he result is a public industrial sector that has been in decline since the 1990s. Despite $15 billion in restructuring efforts, and additional funds to come within the context of the government’s $7 billion 2001-2004 expenditure program, public sector industrial output has posted consistent overall drops, down 0.6% in the fist quarter of 2002 from 2001, which was itself down 0.3% from 2000. The decline has been most severe in manufacturing, where production dropped 6.7% in the first quarter of last year, a dramatic drop from the negative 1.7% growth in 2001. Negligible foreign market outlets, a continued economic slump depressing domestic demand, and competition from imports and private sector industry have all served to prevent a recovery.
The textile and leather industry, which declined 14.7% in 2001, is a case in point. Facing strong import competition, particularly from Turkey, Egypt, Pakistan, and the United States, the sectors’ debts are estimated at around $430 million. Approximately 27 state-owned textile industries have been liquidated since 1996, resulting in a loss of 22,000 jobs, with labor unions expecting another 20 to close soon.
The most important state-owned manufacturer to survive is Group Texmaco. The group has 32 subsidiaries, approximately 18,000 employees, and a 30% share of the market. It is involved in all stages of textile production, from spinning and weaving, to processing and textile embellishment; it manufactures all types of products in cotton, wool, synthetic blends, and silk. However, the firm is currently operating at only 20% of its capacity. According to Mr. Mohamed Arres, the group’s chairman, Texmaco’s products “can be competitive,” depending on continued restructuring and increased investment. The group’s strategy has involved a thorough financial and managerial restructuring program, put in place in 1999, and a drive to develop and utilize domestically produced raw materials. For example, Algeria is climatically suited to cotton production, while the country’s mineral resources provide abundant raw material for synthetic fibre production. Financially, Texmaco still suffers from debt, high wage bills, and lack of profitability. It is also not on the list – released in 2002 by the Ministry of Participation – of companies to be sold. “Obviously our first objective is to complete our restructuring program,’’ says the chairman. “We also need to pursue the technological updating of our subsidiaries to improve the quality of our products and ensure a better quality/price ratio. Finally, we should pursue all of the necessary efforts to attract national and foreign partners by opening the capital of our companies to the private sector. We represent significant potential in terms of product range and industrial capacity. We are seeking out Arab countries and others for the possibility of penetrating new markets and interesting investment partners.”
nother manager at the forefront of this process is Mr. Mustapha Merzouk, an economist and industrial manager who has worked in the paper industry for 25 years. Currently the CEO of the Industrial Group of Paper and Cellulose (GIPEC), Mr. Merzouk has been working to make the firm internationally competitive and attract working partners. Formed in 1998 out of the merger of the two largest paper producers in Algeria, GIPEC has an average annual turnover of $70 million. Producing a range of paper products, from school stationary to paper packaging, 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 be more competitive. Mr. Merzouk argues that with this rehabilitation, the domestic market offers a significant opportunity. “Algeria imports 400,000 tons of paper and cardboard annually, while we only produce 90,000 tons. [After restructuring], we can easily exceed 200,000 tons.” The export market also has potential. GIPEC exports $10 million worth of production to Iraq, Spain, France, and Tunisia, and is hoping to double that in the near future.
The task remains, however, to find a viable partner. “Privatization, be it either the total or partial opening of a firm’s capital, is no longer a taboo in Algeria. We totally adhere to the process. We have infrastructure, equipment, and an established business on one hand, and an actual paper products market on the other.”
However, on the whole, the government’s privatization program, which has been in place since 1994, has proceeded with a distinct lack of success. Despite a host of administrative arrangements in which state firms have been grouped under a variety of holding companies designed to prepare them for privatization, only one major majority privatization has taken place. Opposition from labor groups, public sector management, and vested interests with the regime have ensured that the process remains slow and complex for investors.
The lack of progress seems to have discouraged the government. 2002 began on a positive note, with a ministerial reshuffle returning the man formerly in charge of privatization, Dr. Abdelhamid Temmar, back at the helm of a newly organized and renamed ministry – the Ministry of Participation and Investment Promotion. Dr. Temmar is one of the government’s most articulate advocates of privatization and his return to the portfolio was seen as a boost. But subsequent announcements from the Ministry have reflected the government’s new wariness of popular antagonism to economic reform. Of the 1,270 enterprises currently owned by the state, 53% are now classified as financially sound after much restructuring, 30% in poor financial shape but still functioning, with the remaining 18% (approximately 230 companies) bankrupt or close to it. Only 120 companies have been selected for privatization under a model similar to that used in Eastern Europe after the fall of the Soviet Union – all of which are selected from the poorest 18%. While this is proposed as a faster model than the one currently adopted from the World Bank, selling bankrupt companies with limited market opportunities will not generate a stampede of willing investors. The ones that will generate investor interest – the top 53% – are open to partnerships, but currently not to equity investors. 2003 will tell if the new method works.