The global business community is anxious over President Donald Trump’s new age of protectionism; however, for executives in Algeria protectionism is not a new phenomenon. For the past two years, MNCs in Algeria have been facing barriers to importing, like licenses, tariffs, quotas, and bans. Pressure is growing on Algeria because of its slow pace of reform to cope with the 2014 oil price crash. Instead of turning to external borrowing or drastically cutting government spending to ease the pressure, the government is focusing on tackling its trade deficit by cutting down on imports, which have grown an average of 9.9% between 2000 and 2010, with peak growth of 23.2% YOY in 2002.
Import restrictions present major challenges to business operations for MNCs who are importing their products into Algeria or need to import raw materials for local production. With oil prices expected to come back down toward the end of 2018 and into the long-term, the Algerian economy will face greater pressure. That said, executives should prepare for an acceleration of import restrictions and localization pressures.
Products across all sectors are vulnerable to import restrictions – both government-imposed restrictions (tariffs, quotas, bans, etc.) and economically-driven restrictions like limited access to foreign exchange should liquidity tighten. Executives are not completely powerless in the face of government regulations – aligning their strategies with government priorities could reduce their products’ vulnerability to import restrictions:
- Preserve FX reserves
The government aims to preserve its foreign exchange reserves, which fell from $194 billion in mid-2014 to $97.3 billion at the end of 2017. Protecting the FX reserves is needed to stabilize the dinar, especially as it faces depreciatory pressures.
While the government’s optimal choice is for MNCs to localize production of their goods and services to avoid import payments, this is not a feasible option for many executives. MNCs must think creatively to support this priority. For example, they can consider engaging in a countertrade arrangement in which goods and services are traded between countries not for money, but for other goods and services. This would help Algeria register a greater volume of exports, while avoiding import payments. In one case, Cuba sends doctors to Algeria in exchange for Algerian oil.
- Attract FDI
The government aims to attract technology and skills transfer and to create jobs through greenfield investments. If MNCs are unable to make a greenfield investment, they can showcase indirect ways in which they are supporting these goals. MNCs could localize their sales forces more deeply or show the government they are supporting skills and technology transfer by providing distributors with training sessions, technical expertise, back-office technology systems, or scholarship programs, for instance.
- Boost local industry for economic self-sufficiency
Algeria needs to diversify away from hydrocarbons to build a sustainable economy, so the government wants to develop local industry so that local production of goods and services can satisfy domestic demand. To support this effort, MNCs can focus their sales efforts on products in their portfolios that are component parts needed for local production of a specific good – these will be less vulnerable to import restrictions. Alternatively, if MNCs are evaluating the case for local production, they can consider making a smaller upfront investment by acquiring a small local factory as the dinar gradually depreciates and assets become cheaper.
- Improve standards and quality of goods
The government aims to raise the quality standards of imported goods to match European standards. This may improve Western MNCs’ competitiveness against emerging markets brands. Nonetheless, MNCs need to be working closely with their local partners to provide extensive documentation showing their products’ comparative quality standard against competitors, and to show proof of product testing and adaptation to the Algerian market. Providing extensive information on MNCs’ products could help them obtain a greater share of an import quota, for example, if one is imposed.