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Peace puts Algerian economy on road to revival

Written by: Staff

ALGIERS, Mar 29: In the 1990s, business travellers were a rarity in Algeria, the north African country that became a byword for turmoil during a war between the security services and Islamist rebels.

Nowadays it can be hard to get a seat on a plane to the capital, Algiers, as the giant OPEC oil and gas producer embarks on one of the continent's biggest development programmes.

Foreign firms are racing to grab a slice of the action.

This year alone, the presidents of Brazil, Russia, South Korea and Portugal have visited to push their nations' interests. Top US government and oil industry officials and a delegation of senior British bankers have also made the journey.

Two factors are behind the transformation of Africa's second largest country from economic pariah to investment prospect.

The first is peace. The conflict, which cost 200,000 lives and helped destabilise a strategic region on Europe's doorstep, has been winding down for years and the insurgency is contained.

Until recently, the few foreign executives who made the trip never ventured far from their hotels for security reasons. Now, many live full-time in Algiers, paying sky-high rentals for houses in chic areas of the elegant Mediterranean capital.


The second factor is high world oil and gas prices, which in 2005 earned the country a record 45.6 billion dollars.

''Our partners are losing their hesitation and finally realising what precious investment opportunities exist in Algeria,'' says President Abdelaziz Bouteflika.

Foreign exchange reserves stood at 56 billion dollars at the end of November. Trying to accelerate recovery, the country of 33 million people announced last month it would spend 80 billion dollars to spur growth and address social needs between now and 2009.

Major foreign energy firms operating in the country include Cepsa AGIP, Repsol YPF, BP, Royal Dutch Shell, Anadarko Petroleum Corp and China National Petroleum Corporation (CNPC).

The energy sector, while booming, has been open to foreigners for more than a decade. The most eye-catching trend is new foreign interest in the lacklustre non-energy sector.

''The US, European and Asian approach has changed. They've begun being interested in other areas like agriculture and industry,'' said business consultant Malek Serrai.

The most prominent new deal was for weapons. In March, Algeria agreed to buy 7.5 billion dollars worth of combat planes, air defence systems and other arms from Russia.

Other, less controversial projects are also up for grabs.

Algeria envisages new water desalination plants, a metro system for Algiers, an international airport, one million new housing units, additional schools and universities, 1,200 km of highway and restoration of the railway network.

Recent deals involve Spanish fertiliser maker Fertiberia, French hotel group Accor and Egypt's Orascom Construction Industries. Another spur to growth should be an accord with the European Union signed in 2001 which aims gradually to create a free-trade zone between Algeria and the 25-nation bloc within a decade. ''The trade accord was a positive signal to the international community that we are back on the radar screen,'' said Omar Ramdane, chairman of the influential Forum of Business Leaders.


Algerians are delighted to be attracting more interest than neighbours Morocco and Tunisia, more liberal economies usually seen as the region's most investment-friendly countries.

The upturn has curbed Algerians' penchant for seeking work overseas. Figures show visa applications for France, a favourite destination, fell to 250,000 in 2005 from 800,000 in 2000.

However, it may not all be plain sailing.

Algeria is still struggling to reform after decades of central planning, and many Algerians ask whether the inflow of cash will be channelled effectively through a state-dominated banking system renowned for Soviet-style management.

''Bureaucracy and corruption are the main obstacles to foreign investments. The success of investment depends on reforms in the justice sector,'' Serrai said.

Abdurahmane Mebtoul, a former Energy Ministry adviser, sees two main hurdles to more investment in Algeria, where privatisation of overstaffed state firms has been sluggish.

''Foreign investors expect two things from us: the reform of our obsolete banking system, and second, less bureaucracy. The day a minister will not make an investor wait months before receiving him is the day Algeria will be more attractive.'' Some are apprehensive about a rush to reform.

''Closing thousands of public companies and firing tens of thousands of people should be handled with care. Social stability is even more important than economic reforms,'' said political analyst and editor Abdelwahab Jakoun.

The government says reform must quicken, not least because the growth of private sector jobs depends upon it.

''Banking service productivity is really inadequate. The financial market is characterised by a very modest level of transactions,'' said Finance Minister Mourad Medelci.

Medelci said the authorities were determined to complete bank reforms this year. The official unemployment rate is 15.5 percent, although many believe the real rate to be much higher.


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