September 12, 2009
Algerian Autarky, Bis: Bad Economic Policy & General Govt Incoherence
I have been meaning to return to the fine issue of the Algerian Government's turn toward an incoherent revival of old 1970s style socialist economic nationalism, and the Moor Next Door gave me a new excuse in Some Algeria stuff , to rip a paragraph out:
Hanoune’s “opposition” since April has been in the form of, as La Tribune puts it, “applauding recent government actions,” and then stating depressing facts about the country’s economic conditions. This has become so much the case even the official El Moudjahid was so moved by her remarks on the recent supplementary budget law that it felt it necessary to publish an entire article on her, quoting her, in effect thanking her, for supporting the government’s undertaking. Indeed, El Moudjahid’s favorite bits from Hanoune’s recent comments were her description of the law as “a large, bold victory for the national economy” and that she “questioned the reactions of some” to the new law, e.g. other quarters of the opposition and business classes.Louisa Hanoune is a hard Left opposition figure in Algeria, btw, as linked to Wiki (rather poor article). Of course the interim law is anything but a victory. Hurried and incoherent, it merely adds to the growing impression that the Algerian government is entirely at sea as to where it is going. Worth reference as well, Jeuneafrique.com: Algérie : une rentrée et des questions which gives the context of clumsy panic over its declining margins of petrol and gas profits over import costs, insofar as a decade of policy incoherence has produced what one might expect, that is the hydrocarbons rentier economy chugs along while the state strangles the private sector. But the context:
[NB: edited for formatting and some spelling 14 Sep 09]
Maîtriser les importations
..... Le 11 juillet, dix jours après que les députés et sénateurs eurent clôturé leur session, le chef de l’État a signé et fait promulguer au Journal officiel ... loi de finances complémentaire 2009.... [Ce] texte a provoqué de nombreuses réactions, car il contient les nouvelles mesures devant permettre d’assurer une meilleure maîtrise de la facture des importations, qui a explosé en 2008, frôlant la barre des 40 milliards de dollars, soit l’équivalent du PIB de la Tunisie. À aucun moment la chute des cours pétroliers n’a constitué une menace pour l’équilibre budgétaire. Le prix de référence du baril retenu par le gouvernement pour élaborer le budget est de 37 dollars. Or les cours du marché étaient de 42 dollars en moyenne durant le premier semestre 2009. Mais la brusque chute de l’excédent commercial (moins de 1,5 milliard de dollars pour les sept premiers mois de l’année, contre près de 25 milliards de dollars sur la même période de l’année précédente) a constitué un sérieux avertissement. Faute de pouvoir diversifier ses exportations, composées presque exclusivement des hydrocarbures, le pays devait contrôler ses importations. Avec 3,8 milliards de dollars
en 2008, l’importation de véhicules de tourisme représente près de 10 % de la facture totale. .... Les résultats ne se sont pas fait attendre : entre juillet et août, les services de la douane algérienne ont enregistré une baisse des importations de l’ordre de 23 %. ..... Le lobby des importateurs (une jonction entre rentiers du système et groupes internationaux de production industrielle) a agité ses relais médiatiques, annonçant tantôt des mesures de représailles, tantôt une catastrophe pour l’économie algérienne. Mais le gouvernement a tenu bon.
Les nouvelles mesures ayant été prises par ordonnance présidentielle, et donc sans avis du pouvoir législatif – une prérogative constitutionnelle permettant de légiférer en période de vacances parlementaires .... La quasi-totalité de la classe politique soutient sans réserve les nouvelles mesures. Aucune voix dissonante n’ose s’élever de peur de passer pour le porte-parole des intérêts des multinationales et des groupes industriels chinois qui inondent le marché algérien de leurs produits en cette période de vaches maigres et de récession dans les autres régions du monde. .... Si la rivale malheureuse [Louisa Hanoune] de Bouteflika à la présidentielle d’avril 2009 ne se réclame plus du trotskisme, elle se revendique d’une gauche ultranationaliste, jalouse de la souveraineté nationale, en guerre permanente contre « l’impérialisme, prédateur de richesses nationales, et ses complices, ennemis intérieurs des Algériens ».
..... 11 July, ten days after the deputies and senators closed their session, the Head of State signed and had promulgated in the Official Journal ... [a] Complementary 2009 Finances Law .... This text has provoked numerous responses, as it contains new advance measures to permit an improved mastery of the import bill, which explosed in 2008, touching the level of 40 billion dollars, about the equivalent of the GDP of Tunisia. At no moment has the collapse in the price of petrol menaced the budgetary equilibrium, as the Government's budgetary reference price for a barrel was 37 dollars, while the average market price was 42 dollars during the first half 2009. But the abrupt fall in the trade surplus (less than 1.5 billion dollars for the first seven months, versus roughly 25 billion for the same period the prior year) constituted a serious warning. Lacking an ability to diversify its experts, almost exclusively hydrocarbons, the country had to control its imports. At 3.8 billion dollars in 2008, the import of tourism vehicules represents almost 10% of the total bill. The results were seen without delay, between July and August, Customs saw a drop in imports on the order of 23% ..... The importers lobby (an alliance of rentier interests and international industrial groups) reacted in the media, announcing either reprisal measures or a catastrophe for the Algerian economy. But the Government held on.
The new measures, being taken by Presidential decree, and thus without input from the Legislature - a constitutional prerogative permitting law making in parliamentary vacation periods .... The virtual totality of the political class supports the new measures without reservations. No dissonant voice has dared be raised for fear of being labelled as speaking for the interests of multinationals and Chinese industrial groups inundating the Algerian market with their products during this period tight times and a recession in other regions of the world. .... If Boutefliqa's unfortunate April 2009 presidential elections rival [Louisa Hanoune] no longer is a Trotskite, she remains on the ultra-nationalist Left, jealous of national sovereignty, in a permanent war against "Imperialism, which preys on national riches, and its collaborators, the domestic enemies of the Algerians." .....
[NB translation Lounsbury, somewhat free form and definitely rapid]
The first thought that comes here is that Algeria still is driven by the archaic demons of the 1960s and the war for independence. This sort of absurd rhetoric from a leading political figure is sad enough, that is comes from someone who's lived through the disaster of the Algerian socialist experiment.
Some other similar links:
Une loi algérienne ébranle le port de Marseille
(largely about how imposition of documentary letters of credit under a regime imposing 25% of import cost paid up-front, as well as banning imports of used public works machinery, and other restrictions, etc, has whacked Marseilles. The important item is the sheer insanity of the ban on free negotiation of credit terms, never mind the used public works machinery....)
Nouvelles mesures économiques : Ouyahia écarte tout recul du gouvernement - Economie et Business - Tout sur l'Algérie (Generally the PM indicating that the Gov is sticking with its inanely incoherent bricollage in economic policy and balance of payments managment.
But this aside, it reflects the primitive state of Algerian economic policy, trapped in the paranoia of the post-colonial period and the unproductive paranoid reversion to autarky whenever a sense of threat arises. Of course the Algerian government has utterly failed to undertake proper reforms to the economy. Insofar as the Algerian domestic sector remains either in state hands or rentiers with no proper management expertise, Algeria will find it impossible to compete. Unfortunately the Government lacks the basic economic competence and expertise to develop a coherent long term response. Along these lines, it's useful to quote and comment on an analysis (originally in Arabic in Al Hayat) by Maghrebi economist Lahcen Achy (Arabic: 20 August Dar Al Hayat - الجزائر والأزمة الاقتصادية: إجراءات جزئية وتعليلات لا تقنع) and in English Algeria’s Belated and Inadequate Response to the Economic Crisis
Algeria’s Belated and Inadequate Response to the Economic Crisis
As some countries, especially in Asia, were officially declaring the beginning of their post-crisis recovery period, Algeria was only on the verge of launching its crisis-response package. The Algerian government wasted months denying the impact of the international economic crisis on its economy. Its economic indicators for 2009 were predicted to deteriorate as economic growth fell. In particular, there has been a severe decline in the country’s exports, which are primarily hydrocarbon products.
The main response to the economic crisis by the Algerian government is the adoption of a complementary financial law, alongside several measures restricting foreign investments. This emergency package is striking not only because it is late, but also because its design and content are of questionable value for effectively dealing with Algeria’s structural imbalances, which have only worsened in the current economic crisis.
Restrictions have been imposed which require a minimum local ownership of 51% on foreign investments. Now the government is restricting imports and banning credit to consumers as well, triggering widespread dissatisfaction among businesses and consumers alike.
The Algerian Finance Minister justifies these strictures by citing the fact that hydrocarbon products count for roughly 97% of Algeria’s exports and 70% of its fiscal revenues. These statistics are not new; they are common knowledge and have changed little over the past years. Algeria absolutely needs to diversify its economy and break its heavy dependence on the volatile world market energy prices. The relationship between this need for diversification and the current rescue package designed by the government, however, is murky at best.
First, economic diversification is an objective that needs to be considered as a medium to long term strategy, one which might take a decade or even longer before being achieved. It is not appropriate, therefore, to declare this objective in a complementary finance law designed and adopted in an emergency, over a vacation period. If diversification of economic sectors and sources of income for Algerian citizens is part of a sound and committed vision, then it should be an aspect of a carefully designed participatory strategy and not placed in a mere complementary financial law.
Second, administrative constraints on imports and foreign investment are not likely to generate a genuine economic transformation or to create domestic production-led economic growth. The current business environment is not adequate for such changes. It is marked by poor infrastructure and held up by bureaucratic red tape and an unstable regulatory framework that governs the private sector. In addition, these constraints rest on the assumption that the deterioration of the Algerian trade balance is due to excess imports, rather than an absence of non-oil exports. To overcome this trade balance, the Algerian government needs to take an economic approach, with incentive schemes, better human capital and innovative technological partnerships with foreign investors - not a bureaucratic approach that is irrelevant at best.
Third, at a time when most countries around the world are easing monetary policy to stimulate credit extension, including consumption loans to support domestic demand, the Algerian complementary financial law does the exact opposite. It has not merely opted to limit credit to consumers; it has banned such credit entirely. The Finance Minister justifies this law by explaining that the goal is to protect Algerian consumers from excessive debt and also to restrain imports of cars in order to pave the way for local car production.
These arguments fail to convince. Apart from the impact of this law on domestic demand and employment, this decision raises issues about the supervisory role of the Central Bank, as well as the capacity of commercial banks to assess the creditworthiness of their own clients. If banning credit is intended to protect the consumer, the government would logically use similar bans to protect other types of constituents. The argument that this ban will lead to greater local car production is even less valid. In order to attain a local car industry, the government must first persuade an international car manufacturer to establish production units in Algeria. In a best case scenario, it might still take years before cars are actually being manufactured in Algeria.
Finally, it must be emphasized that the fragile economic structure of Algeria, and the nature of the challenges that it faces, are certainly not caused by the current economic crisis. Algeria needs a carefully designed economic strategy that will address existing imbalances and build a strong and diversified economy, one less sensitive to volatile hydrocarbon prices. It certainly does not need partial and inconsistent bureaucratic measures which all too often give the impression of being purely arbitrary.
Achy is to polite to really go to town, but in the end this analysis is at once spot on and damning. All the more so as the Government shows no signs of understanding that it's engaging in fundamentally incoherent arbitrary policy that does nothing to solve its problems, but rather digs the hole deeper.
More comment on the investment side later.
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Here is my profile of Louisa Hanoune post-2009 election:
Posted by: Kal at September 13, 2009 04:55 PM
"This emergency package is striking not only because it is late, but also because its design and content are of questionable value for effectively dealing with Algeria’s structural imbalances, which have only worsened in the current economic crisis."
Ah yes, structural imbalances. It sounds to me like the people in power are more worried about the changing velocity of internal forces on those structures than the external forces coming to bare.
Is this something the people of Algeria expect, a strong hand telling them what is best for them, or is this something the people of power thought-up to keep from "stimulating" the economy, as if they could or would do?
In other words, it looks to me like those in power are not willing to let go of any wealth to stimulate the economy, and are instead hoping to stimulate savings as an influx of cash into the economy.
What kind of savings strategy do the Algerian people follow? Could it be that the Algerian government is targeting savings as a "stimulus" to the economy and playing on nationalistic tendencies to accomplish this?
Posted by: Larry Dunbar at September 14, 2009 02:47 AM
"Ah yes, structural imbalances. It sounds to me like the people in power are more worried about the changing velocity of internal forces on those structures than the external forces coming to bare."
Achy is referring to structural economic imbalances - current account, capital account; lack of Algerian non hydrocarbon sector competitiveness.
I'm not sure I follow the remainder of your questions as such, but generically Algeria's political culture is afflicted by a deep and near-terminal case of paranoia regarding "the Outside" and exploitation by foreigners. A gift, as it were, of the French colonial experience - with the particularly nasty settler colonialism and dispossession Algeria experience - and the particularly nasty war for independence. This still deeply colours the way at least "a certain generation" - about anyone over 50 roughly - sees the world.
The policy looks like a badly disguised rerun of import substitution and industrial autarky from Algeria's "best" years, the 1970s, when petrol revenues disguised the inherent idiocy of its Soviet (well to be kinder Yougoslav or E. European) style economic development regime. Rather like Egypt except with better demographics and hydrocarbons to paper over the problems.
I don't believe one can speak to a "savings" strategy as such, if I understand your question.
Posted by: The Lounsbury at September 14, 2009 01:31 PM