminating its deep rigidity.
The President who made the proper precautions before his recent illness to snatch a third term in office, made the best use of the flagrant delay in the Houari Boumedienne International Airport extension, by severely criticizing the delay which was the outcome of deep-rooted red tape.
He also criticized the mismanagement of many essential economic sectors in a way that prevented the flow of foreign billion-dollar investments.
In spite of the huge domestic investment motivated by the objective of reviving economic activity, thereby diversifying income resources, the Algerian economy has remained, to a large extent, controlled by no less than 97% of the energy sector.
This disrupted the ‘additional development plan’ the President undertook in 2004, and earmarked 55 billion dollars distributed over five years until 2009 for this purpose. But the remarkable increase in the revenues announced by the Minister of Energy and Mining, Chekib Khalil, estimated at 8.4 billion dollars in the first two months of this year, did not prevent the Algerian President from expressing his fear of over-optimism. The President’s situation is reminiscent of the remarks once announced by the former Chairman of the Socio-economic National Council, Mohammed al-Saleh Mantouri, who warned against being over-optimistic about receipts dominated by a fluctuating oil market, adding that it was meaningless to have a rich country where people are becoming poor.
During the swelling of energy proceeds, the officials in office refused to listen to viewpoints of financial analysts who asserted that oil receipts would never serve development of the producing sectors due to mismanagement, bribery and non-transparency, in spite of the growing reserves of hard currencies which hit 61 billion dollars in late February. These reserves relatively contributed to striking a balance in the total economic indicators on the one hand, and led to a decline in the foreign debt and its servicing on the other.
It is noteworthy that the exceptional flow of receipts over the last three years only led to increasing the number of international companies willing to seize the Algerian treasury funds, or investing only into the promising energy sector, especially after the promulgation of the law which opened the door to foreign investment in this field.
In contrast, the successive governments failed in providing foreign investments – attracting opportunities and benefiting from certain economic circumstances and givens that may not appear in the future. In other words, the competent authorities remained incapable of honoring their promises in terms of privatization of hundreds of major, medium and small public sector companies, in spite of the repeated annual announcement for that purpose.
Furthermore, these governments failed to reform the status of the banking sector and save it from shortcomings; as a result several banks were declared bankrupt, three of which in the last year, in a way that spoiled this sector’s reputation and a great portion of the domestic deposits fled to foreign bank branches, particularly the French.
Financial mismanagement and conflicts between power centers reflected clearly in the rigid stance taken by the Central Bank of Algeria against development of the stock exchange and modernization of the money market, not to mention the liberalization of the dinar exchange rate.
This attitude pushed the former Minister of Finance, Abdul Latif bin Ashenhou, when he resigned his post, to say, « There seems to be a rigid determination to solve tomorrow’s problems with the means and tools of yesterday. »
President Abdelaziz knows more than any one else that the difficulty lies in the absence of ability to modernize the institutions, starting from mismanagement to the intervention of power centers which did not only give up their ‘historic’ concessions, but succeeded in enhancing them with the emergence of the relative open-door economic policy.
From this viewpoint, the difficulty of facing liberalization of national currency could be understood under the pretext that there is no need for it given the large amount of returns up to 60 billion dollars a year, and foreign currency reserves worth 100 billion dollars in the coming four or five years.
This point of view is defended by both Prime Minister Ahmed Ouyehia and his Minister of Finance Mourad Madlasi. Meanwhile, views of some experts from the International Monetary Fund (IMF) and some Algerian economists, like Deputy Minister of Treasury, Ali bin Nori, in the former cabinet of Sayed Ahmed Ghazali, correspond on the importance of enforcing the liberalization of the dinar. This move will have its positive effects on transparency and the combat of bribery.
This approach may be correct when we discover that the amount of the circulating banknotes outside the banking sector stand to be around 700 billion dinars (the euro is equivalent to approximately 49 dinars), equal to 12% of the total Gross Domestic Product (GDP).
President Abdelaziz Bouteflika had succeeded in returning Algeria to the international arena after a decade of isolation due to the instable security and political conditions and the poor national economic infrastructure. The question is: with the remaining time of his term, will he be able to achieve the socio-economic workshops he launched, depending on the consistent rise in receipts for at least the next two years?
The available objective indicators do not point to this possibility. The recent criticism against the delay of finishing the projects or the refrainment of foreign investors is significiant.
Those who follow Algerian domestic affairs connect this stance with the current local controversy over a substitute for the president who was ill.
The conclusion is that the economic status in Algeria has always been a reflection of the political status. Consequently, the rising energy receipts were not the basic element in the economic decision since the independence, in 1962.
*Mr. Samir Sobh is an economic analyst