Algeria slashes imports to preserve dwindling exchange reserves
‘Dumping ground’. Algerians walk at the Bab Ezzouar commercial centre in Algiers. (AFP)
2017/04/09 Issue: 101 Page: 18
The Arab Weekly
Tunis - Algeria, resorting to a form of economic isolationism, is instating tight control of imports for items ranging from bananas to heavy trucks to promote domestic production and safeguard foreign exchange reserves depleted by soaring imports and low oil prices.
Various imported goods, ranging from ketchup to olives, are to be subjected to government limitations on volumes and delivery schedules, the Trade Ministry said.
“Algeria will not be the dumping ground of the world,” interim Trade Minister Abdelmadjid Tebboune said in a statement.
Algerian experts warned the government against the consequences of economic nationalism, arguing that trade isolation could make Algeria an “upgraded economic model of North Korea”.
The move comes before parliamentary elections on May 4th in which voters will test the credibility of a leadership with worries about Algeria’s future amid infighting among ruling groups over who will replace ailing President Abdelaziz Bouteflika.
The government aims to slash imports at least $12 billion this year.
Before the recent change, only 21 products, including consumer goods and durable items such as vehicles, were imported under government permits. As of April 15th, all imports will fall under government’s direct management either through licences or authorisations.
“The goal of the import decisions is to bring the bill of imports down to $35 billion for the current year versus $47 billion in 2016,” the Trade Ministry said.
Data from the Algerian government and the International Monetary Fund (IMF) indicated that Algeria’s foreign currency reserves are rapidly falling, decreasing from $177 billion in 2014 to $143 billion in 2015. Forecasts by the IMF and local experts expect the reserves to total $91 billion in 2017 and $76 billion in 2018.
The cuts in imports come on the top of a planned 14% reduction in budgeted spending this year after a 9% cut the previous year.
Algeria’s budget deficit was 16% of gross domestic product, the worst level since its independence 55 years ago. That triggered fears that the country could not keep up with its import bills and heavy subsidies amid uncertainty about oil prices and declining exchange reserves.
The government was reluctant to wean the economy from its dependency on hydrocarbon exports, which account for 95% of foreign sales, because it feared unrest. It sees its approach as helping diversify economic activities and boosting domestic industries.
The government’s drive to reform the economy without provoking widespread unrest has been made difficult by the country’s increased consumption of oil and natural gas — up more than 50% since 2007 — leaving less hydrocarbon output to export.
Oil output has declined 25% since 2007 because of ageing oil fields and lack of incentives to lure foreign firms with new technology to upgrade the fields and explore for more oil.
“The objectives of the government are to trim the imports through a better government control without causing shortages and encourage national products to substitute foreign goods,” said Algerian economist Tewfik Abdelbari.
“We had a trade deficit of $17 billion in 2016. It is huge. It is a budget for several countries in our continent,” Tebboune said. “This deficit is plugged by foreign currency reserves that are not earned to be spent in [products] that do not benefit the economy and the citizens.”
Critical economists and analysts argue that the government is taking the wrong path.
“It is more of the same since the independence. It shows the inability to integrate the local economy into a globalised economy to produce a good added value,” said Kadi Ihsane, economy commentator at main daily el Watan.
Analyst Abed Charef said: “For decades, political leaders and experts had been urging to stop focusing on oil prices and look instead to the economic productivity. Only the government is not aware of such idea.”
“Managing the economy through import cuts is not an economic policy. It would at best lead to an improved version of North Korea,” he said.