The key to Algeria‘s economic reform process is a successful privatization of the massive state sector. Slow up till now, the process is being implemented with increasing urgency

Privatization has been slow going in Algeria. The government wants to pick up the pace in 2000 in what is one of Africa’s largest sales of state assets.

The man at the center of Algeria‘s privatization process, Mr. Hamid Temmar, is adamant about one thing: Properly managing the state‘s assets means getting rid of them.

Mr. Temmar is Algeria‘s Minister of Participation and Coordination of Reforms - a somewhat unusual name for a ministry that is responsible for coordinating the state‘s privatization program, but one which Mr. Temmar feels points to an important distinction.  “We have a huge public sector,” he says, “so for this we have a very specific legal framework. Basically, our state-owned companies are not state-owned per se. They are really public companies working within the scope of the commercial law, although the government owns 100% of the shares. So technically, each one is actually a share company and my job is to manage the government‘s participation in these companies. But as far as I‘m concerned, managing these shares means trying to get rid of them if we can, properly and neatly.” The task is not easy. Many Algerians remain apprehensive about privatization given that the government faces an enormous problem with unemployment, which by the end of last year was rated at 30% (50% among young workers).

Public industry, which makes up the majority of the state‘s sellable assets, is the country‘s largest and most over-staffed employer. Privatization will inevitably involve large-scale layoffs, something the government is understandably dreading. So unlike other countries in the region, such as Lebanon – which looks at privatization very much in terms of the balance of payments paradigm – Algeria‘s officials say they are not interested in privatization for the sake of revenue. “Our objective,” says Temmar, “is to save our enterprises. Whether they remain public or private, our aim is obviously to maintain our productive capacity and modernize it. If a state company can fly on its own, or with a bank, then no problem, the company may remain public.” 
“But obviously,” says Temmar, “for 95% of the public companies this is not the case. And since the government is not willing to put money into these companies anymore, then obviously what needs to happen is to open up its equity and find cash somewhere else. So where is it coming from? It comes from investors and that means privatizing, either 100% for the equity or part of it.”
Mr. Temmar was appointed at the beginning of the year to provide a much-needed impetus to the country‘s rather anemic privatization process. An economist, educator, and most recently an inter-regional advisor to the United Nations specializing in development economics, he now oversees a process that has been going on for more than five years but one which has yet to realize a majority privatization of a state company.
The parliament approved Algeria‘s first law of privatization in 1995, which legalized 100% private ownership in the majority of Algeria‘s state-owned enterprises. However, with strict payment requirements and tough employment obligations, the law proved too restrictive to attract investors. Amended in 1997, the law lifted the buyer‘s employment obligations, relaxed payment requirements, and is now in line with most international privatization codes. The law offers privatization via public offering of shares on the stock market, a tender process whereby assets or shares are sold through a competitive bidding process or negotiated direct sales to investors. 
The government has issued a list of some 88 enterprises and their 350 subsidiaries that are up for sale. One of the country‘s largest companies, Eriad Setif, has listed 20% of its shares on the new stock exchange, along with the Algiers landmark El-Aurassi Hotel and the Saidal pharmaceutical company. In addition, two notable joint-ventures formed this year, representing some much-needed foreign direct investment outside the hydrocarbons sector. Henkel, the German consumer products manufacturer, has purchased production facilities from Entreprise Nationale des Détergents et Produits d‘Entretien. Also in industry, Savola, a Swiss-Saudi group, has signed a $50 million deal to purchase three production units from the state-owned Entreprise Nationale de Corps Gras. There have also been some successful tenders of smaller state assets, such as the sale of over 100 pharmacies out of a list 483 currently on offer. 
In an effort to further encourage such investments, the government is reforming its investment agency, APSI (Agence de Promotion de Soutien et de Suivi des Investissements). The agency was established in 1993 in order to provide assistance and information to investors, and to create an easy entry point to Algeria for those investing from abroad. Like other investment agencies around the world, APSI has made itself a “one-stop-shop” for investors; instead of the investor having to go through the costly and time consuming process of working through the country‘s bureaucratic and administrative organs in order to obtain the necessary legal and regulatory approvals, APSI will process all the paperwork. Additionally, the agency assists with an investor‘s feasibility study by providing up-to-date information and analysis. Mr. Khaled Bouguerra, the agency‘s general director, argues that the investor is only interested in real economic potential and therefore must be given all the necessary assistance before he or she commits any money. “An investor needs an extremely precise appreciation of the economic situation. That is why we assist with the feasibility study, whatever size or shape. Only when the investor is convinced of the profitability of his investment will he make the actual decision.” The changes to APSI – which should be formalized by the end of the year – involve separating the agency into two separate bodies, one specialized for domestic investors, the second targeted only at investors from abroad. 

“We have a lot of flexibility to discuss with all the investors,” says Temmar. “Our code of investment is very good, liberal, and open by international standards. And what is particularly useful is that there is a provision within the code that allows us to negotiate terms more than what is in the code itself if the investor can demonstrate some specific advantage for the country.” The code favors joint-venture projects and all new enterprises set up under the code receive a three-year tax exemption from VAT on goods and services acquired locally and/or imported; an exemption on property taxes; a two- to five-year exemption on corporate income taxes; a reduction on customs duties; and a reduction in social security contributions.