This article, from the Francophone Africa focused business weekly, Les Afriques (Eng. Trans: Algeria: Changing the Rules of the Foreign Investment Game - The question on everyone’s lips this summer illustrates. The article cites (and my own connections would suggest the article is right in part, a reaction to "non approved" operations, such as Orascom selling its cement stake to Lafarge (as part of a global deal, not Algeria specific actually). Now, in most places in the world this would be a matter of a bored shrug.

The Algerian government, however, freaked (why?...), and phrases such as this that the journalist used are very much from the Algerian officialdom's own public and private view of markets: "the Algerian president seems to have realised that the rules of globalised capitalism left the door ajar for an international group to sneak in and, without the State’s consent, claim a share in the national market and economy. ... The Algerian president discovered only too late the predatory characteristics of foreign investment and gave economists and entrepreneurs the last laugh when they warned that it was illusory to expect to boost the economy using direct foreign investment (DFI) [sic]." That is very much the language and thinking of a paranoid, quasi Soviet regime, lacking in confidence. The remainder of the article is pure Algerian regime thinking, including the focus on foreigners bleeding the country dry (with billions in public FX reserves, even the state can't find a way to intelligently invest capital given opportunities, of course dividends are being repatriated...).

It is worth noting the argument of "Algerian entrepreneurs" is the argument of the old Rentier Regime owners - hardly people meriting the term entrepreneur in any real sense of the term. These are firm owners from the first round of "Algerianisation" and then the subsequent emergence of a private sector that was (with some exceptions of course) nothing more than an appendage to a dysfunctional state sector.

Returning to the concrete, notable recent policy decisions in this area are Presidential Decrees from December 08 which have moved to implementation by year end 09:
(i) forcing all foreign firms involved in import operations to retroactively cede 30% of assets to an Algerian partner (on what basis the percentage is valued, what happens in case of capital raising, and how to reconcile this retro-active measure with the Investment Law and Algeria's engagements with respect to FDI remains charmingly unclear - indeed brushed aside by the Algerian government which continues to show a rather impoverished understanding of economics and private markets),
(ii) Obliging all future foreign investment (ahem for the time being, future, it is not unimaginable for it to become retroactive like the exporters measure) to be 51% Algerian in capital ownership.

Each measure has a fairly extraordinarily stupid or at least simplistic logic behind it. On the imports side, imports have exploded while Algerian non-hydrocarbon exports have done almost nothing. No surprise there, the business climate for exports, including capital controls, customs clearances and general efficiency in logistics is generally terrible. Plus the country lacks a culture of exporting among the Middle tranche of companies - a non trivial problem as building an exporting culture is time consuming and generally needs some solid seeds (if not nationally, at least in a sub region, indeed generally it is one sub region that takes off). Roll all that up, and of course imports have exploded as on the offer side, Algeria firms are mostly rubbish and uncompetitive even in their own market, never mind exporting. The obvious solution would be to improve internal market business environment, rather than trying to choke off imports (well doing both might make sense, but it takes quite the optimist to believe that the Algerian Government is actually playing a rather more sophisticated game than it appears).

However, the Algerian government shows no signs of any degree of sophistication, as for example the recent decree French lang.: Algerian Gov't bans consumer credit other than housing mortgages

[la] LFC 2009 stipule clairement, dans son article 75, que « les banques ne sont autorisées à accorder des crédits aux particuliers que dans le cadre des crédits immobiliers en Algérie ». Fini donc le crédit à la consommation et le crédit automobile accordés aux particuliers par les filiales des banques étrangères implantées en Algérie.

Summary, the new fiscal law for FY 2009 bans all private sector consumer credit by foreign bank affiliates [not sure the arty is accurate there, haven't found the precise lang. online, might also cover public banks] except for housing mortgages, although it is worth noting that there have been noises made by the Gov't (along the same lines as the noises that eventually ended up producing the Presidential Decrees cited supra) of starting a no-interest no-money down public program via the public (state) banks to finance home mortgages. That may very well see the light of day.

Equally, local analysts are at best, puzzled (see FR: Disparition programmée des filiales de crédit) observing that they can't grok the motivations of the government, which seem to be in violation of its own banking law, and its logic given the Gov't has effectively outlawed specialised consumer credit companies that it had previously licensed. The cited article asks if the real motivation of the government is not to in effect "progressively reduce the activities of foreign banks in Algeria?" And apparently foreigners in general, not just banks.

Regardless, in combination with the Central Bank / Banking Commission seeking fines against the leading foreign banks (Citi, BNP Paribas, etc) for over 1 billion euro (each), there is a clear message of hostility to private enterprise, at least private enterprise that is not properly domesticated (note, domesticated, not domestic - this is about control, not economic rationality). For all that the staff of these foreign banks excepting their top two or three posts (ie. CEO/MD, CFO and COO) is all Algerian, and in fact much expertise is being transferred to Algerian financiers that could one day help a real financial sector emerge (as is in fact demonstrably and visibly happening next door in Tunisia and Morocco, and amusingly if one is taking a flight from either Tunis or Casa to Algiers, one always runs into a pack of Algeria staff from some multinational flying to or fro from either Tunis or Casa where they have been sent for training....).

On the second matter, this is supposedly to promote technology transfer to Algeria. That is, to be blunt, a crock. No foreign firm (excluding the Chinese), given the Algerian security situation, sends massive numbers of foeign managers to Algeria. Quite the contrary, as no one wants to be posted there, and it is insanely expensive to do so, there is enormous market pressure to train and Algerianize as much as possible all but perhaps a few key staff (such as the CFO or COO), but even with a CFO, normally the CFO's lead No2 staff would preferably be local to reduce cost.

The progressive resrictions, and irrational - even laughable - justifications make news / spin like this laughable: Algeria says in talks with carmakers on 1st plant

Algeria's government has started negotiations with several international automakers to build the first car factory in the North African country, a minister said on Wednesday.

"We are in talks with major international carmakers. The results will be known soon," Industry and Investment Promotion Minister Abdelhamid Temmar told reporters.

Having endured months of listening to Algerian movers and shakers of an official sort whinge on about Renault and France's "betrayal" of Algeria, for having made the rational economic and  business decision to invest in Morocco where Renault does not have to face absurd capital controls and serious doubts as to repatriation of profits, childish application of customs rules, a primitive banking system, a screwed up port system, a foreign investment climate making it difficult for it to flexibly invite in known partners in-country to become supplies, and nasty security climate relative to both its own expat managers and the site itself as a Kafir Investment.... Any one of those items can be overcome. All of them cumulatively and.... well why the fuck would Renault invest in Algeria?

It could be that perhaps the Chinese are talking with the Algerians about a car plant (and I would suspect stringing them along in order to get other advantages), but otherwise this is sad, very sad.

The saddest part is that while there are fine signs of Tunisia and Morocco "getting" it enough to start building some real potential to have critical mass (Tunisia being an older story, which has lagged in recent years, however I see signs of Ben Ali being spurred by Morocco's signs of catching up - there's an example of a healthy non-friendship), Algeria seems to be regressing to the ealry 1970s, Chief Comb Over's youth as it were.

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