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The
result is a broad-based industrial sector that is dominated by large
state-owned enterprises (SOEs), which generate approximately 70% to 80%
of total industrial production and employ 400,000 people. Primary areas
of manufacturing activity are iron and steel, food processing,
pharmaceuticals, textiles, cement, and electromechanical engineering.
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The policy of central planning and public funding succeeded in rapidly
developing the country‘s industrial base. But developments of the last
two decades have harshly exposed counterproductive side effects of the
policy, so much so that for the Minister of Industry and Restructuring,
Mr. Abdelmajid Menasra, “the challenge for Algerian industry is to
remain alive or to die.”
Protected from competition, heavily dependent on foreign markets for
their supply of raw materials and suffering from inefficient management,
Algeria‘s SOEs were particularly hard hit by the economic recession,
which saw successive devaluations of the dinar along with high interest
rates stemming from the Bank of Algeria‘s tight monetary policy. The
situation was made worse by the civil war of the 1990s, which severely
curtailed production targets in many areas of the country, and
undermined any possibility that these enterprises might attract
investment or partnerships from abroad to help them modernize and
restructure their operations. |
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The end result is that industrial production has been in decline for
more than a decade. SOE output dropped almost 9% in 1996 and public
industry is now operating at below 50% capacity. Surviving largely on
credit extended by Algeria‘s state-owned banks, over-staffed, and a
significant drain on the national treasury, public industry has been the
focus of intense government efforts towards restructuring and,
ultimately, privatization.
Although the pace of restructuring has been slow due the government‘s
unwillingness to face large-scale layoffs, significant progress has been
made. In 1996, SOEs were handed managerial autonomy under the umbrella
of 11 holding companies specialized by sector. Condensed to five this
year, these public holdings have assumed broad management
responsibilities in order to prepare the SOEs for privatization. So far,
many non-viable enterprises have been liquidated or absorbed into larger
state companies, while various financial recovery schemes, such as
debt-equity swaps, debt forgiveness, refinancing, and capital injections
have been implemented. And in some areas, the government has also bitten
the bullet regarding underemployment. The El Hadjar steel complex,
Algeria‘s largest industrial plant, had 22,000 employees in 1998.
“Half of its employees have now been retrenched,” says Minister
Mensara, “and the production volume didn‘t change.”
While many SOEs still remain trouble ridden, some public sector
enterprises are taking advantage of their managerial autonomy to improve
their financial position and make themselves attractive privatization
targets. Eriad Alger is a public company that operates in the biggest
area of Algerian industry – agro-foods. A major producer of flour,
yeast, semolina, biscuits, and chocolate, Eriad Alger has been
undergoing restructuring to improve efficiency and increase exports. In
1999, the company made profit of AD150 million ($2 million) on a
turnover of AD19 billion ($264 million). Eriad Alger‘s CEO, Mr. Said
Mazidi, is preparing the company for listing its shares on the Algiers
Stock Exchange by 2002 and is currently implementing measures to achieve
ISO certification by next year. “We‘re making these changes because
with the future removal of customs barriers between Algeria and the
European Union, we have to be competitive or we will not survive.”
This is a theme mirrored by Mr. Menasra. “As we enter into agreements
with the World Trade Organization, the European Union, and the Arab
Free-Trade Zone, the competition will be huge.” One recent example of
the increased competition local industry will face is Honneywell. The
$24 billion technology and manufacturing giant is already an active
exporter to the country and is considering opening an office in Algiers
in 2000, in order to expand its operations in Algeria. “Algerian
industry,” Mr. Menasra continues, “needs to reduce the cost of
production, insure higher quality and standardization, and reach the
consumer quickly. Because the challenge is not only to keep the local
market, but with internationalization, to look for new ones.”
One area that the government is genuinely optimistic about is private
industry. Before Algeria began its process of economic reform in the
early 1990s, private industry wasn‘t illegal, but it nevertheless
faced severe government discrimination. The sector was excluded from
state financing, import licenses were reserved for state-owned
enterprises – which meant that private sector firms had to buy their
inputs from the state companies (their competitors!) – and private
companies were unable to purchase industrial land.
Given these conditions, it is remarkable that any private industry
remains at all. But with official discrimination now firmly in the past,
private industry is increasingly active. Although comparatively small,
much of the production gains recorded in the industrial sector stem from
private enterprises. According to figures from the Ministry of Industry
and Restructuring, the combined turnover of public industry grew only
0.4% from 1998 to 1999, while that of the private sector increased by
27% for the same period. The more than 150,000 small- and medium-sized
private industrial firms are more agile than their debt- and
employee-heavy public brethrenm and are increasingly looking toward
export markets and foreign partnerships as means to overcome the
difficulties of local conditions.
There are many good examples (see box). Belcol, a manufacturer of
industrial adhesives, has built itself into the country‘s largest
business – public or private – in its sector, despite the
disadvantages facing private industry in the past. Established in 1968
and exporting throughout Africa, Europe, and the Middle East, Belcol has
production facilities extending over 10,000 m2, an annual production
capacity of 20,000 metric tons, and a product range of over 300 types of
adhesive. Owner and CEO Mr. Mohktar Belhadj expects to attain ISO
certification for his products by the end of the year and is currently
spending much of the year traveling abroad, seeking to penetrate new
markets and looking for potential partners.
One private operation that has also succeeded throughout the years is
Société de Refrigération et de Conditionnement de l‘Air.
Established in 1975 with just five employees, RCA is now the largest
company in its sector in Algeria with over 450 employees. The company
provides locally manufactured or assembled refrigeration units, air
conditioning solutions, and customized fittings and equipment for the
commercial food and beverage industry. By producing its products locally
and performing all installation and technical procedures along with
maintenance, RCA has secured the country‘s largest buyers, such as the
medical and hospital sector, government ministries, and large
industries. RCA is hoping to attract foreign partners or investors in
order to overcome the difficulties in attracting adequate amounts of
credit on the local market. Company founder and CEO, Mr. Rachid
Benmansour, wants to upgrade his production facilities in order to take
on increased competition from importers and expand his business.
“Technically, we are masters of our product. What we need is a serious
banker or a partner to produce together the products that don‘t exist
in Algeria.”
Another firm looking for the right opportunity is SAEL. A small rubber
processing industry whose main activity is manufacturing products used
in footwear, SAEL has managed to increase its revenue year-on-year
despite harsh operating conditions. With a turnover of AD120 million
($1.7 million) in 1993, SAEL has grown its business to AD324 million
($4.4 million) in 1998.
But for strong growth in the near future, SAEL is calling for investors.
The company believes it has significant opportunity in the manufacture
and export of neolite, a rubber substitute for leather used in the
footwear industry. SAEL intends to take advantage of Algeria‘s lower
operating costs to supply the still active footwear industry of
Europe‘s Mediterranean rim, one hour‘s distance by plane from
Algiers. SAEL‘s proposal will look even better when investment in
Algeria‘s petrochemical industry makes the raw material required for
neolite manufacturing available locally, significantly reducing SAEL‘s
costs. (It is ironic that in a country with such rich hydrocarbon
resources, SAEL currently imports the raw material it needs for its
rubber products.)
SAEL is looking for a partner in order to reach for this opportunity.
The family owners and managers of SAEL, represented by Mr. Omar Abass
Turqui, are open to any kind of interest in their company, whether it
represents an equity partnership or a diversification of their business.
“We are fully transparent and are willing to go forward with the right
partner,” Abass Turqui says.
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