The Current State of Economic Relations Between Algeria and Israel
As of August 2023, Algeria and Israel do not have formal diplomatic relations. The economic relationship between these two countries is minimal, if not non-existent. Historically, Algeria has supported the Palestinian cause and been critical of Israel, which has further strained any potential for economic ties.
Limited Trade: A Direct Result of Political Stance
Currently, there is no significant trade between the two nations primarily due to Algeria's strong stance against normalization with Israel. Algeria maintains its support for the Palestinian cause, and this position has led to a lack of substantial economic interaction. However, it's worth noting that there are minimal economic interactions that occur through third parties, often via re-labeling and re-shipping.
Hidden Trade: A Mirage of Commerce
Despite the absence of formal trade, hidden economic activities between Algeria and Israel do exist. Israeli products and know-how are ubiquitous worldwide, and countries that do not officially trade with Israel end up with at least some Israeli goods. Some Algerian traders engage in this process by re-labeling and re-shipping goods to avoid direct transactions.
Current Economic Outlook for Algeria
The economic situation in Algeria is critically challenging. The country is heavily dependent on oil and gas revenues, and the outlook for these revenues is bleak. Falling oil and gas revenues cannot sustain even the mid-range Human Development Index (91st out of 189 countries), which Algeria has achieved.
Trade with Israel: Mysterious Imports
While most of Algeria's exports are in oil and gas, which Israel does not need, there are reports of tiny amounts of chemicals and precious metals mysteriously appearing in Israel. This suggests that Algeria and Israel may have some hidden trade, albeit minimal.
The Coming Economic Collapse and Its Implications
Algeria is facing a looming economic crisis. The country's foreign reserves have plummeted, and its current political climate is a major obstacle to economic reform. The government lacks the fiscal room to diversify the economy, increase competitiveness, and address social issues. The falling oil and gas revenues mean that maintaining the current human development index is already a struggle.
Potential Economic Diversification
To avoid a drastic economic collapse, Algeria needs to diversify its economy. This is a stark necessity, given that ‘belt tightening’ alone is not sufficient. The Gulf states have successfully diversified their economies while maintaining substantial cash reserves. Algeria, on the other hand, is grappling with a severe lack of foreign reserves.
Political Priorities Over Economic Reform
Algerian politicians spend more time focusing on other priorities, such as suppressing popular protest movements, rather than implementing economic reforms. The Hirak movement, a widespread protest against the status quo, is expected to return once lockdown measures are lifted, leading to heightened social unrest.
Strategic Decision-Making and Adaptation
The coming period will test the government's capacity to adjust and adapt to the economic crisis. The regime's ability to maintain itself in the face of growing social and economic challenges will be critical. The decision-makers in Algeria must take urgent steps to address the economic downturn and prepare for the inevitable challenges ahead.