In a bid to reinvigorate Algeria’s small stock exchange, the government is considering whether to allow foreign investors to buy shares in publicly traded companies.

The creation of a specialist market to list smaller businesses and the scrapping of state pre-emption rights are also under consideration as the authorities explore ways of boosting a bourse whose present existence is little more than symbolic.

“One way for Algiers to boost the stock market’s depth would be to list minority stakes in major state enterprises”

Just three companies are currently listed on the Bourse d’Alger: the Aurassi hotel conglomerate; pharmaceutical company Saidal Group; and insurance firm Alliance Assurances. In neighbouring Tunisia, which has an economy only a quarter the size of Algeria’s, ten times as many firms are traded.

According to the Ministry of Industry, Small Business and Investment Promotion, there is scope to expand the role of the stock market and listed firms are being pushed to promote themselves more to potential investors.

Raising capital

Algeria already has a substantial private sector. But new jobs are needed for the country’s rapidly rising youth population and the state will not be able to provide all of them. The private sector needs to grow to create more jobs.

A more lively stock market could provide businesses with a means of raising new capital, and offer individuals and institutions a fresh investment opportunity. If the bourse is to expand and become more dynamic, however, there are several obstacles to overcome, and regulatory restrictions are not the only issue.

The Algiers stock exchange was established in 1997. Yet over the past 15 years, only three stocks and two bond issues have been listed. In theory, there should be plenty of demand for the bourse, both from businesses in search of extra capital and from savers seeking investment returns. However, the exchange is simply too small and sluggish to attract much interest.

The bourse also competes with banks offering cheaper capital, with investment loans benefiting from a 2 per cent interest rate subsidy.

One way for Algiers to boost the stock market’s depth would be to list minority stakes in major state enterprises, but so far the government has chosen not to do so. A financing issue by national gas company Sonelgaz is listed, but there is no sign of government readiness to float the firm.

Analysts believe this is partly because the government is reluctant to expose strategic enterprises to the sort of financial reporting and transparency requirements needed to list on the bourse. The same applies to the major public banks and national industrial entities.

Moreover, with its coffers swollen by gas and oil revenues, the government sees no rush to encourage state-owned enterprises to tap the stock market for extra capital.

The development of the bourse has also lacked an effective competitive push from the supporting financial services sector because indirectly it is entirely in public hands. All the shareholders of the exchange itself are state-owned banks and the six brokers are all units of these lenders.

“The biggest challenge to the development of the bourse is increasing the number and sectoral range of listed stock”

Regulation, entrusted to the Commission de Surveillance des Operations en Bourse (Cosob), is burdensome, while current taxation rules act as a disincentive to the development of the exchange. Some analysts complain that the Banque d’Algerie, the central bank, intervenes in the market in a manner that is unhelpful.

One of the biggest deterrents to the bourse’s development is the state pre-emption right, which gives the government the first option to buy any shareholding that is put up for sale by a foreign investor. The rule was introduced by the authorities in 2009 to prevent a repeat of the incident when Egypt’s Orascom Construction sold its Algerian cement interests to France’s Lafarge, against government wishes.

For potential foreign investors, this is a major disincentive because when they wish to dispose of all or part of a stake in an Algerian business, they know they cannot sell it freely to whomever offers the highest price.

There is remote prospect of a change in the pre-emption rule and without its abolition, the relaxation of investment rules may have little impact on increasing activity. Foreign fund managers will be reluctant to purchase shares if they cannot resell them freely on the bourse.

There are also operational constraints to the growth of the Algiers bourse. The trading and settlement system, which has been subjected to a technical review by NYSE Euronext, is still largely manual and bureaucratic.

Easing restrictions

Cosob has suggested one way of easing another restriction, the rule setting a minimum 51 per cent national ownership in joint ventures, generally held by the public sector. The regulator suggests the majority stake could be held by Algerian private investors, who had bought the shares on the bourse.

The biggest challenge to the development of the bourse is increasing the number and sectoral range of listed stocks, and the volume of trading and investment. This will attract more interest from Algeria’s small investors, who currently prefer to put their money into real estate or the informal economy.

Some progress has been made. In December, Mustapha Ferfara, head of the bourse management company SGBV (Societe de Gestion de la Bourse des Valeurs), announced that six new stocks (four private sector and two public enterprises) would be listed in the first half of this year. The timetable has shipped, but preparations for the listing of NCA Rouiba, Salama Assurances and Maghreb Leasing Algerie have got under way.