Algeria faces the activation of a 15-year-old Free Trade Agreement amid fears the economic consequences could be dire.
Rabat – Algeria is one week away from activating an EU Free Trade Agreement that many Algerians fear could hurt the country’s fledgling economy. The trade deal, agreed upon 15 years ago, is facing renewed scrutiny from Algerian businesses and politicians as its September 1 activation date approaches.
Algeria will face a looming budget crisis when the Free Trade Agreement becomes active as tariffs on textiles, electronics, steel, and vehicles will expire. The tariffs set by the Algerian government were meant to expire three years ago, but have become an import source of income. They have become even more important in the face of economic devastation caused by the pandemic.
Those opposing the deal’s implementation have cited concerns of diminishing economic sovereignty. The same issue led President Abdelmadjid Tebboune to shy away from taking foreign loans to support the country’s COVID-19-devastated economy.
Algiers, which is heavily dependent on oil-based exports, has suffered from the pandemic-induced demand slump that sent oil prices down significantly. Reduced income from oil exports combined with a large trade deficit could amount to a net loss in state revenue when the agreement becomes active next week.
The World Bank estimates that Algeria imported €320 billion worth of EU products between 2005 and 2019. Algeria charges tariffs on these imports, which bring in much-needed revenue for the government. The coming free trade agreement will eliminate these tariffs, which will see the revenue stream for Algeria’s government evaporate.
Tariffs will similarly be eliminated on Algerian exported chemicals, mined materials, and petroleum-products, making it more appealing for European businesses and governments to purchase Algerian exports. However, the scale of exports amounts to only €15 billion between 2005 and 2019. Although Algeria hopes to export more after the agreement, it is unlikely to make up for lost income from import tariffs.
Public pressure and significant opposition have forced the government to reevaluate the deal. President Tebboune has tasked Trade Minister Kamel Rezig with determining if the Free Trade Agreement between the EU and Algeria is sufficiently “balanced,” according to an official statement released Sunday evening.
Prime Minister Abdelaziz Djerad promised on August 19 that the government will review future agreements for any potential harm they could do to the Algerian economy, without explicitly mentioning the EU deal.
Algerian economists, businesspeople, and politicians are now speaking up against the deal. Economics professor Nadji Khaoua said, “The Algerian-EU partnership did not fulfill its promises for Algeria,” according to the North African Journal. “A pause is needed to discuss afresh fundamental issues that are hindering a fair distribution of economic benefits,” Khaoua added.
The Free Trade Agreement has brought renewed focus on Algeria’s economy. The EU is the country’s main trade partner, amounting to 50.3% of Algeria’s international trade. For the EU, Algeria is the 20th largest import partner, making the trade relationship unequal from the start.
Algeria appears to be moving towards postponing the Free Trade Agreement. Demands for easier visas for Algerians and increased technology sharing feature as priorities in a possible renegotiation. How flexible the EU will be in negotiating with a trade partner facing financial difficulties remains to be seen as events unfold.