LABOR MINISTER'S COMMENTS REVEAL TRUE COST OF LIVING HIKES

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