We were expecting initial public offerings (IPOs) to be among the key priorities for the development of Algeria’s financial sector over the past year, and we have finally begun to see notable progress on that front: currently four state-owned companies are finalising the process and will likely be joined by a highly reputable private pharmaceuticals company. If all goes well, all five should be heading to IPOs in January 2016.
A number of reforms have helped make this happen, and more are on the table. The government is considering making the capital markets environment even more business-friendly by allowing foreign investors to divest through a zero capital gains tax IPO, thereby no longer having to go through the state’s traditional right of pre-emption. The next step might be to allow foreign investors to hold up to 20% of shares traded on the Algiers Stock Exchange – something which would play a key contributing role in putting the bourse on the radar of foreign investors.
That is important for a number of reasons: capital markets allocate resources in an optimal way, helping ensure the adoption of better governance practices, improving the decision-making processes for companies, increasing transparency and guaranteeing the creation of shareholder value. Leveraging capital markets also offers a useful way to allow employees of the company to benefit from a more aligned compensation scheme, as well as to potentially receive options as a shareholder’s form of remuneration.
In addition, the use of capital markets as a funding tool has helped dozens of economies to accelerate their development, reducing the burden on banks and providing an alternative to bank debt as the sole financing mechanism. This has historically been the case in Algeria, which prevents banks from allocating their resources as institutional investors, and preventing them looking for higher yields. With oil and gas revenues dropping, this becomes even more important, but also points to a need for broader change beyond capital markets. We cannot simply spend revenues, consume a budget and hope for next year’s Treasury contributions. Instead, we should invest all of our assets smartly, which will yield benefits across the board. For example, existing infrastructure could generate increased revenues, while new infrastructure could create new revenue streams and jobs.
One of the crucial changes that could help encourage the broader development of the economy is the development of public-private partnerships (PPPs). PPPs provide a number of advantages in developing not only the economy but also the private sector – and potentially the capital markets. This is done by reducing the pressure on public finances while still maintaining state involvement, attracting best practices in the process, ensuring competitive costs, and bringing together a healthy group of investors with a diverse profile of expertise, rate returns expectations and investment duration. This sort of approach will provide Algeria with new products and services, and while the public might have to pay for those services, we accept it as a price worth paying, as it contributes to jobs and the broader development of the country.
Doing this involves the end of Algeria’s conception of the welfare state in its current “no limits” definition. It also involves maximising our human talent, to allow them to perform and to ensure their skills coincide with the requirements of employers. It involves looking carefully at all existing assets and turning them into revenue-generating schemes where possible, to sustain jobs and build a healthy ecosystem around those assets. Ultimately it involves being creative and exploiting every option, whether it be new innovations in telecoms and technologies or the dematerialisation of businesses and industries. Despite Algeria’s current macro-economic concerns, opportunities are plentiful as long as we explore alternative viewpoints, and alternative ways of financing, producing and consuming. If we do this, then the best is yet to come.
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