Indo-Algerian Foreign Trade RelationsIndo-Algerian Foreign Trade Relations

PAST, PRESENT and FUTUREPAST, PRESENT and FUTURE

Akash N. Bhowmick-02Pankaj Rastogi-25Himanshu Titoria-16Zoheb Zuber-54Anshul Jain-05Presention Date: 20 February 2010

Algeria

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

At a glance

Profile of AlgeriaLOCATION 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.

At a glance (Profile)At a glance (Profile)

Macroeconomic Profileof 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.

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.

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.

Composition of TradeExports and Imports

Country:  ALGERIA (Values in US $ mn)

S.No. Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

1 EXPORT 231.22 271.39 335.04 377.17 653.08

2 %Growth   17.37 23.46 12.57 73.15

3 India'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

6 IMPORT 6.31 14.65 755.46 1,238.95 1,052.57

7 %Growth   132.01 5,057.45 64 -15.04

8 India'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

11 TOTAL TRADE 237.53 286.03 1,090.51 1,616.12 1,705.65

12 %Growth   20.42 281.25 48.2 5.54

13 India'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

16 TRADE BALANCE 224.9 256.74 -420.42 -861.78 -399.49

17 India's Trade Balance -27,981.49 -46,075.20 -59,321.19 -88,521.83 -118,400.95

Major Items of TradeMajor 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.

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 )

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.

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.

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.

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.

Comparative Analysis

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.

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.

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.

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.

Thanking YouFor your patience…