The Algiers Bourse or stock exchange, an administrative creation in 1996 seems to be in utter lethargy; the largest Algerian companies such as SONATRACH, state oil company and SONELGAZ, power utility company with several other large public as well as private groups are not listed on it. Knowing that the dynamism of a financial market spearheaded by an active stock exchange would have prevented the current unconventional financing. So, how to energize the Algiers Bourse ?
The important thing for a reliable stock exchange is the number of reliable players in this market that is for the time being VERY limited. It is little bit like, let us imagine a very nice football stadium that can accommodate more than 50,000/100,000 spectators without a team to play the game. The Algerian authorities have and are therefore content with building the stadium but without players.
The lethargy of the Algiers Exchange refers mainly to a binding business environment itself linked to the mode of governance. The main obstacle therefore is a bureaucratized business environment as explained by the few productive companies. Referring to all those international reports, the mixed results, on the performance and / or the prevalent business climate in Algeria, it is those bureaucratic mechanisms that discourage real investors. Algeria has a macro-economic framework artificially stabilized by the oil exports revenues ‘rente’; this does not energize the real sphere of the economy and doing so might eventually run into risks such as emptying the county of its best brains, the essential substance of the development of the 21st century.
As shown some investigations of the ONS (Office National of Statistics), the Algerian economy being a rentier economy with about 83% of its fabric represented by trade and services of very small dimensions, the official growth rate excluding hydrocarbons being artificially sustained at 80% of GDP via public expenditure.
It is to be noted that, according to official data, more than 90% of Algerian private enterprises are of family type without any strategic management, and that 85% of public and private enterprises do not master the new information technologies. Most of the private and public sectors live through government contracts granted by the state and the economy is dominated by the informal sphere particularly of the merchant type that is itself linked to the rentier logic. The Bourse to have a significant role, all the capital shares of the Algiers Stock Exchange must represent a significant share of the gross domestic product, the volumes of transactions observed being currently insufficient. Private operators likely to engage in this activity will only be able to do so when the number of companies and the volume processed will be sufficient to cover their costs. This activity is in deficit in the services of public banks where it is exercised. On the technical level, in the current state of their accounts, very few companies know exactly the evaluation of their assets according to market standards. It turns out that the accounts of Algerian public companies from the most important to the smallest are in a state that would not pass the diligence of the most basic audits. SONATRACH needs a new strategic management like most of Algerian companies, with clear accounts to determine the cost per division and / or section. The opacity of the management of the majority of companies that are limited to delivering consolidated global accounts veil the essential. For example, for SONATRACH, it is a matter of distinguishing whether it has to mainly do with exogenous factors, thus to be dependent on the evolution of the price at the international level or to rely on good internal management. This failure should not be sought in the technical and regulatory apparatus (Cosob SGVB Algeria Clearing) but rather within the macroeconomic and macrosocial frameworks in the extent to which its effectiveness must be enrolled in a clear strategic vision of development of the new global mutations.
Therefore, how to energize the stock market from Algiers ?
I can see five axes.
First, it would be the lifting of all environmental constraints of which bureaucratic obstacles would mean the redesign of the new missions of the State as a matter of urgency. There can be no Bourse without competition and the Rule of Law..
Secondly, a Bourse must be based on a renovated banking system and I will insist on this fundamental factor because the Algerian financial system for decades is the place par excellence for the distribution of the oil ‘rente’ annuity and turning therefore into a huge power struggle.
Thirdly, there can be no stock exchange without the resolution of deeds that must circulate freely as segmented into shares or bonds referring to the urgency of integrating the informal sphere by the issue of title deeds.
Fourth, there can be no Bourse without clear and transparent accounts modelled on international standards sustained by the generalization of audits and analytical accounting in order to clearly determine the cost centers for stakeholders. This raises the problem of adapting the socio-educational system; for there is no such thing as financial engineering.
Fifth, transiently as primer, we propose a partial privatization of some national champions to start the movement and the creation of funds of Private / Public set ups to select a few private companies for their future Initial public offering (IPO). We could also introduce: 10% of SONATRACH, 10 to 15% of the BEA (Banque Exterieure d’Algerie), 15% of COSIDER and 15% of the CPA bank. This would create a stock index consisting of volume and quality starting the virtuous circle and attracting private operators. These funds would act as incubators of companies eligible for the stock exchange. In this context, aid for the development of private actors in the investment sector (IOB advisors, asset managers) would be needed.
In summary, if these conditions are fulfilled, accompanied by adaptation to new global mutations, good governance, valorisation of knowledge, Algeria, strong by its important potentials for a diversified economy, can become a pivotal and stability factor of the Mediterranean and African region.
Any destabilization of Algeria, as I pointed out on several occasions, would have geostrategic implications throughout the region. But it is to be recognised that in this month of May 2018, Algeria has still a predominantly public economy with a centralized managed system because structural reforms are slow to materialize on the ground. And yet, it is necessary to avoid living forever on the illusion of the permanent ‘rente’ for no country through history has developed solely through raw materials.
Major geostrategic mutations are expected to be inevitable in the future, making the 21st century to be dominated by the emergence of decentralized networks, replacing the state-to-state customary relations in above all the economic relations that together with the advent of artificial intelligence will revolutionize the entire global economic system.