How to improve the Climate of Business in Algeria

This brief analysis is a synthesis of the Doing Business Report 2017 data compiled upto and as of June 1, 2016. The indicators are used within the context of Algeria to analyze economic outcomes of countries of the same calibre and identify the regulatory reforms of all legislation that are required so as the economies where they have been adopted and the reasons for which they have been implemented have born fruits. The question that such report brings to mind would therefore be about how to improve the Climate of Business in Algeria and how to go about it.  

In the meantime, the above mentioned report findings were that :

Starting a business
Algeria made starting a business easier by eliminating the minimum capital requirement for business incorporation.

Dealing with construction permits
Algeria made dealing with construction permits faster by reducing the time to obtain a construction permit.

Getting electricity
Algeria made getting electricity more transparent by publishing electricity tariffs on the websites of the utility and the energy regulator.

Paying taxes
Algeria made paying taxes less costly by decreasing the tax on professional activities rate. The introduction of advanced accounting systems also made paying taxes easier.

This brief analysis is a synthesis of the Doing Business Report 2017 data compiled upto and as of June 1, 2016. The indicators are used within the context of Algeria to analyze economic outcomes of countries of the same calibre as first reviewed back in October 2016 and identify the regulatory reforms of all legislation that are required so as the economies where they have been adopted and the reasons for which they have been implemented have born fruits. The question that such report brings to mind would therefore be about how to improve the Climate of Business in Algeria and how to go about it.  
In the meantime, the above mentioned report findings are excerpted below:
  • Starting a business
Algeria made starting a business easier by eliminating the minimum capital requirement for business incorporation.
  • Dealing with construction permits
Algeria made dealing with construction permits faster by reducing the time to obtain a construction permit.
  • Getting electricity
Algeria made getting electricity more transparent by publishing electricity tariffs on the websites of the utility and the energy regulator.
  • Paying taxes
Algeria made paying taxes less costly by decreasing the tax on professional activities rate. The introduction of advanced accounting systems also made paying taxes easier.

 The authors state at the outset that there are some important areas not covered by the Doing Business report and that it does not evaluate all of the factors such as policies and institutions that affect the quality of the framework of the economic activity of an economy or its competitiveness. It does not for example,  consider the macroeconomic stability, the development of the financial system, the size of the market, the frequency of bribery and corruption, nor the quality of the workforce, deadlines and costs as related to the logistics of the import and export of goods, indicators on the cross-border trade, or the cost of international transport as well as the effect of roads, rail, ports and inadequate communication systems that can have on operating a business and their consequences in terms of competitiveness.

However, if this report does not evaluate and/or is not intended to assess the benefits of all social and economic programs funded by tax revenues, assessing the quality and efficiency of the business regulation is something to take into account in the debate on the burden on enterprises regulatory objectives, which may vary from one economy to another.

The score awarded to each country on entrepreneurship is based on the following criteria.

– Procedures, deadlines, costs and supply minimum capital required to create a limited liability company.

– Obtaining a building permit:-procedures, time and costs related to execution of all required formalities and controls of quality and security in the system of obtaining a building permit.

– Connection to electricity: procedures, time and costs of connection to the electric network, electricity supply reliability and transparency of prices.

– Transfer of property: procedures, delays and costs of ownership transfer, and quality of the land administration system.

– Getting credit: laws on the pledging of movable property and credit information system.

– Protection of minority investors: rights of minority shareholders in transactions between related parties and corporate governance.

– Taxes and payments: payments, delays and total pay for a business applying all tax legislation as well as procedures subsequent to its declaration.

– Cross-border trade: delays and costs associated with the export of a product with a comparative advantage.

– Performance of contracts: delays and costs of settlement of a trade dispute and quality of court proceedings.

– Insolvency regulation: delays, costs, results and recovery rates in insolvency cases and solidity of the legislation in this area.

– Regulation of the labour market: labour regulation flexibility and aspect of the quality of employment.

 

The three main conclusions of this report are:

  • Europe and Central Asia have improved significantly more commercial regulatory over time than any other region.
  • It is in the area of entrepreneurship that economies have improved their regulatory processes the most.
  • The economies in which it is easy to create a business tend to have lower levels of inequality in income on average.

 

Doing Business 2017 in its 14th Edition gives the following classification:

The first ten are :

1

2

3

4

5

6

7

8

9

10

New Zealand with a note of

Singapore

Denmark

Hong Kong

South Korea

Norway

UK

USA

Sweden

Mecedoine

87.01

85.05

84.07

84.21

84.07

8282

82.45

82.13

81.74

80.87

 

Classification of the major countries. 

17.

22.

25.

28.

29.

32.

34.

40.

42.

50.

Germany

Canada

Portugal

Netherlands

France

Spain

Japan

Russian Federation

Belgium

Italy

79.87

78.57

77.40

76.38

76.27

75.73

75.53

73.00

73.19

72.25

 

Ranking of middle  of the pack countries

63

66

68

69

74

77

78

83

94

102

116

120

122

123

130

Bahrain

Oman

Morocco

Turkey

South Africa

Tunisia

China

Qatar

Saudi Arabia

Kuwait

Argentina

Iran

Egypt

Brazil

India

68.44

67.73

67.50

67.19

65.50

64.89

64.28

63.66

61.11

59.55

57.45

57.45

56.64

56.53

55.27

Ranking of countries at lower grades than 50 requiring deep reforms

149

150

155

156

159

160

164

165

169

173

Bolivia

Niger

Bénin

Algéria

Ethiopia

Mauritania

Gabon

Iraq

Nigeria

Syria

49.85

49.57

48.52

47.76

47.25

47.26

45.88

45.61

44.63

41.43

 

Ranking of countries with less than 40 points

180

184

186

187

188

189

190

Tchad

Républic of Congo

South Sudan

Venezuela

Libya

Erythrea

Somalia (last)

39.07

39.28

33.48

33.37

33.19

28.05

20.29

 

In summary, the deplorable ranking at the 159th of Algeria that belies the euphoric statements of the former Minister of Industry having induced on the line the country’s authorities, and which I had been cautioning against on several occasions the Government, does not reflect the country’s significant potential.  There is no more a justifying speech that in anyway no-one believes in, therefore the only way is to go towards the necessary reforms to improve the business climate that primarily depend on Algerians themselves.

This ranking together for that matter many others would explain the collapse of the productive fabric and the importance of all hard currency services outflow and legal capital transfer that annually amounted between 2010 and 2016 to $14 / $15 billion to which the value of imports of goods need to be added for the calculation of currency.  These were $60 billion in 2013 and were brought back to $45 / $47 billion in 2016 and are currently extrapolated to be around $45 / $46 for 2017 giving approximately a total of $60 billion still less than what could paralyze the entire economic machine whose integration rate does not anyway exceed 15%.

Let us remember that the reserves of $114 billion as per the official data of both the IMF and the Bank of Algeria as at December 31, 2016. The Governor before the National Assembly on April 12, 2017 gave the amount of $109 billion as at end of March 2017 and as recorded by the official press agency APS.

With the deficit of the balance of payment as shown, during the first five months of 2017 customs statistics and those of the Office of National Statistics, reflecting an outflow of currency between April, May and June 25, 2017, the amount should be less than $109 billion on July 1, 2017.

According to this report, which gives a central place to the analysis of the informal sphere, an effective regulation would facilitate access of companies to the market, creation of jobs, productivity and the improvement of the levels of economic development in general; each new reform of the regulation is associated with a substantial increase in economic growth and thus improvement of the standard of life of the citizens. This report points out to what Haidar & Hoshi (2015) made 31 recommendations to achieve this goal for reform, classified into six different categories, depending on whether the reform is administrative or legal, and according to the level of potential resistance at the political level. 

By Dr Abdulrahmane Mebtoul, Mobile +213 0661552928- fax +213 041415837- +213 041446148

A new Saudi Arabia will gradually be emerging

A new Saudi Arabia will gradually be emerging as this seems to be the word that is the leitmotiv of the young and fresh at the helm prince MbS (Mohammed bin Salman).  This latter’s elevation to heir to the crown at the age of 31 that was already showing in quiet and unheard of boldness is now blatantly in full sight.  Would this possibly generalise to a whole generation of leaders in the country’s life and take it towards modernity?  Would a radical reform program as embodied in the prince’s “Vision 2030” generate a new self-sufficient country living in good harmony with its neighbours and for this purpose would it need all that accumulated wealth from oil related revenues since its advent in the 30s to be ploughed in to generate conditions that are perhaps propitious to another vision?  Or would all this just lead to more clinging to Tradition, survival endurance and frictions of all sorts as restricted OPEC oil output and US shale oil production seem to be the other leitmotiv of the time.

A new Saudi Arabia will gradually be emerging as this seems to be the word that is the leitmotiv of the young and fresh at the helm prince MbS (Mohammed bin Salman).  This latter’s elevation to heir to the crown at the age of 31 that was already showing in quiet and unheard of boldness is now blatantly in full sight.  Would this possibly generalise to a whole generation of leaders in the country’s life and take it towards modernity?  Would a radical reform program as embodied in the prince’s “Vision 2030” generate a new self-sufficient country living in good harmony with its neighbours and for this purpose would it need all that accumulated wealth from oil related revenues since its advent in the 30s to be ploughed in to generate conditions that are perhaps propitious to another vision?  Or would all this just lead to more clinging to Tradition, survival endurance and frictions of all sorts as restricted OPEC oil output and US shale oil production seem to be the other leitmotiv of the time.
In any case, lots of speculative writings are coming to enlighten us on the situation of the country.  Bloomberg’s Donna Abu-Nasr  and Zainab Fattah and published on June 23, 2017.

Saudi Arabia’s New Heir Leads Revolution of Powerful Millennials

The youngest crown prince in living memory represents a broader youth revolution in Saudi Arabia.

While the elevation of Prince Mohammed bin Salman, 31, as heir to the throne this week caught the attention, some of his cousins and relatives whose fathers held key posts in past decades have been installed in the royal court as advisers, sent to the U.S. and Europe as ambassadors and appointed to government institutions in Riyadh.

Together, they are some of the world’s most powerful millennials, increasingly in control of a Gulf kingdom where two-thirds of the population is under 35. The challenge will be to sell Prince Mohammed’s “Vision 2030,” his road map to a post-oil economy that will require social upheaval and financial sacrifices never experienced by this generation.

“Having young princes at the helm, who understand young people’s needs, is the message being sent,” said Sanam Vakil, associate fellow at Chatham House’s Middle East and North Africa program. “Perhaps the princes can talk in the same language as the youth and listen to their concerns so they would be able to address them in more effective ways.”

Prince Mohammed is likely to be among his country’s youngest kings with a potential for his rule to last half a century. He joins a roster of youth wielding more power elsewhere. French President Emmanuel Macron is 39, Jared Kushner and Ivanka Trump in the U.S. are 36 and 35 and Ireland’s new prime minister is 38. Then there’s North Korean dictator Kim Jong Un. He’s thought to be around 33.

The decision by the prince’s father, King Salman, to pick some of his younger children as well as grandsons and great-grandsons of the kingdom’s founder is meant to ensure a smooth transition in the royal household. It also comes under the watchful eye of the older traditionalists.

Saudi Arabia is going through arguably the biggest changes since the kingdom’s founding in 1932. The new crown prince is aiming to effectively tear up a lot of the social contract that’s kept the royal family in power to create jobs and modernize the economy. It was one of state handouts in return for adherence to an autocracy underpinned by an ultra-conservative brand of Islam.

The appointments are a way to protect Prince Mohammed when he becomes monarch, said Nabeel Khoury, a former U.S. State Department official who is now non-resident senior fellow at the Atlantic Council, an American organization focusing on foreign affairs.

It avoids the dangers of the old guard “using their old contacts against the new king,” he said. “The transition to youth is a good story,” but the way it was done “does not necessarily imply good things for the future of the country,” he said.

The new appointees include Prince Khalid bin Bandar, who is being sent to Germany as ambassador. His father, Prince Bandar bin Sultan, was one of the most powerful Saudi envoys to Washington and later was in charge of intelligence. Another is Prince Abdullah, now an advisor to the royal court and son of Prince Khalid, who served as deputy defense minister.

Along with Prince Mohammed, the king has appointed another young son — he is under 30 — as ambassador to the U.S. and another one as minister of state for energy. While other kings have sought to help and encourage their children, “this was the most blatant act of nepotism ever in Saudi Arabia,” said Khoury.

There’s also the new interior minister. Born in 1983, Abdulaziz bin Saud bin Nayef will succeed his uncle, the ousted crown prince who successfully managed to halt al-Qaeda in Saudi Arabia when he headed the ministry.

With so many young faces in charge, change may come faster to Saudi Arabia, but also potentially without the careful deliberation about the effects on society, said Kristian Coates Ulrichsen, Middle East fellow at Rice University’s Baker Institute.

“King Salman has been, for decades, the family ‘enforcer’ of discipline and the keeper of the family secrets,” said Ulrichsen. “If the family files are not picked up by someone of similar stature to Salman, there is a risk that discipline within the Al Saud may begin to fragment if the unifying glue becomes loosened.”

Read More: a QuickTake Explainer on Saudi Arabia

Impact of non-conventional Finance in Algeria  

The purpose of this contribution is to analyze the operationality of the adopted unconventional financing by the Council of Ministers of June 14, 2017. This is done by a critical review of the impact of non-conventional Finance in Algeria that appears to be not a suitable response at this conjecture. This method of finance is by the way applicable to a structured competitive market economy, with idle production factors, i.e. underemployed equipment and skilled labour whereas Algeria suffers from structural rigidities with a dieback productive fabric and a total dependence on the volatile price of oil, hence the risk of printing more money, with a consequent inflationary process.

The purpose of this contribution is to analyze the operationality of the adopted unconventional financing by the Council of Ministers of June 14, 2017.  This is done by a critical review of the impact of non-conventional Finance in Algeria that appears to be not a suitable response at this conjecture. This method of finance is by the way applicable to a structured competitive market economy, with idle production factors, i.e. underemployed equipment and skilled labour whereas Algeria suffers from structural rigidities with a dieback productive fabric and a total dependence on the volatile price of oil, hence the risk of printing more money, with a consequent inflationary process. 

The Foundation of the non-conventional funding

The Council of Ministers held unconventional financing which is a recipe of anticipating the growing demand in investment and consumption but in the case of structural rigidities and not boosting the productive fabric, it could end up speeding up the inflationary process.

Unconventional financing has been used but in a structured market economy with potential for possible added value in the case of growing businesses or companies in restructuring, used when traditional financing does not enable an enterprise to fully develop, or when funding is simply not available.

In fact, when a company has assets and/or generates a cash flow, non-conventional financing options open to it, in addition to the traditional financing.

Central banks have used these methods which may take the form of easing of certain standards of conventional monetary policy and massive injections of liquidity into the financial system in circumstances which justify, including with the occurrence of a risk of deflation, a stock or bond market crash, bankruptcy of a large credit institution and crisis of confidence in the financial sector.

This is how for instance, the Bank of England launched in July 2012 the Funding for Lending Scheme (FSL) to encourage banks and loan companies to lend more to households and non-financial private corporations. This method has helped credit institutions to refinance loans in the long term by providing in return a wider range of collateral facilities.

This program has also inspired the Long-term Target Refinancing Operation (TLTRO) of the European Central Bank.  Specifically, the non-conventional measures are temporary monetary policy measures whose goal is the restoration of the transmission of the monetary policy and ultimately channels support to bank credit and liquidity in the monetary market.

In any case, the non-conventional measures fall into three categories.

  • First, quantitative easing (QE) measures are those measures by which the Central Bank offers an unlimited amount of money to commercial banks.
  • Saturation of demand for money of these must lead them to spend surplus balances, that is, they grant more Bank loans to households and businesses again.
  • Second, measures of orientation of the future rate expectations are for the Central Bank to engage in the future path of rates contributing to lower interest rates in medium and long term and so to bring them closer to the rate of the Central Bank.  These take the form of explicit commitments to maintaining a very low level or zero rate for a significant period of time.
  • Third, the easing of the credit tend to bypass the blocking of credit channel caused either by the phenomenon of ‘door to liquidity’, or tensions on some key segments of the financial markets.

The Central Bank then acts as a “last resort” by directly funding the economy.

De facto a relaxation of the eligibility criteria will lead banks to less hesitation in their risk-taking, and so to grant more loans to companies of medium or small size.

Keynesian theory cannot be applied to the Algerian economy

Political ‘strategies’ of Keynesian stimulus are based on the importance of the role of the State as regulator and not as state-manager of the economy.

As far as Keynes is concerned, the State is able to stimulate demand when it is insufficient through monetary injection by anticipating the revival of aggregate demand in investment and consumption.  The use of factors of production is according to Keynes due to the fact that entrepreneurs have pessimistic expectations whilst underestimating the actual demand; the salary is not only a cost, but an important determinant of demand.

Investment cannot “start” if business expectations are not positive. It’s a matter of consumers’ confidence; to implement the means of distribution of wealth allowing economic agents who have the average propensity to consume the highest (i.e. all ‘disadvantaged’ social categories) to spend and therefore kick-start the economic machine; lower interest rates to stimulate consumption and investment credit and finally to embark on a policy of major public works will cause a multiplier and accelerator of investment income.

The recovery of consumption will bring in investment increase so employment will be improved and this thanks to the income multiplier. The State intervenes transiently in time of crisis so located as part of short-term actions applying the elasticity available factors of production, equipment, and work quality.

Also the Keynesian, short-term and based on assumptions reasoning of a closed economy, has resisted any long-term vision of the economy, unlike the conventional theories of Adam Smith (morality), of David Ricardo, Karl Marx and Joseph Schumpeter who internalizes the dynamics of institutions and dynamics of social groups.

However with the current crisis we, taking into account the interdependence of economies, need a dynamic model for the medium and long term, the new ecological challenge and this unbearable duality between North and South, for a shared responsibility; governance of many leaders of the Third World being most questionable.

The growing internationalization of economies at the present time is a major limiting factor on the model. Thus, in the light of the Algerian experience, the Keynesian model is hardly transposable. For this country in 2016, 97 / 98% of foreign exchange earnings came directly and indirectly from hydrocarbon, 83% of the productive fabric is made up of small trade/services enterprise, the industrial sector less than 5% of GDP with more of 95% made up of little innovative SMIs and SMEs.

So there exist on one hand incompressible but necessary imports for the public and the productive segments, 70% of public and private – enterprise integration rate below 15%, working with imported inputs.

In case of not stimulating the productive sector between 2017 and 2020, by sticking to our own internal financing, we would necessarily deplete the foreign exchange reserves. As foreign exchange reserves sustain the value of the Dinar (DZD) already officially rated at more than DZD120 an Euro and over DZD190 per Euro on the parallel market, the amount of reserves of $10 to $20 billion will necessarily mean an official rating of over DZD200 per Euro, possibly leading towards to an inflationary process with necessarily raising of interest rates.

Because between 2000 and 2016, we have seen bad programming, overestimation of costs and long delays in the execution of vital projects, with very important budget overruns including the appearance of gaps between the budget planning and sectoral priorities, the lack of effective interventions due to fragmentation of the budget as a result of the separation between the investment budget and the operating budget potentially significant contingent liabilities, long delays and extra costs for the execution of the projects.

This testifies on the weakness of the enforcement capacity of the State agencies that neither the line ministries, nor the Department of Finance have sufficient technical capacity to oversee the quality of these studies, limiting itself to financial control, technical or physical follow-up exercised by entities or at best by insufficient and unknown enforcement.

Many weaknesses are rooted in the urgency that accompanies the preparation of projects including the myriad of specific requests that the projects are supposed to respond to with overlaps of responsibilities between the various authorities and stakeholders (from dozens of ministerial committees and commissions of local authorities) that witch economists refer to as transaction costs and this because of a non-optimal institutional organization.

Therefore, we would have 4 impacts of inefficiency in public spending:

  1. on the value of imports because the swelling is the essentially to public spending.
  2. on the inflationary process that is originally for part of inflation and very incidentally wages that are less than 25% reported to gross domestic product;
  3. on the balance of payments of the fact that the doubling of the value of services between 2002 and 2016 of $10 to $11 billion a year mainly concerns the infrastructure/oil (foreign aid) post referring to the devaluation of knowledge;
  4. on the global and sectoral growth rate. Here also the numbers need to be replaced into their true contexts because hydrocarbons irrigate the whole economy and nonhydrocarbon segment of more than 80% with a total of 5 to 6% of non-oil growth rate as invoked by officials ( on average between 2000 and 2016), remaining only real businesses real participation of less than 10% of the total of the Gross Domestic Product (GDP) as shown for several years (about 3% of the total) nonhydrocarbon export.

Non-conventional financing and the inflationary

Generally, public spending has its own limits as shown in the recent global crisis, and the fundamental strategic problem which arises in Algeria lies in the urgency of a renewed good governance as based on a Rule of Law and the Democratisation of decisions, development of a competitive national or international enterprise as founded on the development of knowledge. How can we forget that during the national conference on economic and social development on November 4, 2014 in the presence of the Prime Minister at the time and members of the Government, reproduced in October / November 2014 in the national and international press, I had proposed to deepen structural reforms and put in place a broad social front against the fall in the prices of oil under the title “Prof. Mebtoul advocates the creation of an independent Committee to safeguard against the effects of the crisis”.

Were we listened to since then?

Ministry of Finance in Algiers

The monetary expense encouraged by infrastructure building is only one way that has little impact for sustainable development.  There is urgency to pose real problems to the deepening of the comprehensive reform for a true development of non-hydrocarbon and the passage from a rentier to a non-oil economy.

And only internal reforms would allow change and reach sustainable growth in non-hydrocarbon condition of value-added job creation, ending gradually this volatile growth and subject to external shocks, monetary expenditures without worrying about the impacts and the importance of foreign exchange reserves, is not synonymous with development because function, the price of oil.

However, paradoxically, the advanced or the acceleration of reforms in Algeria is inversely proportional to the price of oil, being held back when prices rise making it for Algeria to wonder whether oil was a blessing or a curse?

ademmebtoul@gmail.com

General Elections in the United Kingdom and the GCC

This article of Jameel Ahmad, Vice President of Corporate Development and Market Research at FXTM and BA (Hons) degree in Business Studies with Accountancy and Finance from the University of the West of England published on AMEinfo of May 31st, 2017 is pertinently about the General Elections in the United Kingdom and the GCC. It was the UK Prime Minister who called for these elections for next Thursday, in fact three years earlier than scheduled.
The reasons were to obviously strengthen the hands of the eventual winner who will be deemed to negotiate the Brexit with the European Union.

This article of Jameel Ahmad, Vice President of Corporate Development and Market Research at FXTM and BA (Hons) degree in Business Studies with Accountancy and Finance from the University of the West of England published on AMEinfo of May 31st, 2017  is pertinently about the General Elections in the United Kingdom and the GCC.  It was the UK Prime Minister who called for these elections for next Thursday, in fact three years earlier than scheduled.
The reasons were to obviously strengthen the hands of the eventual winner who will be deemed to negotiate the Brexit with the European Union.
These elections might however affect all countries, starting of course with those of the EU but also those of the GCC; object of this article of Jameel Ahmad. 
GD93WH London, UK. 13th July, 2016. Theresa May addressing the worlds press on her first day as prime minister in Downing Street. Credit: Eye Ubiquitous/Alamy Live News

Could the upcoming UK election represent a risk to GCC markets?

With the OPEC meeting now in the past, investor attention has shifted towards the United Kingdom and the upcoming General Election scheduled for 8 June. Although the market currently appears calm ahead of the event, this event it does represent a risk for emerging assets and this will include those markets in the UAE and GCC region.

With investors currently positioning in favour of Theresa May being declared victorious next week, there is a risk that investors are heavily under-pricing any other potential outcomes at present. The largest risks to emerging market assets are generally when potential outcomes are heavily underpriced, and recent history from the EU Referendum last June is a kind reminder of what can happen when investors are caught on the wrong side of the trade. If recent history does indeed repeat itself then investors are more likely than not going to divert into “risk-off” mode, where riskier assets like the stock markets and emerging assets suffer from low attraction and safe-haven assets like Gold and the Japanese Yen surge from buying demand.

Politics to continue influencing the Pound’s direction

After suffering its heaviest week of losses so far in 2017, the British Pound is attempting to consolidate around 1.28 against the US Dollar. I personally think that politics will continue to influence the direction of the British Pound and I believe that there is further momentum for the currency to fall with the UK General Election being a little over a week away. In general, the markets do not like uncertainty and this is the recurring theme for the UK at present with another election around the corner and ongoing Brexit uncertainty continuing to dominate news headlines.

My view is that even following the dip lower from the 2017 highs above 1.30 is that the financial markets are still underpricing the risk of an unexpected outcome to the election next week. Investors in general stacked their cards heavily in favour of Theresa May being declared the winner following the unexpected calling of a snap election, but opinion polls are currently showing that the race to win the election is going to be close. I can’t help but think that recent history could be repeating itself with the markets currently underpricing the risk of an outcome that could differ to what the markets expect, which is a Conservative victory on 8 June.

USD JPY – a game of politics vs economics

The British Pound is not alone in being underpinned to political risk, with politics vs. economics being the name of the game when it comes to trading the USDJPY. I believe that politics will continue to dictate the direction of this pair as we head into the second half of 2017, and I am actually favouring towards the Japanese Yen covering further ground against its counterparts on the back of safe-haven buying.

A lack of optimism around the likelihood that President Trump will be able to push forward with his legislative reforms will put the spotlight firmly on Washington, and I think that this will result in further pressure on the USD. Any further market uncertainty in the United States will eventually lead to investors being lured back into the safe-haven appeal of the Yen.

EUR USD – facing near-term selling pressure

The likelihood that the ECB will repeat its dovish rhetoric during its Central Bank meeting in June is encouraging traders to enter selling positions on the Eurodollar after the pair reached new 2017 milestone highs above 1.12 last week. Despite economic data around Europe continuing to improve confidence that the economy has turned a corner, the market is swaying towards the belief that the ECB will repeat in June that the economy still requires ECB stimulus and this could result in the Eurodollar slipping further towards 1.10.

France’s presidential elections impacting Algeria

by | May 9, 2017

And the prospects of mutual cooperation . . .

The two countries  confronted to their specific challenges ought to have a common vision in order to contribute to a prosperous future as based on genuine co-development and not on obscuring the memory of a shared past for long lasting relationships. The recent France’s presidential elections impacting Algeria, are looked at here as positively as they could be in so many years.
The 187 odd years of very close relationship between the two countries will certainly be in the agendas of each as the renewed French leadership confronted to challenges from all around is settling down shortly for business anew.    
It is about preparing the future through mutual respect; a point that I always made during my various meetings with political and economic personalities, and maintained that Algeria should not be considered as a market only. It is in this context that a co-partnership between Algeria and France, far from prejudice and spirit of domination must be inscribed.
We must be aware that the new international relations are no more based on relationships between heads of State, but on custom networks and on decentralized organizations through the involvement of notably business and civil society cooperation, dialogue of cultures, tolerance and the symbiosis of the contributions of the East and the West.

Because it might be unproductive to be and remain locked in distant positions as the latest events should rather make us think of to how avoid antagonising each other beliefs be it religious.  After all Islam, Christianity or Judaism did contribute to the development of civilization.

Future relations between Algeria and France must also concern the Maghreb-Europe space and more generally the Mediterranean-Europe area. Our two countries can be dynamic agents, because southern Europe and the Maghreb cannot escape adaptation to the current global changes (the present crisis already causing upheaval in both socio-economic and geo-strategic) and more generally throughout the Mediterranean region.

Because it is necessary to go beyond narrow chauvinist nationalism insofar as real nationalism will be defined in the future as the ability to together expand the standard of living of our people by our contribution to the global value.

Today’s world is characterized by interdependence. This does not mean the end of the role of the State but a separation of politics and economics which cannot be the vagaries of the economic climate, the State dedicated to its natural role as regulator of macroeconomic and macro-social life.  I firmly believe and after analysis that the intensification of the cooperation between  Algeria and France not forgetting all other cooperation between Algeria and the USA, all emerging countries such as China, Japan, India, the Brazil, Turkey, South Korea and Russia etc…

And in a more comprehensive way between the Maghreb and Europe as based on a genuine co-development, partnership, the introduction of direct investment would upset the bureaucratic behaviour conservative annuitants and enrol them in a dynamic perspective that is beneficial to the peoples of the region thus helping to  turn the Mediterranean into a lake of peace and prosperity.  The Mediterranean can be that place of rational networking to communicate with distant cultures, encouraging the symbiosis of contributions of the East and the West.

This network should facilitate communication links, freedom insofar as the excesses of the collective voluntarism inhibit any spirit of creativity. It is that the Maghreb and Europe are two geographic areas with an opening on the Latinity millennial experience and the Arab world with natural links and overall culture and Anglo-Saxon influences…

It is essential that Europe developed all actions that can be implemented to achieve a desirable balance within this set. In fact the formation of weak regional economic areas is a step of structural adjustment within the globalized economy with for a goal to promote political democracy, – a humanized, competitive market economy – promotion of ideas through social and cultural debates so as to combat extremism and racism – the implementation of common business whilst never forgetting that these are driven by the logic of profit and not emotions.

Thus, it is necessary to pay special attention to the educational action because human thinking and creation should in the future be the beneficiary and the leading actor in the development process. That’s why I would advocate the creation of a Euro-Maghrebine University as a cultural center as well as a central Euro Mediterranean bank as a facilitator for all Exchange.

It is in this context that a realistic approach must be apprehended so as to the co-partnership between Algeria and France taking into account all potentialities.  At the global level, we are witnessing the evolution of a built-up passed based on a purely material vision, characterized by hierarchical rigid organizations, to a new mode of accumulation based on the mastery of knowledge, of new technologies and flexible organizations as networking around the world, with globally segmented supply chains of production where investment in comparative advantages takes place in sub-segments of these channels.

As rightly noted by Jean-Louis Guigou, President of IPEMED (Institute of Prospective Economic of the Mediterranean world, in Paris), it should be that, in the interest of both of the Algerians and of the French, and more generally of the Maghreb and the Europeans as well as all South-Mediterranean populations, the boundaries of the common market of the future, the borders of Schengen in the future, the borders of social protection in the future the borders of the environmental requirements of tomorrow, must be South of the Morocco, the Tunisia and Algeria, South and East of the Lebanon, Syria, of the Jordan and the Turkey, through a lasting peace in the Middle East, Arab and Jewish populations with a thousand-year history of peaceful coexistence.

Specifically, Algeria and France have economically other strengths and potential for the promotion of diverse activities and this experience can be an example of this global partnership becoming the privileged axis of the re-balancing of the South of Europe by amplification and the tightening of links and exchanges in different forms. Per the official foreign trade balance of Algeria in 2016, the countries of the European Union are still its main partners, with the respective proportions of 47.47% and 57.95% of exports and imports.  Italy is the main customer and France the main supplier.

Between France and Algeria, trade can be intensified in all areas, i.e.: agriculture, industry, services, tourism, education, not to mention cooperation in the military field, where Algeria can be an active player, as shown by its efforts to bring stability to the region.

Also, let’s not forget the diaspora with residents of Algerian origin in France that would exceed 4 million, including more than 2 million bi-nationals. This regardless of the numbers is an essential element of reconciliation between Algeria and France, because it holds significant intellectual, economic and financial potential. The promotion of the relations between Algeria and its emigrant community should be mobilized in various stages of intervention initiatives of all the parties concerned, namely the Government, diplomatic missions, universities, entrepreneurs and civil society.

Hence, any intensification of this cooperation won’t possible – whilst not forgetting the duty of memory – if Algeria and France have a realistic approach to the co-partnership for a win-win partnership away from any mercantilism and spirit of domination. The two countries must have a common vision of their future.

Algeria can overcome its current difficulties but the success of national and international industrial partnerships is not feasible without a total renovation of all central and local governance systems with a coherent vision based on both political, social, economic structural reforms including financial market, land and property market, labour and especially reform of the socio-educational system, at the dawn of the fourth technological revolution.

The objective for Algeria is to commit for structural reform, whilst assuming a broad internal mobilization of the social front, tolerating the different sensitivities, in the face of the many challenges in order to allow Algeria to emerge, in the medium and long term.  For this, the dominance of the bureaucratic approach must give way to economic operational approach, with positive social and economic impacts. Also, in the face of the new global changes, Algeria undergoing this transition towards a productive economy closely tied to its energy transition, needs an accumulation of technological and management expertise with assistance from its foreign partners.

In short, Algeria and France are key actors for the stability of the region, and that any destabilization of Algeria would have negative geo-strategic repercussions throughout the Mediterranean and African region, as I pointed out in my interview on December 28, 2016, the American Herald Tribune (3).

And of course, subject to Algeria furthering into the rule of law, democratization of society and that it’s reorienting its economic policy in order to achieve sustainable development. The current tensions between Algeria and France are only temporary, as per information gathered with friends of mine in France.

It is only in this context that cooperation must return for a win-win partnership far from all prejudice and in mutual respect.

Notes : See recent contributions and international interviews of Professor Abderrahmane Mebtoul

  1. -«Wahl in Algerien Der Graben ist tief – wer stimmt ab?» – www.tagesschau.de –ARD-  04/05/2017
  2. -« Après Glavany et Macron… « Dépassionner les relations entre l’Algérie et la France » quotidien financier  français la Tribune .Fr 19 février 2017 – (“After Glavany and Macron…» “Take the heat out the relationship between Algeria and France” by French financial daily la Tribune.fr  19 February 2017)
  3.  – American Herald Tribune 28/12/2016 «  Prof. Abderrahmane Mebtoul: Any Destabilization of Algeria would have Geo-strategic Repercussions on all the Mediterranean and African Space
  4.  -Interviews with the weekly Point Afrique (Paris-24/03/2016) and the Express (07/04/2016, Paris) on the prospects for co-operation Algeria-France.
  5.  -This theme was developed by Prof. Abderrahmane Mebtoul, on 7 April 2016 in Marseille at the Mediterranean Villa

 

Green and Climate Resilient Development

Green development through sustainability as the main parameter could nowadays be generally said to be adopted by all countries so as to advance their green and climate resilient development in support of Agenda 2030 and the United Nations Framework Convention on Climate Change (UNFCCC) as established in the COP21 of Paris in December 2015 and ratified a year afterwards in the COP22 of Marrakesh.
EcoMENA’s Salman Zafar produced this fantastic article today.  It is mainly about how to financially attain and sustain green development as defined by the above understandings of the last 2 COPs mentioned above.
We reproduce this article with our compliments to the publisher and our thanks to the author for our keen purposes of spreading further these wise words out into our own circles of friends and sympathisers.

Green Finance: Powering Sustainable Tomorrow

Image courtesy EcoMENA

Green finance provides linkage between the financial industry, protection of the environment and economic growth. Simply speaking, green finance refers to use of financial products and services, such as loans, insurance, stocks, private equity and bonds in green (or eco-friendly) projects. Green finance, which has grown by leaps and bounds in recent years, provides public well-being and social equity while reducing environmental risks and improving ecological integrity. For example, global interest in green energy finance is increasing at a rapid pace – in 2015, investments in green energy reached an all-time high figure of US$ 348.5 billion, which underscores the significance of green finance.

Potential and Promise

Environmental sustainability, climate change mitigation, resource conservation and sustainable development play a vital role in access to green finance. During the past few years, green finance (also known as climate finance) has gained increasing relevance mainly due to the urgency of financing climate change mitigation and adaptation efforts, and scale of sustainable development projects around the world.

The impetus has been provided by three major agreements adopted in 2015 – Paris Agreement on climate change, a new set of 17 sustainable development goals (SDGs) and the ‘financing for development’ package. The implementation of these agreements is strongly dependent on finance, and realizing its importance the G20 nations established Green Finance Study Group (GFSG) in February 2016, co-chaired by China and the UK, with UNEP serving as secretariat.

According to Sustainable Energy for All, a global initiative launched by the UN Secretary-General Ban-Ki Moon, annual global investments in energy will need to increase from roughly US$400 billion at present to US$1-1.25 trillion, out of which US$40-100 billion annually is needed to achieve universal access to electricity. On the other hand, around US$5-7 trillion a year is needed to implement the SDGs globally. Such a massive investment is a big handicap for developing countries as they will face an annual investment gap of US$2.5 trillion in infrastructure, clean energy, water, sanitation, and agriculture projects. Green finance is expected to fill this gap by aligning financial systems with the financing needs of a sustainable or low-carbon economy.

Bonding with Green

An emerging way to raise debt capital for green projects is through green bonds. Green bonds are fixed income, liquid financial instruments dedicated exclusively to climate change mitigation and adaption projects, and other environment-friendly activities. The prime beneficiaries of green bonds are renewable energy, energy efficiency, clean transport, forest management, water management, sustainable land use and other low-carbon projects.

A record US$41 billion worth of green bonds was issued in 2015 which is estimated to rise to US$80 billion by the end of 2016. Notably, the World Bank issued its first green bond in 2008, and has since issued about US$8.5 billion in green bonds in 18 currencies. In addition, the International Finance Corporation issued US$3.7 billion, including two US$1 billion green bond sales in 2013.

Green bonds enable fund raising for new and existing projects with environmental benefits

Green bonds have the potential to raise tens of billions of dollars required each year to finance the global transition to a green economy. According to International Energy Agency, around $53 trillion of energy investments are required till 2035 to put the world on a two-degree path, as agreed during the historic Paris Climate Conference COP21. The main drivers of green bonds for investors includes positive environmental impact of investments, greater visibility in fight against climate change and a strong urge for ‘responsible investment’.

Key Bottlenecks

Many developing countries experience hurdles in raising capital for green investment due lack of awareness and to inadequate technical capacities of financial institutions. Many banks, for instance, are not familiar with the earnings and risk structure of green investments, which makes them reluctant to grant the necessary loans or to offer suitable financing products. With rising popularity of green finance, it is expected that financial institutions will quickly adapt to funding requirements of environment-friendly projects.

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.