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                            A Special International Report Prepared by
                           The Washington Times Advertising Department - Published on July 2, 1999
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Advertisers

(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:
Rod Craig

Propject Director:
Hala Nasreddine

Photography by:
Rod Craig

For more information, call
The Washington Times International Advertising Department
at (202) 636-3035
(202) 635-0103 fax
e-mail: natlad@wt.infi.net

Local bidders and foreign investors being courted

Recent return to stability in oil prices has brought Algeria back from being pushed further into yet another major crisis. Former state control of most of the country's productive capacity and its dependence on the oil sector have made it extremely susceptible to international energy crises.

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Algeria definitely needs foreign investment. Even major companies such as Sonatrach are trying to draw attention to this need. Particular attention has to be paid to the non-hydrocarbon sector.

It is true that there are great opportunities for investment in Algeria - and that this is the moment to do it. The country is nominally wide open and assistance is being offered to anyone who is interested. It even seems that even minority shareholdings can buy businessmen into extremely interesting companies.

What is missing on the Algerian scene is primarily entrepreneurial and management ability, and businessmen, who have openings to foreign markets as well, will know how to use the cheap labor and the availability of reasonably priced raw materials.

Having embarked on a program of major economic reform and privatization which is really still only in its primary stages, officials claim that bidders have been invited to purchase of many private concerns. But the number of non-Algerian entrepreneurs who are recorded as doing so is presently running at a low level.

The question is raised whether a hidden national preference is not being accorded to Algerians - which would leave the cream in the hands of local businessmen. Newspaper reports talk of a brickworks which had been rented for several years to a Belgian who had an option to buy. His bid was turned down because it did not contain a check for a deposit.

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The oil price shock in 1986 marked the beginning of the end for socialist economic policies, under pressure since the mid-1970s. The fact that the country did not react quickly enough to falling prices and bring in a program of economic reforms, resulted in severe external payments imbalances.

An International Monetary Fund report says that procrastination over privatization and failure to promote investment in the private sector were some of the things which did not create the required conditions for economic growth.

During the years leading up to 1994 per capita income fell by some 45 percent and unemployment rose to more than 25 percent. Today's level is 29 percent.

The government introduced wide ranging stabilization and adjustment measures - aided by a World Bank program, that have succeeded in reducing inflation to 6 percent in 1997, limiting the decline in exchange rates.

Two factors can help to further fragilize the financial situation - fluctuations in oil prices which ideally should stay at a minimum of $15 to $17 to make the government happy and changes in world cereal prices as the country is the largest importer of durum wheat.

The report commissioned by the International Monetary Fund suggests that "a key element for future sustainable growth compatible with external viability will be Algeria's ability to attract non debt-creating private capital flows, especially for investment in the non-hydrocarbon sector.

The external debt burden is still high and new external borrowing is likely to be undertaken prudently.

As the economy evolves and market forces are free to allocate resources to their most productive uses, Algeria should be able to attract capital flows and direct investment commensurate with the economy's productive potential.

This would permit higher imports and promote the acquisition of foreign technology and expertise. Improved confidence in Algeria's economic prospects and a stabilization of the economic and political picture will be instrumental in Algeria's ability to attract higher levels of foreign investment."

Although the management of the Algerian economy is on the whole praised by the report, the housing sector, where the crisis had proved difficult to address, came in for criticism.

"This was partly due to the need to restructure the entire system of housing construction and financing, while ensuring a steady yearly delivery rate. The latter was essential to ease existing shortages and provide jobs. With the benefit of hindsight, greater progress would have required a high level task force endowed with broad powers that superseded individual ministries to obtain and develop construction sites and to mobilize financing .

The establishment of clear property rights in agriculture and housing also proved elusive, which is understandable giving 30 years of socialist legacy.

The absence of such rights inhibits collateralization of bank financing, reduces incentives for investment and limits bank intermediation. Indeed the judicial system in Algeria is not yet geared to the norms of a market economy. It is slow and cumbersome in contractual disputes and favors tenants over landlords."

In view of the fact that the labor force has been growing at about four percent per year, the country needs a 6 to 7 percent yearly growth rate in the non hydrocarbon sector and particularly emphasis on labor-intensive activities.

Unemployment, which officially stands at 29 percent, has been further aggravated by rationalization of industries in preparation for privatization.

More than 400,000 employees have been made redundant to 'clean up' the former socialist-style businesses and make them more attractive to potential investors, adding to the already huge pool of workless.

The IMF feels that the exchange rate is realistic and that much has been done in the field of interest rates.

However, with its embryonic liberalism, Algeria has yet to institute a real private sector mentality.

The privatization of the large state industries, with the consequent investment needed to bring them up to modern standards and make them commercially viable, will probably be hindered by the lack of local funds for investment as well as the inexperience of the public in the field of private enterprise.

"There is a need to develop a banking culture and deepen financial markets, particularly for treasury bills and high quality commercial paper."

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