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Private sector comes in from the cold as business climate warms up

Article - June 29, 2012
Algeria has overcome the effects of terrorism and civil war, but a fully open free market has yet to emerge. The private sector is still underdeveloped, although it is growing steadily thanks to initiative, ambition and the work of private business organisations

It is often said that numbers don’t lie, but in the case of Algeria, numbers don’t fully represent the reality. For instance, the Heritage Foundation’s Index of Economic Freedom has ranked the country 14th among the 17 countries in the Middle East and North African region, and 140th globally. Similarly, the World Bank’s Doing Business survey puts Algeria at 148th place out of 183 countries. While these figures present a bleak outlook on Algeria’s business climate, what they do not do is take into consideration the country’s recent history, hurdles and developments.

Ahmed Tibaoui, General Manager of the World Trade Centre Algeria, is blunt yet optimistic: “I think that [the ratings are] a bit exaggerated. I am not saying that the business climate is very good but we should be classed better than that, because we are coming back from far: the Algerian economy was an administered economy, managed by the government until the end of the 1980s and we started to open up our economy in 1998 with new laws and access to the private sector and market economy.”

Reda Hamiani, President of the Business Leaders Forum (FCE), recalls how the administration of former president Ben Bella had opted for a socialist regime, “a kind of regime that did not allow private initiative to be realised. Because at that time, this was a third world country and the people thought that the engine of development and growth was not to be carried by the private sector. In my opinion it was a mistake,” he says. “The state was chief, regulator, sponsor and protector, and therefore although the private sector was tolerated, it was in fact marginalised. Banks didn’t lend money to the private sector. It was very difficult to obtain land.”

A difficult transition

The system had been in place for nearly 30 years, which is why in Mr Hamiani’s words, “it is difficult to turn 180 degrees now.”

In addition, once the economy was opened up in the late 1990s, a series of unfortunate events overshadowed this vital move and posed ever more challenges. The civil war (1991-2002) was detrimental not only to the economy, but to the country’s reputation as well. Algeria’s dinar began to devalue and, because almost all raw materials used in local factories were imported, production became more expensive.

Mr Tibaoui believes that a lag in local production was compounded by new regulation. “Due to the agreement we had with the IMF, we opened our foreign trade, which had been under the governance of the state in the past,” he says. “We were obliged to open up, and foreign producers with cheaper products of very good quality started to enter the market. Public companies then accumulated huge stocks of merchandise that they could not sell.”

During the mid to late 1990s, private enterprises that had launched projects struggled to pay their loans to the banks. In 1998, the government initiated a privatisation plan and began selling its companies to the employees and eventually to investors. Foreigners were not yet interested, given the recent turbulence; however, as more reputable local investors – such as SIM and the Cevital Group – bought shares of public companies, a growing message of confidence was being sent out and eventually foreign investors began to take notice.

Today, although the private sector still faces many bureaucratic challenges, it has no shortage of willpower. As Mr Hamiani puts it: “Algerian businesses are driven by dynamic, extremely ambitious leaders.”

He adds that while the government is adopting various reforms to help the private sector, “there is much distance between the political discourse and the reality on the ground.”

The best reform, he says, would be one that improves the administration from within and that would allow for the growth of private small and medium-sized enterprises and industries (SMEs and SMIs), which he considers to be key engines of growth, creators of employment, and enablers of economic diversification.

The Cevital way

An example of how the private sector can benefit the country – and of how the ambition that lies unrealised could blossom into jobs and wealth – is the Cevital Group. The second largest company in the country and the first in the private sector, Cevital is active in electronics, household appliances, construction, supermarkets, agriculture, shipping, logistics, real estate, automobiles and glass among others.

According to Issaad Rebrab, the company’s President, Cevital is a huge contributor to state coffers as well as to Algeria’s overall development. He says, “We have done the maths regarding the value that we create: 59 per cent goes to the state budget, 40 per cent is reinvested and we distribute 1 per cent to the Algerian people. And this is after having paid our employees and all our costs.”

He adds that while reinvesting is the company’s only choice since investing abroad is not allowed, it provides an excellent channel for innovation and growth. “Our reinvestment strategy is what makes Cetival what it is today,” he affirms.

Although the Algerian government is sometimes marked by lentitude, foreigners find a huge and lucrative market in the country. Mr Tibaoui believes that in less than 30 years, Algeria can become a “pivotal, wealthy country” and that could “maybe in the next 20 years join the BRICS.”

Algeria’s World Trade Centre is trying to help make this happen by offering foreigners business services such as recruitment and accounting, and assists them in avoiding as much bureaucracy as possible. The WTC also links its members around the globe, so a member from anywhere in the world can arrive in Algeria and already have a contact lined up. Mr Tibaoui says, “We are at the heart of business in Algeria.”