Algeria's supplementary budget, agreed by the cabinet at the end of August, followed an established trend. Since 2008, the mid-year budget, which updates the budget in force from January 1, has been used as a mechanism not only to revise the government's spending plans, but also to introduce regulatory changes, more often than not to the detriment of foreign businesses.
This year, the revised budget projects a deficit of AD3615bn ($49bn), an increase of AD906bn compared to the January budget, based on a reduced forecast for hydrocarbons earnings and a AD608bn increase in the operational budget. In reality, though, there is unlikely to be a deficit at all. The difference between the budgeted oil price of $37 a barrel and the actual price, which is likely to be at least $75 a barrel, will ensure that there is no need for recourse to the country's $150bn oil stabilisation fund, according to finance minister Karim Djoudi.
Bank regulations
The new regulations will provoke more attention. They include a measure restricting international banks to a minority stake in local financial institutions, and the granting of a golden share to the Algerian government in all private banks.
The first brings the banking sector into line with a measure introduced in last year's supplementary budget, which restricts foreign companies to a minority stake in local joint ventures. The government has given assurances that the ruling will not apply to banks already operating in the country. BNP Paribas and Société Générale both own 100% of their local operations, while Natixis, Al Baraka Banking Group and Arab Banking Corporation all have a majority stake.
Waiting in the wings
But if there is a change in ownership, these banks may be forced to comply with the new regulation, particular in light of another measure in the revised budget, which reinforces the government's right to first refusal on any shares sold by foreign companies in their local subsidiaries.
Certain to be affected is the long list of banks awaiting authorisation from the central bank to operate in the market, including Bank Audi and Byblos Bank of Lebanon, and Morocco's BMCE and Attijari Wafabank. "I don't think Algeria wants any more foreign banks, so they don't mind if their attitude is affected by the new regulation," says the head of one international bank in Algiers.
The authorisation of the existing applicants, all of which have been waiting for at least two years, was already uncertain. Even so, potential new entrants may be undeterred by the new measure as long as they can join up with multiple local partners. "What companies care about is management control," says the banking chief. "Having a majority share is not crucial as long as they are the largest shareholder."
Up-front capital
Finding local partners might not be easy. "It will be hard to find a partner unless you partner with the government," says the head of another international bank in Algiers. "You also have to fulfil the AD10bn minimum capital requirement. Banks used to have five years to do this, but now it has to be up-front."
The introduction of a golden share for the government, which gives the government representation at board meetings but not voting rights, is consistent with Algeria's high profile drive to root out corruption, as well as with the global trend of increased banking supervision. But it is unclear how it will work in practice.
Three banks - HSBC, Citibank and Arab Bank - are branches of their parent company rather than subsidiaries, which means they have no board on which to sit. For the others, it is not clear what benefit the government will derive from board representation beyond the purely symbolic. "The board won't go into the nitty gritty of what they do on a day-to-day basis," says the second banking chief. "I don't know how it will benefit the government."
