2009 Economic Outlook: North Africa Staring at a Tough Year
Despite statements that their economies are in good shape and built to withstand the ongoing global economic meltdown, North African politicians must be aware that the outlook looks shaky at best. Various indications hint that the region should brace for a tough time this year, as each country in the region is facing a specific set of challenges.
In Tunisia, the government is likely to find it impossible to maintain the economic growth the country has been accustomed. As reported in this issue, already the fourth quarter of 2008 showed worrisome signs of an economy headed to a period of slowdown. When their customers up north are facing their own economic crisis with spending cutbacks, Tunisian businesses are likely to feel the pain in 2009. Decreasing exports and lower dinar value versus the US dollar in forex are two consequences of a weak European market. Domestically, unemployment will remain a critical issue, combined with a potentially depressed housing market, making the year 2009 a challenging one for the Tunisians.
Like Tunisia, Morocco has its own set of problems. Despite statements from economist Fathallah Oualalou that his country is sheltered from the global turmoil, the reality is otherwise and already signs of challenging times to come are apparent in several sectors. For a start, the financial industry has been facing a credit crunch of its own, with demand for credit outpacing supply, also as we report in this issue. The central bank, Bank Al-Maghrib was forced to intervene to raise money and pump it back into the system to keep it afloat. This liquidity crisis is worrisome on many levels, with a substantial source of it originating from the overheated real estate and construction sectors. Foreign investors, in particular those interested in real estate have also played a big role in this liquidity crisis. Many Moroccans have raised concerns about foreign companies that have benefited from local bank financing and repatriated their profits in form of dividends paid in hard currency. In relation to the global economic trouble, is the shrinking of the expatriate remittances value. With the economic troubles affecting western countries, which host the expatriates, there is an expectation that inflows back to Morocco are likely to suffer. Already for the month of November, expatriates’ deposits in Moroccan banks failed to grow, but shrank instead by half a point to MAD 67.2 billion. This was the third consecutive month of decline, a loss that cannot be offset by domestic depositors. Similarly, the tourism sector is witnessing flat growth and is expected to show declines in the months to come.
For Algeria, the oil economy, which helped bring in billions of dollars of currency reserves and eliminate altogether the foreign debt could, is now becoming a liability. Outside oil and gas, the rest of the economy has been utterly neglected. There is no trade policy to speak of, and the country’s agricultural strategy failed to deliver on its promise of food independence and sustainability. Even worse is the lack of a sound system of regulation that would insure fairness, transparency and accountability. Oil and gas have been the only focus of the country’s industrial strategy and the consequences of this policy will likely be felt as oil prices remain depressed.
Even in good times, when oil prices peak, Algerians have been accustomed to erratic market conditions. No household would forget the recent unexplainable spikes in potato prices. The official response has been to justify price hikes by pointing to the rise in commodity prices. In fact, not just potatoes but all other products have been witnessing price hikes that disrupted household finances. From food to household cleaning products and services. This state of affairs is not the result of the traditional market forces, but highlight how powerful speculators are and how weak the government has been.
The government’s response to volatile prices and public anger has been nearly exclusively in form of tapping into the nation’s reserves to cover speculative activities and a market out of control. Imports have been the main instrument of this policy, providing enormous opportunities for exporters from Europe. Substandard and poor quality products from Asia have invaded Algerian markets, creating a false sense of economic progress.
For Mauritania it will be business as usual. It will remain one of the world’s poorest nations and a country that will continue to suffer from political turmoil and instability. The outcome for that country is unchanged and that does not bode well.
Libya is in a different situation. With billions of dollars collected from the oil sector over the past years, combined with a small population, it is the North African nation most prepared to deal with a global economic meltdown, at least for the time being. What Libya may be forced to do if the crisis is prolonged is to delay its grandiose infrastructure projects for future times. The Kaddafi family will need all the money they have to insure social stability and maximum security and what they have in the banks today may be sufficient for a couple of years.
The crisis will hit the region when fresh elections are expected to take place. Algeria and Tunisia will have their presidential elections and both Algeria’s Bouteflika and Tunisia’s Ben Ali could rule over countries facing whole new types of challenges.
