Will it be effective, without any good governance ?
A new Investment Code in Algeria is yet again, in this month of June 2016, being ‘voted in’ and brought to the fore, after so many ineffective others in the recent and not so recent past.
With regard to investment legislation, any law should be adaptable according to its new situation so as to focus only on the creation of added value generating production. Non-hydrocarbon development cannot be the result of legislation only, but of a real political swing leading to a controlled liberalisation and towards the emergence of the strategic role of the State as regulator, reconciling economic efficiency and social justice, whilst avoiding the useless and devastating ideological rhetoric.
1. I would remind that the Algerian economy has experienced various forms of organization models of public enterprises. Before 1965, self-management was privileged and from 1965 to 1980, we had large national corporations. From 1980 to 1988, restructuring of the large national companies took place. As a consequence of the crisis of 1986, with the oil price collapsing, timid reforms begun in 1988; the State created 8 Participation Funds with a given goal of managing its various portfolios. In 1996, the State created 11 Holdings in addition to the 5 regional ones with a National Council of privatization. In 2000, we witnessed their merger into 5 mega holdings and the removal of the National Council of privatization. In 2001, a new organization with the creation of 28 Managements of the State’s interests Companies (MSC’s) in addition to large strategic enterprises
In 2004, these MSC’s were re-grouped into 11 number and 4 regional ones. In 2007, a new organization is proposed by the Ministry of Industry and the Promotion of Investments, structured around four major segments i.e. : economic development corporations that fall under the exclusive management of the State’s; companies for promotion and development in partnership with the private international and national sector; participation of the State companies called to be privatized at term and, finally, a company responsible for the running down of all loss-making enterprises. However, in 2008, this organization proposal is abandoned and replaced by the idea of industry (in 2009) groups were brought about and that the current Minister has implemented in 2015. These periodic State controlled enterprises’ organizational changes demobilised executives in the public economic sector, and clearly showed the dominance of the administrative process and bureaucracy at the expense of the economic operational approach. That obviously was a waste of financial resources and definitely a strengthening of the rentier dynamics blocking any transfer of technology and managerial expertise.
2. Recent statements by international VIP’s as well as by countries representatives ought to be taken seriously. The enlightening comments of Alain Bentejac, Chairman of the National Committee of Trade Advisors (Cnccef) dated October 3rd, 2015, of those of Ms. Joan A. Ploaschik, US Ambassador on October 4th, 2015, and of British Ambassador Andrew Noble in October 14th, 2015, the President of the French Senate during his last visit in Algeria and of Mr Jean Pierre Chevenement, in 2015 and 2016. The Ambassador of Germany and the Minister of Industry of Switzerland together with its Ambassador in 2016 were noteworthy. Those of many Algerian Experts and operators driven by none other than the higher interests of the country have also spoken in disfavour of such mismanagement.
All of these statements with partners of countries that represent more than 65% of our exports, including those officially published by international institutions between 2014 and 2016 did in effect go in the opposite direction to that of the euphoric statements of the Minister of Industry who seemed all the time under the illusion of a forever oil exports affluence. Now, the country runs the risk of by drawing on foreign exchange reserves, it would mean going right back to the IMF between 2018 and 2019.
My experience and my national and international contacts at the highest levels, tell me that in a nation’s life, feelings have little place, and that Algeria must defend its interests because force is to recognize that Algeria currently attracts few international investors in the non-hydrocarbon sectors and that it has a rather limited internal market, not networked and not integrated by trade and / or professions. The time is over for State and of special relationships between politicians, not to mention many international conflicts where arbitration was often against Algeria with losses in tens of millions of Dollars.
3. The majority of officials tend to hide behind official guidelines but it is up to the Government and specifically to the Minister of Industry to enlighten the President for his objective taking in stock of the rule of the 49 / 51% and its consequences, all according to economic standards and not to any ideological vision that is anyway obsolete in this 21st century. Whereas we should have put first the focus only on the higher interests of the country that is in needs of a strong growth and certainly not on some narrow interests of a rentier-tied minority.
Meanwhile, in order to take good stock of where we are now, we could ask ourselves the following questions :
- Did this rule of 49 / 51% ownership share introduced in 2009 helped to curb imports ?
- Did it allow any technological and / or managerial expertise transfer ?
- Did it bring any productive job creation ?
- In which sector did a few entries have they held and were they allowed to bring any added value,
- Did they improve in anyway the Algerian enterprise, knowing that growth around the world is based on the densification of Small and Medium Business (SMB) that are all ‘new technology and economics of knowledge’ based through decentralized networks ?
- What gain monetary or other and what is the amount of the additional costs borne by Algeria ?
Accordingly, I would advise the Government to take stock whilst being realistic and pragmatic (no wild liberalism, nor statism related rentier bureaucracy) and to relax the rule 49-51% for the SMB’s that is not existent even in China. Believe it or not, Algeria, wanted to generalise this rule even to its external trade as if this measure would bring some reduction to its imports while the problem lies elsewhere. One must distinguish strategic segments, where this rule may apply; that should be defined with precision, because historically dated. What was strategic yesterday may not be today or tomorrow (Telcos are good example). For non-strategic segments however but still important in terms of added value, it would be desirable to apply the 30% blocking minority so as avoid unproductive relocations. And if tomorrow, the reserves are running out, it would not take a great Economist, to predict that the investors who have accepted the rule of the 49 / 51% would let us down facing the risk of bankruptcy of large capacity units, Algeria not mastering global marketing channels. Observation of global business arenas clearly show that only a few firms control all circuits of world trade, into which it is quite impossible for Algerian operators to enter without a win/win partnership.
4. It is therefore not a matter of legislation but rather to address the functioning of the system in its entirety in order to detect blockages that hinder the development of the creative enterprises, be they public, private, local or international. The off-hydrocarbon investments, growth promoter and creator of jobs, fell victim to numerous blockages that are still omnipresent everywhere, such as heavy-handed bureaucracy amongst many other things. For instance, rampant corruption together with the unprecedented extension of the informal spheres that control more than 40% of the money supply in circulation do hamper the implementation of any business normalisation. Bureaucratic ‘terrorism’ alone accounts for more than 50% of investment brakes whose eradication implies “improved governance, greater visibility and coherence in the approach of the socio-economic policy.” The lethargy of the financial system, the marginalization of the private sector when the public banks continuing to consume 90% of the credits granted were bled by public undertakings with a sanitation costing the Treasury “over $60 billion between 1991 and 2015,” resulting in repeated recapitalizations, absence of a ‘freehold’ land market and the maladjustment of the labour to the market are all brakes to non-oil investments.
5. In view of the certain exhaustion of oil resources by year 2030, it is urgent to start thinking of an energy transition which in this context, a transition from an economy of semi-annuity to an economy outside hydrocarbons that would require a deep redeployment of the Algerian empowerment structures. Far from selling dreams, this change of course of the socio-economic policies, born on reconciling economic efficiency, a deep social justice and a cultural revolution within the leadership is becoming more and more vital. The solution is therefore not to close oneself off but to respond with just rules corresponding not to an affluent background that might increase international suspicion and which over time could deepen the crisis. The urgent need is for a reorientation of any passing socio-economic policy through deep economic and social adjustments, therefore through profound structural reforms by encouraging local and international, public and private partnerships, to avoid monetary illusion, to synchronize the real and financial spheres, economic and the social dynamics, being in the age of immateriality where firms burst into networks through a turbulent and unstable world like a cobweb. The return to trustworthiness, without which no development could be possible, is simply put through a clearly defined strategic vision. These are all determinants as a means of mobilization.
6. In summary, Algeria needs above all, a crisis exit strategy so as to lay down a diversified economy to the prevailing international values, and in doing so, avoid the likelihood of a Venezuelan type bankruptcy. Although the situation might be more difficult in economic terms between 2016 through 2020, Algeria nevertheless possesses all the means to overcome it, but with realism and by a discourse of truth that avoids populist demagogic speeches from an outdated ideological vision.
A new Code of Investment in Algeria, without a strategic vision, a new governance model, significant structural reforms reconciling economic efficiency, with the relaxation of the 49 / 51% rule and the necessary social cohesion, assuming a deep morality of those in charge, will have a mixed impact if not no impact at all. Moreover, if all the above is not enough, the passing of the current entropy or its overtaking it, coupled with the geo-strategic tensions on our borders, poses the problem of national security, that would require the mobilization of all.
Dr. Abderrahmane Mebtoul, University Professor, Expert International, email@example.com on June 14th 2016.