Indo-Algerian Foreign Trade Relations

PAST, PRESENT and FUTURE

Algeria

Akash N. Bhowmick-02
Pankaj Rastogi-25
Himanshu Titoria-16
Zoheb Zuber-54
Presention Date: 20 February 2010 Anshul Jain-05
 At a glance
A brief profile of Algeria
India’s present trade relations with Algeria – composition of exports
and imports
India-Algeria bilateral agreements
Major Indian projects in Algeria
Major trade barriers in Algeria
Identifying major trade items for the future
India’s strategy for improving trade relationship with Algeria

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 Profile of Algeria
LOCATION
Algeria is located in North Africa midway along the Mediterranean coastline. It is bound by the Mediterranean Sea to the north,
Morocco to the west, Libya to the east and Tunisia to the northeast. The two mountain ranges of the Tell Atlas and Sahara Atlas
divide the country into three topographical zones.

PEOPLE
The principal ethnic majority are the Arabs who account for around 83% of the population while the remaining 17% are Berbers.

RELIGION
The official religion is Islam with 99% of the population Sunni Muslims while Roman Catholics and Jews combined represent less
than 1% of population.

LANGUAGES
The official language is Arabic which is spoken by approximately 81% of the population. Rest speak French.

CURRENCY
The official currency is the Dinar (DA) divided into 100 Centimes.

MAIN TRADING PARTNERS

Algeria’s main trading partners are France, Germany, Japan, US, Italy, UK, Spain, Belgium and Netherlands.

MAIN EXPORTS
Crude Oil, Dates, Liquefied Natural Gas (LNG), Petroleum Products, Wine, Dates, Fruits and Vegetables.

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 At a glance (Profile)

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 Macroeconomic Profile
of Algeria
FISCAL POLICY
Government’s revenue fell sharply in 2009 as oil and gas prices remained below their 2008 highs.
Fiscal policy will remain expansionary driven by the government’s five year infrastructure programme
to boost economic activity. Government released a supplementary budget in July 2009 which
introduced a variety of measures to lower the country’s import bill. The budget is based on an oil price
of US$37/barrel. As oil prices are well above the budgeted level, revenue is therefore expected to
exceed government forecast.

MONETARY POLICY
The official policy aim of Banque d’ Algerie (the central bank) is to control the expansion of the
money supply in order to contain inflation though it does not publish its target for monetary growth.
The BdA is likely to keep the interest rates low to encourage the development of the banking sector.

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 Macroeconomic profile (contd…)

ECONOMIC GROWTH
Growth in hydrocarbons production was low in 2008 thereby restricting GDP growth. Non-
hydrocarbons sectors however posted robust growth rates owing to steady expansion in
construction and public works backed by intensive government sponsored initiative to
upgrade Algeria’s infrastructure and to provide affordable homes. Strengthening oil prices
will support investment and will help to counteract the slowdown in export growth caused by
the economic downturn in U.S.A and Europe. The GDP growth is expected to be 4.5% in
2010.
INFLATION
Inflation averaged 4.3% in 2009. It is expected that average inflation will fall to 3.4% in
2010.Governemt will continue to subsidize many food products in order to maintain
artificially low inflation.

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 Macroeconomic profile (contd…)

EXCHANGE RATES
The BdA continues to operate a managed float of the Algerian dinar. The main
aim is to maintain exchange-rate stability particularly with the US dollar and the
euro. To curb the rising inflation, BdA allowed the currency to appreciate against
the dollar during 2008 when it averaged AD65:US$1. Since then they have allowed
the currency to depreciate to around AD73:US$1 to reduce the demand for imports.
The government is likely to continue to depreciate the currency further in 2010.
EXTERNAL SECTOR
Strong domestic demand and higher commodity prices, specially for food and
construction materials, in 2010 will pressurize the import bill to move upward but it
would be outweighed by higher exports stemming from rising oil prices. The trade
surplus is expected to widen to US$17.8bn in 2010.

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 Composition of Trade
Country: ALGERIA (Values in US $ mn)
Exports and Imports
S.No. Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
1EXPORT 231.22 271.39 335.04 377.17 653.08
2%Growth 17.37 23.46 12.57 73.15
3India's Total Export 83,535.94 103,090.53 126,414.05 163,132.18 185,295.36
4%Growth 23.41 22.62 29.05 13.59
5%Share 0.28 0.26 0.27 0.23 0.35
6IMPORT 6.31 14.65 755.46 1,238.95 1,052.57
7%Growth 132.01 5,057.45 64 -15.04
8India's Total Import 111,517.43 149,165.73 185,735.24 251,654.01 303,696.31
9%Growth 33.76 24.52 35.49 20.68
10%Share 0.01 0.01 0.41 0.49 0.35
11TOTAL TRADE 237.53 286.03 1,090.51 1,616.12 1,705.65
12%Growth 20.42 281.25 48.2 5.54
13India's Total Trade 195,053.37 252,256.26 312,149.29 414,786.19 488,991.67
14%Growth 29.33 23.74 32.88 17.89
15%Share 0.12 0.11 0.35 0.39 0.35
16TRADE BALANCE 224.9 256.74 -420.42 -861.78 -399.49
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17India's Trade Balance -27,981.49 -46,075.20 -59,321.19 -88,521.83 -118,400.95
 Major Items of Trade

India’s Exports to Algeria

Diary, agro products that include coffee, tea, raisin, skimmed milk, seeds, nuts,
groundnut, cashew fruits, processed and semi-processed fruits and vegetables,
sauces, jams, jelly, some minerals and metal products.

India’s Imports from Algeria

Liquefied natural gas, petroleum oils, bituminous minerals, fuel oil and natural
calcium phosphate.

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 India-Algeria bilateral agreements

Important bilateral treaties and agreements

1. Double Taxation Avoidance Agreement ( Signed in January 2001 ) – To avoid

double taxation and promote economic cooperation.
2. Phytosanitary Agreement ( Signed in January 2001 ) – To establish cooperation
and protection of natural vegetation of the respective countries against diseases
and destructive agents.
3. Veterinary Sanitation Protocol ( Signed in January 2001 ) – To enhance
cooperation between the veterinary authorities of both the countries.
4. Air Services Agreement ( Signed in 2000 ) – To improve connectivity between
the two countries.
5. Cultural Exchange programme for 2004-05 ( Signed in October 2003) – To
strengthen and proper cultural relations between the two countries.
6. Agreement on Cooperation in SMEs ( Signed in October 2003 )

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 Major Indian projects in Algeria

Projects for Indian Cos. awarded

recently in Algeria

1. Indian Railway Construction Co.

(IRCON) won a US$240 mn. contract for
construction of 108 km railway line.

2. An Indian construction co. M/s Era

Construction Group won a US$21 mn.
Contract for construction of 3000 bed
hotel in Tizi Ouzou in Algeria.

3. M/s Transrail Structures Ltd.,

Maharashtra, won a contract for laying
transmission lines with optic fibre in a
section of 110 km in Algeria.

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 Major Trade Barriers
Algeria’s supplementary budget was published on 26th July 2009.
It includes imposition of a ban on consumer credit and new rules have
been formulated for companies importing goods and services from abroad.
Their main aim is to promote the interest of local businesses at the expense
of their international counterparts and lower the rapidly expanding import
bill which contributed to a fall in the trade surplus to US$1bn in the first
half of 2009 from US$20bn during the same period of 2008.
Article 75 prohibits banks from providing consumer loans except for
the purchase of property. The purpose is to divert credit from the purchase
of imported cars. The budget also includes direct measure to reduce car
imports. Taxes introduced a year ago on new cars have been doubled.
Article 69 of the budget states that LC must be secured for import
payments of over AD100,000.

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 Major Trade Barriers (contd…)

Article 63 of the supplementary budget extends a 3% tax on funds

placed in the bank accounts for the purpose of importing goods. This is
also done to curb imports.

Article 58 clarifies that companies importing goods must cede a 30%

share of their capital to local bodies. It also states that foreign companies
would be restricted to a minority share in joint ventures with local
companies. This would in turn deter foreign investments.
Consequence: The proposed 3m-tonnes/year steel plant set up at Jijel by
Ezz Steel of Egypt on the verge of cancellation because it wanted to keep a
majority stake in the project.

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 Major Trade Barriers (contd…)

Some major non-tariff barriers include :-

 Road and rail infrastructure in some parts of the country is patchy thereby
leading to excessively high logistics cost.

 Islamic militancy is re-emerging in Algeria under the new name Al-Qaeda

in the Maghreb and this would positively deter foreign investors.

 Bureaucracy is a big problem making the entire process of establishing

business in Algeria very cumbersome even for some of the large
Transnational corporations.

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 Comparative Analysis

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 Major Trading Items
for the Future
Export of Pharmaceutical Products
There is a huge demand in the pharmaceutical sector. Algeria is a large
importer of medicines. It is mostly imported from Europe which is very
expensive. Hence, the Indian pharmaceutical companies should explore
this sector.

Real Estate Business

Algeria has a severe housing shortage. The country needs to build an
estimated 175,000 new housing units every year during the next decade to
absorb the current housing deficit. In the supplementary budget, a number
of measures have been adopted to boost the social development
programme. Loans are being provided to public sector workers in Algeria
at an interest rate of 1% for house construction and extension.
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 Major Trading Items
for the Future (contd…)
Tourism Industry
Supplementary budget has also provided a 3-4.5% interest rate saving on bank loans
undertaken for new tourism projects and for the modernization of the existing
facilities. Lower import duties would be charged on imported goods for the purposes
of such modernization. This opportunity should be explored effectively by Indian
construction giants such as L&T etc.

Turnkey Projects
Algeria is facing an acute shortage of suitably sized firms having desired competence
which can takeover the responsibility of major turnkey projects in different sectors.
This is a shimmering scope for Indian construction giants to plunge in and bring back
home projects worth millions of dollars.

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 India’s Strategy towards Algeria

 The Government of India is keen to finalize the trade

agreement between the two countries, the drafts for which
have already been exchanged. This trade agreement would
undoubtedly facilitate cooperation in trade amongst the two
countries.

 India is keenly waiting for the establishment of India-Algeria

Joint Business Council between FICCI (Federation of Indian
Chamber of Commerce and Industry) and Algerian Chamber
of Commerce and Industry. Algerian response is still awaited.

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 India should….
 Streamline visa formalities which is cumbersome at present.

 Algerian importers are looking for Indian suppliers for those goods which they
are presently importing from China. Indian exporters should be made aware of
this growing opportunity.

 Joint venture projects between the two countries should be initiated and
promoted so that India can take active part in Algeria’s modernization drive and
in turn do business with Algeria.

 Algeria imports textiles to cater to its local market. This sector also provides an
opportunity for textile exporters from India. Adequate steps should be taken by
the Indian government to facilitate textile exports.

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 Thanking You
For your patience…

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