ALGERIA OVERVIEW Pump Priming • The Long View • Q&A with the Prime Minister HYDROCARBONS The Rebirth of Sonatrach • Virgin Markets FINANCE Independence, Please INDUSTRY Industrial Strength Indeed PRIVATIZATION Little to Show
	Advertisers' Web Sites Sonatrach www.sonatrach-dz.com Sitel www.sitel.dz Banque National d'Algerie www.bna.com.dz Credit Populaire d'Algerie www.cpa-bank.com GIPEC www.gipec-dz.com Banque de l'Agricuture et du Developpement Rural (BADR) Entreprise Nationale des Travaux des Puits (ENTP) Banque Exterior d'Algerie (BEA)

When the privatization process was initiated in 1994, it was in the context of a severe balance of payments crisis. Algeria was bailed out by the IMF on the condition that the country's authorities genuinely engage wide-reaching structural reform and begin in truth the complex transition from a planned economy dominated by the public sector to a market economy in which the private sector is the engine of growth. The truth of these words was graphically demonstrated by the 1994 crisis: Algeria was no longer able to afford to fund its massive public sector, which, debt-ridden and inefficient, was a bottomless pit that no amount of pump priming would solve.

However, despite the financial realities driving the push for privatization, there has been intense opposition from all sectors of society. Public sector industry makes up the majority of the state's saleable assets and is the country's largest ­ and most inefficient ­ employer. Algeria's large labor unions are fearful of lost jobs while, in the volatile world of Algerian politics, the government is afraid of adding to its indigent army of disaffected unemployed. Unemployment in Algeria is acute: currently standing at approximately 30% of the population and 50% among young people.

Resistance also comes from higher up. The complex administrative and legal apparatus of government ownership has created a bureaucratic class whose jobs and privileges depend on the continuity of the system. But perhaps most difficult of all, powerful elites within the government and the military, many of whom have become rich of the back of state-controlled monopolies and a subservient banking system, have operated behind the scenes to obstruct the process.

Given this environment, the progress that has been made to date is not insignificant. Since the decree legalizing privatization in 1995, the authorities have opened almost every sector to private activity, including banking, agriculture, mining, tourism, telecommunications and industry. The lucrative hydrocarbons and energy sectors ­ the final bastion of state control ­ are also facing a draft law for liberalization that will be passed in 2002.

The legal framework for the privatization process is in line with most privatization codes around the world: it provides a flexible, negotiable context in which most modes of privatization are available, from a straight sale of assets, to the sale of shares through a competitive bidding process, the stock exchange or private deals. It also provides for a subscription of shares by private investors in the context of a capital increase and concessions.

THE GOVERNMENT'S REPEATED OBJECTIVE for these actions is not privatization per se. Its overriding concern is to modernize Algeria's productive capacity so that, one, it erodes the country's excessive reliance on hydrocarbons exports and, two, that it will actually reduce the level of unemployment, not increase it. What the government stated it wouldn't do was continue the long-term funding of its companies anymore, which left Algeria's SOEs to look elsewhere for cash, ie: open up their equity to the private sector.

The official body set up to manage this process was the National Council for State Participations (CNPE), under which 11 holding companies (subsequently reorganized into five national and five regional holdings in 2000) were created according to sector to manage the state's assets ­ approximately 950 national enterprises and 350 local or regional enterprises. Their task was to prepare SOEs for privatization and/or partnership or liquidate the worst cases.

THE PROBLEM IS that after seven years with this administrative framework, not much has actually happened in terms of real privatization. According to the Ministry of Participation and Coordination of Reforms, around 1,000 small state-companies have so far been liquidated, resulting in the loss of 36,000 jobs. In a stage-managed affair, three state-owned companies were directed to list 20% of their shares on the newly created Algiers Stock Exchange in 1999. (Despite lively interest in these initial IPOs, no activity on the new exchange has taken place since.) Finally a detergents company, the National Company for Detergent Products, has formed a joint-venture with Henkel, the German consumer products manufacturer.

Otherwise, no real majority privatization has taken place. To speed things up, the Minister of Participation, Mr. Hamid Temmar, called for the outright elimination of the government holdings as they were, in his view, cumbersome intermediaries between company managers and possible investors. Yet, in what many see as a struggle between pro- and anti-privatization forces, Mr. Temmar was moved to the Ministry of Trade in 2001, his reforms to streamline procedures left undone.

However, his replacement, Mr. Nouredine Boukrouh, formerly the Minister in charge of SMEs, has succeeded in implementing much of Mr. Temmar's proposals. A presidential decree, issued in August last year, shut down the holdings, eliminated the National Council of Privatization (another intermediary body) and streamlined the CNPE, renamed the State Participation's Council (CPE). In the place of the holding companies will be 28 equity management companies that will have, in theory, greater powers to deal directly with investors and more room to maneuver.

"What characterizes the new process," says Mr. Boukrouh, "is that all intermediate structures ­ the holding system, the National Council of Privatization, the secretariat ­ have all been liquidated. Instead we have made the institutional process more practical by shortening the decision-making route."

On the investment front, the National Agency for Investment Development (ANDI) was created to replace the former investment agency, APSI. Mr. Abdelmajid Baghdadli, the new agency's General Director, says the brief is to get closer to the investor. "ANDI will be organized through a decentralized, regional network of 'one-stop shops' where investors will find a unique agent to help and support them for all their needs." Initially, the agency will be providing updated analysis and information on Algeria's investment environment, then branch out into services to support the specific needs of a particular investor.





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