August 21, 2008
Algeria, to spite our face, we shall snip off our investors noses
Algeria has a special talent, as evidenced by this FT report, in selecting the most bumbling and idiotic of policies, and then explaining them opaquely.
In this instance, frustrated that foreign investment is not magically creating lots of jobs in a state dominated, state controlled economy where foreign investment is restricted and sweated to death, and largely going into capital intensive areas (this being about the only option) under shall we say less than safe security circumstances, brilliantly decides the proper response is to restrict capital repatriation and overall investment. Why that will show them, then the State can continue doing what it's best at- blaming foreigners for its problems while playing fast and loose wasting hydrocarbons revenues:
But a bit more on the article:
Algeria has announced tighter terms for foreign investors in what appears to be a review of policy after sharp criticism of the country’s investment climate last month by Abdelaziz Bouteflika, the president.
A cryptic announcement on Sunday said the north African country would start taking a majority stake in foreign investments “in accordance with its national interests and means”. This would extend terms that are already applied to the oil and gas industries to other sectors of the economy.
The government did not say when the change would come into effect or to which investments it would apply.
Cryptic, but of course, and with the usual unconvincing thinking with it. Just like the aborted privatization of the big state banks.
Another measure announced last week obliges foreign investors who obtain tax exemptions to reinvest in Algeria amounts equivalent to the breaks they have received within four years.Lovely that, doubtless there will be ways around, but given limited opportunities to reinvest in Algeria, and the outsized risk, it's rather like no tax break at all.
And the Algerians were whinging on about why Renault did not choose Algeria for its big car plant.
Who could possibly figure that out....
Mr Bouteflika had lambasted the investment regime at a meeting with local government officials in which he said foreigners had been allowed to profit at Algeria’s expense without reinvesting some of their earnings in the country.
And so he shows his real colours. The old Communist thinking back in spades.
In spite of sustained economic growth underpinned by high prices for oil and gas, Algeria’s major exports, the country suffers from high unemployment and poor-quality government services to its 34m people.
The relevant fact underpinning this is the economy remains dominated by useless state firms that piss away money, and a hydrocarbons firm that is state within a state run on behalf of the shadowy Pouvoir, or old generals and senior party apparatchik
Mr Bouteflika cited the example of an unnamed investor who, he said, had turned a $700m (€470m, £366m) investment into $2bn dollars of profit in a few years. “I ought to take half of that [profit],” he said. “He [the investor] will still end up ahead.”
That's the way to promote expansion of the private sector, threaten to seize half of profits, just because.
Oil and gas are already governed by provisions that give the national company, Sonatrach, a 51 per cent stake in all projects.Without mind you putting in much real equity. A fine haircut, although the Western oil majors can sustain it.
Reda Hamiani, the head of the Algerian Forums des Entreprise, a business association, said Algerian participation in foreign investments outside hydrocarbons could come from the private sector. “The trend now is that foreign investment should be better controlled,” said Mr Hamiani.
“We are still waiting for the details, though in principle we agree with the decision. However, we don’t think it is necessary for local investors to have the majority stake. Maybe the state should fix a minimum Algerian participation, like 10 per cent.”
Read, "the Clans don't really want FDI, and now that we have massive hydrocarbons revenues, we can defend our Mamlouk interests and posture as Tiers Mondistes populists, the gullible Left will eat th is up." A bit of simple minded resource nationalism, faux populism, and foreign investor bashing makes great politics.
He and others fear the decision might deter investment. “If a foreign investor will not have a controlling stake, how is he going to bring his best people to Algeria to manage his project,” said a foreign business executive who monitors Algeria. “Obviously they feel comfortable [about this] because they are so cash rich.”
To say the least
Algerian analysts say the changes are being made in response to criticism that local banks have been funding big projects by foreign interests but that the profits go out of the country.
They add that the authorities, who are still in the throes of a lengthy transition from a command economy, were rattled when Egypt-based Orascom Construction Industries, OCI, sold its cement business, including its Algerian assets, to the French group Lafarge.
“They want to be able to control who gets to invest in Algeria,” said Ihsane El Qadi, the economics editor of Al Watan newspaper. “But our problem is not the identity or nationality of investors, but the fact that investments are not creating jobs.”
Lengthy transition from a command economy is a fine understatement. Of course the lack of job creation would go along with the types of investments and scope of investments permitted, as well as the fact that the whole goddamned government is a fucking basket case, as is the state sector, which is as I recall 70% of the economy (being too lazy to check recent estimates).
Morons. The entire clique that runs that country are drooling morons. Well funded ones though.
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"Mr Bouteflika cited the example of an unnamed investor who, he said, had turned a $700m (€470m, £366m) investment into $2bn dollars of profit in a few years. “I ought to take half of that [profit],” he said."
Looks like the Russians are sending out economic advisors now. Maybe they'll start a new organization to spread their economic gospel among cash-flush hydrocarbon exporters, OREC -- The Organization of Rent Extracting Countries.
Posted by: Anonymous at August 21, 2008 03:19 AM
Posted by: The Lounsbury at August 21, 2008 01:18 PM
This is the biggest downside of the whole Bouteflika presidency, even counting his auhoritarianism: he just doesn't get the point of a market economy. Not that he's against it, and not so much communist thinking as no thinking at all, but he fundamentally has no understanding of why/how economies grow. Eight crucial years wasted on the economic front, if it wasn't for oil spendings.
The old-style communist inspiration, though, has hold over much of the opposition, which does nothing but complain over whatever haphazard liberalization measures there are, and then there's massive vested interests and resistance to change in the bureaucracy and unions, all connected back to le pouvoir. Actually, some of the Islamists seem to be the only somewhat seriously free-market faction around, but for them, getting the economy to work is clearly secondary to banning alcohol and covering statues in public buildings.
Posted by: alle at August 21, 2008 02:11 PM