Bloomberg News

Algerians Cry Currency as Euro Black Market Thrives

October 07, 2013

Euro Currency

Euros, the currency of choice in the square, are trading at a 15-year high as Algerians shelter savings from inflation and regional uncertainty bred by the Arab Spring. Photographer: Simon Dawson/Bloomberg

Across the street from the parliament, courthouse and main police station in central Algiers is the country’s biggest illegal market for foreign exchange.

“Currency, currency!” Nadir, 28, shouts out to passing cars from his spot on the curb of Port Said Square in the Algerian capital. “Come here for your currency!” He’s among dozens of money changers milling around the gardens of the sunbaked esplanade overlooking the Mediterranean, chatting on mobile phones and counting crisp dinar notes. Last week, their going rate was a record 150 dinars ($1.84) per euro, almost 40% percent more than the official price.

Underlying the increased demand for black-market money is the concern regional conflagration may spread. Revolts in nearby countries have left President Abdelaziz Bouteflika as North Africa’s longest-serving leader, while reviving memories of Algeria’s own civil war in the 1990s. His government has ramped up spending to ward off unrest, helping drive inflation to a 15-year high last year, and pushing Algerians into the currency and real-estate markets as they seek to shield savings.

“To protect themselves against inflation, and therefore the devaluation of the dinar, Algerians are investing in property, gold and foreign currencies,” Abderrahmane Mebtoul, a professor of economics at the University of Algiers, said in an interview. “It is a way of looking for security.”

Alicante Apartment

Malek, 48, said he bought euros on the black market last year and took the cash by ferry to southern Spain, where he purchased a three-bedroom apartment in Alicante for 50,000 euros ($68,000) -- and found most of his neighbors were Algerians too.

Through official channels, Malek wouldn’t be allowed to buy more than 140 euros for travel, or take more than 7,200 euros a year out of the country. It’s those curbs that have created a thriving black market, not any shortage of foreign currency. The nation’s $190 billion stockpile of reserves is among the world’s biggest.

While Algeria’s currency rules are tighter than other regional countries, it’s not the only one that finds cash is leaking abroad. As much as $50 billion leaves Africa illicitly every year, according to a United Nations Economic Commission for Africa report in May. The African Development Bank and Global Financial Integrity cited Egypt, South Africa and Nigeria among other countries with large outflows.

‘Algerian Approach’

Nadir says laws make it unprofitable for anyone to offer foreign exchange legally. Since 1997, no one has opened an authorized currency bureau, even though the central bank has awarded about 40 licenses. He and others interviewed declined to give surnames because their business is illicit.

Officials are likely to keep turning a blind eye to the black market, said Riccardo Fabiani, a North Africa analyst at Eurasia Group.

“It’s a typical Algerian approach,” he said in an interview. “Everyone acknowledges the problems but there are so many constraints, interests groups and lobbies, that the regime can’t do anything. Changing the status quo could trigger a reaction that could be potentially dangerous.”

In October 2010, authorities made the use of checks compulsory for large transactions. An increase in prices that followed led to demonstrations, and the measure was withdrawn.

Port Said Square, known locally as Exchange Square, has a market that works like any international bourse, where rates based on supply and demand change daily, according to Yacine, another money changer. The market is characteristic of Algeria’s black economy, an informal sector representing about 60 percent of gross domestic product.

“If the state puts some order in this market, it would create hundreds of permanent jobs and generate a huge amount of money,” Mouloud Hedir, a former director general of trade in the Ministry of Commerce, said in an interview.

‘More Privacy’

Yacine, 35, says that apart from Algerians seeking to invest in property, his other main customers are businessmen importing Chinese products.

For large trades, the money changers take clients to quiet side streets leading to the Kasbah, the scene of bitter fighting against the French during the war for independence that ended in 1962. Transactions often conclude in parked cars, though some of the biggest deals take place indoors.

“Grocery shop,” reads a sign outside a store in the Belcourt district. Inside, at the back, there’s a discreet illegal exchange bureau outfitted like a bank with a metallic safe and two counting machines.

“People who have large sums to exchange prefer the shop because there’s more privacy,” says its owner, Driss, 35. Rates are the same as in the square and Driss says he knows most of his customers. Today, the rate was 146.5 dinars per euro.

Even with cash transactions taking place daily, Nadir says no one has been robbed or arrested in the five years he has worked as a money changer. As he meanders through the gardens of Port Said Square, overlooked by white, colonial-era buildings, Nadir says his biggest concern is bringing home less money because of competition as the ranks of traders swell.

“Two years ago, I made about 30 to 100 euros a day,” he said. “Now, I’d be lucky to get about 20.”

To contact the reporters on this story: Salah Slimani in Cairo at sslimani2@bloomberg.net; Caroline Alexander in London at calexander1@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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