Jean R. AbiNader
February 6, 2019
Algerian business leaders, according to an article by the Oxford Business Group (OBG), are increasingly optimistic about 2019, as oil revenues took a good bounce in 2018, critical in a country where oil and gas revenues account for more than 90% of total exports. Although there are no assurances that prices will continue to recover, 61% of CEOs surveyed had positive or very positive (12%) “expectations of local business conditions” in 2019. Betting on the outcome of the upcoming presidential election, 71% reported that they are “considering making a significant capital investment in the same period.”
And yet, there is much to be done. Fully 69% believe that recent reforms to drive investor confidence are insufficient. The tax environment was seen by 64% of the CEOs as non-competitive while only 34% believe that levels of transparency are fine. Looking at locally available skills, in a population with an official unemployment rate of 28% among young people, the CEOs noted the need for leadership (26%), research and development (21%), and business administration (20%) skills.
Although Algeria’s economy grew by 2.3% in 2018 on the back of higher oil prices, it continues to lag in diversifying its economy. It still has an outsized emphasis on its energy sector, as demonstrated in a current business mission to the US that featured primarily energy-related projects. Non-hydrocarbon sectors only grew by 4% last year.
In a move to strengthen its access to international markets, Algeria hopes to ink a deal with ExxonMobil in the first half of 2019 to set up a trade joint venture. This may involve participation in an overseas refinery. Sonatrach has been seeking a shale gas agreement with a major energy US company. In November 2018, Exxon Mobil delivered its strongest third quarter in four years with a 57 percent jump in profit, halting a series of disappointing results and joining its European rivals in profiting from rising energy prices.
In order to diversify its energy mix, Algeria is seeking to build renewable energy facilities in order to meet growing demand for electricity, some 7% a year, and have more gas for export. The goal is to bring online solar plants capable of producing 22,000 MW by 2030, an increase of more than 600% of current capacity. Bids for the first 150 MW are expected this spring.
Tunisia reported a jump in tourism revenues to $1.36 billion as 8.3 million visitors came in 2018. Since the industry accounts for 8% of the country’s GDP, its recovery is an important component of expanding Tunisia’s economy. The 45% increase over 2017 is good news for the sector, with visitors coming from Russia, Algeria, and Europe.
Forbes ranked Tunisia 5th in Africa among “Best Countries for Business.” The top five are Mauritius (39th globally), South Africa (59th), Morocco (62nd), Seychelles (66th), and Tunisia. Countries are rated on 15 different factors including property rights, innovation, taxes, technology, corruption, freedom (personal, commercial, and monetary), and investor protection. In the World Bank’s Doing Business 2019, Tunisia ranked 80th, up from 72ndin 2018.
Morocco is facing challenges with meeting cereal consumption. According to an article in La Tribune Afrique, “A Moroccan consumes on average 440 pounds of cereals a year, against a world average of 335 lbs. Morocco imports more than 44% of its consumption: France supplies soft wheat and barley, Canada durum wheat, and corn comes from the US and Argentina.” Given the consumption of bread is six times that of France, sharp rises in price are politically untenable. Sector leaders believe that eliminating logistics issues at ports and reducing surcharges on supply would enable prices to remain steady. A national commodity exchange would also help to regularize supply and reduce sudden disruptions.
The Index of Economic Freedom issued by the Heritage Foundation, ranked Morocco higher in 2019’s issue. According to an analysis in the North Africa Post, Morocco’s score is 62.9, the 75thfreest country of the 186 in the survey. The index measures trade freedom, business freedom, investment freedom, and property rights. “In last year’s standing, Morocco was ranked 86th. Thus, its overall score has increased, with improvements in fiscal health, property rights, and judicial effectiveness outpacing lower scores for government integrity, labor freedom, and trade freedom.”
Morocco is sixth among the 14 countries in the MENA region and its overall score is above regional and world averages. “Low labor costs and proximity to Europe have helped the country to build a diversified and market-oriented economy…and the Moroccan government is taking additional fiscal consolidation measures to boost growth and improve private-sector competitiveness by strengthening public finances and introducing a more flexible exchange-rate regime,” according to the report, which described Morocco as an open market where the combined value of exports and imports equals 83.5% of GDP.
Other economic news is also moving in the right direction according to the OBG. Although GDP will decline in 2019, according to estimates from 4.1% to 3.2%, it will still double the 1.7% projection for the MENA region. The Central Bank “cited weaker performances in non-agricultural activities and agricultural value-added input as factors behind the lower growth.” According to an analysis by Oxford Business Group, “A key sector that helped drive expansion in 2018 was tourism. By the end of November, Morocco had welcomed 11.3m tourists, an 8.5% year-on-year (y-o-y) increase from the preceding year… Revenue also accelerated, up 9.4% in the first half of the year.”
Other sectors showing improvement were phosphates and by-products, the automotive and aerospace industries, and an increase in foreign direct investment. Internal reforms contributing to the improvements are reducing the costs of registering a business and property, the introduction of a fast-tracked paperless Customs clearance system to facilitate cross-border trade, improved logistics infrastructure, and efforts to ease the resolution of insolvency processes,” according to the World Bank.