Hydrocarbons bearing on macro-financiers balance of Algeria

Impact of the decline in the price of Hydrocarbons bearing on macro-financiers balance of Algeria of 2000 to 2016 . . . 

 This contribution is a very brief summary of a lengthy report titled ‘Impact of the Decline in the Price of Hydrocarbons on the macro-financiers and macro-social balances of Algeria (1). Any socio-economic model is carried by political, social and economic forces for its implementation, and because Hydrocarbons bearing on macro-financiers balance of Algeria that much, these must take account of the harsh reality not only facing the country but above all those of the transformation of the world that surrounds it, that with the revolution of new technologies have turned it into a Glass House, foreshadowing major geo-strategic upheavals, especially in the Mediterranean and Africa. This would require adaptation strategies.

What of the evolution of the price of oil ?

Impact on the Trade balance

According to the Algerian Customs Statistics, all imports have evolved as shown below.

Total imports of goods between 2000 and 2016 were of the order of $498.12 billion.

Total entries of currencies between 2000 and 2016 of which more than 97% are directly and indirectly derived from oil were $798.36 billion.

Total exports of hydrocarbons were over the same period of time as follows according to the official Algerian data.

The total gives $770.63 billion for SONATRACH or on average, a 96.49% of total foreign exchange earnings.

Sales of oil brought to Algeria an amount of $27.66 billion in 2016, with an average price of a barrel at $45. That is a decline of more than $5 billion in a year, despite an increase of 10.6% of the volumes exported, according to the central Bank of Algeria. Because of the drop in revenue of SONATRACH, the oil related tax declined to DZD1805 billion (against DZD2273.5 billion in 2015).

Impact on the level of Foreign Exchange Reserves (FER)

The level of external debt remains historically low, that at 2.45% of GDP, or $3.85 billion, and as per the Bank of Algeria all FERs have also evolved in the same way.

Impact on the rating of the Algerian Dinar (DZD)

The value of a currency is function of a certain degree of built-in and / or innate confidence within a productive economy. The Algerian economy being fundamentally a rentier type of economy, it more often than not contradicts the basic laws of economy as for instance devaluation of the national currency, the DZD should in principle have boosted exports. It did not and if tomorrow the exchange reserves tended towards zero, the Government would be forced to introduce a very sharp devaluation of the DZD possibly to DZD200 a Euro and in the parallel market to DZD250 a Euro.  .

All previous data take into account the importation of goods, but also imports of services and legal transfers of capital; the document of reference being the balance of payments. The difference between revenues and imports gives $300.24 billion. From this amount, the $122 billion of FERs should be subtracted leaving us as at 31/12/2016 with $188 billion.

If we take an average annual outflow of legal capital amount of $3.5 billion a year, we will have for 16 years $56 billion or FERs exit for services of about $244 billion between 2000 and 2016 or an annual average $8.11 billion.

The official data of the Bank of Algeria give an average ranging between $10 and $12 billion over the 2010 to 2016 period. More precisely and according to that central financial institution as of April 12th, 2017, non-oil exports although declining still represent a small fraction of the external revenue, that were $1.39 billion in 2016, by counting imports (including goods and services) and the various outflows (repatriation of dividends, etc..) the balance of payments deficit stayed, at a level of $26.03 billion, down slightly from 2015 ($27.54 billion).

In summary, Algeria put up for decades, with a crisis of governance. However the current situation is different from that of 1986, of which the impacts had repercussions between 1989 and 1999 on all economic, social and political spheres. Despite the significant, although declining foreign exchange reserves, and if structural reforms were to be hampered in any way, the current crisis of governance may turn into a financial crisis by years 2018/2020. How can we forget that countries including emerging countries, that have undertaken successful reforms, relied on a mobilization of opinion and above all deep change in policies?

The need for reform in Algeria is more than necessary. Despite its unprecedented money spending, economic outcomes were mixed. These risk leading to social and / or political crises at mid to long term if the present status quo continues unabated and to lavishly spend; requiring us to face up to the urgency on the inevitability of the structural changes to operate more effectively. Strong growth can come back to Algeria but only if a combination of different factors such as a dynamic workforce, knowledge economy, a taste for risk and constantly updated technological innovations, the fight against all forms of harmful monopoly, healthy competition, a renewed financial system capable of attracting capital and an irreversible opening towards overseas investments were brought to bear.

These reforms should fundamentally go through a vibrant democracy, stability of the legal rules and certain equity; with policies leading towards social justice. The conduct of all these reforms can neither be delegated to such or such Minister nor put in the hands of any given administration. These can only be conducted if, as the top level of the State, strong political will resting with only, the president of the Republic and his Prime Minister could lead and try and convince the Algerians of their importance with in this internet age, the use of permanent and transparent communication flows. It is the minimal condition through which “Algeria can become that pivotal country for stability in the Mediterranean region and Africa. It would also have to adapt to the new global changes by analysing the impacts and adjusting to the terms of its association agreement applicable since September 1st, 2005 with the European Union and to the requirements of its eventual membership to the World Organization (WTO), starting with integration within the Maghreb, bridge between Europe and Africa.

 

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