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ECONOMY OF REPRESSION AND FOUR YEARS OF

GROSS NATIONAL CORRUPTION.

Dr. Abdelhamid Brahimi
(Prime minister of Algeria 1984-88)
Director General of the Centre for Maghreb Studies, London
( Article published in: IMPACT INTERNATIONAL )
Algeria has changed beyond recognition as it stands on the edge of an abyss. Nearly four years of repression have had a disastrous impact on the country's economy. The widespread feeling of insecurity,the growth of corruption-estimated at between 1.5 and 2 billion USD annually- the military regime's isolation within the country and the loss of authority by the state have also contributed to the economic malaise. However, the lack of a policy of economic recovery and any dynamic investment policy will lead Algeria into long-term economic decline.
The GDP (Gross Domestic Product) per head of population has sunk dramatically from 2500 USD per annum in 1980's to 1100 USD in 1994 ie a drop of 56% in six years. The overall GDP has sunk from 43.17 billion USD in 1992 to 33.12 billion USD in 1995, in other words, a drop of 23.3%.
The continual marginalisation of agriculture has led to a sustained increase in the import of foodstuffs. In 1995 nearly 90% of the country's agricultural and foodstuff needs depended on imports. Compared with 1992-94, there was a 25% fall in agricultural production.
In 1995, with the exception of the hydrocarbon ( oil and gas) sector, the state and private industr functioned at 20% of capacity ie 80% of the existent industrial capacity was not used. The figure for industrial output has been constantly downward 6% in 1992, 15% in 1993 and 10% in 1994.
Activity in the building ad construction sector has also fallen considerably. Only about 40000 homes were completed in 1994, compared with 130000 in 1984, although the housing crisis remains at crisis point.
The rate of investment, ( ratio of investment to GDP), has never been so low in 30 years. In 1994 and 1995 Algeria benefited by more than 18 billion USD in fresh money, following two successive rescheduling of debts. A large part of this resource was used to increase the import of foodstuffs and armaments. In fact, the imports of foodstuffs (35% of total imports) and industrial consumable (14%) alone made up 49% of total imports in 1994, unprecedented since 1966. Military expenditure went up by 20% in 1994, and is likely to continue to rise. And all this, at the expense of investment in production.
Unemployment, constantly increasing, exceeded 30% in 1995, affecting, particularly, the young. Algerians between the ages of 16 and 29 make up 83% of the unemployed, while constituting only 27% of the total population.
The unemployment crisis will worsen with the dismissal of more than 400.000 workers, resulting from the policy of privatisng public enterprises, according to IMF's prescription. The possibilities for creating employment are very poor, considering the low level of investment.
Galloping inflation, caused by higher cost of imported goods, following the devaluation of the Dinar,
and by increased costs of production, exceeded 40% in 1994, and was around 30% in 1995, the
highest since Algeria's independance. The situation is even more serious, when one realises that the
Algerian consumer spends between 65% and 75% of his income on buying foodstuffs. The prices of
foodstuffs have grown at an average annual rate of more than 90% ( 200% for coffee, 110% for
milk, 93% for sugar, etc). The resulting fall in the purchasing power of money has led to a growth in
poverty.

The present state of affairs bodes ill for the future. External debt is a millstone which will aggravate
further the recession. The policy of debt rescheduling by the algerian regime in January 1994 and the
implementation of IMF-imposed measures have had negative economic and social effects. The
situation will get worse because rescheduling leads to only postponing the repayment of part of the
debt. This means repaying, in 3 or 5 years, significantly greater sum of money than that due today.

It will also lead to a high level of inflation, greater loss of purchasing power, a growth in social needs
and an increase in social problems, especially in matters of health, education, housing and transport.
This will be caused by the reduction of public expenditure, in these spheres, as demanded by the
IMF, although they are already under-funded.

External debt had already exceeded 29.4 billion USD in 1995. Total debt will most probably exceed
36 billion USD in 1998; 40 billion USD if military debt is included. Receipts from exports are not
growing at the same rate. Exports of oil and gas represent 98% of all exports. The level of receipts
from exports depends on fluctuations in the price of oil, which are completely outside Algeria's
control.

According to Sonatrach, the provisional receipts from the export of oil and gas will grow from 8.6
billion USD in 1995 to 9.8 billion USD in 1996, and will stabilise at around 11 billion USD between
1998-2000.

Imports of goods and services alreaady exceeded 11.1 billion USD in 1995. Even if they remain the
same in the year 2000- most unlikely, considering the natural growth in consumer demand- the gap
will be difficult to cover because of increasing indebtedness and the mediocre performance by the
economy. The productive sectors, such as industry, agriculture, housing and construction, are
experiencing recession, and are incapable of generating adequate resources.

Neither the IMF programme of structural adjustment, nor the measures adopted by the present
regime, which is directing the economy on a day-to-day basis, will be able to prevent the
deterioration in the economic and social situation. And the gap between available currency resources
and what is needed to finance the economy will be so great between 1998 and 2000 that Algeria will
be unable to continue making repayments, and will find that the IMF is less cooperative than in
1994-95.

The level of debt will have risen steeply and the prospects of any growth in the receipts generated by
exports are virtually nil, because of the state of stagnation in the international oil market. By the end
of the century Algeria's ability to repay its debts will be reduced considerably. Unlike Morocco and
Tunisia, Algeria does not even have the means-other than hydrocarbons-to promote agricultural and
industrial exports.

Besides, the natural growth in population from 26 million in 1992 to 33 million in the year 2000, an
increase of 7 million, will make it impossible to satisfy all the needs of the country in the coming four
years-if the present circumstances continue. The financial, economic and social tensions will be such
that they can only lead to a popular explosion. As the present situation is abnormal and unnatural, it
cannot continue indefinitely.

 

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