Algeria must reckon with distortions of undiversified economy after import ban

The value of total imports in January fell 6.8% to $3.8 billion compared to the same month a year ago.
Sunday 04/03/2018
Temporary restrictions. A woman shops at a supermarket in Algiers. (Reuters)
Temporary restrictions. A woman shops at a supermarket in Algiers. (Reuters)

TUNIS - Algeria reduced its trade deficit 62.2% in January after halting imports of 851 products. Its trade shortfall dropped to $410 million from a deficit of $1.1 billion in January 2017, official figures indicated.

The value of total imports in January fell 6.8% to $3.8 billion compared to the same month a year ago and import bills of non-food consumer products declined 20% to $631 million.

The import ban and a 30% rise in taxes and customs duties were imposed on some goods January 1. The government’s ban of imports of various non-essential products was designed to cut the value of total imports to $30 billion this year from $45 billion last year and $46.7 billion in 2016.

However, food imports rose $838 million in January, 12.2% more than in the same month last year.

The total value of exports — $3.4 billion — was 13.3% higher in January compared to the same month in 2017. Earnings from oil and gas sales abroad accounted for 94% of exports, figures from the Customs Department said.

Temporary restrictions on imports, including meat, cheese, vegetables, cell phones and household appliances, are part of the government’s efforts to cut spending and preserve foreign currency reserves.

Algeria’s Central Bank said foreign currency reserves shrank to $97.3 billion at the end of December from $114.4 billion in the same month in 2016.

Algerian analysts said the restrictions of imports might help the government trim the trade and current account deficits and protect foreign currency reserves in the short term if it withstands pressure from businesspeople and consumers.

However, they said such restrictions caused price hikes for consumers and disrupted the supply chain for most non-farming industries.

Algeria’s reliance on oil and gas exports made its economy not diversified enough to be able to quickly offer local substitutes for banned imports to supply businesses and satisfy the needs of 41 million people.

“More than 80% of the turnover of the industries are imports,” Trade Minister Mohamed Benmeradi told Algerian state radio.

“The market has experienced a shortage in the supply of goods and the rise of prices as well as disruption in the activities of businesses but we have nonetheless to pursue the efforts in cutting imports,” he added.

Benmeradi blamed “the import barons in the private sector who control import businesses worth $50 billion” for causing market disruptions to derail government efforts to reducing imports.

Walid Allouni, manager of a mall in Algiers, told Reuters: “The import suspension is a problem for us but this measure has affected only about 20% of the products we sell here.

“Some prices have risen because demand exceeds supply. I think this is a good opportunity to strengthen and encourage domestic output.”

Analysts said import restrictions could add another layer of bureaucracy, hindering efforts to develop and diversify the economy.

“Algeria has one of the highest investment rates but, with an average investment rate of 40% of the gross domestic product per year since the 1970s, the country did not succeed in diversifying its economy,” said Abdelatif Kerzabi, an economics faculty member at the University of Tlemcen.

“The double monopoly of public contracts and imports had produced a bureaucracy that forged an alliance with privileged businesspeople who had access to public contracts and hard currency for imports. That alliance is getting in the way of economic development and diversification,” he added.