The Industry of the Future & the Future of the Industry

Believe in the industry of the Future and the Future of the Industry was a Report to the French Government on the impact of the Fourth World Economic Revolution is believed to be as relevant to the new Algerian growth model global geostrategic challenges of 2030 as it is to that of France itself. 

Hoping for a concrete application and meaning for the well-being of Algeria, I have with few experts worked free of charge, on what I was and still am advocating the reasonable solution of deep reforms, as always taking into account the social reality.

Several international media have recently asked me about Algeria and its economic choices that affect its future sustainable growth, taking account all of the geostrategic changes that lie ahead between 2020 and 2030. My reply was that I have discussed the very topic between 2010 and 2016.  Would these be applied by the new Government, I wondered ?

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Believe in the industry of the Future and the Future of the Industry Is a Report to the French Government on the impact of the Fourth World Economic Revolution and is believed to be as relevant to the new Algerian growth model as global geostrategic challenges of 2030 as it is to that of France itself. 
Hoping for a concrete application and meaning for the well-being of Algeria, I have with few experts worked free of charge, on what I was and still am advocating the reasonable solution of deep reforms, as always taking into account the social reality.

Several international media have recently asked me about Algeria and its economic choices that affect its future sustainable growth, taking account all of the geostrategic changes that lie ahead between 2020 and 2030. My reply was that I have discussed the very topic between 2010 and 2016.  Would these be applied by the new Government, I wondered ?

So, instead of indulging in the installation of yet again other commissions or to rush to other expensive consultancies, I would with all due respect recommend to the Government to study so as avoid the mistakes of the past and in order to adapt it to the country’s reality the important and useful white paper titled “Believe in the industry of the future and the future of the industry”; a report addressed to the French Government (2017) in 84 pages based on a survey of French industry leaders.  It is as a matter of fact, the backbone of the economic program of the French president Emmanuel Macron (1).

This report first recalls that industrial history would without doubt that the formalization of the concept of industry of the future was born in Germany under the heading “industry 4.0”as of a will to drive upmarket the German machine tool industry in the face of competition from Asia. But with the gradual rise in power of the processing of industrial data and acceleration of innovations, the concept took a whole other dimension.

Meanwhile, the avalanche of new technologies that occurred in recent years has indeed an important potential for transformation and improvement of the performance of the industry which could make the assumption of re-industrialization of our country credible again.

The goal is to customize mass production that has not yet been reached, the ecosystems that will be the first to provide a “digital continuity” will also be those that help get production that much closer to the final customer.

The report is structured as follows:

Part I – Industry of the future: framing, context and issues

  1. Framing and context
  2. What economic issues?

Part II – The five challenges of the industry of the future:

  1. How to think the transition?
  2. L’ industry of the future must be thought of in terms of performance, not technology.
  3. Do not underestimate the emergency, nor the competitive pressure
  4. Make transformation a matter of skills and organization
  5. Adopt a broader vision of the value chain
  6. Place the internal operational model and the ecosystem management at the heart of transformation plans.

Part III – different degrees of mature businesses: an industry of the future with variable geometry

  1. Introduction and definition of the criteria taken into account
  2. Variable maturities
  3. Putting into perspective of the model

Part IV – threat or opportunity of an industry of the future

  1. What are the prospects for French industry?
  2. The French specificities
  3. What decisions are at stake? –

Conclusion

  1. Business leaders
  2. Public leaders
  3. A shared vision?
  4. Survey methodology and assumptions of the model.

It must be said that the majority of the experts including those of the Economic and Social Council of Algeria use to always say the opposite of what is proposed today by the Government. How then can they be now that credible?

In several of my contributions from several years ago, I drew the attention of the Government that hydrocarbons price will be low and for a long-time; refer my conference before the Prime Minister and the members of the Club of the Pines of Algiers on November 4, 2014 and before the senior executives of the National Security Department on May 15, 2015

I elaborated on the policy of widespread subsidies that together with current industrial policy could lead Algeria right against a brick wall.  Short of ideas, the country must avoid living on the illusion and outdated patterns of development, such as conventional mechanical industries of which car assembly of very low capacity, highly capital-intensive with Algeria taking on all costs with the rule of 49 / 51% is at the forefront.

Without a serious shift in economic policy, based on good governance and the development of knowledge, Algeria may end up deadlocked by 2018/2020 with the risk of depletion of its foreign exchange reserves when foreign operators, not getting remunerated, may decide to leave it altogether.

As far as the “emergence of an economy” and a globalized product of development of today’s capitalism is concerned, the process is not yet complete, and since the end of the Cold War and the disintegration of the Soviet Union, questioning on the one hand of the ability of nation States to do in the face of these changes.

This is no longer the time where the wealth of a Nation identified with its major firms, large firms having been modelled on military organization and have been described with the same terms: chain of command, job classification, scope of control with their leaders, operating procedures and standard guidelines.

All jobs were defined in advance by rules and pre-established responsibilities. As in the military hierarchy charts determined internal hierarchies and great importance was attached to the permanence of control, discipline and obedience. This rigour was necessary in order to implement plans with accuracy to benefit from economies of scale in mass production and to ensure a strict control of prices in the market.

As in the operation of the army, strategic planning required a decision on where you want to go, followed up by a plan to mobilize the resources and troops to get there. In the totally outdated mechanical era, the production was guided by predetermined objectives and sales by pre-determined quotas. The innovations were not introduced by small progress, but by technological leaps due to the rigidity of the organization.

At the top, large bureaucracies occupied the rectangle of the chart, halfway up middle managers and right at the bottom the workers. Education, from elementary to upper education through high school, was only a reflection of this process, orders being transmitted by the hierarchy, the schools and universities in large sizes to ensure economies of scale as well.

These analyses have also been widely developed between 2012 and 2017 in the Algerian press and internationally under the titles as shown below.

A new organization is currently taking place showing the limits of the old organization with the emergence of new dynamic sectors in order to adapt to the new global configuration. We are seeing the successive passage of the so-called Taylorism organization marked by integration, the Divisional, matrix organization that are intermediary organizations and finally to the recent organization in networks where the firm focuses its strategic management on three segments: research and development (heart of value added), marketing and communication and under the Treaty all the other components.

And with more and more oligopolistic organizations of a few companies controlling the production, finance and marketing networks are no more national. Even those said small and medium-sized enterprises connected as networks of subcontractors to large ones could be among these.

Jobs in current production tend to disappear involving mobility of workers, the widespread use of temporary employment, and therefore a permanent flexibility of the labour market with the permanent recycling training called upon in the future.

Thus, other types of jobs appear including the breakthrough of producers of symbols whose conceptual value is higher than the added value from the classic economies of scale, questioning the ancient theories and economic policies inherited from the mechanical age era like the old political “industrialising industries” based on the model of the old Soviet Union while the 21st century is characterized by the dynamism of large firms but especially those linked in networks to them SMIs/SMEs all devoting a good portion of their budget to research and development.

With the predominance of services that have a more and more merchant character contributing to the increase in the added value, the firm turns into a global network, and it is impossible to distinguish between individuals affected by their activities that as a consequence would be a large, diffuse group, around the world. In this global village, there exist only consumers/producers cross networks.

This will have implications for the future organization at all political, economic and social systems levels.

Finally, this analysis raises the issue of national security. Since 2012, I did not do enough warning the Government on the inconsistency of its policy of subsidies, the inconsistency of its industrial policy and against a policy of hidden import of car assembly plants as well as other industrial segments living off a certain rentier situation.

Two lessons are to be learned.

  • First, the money capital does not create wealth; it is only a means to an end. In fact it’s the work and intelligence that are the source of permanent and sustainable wealth of a Nation.
  • Second, globalization is a reality and time is never caught back in economics. There is urgent need for a strategic vision as an adaptation to this unstable and turbulent world, a Nation that does not move forward, would necessarily step back.

I would not remind enough that the engine of any development process lies also in research and development, and that without the integration of the knowledge economy, no industrial and economic policy would have a future in the 21st century, where technological innovations would be inevitably have a constant changing feature.

Algeria would be best in investing in democratic institutions than in segments where it can temporarily have some comparative advantages: agriculture, tourism major deposit, new technologies and in sub segments of industrial sectors taking into account the profound technological changes. I would suggest a Monitoring Committee to coordinate the investment policy which must synchronize with the dialectical relationship between the complementary roles of the State and the market, put an end to the present distortions which may cause losses, due to lack of visibility and strategic coherence. ademmebtoul@gmail.com

(1) « Croire en l’Industrie du futur et au futur de l’industrie » as translated by “Believe in the industry of the future and the future of the industry” – white paper – report to the French Government – (2017) in 84 pages – A survey of french industry leaders with (1) to Ernst Young by Opinion Way between September and October 2016 directed by Alain Galloni and Olivier Lluansi associate, Ernst & Young Advisor (Paris 2017) . The same report in PDF format is at

http://www.ey.com/Publication/vwLUAssets/ey-resultats-enquete-industrie-du-futur/$FILE/ey-resultats-enquete-industrie-du-futur.pdf

Saudisation means limiting all expatriates’ employment

Saudi Arabia unlike all its partners within the GCC and for many in the world would have been a terrible country, were it not for it to have been sitting on one of the world’s largest reserves of fossil oil.  Moreover and, according to western common knowledge, it sponsors a strong feeling-filled version of Islam that is conducive to all sorts of redicalisation.  And it denies its citizens whether nationals and / or resident expatriates many basic rights.  Here is a good example in an article written by Ahmed Al-Arfaj of Al-Madina published on Saudi Gazette of July 2, 2017.  It is about that other aspect of the country where a Saudisation means limiting all expatriates’ employment is being proposed.  Expatriates accounted in 2014 for little less than 33% of the country’s 30 million inhabitants.

Qatar’s standoff with its neighbours is turning sour by the hour as the ultimatum of a month has elapsed.  An extra 48 hours was granted though but it is believed would not alter anything in the blockaded country’s stance.

Meanwhile, it’s no secret for anyone that the oil and gas markets are at a critical turning point.  Shale gas of the US has completely disrupted the dynamic in the market, brought prices crashing down.  Natural Gas of Qatar as a palliative and / or a cleaner substitute would presumably anchor those prices at a level that would prevent any up movement.

Saudi Arabia unlike all its partners within the GCC and for many in the world would have been a terrible country, were it not for it to have been sitting on one of the world’s largest reserves of fossil oil.  Moreover and, according to western common knowledge, it sponsors a strong feeling-filled version of Islam that is conducive to all sorts of redicalisation.  And it denies its citizens whether nationals and / or resident expatriates many basic rights.  Here is a good example in an article written by Ahmed Al-Arfaj of Al-Madina published on Saudi Gazette of July 2, 2017.  It is about that other aspect of the country where a Saudisation means limiting all expatriates’ employment is being proposed.  Expatriates accounted in 2014 for little less than 33% of the country’s 30 million inhabitants.

Qatar’s standoff with its neighbours is turning sour by the hour as the ultimatum of a month has elapsed.  An extra 48 hours was granted though but it is believed would not alter anything in the blockaded country’s stance.
Meanwhile, it’s no secret for anyone that the oil and gas markets are at a critical turning point.  Shale gas of the US has completely disrupted the dynamic in the market, brought prices crashing down.  Natural Gas of Qatar as a palliative and / or a cleaner substitute would presumably anchor those prices at a level that would prevent any up movement.

Limiting the years of employment for expats

THE situation of foreigners coming to work in the Gulf countries needs an in-depth study. They come and reside in the region physically but their hearts and minds always remain attached to their homeland.

I feel pity and compassion for these expatriates. They are not citizens who contribute to building a country that they feel belong to, but they do not await the day of departure or long for the joy of returning to their homeland.

Let me think aloud with you about who would come to work in the Gulf countries in 2018 and beyond. Why don’t we limit the employment contracts of foreign workers to only four years, not renewable under any circumstance.

If we do that we will have a range of benefits. The foremost among them is to provide opportunity for the greatest number of people to come and gain from working in our country. Another advantage of this is that the foreign worker does not get disconnected from his or her own country for a long period and become like a dove that lost the ability to fly and couldn’t master the crow’s walk. This has turned the foreign worker into an angry person. He feels incapable of building the future of his homeland and he feels alienated in a community to which he does not belong.

The third advantage is that we will put an end to the weapon of grace, which the residents often use if they happen to stay here for 10 or 15 years. We hear the employee repeat on every occasion, “I served you for tens of years.”

These are only some of the advantages. There are many others, but the negative aspects are but a few, such as some people objecting to the idea of terminating the employment contract because of the need to train new workers every four years. This is not a negative in my opinion; it is one positive side of the move because this allows for skill development and breaking the routine while updating both the trainer and trainee at the same time.

I hope no one would take my words for rigidity or racism. All I have offered here is regulatory measures that will preserve the rights of all parties. Such arrangements exist in most advanced countries in order to keep a balance in the relationship between the employer and employee based on a policy of no harm or damage.


Meanwhile, Saudi Arabia has started imposing a new fee for expats’ dependents as of July 1 and according to local reports, all residence permits will not be renewed unless this fee is duly paid in advance.
This levy starts at $320 per resident’s dependent a year whereas private sector companies at twice that figure a month for each foreign worker.  This will go on increasing each year feeding the state treasury in a bid to increase state revenues.

With this levy, Saudi Arabia could generate up to $693 million a year, an official has said because according to data from the Saudi’s National Information Centre, the number of registered dependents stands to date at 2,221,551, as reported by the local media.

Despite the government promising assistance to the private sector over the next four years, concerns that investment will be impacted by these costs on businesses are voiced.

The challenges for the new Government of Algeria

TEBBOUNE faces a productive fabric weakness and foreign exchange reserves declining, dire imports restrictions, and exports awkward regulations.

The challenges for the new Government of Algeria will be such that it will probably be before budgetary tensions between 2017 and 2020 with the current outflow of hard currencies (goods and services – legal transfer of funds) of approximately $60 billion by end of 2017, and very limited revenues to account for.  Except for blind restrictions which are likely to lead to great social tensions by a push of the inflationary process, the amount of foreign exchange reserves only $109 billion in February 2017, whereas the importance of the renewed governance, shared sacrifice, and an urgent reorientation of the entire socio-economic policy adapting to the new global changes.

1 – On June 9th, 2017 morning, the price of Brent is $47.65 and the WIT at $45.42.  Pondering in retrospect on the negative experience of the war economics of the years 1991/1993, leading the country right to the IMF, a discourse of truth is needed for as much as realism is concerned but away from bureaucratic injunctions of the past.

In 2017 rather than in the 1970s, the economic situation is made up of 83% of small business / enterprises, the industrial sector representing less than 5% of the Gross Domestic Product, (97% of small innovative SMI/SMEs); the informal sphere holding more than 50% of the economic life and 97% of Dollar revenues are directly and indirectly hydrocarbons related.  And above all, the lack of vision of adaptation is noticeable while the world is at the dawn of the fourth economic revolution of 2017/2030 with major geostrategic upheavals including Africa and the Middle East (1).

Taking data from the ‘Office National des Statistiques’ (ONS) for the first four months of 2017, imports of goods will roughly be about $46/47 billion.  According to data from the IMF for 2017 outflow of hard currencies on services would be of $10.5 billion, against $9.9 billion for 2016 and between $3.5 and 4 billion of legal transfers of capital (this amount is bound to increase with the rule of 49 / 51% according to the IMF to $7/8 billion by 2019/2020) and giving us single reference document at the level of the balance of payments, and not trade balance, an extrapolated outflow of about $60 billion.

However, currency entries would vary between $30/32 billion, if the average price of 2017 were between $50/52 a barrel.  Impact of the fall in the price of hydrocarbons, presumably being of long term, disturbing forecasts growth for Algeria by the IMF and the World Bank (WB) dated June 5th, 2017 for the years 2017 and 2018, are below the rate of population growth.  This would bring the official unemployment of 11% in 2016 to more than 13% in 2018. So the WB brought back its growth projections for Algeria in 2017 to 1.8% against 2.9% as projected in its report last January and for 2018, real GDP growth is expected to be even lower at 1% down from 1.6% compared to the 2.6% as anticipated in January.

According to Jean François Dauphin, the head of mission of the IMF, Algeria has the capacity to diversify its economy through ambitious structural reforms that would allow it to move out of its dependence on hydrocarbons. And, one of the tasks facing the new Government Tebboune would be to put these reforms into the works, through a pedagogical format, requiring a return to confidence without which no development is possible, in the direction of the population on rail.

The most important, for the Government will be to cope with the economic and social situation which will have to face an exceptional crisis with the long-lasting low prices of hydrocarbons and deepen a comprehensive reform, reconcile economic efficiency and bring some necessary social cohesion to which I am deeply attached.  We can hypothesize that it is the State which is lagging behind society that produces rules that allow functioning.  An economic model that is not represented by political, economic and social forces would have no chance of being operationally carried through.

It will be to first identify the different stakeholders in the process of economic reforms, whether favourable or unfavourable, be they national or foreign. In a second step, it will be to proceed with the analysis of the strategies that they are implementing to support reforms, block them or, in default, slow them down, in assessing the means put at the service of these strategies.  This is a good chance for Algeria, where it will manage all structural reforms between 2017 and 2020 perhaps difficult in the short term but hopefully fruitful in the medium term by 2019/2020 .

Summarising, in 2017, a blind import restriction may paralyze the economic machine, 70% of the needs of public and private companies are indeed from overseas with a rate of integration exceeding not 15% and eventually lead to social tensions. There is above all a matter of lowering costs, especially in services, improve on management and fight off corruption so as not to penalize the disfavoured and by the same prevent a dumbing down of the middle classes.

I would recommend meditating the Venezuelan experience, one of the largest oil reserves in the world or the Romanian ex-Communist camp experience that with a zero foreign debt has left an economy in ruins. For my part, I am convinced that Algeria has significant potential to confront this multidimensional crisis which it is facing.  For this, there is an urgent need for a political will for change represented by social forces for the development of economic, social and political freedoms.

In the recent history of Algeria, the issue of reform – be it economic or political gave rise, because of the worth that they represent, to the development of conflicting strategies that work to the defence and promotion of these or, instead, their blocking and, failing that, to their perversion or their slowdown.

  • – Conference of the Professor Abderrahmane Mebtoul at the invitation of the European Parliament (2013) -“the Maghreb the geostrategic challenges” – Dr. Camille Sari (2 volumes 1080 pages – edition L’Harmattan Paris 2015).
  • – Conférence at the ‘Direction Générale Sûreté Nationale Ecole Supérieure de Police,’ Algiers may 2015 “Global changes, fall of the oil prices and its impact on macroeconomic and macro-sociaux balance.”
  • – On the same theme, May 2016 at ‘l’Ecole Supérieure d’Administration de la 2ème Région Militaire’ – Oran, Algeria.
  • – interview on 28/12/2016 by American Herald Tribune: “Assessment of the Algerian economy its prospects: destabilisation of Algeria having geostrategic repercussions on African and Mediterranean space.”

OPEC and non-OPEC agreement extension Meaning

What impact will it have on the price of oil in the future? 

The May 25, 2017 OPEC and non-OPEC agreement extension meaning on their production cut through to the first quarter of 2018, is for many from within as well as without, about questioning not only its price but notably its future. And yet the next day, oil price was quoted at midday, at $49.87 a barrel for the WIT and $52.26 for Brent with $1.118 a Euro and the price of natural gas at $3.24 the MBTU.

Let us reminder the Vienna agreement of December 2016.

This started it all this time over with by following on the high-level Committee’s work that ironed out tensions particularly between Saudi Arabia and Iran, the meeting in Vienna of December 2016 has helped the disparate OPEC and non OPEC countries to reach an agreement to reduce and for the first time since 2008 off the supply of oil up to 1.8 million barrels per day.  According to the Vienna agreement of December 2016, the production limits of the agreement affected 11 of the 14 member countries of OPEC.

The bulk of the agreement of November 30, 2016 was to be carried by the biggest producers of the cartel: Saudi Arabia, Iraq, United Arab Emirates, Kuwait, whilst Iran, Nigeria and Libya have been exempt.  Only Iran received the most favourable reference with a selected volume of 3.97 Mb/d (against a level of 3.69 Mb/d, although the Iran wants its production dates back to 4.2 Mb/d.  Saudi Arabia world’s leading exporter of oil, has agreed to bring its production to 10.06 million barrels per day (BPD) and thus reduce its production of 500 000 barrels.

Non OPEC countries agreed to a reduction of 558.000 barrels per day, which adds to the reduction of 1.2 million bpd in the OPEC countries. For non OPEC, Russia will be the most important of these contributors with a reduction of 300 000 bpd. The allocation of quotas of OPEC has been as follows:

Ten other countries outside OPEC were concerned by the agreement with an additional drop as follows:

  • Mexico with 2.1 Mb/d
  • Kazakhstan with 1.7 Mb/d
  • Oman (1 Mb/d)
  • Azerbaijan (0,8 Mb/d)
  • Malaysia (0.7 Mb/d)
  • Equatorial Guinea (0.2 Mb/d)
  • Sudan (0.1 Mb/d)
  • South Sudan (0.1 Mb/d)
  • Brunei (0.1 Mb/d).

As can be seen, most of this decline is ensured by the two largest producers of this heterogeneous group: i.e. Russia (-0.3 Mb/d) and Mexico (-0.1 Mb/d).

The May 25, 2017 agreement

OPEC and non OPEC countries decided in Vienna to maintain the level of production set in their previous agreement, which remains in force until March 2018. This decision was taken at the 172nd ordinary ministerial meeting of the organization which was, among other things, devoted to the review of the measures that are needed in the light of the evolution of the international oil market, mainly the issue of the renewal of the agreement on the limitation of production which was set to expire by end of next June.

The nine month extension of this agreement is intended to stabilize the oil markets.  Member countries and non-members of OPEC, having fully met their commitments, thus seek to continue their efforts to rebalance the market, long plagued by a huge fall in prices due mainly to an abundant supply and speculation.  But this choice did not convince the market and is illustrated by the loss of influence of the Organization on the oil market and the perverse effects of the rentier factor on the economies of these countries.  However, the loss of market share helped hoist the WTI price to the range of $50-55 against $40-50 dollars between April and November 2016.  It seems that OPEC has under-estimated the ability of independent American producers to adapt, the latter having improved their technical efficiency in the reduction of 40 / 50% off their production costs, marginal wells becoming profitable on average from $45 a barrel for marginal fields and between $30/40 for large and medium reservoirs.

The risk with this renewal is therefore, in order to support the price of the barrel, with the increased production of other producers, notably the United States at the top that would balance supply and demand around $50-55 a barrel. However, according to an international study, this is relative. OPEC countries would not lose money, where the average production cost of a barrel of crude being around $20, and operating beyond their means to especially buy a fictitious social peace.

According to the IMF, to 2015, Russia needed $110 a barrel to balance its budget, Venezuela $120, Iran $140 Iran, Saudi Arabia of 2016/2017 about $83 and Algeria $110/120 in 2015 and $88 in 2016.  Thus the average income per capita of oil went from 2014 to end of 2016 from $3,000 to $1,000 and Saudi Arabia has spent in the same period some $12,000 per capita to $4,000.

According to OPEC the difference between $102 and $45 since June 2014 has caused a loss of $1,000 billion in terms of revenue and $1,000 billion in terms of investment losses.  At a $55 a barrel, reduction would cause a loss of 3,780 million barrels per year and about $219 billion for OPEC countries.  Hence the reduction of public spending were rapidly adopted, with possible social tensions posing the urgency of deep structural reforms in order to “get clean of the rentier drug” to avoid ending up in the Venezuela’s situation.

Thus, Saudi Arabia counts of taking into its stock market its State oil company, ARAMCO over the next 18 months including the valuation of this introduction, which will be the largest of any stock market history.

What have we learned?

For starters and excepted for Iraq, compliance with the agreed quotas within OPEC was very strong. Non-OPEC’s production reductions were less impressive over the initial six-month period but, the display of unity in Vienna during the May 25, 2017 was quite a change from the past, and the understanding between the Saudis and the Russian officials was particularly important.

Apart from that the big problem will be to review the policy of subsidies from fossil fuels that penalize energy transition. Each year in the world, $5.300 billion ($10 million per minute) is spent by the States to support fossil fuels, according to estimates of the IMF report for COP21.  However, it seems that the majority of the leaders of the world have become aware of the urgency to go towards an energy transition.

Because if the Chinese, the Indians and the Africans had the same energy consumption as that of the US, we would then need five planets Earth.  In the event of a change in the model of energy consumption at the global level, (the future in 2030 being hydrogen), it will influence the level of prices of fossil down. Although representing the largest world reserves, OPEC has no more the same impact on the market than in the 1970s.  Prior to deciding on a reduction in output of 1.2 million barrels / day, it represented only 33% of global marketed world production, the remaining 67% being out of OPEC.

A recovery in the price of a barrel to $60 and depending on the growth of the global economy, may translate into an increase in supply which would be due to the increase in the production of countries non-OPEC including the USA.  Would not then OPEC likely to lose its market share?

Saudi Arabia represents more than 33% of the share of OPEC production and together with the Gulf countries they account for 60%.  For countries outside OPEC, the most important traditional producer being Russia that prior to the agreement of 10 December 2016 produced more than 11 million barrels / day in December 2016 against 10 million barrels day in January-February 2016.

This has not been penalized by the agreement of December 10, 2016.   But many experts wonder about the temptation for producers to “makeup” natural declines, linked to the depletion of some deposits and already integrated forecasts, in order to go for voluntary reductions.

Leader of the cartel, Saudi Arabia had long maintained a policy of low prices, hoping to shut competitors, including American shale oil producers out of business.  Indeed, according to Bloomberg in February 2017, non-conventional oil producers have made huge efforts to reduce their levels of profitability, earning money with around $50 a barrel, while it took at least $70 to $80, two years ago and $30 in some Texas counties where investments should increase by 30% in the sector by 2017.

Thus, the production of oil from shale in the United States that currently stands at 4.5 million barrels (almost half of record production) could rise by 500,000 barrels. As a result, according to Reuters, oil producers are refinanced with banks and 34 companies have seen their credit lines increased by an amount of $30.3 billion.

Algeria report case

The structuring of the world economy growth and the new global energy configuration that is looming in 2017 to 2030, will in future be the determinants so the price of oil than natural gas. For Algeria which 98% of foreign exchange earnings come directly and indirectly from hydrocarbons and their derivatives, and due to the fact that there is not a clear strategy of production and non-oil exports, it must be attentive to the evolution of the price of not only oil but also of gas that normally represent 33% of revenues of the Algerian State oil company SONATRACH.

The only solution for Algeria’s international commitments is to think of a new model of energy consumption (more energy efficiency and renewable energy), assuming a review of the policy of targeted subsidies (gas consumption by 2030 exceeding exports), action on costs so as to be competitive (possibly reducing between 15 to 20%), all referring to a strategic vision of the new model of socio-economic policy and a new management of SONATRACH.

We are in fact witness to the advent of an entire range of new technologies for energy efficiency in the majority of Western countries, with a forecast of 30% discount representing savings on energy and adoption of sustainability criteria in all development that challenging Algeria’s two million homes building a year.

In short, re-balancing of the market depends on a number of exogenous factors that are outside of the OPEC countries’ control.  Financial strains in many oil exporting countries would reduce the ability of these countries to soften the blow, resulting in a significant drop in their domestic demand. To stick to the basics, so as to not mislead public opinion, a dramatic rise in the oil price should not be expected anyway.

 

 

NB:  (1) Professor Abderrahmane Mebtoul, Expert international – Doctor of State in management (1974)
  • Director of Studies Department energy/SONATRACH 1974/1979-1990 / 1995 – 2000 / 2007. – Directed audit, February 2015 on the risks and opportunities of Shale Gas on behalf of the Government assisted by 23 international experts.
  • See study of Professor Abderrahmane Mebtoul, published in the ‘Institut Francais des Relations Internationales’ (IFRI Paris, France, November 2011) – “Maghreb / Europe cooperation geostrategic challenges”- -“for a new strategic management of SONATRACH”.
  • International Review, HEC Montreal Canada (2010)
  • International Conference ADAPES / French Parliament November 2013- “the new energy global changes’ – The gas strategy of the Algeria in the face of the global changes” review international gas today (Paris France – January 2016).
  • See also the debate 24 October 2014 between Pr Antoine Halff, former Chief Economist to the Secretariat of the US Energy Director of the IEA, and Dr. Abderrahmane MEBTOUL on RFI, Paris/France on OPEC’s prospects.

Sustainability concerns is not about Green Building only

As Green Building are more than just a Trend . . . In the MENA countries, some concerns about sustainability started to be heard of back in the 1970s; in fact it was more of a follow-on trend than anything else. With the region’s increasing urbanisation impacting the environment, Green Building became an option for [ . . . ]

As Green Building are more than just a Trend . . .

In the MENA countries, some concerns about sustainability started to be heard of back in the 1970s; in fact it was more of a follow-on trend than anything else. With the region’s increasing urbanisation impacting the environment, Green Building became an option for the real estates developers and management more particularly in the cities of the Gulf region where it somehow turned into a Trend, but Sustainability concerns is not about Green Building only, as reported by Top 10 GCC green building projects .

Consultants started indeed ringing the bell about the influencing factors that lie behind the lack of progress but that have to be addressed at the earliest. Lack of adequate legislation, due basically to the limited awareness of environmental issues generally could be the main reason.

Nevertheless some legislation that was sporadically taken in certain countries, apart from not being regionally coordinated, did not also confront the real issues and for lack of not taking account fully of the reality as it stands on the ground was across the board fairly ineffective.

The truth is that people slowly come to realise that we are having a devastating impact on the planet that we live on. In less than 2,000 years, human kind has led to the extinction to more species from the face of the earth than its entire existence. Considering that this is just a tiny bit of the overall time for which our planet exists, this is something that raises a lot of concerns. It’s obvious that people start to take initiatives through different LEED programs, sustainable development and through prioritising investments in different green initiatives. One of the most impactful fields is the construction. With this in mind, some things need to be pointed out.

Green Building – The Things to Consider

The truth is that green building, especially in Europe, has become something far more than just a simple development trend. And, of course, this is quite logical. It has paved the way for an approach which entails building homes and commercial constructions tailored to the demands of their time – not just to the demands of the occupants. And this is something that has to be particularly appreciated. The advantages are multiple.

Water Conservation

It’s worth mentioning that it’s estimated that the lack of fresh drinking water is going to be one of the tremendous burdens for future generations, should we keep wasting it with the temps we are right now. Recycling rainwater, for example, can preserve potable water and yield tremendous amounts of water savings which is definitely to be considered.

Emission Reduction

Fossil fuel emissions contribute to development and furthering of the biggest environmental burden of our times – global warming. Harmful emissions directly impact the quality of the breathable air and bring in a lot of different threats to human’s health such as lung cancer and other respiratory issues.

Storm water Management

This is also something that you might want to account for. Green building as defined in the majority of the LEED Programs can help manage storm water runoff. The latter can cause waterway erosion as well as flooding. The most troublesome thing, however, is that it could introduce potentially dangerous pollutants to water sources, hence incentivising potential diseases outbreaks.

Sustainable development

In any case, Europe is definitely riding the wave when it comes to sustainability, and you can easily observe this in a range of national and multinational projects. What is more, the Union is leading active policies, and it is actively funding initiatives in this particular regard through a range of different grants targeting both individuals and corporations. This is something particularly important. However, the same needs to be employed throughout the rest of the world as well. We can observe companies pioneering the field of sustainable development, and the examples here become more and more. This is definitely something particularly important, and it needs to be taken into proper consideration when it comes to it.

Sustainability

 

 

WHERE IS THE MARKET’S INVISIBLE HAND GONE?

An article in French by Ramdane Mohand Achour and published on March 25th, 2017 by LibreAlgerie is proposed. It is about Algeria that in the course of the persistently decline of [ . . . ]

An article in French by Ramdane Mohand Achour and published on March 25th, 2017 by LibreAlgerie is proposed. It is about Algeria that in the course of the persistently decline of its hydrocarbon exports related revenues is currently undergoing soul searching questioning of what is best for making its economy work. Many are wondering where is the market’s invisible hand gone? Like many countries, Algeria which is struggling with falling revenue from lower oil prices is presently looking for ways to upgrade its energy systems to fully support current and future requirements of its economic growth.

WHERE IS THE MARKET’S INVISIBLE HAND GONE?

Proponents of liberalism argue that the market naturally produced a self-regulating mechanism that corrects imbalances born out of the multitude of society shaping special interests. This mechanism, called “the invisible hand of the market”, would satisfy the public interest. The law of supply and demand would naturally harmonize economic situation marked by the selfish will of each individual. In this scheme, the State doesn’t have to intervene if it is to guarantee the exercise of free and undistorted competition intended to benefit at all.

The current state of the oil international market turns wrong this angelic vision of a self-regulated inclusive market. Left to itself, the market has experienced a bullish cycle during ten years (1999 – 2008). The price of the barrel thus reached 140 dollars in June 2008 before tumbling within the 2008 crisis, but he soon to rise in 2009 again to be slightly above 120 dollars in April 2011. In 2014, it exceeded even the 110 dollars.

Such a situation was undoubtedly beneficial to the producing countries and companies in the sector as well as those rich countries whose States taxed petroleum products so as to keep their economy afloat. It was not the same for the non-producers, and all poor and middle-income countries who were struggling to feed themselves because of their limited financial resources. The market did not benefit to all, far from it.

The second disadvantage of this situation of relatively expensive oil lay in the fact that it boosted search for more hydrocarbon and production and allowed shale oils to make a big splash, in a full sense of the word, on the world market. With a production of 11 million barrels a day, the United States will see their rate of dependence on foreign oil drop to 30% in 2016 down from 60 percent in 2005.

Such a dynamic did fail to cause a state of overproduction; the purpose of the market is not, contrary to the image that its promoters sell us, to satisfy human needs, but rather to garner, first and above all for not only, profits, but for maximum profits.

Proponents of the “the invisible hand of the market” were right about one thing: in an economy obedient to the laws of the market, the engine of the “economic agents” is selfishness, the individual profit, at the expense of the lives of the producers (workers), consumer and research of nature which we see what mess it is today.

Overproduction intervening in a situation of de facto global stagnation, in the first place, the downturn in the economy of emerging countries (China, Brazil…) dropped slowly but inexorably the price of the barrel. Out of $110, it fell to $35 in February 2016. Decided to reduce the share of the North American Shale oil producers, Saudi Arabia will trigger a price war which played a vital role in this descent into hell.

If the drop in prices could theoretically help poor and middle-income countries producers, it on the other hand hit with full force the producing countries, primarily those of OPEC. For the first time in its history, the rich Saudi Arabia could no more balance its budget and had to resort to austerity. Its involvement in Yemen who turned into a quagmire for Riyadh, financial support of ‘takfirist’ groups in Syria and Iraq and a fierce will to challenge Iran contributed to accentuate its financial crisis. In this sequence of fall in the price of oil, as in the previous bullish sequence, no sign of self-regulation by the market. The invisible hand had other things to look after.

Last November and to everybody’s surprise, the 14 member countries of OPEC, under the impetus of Algeria but due to the will of Saudi Arabia, decided to reduce their production to the tune of 1.2 million barrels a day. Eleven countries non-members of the cartel, including Russia, committed as well to reduce their 560000 barrels per day. In the month of December, stocks of the OECD countries dropped to 1.2 MBD.

Number of non-conventional oil producers will be forced to close their wells that became no more profitable below a price floor of around $50 a barrel. The agreement of the producing countries, OPEC and non-OPEC, which was not an action of “the invisible hand of the market”, but of the conscious and active action of 25 States, will result in stopping the fall in prices on the world market and could even allow the beginnings of a rebound in prices which will pass from between 45-50 dollars to 50-55 dollars.

Number of non-conventional oil producers will be forced to close their wells that were most profitable below a price floor of turning around 50 dollars per barrel. The agreement of the producing countries, OPEC and non-OPEC, which was not the action of “the invisible hand of the market”, but the conscious and active in 25 States, will result will stop the fall in prices on the world market and will allow even the beginnings of a rebound in prices which will pass a fork understood between 45-50 dollars to 50-55 dollars.

There is however, that this new ‘virtuous cycle’ for producing countries is not shared by the importing poor and middle-income countries. It also translates into a revival of the production of Shales. In the United States, the number of wells increased each week. Mid-March 2017, it stood at 617 and the U.S. production has reached the historical peak of 9.1 MBD that recalls the production rate of the 1970s. Stocks of oil and oil products are at the highest historical level at 2 billion barrels. The commercial reserves of the country reached 528,4 million barrels with an increase of 8.2 million barrels, the largest weekly increase since 1982.

This new overproduction mechanically caused a new fall in the price of oil, which threatens the stability of many countries. We think first of countries such as the Venezuela struck by an economic and social crisis. But it does not spare the rich monarchies of the Gulf as well. Thus, below a certain price, producers of Shale disappear from the market while exporters suffer a severe income crisis whereas if prices were back on the rise, Shale producers will return to the market. But in the absence of a significant global economic recovery, they contribute quickly to only flooding the market.

The bullish and bearish cycles seem to alternate way more and faster, impeding the process of renewal of the facilities and the discovery of new deposits that require significant investment that the big oil companies do not realize by altruism, but through their search for profits.

One could therefore ascertain that the market does not regulate anything and that without the intervention of the State that plays a major role but not always effective, the market being not self-regulated, would verge onto anarchy causing economic, social, and humanitarian crises as the deterioration of the environment.

The reality of the international oil market confirms that the role of “the invisible hand of the market” is just a myth. The Liberals, who are constantly putting their realism and their pragmatism forward but who do not have enough teeth against their opponents, in ideology, swim themselves in full ideology. Behind a friendly speech sold according to the lastest in marketing theories, formidable doctrinaires could be hiding.

Source : Libre-Algérie

 

Impact of U.S. Shale Oil Revolution on the Global Oil Market

The very best and obvious example of what this article of McKinsey’s is all about, would be with how the Shale Gas impacted conventional oil, more specifically how the Impact of U.S. Shale Oil Revolution on the Global Oil Market has come to be the latest trend. Indeed, technology advances have made it possible not only for the extraction however debatable with respect to its effects on the environment but also its production. [ . . . ]

The very best and obvious example of what this article of McKinsey’s is all about, would be with how the Shale Gas impacted conventional oil, more specifically how the Impact of U.S. Shale Oil Revolution on the Global Oil Market has come to be the latest trend.

The U.S. Shale Oil Revolution ?

Indeed, technology advances have made it possible not only for the extraction however debatable with respect to its effects on the environment but also its production.

The International Association for Energy Economics in its report titled ‘Impact of U.S. Shale Oil Revolution on the Global Oil Market, the Price of Oil & Peak Oil written by by Mamdouh G. Salameh introduced the subject like this :

“Much has been written about the United States shale oil revolution. Some sources like the International Energy Agency (IEA) went as far as to predict that the United States will overtake Saudi Arabia and Russia to become the world’s biggest oil producer by 2020 and energy self-sufficient by 2030.”  This was then in 2012, at the time of this write up of MG Salameh but 5 years on, there seems to be a bis of the same that is on-going.

Discover technology’s impact on natural resources

This interactive graphic explores how recent trends could affect supply and demand for resources.

Technological advances are changing the way resources are consumed and produced. This interactive graphic highlights some of the potential changes to both supply and demand for resources. The scenarios depicted should not be considered as specific forecasts but rather as illustrative of the broad trends.

Over the next two decades, we expect energy demand to be reduced in homes, offices, and factories, as well as in transportation, as engines become more fuel efficient and as self-driving and electric vehicles take off. Renewable sources of energy, including wind and solar power, will make major inroads into electricity generation, competing with fossil fuels. For resource producers, data analytics, robotics, and the Internet of Things will bring considerable productivity improvements. To learn more about the impact of ongoing shifts, read the McKinsey Global Institute research report “How technology is reshaping supply and demand for natural resources.”

http://media-s3-us-east-1.ceros.com/mckinsey/images/2017/01/31/25f8134cd62c40b1dc5861c345aa171f/1-full.jpg

How technology is reshaping supply and demand for natural resources

By Jonathan Woetzel, Richard Sellschop, Michael Chui, Sree Ramaswamy, Scott Nyquist, Harry Robinson, Occo Roelofsen, Matt Rogers, and Rebecca Ross

The ways we consume energy and produce commodities are changing. This transformation could benefit the global economy, but resource producers will have to adapt to stay competitive.

The world of commodities over the past 15 years has been roiled by a “supercycle” that first sent prices for oil, gas, and metals soaring, only for them to come crashing back down. Now, as resource companies and exporting countries pick up the pieces, they face a new disruptive era. Technological innovation—including the adoption of robotics, artificial intelligence, Internet of Things technology, and data analytics—along with macroeconomic trends and changing consumer behaviour are transforming the way resources are consumed and produced.

On the demand side, consumption of energy is becoming less intense and more efficient as people use less energy to live their lives and as energy-efficient technologies become more integrated in homes, businesses, and transportation. In addition, technological advances are helping to bring down the cost of renewable energies, such as solar and wind energy, handing them a greater role in the global economy’s energy mix, with significant effects for both producers and consumers of fossil fuels. On the supply side, resource producers are increasingly able to deploy a range of technologies in their operations, putting mines and wells that were once inaccessible within reach, raising the efficiency of extraction techniques, shifting to predictive maintenance, and using sophisticated data analysis to identify, extract, and manage resources.

A new McKinsey Global Institute report, Beyond the supercycle: How technology is reshaping resources, focuses on these three trends and finds they have the potential to unlock around $900 billion to $1.6 trillion in savings throughout the global economy in 2035 (exhibit), an amount equivalent to the current GDP of Canada or Indonesia. At least two-thirds of this total value is derived from reduced demand for energy as a result of greater energy productivity, while the remaining one-third comes from productivity savings captured by resource producers. Demand for a range of commodities, particularly oil, could peak in the next two decades, and prices may diverge widely. How large this opportunity ends up being depends not only on the rate of technological adoption but also on the way resource producers and policy makers adapt to their new environment.

 

 About the author(s)

Jonathan Woetzel is a director of the McKinsey Global Institute, and Michael Chui is an MGI partner; Richard Sellschop is a partner in McKinsey’s Stamford office; Sree Ramaswamy is a partner in the Washington, DC, office; Scott Nyquist is a senior partner in the Houston office; Harry Robinson is a senior partner in the Southern California office; Occo Roelofsen is a senior partner in the Amsterdam office; Matt Rogers is a senior partner in the San Francisco office; and Rebecca Ross is an associate partner in the London office.

 

 

Would you like to learn more about the McKinsey Global Institute?  Visit our Natural Resources page

Policy makers could capture the productivity benefits of this resource revolution by embracing technological change and allowing a nation’s energy mix to shift freely, even as they address the disruptive effects of the transition on employment and demand. Resource exporters whose finances rely on resource endowments will need to find alternative sources of revenue. Importers could stock up strategic reserves of commodities while prices are low, to safeguard against supply or price disruptions, and invest in infrastructure and education.

For resource companies, particularly incumbents, navigating a future with more uncertainty and fewer sources of growth will require a focus on agility. Harnessing technology will be essential for unlocking productivity gains but not sufficient. Companies that focus on the fundamentals—increasing throughput and driving down capital costs, spending, and labor costs—and that look for opportunities in technology-driven areas may have an advantage. In the new commodity landscape, incumbents and attackers will race to develop viable business models, and not everyone will win.