Algeria Lifting Ban on Loans as Cars to TVs Coveted: Arab Credit
Idir Mekali, a 55-year-old retired primary-school teacher in Algeria, is daring to picture himself as a car owner.
The former Arabic language instructor, who draws a monthly pension of 30,000 dinars ($380), wants a Renault Symbol once the compact model starts rolling off a local assembly line in November. First, he’ll need a loan, even if the car sells for less than a $14,000 import.
“An affordable rate would allow us to buy a mid-range car to share with my son,” Mekali said in a Jan. 19 interview in the capital city of Algiers. The purchase would be a “dream come true for the family,” he said.
Prospects for Mekali realizing his dream are improving as Algeria, Africa’s largest natural-gas producer, plans to roll back a more than four-year ban on consumer lending to revitalize manufacturing, reduce unemployment close to 10 percent and enable more people to acquire goods such as TVs and cars.
Growth in household spending fell to 5 percent in 2012, the latest year for which government data are available, from 7 percent in 2008. Easing the prohibition may accelerate total bank lending, which at 4.3 trillion dinars in 2012 was 64 percent greater than in 2008. Bank credit in neighboring Morocco grew by about 50 percent in the period.
OPEC’s ninth-largest producer pumped oil last year at the lowest level since 2003 as concerns about terror attacks on petroleum facilities, corruption probes at the state-owned Sonatrach energy group and delays in exploration for new reserves hampered projects to bring new crude on stream. Growth in gross domestic product slowed to 2.7 percent in 2013 from 3.3 percent the previous year, according to the International Monetary Fund.
The IMF advised the government in November to lift the curbs on household loans as part of a broader effort to develop the financial industry and support private businesses. Algeria and neighboring Libya are the only countries in the Middle East and North Africa to ban consumer loans. Libya has put all private lending, including mortgages, on hold as it adopts Shariah-compliant banking rules following the revolt that toppled Muammar Qaddafi in 2011.
“Increased competition and better credit-risk assessment tools would encourage banks to orient their business toward small and medium enterprises,” the IMF said in a statement published on Nov. 25 after it sent a team to Algeria. “The mission advised the authorities to lift the ban on consumer credit and develop a mortgage market.”
The government is preparing to ease credit restrictions it imposed after personal loans swelled by 25 percent to $1.3 billion in 2008, according to the Association of Algerian Banks and Financial Establishments, or ABEF. The halt in lending coincided with a 43 percent drop in Algeria’s foreign currency earnings in 2009, when fuel prices fell from a record amid the global financial crisis.
President Abdelaziz Bouteflika’s government announced plans last month to let banks finance the purchase of goods produced at least partially in Algeria. It linked the decision to the creation of a credit bureau to monitor consumers’ debts. This step to contain credit risk should translate into lower interest rates on consumer loans compared with 2009, when rates reached 10 percent, said M’hamed Hamidouche, a World Bank consultant and economics professor at the University of Blida, near Algiers.
The new Credit Bureau is responsible for collecting data from Algeria’s banks on loans to consumers and companies, including overdue debts.
The government began tightening its control over bank lending after the collapse in 2003 of Khalifa Bank, the country’s first private lender, which offered double-digit interest rates to attract deposits. The bank used the funds to set up an airline and other businesses owned by its founder. Abdelmoumene Khalifa was later convicted of fraud and money laundering and imprisoned last month for life.
The General Union of Algerian Workers, the country’s largest union known by its acronym UGTA, said an easing of the ban on consumer lending would aid manufacturers and curb unemployment, which affects 20 percent of working-age people younger than 35, the newspaper L’Expression reported Jan. 12.
Unemployment is a concern for 76-year-old Bouteflika, who has held power since 1999. Last week, he set April 17 as the date for the next presidential election, without indicating if he would seek a fourth five-year term as requested by his National Liberation Front party.
An easing of the lending ban “is definitely a pre-electoral measure to boost the legitimacy of the regime at a critical juncture,” Riccardo Fabiani, a London-based analyst at Eurasia Group, said in an e-mail yesterday. “Algeria has a looming current account problem, as import growth is fast outpacing exports; in this context, constraining consumer lending makes sense. However, it has been completely ineffective, as imports and domestic demand have grown nonetheless, often bypassing this ban.”
A partial removal “will buy the government some sympathy, as Algerians regain access again to credit for their purchases, and could boost somewhat domestic production,” Fabiani said.
Renault SA (RNO) plans to open an assembly plant south of the Mediterranean city of Oran in November, producing 25,000 Symbol compacts a year there.
“I hope the assembled one is cheaper,” said Mekali, the retired teacher and would-be auto owner from Algiers. “The one that’s now imported costs about 1.1 million dinars,” or $14,000, said the father of five.
Renewed lending should also benefit makers of electronics and household appliances, the UGTA said. Among the international companies producing under license in Algeria is Samsung Electronics Co. (005930), which sells washing machines, TVs, air conditioners and refrigerators under the Samha brand.
UGTA Secretary General Abdelmadjid Sidi Said hopes the renewed consumer lending will help save the country’s textile industry, which faces competition from cheaper Chinese imports, L’Expression reported last week. The government will compile a list of goods that consumers can buy using bank loans, Trade Minister Mustapha Benbada told reporters on Dec. 18.
“There’s a consensus for restoring consumer credit to promote goods produced locally, in total or in part,” said Abderrahmane Benkhalfa, an independent financial adviser and former general secretary of ABEF, the bank association. “A key element is to make sure that households don’t become over-indebted.”
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