* Row over Djezzy mobile phone firm heads for resolution
* May presage change in attitude to private investment
* Dependence on energy revenues may not be sustainable
* Pressing need to reduce youth unemployment
By Christian Lowe and Lamine Chikhi
ALGIERS, April 11 After a three-year campaign
against one of its biggest foreign investors chilled Algeria's
business climate, the country is sending out tentative signals
that it may be ready for a thaw.
A period of aggressive economic nationalism, symbolised by
the state's drive to take control of the Djezzy mobile phone
business owned by Amsterdam-headquartered Vimpelcom, has
failed to create the jobs demanded by the population.
Now the Djezzy saga seems to be limping towards a
resolution, and this could coincide with a broader rethink of
how the government of energy-rich Algeria treats private
"It is obvious that foreign investment is key to creating
jobs, which will alleviate social pressure," said Bachir Msitfa,
an Algerian economist. "This is why I am expecting changes in
the economy in 2012...Algeria will go back to a market economy
The roller-coaster fortunes of Djezzy have matched the peaks
and troughs of Algeria's attitude to free enterprise.
Egyptian firm Orascom Telecom won the right to set
up Djezzy in Algeria back in 2001, during a wave of economic
liberalisation forced on the country by heavy debts and low
prices for its chief exports, oil and natural gas.
By 2008, Algeria was flush with cash from high energy
prices, and its socialist-leaning rulers saw the global
financial crisis as proof that market economies were flawed.
They adopted a package of new laws restricting private
In quick succession, Djezzy was hit with millions of dollars
in back tax bills, a mob ransacked its offices, it was put under
investigation over its currency transactions, and the Algerian
government announced it would nationalise the firm.
Now, the pendulum may be swinging back the other way.
Algerian officials are in talks with Djezzy's new owner,
Vimpelcom, on a deal that would see the government buy 51
percent of Djezzy and leave Vimpelcom as operator.
The negotiations have been complicated by an Algerian court
decision last month to impose a $1.3 billion fine on Djezzy over
its currency deals. Finance minister Karim Djoudi said the
ownership talks might take several more months; he declined to
disclose any valuation for the firm, which some analysts think
may be worth several billion dollars.
Nevertheless, analysts who follow the affair say the overall
direction appears positive. Any deal with Vimpelcom could end an
episode that has tainted Algeria in the eyes of international
investors and allow it to start rebuilding its reputation.
"It is encouraging that the Algerian government...and the
owners of Djezzy appear to be talking to each other," said Simon
Kitchen, strategist at Egyptian-based investment bank
EFG-Hermes. "There was a period when there was name calling and
not much was happening."
The negotiations, he said, could be evidence of a broader
thaw in attitudes to the private sector. "There may be a
recognition that it is not enough to have a lot of money coming
in from oil."
Few people expect that Algeria's ruling elite will have a
complete change of heart and embrace capitalism unreservedly.
Orascom Telecom's former chairman, Naguib Sawiris, is one
investor unlikely to be tempted back. He is withering in his
assessment of Algeria's treatment of Djezzy.
"We have then seen provocations, our HQ has been set on
fire, the government has demanded back taxes, and it stopped our
import operations," he said in an interview with Al Jazeera
television in January.
"In one word, there is no difference between the Algerian
regime and (former Libyan leader Muammar) Gaddafi, and all the
regimes that have failed in Yemen and Syria," he said.
Algerian officials deny that they have victimised Djezzy,
alleging that it consistently violated the rules of doing
business, leaving the government no choice but to take action
within the law against the company.
Few would dispute, however, that the ruling elite remains
fiercely nationalistic, suspicious of capitalism, and prickly
about what it views as economic imperialism.
Algerian President Abdelaziz Bouteflika, 75, counts Cuba's
Fidel Castro as a personal friend. When Bouteflika received a
visiting minister from an east European state in Algiers in the
last few months, he asked if the country regretted dropping its
socialist command economy, according to someone at the meeting.
Issad Rebrab, owner of Cevital, one of Algeria's biggest
homegrown private firms, does not hide his frustration at the
business climate. "The government wants to control everything,"
Rebrab, whose interests range from sugar production to
supermarkets, said earlier this year.
"We are the only country or one of few countries in the
world where you have to ask permission to create jobs and
wealth, and there is no guarantee you will get it."
In the World Bank's 2012 "Doing Business" index, which ranks
business climates, Algeria was in 148th place out of 183
countries. Last year, neighbouring Morocco received about twice
as much foreign direct investment as Algeria, even though the
Moroccan economy is smaller.
Yet if Algeria's rulers have little enthusiasm for
capitalism, they are also pragmatists who understand the need to
create jobs - especially in light of "Arab Spring" uprisings
elsewhere in the region.
Unemployment stands at about 10 percent overall, and about
21 percent among young graduates, the same group whose anger
helped propel last year's revolutions in Egypt and Tunisia.
Algeria's policy for the past few years has been to use its
cash reserves to stimulate economic growth and job creation,
through major infrastructure investments, higher public sector
wages, food subsidies and grants to promote small businesses.
While all this has helped to cut joblessness and raise
incomes, there are questions over how much longer the approach
can be sustained.
The government has been spending more than it earns; cash
reserves are shrinking. In order to balance its budget four
years from now, Algeria will need an oil price of $110 per
barrel, compared to $44 a barrel in 2006, according to an
International Monetary Fund report published in January.
That, said the report, leaves "the fiscal position highly
vulnerable to a major slump in oil prices". Prices for crude are
now around $120 per barrel.
Another point of vulnerability is that while Algeria's
revenue from crude sales is high, changes in the global market
have worsened the outlook for natural gas exports, which make up
49 percent of the country's total exports.
Growth in demand for gas is slowing, both because of
economic weakness in Algeria's chief gas markets of Italy and
Spain, and because new "shale gas" technology is allowing
traditional gas importers to extract the fuel at home.
As a consequence, Algeria's model of state-driven growth may
become harder to afford. Its opaque style of government makes it
hard to judge if this will cause a change in economic policy.
Some loosening of the state's grip on the economy looks
inevitable over the next two years, however. Bouteflika, viewed
by many as the architect of the swing towards economic
nationalism, must step down when his third term ends in 2014.
His prime minister Ahmed Ouyahia, who carried out the
president's crackdown on foreign investors with zeal, could be
gone soon after parliamentary elections on May 10 this year,
because his party is expected to do poorly.
Already, some policy changes are discernible. The energy
minister has promised a review of the law to make investing in
Algeria more attractive for foreign oil companies. Algeria last
month settled long-running tax disputes with energy firms Maersk
Oil and Anadarko.
These moves are significant because energy policy - more
hard-headed and less ideological than other areas since it pays
the country's bills - is often a leading indicator of where
broader policy is headed.
Meanwhile, the government is laying plans to allow
foreigners for the first time to buy shares in listed companies,
stock exchange head Mustapha Fefera told Reuters last month.
For Ahmed Benbitour, prime minister at the more
business-friendly start of Bouteflika's tenure in 1999-2000, a
thaw cannot come soon enough.
"If national companies don't invest at home, how can you
expect a foreign investor to come and invest here?" he told
Reuters. "These are not the conditions which will allow the
country to develop."