Falling dollar could impact Algerian economy

25/11/2007

As import costs climb, Algerian business leaders say the increased value of the euro against the US dollar is likely to have repercussions for the national economy. According to the energy minister, however, record oil prices are balancing out the loss in purchasing power and sheltering the country from rate fluctuations.

By Lyes Aflou for Magharebia in Algiers – 25/11/07

[Getty Images] Finance minister Chakib Khelil said OPEC will be examining the currency exchange issue in December.

A new study suggests that the dollar's decline against the euro could have negative implications for the Algerian economy. Europe's single currency traded at a record 1.4752 dollars last week, the highest exchange since its introduction in 1999.

According to an analysis by Algeria's leading organisation of private employers, the Heads of Enterprise Forum (FCE), the dollar's 33% depreciation against the euro between 2002 and 2006 caused a 14.4% rise in the overall cost of Algerian imports. The FCE report found that 66% of Algeria’s imports, predominantly industrial capital goods and manufacturing materials, almost doubled over the past five years, to 21.5 billion dollars.

In this period of the rising euro, however, increased trade with China, India, Malaysia, South Korea and Japan have stayed profitable for Algeria as the dollar remains the exchange currency for these countries.

Algerian-Chinese trade for example, driven to new heights by President Bouteflika's visit in 2006, has exhibited a continued growth over recent years. China was responsible for 8.28% of trade in the first half of the year and, with $1.06 billion, is now in second place after France ($2.32 billion). Apart from purchases of capital goods and raw materials, the Chinese are also represented in various major projects in Algeria, including the impressive East-West highway.

Turkey and the Emirates have also increased their trade with Algeria by 20% per year. Due to the rise in the euro, Asian goods cost 30% less than those made in Europe.

The increased cost of a barrel of oil offsets the dollar's shortfall. Algeria is further insulated from the rise of the euro because its high-quality Sahara Blend oil sells at a high price, explained Minister for Energy and Mines and OPEC chairman Chakib Khelil.

"Even though 98% of Algerian exports are priced in dollars, the main trading currency for international oil transactions, and 60% of its imports come from the euro zone, the record prices being seen for a barrel of oil are balancing out the loss in purchasing power and are sheltering the country from the negative effects of exchange rate fluctuations," he said.

Despite its devaluation, the dollar "will for many years remain the only exchange currency" on the international oil market, Khelil added.

This, says Algerian economist El-Hachemi Siagh, is why the lasting solution for Algeria lies in "the diversification of its exports in such a way as to reduce its reliance on hydrocarbons."

According to Chakib Khelil, OPEC will examine the currency exchange rate issue at its next ministerial conference on December 5th in Abu Dhabi.