en News from The North Africa Journal – Algeria

News from The North Africa Journal – Algeria

Week Ended February 26th, 2000


Bouteflika has made a first step toward redefining the future role of the military. The ultimate goal of the institution is to focus on defense and avoid involvement in the political life of the country. This is indeed a first step because last Thursday’s reshuffle of the military did not involve the top half dozen generals widely believed to be the real « regime. »

Still, these sudden changes show that an effort is being made to progressively remove the old guard and replace it with a more professional group of officers. This is also a break with the traditional requiring the holding of top military positions by individuals who were involved in the war of independence against France in the 1950s and early 1960s. A new generation with no historical attachment with the war is progressively promoted.

On Thursday, Bouteflika ordered a reshuffle of the military corp. Certainly with the approval of senior generals not subject of this change.

Strategic posts remain under the control of the same individuals who indeed have enormous power. The three top positions that have not seen any change in their leadership are the DRS (Direction du Renseignement et de la Sécurité), a military intelligence department led by Mohamed Mediene known as Toufik, the DCE (Direction du Contre-Espionnage), the military’s counter-intelligence unit led by General Smail Lamari and the military’s central command led by Mohamed Lamari (not related to Smail Lamari).

In addition to their powerful positions within the regime, the removal of these three officers could have had a devastating impact on Algeria’s anti-guerilla effort. Smail Lamari, Toufik Mediene, and Mohamed Lamari are the main military commanders in charge of eliminating the terrorist movement.

But behind the practicalities for not removing these figures, Bouteflika has limited power when dealing with the top military command. Observers in Algiers reported that the delay in appointing a new cabinet last year was caused by major disagreements between Bouteflika and the top military commanders. Later, the appointment of former prime minister Ouyahia in the new cabinet as a justice minister was seen as a direct involvement of the military in political decision making. But for months, president Bouteflika has repeatedly insisted that he was the supreme chief of the military and the first and the last decision maker in designating and appointing military commanders.

The decision made by Bouteflika to reshuffle some military positions should not come as a surprise. In fact such changes were already scheduled long before his arrival at the presidency. But the programmed military reshuffle was postponed many times for practical and political reasons.

The Thursday reshuffle of the military has propelled many lower ranking officers into key positions. Many Colonels have been appointed to positions of responsibility that were traditionally held by Generals. This may be an attempt and a first step to remove key positions from the old guard and allow ‘professionals’ to control these positions. All of the Colonels are young officers with professional training in defense. They replaced Generals who were trained on the field during the war of independence. These Colonels are expected to be promoted to the rank of General in the near future.

Of all the military zones only two have not witnessed any change. They are the 2nd and 4th military regions. Major-General Kamel Abderrahmane has remained in charge of the anti-guerilla offensive in western Algeria, which has intensified over the last few weeks.

Another important point is that all the military units are now led by Major-Generals instead of Generals. The exceptions are the Gendarmerie Corp (paramiliarty) and the Republican Guard still headed by Generals. For the first time since the departure of Rabah Bencherif, the Gendarmerie Corp has become the responsibility of a professional Gendarme who spent all his career within the Gendarmerie unit and was promoted General. The new Gendarmerie chief is Boustila.

It is still unclear what would happen to the officers removed from their positions. The communiqué released by the office of the president does not indicate if they are to retire or be appointed to other positions. We also still do not know if the ministry of defense will undergo reorganization as a consequence of the reshuffle. Such reorganization of the ministry is traditionally announced either on November 1st when Algeria celebrates the beginning of its independence war or on July 5th when it celebrates its independence.



Increased Business Ties and Privatization on the Agenda

Executives representing 80 Italian corporations visited Algeria last week and discussed with the Algerian government and local companies issues of cooperation, business and privatization. While Italians are clearly seeking business opportunities there, Algerian officials hope to attract Italian investment and also wish to learn about Italy’s experience in privatization that began in the early 1990s.

During his presentation to his Algerian audience, the head of the Italian treasury, Mr. Mario Draghi, stated that the sale of public enterprises to private investors allowed the Italian government to earn an additional 36 trillion Liras. This amount accounted to 1.7% of Italy’s GDP.

Mr. Draghi added that since 1994 the Italian finance ministry has itself led the privatization of assets owned by the State in the banking sector, insurance, manufacturing, distribution, energy, telecom, and utilities. Total revenues reached 122 trillion Liras. With the privatization of the two major industrial groups IRI and Eni, proceeds from these two groups reached 190 trillion Liras. The head of the Italian treasury confirmed that all of the proceeds from privatization were entirely used to reduce the public debt. Public debt declined from 123.8% of GDP in 1994 to 114.7% of GDP last year. It is expected to equal the country’s GDP by 2003. This evolution is expected to yield a declining ratio of public debt over GDP as required by the Maastricht treaty.

At the macroeconomic level, the Italian official informed his Algerian audience that privatization has had a real impact on the decline of the public deficit. This deficit was brought to 1.5% in 1999. Privatization has also allowed a more efficient use of savings and investment and the qualitative and quantitative improvement of financial markets.

While the Italians say their privatization model has worked well, Algeria is still not sure if such model can be duplicated in its case.

For the new Algerian reforms minister, Mr. Hamid Temmar, who has been appointed to lead the country’s privatization effort, the current economic structures in Algeria, its legal system, its state-owned company status and its weak banking system are not attractive to private investors. He indicated that there are today 519 state owned companies listed as enterprises for sale.

Mr. Temmar said the government has adopted a « pragmatic approach » and that the State « must redefine its role in managing economic affairs. »

Temmar said he hoped to introduce real deregulation in the telecommunications sector, modernize the financial sector and promote the Algiers stock exchange.


Algeria Announces Major Reforms of Telecom and Postal Services P & T TO SPLIT IN TWO

Major changes are expected in the telecommunications sector in Algeria. This is what the post and telecommunications (P&T) minister, Mr. Maghlaoui told an Italian business delegation last week. These changes will begin with the granting of a GSM mobile phone license to a private operator. Algeria will soon select the bank that will manage the international tender and the conditions of the license sale.

The P&T is the only holder of a mobile phone license in the country offering 100,000 lines. But this offer is below current demand for mobile phone services. By making this announcement in this gathering of Italian corporations, Algeria hopes to attract the attention of Telecom Italia which was represented in Algiers by Giovanni Barontini.

Barontini told reporters that his company will certainly compete for the GSM license when the tender is issued. Telecom Italia expects to connect Algeria with its Nautilus network, a sub-marine telephone cable.

Algeria is also planning to restructure the Postal and Telecom company. It will split it into two distinct enterprises. One would focus on telecommunications while the second would become a full postal service.

In a move similar to that of neighboring Morocco, the telecom company will be partially privatized. A study is currently underway to set up the conditions of such major restructuring.

Regarding the postal services, once established the new unit will enter the financial sector by offering special banking services and will be legislated by the country’s currency and credit law.

The government announced that a new telecommunication bill will soon be submitted to legislators for debate and approval.


Mining/Corporate Affairs Enafor Announces New Subsidiary in Mining

The Algerian oil drilling company Enafor, a company’s that has Sonatrach and Italy’s Saipem as its only shareholders with respectively 51% and 49% announced that it has established a new subsidiary named Sefor. Based in Hassi Messaoud in southern Algeria, the new company will start with a capital of $500,000 and an executive board composed of 6 directors appointed by Enafor’s shareholders.

The new company plans to invest $1 million in the acquisition of drilling equipment to be primarily used in the mining sector. This particular sector has not seen any major development in the past but it is expected to grow considerably as Algeria’s economy evolves.

Italy’s Saipem, one of the owners of Enafor and its new subsidiary Sefor, is part of the Italian industrial giant ENI. ENI and Sonatrach have partnered for many years and the Italian group has recently reiterated its interested in strengthening its presence in Algeria.

After Algeria made necessary changes in its mining and energy laws, ENI and Sonatrach agreed to partner on a series of projects, including the mining sector.

In technology terms, ENI’s subsidiary Saipem has introduced horizontal drilling in Hassi R’mel in 1992. Similar drilling techniques were implemented in Hassi Messaoud in 1993 and in Tin-Foye Tabenkort in 1994. A fourth drilling using this technique occurred in October 1994 on OMP30D.

Sefor will likely use these techniques to develop its mining business.


Economy Foreign Debt Brought Down to $28.315 billion

While it remains very high, Algeria’s foreign debt was brought down to $28.315 billion and its debt over export revenue ratio lowered to 39.05% in 1999 from 47.5% in 1998. This is according to a Central Bank report recently released. With these results, Algeria’s debt volume was lowered for the first time since 1993. Total debt in 1999 was $2.158 below its 1998 level. It is also the first time that Algeria’s debt falls below the $30 billion mark since the signing of a debt rescheduling accord with the Paris Club in July 1995. The agreement allowed Algeria to free $12 billion for its own needs. After the signing of the rescheduling agreement, Algeria’s debt reached its peek in 1996 before starting to decline in 1997 to $31.222 billion.

The Central Bank’s data show that the share of short-term debt in combined debt has declined as well. Since Algeria’s short-term obligations have diminished as a result, this will allow Algeria to focus its attention on the economy instead of short-term debt repayment.

Between 1990 and 1999, the amount of the short-term debt declined in dramatic proportion from $1.791 billion in 1990 to just $175 million in 1999. In 1993, the short-term debt forced Algeria to use 82% of its export revenue to pay for its debt servicing.

The collapse of oil prices in 1986 forced Algeria to borrow more on the short-term to honor its debt servicing obligations. This situation worsened as the value of Dollar declined as well.

According to the Central Bank of Algeria, the ratio debt servicing over exports was brought down to 39.05% in 1999 from 47.5% a year before. This is the third lowest ratio recorded since 1990. It was 30.3% in 1997, 30.9% in 1996 and 38.8% in 1995.

The bank explains that the improvement in this ratio is the direct result of increased export revenues from oil and gas.

A similar trend is seen in the ratio dealing with debt volume over GDP. From 1998 to 1999, this ratio has declined by 5.9% to 58.9%. The share of multilateral credit represents 22.9%, up from 19.9% in 1998. The major holders of Algeria’s debt are OED countries with 80% of total debt. The EU holds 60% of this debt.

In terms of currency denomination, 73.3% of Algeria’s debt is in US Dollar, Japanese Yen, German Mark and French Franc. The share in US Dollar is 42.1%.


Stock Exchange Aurassi Hotel Enters Algiers Stock Exchange (ASE)

The Aurassi Hotel is the fourth enterprise to enter the ASE after the agribusiness company Eriad-Setif, the drug maker Saidal and the oil and gas company Sonatrach. All of these groups are state-owned.

Last week Aurassi has floated 2,978 share in the ASE for a share price of AD 400. This is the same price offered in the primary market during an initial public offering a few months ago when the hotel decided to sell 20% of its capital to private investors.

The introduction of Aurassi in the Stock Exchange was not the only news in the bourse. Union Bank, an Algerian private bank, opened its brokerage unit. This is the first private brokerage firm now operating in the new exchange.

According to the head of the ASE, Mr. Nourredine Smail, estimated capitalization in the new bourse is $340 million.

Five other companies are expected to join the bourse soon although two of them, the state bank BNA and the insurer CAAR are said to have postpone their IPO date.


FDI Suez-Lyonnaise des Eaux Prapares Its Entry into Algeria

After the recent visit of its Chairman Jerome Monot to Algeria, a group of executives of the French water and utility giant Suez Lyonnaise des Eaux has held talks with Algerian officials regarding the involvement of the company in the North African nation. The French executives were led by Christian Prot, Vice President for Middle East – Africa.

During his presentation to the Algerians, Prot described the various models his company uses when dealing with partnership and business development around the world.

While explaining the various options available worldwide in financing, building and operating a water distribution system, the executive said that his company would prefer a BOT model instead of a concession. In this case, the company would build, operate for a number of years before transferring whatever infrastructure to the government at the end of predetermined period. The company would fund all aspects of the project.

In contrast, in a concession the state is usually responsible for funding the projects and a private company would be appointed as operator in a concession agreement.

The water sector in Algeria is characterized by a severe shortage of drinking water and the existence of an outdated distribution network. Efforts to improve the situation would require massive investments and modern management skills.


Privatization Trade Unions Threaten Action if Sonatrach is Privatized

« If Sonatrach needed money and consideres important to develop its international operations, it can sell part of its shares. » This was the statement made by the Algerian energy and mining minister, Mr. Chakib Khelil a few days ago.

This unusual statement is a strong indication of Algeria’s decisive move into a market economy and its introduction into the global economy. What used to be the sole domain of the State will not longer be a protected zone. Major state-owned companies and indeed many, if not all strategic industries such as oil and gas are being prepared for liberalization and privatization.

The State, which has held a very tight grip on whole industries, is now set to quickly withdraw, at least partially during a first phase. Telecommunications, banking, insurance, water management, utilities, energy, mining, etc will be open to private domestic and international investors.

But the areas of energy, Mr. Khelil’s statement has been and continue to be the subject of intense debate in various political, business, and labor circles. Khelil’s statement was met with anger from labor unions who threatened to strike if the government allows such decision to be implemented.

While the worries of labor officials are very legitimate, their threats may not make a good sense given the change of status of the oil company itself which became a per-share company (a corporation). Such legal status gives the company the right to sell stock to whomever can contribute to the company’s finances and hence, a portion of the company can be controlled by private investors.

At the same time, Sonatrach has ambitious plans. It has goals to expand its activities outside of Algeria. As any company of its size, its growth cannot be limited to the domestic market and vertical markets within Algeria but must naturally expand globally.

In more concrete terms, the company’s own 5 year plan within Algeria calls for an investment worth $19 billion. To fund such program would certainly require the sell of stake to foreign investors.


Environment $78 Million for Environmental Cleanup

A World Bank delegation led by Mr. Kohn, the Director of Rural Development, Water and Environment for North Africa was recently in Algiers to discuss with government officials issues of cooperation and World Bank participation. According to Mr. Kohn, of the $78 million loaned by the WB to Algeria to fund environmental cleanup projects in industry, the energy and mining sector could obtain up to $10 million from this fund.

The Algerian energy minister listed concrete environment problems that the WB can help solve. They include the problem of mercury in Azzaba, Skikda, the existence of housing along the giant pipeline transporting LNG, and the problem of gas emission in Hassi Messaoud.


Industry Event The Southern Town of Ouargla Held its First 4×4 Vehicle Exhibit

>From February 19th to the 25th auto makers and their representatives in Algeria displayed their 4 wheel drive vehicles in an exhibit organized by South Com, a private trade show organizer, in the town of Ouargla’s ominisport hall.

Exhibitors included Renault with its industrial brands, Toyota with its Thya and Jalco, Kia Motors, and Hyundai with its Atos model for the handicapped.

Among the Algerian exhibitors were Ferovial which introduced the prototype of its new 4 wheel drive vehicle and SNC Doudah which displayed its maintenance truck that could be used in a desert landscape and rural areas.

In the tire business, Michelin announced that it is currently studying the possibility to resume its production in Algeria. The French company envisages to open a production plant in Algiers.


Hotel Infrastructure Two New Sheraton Hotels Planned in Algeria

Algeria’s Societe d’Investissement Hoteliere (SIH) has announced that it will build two new hotels that will be managed by the American Sheraton group. SIH already owns Sheraton Club des Pins in the western suburb of Algiers in the Mediterranean resort of Club des Pins.

It now hopes to build another one in Algiers and a third in Oran, in western Algeria.

According to SIH’s president, Mr. Melzi, the regional authorities of Oran have asked SIH to build a luxury 5-star hotel and SIH has selected Sheraton to manage the unit once it is completed.

When asked why Sheraton was selected, Melzi said that the American company was the first foreign firm to offer its services to Algeria when country was facing intense security problems. The risk-taking initiative of Sheraton seems to have paid off given the trust that Algeria has on this company.

The hotel in Oran will have 300 rooms, 31 suites, and 20 apartments. It will be built on a platform overlooking the Mediterranean while being close to the city center and the airport.

Another Sheraton hotel (4 stars) will also be built in Algiers close to the existing Club de Pins based hotel. The new hotel will be shaped like a pyramid and will have 302 rooms.

The proximity of the two hotels is explained by the fact that the existing 419-room hotel quickly reaching saturation.

In Club des Pins, management expects to see an increase of occupation rate which has already reached for its first year of operation a rate of 60%. Demand for quality hotel rooms is expected to grow quickly.


Pharmaceuticals/Corporate Saidal and Gipec Negotiate A Drug Packaging Joint Venture

State-owned drug maker SAIDAL is currently negotiating a partnership agreement with paper producer GIPEC. If the two companies reach an agreement, a new unit will be established that will specialize in packaging for pharmaceutical products. Saidal may take equity participation in Gipec.


Events Bouteflika Opens APU Meeting

President Bouteflika opened the ninth conference of the Arab Parliamentary Union (APU) this week at the Palace of Nations in Algiers. The APU meeting is expected to culminate in a political statement calling for the holding an emergency Arab summit for reconciliation, the entrenchment of Arab solidarity and the establishment of an Arab common market.

Bouteflika reproached Arab governments, stating that the civil war in Algeria could have been brought under control more quickly with the full support of other Arab nations. He stressed the value of his national reconciliation initiative, and stated that reconciliation and forgiveness were the foundations of Arab solidarity. In addition, Bouteflika expressed his support for the Palestinian and Syrian sides in the ongoing Middle East peace process.



US-based IDG and Algeria’s Cirta Sign Publishing Agreement for PC World Algeria IDG’s publications licensing team signed an agreement in January with Cirta Press to publish PC World Algeria. There are now six African nations in which IDG has publishing affiliates: Algeria, Egypt, Kenya, Morocco, South Africa and Zimbabwe.

PC World Algeria, which will be that country’s first local IT magazine, is scheduled to debut as a monthly in April. Average folio size is expected to be 60 pages with a circulation of 10,000.

Newsstand sales will be predominant, as subscriptions are uncommon in Algeria. Local content will include articles about local IT exhibitions, company profiles, products and prices lists and purchasing advice.

Currently, existing IT advertising in Algeria is concentrated in the country’s 24 daily papers.

According to Cirta Press Director Lyes Matmatte, who will be managing the PCW Algeria operation, IT advertising in Algeria is expected to double in the next three years.

Investments in the country’s IT arena are increasing due to two main reasons. First, major players such as Compaq and Nokia have opened offices in Algeria recently in cooperation with newly formed Algerian companies.

Second, the government cleared the way for more competition in the ISP arena. Before last August, there was only one Internet service provider in Algeria; as of late February there were 15.

PC World Algeria’s parent company, Cirta Press, was established in May 1998 and imports primarily French-language books and magazines from France and Belgium. It is based in Constantine, the third largest city in Algeria, but the company plans to have some staff representing PC World Algeria in the capital city of Algiers, 439 km (272 miles) to the northwest.

Matmatte said he is looking forward to a long-term partnership with IDG and is interested in introducing other IDG products to the market including Computerworld and IDG Books Worldwide titles.


Energy Hassi R’mel Fire Under Control

Algerian gas and oil firm Sonatrach said on Sunday it had extinguished a fire that raged for almost one month through a gas well at its main gas field Hassi R’mel, Reuters reports. « The fire was completely brought under control on February 16 , » said Sonatrach spokesman Abdelghani Khelifi.

The fire erupted at the HR64 gas well on January 18. Sonatrach said the fire was caused by a metal rod spark during a work-over operation. It stressed that gas output and export flows were unaffected by the fire.

Khelifi was unable to tell Reuters whether or when the well could resume production but another Sonatrach official said experts were still assessing the well’s internal damage. A decision is expected later after the evaluation is completed. The HR64 well has a daily capacity of one million cubic meters, according to a Sonatrach official. Notably, most of Algeria ‘s gas production comes from Hassi R’mel. Algeria exports 60 billion cubic meters annually. Reuters reports that roughly one quarter of Western Europe’s imported gas is from the North African country.


Relations Bouteflika to Paris In June

Algerian President Abdelaziz Bouteflika will undertake a formal visit to Paris in June, in an effort to improve relations between the two countries. Bouteflika is responding to an invitation from his French counterpart Jacques Chirac.

« There is a great deal of willingness in Paris and in Algiers to get round the obstacles, solve problems, and even to make up for lost time during the past few years, » Bouteflika said. In January, Algerian Foreign Minister Youcef Yousfi visited Paris, paving the way for Bouteflika’s official visit.

Bouteflika has invited Chirac and his prime minister Lionel Jospin to visit Algeria. Earlier this month, Agence France Presse reported that Chirac said he was reconsidering re-opening the French consulate in Annaba, east Algeria, and resuming flights to the country by national carrier Air France.


The Cost of the Civil War Algerian Civil War Causes $20bn Loss

President Bouteflika said that the civil war, sparked when the military cancelled the 1992 democratic elections that Islamists were poised to win, has cost the nation’s economy some $20 billion over the last eight years.

« Bouteflika disclosed the sheer scale of the economic destruction caused by the terrorists. The economic damage stemming from the sabotage campaign totaled $20 billion, » an article by Algerian daily El Watan newspaper stated February 20.

El Watan said 1,040 state-owned companies, 2,850 individual houses and 156 state buildings were destroyed by the rebels in 1995 alone. It gave no figures for the other years.

The oil and gas industry, the backbone of the Algerian economy, is protected by the Algerian security services and foreign companies’ private security teams, and has not been affected by the rebel movement. -0-


Maghreb Weekly Monitor (.txt file) for newswire distrib. >From THE NORTH AFRICA JOURNAL Please link to: http://www.north-africa.com BRINGING NORTH AFRICA TO THE WORLD No. 76/ Week Ended February 26th, 2000 A Service of The North Africa Journal