With the assistance of the UN Development Programme (UNDP), the Algerian government is in the midst of undertaking a major reform initiative to overhaul the stock exchange and boost the level of activity. The history of the initiative dates back several years. Following a series of discussions led by the Ministry of Finance and industry players between 2008 and mid-2009, the government in 2009 launched the Plan for the Modernisation and Development of the Algerian Financial Market, and in the spring of that year the UNDP sent a delegation to the country for an initial assistance mission to help develop the project.
FIVE KEY AIMS: Following these preparatory efforts, in May 2011 the Ministry of Finance and the UNDP signed a convention to reform the bourse through a multi-stage initiative being piloted by the stock market regulator, the Commission for Stock Market Organisation and Supervision (Commission d’Organisation et de Surveillance des Operations de Bourse, COSOB). The project has five key aims: ensuring the launch of new equities and bonds on the exchange; reforming the institutional framework for the market; improving bourse-related banking and investment services; modernising the exchange’s IT systems and technological base; and improving the exchange’s public image.
Following the preparatory phases, the first – diagnostic – stage of the reform process ran from October to December 2011, during which four foreign experts identified major strong and weak points of the exchange’s current framework. Among their key conclusions, as outlined in COSOB’s 2011 annual report, was that the Algerian capital markets sector had a “very weak level of development, openness and innovation”.
A BIGGER ROLE FOR THE STATE: According to their findings, one of the main reasons for the lack of development is that in a traditionally state-dominated economy, the government has not used the exchange for the (relatively few) privatisations it has carried out. At the presentation of the study’s conclusions in December 2011, the then-president of COSOB, Nouredine Smail, mentioned plans “to float public firms on the bourse as joint stock companies” to boost activity.
The findings also noted that the exchange was overly focused on procedural matters and regulations – which they said were not always well adapted to the institution’s needs – rather than clients and users such as investors and companies planning on listing. Other market players also came under scrutiny; the study found that the public banks that dominated the sector do not have much of a commercial focus on trading activities, taking “a purely administrative approach to the secondary market” and not always maintaining a presence at stock exchange sessions. The report also noted a lack of brokers, the failure of intermediaries to publish any analysis on securities and a low level of proprietary trading by banks. Another issue identified by this phase of the reform programme was that the IT systems used by the bourse have “limited functionality” compared to those used elsewhere in the region.
NEW ADMINISTRATIVE PHILOSOPHY: Initial recommendations based on these findings included efforts to “professionalise” market players such as banks, brokers and advisers; update the exchange’s IT platform; and wholesale reform of the legal framework for the exchange, including the passing of a new law regulating the sector. A second phase comprising the making of more detailed recommendations began on May 20, 2012 and is due to be completed by the end of the year.
The same four experts are carrying out this work alongside various local specialists. The final stage of the reform project is due to begin in early 2013 and to last around 18 months, according to Mustapha Ferfera, the director-general of Bourse d’Alger. Once the reforms are complete, market activity is likely to increase .
While there have been minor reforms to the of the exchange, the changes mark the first major overhaul in years. “The project should boost the bourse,” Khelifati, the chief executive officer of Alliance Assurances, an insurer that listed in 2011, told OBG. “What is essential is that we see a profound reform of the market.”
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