The stock market can provide promising financing alternatives, but requires further supporting regulations

 

Capital markets represent a financing alternative for Algerian companies, especially considering the current economic trend marked by a decrease in liquidity and foreign currency reserves. The stock market will simultaneously provide non-inflationary financing means to economic agents and have better savings yields.

Currently, the Algerian stock market faces difficulties with development despite favourable conditions and an attractive tax framework. For instance, the government has created several initiatives to strengthen interest in floating shares on the Bourse d’Alger through a number of legal and tax incentives.

Increasing Trust 

Nonetheless, to enhance market attractiveness, it is necessary to employ other measures that increase investors’ and savers’ levels of trust. It is imperative to incentivise institutions – banks, insurance companies and investment firms – as well as important public and private companies to list on the stock market. In neighbouring countries, listings have taken place through the privatisation of public companies. This has enhanced trust in the market and incentivised private companies to open their capital to individuals. It has also brought important liquidity to the bourse and increased trade volumes. This caused stock market capitalisation to increase by 93% in 2004 when Telecom Maroc and Banque Centrale Populaire were listed.

Furthermore, there should be a focus on attracting small and medium-sized enterprises (SMEs) to the stock market. The economic fabric of Algeria is largely composed of SMEs, some of which have reached a critical phase of development and are now looking to get to the next level. These family businesses are usually run by their founders or direct heirs. Opening their capital to other partners and calling for public savings through a stock market listing could be an opportunity for family businesses to accelerate their development and modernise their governance modes.

Despite the creation of a dedicated programme for SMEs by the regulatory authorities, none have been listed yet due to a lack of suitable offers. Because of this, seeking inspiration in neighbouring countries could be the solution. Several states have granted financial aid to SMEs that fulfil stock market listing requirements, incentivising them to open up their capital. Meanwhile, the development of undertakings for collective investment in transferable securities (UCITS) and investment funds should help streamline the stock market.

Funds & Ucits 

Several neighbouring countries have set up new tools through the creation of investment funds dedicated to institutional investors. These funds have been created via a partnership between professionals operating in the market, and the Deposit and Consignment Office. These measures had a significant positive effect on stock market capitalisation.

Moreover, opening the market to international investors would positively influence the development of the stock exchange. The key would be to use tools such as UCITS to attract international investments and allow Algerian residents to invest abroad. Countries in the region have enabled UCITS to invest a share of 10% of their assets under management in foreign titles. These measures have been applied under specific conditions.

First, the operations can only be undertaken in OECD, EU or Arabic Maghreb Union countries. The second condition concerns the nature of the transaction: UCITS can only invest in listing titles, deposit titles in foreign banks, stock shares or loan securities. Lastly, a minimum flotation is mandatory for loan securities and for foreign banks where UCITS own deposits. Acquiring international titles will allow for the development of mutual funds by ensuring a larger diversification of financial products. However, to make this possible, the legal framework must evolve to meet the needs of Algerian residents who wish to invest abroad.

Hence, the legal framework should be modernised for foreign investors to ease stock market trading – especially for Algerians that live abroad – which will boost the market and attract more foreign capital.

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The Report: Algeria 2017

Financial Services chapter from The Report: Algeria 2017

The Report: Algeria 2017

The Report

This article is from the Financial Services chapter of The Report: Algeria 2017. Explore other chapters from this report.

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