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There is still no clarity on the timing of the long-awaited IPOs of Algerie Telecom and Credit Populaire d’Algerie after Algerian president Abdelaziz Bouteflika announced last month that many projects would remain on hold until a rethink of the country’s privatisation strategy is carried out.
These companies were expected to open their capital in 2006 and were to be the first among many major IPOs in Algeria, however, two years on they are yet to materialise.
Created in 1998, Algeria’s stock market still has far to go with only two stocks listed to date. Local financial authorities are faced with a dilemma at the moment: no private companies are prepared to list in a dormant market, therefore the benefits of listing are impossible to demonstrate, according a London-based Algerian banker.
Some Algerian companies have some stock market presence but on foreign bourses. Orascom Telecom, 50% of the valuation of which comes from its Algerian activities through the Djezzy brand, is the largest listing on the Cairo and Alexandria Stock Exchange. Meanwhile, Cevital, Algeria’s largest privately owned group, is considering listing on the London stock exchange, a Cevital spokesperson said. All of this shows that “there is no fear of listing as such but rather a lack of confidence in the local bourse itself,” one local entrepreneur said.
It is therefore paramount for the government to take radical steps to revitalise its stock market and ”the number of upcoming IPOs in the pipeline could do just that,” according to the banker. Several cement plants such as Societe des Ciments de Tebessa, Societés des ciments de Hama Bouziane and Ciments de Chlef are expected to float part of the capital before the end of the year in a bid to strengthen the booming construction sector.
There has been pressure from opposition parties over the “selling off” of various Algerian groups, and recent declarations by prime minister Ahmed Ouyhia reported in the local media suggest the government would retain a controlling majority in any of the major groups opening their capital. One government official told this news service that the stakes made available to foreign investment would not exceed 40%.
The landmark speech by the president in which he admitted mistakes had been made, prompted Algerian officials to suggest new ways to bring to a positive conclusion the privatisation process. The Communication minister and acting government spokesperson, Rachid Boukerzaza, announced a raft of measures designed to review the entire privatisation project. As such, the government is setting up workshops with various industry players in the hope to come up with ideas on how to tackle the very delicate question of privatisation in a country with deeply rooted centralised governing methods and ways to inject fresh blood in the moribund Bourse of Algiers.
In contrast, the bond market for Algerian issues is flourishing. The bond market has had a number of issues over the past few years, buoyed by high domestic liquidity and low interest rates. Its outlook is therefore brighter, as large state-owned companies such as Air Algerie have been raising funds through bond issues, according to Algerian media reports.
Meanwhile alternative financing, such as venture capital projects, offers potential through spreading the investment pool and credit flexibility, the banker said.
In recent years Algeria embarked on a vast restructuring programme designed to ease the transition from a centralised to free market economy based on the Korean model.
Despite offering countless opportunities due to its natural resources, strategic geographical position and qualified workers, Algeria as a business haven is struggling to take off. “Even Iraq with all its security concerns still attracts more foreign companies, even if the security costs are high,” said the banker.
The ministry of privatisation and promotion of investment, created specifically to overlook the privatisation process, commissioned in early 2006 a study by Korean experts on how to steer Algeria away from its oil dependency. The study revealed the need by authorities to train sectors of the population in the fast growing IT sectors, upgrade its banking system and ease bureaucracy. Although these aspects were already accepted as basis for reform, the study unveiled in the first half of 2007 came up with three major pathways that would, with a boost in the aforementioned aspects, turn Algeria, in the words of one ministry official, into a “potential African Tiger.”
This followed a five year GBP 60bn spending plan launched in 2005 which covers major infrastructure programmes. Phase one was to focus on the iron, petrochemicals and construction sectors. Downstream oil- and gas-related activities, such as petrochemicals and fertilisers, would enable Algeria to maximise profit from its already abundant natural resources.
The second phase as advocated by the Korean team, would be dedicated to vast restructuring of the pharmaceutical and electrical sectors. Despite having highly qualified electrical engineers and an active scientific community, these two aspects have lagged behind in government funding and the country is said to be losing its qualified workforce and lucrative business opportunities that could be derived from this.
The third phase is seen to be the most difficult and has proved to be the most controversial in that it focuses on the need to develop the country’s IT and technology industries.
This has come under fire because of the funding that needs to be injected into this and the more urgent works that have to be carried out before moving on to the more specific aspects of the industrialisation programme.
Hydrocarbons remain the backbone of the economy, accounting for 60% of budget revenues, 30% of GDP, and over 95% of export earnings. Algeria has the eighth-largest reserves of natural gas in the world and is the fourth-largest gas exporter; it ranks 14th in oil reserves according to Energy Ministry data. Sustained high oil prices have helped improve Algeria’s financial and macroeconomic indicators which is running substantial trade surpluses and building up record foreign exchange reserves. Algeria has erased its debt after repaying the Paris and London Clubs in 2006. As a result, GDP has risen due to higher oil output and increased government spending. Continued efforts to diversify the economy by attracting foreign and domestic investment outside the energy sector has so far had little success. Structural reforms within the economy have been hampered by corruption and bureaucratic hurdles.
And many within the Algerian business community are critical of the “Korean business plan” that ignores these basic fundamentals and have condemned a policy that “forces Algeria to run before it walks.”
Despite legitimate concerns over the plan, many have welcomed the positive ideas that have surfaced from it. And even if Algeria constitutes a target market for the Koreans, the major axis of the plan have been retained by government and are in the process of being developed.
The programme outlines geographical regions that offer the best options for development in terms of location and a qualified workforce. In Western Algeria there is the Oran-Mostaganem ‘pole’ where the oil refineries already exist and which offer very efficient port infrastructures, Algiers-Blida and Setif region in the east are the other identified industry poles that hold promise. Others known as techno-poles in the southern areas would be designed to accommodate the future high-tech industries.
Major funds were injected in these mammoth plans but the opening of various state owned companies that was to go hand in hand with the spending plan have faced serious delays, and bar a few successful IPOs in the construction sector such as Ciments de Meftah, the vast majority of the part-privatisation of Algerian stalwarts has come to a standstill.
According to one Ministry insider, the recent announcement will give officials more time to review their tactics in light of the upcoming turbulence that is characteristic of the presidential elections due to take place in May 2009. He adds however that there is a definite and “tangible” determination to make the next round work. “All the ingredients are there and it’s only a matter of months now,” the insider added.
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