Interview: Mohammed Khelfaoui
What are the prospects for the development of the capital market in the short and medium term?
MOHAMMED KHELFAOUI: The main obstacle to the development of the Algerian capital market is its size. The market is too small to be attractive and create momentum, and it is too small to be profitable for its stakeholders. As such, its size and the activity it generates does not justify investment in IT tools, personnel, communications and market intermediaries. Furthermore, it is too small to attract institutional investors.
Conversely, the development of this market would have many benefits. It would generate liquidity, as investors would be encouraged to enter the market because they would have more varied and more interesting choices, allowing them to change from one stock to another. Profitability would improve because market participants would have access to more brokerages and could fund their research and marketing expenses. Development would also allow for increased market introductions and secondary operations. The market would become more attractive to investors because listed shares would become a true asset class in which to invest, and individuals with new tools developed by financial operations intermediaries could speculate. It would also be more attractive for issuers because the stock would become a financing solution, a legacy solution, a recovery solution and a solution of excellence as is the case on the active stock markets.
How can developing the capital market help meet the economic needs of the country?
KHELFAOUI: Algeria has experienced falling revenue due to low oil prices. That translates into pressure on available resources for the state, banks and businesses. That is why the stock market can be an excellent alternative in this situation, especially as there is around $50bn not currently in official circulation.
The main challenge for the Algiers Stock Exchange is for it to assert its role in the economy as a real financing service and reach its full potential. This will require a better corporate awareness of the benefits of initial public offerings and awareness raising among the population. At the institutional level, it will be necessary to develop collective savings instruments that will allow investors to invest in a diversified portfolio of securities to reduce risk as well as increase liquidity on the market. A whole industry of asset management for third parties must be created. It is also important to encourage the insurance firms and pension funds to invest the large amounts of the cash they manage into shares. Finally, opening the exchange to foreign investors, allowing them to invest in local investment funds, is key.
What changes need to be implemented to allow the capital market to become a catalyst for foreign direct investment (FDI)?
KHELFAOUI: Our vision is that the Algerian capital market needs foreign portfolio investments to reach a critical depth in terms of market capitalisation. Foreign portfolio investments not only provide liquidity to the market but, above all, encourage good governance practices of listed companies and international standards for market infrastructures – meaning the stock exchange and the central depository – in all organisational, operational and technological matters.
The arrival of foreign portfolio investment is conditioned by the existence of a well defined regulatory framework governing FDI. This framework needs to be clear with respect to currency transfer rules concerning the entry and exit of capital as well as the types of securities and financial products concerned. Furthermore, there needs to be clearly defined limits by value, type of investor and market capitalisation, as well as clearly defined rules for the taxation of the financial products held by foreign investors. Market infrastructure needs to be sufficiently upgraded and there needs to be trained market professionals who are able to manage substantial volumes of transactions.
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