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Posted on Thursday, 29 October 2015 19:10

Algeria to slowly move to free private sector

By Hamid Ould Ahmed

Abdelmalek Serrai, Algeria's former presidential adviserAlgeria will take steps to free up its private sector in response to the plunge in its energy earnings, but change will be slow because of entrenched government bureaucracy, former presidential adviser Abdelmalek Serrai said.

"The economic model will change in the short run because of the crisis, but things will move slowly," said Serrai, an economist and consultant who has taken part in discussions with officials on how to manage an era of low oil and gas prices.

There is a political will to improve things

"Reforms will come at a slow pace due to bureaucracy," Serrai added in an interview for the Reuters Middle East Investment Summit.

For decades, Algeria has used its energy revenues, which account for about 60 percent of the state budget, to pay for imports and cope with social problems, by raising the salaries of state employees and subsidising fuel and food.

But state finances have been deteriorating since mid-2014, when global oil prices started tumbling. The government has announced a 9 percent cut in spending for 2016 and is trying to rein in imports of goods and services.

The country posted a trade deficit of $10.33 billion in the first nine months this year, swinging from a $4.09 billion surplus a year earlier. Algeria imports almost everything for its 40 million people, from food to medicine and industrial equipment, because of weak domestic production that is partly due to lack of investment.

To stabilise the trade balance, the government is restricting import licences and plans to impose customs duties on some imported products, while encouraging increases in local production.

But officials realise that if local industries are to grow rapidly, the private sector needs to get involved - which means it will have to be liberated from the oppressive regulation and red tape of a state-dominated economy.

"I regularly meet with ministers. There is a political will to improve things," said Serrai. "There have been good indications. The government this year allowed the private sector to set up and run industrial estates for the first time. This was a taboo. I think the government is willing to go further."

Reforms

How much further will affect not only Algeria's economic growth but prospects for foreign investors seeking greater access to a wide range of sectors. President Abdelaziz Bouteflika this month ordered the government to draft plans to boost areas including industry, agriculture and tourism via partnerships between state and private firms.

Local analysts said the order amounted to nothing less than an attempt to end the legacy of the Socialist ideology which Algeria adopted after independence from France in 1962.

The government has announced tax cuts for manufacturing firms and plans later this year to submit to parliament a new investment law designed to improve the business climate. Officials have vowed to decentralise approvals of investment projcts in order to reduce delays.

On the other hand, layers of mid-level bureaucracy will not soon disappear, and changing their culture will be difficult. Few details have been released of the new investment law.

As the government allows more competition and private investment in the economy, it will not want to endanger jobs at state-run firms. "We have to keep in mind that bureaucracy will remain a hurdle to investment for the short term. It has been a dilemma," Serrai said.

However, Serrai said he saw several positive signs, such as a deal between Algeria and France last week to build a fertiliser plant in Algeria, and talks between the two countries on possible joint ventures to produce milk, beef and cereals.

At the same time, Algeria is trying to revitalise non-oil state firms by providing funds to upgrade them, including $2 billion to the textiles sector and $5 billion to the construction industry, Serrai added. "Algeria is really feeling the need for alternatives. It is forced to adopt new thinking on the economy." 



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