PRESIDENT CHIRAC likes a surprise. In May it was his own officials who were stunned to learn that they had gone into the Eurobond business to help out an old friend, King Hassan of Morocco. Chirac's grand gesture was to welcome Hassan to Paris by directing the French aid agency to underwrite a FF 1,500 million 'Eurofranc' bond for the kingdom.

France is riding to the rescue of an ally in the way the US bailed Mexico out of its financial debacle. It has even changed the constitution of the Caisse Francaise de Cooperation (CFD) to mobilise French treasury bonds to support Morocco's debt reduction strategy. With a CFD guarantee the Eurofranc issue was priced at 48 basis points (bp) over the French OAT rate, compared with a probable price of around 300 bp if the French support had not been available.

Morocco was understandably delighted. 'The French operation shows we can raise funds at around 7 per cent interest, to repay fixed interest debt in our basket costing 11 per cent to 18 per cent dating back to the 1970s and early 1980s,' says Morocco's Finance Minister Mohamed Kabbaj.

North Africa is central to Chirac's foreign policy, not least to protect and promote France's share of more than a quarter of the Maghreb's export markets. Morocco and Tunisia are easy allies but smoothing relations with Algeria has proved more problematic. President Zeroual's victory in the November 1995 presidential election improved prospects for a new financial protocol and the return of French companies. 'Algeria has resources and it's a big country...and it is in the interests of France to develop commercial relations,' Foreign Affairs Minister Herve de Charette said during his August trip to Algiers.

However, it is the British Petroleum Company (BP) and US oil firms, rather than French ones, that have been most active in the Algerian hydrocarbons sector as it has opened up. 'When the BP contract [for the $3,500 million South West District III gas development] was signed we felt we were being left with crumbs - in this situation it is for the government to react,' says a senior official in Paris. Total and Societe Nationale Elf Aquitaine have already reacted and are pursuing opportunities.

De Charette agreed to a series of meetings with Algeria to discuss financial ties, immigration issues and the feud over flights between Algiers and Paris which has led to their suspension. The minister met his Algerian counterpart Ahmed Attaf again in Washington in late-September.

Yet, the pursuit of better Franco-Algerian relations has not been without its setbacks. The murder of seven French Trappist monks near Medea in May demonstrated once again Algeria's capacity to produce a crisis. Even De Charette's visit, which promised a fresh start, was overshadowed by the murder of the bishop of Oran, Pierre Claverie, only hours after he officiated at a mass attended by the French delegation. On 2 August the Quai d'Orsay issued yet another recommendation for French citizens to leave the country.

Algeria presents obvious dangers but Chirac has deployed his barnstorming blend of politics and business to good effect elsewhere. He takes business people on his overseas missions and never fails to lobby on behalf of French firms. The renewed commercial enthusiam is already apparent. In Morocco Bouygues has begun negotiating the building of a 28-kilometre metro in Casablanca, a scheme which would require substantial French financing and political support to have any hope of success. Lyonnaise des Eaux is deep in discussions over a management take-over of Casablanca's sewerage and water system.

Bouygues is making the running in Tunisia too, winning contracts for housing construction, the Tunis City of Science and a science and technology institute. It has also won the contract to complete the proposed Tunis headquarters of the Arab League, unfinished since the league moved back to Cairo, which is to become the Tunisian broadcasting centre.

Rivals repelled

Rival contractors say that Bouygues and the French majors are benefiting from political lobbying and the official credits which are channelled through Banque Nationale de Paris (BNP) and other French banks with long North African experience. 'Bouygues has been able to outflank our clients, not least by providing finance packages with a big onshore component, which is easier for the French banks which have close links with North African institutions, including shareholdings,' says the financial adviser to a rival group. 'I have to take my hat off to them - they're using their resources to provide very tough competition.'

French banks are also winning privatisation and capital markets business in the Maghreb, supplanting some of the Anglo-Saxon institutions which pioneered the emerging markets business. As the region's stock exchanges have sprung to life it is Societe de Bourse de Paris which has mechanised the bourses in Casablanca and Tunis.

'We are looking very closely at privatisation in Algeria, working with long- established clients from that country,' says the head of emerging markets at a major Paris bank, 'we expect this business to yield some big dividends - you're going to be surprised at what is coming up.' It would also come as no surprise to find President Chirac urging the process along with his customary enthusiasm.