Identifier
Created
Classification
Origin
07ALGIERS1057
2007-07-24 17:00:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Algiers
Cable title:  

LABOR MINISTER'S COMMENTS REVEAL TRUE COST OF LIVING HIKES

Tags:  ECON EINV AG 
pdf how-to read a cable
VZCZCXRO1159
RR RUEHTRO
DE RUEHAS #1057/01 2051700
ZNR UUUUU ZZH
R 241700Z JUL 07
FM AMEMBASSY ALGIERS
TO RUEHC/SECSTATE WASHDC 4125
INFO RUEHRB/AMEMBASSY RABAT 1867
RUEHTU/AMEMBASSY TUNIS 6706
RUEHTRO/AMEMBASSY TRIPOLI
RUEHFR/AMEMBASSY PARIS 2278
RUEHLO/AMEMBASSY LONDON 1689
RUEHCL/AMCONSUL CASABLANCA 3028
UNCLAS SECTION 01 OF 02 ALGIERS 001057 

SIPDIS

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ECON EINV AG
SUBJECT: LABOR MINISTER'S COMMENTS REVEAL TRUE COST OF LIVING HIKES

REF: A. ALGIERS 01017

B. ALGIERS 01035

C. 06 ALGIERS 01828

UNCLAS SECTION 01 OF 02 ALGIERS 001057

SIPDIS

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ECON EINV AG
SUBJECT: LABOR MINISTER'S COMMENTS REVEAL TRUE COST OF LIVING HIKES

REF: A. ALGIERS 01017

B. ALGIERS 01035

C. 06 ALGIERS 01828


1. (SBU) SUMMARY: Algerian Minister of Labor and Social Security
Tayeb Louh's July 21 announcement that Algerian purchasing power had
increased by 66 percent since 1999 came in sharp contrast to
official government figures and public sentiment showing the
opposite. In the last year alone, prices of fruits, vegetables and
manufactured foods rose roughly 20 percent because of declining
agricultural production, a weakening currency and the rise of
speculation. Other household expenses have similarly skyrocketed as
a result of mismanaged government stewardship of redistribution
programs like housing and early attempts to reform key state
enterprises such as gas and electricity. As salaries remain
stagnant despite an accord last year to boost wages for public and
private sector employees, the number of indebted Algerian households
struggling to make ends meet is rising. End Summary.

OFFICIAL DATA CONTRADICT MINISTER'S OPTIMISM
--------------


2. (SBU) Algerians reacted with disbelief to Labor and Social
Security Minister Louh's July 21 pronouncement that Algerian
purchasing power had grown 66 percent -- or 6 percent per year --
between 1999 and 2007. His claim stood in stark contrast to a
growing sentiment among Algerians that the cost of meeting basic
needs has passed increasingly out of reach for the average Algerian
family. The minister's comments, moreover, belied official data
from the Algerian Office of National Statistics (ONS). Habib
Zioune, Deputy Director of Population Studies at ONS, told us July
23 that his agency estimated that the purchasing power of the
average Algerian worker had in fact dropped 1.7 percent per year
between 2001 and 2007.

FOOD, GOODS PRICES RISING
--------------


3. (U) Over the last year, Algerians have witnessed regular
increases to prices of basic staples. Algeria provides price
controls for milk, flour and sugar but leaves the price of other
goods to market forces. Embassy staff confirm that prices of
vegetables and industrially produced foods, such as semolina and
cooking oil, have risen between 25 and 30 percent compared to 2006.
The price of fruit has similarly jumped an average of 20 percent in
the last year. Prices of meat, such as lamb, have remained steady

but are expected to rise in the run-up to Ramadan in September.
Poultry prices, which shot up between 100 and 150 percent in 2006 as
small-scale producers closed operations amid the avian flu panic,
have stabilized slightly above early 2006 prices.


4. (U) Climate factors and Algeria's foreign exchange regime have
contributed to the spike in prices. An unusually dry winter took a
heavy toll on domestic Algerian agricultural production,
particularly wheat. Mildew destroyed other stocks that had not yet
been distributed. The rising value of the Euro compared to the
dollar-pegged Algerian Dinar similarly drove up prices of imported
fruits, notably apples and bananas, as well as vegetables,
particularly tomatoes.


5. (U) Speculation is also a culprit, albeit one the government has
been reluctant to cite. In one example, Algerian authorities
discovered in January an Oran warehouse brimming with 150 tons of
potatoes, which speculators were hoarding to drive up market prices.
Potato hoarding intensified over the summer, leading Commerce
Minister Hachemi Djaaboub to announce a plan on July 23 to reduce
prices by flooding the Algerian market with 400,000 tons of imported
potatoes over the next three months. Prices for this "fruit of the
poor," as potatoes are called in local markets, alone have shot up
over 100 percent since 2006. Djaaboub maintained, however, that the
root of the problem was not speculation but growing demand and
stocks lost to mildew.


6. (U) In addition to food, the drop in the value of the Algerian
Dinar compared to the Euro has caused enormous hikes in the cost of
consumer goods. Despite the influx of inexpensive Chinese goods
into the local market over the last few years, Algerian consumers
continue to rely heavily on European suppliers. According to
Abdelouhab Melili, Deputy Director for Europe and North America at
the Ministry of Commerce, between 45 and 50 percent of Algerian
consumer goods come from Europe. European automobiles and
pharmaceuticals, in particular, continue to dominate the Algerian
market.

THE CONSUMER COST OF GOVERNMENT REFORMS
--------------

ALGIERS 00001057 002 OF 002




7. (U) Lodging prices have skyrocketed in Algiers in recent years as
a result of urban migration and the slow pace of new housing
construction arising from a lack of adequately trained laborers,
opaque zoning restrictions, and bureaucracies unwelcoming to foreign
investors (ref A). As evidence of this failed development plan, the
government agency responsible for the promotion of housing announced
July 21 that of the one million housing units promised under
President Bouteflika's second mandate, fewer than 400,000 had been
realized.


8. (U) Algerian consumers have similarly paid the price for initial
government steps to reform key state industries. Government efforts
to wean Algerian consumers away from diesel to cleaner fuels led to
short-term speculation and are expected to translate into higher
diesel fuel prices beginning next year (ref B). The Center for
Population and Development Studies estimates that the average
Algerian family now spends USD 44 per month on transportation, a
figure that doubled in 2006 and is likely to rise again given the
predominance of diesel-powered public buses in Algeria. The public
gas and electricity provider Sonelgaz has meanwhile announced its
intention to raise prices by 15 percent. That this price is already
65 percent subsidized, according to Sonelgaz chairman Nourredine
Bouterfa, comes as little consolation to Algerian households.


9. (U) The combination of these factors has led to a striking rise
in the indebtedness of the average Algerian family. According to
Algerian government statistics, 68 percent of Algerian households
hold a loan of some sort, of which nearly half are used to pay
ongoing regular household expenses. Most of these credits come from
the newly installed foreign banks, such as BNP Paribas and Societe
Generale, as well as the state-run bank CNEP, a traditional real
estate lender.

STAGNANT SALARIES
--------------


10. (U) Algerian salaries, meanwhile, have remained stagnant.
Although the minimum Algerian wage has risen 11 times since 1990, it
rests at roughly USD 180 per month. A study by the UGTA, Algeria's
largest trade union, estimated in 2005 that the average family
needed at least USD 350 per month to live decently. ONS estimates
that 2.8 million workers receive the minimum wage. The statistics
agency furthermore estimates 45 percent of a worker's minimum wage
is allocated to food, with the remaining USD 90 paying for lodging,
transportation, and utilities. A 2006 survey conducted by the UGTA
indicated that 200,000 Algerian workers received a salary of around
USD 100 per month. According to Zioune at ONS, there are some 7
million Algerians -- 20 percent of the population -- living in
poverty.


11. (U) Despite the 2006 breakthrough agreement by the Tripartite
(representatives from the Algerian government, labor unions, and the
country's largest representatives of employers) to raise salaries
for public and private sector workers at the start of 2007, no
changes have yet taken place. Although the GoA allotted USD 1.46
billion to raise salaries for the country's 3 million public sector
workers by 20 percent, bureaucratic delays resulting from
insufficient coordination between different ministries have derailed
implementation of the salary hike. The private sector, which agreed
to raise salaries by 10 to 15 percent under the agreement, is
similarly waiting to take its cues from the government.

COMMENT
--------------


12. (SBU) Minister Louh is believed to be close to Bouteflika, as he
was selected by the president over other more obvious choices to
represent him in February at the Arab Maghreb Union's meeting of
foreign ministers in Rabat. It is a discouraging sign for such a
figure in Algeria's senior leadership to be making pronouncements of
Algerian economic success that are in clear dissonance with
on-the-ground realities and official government statistics. The GoA
solution, whether for diesel or potatoes, has thus far been to throw
money at shortages while denying that speculators are taking
advantage of the situation. While this may work when oil prices are
high, it is not a long-term solution. Algerian households,
meanwhile, are increasingly cognizant that Algeria's hydrocarbon
largesse is not trickling down to them. An editorial cartoon in the
Arabic-language daily El-Fadjr on July 20 depicted a graph of the
rise in oil prices since Algerian independence -- with an Algerian
man hanging by a noose from the recent peak.

DAUGHTON