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AfricaFebruary 5 2007

Privatisation this time

Algeria has lightened its debt burden and foreign investors at last seem keen to invest in subsidiaries and privatisations, write Jon Marks and Nadine Marroushi.
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Plans to partially privatise a leading state bank, Crédit Populaire d’Algérie (CPA), have generated unusual international interest, as Algeria re-emerges as a focus for the financial community.

Past efforts to privatise Algerian banks came to nothing – either because the bank was unattractive (such as the Staoueli-based Banque de Développement Local) or it was not yet ready for market, as with a previous effort to sell a minority stake in CPA to Société Générale – but this time it is serious.

According to Mourad Medelci, minister of finance, blue-chip bidders participating in the tender to take a controlling 51% stake in CPA include French banks BNP Paribas, Banque Populaire Group (BPG), Crédit Agricole Group (CAG), Crédit Industrial et Commercial and Société Générale, Spain’s Banco Santander and US giant Citigroup.

Paris-based Rothschild is evaluating offers, with a winner expected by March. Algeria wants to deal only with big players: CPA’s future controlling shareholder must have a minimum €3bn capital and a major branch network.

Familiar names

Most bidders already have a presence in Algeria, including BPG’s Natexis subsidiary and CAG subsidiary Calyon Algérie. In November, making a pitch for increased Spanish non-energy investment, Mr Medelci listed Banco Santander among banks that he said planned to open Algerian branches in 2007. BNP Paribas, which already has 10 local branches, has set up a staff training centre and plans further expansion.

Citibank has an honourable history of representation in Algiers, along with a few other stalwarts such as Arab Banking Corporation. Now that the state’s protracted conflict with radical Islamists seems all but over, others are moving in as quickly as Banque d’Algérie (BdA), the central bank, will grant them licences.

In a bid to internationalise Algeria’s financial sector, licences to establish operations were granted to three banks in 2006. Calyon Algérie will focus on investment banking, although it may also branch out into retail banking. Licences were granted to Al-Salam Bank Algeria (a joint venture of investors including Dubai real estate giant Emaar Properties and its subsidiary Amlak Finance, Dubai Investment Group, Dubai Holding, Kuwait’s Global Investment House and Lebanese Canadian Bank) and Lebanon’s internationally ambitious Fransabank.

Positive trends

Several main factors have promoted this interest. Tentative steps towards rational management have improved the business environment, raising the prospect that, in this phase of reforms, the local private sector might really take off. One result of the global oil price boom is a surge of investments in countries like Algeria, particularly from petrodollar-rich Gulf investors.

Algeria’s macroeconomic situation has long been singled out for praise by the International Monetary Fund. With oil prices feeding into record foreign exchange reserves, which ended the year at $54bn, the debt burden that for so long defined Algerian finance is no more. Milestones include completing repayment of Algeria’s remaining $7.9bn Paris Club debt. Final repayments to the US and Germany in the last months of 2006 cut external debt to less than $7bn, from $15.5bn in January 2006 and highs of $30bn-plus in the 1990s.

Genuine concerns

Giant strides have been made since Abdelaziz Bouteflika became president in 1999, but as International Finance Corporation president Lars Thunell put it during a recent visit, Algeria “is headed in the right direction even though there is still a lot that needs to be done”.

World Bank officials – and local economists – remain deeply concerned about the slowness of microeconomic reforms and business environment inefficiencies. Mr Thunell cited problems including lack of transparency in the privatisation process, complexity of the taxation system and investment procedures, and the slow pace of banking reforms. Mr Thunell stressed the central bank must take a stronger lead in pursuing banking sector improvements.

The authorities say they are committed to innovation: the non-performing Algiers stock exchange is expecting a Dubai-style makeover and there are plans for a national electronic payments system to be introduced. According to bankers’ association secretary general Abderrahmane Benkhalfa, more foreign banks are set to enter, helping to encourage more Algerians to place their deposits in banks.

The early January opening of a major corruption trial in Blida served as a reminder of the financial sector’s fragility. The trial revolves around the collapse of El Khalifa Bank – whose demise saw confidence and political backing drained from local private banks during a previous, unhappy, phase of reforms.

Algeria needs a successful CPA privatisation to help maintain rising international – and local – confidence.

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