Would Algiers have succeeded in reversing the trend? Heavily affected by the double shock linked to the Covid-19 pandemic and that of the reversal of the oil market since the beginning of 2020, the Algerian economy is benefiting from a marked improvement in its economic situation.
Rise in crude oil prices, increase in European demand for gas, for a producing country whose oil revenue is the main source of public revenue, the lights seem to have turned green to garner revenue. Thus, the General Directorate of Customs recently published an encouraging half-yearly report. The Algerian trade balance shows a surplus of 5.6 billion dollars in the first half of this year, against a deficit of 1.34 billion dollars last year. The country’s exports have grown by nearly 50% since the start of 2022.
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In detail, and if we extrapolate over a year, the exports from Algeria are on a trend of 50 billion dollars for 2022, against 40 billion for imports. In two words: Algiers should be able to stop “nibbling” on its foreign exchange reserves – and on the contrary, to accumulate them. The risk of a payments crisis is receding in the short term.
However, in the longer term, this good cyclical form could be undermined. And this is also a lesson from the Customs report published at the end of July: macroeconomic stability remains fragile. Especially if we compare the prospects for recovery which are rather modest. GDP growth prospects have been revised to 3.4% this year by the IMF, but they remain significantly lower than those of other African oil-producing countries, estimated at 5.4%.
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Added to this is another factor: Algerian public finances remain structurally unbalanced. “The latest indicators published by Customs are good, it must be admitted, however they do not speak of the ‘invisible'”, comments an Algerian economist interviewed by Young Africa. The trade balance only highlights the exchange of goods. However, services, foreign direct investment and capital are not mentioned. “There are, at the very least, 8 billion dollars of incompressible expenses which are mainly related to services within the framework of the exploitation of hydrocarbons”, he continues. And to emphasize that the 10 billion of trade surpluses will be absorbed to cover the negative balance of this balance of services.
In addition, and despite the increase in hydrocarbon revenues, Algeria should continue to accumulate budget deficits which would reach around 3 to 4% of GDP in 2022-2023, again according to IMF estimates. The the situation is nevertheless much better than during the 2014-2021 period (10% of GDP deficit per year on average).
Diversification timidly underway
This dependence on hydrocarbons, and the real cost (cost of oil and gas services) that they represent, should not, however, weigh on public finances this year. While the oil and gas industry contributes more than 85% of the positive trade balance recorded in the first half of 2022, price volatility, the revision of supply contracts and the discovery of new fields should prolong these effects. The oil windfall, which is the first guarantor of foreign exchange reserves and recently evaluated at “more than 12 months of imports of goods and services”, leaves little room for diversification.
We will increase non-hydrocarbon exports to $7 billion in 2022
Moreover, the level of imports, despite the many barriers introduced by the State, remains high. “The country is unable to compress its imports below 40 billion over one year, which is too high. Algeria is still too dependent,” laments our economist.
That said, the numbers seem to prove the Tebboune administration right. “We will increase non-hydrocarbon exports to $7 billion in 2022,” the Algerian president declared at the start of the year. While the total amount of exports amounts to 25.922 billion dollars, 3.5 billion dollars were generated by non-hydrocarbon transactions. Figures that confirm the trend towards 7 billion dollars over one year.
As a reminder, in 2020, exports excluding oil and gas represented around 2 billion dollars, and just under 5 billion last year. Thanks to its agricultural exports, in particular, Algiers could therefore reach the goal at half way.