Before the present decade, relations between Spain and Algeria were slight and rather cold, a situation clearly reflected in their specific worldviews, the fruit of divergent political experiences. This phase will come to an end in October with the first state visit to Spain to be made by an Algerian President. During the course of the aforesaid visit several important agreements will be signed in order to promote both political and economic relations between the two nations.
Algeria has for over a decade been the main source of energy supply to Spain and our 12th biggest trading partner. Cepsa and Repsol have important interests in the country, while Sonatrach is the main Maghrebi investor in Spain. That is to say, the relationship reveals certain conditions which, a priori, would invite two countries to keep close political and diplomatic contact. Nevertheless, Madrid has not signed any bilateral agreement with Algeria for over eight years, since 1994 to be exact.
This situation is about to change. At the end of April, the Algerian President Mr. Bouteflika signed an Association Agreement with the UE in Valencia and is expected to return to Spain in the first week of October on what will be his first “State Visit”, and his fourth visit overall, since he came to power in 1999. During the course of this visit, it is expected that he will sign the Treaty of Friendship and Co-operation, finally raising Spanish relations with Algeria to the same level as those enjoyed with Morocco and Tunisia. In truth, an Algerian President has never come on a State Visit to Spain; something quite unthinkable during the decade of the 1990’s, in which bilateral relations declined as a consequence of the Algerian conflict. The mere 100 km that separate Oran from Almería came to represent an ocean of distance, and some individuals fervently desired that it remain so.
Many people recalled the all-but non-existent relations with Algeria during the Franco regime, on account of the socialist character of the new Algerian State, which had won its independence in 1962. This trend continued throughout the sixties given the more or less explicit Algerian backing to the Frente Polisario during the de-colonising of the Sahara. The relationship had become so slight that Spain was reduced to being a type of Switzerland for all types of Algerian exiles. A large number of members from the Algerie Francaise found themselves in exile in Spain from 1962 onwards. Oddly enough, its arch-enemy, the deposed first president of the newly independent Algeria, Ahmed Ben Bella, also found shelter in Spain during his long exile.
This resulted in the fact that the two countries failed to exchange visits at the head-of-state level on thirty years: In 1983, the King and Queen of Spain visited Algiers, while Chadli Benjedid would visit Spain two years later in 1985. This obvious lack of relations is highlighted by the official list of Bilateral Agreements signed by Spain. There are only twelve such documents signed with Algeria, yet 76 have been signed with its neighbour Morocco. During the eighties it seemed that this trend could change, however, Algeria underwent a crisis at the end of the decade, and was wholly incapable of concentrating on anything else that was not concerned with containing its internal haemorrhage. The first round of the elections that had been won by the FIS Islamic party at the end of 1991 was declared null and void, seeing Algeria become immersed in a process which by 1998 has already caused over 100,000 deaths and the volatilisation of its economy. In 1987, Algeria had a GDP per capita of $2,705, a figure which reached an all time low in 1995 of $1,497, almost half of the previous rate. This crisis meant that Algeria found itself incapable of paying its suppliers, which ended up giving rise to “losses” for the Spanish Exportation Credit Insurance Company (Cesce) to the order of 908 million Euro at the end of the decade (the year 2000), turning it into the highest Cesce source of arrears of payment, and possibly, that of the Spanish state as well. Perhaps, there is no other case in the world in which the main supplier of energy of a country is also its main debtor in default.
The situation became so alarming in 1998 that Spain, by means of its Hydrocarbon Law, legislated against any “one country” supplying more than 60% of its gas. At the end of the same year the Algerian President Liamin Zeroual gave up the ghost and brought forward early presidential elections. The situation had deteriorated to such an extent that before holding the elections, the Minister of Justice, Mohamed Adami, resigned, and soon after, in December 1998, the Prime Minister Ahmed Uyahia also stepped down, giving rise to the formation of a caretaker government up to the holding of the elections in April 1999. The new president, Abdelaziz Bouteflika, took up office on 27th of April of the same year.
The axis begins in Algiers
Instead of visiting France, the first two visits made by the new president were to Spain, in July and October. The Algerian President met the Spanish Prime Minister José María Aznar; the latter describing the conversation that they had as both “culturally and historically passionate”. Aznar publicly praised the Algerian leader and said of him that he “represented a future hope of security and peace for the entire Mediterranean region”. A rather uncharacteristic tone in the normally laconic Spanish Prime Minister.
This effort was repaid by Prime Minister Aznar with his first official visit to Algeria in 2000. On that occasion a political agreement was reached to begin to foster closer relations, with talks starting out on a Friendship Treaty to be entered into the following year, and which will be signed in October.
There will of course be those who wish to place this rapprochement within the context of the bad relations with Morocco. And indeed, certain significant comparisons may be established: Spain has recently agreed its first exchange of debt for investments with Algeria, but there appears to be no intention of renewing the agreement held with Morocco, the third phase of which has just come to an end.
Spain has recently awarded credit to the order of 130 million Euro to Algeria and the renewal of the Finance Program for a similar sum has been announced. The Moroccan Finance Program, however, expired in the summer of 2001, and there does not seem to be any hint of its renewal. Lastly, Algeria supports the independence of the Sahara, while Morocco claims for its annexation.
Notwithstanding, the origin of this Algiers-Madrid axis pre-dates the outbreak of the crisis with Rabat and has nothing to do with our good or bad relations with Morocco. From the Spanish standpoint, it manifests the need to maintain the greatest co-operative relation possible with our main energy supplier (which is analysed in a separate document). From the Algerian perspective, its framework is the international re-insertion of the country, which in the past sought to lead the developing countries when Bouteflika was the Minister for Foreign Affairs (1963-1978). At present, in contradiction of himself, Bouteflika as President, has demonstrated no reticence whatsoever in visiting the President of the United States on two occasions during the course of 2001 and of joining institutions such as NATO’s Mediterranean Dialogue. Before, that is, the terrorist acts of 11-S were to increase appreciation of the anti-fundamentalist curriculum of Algeria, a country devastated, each day less, by terrorism. A problem, the sinister recurrence of which only survives in one European country, Spain.
Anchorage to Europe
The most relevant milestones of the Algerian return to the international community include the beginning of negotiations to become a member of the WTO and, above all, the signing of the Association Agreement (2002). This serves to correct a historical anomaly, given that Algeria will be one of the last Mediterranean countries to sign this Agreement even though it is one of the countries with the closest relations to Europe (61% of its export trade). In reality, the country already formed part of the original European Communities, albeit through the fact of being French territory until 1962, and not as a full member.
From the trade standpoint, this agreement will have important consequences for Algerian foreign business. On the one hand, it provides Algeria with free entry for its industrial exports into Europe. While Tunisia or Morocco have become manufacturing bases, Algeria could take advantage of this situation to do the same in the industrial field. As a result of the internal market represented by its hydrocarbon, Algeria is the only southern Mediterranean country with anything remotely resembling an industrial plant. Perhaps this is not in optimum conditions, but there are installations and sufficiently qualified personnel in Algeria to carry out tasks, with guarantees, where the labour costs will make it unbeatable. The winding of large electric motors, for example.
For European companies, this agreement opens the door onto the largest Maghrebi market in a process similar to that experienced by its neighbouring countries, Morocco and Tunisia. The Algerian economy, with a GDP of $53,000 million in 2000, is nearly bigger than the GDP’s of Morocco ($34,000 million) and Tunisia ($18,000 million) together. Nevertheless, up until now it has been a very closed market, and has been protected by all kinds of duties and tariffs. Therefore, its imports for the year 2000 ($9,300 million) were similar to those of Tunisia ($8,000 million), whose population is 20 million people less, and which has a similar GDP per capita. In the case of Algeria, imports only represent 17% of its GDP, while they account for 43% and 32% of the GDP’s of Tunisia and Morocco, respectively, these being countries that signed their Association agreements years ago. This situation suggests that Algeria could be importing $20,000 million within a short space of time. That is to say, doubling the size of its current import market.
The relative isolation in which the Algerian economy has been operating up until now is explained by the fact that the private sector is barely five years old. Algeria, up until the middle of the 90’s, was a centralised economy dominated by several state monopolies. The dismantling of this system was carried out very prudently, first enabling private investment of no more than Da35 million. At a later stage, the end of the state monopoly on imports was declared, but formidable tariff barriers were created that enabled this private sector to emerge gradually. These restrictions were compounded by the shutting-down of the border shared with Morocco.
Nevertheless in Algeria, as with any other country with a Mediterranean sensitivity, the strictness of any regulation is normally made up for by its general non-fulfilment. That is to say, smuggling is quite widespread, especially in its more artisan variety. Algerian airline flights to Barcelona, for example, are normally taken up with a high percentage of young people who deal in this business, who normally leave and return on the same plane. The Hit Parade as regards this trafficking is headed by cigarettes and perfumes in their aerial version, and by industrial raw materials in their more professional version; the latter normally passing through Morocco. It is extremely difficult to make a financial estimate of the smuggled goods, but its social impact is so influential that its Algerian name, “trabendo” (from which “trabendisme” derives) has just recently been entered into the latest edition of the Petit Larousse, the most widely-known French dictionary. After cultivating its immature private sector, the Algerian government now understands that the country can no longer support the nursery phase. Algeria needs to grow in order to offer its people a future. There is a high percentage of unemployment there, reaching a level of 30%, and open to further increases given the fact that half of the population is under age. In order to grow Algeria needs investment and markets. Logically, the European Union demands reciprocity in exchange.
What is Algeria?
The international insertion of Algeria has been accompanied by a number of internal reforms which are gradually being consolidated. According to a report from the French embassy in Algiers, the year 2001 saw “approximately 800 victims” of terrorism. A number which suggests an important degree of pacification with respect to the unofficial overall figure of 100,000 deaths to be accounted for since 1991.
Even though it is still considered to be a turbulent country, today it is quite possible to support the argument that Algeria is an increasingly more democratic country, and that if its continues in this vein it is most likely going to become one of the most democratic nations of the Arab world. The elections that were held on the 30th May last have been understood to be the cleanest that have been held in the history of the state. Obviously, Islamic parties, such as FIS, are prohibited from participating, while the Cabilia parties did not present themselves, thus there was no need to rig the results. Notwithstanding, the government acknowledged that only 47.5% of the electorate voted (barely 2% in the Cabilia area), undoubtedly constituting a novelty in the Arabian world, which is accustomed to declaring grandiose figures of up to 99% participation. This act of humility has been seen as recognition of the problems that are confronting the country, which tends to be the starting point from which to resolve the same. Moreover, the situation of the female population is unique in the Arab world, where there are countries in which the woman does not have the right to vote, or is denied the possession of an independent legal personality. An extremely revealing feature is the fact that Algeria has the most independent press sector in the Arab world. Of course, media such as Watan or L’Expression are still in their infancy with respect to their European counterparts, but paying a visit to an Algerian newsagent’s is a unique experience in the Arab world. It is the only country where one runs the risk of “learning through the press” about the matters that may affect you. For example, after the publication of several articles on alleged irregularities in the awarding of the concession of a GSM licence to the Egyptian company Orascom, the Director of Public Prosecutions has just opened an official enquiry into the circumstances surrounding the operation. These elements are extremely relevant when it comes to evaluating Algeria, and must certainly be taken into greater consideration than the widespread theory about the dirty war going on against terrorism. The latter theory suggests that the Algerian secret services have tried to undermine the popularity of the Islamic fundamentalists (who won the elections that were held in 1991) by means of a quite macabre method. According to those who adhere to this idea, they would have more or less directly backed the more radical elements. The aim in mind being to confront certain fundamentalists with others and showing the atrocities that had been committed by each side, which would end up in a loss of popularity for the same. The experience of the Spanish Civil War reminds us that practically anything is possible during an internal conflict, and perhaps for this very reason, the communication media have granted so much coverage to this idea. However, it must not be forgotten that any proof of this has still to be presented before the European Courts, which in some cases would be empowered to try them in the same manner in which they are proceeding against numerous Latin American torturers and assassins. Nevertheless, there has been no news of any firm actions being taken against Algerians for this kind of matters, although several Courts have rejected allegations that have been made concerning this issue. The latest one of this kind took place only a few weeks ago when a French court shelved the record of proceedings for torture during the 1990’s against General Nezzar, the Minister of Defence. It must also be said, however, that the same French court also dismissed an application of libel presented by this General against the author of the one of the many books that have appeared proclaiming aforesaid theory.
This theory contrasts with the main political initiative launched by President Bouteflika, namely “civil harmony”, offering reinsertion to reformed fundamentalists. Thanks to this initiative, the Islamic Salvation Army, the military arm of FIS, laid down its weapons, even though various recalcitrant groups are continuing with their activities, albeit as the dying terrorist embers of what was in its day practically an all out war. There is no doubt whatsoever that Algeria has to deal with terrorist problems and that it is desirous of eliminating this taint, but it seems to be eager to use certifiable and officially sanctioned methods to this end. For example, the Association Agreement with the EU includes an Article (Article 71 to be precise) dealing with “the struggle against terrorism” in which Europe commits itself to co-operating with Algeria by contributing the “information it possesses on terrorist groups and their support networks”, as well as sharing “the practical means at its disposal to combat terrorism”.
Spain and Algeria
In fine, Algeria has made it quite clear that it wishes to throw in its load with Europe and the West, while at the same time endeavouring to consolidate a free regime. In response to both realities, all European countries will deepen their ties with Algeria, Spain among them.
The main feature of the relationship between Spain and Algeria is the fact the latter is the main supplier of energy to Spain. Leaving the rest aside, Algeria has been Spain’s 12th most important business partner in the first six months of 2002, representing 1.22% of its total trade relations. In the first six months of 2001, Algeria was in 11th position with 1.33% of the total. This fall-off may be put down to the reduction of Algerian imports, the 11th biggest supplier to Spain, with 1,458 million Euro in the first six months of 2002. Hydrocarbons represent 98.2% of the Spanish imports coming from Algeria, even though Spain is the main Algerian export market outside these. Imports fell by 17% with respect to the first six months of 2001, on account of the fluctuations in crude prices, with which the gas prices are normally associated. This general item of information could distract attention from the important increase that has taken place in Algerian exports, which in the first six months of 2002 rose to 353 million Euro, which turns it into the 23rd most important Spanish market. This may seem to be quite little in comparison to the import volume, but in the first six months of 2001 Algeria was Spain’s 30th most important market. In only one year it has overtaken Argentina, Israel and Cuba, countries that are experiencing serious crises, but also Hungary, Saudi Arabia, The Czech Republic and Andorra. There are only two Latin American markets that are ahead of Algeria in the first six months of 2002, namely Mexico (€1,080 million) and Brazil (€536 million). The fact is that during the first six months of 2002 Spanish sales to Algeria have grown by 24.1%, which makes it the fifth largest increase of the entire Spanish trade figures for this period.
This trade increase reveals the financial overhauling that has taken place in Algeria, which closed the 2001 exercise with foreign currency reserves equivalent to no less than 22 months of imports ($17,900 million). This financial position backs up the economic relaunch that foresees an injection of $7,000 million over the next three years, as well as other amounts provided for in the National Agricultural Development Plan. All of this has served to revitalise a large number of industrial and infrastructural projects leading to increased imports. At the same time, these purchases have been facilitated by a customs reform that certifies the Algerian system as being to international standards and which implies a real drop in tariffs and duties. This new financial panorama has enabled, on the bilateral plane, Algeria to become, since 1999, the top source of recovery for Cesce to which, at the end of the 2000 exercise, it had already repaid €438 million. This left the losses, at that time, in only €470 million.
We are of the opinion that this noteworthy trade increase is sustainable and will be maintained throughout the next two years, given that it is due to the series of political, strategic and economic reforms that have been undertaken by Algeria since 1999. These reforms represent, for those entrepreneurs with risk capacity, the most important opportunity of the last decade. To put it more clearly, Algeria is the only market near Spain that unites foreign currency and importation needs.
The benefits to be obtained from the normalisation of relations will be great for Spain, in terms of stability in its area of influence, and for Spanish companies, if we take into account increases in exports. It must be said that the path that has been taken to achieve this normalisation has been a long one, and has required great effort. Above all, the work of the abnegation of the Spanish diplomatic corps is worthy of special mention, always assuming much greater responsibilities far above the meagre resources which they are provided with by the mean Spanish State. They were the only Europeans that maintained the Oran consulate open during the worst phases of the country’s crisis, a fact which belittles any other contribution. They, and the Spanish businessmen and women who never left the country, are the people responsible for the positive image of our country in Algeria. An image that is further enhanced by projects such as the enormous Beni Haroum dam, the latter representing 25% of the entire country’s reservoir capacity. This project was originally entrusted to Chinese builders who were incapable of accomplishing the feat, giving rise to their relinquishing of the contract in the mid-90’s, and which was later conceded to Dragados y Construcciones. Not without enormous effort, did the Spanish company manage to complete the project, a feat which will not be forgotten in the annals of the Algerian public works sector. This image is also further enhanced by the involvement of Repsol and Cepsa in the Algerian petroleum sector.
Now that the “Algerian risk” has greatly diminished, one feels obliged to continue citing the good offices of the Spanish Embassy and the Trade Office. Both of these entities are facing the task of keeping up the connections that have been made with the Algerian administration, which is unbelievably slow and "unyielding”. The latter combines the French interventionist legacy with a centralised economic history and a certain “relaxed” all too-Mediterranean style. In spite of everything, Algeria has been persuaded to use the soft credit lines, and to concede debt exchange for investment, which is offered by the Spanish State. Perhaps these instruments are attractive for Latin American countries, but not to the same extent for Moslem countries. Nearly all have access to “Islamic” financing, which is awarded in strict observance of the Koranic law. That is to say, without interests and outside the limits of OECD conditions.
It might be a good idea for the Ministry of the Economy to keep up with its efforts to be more imaginative in defining new co-operation products, maybe changing the target of these funds. One option might be creating a line, or even a mini/micro-credit company, in order to finance the Spanish imports of the local SME’s. An idea which, in addition, would solve the main problem of foreign business people in Algeria: the esoteric local financing system can involve delays of up to three months in cashing a cheque.
Iñigo Moré, President of the Mercados Emergentes Consultancy Firm