Lazhar Sahbani, Partner, PwC Algeria: Interview

How would you assess the existing level of maturity of capital markets in Algeria?

SAHBANI: The market’s current grade of maturity reflects the volume of business opportunities that the country has to offer: an abundance of untapped potential. Capital markets are an emerging financing option that is currently stimulated by the government, representing many possible upsides for the country’s economy. First of all, it is an important means of financing for companies seeking liquidity. Investors can also benefit from better rates of profit, and companies can develop foreign operations more easily. Second, it is an ideal method of boosting the financing sector in general. Lastly, it serves as an alternative to retail investors.

More broadly, further maturing of the markets would improve Algeria’s image internationally, as it would add credibility to its economy. For instance, companies that list on the stock market must publish their balance sheets, which increases the general level of transparency in the business environment. Furthermore, it would channel part of the liquidity in the informal sector, on top of the fact that listing usually extends the longevity of family-run businesses.

What measures need to be implemented to further enhance the role of capital markets?

SAHBANI: There are already a number of tax-related tools that exist to that end, such as a tax exemption for capital gains, tax advantages for listed firms, low registration fees and a reduced corporate income tax.

What is lacking in the markets, however, is trust. A considerable communication effort needs to be made to democratise the role of the stock exchange. The perception of company owners remains distorted, and many are unaware of how beneficial it could be for them. It needs to become a legitimate substitute for bank loans and individually owned funds. To remedy this, specific training for media, investors, institutions and businessmen should be conducted. A partnership with the City of London was recently established in this regard. We should also tell economic actors about success stories that were made possible through the stock exchange, as it offers examples for those looking to extend their business activities. Listing a successful public entity could be a catalyst for the whole financing sector, whether it is a bank, an insurance company or an investment fund. A further step would be to open the stock market to binational investors and even to foreigners, with a proper legal framework for exchange rate regulations and funds transfers. If we want the stock market to fulfil its role, we must implement all the necessary measures for it to do so.

What are the main challenges facing foreign companies looking to invest in Algeria?

SAHBANI: The 51:49 investment rule remains a regulatory obstacle for some, but it is positive in that it forces investors to create local values. Moreover, many companies have adapted to it perfectly and run their operations without constraints. The most difficult challenges are bureaucratic in nature. Despite notable progress led by the Ministry of Finance’s simplification measures, it is still a long and painful process to legally create a company in Algeria. The country could benefit from following the example of Asian states that allow businesses to register in a few days. Another issue is the instability of the legal framework, with new laws constantly appearing. What investors need most is the visibility to accurately evaluate risks and draft their strategy accordingly. The current economic instability, stemming from the huge dependence on hydrocarbons revenue, calls for a more transparent business climate to reassure foreign firms that investing in Algeria remains profitable. The country still holds assets that distinguish it from the rest of the region, such as its market size, geographic position, and natural and human resources. Investing in Algeria has its challenges, but for those who can overcome these, it can be a big win.