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Diversifying Algeria's Exports Diversifying Algeria’s exports: challenges and prospects relating to the African market Diversifying Algeria’s exports: challenges and prospects relating to the African market To order copies of Diversifying Algeria’s exports: challenges and prospects relating to the African market, please contact: Publications Section Economic Commission for Africa Menelik II Avenue P.O. Box 3001 Addis Ababa, Ethiopia Tel: +251 11 544-9900 Fax: +251 11 551-4416 E-mail: [email protected] Web: www.uneca.org © 2017 Economic Commission for Africa Addis Ababa, Ethiopia All rights reserved First printing August 2017 Material in this publication may be freely quoted or reprinted. Acknowledgement is requested, together with a copy of the publication. Designed and printed by the ECA Printing and Publishing Unit. ISO 14001:2004 certified. Cover photos: © Shutterstock iii Table of Contents 1. Introduction 1 2. Economic development in Algeria: an economy struggling to diversify 2 2.1 Economic performance 2 2.2 Trade structure and evolution 5 3. Trade in Algeria: the history of regulation and the state of play of export policy 9 3.1 Brief history of international trade regulation 9 3.2 Existing export-friendly public policies 12 4. Factors impeding export diversification 18 4.1 Theories 18 4.2 Support for theories: a survey to understand the views of Algerian business leaders 20 5. Diversifying exports to Africa: what reforms? 26 5.1 International experience: the case of Turkey 26 5.2 Reforms to be implemented in Algeria 32 5.3 How can Algeria diversify exports to Africa? 33 5.4 Exporting to Africa: removing barriers identified by entrepreneurs and building partnerships 37 6. Appendix 39 6.1 Comparison of public policies in Turkey and Algeria 39 6.2 Trade agreements 43 6.3 Algerian business organizations 44 7. References 48 Acknowledgements The present report on Diversifying Algeria’s exports: challenges and prospects relating to the African market, is published by the Subregional Office for North Africa of the Economic Commission for Africa. The lead author was Zoubir Benhamouche, Economic Affairs Officer at the Subregional Office for North Africa. A word of appreciation is due to Mohamed Skander, consultant, for his substantive contribution to the report. 1 1. Introduction The rise in oil prices between 2000 and 2014 exports. Growth in the services sector (primarily enabled Algeria to accumulate substantial trade and transport), which makes a significant financial resources and finance ambitious contribution to GDP growth, is dependent on development programmes, particularly public spending. In the medium term, the country infrastructure projects such as the East-West does not face a balance of payments problem. Highway, and to implement two growth and However, if the price of oil remains persistently stimulus plans, for the years 2002 to 2004 below $60, the country could face both an and 2005 to 2009, respectively, at a total cost internal and external deficit. of more than $180 billion. Those plans were followed by a five-year plan covering the years Given this situation, diversification of the 2010-2014, with a budget of $286 billion, and country’s economy and exports is a major the 2015-2019 plan, with a provisional budget of challenge that Algeria must address urgently. The $262 billion. These stimulus plans have focused country has the necessary resources to do so, on capital spending. As a proportion of total but it will need to carry out ambitious reforms. government expenditure, capital expenditure increased from less than 20 per cent in the late The purpose of the present study is to analyse 1990s to an average of more than 32 per cent the diversification of Algerian exports, and its during the period from 2000 to 2005, and to 40 export growth to sub-Saharan Africa. Algeria per cent over the period from 2006 to 2014. aspires to increase its trade with the rest of Total government expenditure increased from the African continent significantly, from what $1.178 billion in 2000 to $7.033 billion in 2014. is admittedly a very low base. In 2014, Africa The significant budget increases to support the accounted for only 0.2 per cent of Algeria’s total country’s economic and social development exports, and 0.8 per cent of its imports. With were sustainable as long as the price of oil its total exports excluding hydrocarbons (but remained high. including their derivatives) currently at less than $800 million, Algeria has considerable scope to However, the sharp decline in oil prices, which improve those figures. went from an average of more than $111 per barrel in 2011 to less than $55 per barrel at The first section of the present report provides the end of December 2014, made clear the an overview of the country’s macroeconomic country’s economic vulnerability: indeed, the performance, while the second section looks at economy of Algeria remains heavily dependent Algeria’s external trade, its regulatory framework, on the hydrocarbon sector, which on average and public policies to promote exports. A third accounts for almost 35 per cent of the country’s section examines the reasons why the country gross domestic product (GDP) and finances up to has failed to diversify its exports and explores a 60 per cent of the national budget. Furthermore, number of theories that were tested in a survey of the country has failed to implement the business leaders in Algeria. The conclusion of the economic structural reforms needed to end that report sets forth public policy recommendations dependence: industry accounts for less than 5 that could accelerate export diversification and per cent of GDP (compared with 10 per cent in increase trade with the African continent — the the mid-1990s) and exports of hydrocarbons obvious place for Algeria to enhance its economic account for more than 95 per cent of total footprint. 2 2. Economic development in Algeria: an economy struggling to diversify In this section, the discussion focuses on the communication by 0.5 per cent and trade by 1.2 recent performance of the Algerian economy on per cent: those sectors contributed the most a macroeconomic level and in terms of foreign to growth. On the other hand, the contribution trade. made by the hydrocarbon sector decreased by 0.2 per cent. 2.1 Economic performance In 2015, GDP growth remained stable at 3.9 per cent (see figure I), despite the historically low oil Growth is heavily dependent on the hydrocarbon prices. Non-hydrocarbon sector GDP grew by 5.5 sector.1 In 2013, for example, growth stood at per cent as compared with 5.6 per cent in 2014. 2.8 per cent. This followed a decrease of 5.5 However, that figure is significantly lower than per cent in the contribution to GDP made by during the years 2012-2013, when GDP growth the hydrocarbon sector. Hydrocarbon sector stood at 7 per cent. Non-hydrocarbon sector production has been declining for nearly nine GDP growth was primarily driven by agriculture, years. Indeed, due to the direct effect of the which contributed 0.8 per cent, buildings decline in energy production, and the indirect and public works construction (0.5 per cent), effect of rising domestic energy demand, the transport and telecommunications (0.5 per cent), sector’s contribution to growth is actually and trade (0.7 per cent). Growth in the latter two minimal, despite appearances to the contrary. In sectors was driven by higher imports, and those 2013, the hydrocarbon sector’s contribution to sectors have grown dramatically, increasing from growth was negative, at -1.9 per cent. 1.82 billion Algerian dinars (DA) in 2005 to 4.78 billion DA in 2015. The year 2014 saw a sharp drop in oil prices with a 40 per cent decline in less than six Public investment was the main driver of months. Oil prices fell from an average of over increased imports. The capital expenditure $111 per barrel in 2011, to less than $55 at the budget increased from 1.921 billion DA2 in 2010 end of December 2014. However, growth has to 3.154 billion DA in 2015. Capital expenditure rebounded since 2013 to 3.8 per cent, in large imports accounted for 32.4 per cent of total part due to a smaller decline in hydrocarbon imports in 2014. It should be recalled that the volumes (-0.6 per cent) and strong domestic Government had formulated very ambitious demand driven by public spending (public five-year development plans. The 2004-2009 investment, redistribution policies, public-sector and 2010-2014 development plans had budgets employment, civil service wage increases, etc.) of 17.5 billion DA and 21.214 billion DA, Public spending increased by 6.8 per cent in respectively. For the 2015-2019 period, the 2014, whereas it had decreased by 2.1 per cent Government has budgeted more than 23 billion in 2013. Household consumption rose by 5.3 DA, equivalent to $264 billion. On average, per cent in 2014, compared with 3.5 per cent between 60 and 70 per cent of development in 2013. Non-hydrocarbon sector GDP, which plan initiatives are implemented. was also driven by government spending, grew by 5.6 per cent in 2014 (down slightly from 5.9 These plans focus primarily on State-funded per cent in 2013). The contribution made by the structural investments (infrastructure and construction industry (including public works housing). Prior to 2014, such public expenditure construction) rose by 0.7 per cent, transport and was funded by oil revenue. Owing to the drop 1 Unless otherwise indicated, all macroeconomic data in this section were provided by the Ministry of Finance, Directorate of Studies, Algeria.
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