The question on everyone’s lips this summer in Algiers is a simple one: “Is Algeria changing its tune about investment?” A series of measures to “frame” foreign transactions have united talk with action.

By Nadia Hachelef, Algiers

The tone was set back in July by President Abdelaziz Bouteflika in his speech before a mayoral audience. He noted the failure of the last privatisation and investment policy when he declared:“As far as privatisation and investment go, we pretty much fell on our faces!” But what happened to make foreign investors, so sought after over the last decade, provoke the president’s wrath? No names were given, but President Bouteflika gave some indication suggesting that the Algerian government was still suffering from indigestion after Orascom cement was ceded to French company, Lafarge. The latter is becoming a major contender in Algeria, claiming ownership of two cement manufacturers. Furthermore, all this took place in the total absence of the government. Nothing illegal transpired, but the Algerian president seems to have realised that the rules of globalised capitalism left the door ajar for an international group to sneak in and, without the State’s consent, claim a share in the national market and economy.

Abdelaziz Bouteflika: “As far as privatisation and investment go, we pretty much fell on our faces!” 

Mending the breach

The Algerian president discovered only too late the predatory characteristics of foreign investment and gave economists and entrepreneurs the last laugh when they warned that it was illusory to expect to boost the economy using direct foreign investment (DFI). Last spring, a row emerged about the volume of foreign companies’ dividend transfers. Abdelhak Lamiri, economist and CEO of INSIM (Institut international supérieur de management) estimated them to be 7 billion dollars in 2007. He stated that it could reach 50 billion in 15 years. The conclusion was clear – instead of boosting the economy, DFIs were bleeding it dry by encouraging the export of capital. Some economists criticised the fact that Algeria was one of the rare countries in the world where DFIs were financed by national banks.

Prior to this, the bickering among experts had had no effect on government policy. It took the trauma of the Orascom-Lafarge affair for reality to finally sink in. It was not the economic considerations that hurt but the way in which the whole thing was done. The government realised that playing on the market could also engender a loss of control over one’s economy. Bouteflika’s speech has thus led to a series of measures intended to strengthen the State – to mend the breach through which Lafarge managed to steal away with Orascom.

Grasping the reins

The first step consisted in introducing a pre-emptive right on companies ceded by foreign and domestic operators. The spokesperson of the government, Abderrachid Boukerzaza, stated that the State has the power to “claim a company in the event that the investor decides to transfer the investment made.” The eventual ceding of the Djezzy mobile telephone company to France Telecom – which has been subject to persistent rumours despite an official denial by Sawiris – cannot be done without the government’s approval. Another measure that has been announced is the State’s holding of the majority of shares in projects led in partnership with foreign groups. These will concern projects such as the Beni Saf aluminium factory, where the Moubadala and Dubal Emirate consortium hold 70% with the remaining 30% belonging to the state. Henceforth, this kind of arrangement will no longer be possible.

The conclusion was clear – instead of boosting the economy, DFIs were bleeding it dry by encouraging the export of capital. Lastly, to address the matter of transfers and dividends, a complementary finance law passed on July 24 introduces a modification of the direct taxation code to require that domestic and foreign operators reinvest “a portion of their profits equivalent to the tax exemptions and tax relief they receive in an effort to sustain investment.” This provision takes effect in 2008 and investors will have a four-year period by which to effect this investment.

“The Authorities are therefore becoming more familiar with the mechanisms of the global free market and are more aware that the financial sphere, when unregulated, can run amok,” stated a former public sector banker. “One can only hope,” he adds, “that this new grasp on foreign investments won’t lead to a return to excessive control…”