Gradual liberalisation: Efforts are being made to slowly open the country’s markets

Algeria’s trade patterns have long been quite stable, with exports relying overwhelmingly (97%) on hydrocarbons and trade with the EU accounting for roughly half of the total. Bolstered by still-high oil prices into the first half of 2013, Algeria maintains beneficial terms of trade that allow it to run a consistent surplus.

Although there is limited impetus for a change in trade policy, authorities are forging ahead with plans to gradually liberalise trade both on a bilateral basis, with an agreement entering into force with neighbouring Tunisia in 2013, and on a multilateral basis as World Trade Organisation (WTO) accession talks gather pace. A more active trade policy will prove beneficial in taming potential imported inflation as well as in supporting the country’s industrialisation strategy.

CONSISTENT SURPLUS: The global economic crisis led to a drop in Algerian exports; however, the country’s trade surplus has since recovered, from $7.8bn in 2009 to $18.2bn in 2010, $26.2bn in 2011 and $27.2bn in 2012, before dropping to $8.16bn in the first nine months of 2013, according to the National Centre for Information and Statistics (Centre National de l’ Informatique et des Statistiques, CNIS). The current account surplus’ value, which reached 8.2% of GDP in 2012, according to the African Development bank (AfDB), fluctuates in line with world oil prices. Trade with the EU grew some 40% in value in the four years to 2012, driven primarily by rising oil prices, as per EU data.

Despite this, hydrocarbons’ share of total exports dropped slightly from over 97% in 2012 to 96.09% in the first half of 2013, a function of slightly lower oil prices and higher non-oil and gas exports, which grew a remarkable 66.23% year-on-year (y-o-y) in the first half, albeit from a low base. Raw materials account for 76.15% of non-oil exports, followed by foodstuffs (0.15%) and semi-finished products (0.08%), according to AfDB. The main drivers of non-hydrocarbons growth were oils and affiliated products derived from tar production, which are used in industrial processes – these grew 269.8% y-o-y. The two other leading non-oil exports, ammonia as well as cane and beetroot sugar, remained relatively stable.

Imports have remained largely unchanged in recent years at $47.2bn in 2011 and $46.8bn in 2012, having risen 15.5% from the $40.5bn reported in 2010. Intermediate materials and capital goods used for industrial production dominate the import bill, accounting for 30% and 29% of imports, respectively, in 2012, according to AfDB. Yet in the first half of 2013, the value of imports surged some 17.99% y-o-y, driven by increases of 20.99% intermediate materials, 18.56% in capital goods, 14.96% in food imports and 15.03% in non-food consumer goods, according to CNIS.

STABLE PATTERNS: Algeria has significantly diversified its trading partners over the past two decades and now counts the US as its largest export market, accounting for 16.14% of exports in 2012, according to data from the Ministry of Commerce (MoC). The next three markets are European – Italy with 15.77% of Algerian exports, Spain with 10.23% and France with 8.92% – followed by Canada (7.41%) and the Netherlands (7.15%). On the import front, France remains the largest supplier with 12.83% of Algerian imports. The value of imports from China has ballooned over the last decade, however, rising from roughly $200m to $8bn in the 12 years to 2012, according to the Chinese Embassy in Algiers. Imports from China have continued to grow apace, registering 24% y-o-y growth in 2012 alone, when China supplied 12.56% of Algerian imports. The next four largest sources of imports have remained relatively stable – Italy (9.29%), Spain (8.74%), Germany (5.5%) and Argentina (3.85%). This stable pattern, particularly of exports, is changing due to the ramping up of US shale gas production, however. By February 2013, oil exports to the US dropped to 16,000 barrels per day (bpd), down from roughly 260,000 bpd one year prior.

PROMOTION: The Export Promotion Agency, or Algex, was established in 2004 and has expanded incentives for non-oil exporters in recent years. With roughly $40bn in non-oil imports but a mere $2bn in non-oil exports, the need to rebalance Algeria’s non-oil trade position is clear. The Special Export Promotion Fund, operated by the MoC since 1996, supports exporters in their market studies, road-shows and other marketing activities. In 2012 alone it disbursed AD766m (€7.05m) to 317 exporters. The MoC enacted reforms in September 2011 to expand support, by allowing exporters to keep 20% of their earnings in foreign currency (up from 10%), providing for the reimbursement of value-added taxes and duties on exported goods, and establishing a National Shipping Council to improve trade logistics. It also created a new training programme for exporters in cooperation with the Algerian Chamber of Commerce & Industry and the national business school. More broadly, the reforms established an export strategy aimed at developing new markets as diverse as South Africa and Pakistan, as well as expanding support for non-oil exports. The government also enacted import restrictions in July 2009, which require the use of letters of credit for the payment of imports. Additional restrictions were implemented in 2010, when a new tax was imposed on durum wheat imports at prices below domestic Algerian rates (although the national Cereal Agency is exempted from these). According to the WTO, as of 2010, Algeria imposed average import duties of 18.6% – an average of 23.3% for agricultural goods and 17.8% for non-agricultural goods.

TRADE LIBERALISATION: Targeted import duties notwithstanding, Algeria’s recent policy has been to slowly move towards liberalisation. As a member of the Greater Arab Free Trade Area (GAFTA) since 2009, which confers tariff-free trade rights amongst all 17 members, Algeria has seen its trade with the group grow, with non-oil exports (mainly sugar and glass) rising 21% to $267m in 2012, representing 12% of its total exports. Yet Algeria continues to import far more from the zone, with imports accounting for 88.3% of total Algeria-GAFTA trade in 2012, according to the CNIS.

Algeria has shown more caution in implementing the European Neighbourhood Policy (ENP). Although it signed an association agreement with the EU in 2008 that aimed at creating a free trade zone for industrial goods by 2017, with removal of tariffs on 82 products due to be completed by September 2012, it decided to delay full implementation until 2020. “This revision was requested because the association agreement did not have the expected impact in terms of promoting non-hydrocarbons exports,” Trade Minister Mustapha Benbada told OBG. “The tariff advantages were not effectively used to diversify the national economy and ensure mutual profit.” Preferential market access rights conferred to Algeria under the Generalised System of Preferences (GSP), which abolishes duties on Algerian exports, will be removed from January 2014 and replaced by the ENP for Maghreb countries.

Although Algeria has yet to sign on to the policy, its hydrocarbons exports will continue to be exempted. While more marginal at only $1bn in 2012, Algeria’s trade with neighbouring Tunisia will receive a boost from the enactment of a bilateral trade agreement in August 2013. The deal confers domestic tax treatment on goods produced in the other country and removes between 40% and 100% of Customs duties on trade in industrial goods. Agricultural and meat products, as well as all foodstuffs, are fully exempt from such duties.

WTO TALKS: These piecemeal accords represent encouraging signs of gradual liberalisation, yet Algeria’s global trade relations remain tied to negotiations on WTO accession, originally launched in 1995. After a series of fits and starts, Algeria placed renewed impetus on talks by holding the 11th round in April 2013, proposing more significant reforms than in the past, according to the WTO. Additional reforms will be needed, however, in a broad set of areas ranging from the foreign investment regime, the state’s economic role and competition policy, and foreign-exchange and fiscal policies, according to the minister of trade. While domestic lobbies have agitated against accession, global bodies like the IMF have called for a swift conclusion of negotiations in order to boost Algeria’s productivity growth. “The need to increase productivity is the biggest argument in favour of accession,” Benbada told OBG. “This is a powerful factor in the growth that will strengthen the competitiveness of the national economy in the post-oil era.” This is proving increasingly pressing given the IMF’s projections of a narrowing trade surplus in the four years to 2017, based on forecasts of a declining oil price spurred by greater US self-sufficiency in oil and gas. Indeed, the IMF estimates that the trade surplus will decline from $25.9bn in 2013 to $14.6bn in 2017 – with exports dropping 12.3% in value to $62.7bn in four years, while imports are expected to grow 5.3% to $48bn in the same span.

While pursuing trade liberalisation and an expansion in non-oil exports has never been straightforward, given major windfall oil revenues, the authorities are conscious of the need to increase the country’s integration with the global economy in order to support other development objectives. Expanding such exports will be key to improving Algeria’s competitiveness, productivity and eventually its job-creating potential.