Jean R. AbiNader, MATIC
February 21, 2017

Jean R. AbiNader, Exec. Dir., Moroccan American Trade and Investment Center

Nearly 30 years after its 1989 founding,   the AMU is still unable to further its initial mission – to build economic cooperation among its member countries: Algeria, Libya, Mauritania, Morocco, and Tunisia — let alone move towards greater integration of its transportation, communications, and energy sectors. While analysts point to the political tensions between members over issues such as the Western Sahara, migration, and regional leadership on counterterrorism efforts, lack of progress on the economic front is of particular concern.

In his recent speech at the Annual Heads of State Summit of the African Union (AU), King Mohammed VI lamented the failure of the AMU to promote economic and social progress in North Africa. “It is however clear that the flame of the Arab Maghreb Union has faded, because faith in a common interest has vanished! …Today, we regret to see that the Maghreb Union is the least integrated region in the African continent, if not in the whole world.”

The King then went on to note the lack of trade among the partner countries, especially in comparison to other sub-regions in Africa. “If we do not act, by following the example of neighboring African sub-regions, the Maghreb Union will crumble in its chronic incapacity to live up to the ambitions of the Marrakesh Treaty, which gave birth to it 28 years ago.”

Since there is very little reason to be optimistic about the future of the AMU, it is only natural, according to the King, that Morocco prioritizes its relations with sub-Saharan Africa, with which it has signed, since 2000, some 949 bilateral agreements covering a broad spectrum of programs, from finance and tourism to education, energy, training, power, housing, and agriculture.

To appreciate the King’s perspective, it is worth considering the economic status and structural weaknesses of the other members of the AMU that inhibit economic cooperation and collaboration on transnational projects. For the most part, there is little utility to looking at member-states Libya and Mauritania — the former non-functioning as a national entity, and the latter at a low level of development outside of its capital. Libya relies primarily on sporadic hydrocarbon exports to fund its partially functioning ministries and faces deep-seated challenges to its reintegration as a country. Mauritania has overcome previous political instability and is now embarking on a modernization program but lags behind Tunisia, Algeria, and Morocco on most human development indicators.

Tunisia, struggling to meet the expectations of being the first successful example of the Arab Spring, has recently announced a series of measures to attract foreign investment at an ambitious international investors conference. The US was criticized for not sending a high-level delegation, and the reality is that Tunisia has many challenges in place before it can be considered on a par with Morocco in terms of projects and regulations that support a fully functioning investment regime. Also, Tunisia has less than a third of Algeria’s or Morocco’s population, a critical factor in growing domestic markets.

Algeria, with a large land mass, extensive hydrocarbon resources and reserves, a dynamic urban population, with a population of 39 million compared to Morocco’s 33 million, could and should be an economic powerhouse but continues to woefully underperform across the board.

With the dramatic fall it oil prices, it must draw down foreign reserves to support its budget. Algeria can no longer be assured of a capacity to spend without a negative effect on Algeria’s future. According to Reuters, “Oil and gas earnings, which make up 94 percent of total exports and 60 percent of the state budget, fell to $18.8 billion in the first nine months of 2016, down 26.3 percent from the same period a year earlier.”

This rentier economy has been further unsettled by measures put in place earlier this year, including cuts to subsidies, restrictions on imports, new taxes, and currency controls. Currency controls are of growing concern because the gap between the official exchange rate and the black market promotes the growth of inflation, smuggling, and hoarding of circumscribed imports.

According to European sources, additional measures taken since the initial announcements late last fall have not reduced the impact of the informal financial market. In fact, government attempts to raise funds pegged at the official rate have fueled currency speculation, leading to a 10% loss in the value of the Algerian dinar. It is feared that the planned introduction of Islamic banking, which prohibits lending under conditions that require interest payments, may do little to offset the decline of the dinar.

In addition, Newsweek reported last week that the economic situation in Algeria mirrors the stagnation in its political sphere. The article started ominously, “Since the conclusion of its bloody civil war two decades ago, Algeria has been shrouded in secrecy and suspended in motion. Supported by huge oil wealth, the country’s triumvirate—the presidency, the intelligence services (DRS) and the army—has been able to maintain stability.” For a country with a high birth rate, high income inequality, a highly regulated and privileged private sector, and little initiative to open its economic sphere to greater flexibility and less corruption, it is no wonder that the Algeria is unable to make a significant contribution to enabling the AMU to achieve its stated mission of closer economic and social integration.

Furthermore, according to an AEI policy blog, Algeria’s weaknesses hold grave security implications for the EU and the US. If it is unable in execute much needed reforms, it may give openings for terrorist organizations to destabilize the country, its gas supplies to Europe, and the safely of foreign investments in the country. Although this may be a remote probability at the present time, Algeria’s lack of an effective reform regime has an impact on the other members of the AMU in their capacity to develop strategies for go-it-alone economic growth. It drives away potential investors and partners that are looking at the likely regional impact of even more instability in Algeria – the largest member of the AMU.

Given the continued challenges to the AMU in the coming decade, Morocco will maintain its presence in the regional grouping while seeking its future more proactively in strengthening ties across the continent, as the King continues his economic diplomacy.