Algeria Opens Its Doors to Foreign Investment

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With a whopping $38bn earned primarily from its oil and gas exports in the first half of this year alone, Algeria is attracting a new influx of foreign investors, bankers, entrepreneurs and exporters seeking untapped markets. Given its lack of integration into the world economy, it has the advantage of relatively low debt, massive foreign exchange reserves and liquidity, undeveloped capital markets and a population of consumers waiting to be satisfied, international analysts say.

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Thanks to the rise in its exports, the country's trade balance in the period from January to June rose by an impressive 27%, to $15.78bn, according to official statistics. While exports were up 5.6%, imports fell 5.2% to $23bn, providing a trade performance that would be the envy of many more developed countries in Europe. Much of this is due to the fact that Algeria possesses the world's sixth-largest reserves of natural gas, and already supplies some 30% of Europe's natural gas needs.

The country's foreign exchange reserves have reached a staggering $182bn, thanks to its trade surpluses, which explains why investors, such as HSBC Algeria's CEO, Rachid Sekak, are so enthusiastic about its potential. As he remarked at the opening of a new HSBC branch in the western city of Oran in September, Algeria is one of the few countries "that has been spared by the global financial crisis." Despite its complex regulatory environment, "the risk" for those wishing to enter its markets, he added, "is close to zero."

Given Algeria's heavy reliance on hydrocarbon exports, news that Sonatrach, the country's state-owned oil and gas producer, is planning to invest some $71bn in the hydrocarbons sector in the next five years is also fuelling considerable optimism about the country's growth rate, which experts estimate could reach 4.6% by the middle of this decade, up from an estimated 2.5% last year. Sonatrach's plans have already pushed Algeria in into third place, behind Saudi Arabia ($165bn) and the UAE ($107bn), in terms of projected investments by oil producers in the Middle East and North Africa in oil and gas by 2017, the A1 Khobar/Dammam-based Arab Petroleum Investments Corporation (Apicorp) reported in September, ahead of both Qatar and Iran. Vast new projects to tap Algeria's potential as a producer of solar energy, both for domestic use and for export, are also being considered.

With presidential elections scheduled for 2014, the government is now looking to diversify the economy away from its heavy reliance on hydrocarbons and, most importantly, open it up to more private and foreign investment. Unlike its neighbours in North Africa, Tunisia, Libya and Egypt, Algeria has escaped many of the upheavals of the "Arab Spring," but this is largely due to the memory of the long-running civil conflict that engulfed the country from 1992 to 2002, local commentators note, in which some 200,000 Algerians lost their lives.

Instead, while there have been protests, these have been more modest, and less about a change of regime than about the high cost of food, power cuts and a shortage of housing, all of which the government is seeking to address. Reducing unemployment, currently estimated at more than 20% among the country's youth, and the overwhelming share of the country's large state-owned firms in the economy is seen as vital to achieve these goals, although many of the country's latest foreign investors say that progress remains slow, especially given the bureaucracy and red tape that still exists when seeking government approval for projects, permits and the repatriation of profits.

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A key part of the new programme is the government's capital markets reform plan, announced in May, 2011, which includes opening the Algiers stock exchange--the Bourse d'Alger--to new initial public offerings (IPOs) by Algerian state-owned companies and joint ventures. …