Rabat – Invited by the Forum of Business Leaders to express his vision of Algerian foreign trade, Abdelkader Messahel, Algeria’s Foreign Minister, went into a violent rant against Morocco, making sweeping accusations against Moroccan banks and financial systems.
Responding to a question about the lack of Algerian banks that can support local exporters, and facing the analogies made by some business owners concerning the support granted by Moroccan banks to investors in the conquest of Africa, the minister seems to get carried away: “They do not impress us. Moroccan investments in Africa are no more than drug money laundering,” Messahel said.
The minister also demanded that local business owners help promote the image of Algeria as “the North African country better suited for business.”
Further, Messahel claimed that Algeria is the only “stable” country in North Africa. He quoted the World Bank’s Doing Business report as proof, tumbling into a long fictitious rant about the economic situation of the neighbouring countries: “We are a safe country, a stable country. It is not we who say it but the others who say it.”
“For Doing Business, today in North Africa, there is only Algeria. Neither Egypt, nor Libya, or Tunisia, or Morocco. Egypt has big economic problems. This country spends its time lending money. However, we have paid our debt in advance. Tunisia has enormous difficulties,” said Messahel.
“We are not Morocco. We are Algeria,” the minister told a panel composed mainly of Algerian businessmen. Continuing his charge against Morocco, the Algerian minister said that even foreign investments do not represent a great added value. “Morocco is a free trade zone. French companies come, create a factory and make some Moroccan workers work … that’s all,” he said.
Since Messahel insisted on weaving a stark economic comparison between the two countries from the top of his head, a thorough study of the financial and economic indicators of both states is in order.
According to the World Bank’s 2017 Economic Outlook report on Algeria, the country’s strong growth in hydrocarbon production and higher-than-expected public spending supported solid growth in early 2017.
Economic growth saw a strong start during the first quarter of 2017; real GDP growth was estimated to have grown by 3.7 percent, mainly driven by strong production in the hydrocarbon sector, which grew by 7.1 percent.
However, the bank stated that structural challenges constrain non-hydrocarbon growth, which slowed down to 2.8 percent from 4.0 percent during the same period in 2016. The decline has been particularly marked in the manufacturing sector, where growth fell to 3.9 percent compared to 5.1 percent in the first quarter of 2016; corresponding figures for agriculture are 3.0 percent and 4.8 percent.
Meanwhile, inflation continues to rise, now above 6 percent for the year so far.
The International Monetary Fund published a report back on March 20 echoing the World Bank’s finding. According to the institution, “Algeria still faces significant challenges posed by the decline in oil prices.” The main macroeconomic indicators are far from encouraging, as the Washington-based financial institution maintained Algeria’s growth forecast at 2.9 percent for 2017.
Beyond the slowdown in growth in non-hydrocarbon sector, the analysts noted an unemployment rate of 10.5 percent in September 2016, particularly high among young people with 26.7 percent and women with 20 percent.
After a poor performance in 2016, a strong rebound in agricultural production should boost Morocco’s economic growth in 2017, affirms the World Bank (WB). In its latest report, the international financial institution revised the national growth rate to 4.1 percent, up 0.3 points from its June forecast.
The WB explains in the October 2017 Economic Monitoring Report that this increase in growth is due to a 14.3 percent rebound in agricultural GDP, driven by an above-average cereal harvest, against -11.3 percent in 2016, a year marked by a “severe drought.”
The WB’s finding come to echo those of International Monetary Fund (IMF), which also increased its forecasts for growth of the Moroccan economy, expecting a rate of 4.8 percent in 2017, instead of 4.4 percent expected in its previous report.
“Morocco’s performance and macroeconomic policies remained solid, despite the volatility of agricultural production, weak growth in trading partners, and external risks that remain high,” wrote the IMF.
While the IMF forecasts a slowdown of inflation to 0.9 percent for 2017 and a budget deficit reduction to 3.5 percent of GDP, it warns that “unemployment remains high, especially among young people and women.”
Nevertheless, “the IMF team notes with satisfaction that the Moroccan authorities intend to pursue fiscal reforms, including a more equitable and fair tax system, and reduce public debt to less than 60 percent of GDP by 2021,” writes the head of the fund’s consultative mission.
The IMF says these efforts will create the room for maneuver needed to reduce poverty and promote employment through public spending, particularly through investment and social programs that benefit the poorest segments of the population and help reduce inequalities.
For the IMF, inflationary pressures are among the main concerns in Algeria. The consumer price index rose by 4.8 percent in 2015 and 6.4 percent in 2016. In February 2017, the annual inflation rate reached a worrying 7.7 percent. According to the institution, this is all the more severe when one considers the fact that the country has only grown at a rate of about 3 percent in recent years.
Algeria is also not faring well in terms of its public finances. The fiscal and current account deficits remain wide and the public debt has increased, “partly as a result of the materialization of loan guarantees granted by the government,” observes the IMF.
For American think-tank Carnegie Middle East Center, Algeria’s printing money policy is a short-term fix not only to its economic problems, but also to its precarious political equilibrium.
Adopted back in September, the policy sparked one of the largest economic debates that Algeria has witnessed in the past few years. The government justified it by arguing that, without printing money and injecting it into the government’s coffers, the state would run out of cash by November and would be unable to pay public sector employees’ salaries.
The implicit subtext was that this debt monetization process is the only tool the authorities have to avoid a destabilizing wave of political and social unrest.
According to the organization, in the short term, injecting extra liquidity in a closed, commodity-dependent economy with a very small non-hydrocarbon sector, little competition, and tight import restrictions, “will inevitably result in fast-rising inflation and a depreciating exchange rate.”
Contrary to the government’s claims that the measures can be compared to quantitative easing policies in the United States and Europe, for Carnegie, “Algeria’s isolation, oil and gas dependence, and limited manufacturing base mean that this additional liquidity will only partially boost business activity and will instead overheat the economy.”
However, the think-tank added that inflation and depreciation will depend on how much liquidity the central bank will provide. “The government has so far refrained from setting a specific target or ceiling for this ‘helicopter money,’ leaving everyone in the dark as to the exact impact of this policy.”
According to the World Bank’s 2017 Economic Monitoring Report, the inflation rate is expected to reach 1 percent in 2017 and 1.6 percent in 2018, while the current account balance is set at -5.2 percent of GDP in 2017 and -5.3 percent of GDP in 2018. For its part, the IMF forecasts a slowdown of inflation to 0.9 percent for 2017 and a budget deficit reduction to 3.5 percent of GDP.
In the third quarterly council meeting in September, the Moroccan central bank estimated that inflation should reach 0.6 percent over the whole of 2017, before accelerating to 1.3 percent in 2018.
Bank Al Maghrib explained that inflation slowed sharply from 1.9 percent in the first two months of 2017 to an average of 0.2 percent over the next six months, mainly as a result of declines in volatile food prices.
In addition, the bank drew up a “globally mixed” labor market situation for the second quarter of 2017, reporting a net inflow of 107 thousand jobseekers on the one hand and a 0.4 point drop in the participation rate to 47.3 percent on the other.
As a result, the unemployment rate rose from 9.1 to 9.3 percent nationally and from 13.4 to 14 percent in urban areas, the bank said. As for the budget deficit, the bank expects a decline from 4.1 percent of GDP in 2016 to 3.5 percent in 2017 and 3.2 percent in 2018. By the end of August, it decreased by MAD 4.7 billion.