President Bouteflika expressed his opposition to creating a sovereign fund “at the present time.” Strangely though, never before has the Algerian financial sector been so in need of a public investment fund.

By Samy Injar, Algiers

It is now certain that international financial markets will not see a new fund fly their way on the wings of oil dollars. With its 133 billion dollars in reserve foreign exchange as of the first quarter of 2008, Algeria was a possible candidate for the creation of such a fund. President Bouteflika finally intervened in what has now become a veritable economic issue since the start of the year. “Some people say we should seriously experiment with sovereign funds to make our foreign exchange reserves more profitable abroad. I believe our country continues to be greatly in need of capital to develop the nation’s economy – a reality that goes against choosing sovereign funds at the present time,” he stated. Observers certainly noticed the “at the present time”. The Algerian president was therefore careful not to say anything to compromise his friend and protégé, the Minister of Energy and Mining, Chekib Khelil, who proposed the creation of an Algerian sovereign fund in five years. At that time, he was the only official who dared to go against the shared opinion of the head of the Bank of Algeria, Mr. Laksaci, and the Minister of Finance, Mr. Djoudi, both of whom are in favour of surplus earnings being managed in a more traditional and prudent manner in Algerian currency.

One variable in particular, apart from the price of oil, has the Algerian government holding its breath: exploding imports. They went from less than 20 billion dollars in 2005 to well over 40 billion this year.

Exploding imports are a cause for concern

“It is false to believe that Algeria built a whole religion on the idea of sovereign funds. That would depend on far too many variables, starting with changes in trade surplus earnings, for the government’s official position not to change in the course of next year,” explains financial consultant, Mourad Touhami. One variable in particular, apart from the price of oil, has the Algerian government holding its breath: exploding imports. They went from less than 20 billion dollars in 2005 to well over 40 billion this year (21 billion in the first half of the year already). The investment programme in infrastructure, on its own, instigated 8 billion dollars worth of industrial equipment imports over the first 7 months of the year.” Food imports could reach 8 billion dollars by the end of the year. “If we find ourselves at the breakpoint threshold of 50 billion dollars in imports per year by 2010, and energy export earnings peaking at 80 billion dollars, little will be left to place in a sovereign fund,” warned a high-ranking official within the Ministry of Energy to justify “the observation period” that his department wishes to have to examine the issue. For Mustapha Mékidèche, vice-president of the social and economic council (CNES) and an energy consultant, the issue is not quite as it has been presented. Algeria has already placed a sizable portion of its currency reserves in American Treasury bond at an interest rate of 2%. “It’s drying up our savings,” he argues. The country’s accumulated surplus earnings are what should be managed dynamically by searching for placements in assents that meet Algeria’s development needs, “I am definitely a supporter of the Algerian sovereign fund.” The idea of having a public investment fund of that type geared towards partnership with foreigners in Algeria – to meet “the nation’s capital needs,” as expressed by President Bouteflika – was also defended by finance expert, Hachemi Siagh in May.

Sonatrach: substitute investment funds?

Algiers’ need “to provide more capital guidance” to the country’s locally based foreign investors is a hot topic after the IDE’s series of “reframing” measures that arose this summer (Les Afriques nos. 41 and 43). An analysis published in the Algerian press has, in reality, already been proven empirically sound by Sonatrach. The leading African company actually does recycle its “extra profits” by dealing either alone or in partnership with foreign investors on ventures that are farther and farther beyond its “historical boundaries”. Joint ventures created in 2003 with foreign firms for desalination, electricity, fertiliser, and aluminium are all proofs of Sonatrach’s presence on the ground. This momentum continues in sectors such as mining, commercial airlines and a series of other branches. “The government did not accept the ceding of Algerian cement factories of Orascom to Lafargue and included a right of pre-emption if such a case should come about in the future. And if this should come about immediately, to whom would the State speak about buying foreign assets? To Sonatrach, of course…”, predicts Mourad Touhami. The Minister of Energy and Mining, Chekib Khelil has set Sonatrach’s activities on the international market to reach 40% by 2015. Naturally, this could seem presumptuous, but clearly ushers in an era of acquisitions abroad. Experts do not believe that Sonatrach is ready. Algerian investment funds are still knocking at the door.