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                            A Special International Report Prepared by
                           The Washington Times Advertising Department - Published on July 2, 1999
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(1) Sonatrach, An International Petroleum Group

(2)Council of Privitisation

(3)Bank of Agriculture and Rural Development

(4)CNEP

(5)Group Touring Club of Algeria

(6)Groupe Enad

(7)Wines from Algeria

(8)Blanky Industry Company

(9)EFG - Hermes

(10)DHL Worldwide Express

(11)Enterprise De Travaux Publics Batiments & Hydraulique

(12)Office National des Aliments du Betail (ONAB)

(13)Hotel El Djazaïr

(14)Halliburton Company

(15)Algeria National Enterprise for Tourism

(16)Investment Promotion, Support and Monitoring Agency, APSI

(17)Hôtel El-Aurassi

(18)Saïdal Group

(19)Mechanical Public Holding

(20)ENCG

(21)Sonatrach, Partnership the strategic choice

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A Special International Report Prepared by The Washington Times
Advertising Department

Written by:
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Hala Nasreddine

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Banking reforms, foreign investment moving quickly

The Algerian banking system has undertaken major reforms and is moving quickly, says Abdelouahab Keramane, governor of the Bank of Algeria.

Summarizing the country's situation, he said that Algeria has had a centralized planified economy during 20 years and has been moving out of this system both economically and politically since the mid 1980s.

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"Politically we had a new constitution in 1989 which introduced the multiparty system. Economically, before 1990 Algeria was open to foreign investment in the energy sector but then it was opened to any other sector.”

There have been a lot of new laws for investment, for workers' relations, for trade and the law for banking system which created the Banque d'Algerie - a new central bank autonomous from the central government since 1990.

"So on the legislation side we have got everything to give the country the framework of a market economy.

“This is important but not enough. You have also to transform the way the economy is functioning and we have had many actions first without the International Monetary Fund and later within IMF programs - the last was a four-year program between mid 1994 and 1998.

"During all this period we have liberalized Algeria. It was more or less a monopoly by state companies. We have a regime of free prices. We have moved from a fixed exchange rate to a floating flexible exchange rate regime. We have moved to current account convertibility - we have stabilized our economy. Inflation was around 30 percent in 1993 or 1994 and it went to 5 percent in 1998 and the beginning of ‘99.

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"So the efforts made to transform our economy to a market economy have been very great and the program with the IMF is a successful one.” Keramane believes this exceptional transformation should be more widely known throughout the world.

“Since the new 1990 law foreign investment can freely come to Algeria and has all the safeguards required worldwide. But people waited to be sure that it was not going to change and that the overall economic framework was moving.

“Since 1997 we have authorized around 12 new banks, which is a very strong signal. Five are foreigners, and the others are small private Algerian banks."The foreign ones include Citibank and Arabank, Attari Bank and two other French banks, Societe General and Natexis.

"Two are already operating and the others will start this year. The banking system is moving very quickly. It is very important, because for the investors it's good to know that they have a choice.

"1997 has been a turning point. The investors were behind the door peeping through trying to see what was happening, not wishing to be last but not courageous enough to be first.

The bank had been negotiating with Citibank for two to three years.

He believes other sectors will follow the same pattern as the banking sector.

“We have noticed already that the pharmaceutical sector is moving very quickly, but the others will follow.What will foreign investors find? I think we offer what the other foreign countries are offering. The big size of the Algerian market. We are an oil exporting country so the market is not only the size of the population - it depends whether the population has money. We are importing each year roughly around $1 billion USD. And it is developing very quickly. We have an industrial base - it has been criticized as it is not functioning well. This is the result of the socialist system, but it has given a basis for development.”

During this IMF program, tremendous success has been made toward restructuring industry. Between 300,000 and 400,000 workers have been dismissed to alleviate costs in this productive sector. So all this industrial sector is a potential partner for the foreign investor and it also offers them the possibility of obtaining subcontractors. The infrastructure is there.

"We also have the skilled population. The efforts made by the government during the last three decades have been very important in mass education and there are a lot of skilled people without work.

"Wages are very low following this reform, which has a bad social impact but from the point of view of the investor it’s a good factor. So this is the reason why we are rather optimistic. We think that the main obstacle during these last years was the political and security situation rather than the economic situation which was moving very quickly but hidden.

“The objective for the Dinar is stability. In 1994 at the beginning of the IMF program there was a very strong devaluation of 40 percent. Even after this there was depreciation. We now consider that between 1996 and 1997 the Dinar has stabilized. Just before this devaluation, comparing the official value of the Dinar with the black market value the difference was 400 percent.

By the beginning of 94 - after the devaluation and up until now this difference is just 25 percent. So we still have a slight black market - of course it's there, we know it, but we consider it is having less and less importance and that it will disappear with the dynamism of the economy. We have moved from a fixed exchange rate system to a flexible rate, which allows the Dinar to establish its value on the market.’’

As with any other currency, the Dinar’s evolution will depend on the evolution of the economy. “We have trade convertibility and current account convertibility since 1996. We don't yet have total convertibility but we are looking toward steps to it.

“Reserves in Algeria used to be around $ 2 billion to 3 billion, during the 70s and the beginning of the 80s. Then after 1986, the sharp drop in oil prices (40 percent) hurt the oil exporting countries very much and created the problem of indebtedness. From 1985 to ’86, we lost 40 percent of our oil receipts. We entered a vicious circle of short- term commercial debts - and this created political and social problems.

“Since the mid 80s to 1993-94 reserves were between $1.5 billion to 2 billion USD. After we had this program the reserves started to grow. There was $4 billion by the end of 1996 - a level which we had never reached in the past - $8 billion by the end of 1997. Then we went into a period of weak oil prices - they were $6.8 billion by the end of 1998 - it is still six months of imports - very high when compared with our usual trend.

“But, of course, we are following the situation of the oil market - for the past six weeks it has been better than the first part of the year. So we are less anxious but we are still following it in order to keep in good shape. It depends a lot but let's say it will still probably be around 5 billion at the end of the year.”

Before the new banks, the system consisted mainly of five public banks that were operating through the centralized economy, so in the last few years they have had to make a change.

“Efforts are still needed toward modernization. The main incentive will come from the competition from the new banks and it is also one of the achievements we expect from authorizing so many new banks so quickly.

“To ameliorate unemployment, you need growth - growth comes from investment and stabilized macroeconomic conditions. Due to the efforts we made from 1994-98 we have stabilized macro-economic conditions. We have experienced a return to growth. From 1986 to 1993 all the years were of negative growth - except one, 1990. Then we had our program - in 1994 zero growth, in 1995-96 roughly 4 percent, 97 only 1 percent due to agricultural conditions, and 1998 there was 5 percent.

"Growth is coming back but it needs to be maintained and strengthened, but this will come from more investment. Thus in general terms we just have to continue our efforts to get more employment - it will take time.

“Following the drop in oil prices in 1986 we had the vicious circle of indebtedness so our debt reached say $27 billion USD by 93 and 94 - not so high compared with other countries.

“The difficulty was that it was on short term.

"We rescheduled our debt with the Paris club and the London club and after that the debt service is far lower than it was in fact in 1983 it was 86 percent, by year 97 it was down to 30 percent, Now for the year 1998 it is up again to 45 percent because our exports are less.”

"We expect it to be lower this year again.”

"The problem is the conjuncture of oil prices. It is not yet at the price that we want. The average price in 1994 and 1995 was $16 to $17 and for 1996, $21 and for 1997, $19. For the year 1998, the average was $13 - 13 is very low. Starting from $16 to 17, it is comfortable for us.

"From the economic point of view there has been tremendous change in the structure of our economy. We have now a market economy that is working within a country which is open to world cooperation and business. We think it is in the interest of investors looking for new markets to put aside the biased communications and try to know more about economic conditions in Algeria. It could be to their and our advantage.”

“In 1994, 95 we had the biggest problems here and we have been facing it almost alone. If we had not succeeded in facing it would be a problem for Europe, Tunisia, Morocco, and for all our neighbors. Indirectly it would also have been a problem for the States. We were facing a very difficult situation - we faced it and we succeeded. I consider that we are out of the bad situation we have had in the past. What is clear for us today will be clear for soon for those who are still needing some lag time for assessment.

He believes Algeria does not communicate enough. “There is a bias against Algeria - but not in the United States. For the French media, the Algerian war is not finished. It is not an active policy. It is just still there and it has an impact on the way the French media speak of Algeria.

“And, of course, they are among the first channels of communication regarding Algeria."

Table of Contents

(1) His Excellency Abdelaziz Bouteflika, President of the Democratic and Popular Republic of Algeria

(2) Country has resources and potential and is moving toward peace

(3) History

(4) Stability predictable for Algeria

(5) Terrorism is costly - in lives and finances

(6) Political Parties

(7) Despite being free, press sometimes is silenced

(8) Local bidders and foreign investors being courted

(9) Despite previous problems, economic future is bright

(10) Institutions