ALGIERS: Algeria's stock market has long resembled its economy: overregulated, uncompetitive and performing well short of its potential. So the country's plans to allow foreign money into the market may be a step towards wider economic change. Foreigners will for the first time be allowed to buy shares in listed companies, although they will have to do so in partnership with Algerian investors, the stock exchange's head, Mustapha Fefera, told Reuters. He said a new law for the exchange, drafted with the help of international experts, had been approved by the government. "These reforms should bring together all parties that may be interested in the national financial market, notably foreign investors," the 35-year-old Fefera, a former central bank official who has been in his current post for five years, said in an interview at his office this month. "We are aware of the importance of these investors. We are open to all proposals, recommendations and appropriate actions to allow these investors to actively intervene in the domestic stock market, while ensuring that their action does not harm that market. "We will do our best to improve the terms of their participation." Fefera did not specify when the new law would take effect or give details of the rules covering foreign investors. But for the Algerian economy, which is dominated by the oil industry and a large state sector that has deterred fresh private investment, the opening of the stock market could be an important change. In recent months the government has shown willingness to consider reform in some other areas; Energy and Mines Minister Youcef Yousfi said in December that Algeria would review its hydrocarbons law to attract more foreign investment into its faltering oil and gas exploration. The amounts of tax levied on foreign investors in the energy sector will be up for review, as well as the terms of production-sharing contracts offered to foreign partners, the APS news agency quoted Yousfi as saying. Market growth The growth of the stock market, which was established in the late 1990s, has been held back by the fact that so much capital flows to the state sector. Only a few securities are listed on the exchange, and trading turnover is a small fraction of activity on the bourses of neighboring Morocco and Tunisia. "We want to revitalize our stock market, which currently does not play a sufficient role in financing the economy. The market capitalization of companies whose shares are publicly traded represents 0.2 percent of gross domestic product," said Fefera. For many emerging markets, the ratio is between 10 and 50 percent. Economist Abdelmalek Serrai, head of a business consulting office in Algiers, said he believed foreign investors would see considerable potential in Algeria because of its energy wealth; the country is a top exporter of natural gas to Europe. But he added that foreigners would need a more benign business regulatory environment to commit their money. "The Algerian market is still virgin, but Algeria needs to provide foreigners with guarantees and more incentives," he told Reuters. Serrai, who was an adviser to former President Liamine Zeroual, also said the exchange's reforms might not attract domestic investors much without more leeway for companies to invest and seize business opportunities. "As to national firms, I think they are not ready to help boost the bourse because of the lack of freedom of action in the public sector. State banks, for instance, are still unable to take steps without getting a green light" from government officials, he said. "We should allow free initiative within the public sector if we really hope to make things at the bourse move forward." In addition to bureaucratic red tape, foreign investors in Algeria have been put off in particular by an investment regime that limits the stake held by foreigners in an enterprise to 49 percent; Algerian partners must hold the rest. Fefera, however, thinks the stock exchange could be a way for foreign investors to get around the 51/49 percent rule. "On the stock market, things are different. Foreign investors will be allowed to buy shares. They are also able to set up firms through public offerings. This means the Algerian partner will be formed of many shareholders. "The large number of Algerian shareholders may possibly allow the foreign side to gain control of the management of the firm, due to the fact that it will be difficult to imagine that all the Algerian shareholders will speak with one voice at board meetings." A more dynamic stock market could boost the economy by providing a major new financing channel for companies, he said. The country's state budget is heavily dependent on revenues from oil and gas sales, which account for about 96 percent of exports; most firms rely on state banks to fund projects. "Our goal is to strengthen the equity capital of companies and make them more solvent, more eligible for financing through the banking system. Banks will also develop new sources of revenue," he said. Some analysts believe the government may be willing to open the stock market precisely to avoid wider reforms in the economy. The sclerotic banking system can take years to approve a straightforward corporate loan; the government wants Algerian firms to have better access to capital so they can become "national champions" and further displace foreign firms in industries such as infrastructure and construction. Fefera, however, thinks developing the stock market could have a far-reaching impact on the economy by promoting entrepreneurship and healthy risk-taking. "We are seeking the promotion of a trading culture within Algerian society," he said.
