The crunch came in the mid-1980s, the time in which Algeria’s sustained economic recession began. The recession – and the corresponding fiscal crises – saw successive devaluations of the Algerian dinar. State industries, particularly dependent on raw material imports, began racking up increasing levels of debt. Excessively high wage bills, inefficient management, and outdated equipment and machinery prevented state firms from successfully fighting their way out of debt and modernizing their operations.
As part of the transition to a market economy, the state has been focusing on restructuring its public industry and opening up the sector to foreign investors. According to the Minister of Industry and Restructuring, Mr. Abdelmajid Menasra, so far the government has injected more than $15 billion in restructuring efforts, involving liquidating non-viable state firms, shedding staff and implementing financial recovery schemes such as debt-equity swaps, capital injections, debt forgiveness, refinancing and so on.
Despite these efforts, the industrial sector as a whole still remains in recession. Although private sector industry continues to show positive growth (6.8% in the first quarter of 2001), it still remains small in relation to public industry. Because privatization has by and large not taken place, the sector remains dominated by state-owned firms (around 75%). Industrial production, which has been in decline since the early 1990s, continued to fall in 2000 and 2001 despite record earnings in hydrocarbon exports. Excluding the oil and gas sector, total public sector growth fell by over 1% in 2000, an increase over the 0.5% in negative growth in 1999. For 2001, first quarter public industry output fell by 2.5% over the same period in 2000.

The only positive gains were made by the heavy industrial sector. First quarter production in 2001 in the steel and metal industry was up 11.9% over the same period last year. Manufacturing of metal mechanized products was up 18.2%, while the electromechanical industry was up 11.7%, despite heavy import competition.
Otherwise, most other areas reported negative results. Construction materials were down 1.9%, agro-industry down 11.6%, textiles and leather down 24.9%, chemical, pharmaceutical and pesticides down 2.1%, while wood and paper industries were down 4%.
 

INDUSTRY: EMPLOYEES:

10% of GDP 14% of total workforce

2002 will see yet more money put towards restructuring the inefficient state sector. The 2001-2004 economic plan commits a portion of the designated $7 billion to finance public industry reforms, including the cost of liquidation and employee reduction schemes. The situation for Algeria’s industrial sector will become increasingly critical as the government’s efforts to gain admission to the WTO will force unpopular tariff reductions and expose state firms to greater competition.

WHAT’S HOT
Private industry. Grew 6.8% in the first quarter last year.

WHAT’S NOT
Public industry. Production dropped 2.5% in the first quarter of 2001; so too did total investment (2%) and added value (6%). The number of employees dropped by a meager 0.4%.

TO WATCH
Saidal, state-owned pharmaceutical producer. Contrary to the rest of the sector, it has actually recorded strong growth. Bankrupt in maceutical firm, and profitable too. In the face of heavy imports and growing local competition, Saidal has increased its market share from 10% four years ago to 40% today and saw a 2001 turnover of $85 million. CEO, Mr. Ali Aoun, has also confirmed a production partnership with American pharmaceutical giant, Pfizer.

 
Public industry finances have also become more critical. According to the Ministry of Industry and Restructuring, the net treasury balance at the end of March 2001 registered a bank overdraft of $582 million, a deterioration of $139 million from the end of December 2000.
In the face of continued disappointments in the sector, the government is hoping that persistence in structural reform will eventually see results. The 2001-2004 economic program commits another $7 billion in spending, some of which will be used to finance restructuring of public industry and prepare its firms for privatization. Mr. Menasra also points to some notable successes as an example of what they can achieve. SIDER, one the country’s largest iron and steel producers and heavily in debt at the end of the 1990s, was financially restructured and cut its staff from 22,000 to 12,000. The fruit of this achievement was the deal negotiated with ISPAT – an Indian iron and steel producer – to take control of 70% of SIDER’s capital. If concluded, this will be the first real privatization to take place in the industrial sector and, hopes the government, point the way in the right direction.

One such public firm pushing in that direction is the Paper and Cellulose Industrial Group (GIPEC). Formed in 1998, GIPEC represents the incorporation of two key paper manufacturers, CELPAP, which produces stationary for schools and offices, and ENEPAC, which specializes in packaging paper. With an average annual turnover of $70 million and around 4,000 employees (which the company is in the process of rationalizing), GIPEC has attempted to restructure its operations via a process of subsidiarization, forming its profitable platforms into sister businesses that will be more responsive to market conditions and more competitive.

Mr. Mustapha Merzouk, the firm’s CEO and an economist who has worked in the paper industry for 25 years, says that the key is to update its ageing industrial infrastructure. “We have calculated that an investment of $40 million over a period of three years can dramatically reduce our level of imports and realize our true potential.”
“Besides our productive capacity,” he continues, “GIPEC possesses a distribution network, a stocking area of about 55,000m2 spread throughout the country and a strategic location between Africa and Europe. This is what we can offer a partner.”

Although private sector industry continues to show positive growth, it still remains small in relation to public industry

Aside from the pursuit of partners for public companies, Mr. Menasra also points to the continuing emergence of the private sector as a positive source of growth. “Between 1992 and 1997,” he says, “the number of private industrial enterprises was actually decreasing because the government had not relinquished its socialist policies. Since 1998, the number of private enterprises with 10 or more employees has increased at a rate of 50 to 70 annually, a trend that is particularly seen in agro-industries, construction materials and electronics.”
Business leaders from the private sector are also making a greater impact on the international scene. Mr. Rafik Abdelmounem Khalifa, CEO of the Khalifa Group, a diversified business with interests in banking, aviation and pharmaceutical production, attended the World Economic Forum this year in New York. Mr. Khalifa is emblematic of private Algerian industrialists, who are forcing change. For example, the competition for business generated by the group’s airline, Khalifa Airways, is largely attributed to the government’s decision last year to privatize the state airline, Air Algérie.

Back to top