Algerian domestic market: a national-scale auction

I have always wondered what (or who) really sets the prices for consumer goods and comodities within the Algerian market. The national press has a long-established moaning tradition about booming food prices (which usually sky-rocket in festive seasons such as Eid, Ramadan, Mawlid etc.). The poor Algerian consumer is always depicted as the powerless victim who doesn’t have enough spending power nor choice and is obliged to buy at whatever the selling price. The merchants are always the evil, merciless baddies who refuse to lend a helping hand to their brethren and sisteren compatriots (by selling their goods at cheaper prices) and the Algerian State is the pathetic useless tired old dog who cannot control anything and is unwilling to even try. These arguments when considered separately may seem coherent and sensible but when considered together they are devoid of any sense and are even contradictory!

First of all, how can the Algerian consumer be so powerless when regardless of the prices, he still buys all sorts of goods (for example, prices of construction materials such as cement have been steadily increasing and yet the Algerian national sport of building houses has shown no sign of abaiting). To my sense, the Algerian consumer is a mystery, he is an entity which needs to be analysed and comprehended because spending power on its own does not explain the Algerian consumer’s seemingly self-contradictory behavior. My own guess is that social pressure and the need to keep up appearances is a major factor in shaping the Algerian consumer’s spending choices and often overrides any personal budget constraints (I don’t dare imagine what the situation would have been if Algeria had the same borrowing-based financial infrastructure as the West).

Second, we have the evil merchants whose justification for the prices always consists of blaming foreign imports, military controlled cartels of key market sectors (eg. sugar, meat and cement) and the ever stretching production and distribution chain which incurs increasing costs that will have to be passed on to the consumer. These arguments are not completely devoid of truth but the merchants are lying because everyone knows that a huge proportion of retailing within Algeria takes place informally (up to 40% according to this report) and is beyond the control of the government. In many ways, Algeria does have as close to a ‘free market’ as it’s possible to have.

Third, we have the oligarchs who detain production means or importation licences and their arguments always revolve around the many taxes and trade restrictions imposed by the government, the discouraging investment environment in Algeria and the rise in the prices of raw materials in international markets. This is all very well and good, but doesn’t the existence of these oligarchs at least partially deny the ‘discouraging investment environment’ claims? Algeria does not have a discouraging investment environment, it has a preferential investment environment. For years, foreign oil companies have been looting the country’s oil ressources through outrageous deals with government officials (only recently has the government decided to apparently wake up and smell the coffee and prosecute senior management figures in the one and only national oil company SONATRACH amongst others). As for inbred entrepreneurs, the Bushist philosophy of ‘You’re either with us or against us‘ applies. If you want to make it, you need to stay under the protective wing of one of the big barons and the golden rule is: don’t get too ambitious because if you do you’ll get squashed like the vermin that you are.

And last but not least, we have the State whose only function seems to step in in every crisis to reassure the Algerian consumer and say that prices will be subsided by the government (crisis micro-management). The arguments of the government are the most hilarious (in a tragic way). The government blames everything on ‘speculation’ and whatever else happens in international markets. I really have the impression that all what our government does is parrot whatever other government officials in other unrelated countries say! The only thing government seems to do is subside prices, no matter what it says the reason for their boom is. Isn’t this odd? I mean do they have no regulating power at all over the national economy? Can’t they enforce policies on retailers, importers for example? Restructure the market sectors, organise trade activities; I don’t know…anything that may look remotely more sustainable than subsiding prices!

To recap, I don’t understand what economic mechanisms govern the Algerian domestic market and I don’t know how this situation will unfold in future. On the one hand, I quite like the relative autonomy the average Algerian citizen has to trade (it is not without problems but nothing is). But on the other hand, I am worried that this doesn’t seem to fit in any national scheme or vision for a sustainable economic development. The government policies have been so erratic and incoherent, at one point they went mad with wanting to encourage foreign investment and went as far as basically selling bits of the country to foreign capital. I don’t have the reference, but I seem to remember that Chakib Khalil’s argument to justify this was that investment cannot take off without personal property: meaning that the motivating force for investment is when the investor feels that they own the investment. Well, in that case, why not sell the country to its own citizens then! Why bring in foreigners? Wouldn’t it have been better to promote local businesses, even small ones and create a diversified range of local goods and produce, or even products that are imported by small groups of young people (who are known as bzansiya in common Algerian parlance)?

This is what Algeria needs, a stable and diverse local economy which is based on fair competition. Small businesses which help people become independent and sustain their families whilst at the same time being productive. We don’t need foreign investment, not if it means prostituting the country’s natural ressources. Because this is what it looks like: the country is up for grabs for the highest bidder!

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4 thoughts on “Algerian domestic market: a national-scale auction

  1. The Algerians’ ability to complain because everything is expensive while at the same time they buy everything, even the unnecessary, strikes me too. Isn’t it strange that so many clients buy kiwis and mangos? The way the people jumped into borrowing was worrying, and I think it’s a good thing Ouyahia banned the consumers credits last March (although it was, like you said, crisis micro-management).

    The Algerian state is weak and has no power on the population, or anything for the matter. The powerful in Algeria are the men of the state and their friends or allies (who control the biggest part of both production and import fields), which is quite different. And that’s why most of the state’s decisions and actions remain inefficient.

    I think Algeria doesn’t encourage investment, you just have to compare to what other states do to attract foreign investors, and let’s not mention the bureaucracy and the many conflicts of interests. But I believe in local investment: I think Algeria needs big champions such as Cevital, ERTHB, etc. but also the small businesses you talk about. But it needs real productive investments and not the usual Import-Import “industries” or the “I buy a Hyundai and create my urban transportation company” projects.

    Last point, and on this I agree with Bouteflika, we need to develop our agriculture. We won’t achieve anything before becoming self-sufficient with this regard.

    • Hi MnarviDZ. What do you mean by ERTHB?

      I want to clarify my stance on ‘foreign investment’: I do realize that it could be advanatgeous for the economy but not in absolute terms, it must be integrated within a wider framework of national economic vision where most of the production means are local. How would ‘foreign investment’ benefit the country if all the profits are taken outside the country whilst all (or most) costs are shouldered by the countries’ natural wealth (depletion of resources and exploitation of cheap labour without increase in know-how)? The type of ‘foreign investment’ as well as its terms are important.

      This also applies to local entrepreneurs obviously and this is what I meant by ‘preferential investment environment’ where only government buddies are allowed to grow big bellies. You mention CEVITAL, I agree Algeria needs such big business but doesn’t it seem odd that some big businesses seem to be subjected to all kinds of restrictions and regulatory hassle whereas some others don’t? Is Rabrab more cunning and gifted than other businessmen or is there something else he has managed to secure that others didn’t? This is another thing I don’t understand, how come Algeria hasn’t yet managed to breed a decent number of locally-based big business? Or is it just a question of advertising and visibility? I mean, consider these figures related to CEVITAL from this source (all emphasis and links are mine):

      Cevital, owned by its founder and chairman, Issad Rabrab, is Algeria’s largest privately owned company, and the sixth-largest in the country. Cevital produces edible oils, sugar, and margarine. Over the next five years, it also intends to start producing cereals, milk and dairy products. Cevital has Algeria’s only domestic edible oils refinery, with a capacity of 570,000 tonnes/year (t/y), some 140% of the needs of the domestic market. The rest is exported. It also runs a sugar refinery with a capacity of 600,000 t/y, or 60% of the domestic market needs. In late 2008 or early 2009 the sugar refinery will be extended to a capacity of 1.6m t/y, and Algeria will become a net exporter of sugar for the first time. Finally, Cevital produces 180,000 t/y of margarine, enough to cover 120% of the domestic market needs, with the excess being exported. Over the next five years, Cevial intends to expand its agribusiness and move into the production of fruit and vegetables. It is also aiming to become a major player in the global market and expects to find itself among the ten largest African companies before 2012.

      It strikes me as odd that a single company can extend into so many food sectors in such a short time.

      Lastly, your point about agriculture. Dream on MnarviDZ! Self-sufficiency is an impossibility given Algerian land reality (unless we somehow figure out how to farm the desert). Add to that the fact that most arable Algerian land has been destroyed by poorly planned urbanization programs.

      • ERTHB is Ali Haddad’s company, and Haddad is the biggest known sponsor of Bouteflika’s presidential campaign.

        I agree with you on the kind of foreign investment we need. You have countries (such as China) who use these investments as means to acquire know-how and develop local activities, but China is in a strong position because of its workers low cost and because it’s a big market which cannot be ignored by the West. Then you have countries such as Tunisia who do a lot to attract foreign investors, but it seems like the only benefit it gets is a smaller unemployment rate. But Algeria doesn’t seem to have benefited of any sort of advantage from the foreign investments. And these investments remain very low compared to what they should be, especially if you consider Algeria’s size and geographical position.

        Is Rabrab more cunning and gifted than other businessmen or is there something else he has managed to secure that others didn’t?

        Do you really need an answer?

        It strikes me as odd that a single company can extend into so many food sectors in such a short time.

        I don’t know to be honest. The company does well and its original field has less “market” risks as we all need to eat. Cevital is following the Korean conglomerates’ model, and I hope its bases are solid and it won’t collapse in the near future.

        Lastly, your point about agriculture. Dream on MnarviDZ! Self-sufficiency is an impossibility given Algerian land reality (unless we somehow figure out how to farm the desert). Add to that the fact that most arable Algerian land has been destroyed by poorly planned urbanization programs.

        I think it’s a shame that we’re in the wheat importers’ top 3 (with our Egyptian friends). At least we could (we should) be self-sufficient on the most consumed stuff. I agree 2million km2 of our country is desert but I am sure we can do something about it (was it Abassi Madani who promised to turn the Sahara into paradise? lol). The real problem is indeed the destruction of our arable lands. We have laws and regulations protecting them, but obviously nobody’s respecting them.

  2. I think that what held back Algerian foreign investment policy is communist (or socialist if you prefer) ideology. For years and years, the Algerian political elite were obsessed about national sovereignty and ownership of the land and all natural resources. Foreign investment was perceived as handing over bits of national sovereignty which is true in a sense because our view of foreign investment is allowing foreigners to come and exploit our resources and getting paid in cash. Add to that the fact that Algerian human resources were not adequate because of colonialism.

    The tragedy now is that very little has changed (I don’t want to say that things have got worse, but they have because human capital has also been corrupted now), but the political elite have now changed their stance because Algerian currency has been destroyed and foreign capital reserves are what determines a country’s prosperity. In many ways, they do not have much choice now but to sell the country and pocket the money. We got ourselves in a position where we need foreign investors more than they need us and it is never a good thing for a country which claims itself sovereign to be in an inferior bargaining position relative to foreign investors.

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