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Mar 20 2009

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Algeria economy: Disconnect

Investors looking for opportunities in Algeria's underdeveloped telecoms market are in for a long wait, following the decision to pull the plug on plans to privatise Algerie Telecom (AT) . The move is part of a general shift in official sentiment against foreign investment. However, the pendulum could swing back in favour of privatisation once Algeria starts to feel the effects of an anticipated severe fall in its oil and gas export revenue.

Moussa Benhamadi, the company’s chief executive officer, has said that opening up AT 's capital to private investment is "no longer justified" and that the company has the means to develop alone. AT has also recently retaken control of its online subsidiary, Djaweb Algerie Telecom Internet, pointing to further consolidation. The loss-making Djaweb was reintegrated into AT in October 2008 following the appointment of Mr Benhamadi to replace the former CEO, Mouloud Djaziri, five months earlier.

Clear as mud

AT remains one of the least transparent telecoms firms in the Middle East and North Africa region, making an analysis of its financial position difficult. Investment plans are being developed: the company plans to spend AD10bn (US$150m) between 2009-13 on expanding its fibre-optic network as part of an effort to double its number of fixed-line subscribers to 6m by 2013. AT also intends to develop an international presence through the acquisition of foreign telecoms operators, particularly in Africa, according to Mr Benhamadi. However, it will face stiff competition from regional rivals such as the well-managed and cash-rich Maroc Télécom, which has stated its intention to continue to pursue its strategy of overseas acquisitions. Since France’s Vivendi took a 35% stake in Maroc Télécom in 2001, which it increased to a majority share in 2005, the Moroccan firm has taken control of four state operators in sub-Saharan Africa, and in 2008 delivered net profits of US$1.1bn. Another former state-owned firm, Saudi Telecom, has also announced in recent months that it is looking to pursue acquisition opportunities in Africa, spurred on by increased competition in its home market.

Rivals

AT has struggled to maintain its competitiveness in Algeria since the market was partially liberalised at the start of this decade. In the mobile telephony market, AT ranks second of three operators, with its 9.9m customers exceeding Wataniya (Kuwait), which has 4.8m subscribers but lagging behind Orascom Telecom of Egypt, which has 13.8m. AT is the dominant player in the fixed-line market, a position which was strengthened after its only competitor in the market, Lacom —a joint venture of Orascom and Telecom Egypt —announced in October 2008 that it was pulling out of Algeria, having complained for several years that local regulations favoured the incumbent.

The experiences of neighbouring Morocco and Tunisia, both of which have had successful part-privatisations of the state incumbent to foreign investors, suggest that AT would benefit considerably from opening up to private capital. With an estimated population of almost 34m in 2008, and a fixed-line penetration of only 10.6%, there are huge growth opportunities in the telecoms market.

The part-privatisation of AT has been under consideration for several years, and up to 45 international companies are understood to have expressed interest in acquiring a stake in the state company, including France Télécom, Qatar Telecom , Zain (Kuwait/Bahrain) and Etisalat (UAE). The former telecoms minister Boudjema Haichour, seemed determined to make progress with the deal, appointing Spain’s Banco Santander as an advisor and making several changes to the company’s senior management, including the post of director general. Santander carried out an initial set of studies into the company’s privatisation in 2005, but the government failed to settle on a consistent strategy. A variety of options were considered, including the sale of a 51% stake to a strategic investor and the public sale of shares in the company on the local stockmarket. At the end of 2007, Mr Haichour said that Santander was updating its recommendations and that there would be definite progress with the sale during 2008. However, Mr Haichour was himself dismissed in June 2008 during the small cabinet reshuffle accompanying the reappointment of Ahmed Ouyahia as prime minister, and replaced with the ministry’s head of the advanced technology unit, Hamid Bessalah. With the new appointment, it seemed the momentum behind privatisation was lost.

Political blockages

The reason that these longstanding plans have failed to reach fruition is essentially political rather than commercial. The initial decision to consider privatisation of AT was part of a strategy including several other major asset sales, notably including the country's main commercial banks. However, over the past few years, the government has become steadily more averse to private investors, particularly those from abroad. In 2008, the government backtracked further on its former drive to encourage foreign direct investment into the country when the president, Abdelaziz Bouteflika, expressed disappointment with the role foreign companies were playing in the country’s development, stating that in future, overseas firms would be restricted to a minority share in joint ventures with local companies. Companies are still waiting to see how the policy will be implemented, and it is highly likely that there will be several exemptions to the rule. With the administration’s attention fixed firmly on preparing the ground for the re-election of Mr Bouteflika in April, little change can be expected for several months. The lack of enthusiasm of the country’s powerful vested interest groups for selling off what are seen as the state’s key assets makes it likely that the government will not entirely open up the state sector to full privatisation, even after the election.

What might ultimately sway the government back in favour of privatisation is the prospect of a prolonged trough for oil and gas revenue. Algeria currently has no pressing financial need for privatisation revenue, but that could change if oil and gas prices remain at around their current level for a few years.

SOURCE: ViewsWire