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Algerian businesses hope government will stay the course on reforms

ALGIERS (Reuters) – Algerian businesses say they are beginning to benefit from new rules to encourage investment and exports in one of the world’s most closed economies, but they fear a windfall in petrodollars could bring the government back to its state model.

Recent rules aimed at diversifying the economy to reduce reliance on oil and gas sales include a new investment code that came into effect this month and cash incentives for non-oil exporters .

“Algeria is in a real race against time. It needs to secure its revenues away from oil and gas before prices are crushed again,” a former government minister, still an adviser, said on condition of anonymity. on economic issues.

For decades, Algeria used its high energy revenues to manage a top-down economy in which private or foreign investment was difficult, large sectors were reserved for the state, and entrepreneurs were suffocated by bureaucracy.

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But cash reserves plummeted after oil prices plummeted in 2014, jeopardizing state finances and putting pressure on social spending, adding to public anger at the political stagnation that fueled the mass protests that rocked the state from 2019 to 2020.

As Algeria’s foreign currency reserves have fallen by two-thirds in six years and the long-term risk of unrest has grown, the government of President Abdelmadjid Tebboune has pushed reforms to strengthen the private sector, stimulating local businesses.

“We still suffer from heavy bureaucracy, very often corrupt. That’s still the reality,” said Mohammed, an entrepreneur who waited three years with a foreign partner for permission to start a refrigerator manufacturing plant.

“I understand that Tebboune is trying to do things. But it’s still too early to say if he will succeed, so for me it’s still wait and see,” added Mohammed, who did not give his last name. lest it complicate his life. business endeavors.

Perplexed by arbitrary political change, plagued by corruption, hampered by bureaucracy and constrained by strict rules, Algeria’s private sector has struggled to thrive for years.

A previous reform effort under the last president, Abdelaziz Bouteflika, who emerged from a 1990s civil war that killed hundreds of thousands, resulted in public fury over corruption, another factor in the 2019 mass protests.

The army, the main political power in the country of 44 million people since Algeria gained independence from France in 1962, pushed Bouteflika to step down to help quell the protests.

Tebboune, who was elected with a very low turnout at the end of 2019, inherited political unrest and economic decline even before the COVID-19 pandemic took hold. It has adopted some reforms but now enjoys strong demand for Algerian energy and rising incomes.

Business confederation president Sami Agli said the new rules were aimed at making Algeria a “friendlier and more open economy”, but acknowledged it would be a long process.

“The first steps are visible. Free zones are going to be set up, the customs code has been changed to make it more attractive for foreign investment, we have a new investment code,” Agli said.

To stimulate exports, the government has offered significant tax exemptions and assistance with transport costs. However, any long-term increase in exports would require additional investment in the non-oil industry, Agli said.

A sign that the government is taking a more urgent approach is that, unlike in 2016, when an investment code was agreed but never finalized, the official gazette has already published rules to bring the new code into effect.

Meanwhile, non-oil exports, including cement, drugs, pipelines, turbine parts and refined sugar, are expected to reach a record $7 billion this year, albeit with considerable help from the EU. State to private exporters, in particular by financing certain transport costs.

Tebboune also suggested that Algeria wants to join the BRICS group of economies – a departure for a country that is one of the few not part of the World Trade Organization.

Like other major energy exporters, Algeria has historically taken reform measures during periods of low revenues, then reverted to a state-heavy approach when prices rose again. .

A former government adviser for economic affairs said the authorities understood the need to continue reforms despite rising energy revenues this year.

“Selling more stuff outside of oil and gas is our top priority. We’re running out of time because oil prices are so volatile and a global recession is a likely scenario,” the former adviser said.

(Reporting by Lamine Chikhi; Writing by Angus McDowall; Editing by Andrew Cawthorne)

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