October 27, 2013 / 4:01 PM / 4 years ago

REUTERS SUMMIT-Algeria economic reforms on hold until 2014 election -advisor

6 Min Read

(For other news from Reuters Middle East Investment Summit, click here)

* Signs that government moving towards liberalising economy

* Big decisions too sensitive before elections

* But authorities under pressure to create jobs

* Removing barriers to competition, developing bank sector key

* Big reforms possible soon after polls - government advisor

By Lamine Chikhi

ALGIERS, Oct 27 (Reuters) - Algeria is unlikely to see substantial economic reform before the country holds elections in April 2014, a top advisor to the government said, despite growing signs that officials are edging towards liberalising policy.

For decades, Algeria has tightly limited competition and foreign participation in its oil- and gas-rich economy, a legacy of the Socialist ideology which it adopted after independence from France in 1962.

Over the past year, there have been indications that this will change as the government comes under pressure from the population to deliver better services and living conditions. For example, the housing ministry has allowed more foreign firms to bid to build housing.

But Abdelhak Lamiri, who serves as an economic consultant for the Algerian government, said major reforms - such as wholesale revisions to investment laws to eliminate red tape and make it easy for new companies to enter industries - were so politically sensitive that they would have to wait.

"No government can afford to make strategic decisions today. That is understandable," he said in an interview at the Reuters Middle East Investment Summit.

"Nothing will happen on the economic side before the presidential election of 2014, because we need to establish a long-term plan and decisions about the profound re-engineering of the national economy."

Energy Wealth

With a population of about 39 million, Algeria is different from most North African countries in that its energy wealth means state finances are not under heavy pressure. This makes Algeria potentially very attractive to a wide range of foreign companies, if barriers to doing business can be removed.

The International Monetary Fund estimates the government's gross debt is just 11 percent of gross domestic product, a very low level by international standards.

But while Algeria has money, it does not have a vibrant private sector to help solve problems such as poverty and unemployment; the jobless rate is officially estimated at 10 percent and is believed to be much higher among young people.

Algeria did not experience the kind of uprising which hit other Arab countries in 2011. When the Arab Spring began, the Algerian government eased social discontent by offering pay rises to millions of state employees and free loans to businessmen. Also, the country's civil war with Islamists in the 1990s had left many people wary of unrest.

Nevertheless, small-scale protests and riots, mostly to demand better living conditions, are routine all over Algeria. This maintains pressure on the government to find an economic model that would deliver higher growth.

"Algeria's economy is structured to distribute the money, not to transform it into productive investment," said Lamiri, who runs the Institut International de Management, a private business school, in Algiers.

"Our average economic growth is around 3 to 4 percent, not enough for a take-off."

Reforms

Measures to make it quicker and easier for Algerians to establish companies are vital, said Lamiri, who in his role as advisor has taken part in talks on the economy this year between the government, labour unions and the private sector.

"In Algeria we have 600,000 enterprises - not enough, because we need at least 1.5 million."

One way to make capital move around the economy more efficiently would be to establish investment banks, which would move the banking industry beyond its current focus on funding imports, Lamiri said.

Meanwhile, the government could free up more funds for investment, and compensate for declining gas and oil exports, by reducing the country's import bill through programmes to boost domestic production in sectors such as wheat and pharmaceuticals.

But such policies will depend on the results of next year's elections as well as the way in which political forces arrange themselves in the weeks after the polls.

Algeria's 76-year-old President Abdelaziz Bouteflika, who suffered a stroke earlier this year, could run for a fourth term in the elections but it is not clear whether he will do so.

In any case the ruling FLN party is expected to continue dominating the country, but a younger group of leaders could be more willing to experiment with the economy. In April 2012, Bouteflika said publicly that his generation's time was over, referring to the veteran independence-era leaders who ran the country for five decades.

"I think we can go very rapidly right after the election to introduce key reforms to make our economy more attractive to foreign investment, and less bureaucratic than it is now," Lamiri said. "This is feasible in a very short term period."

Follow Reuters Summits on Twitter @Reuters_Summits (Editing by Patrick Markey and Andrew Torchia)

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