The French-Algerian Relationship: Searching for a New Era

France Remains Algeria’s First Economic Partner: For How Long?

The fact that France and Algeria did not succeed in tackling the past and are still going ahead must not conceal the existing strong economic relationship. For a while, indeed, France has been the first supplier of Algeria and remains the first investor in the country. After a serious slump in the 1990s,  . Supplanted by the Americans a decade ago, the French hydrocarbon’s major Total regained its market share. The big French companies, especially banks such as BNP-Paribas and Société Générale who have been entrenched in Algeria for a decade, are developing and diversifying their activities thanks to a more flexible legislation. The Parisian metro-operator, RATP, now operates Algiers’ new subway that has been built by Alstom. Strangled on their domestic markets and in Europe, French companies are eager to expand in North Africa where they can penetrate close, large and easy markets.

A Fragile but Hotly Competed Market

With a population of 35 million people, Algeria is by far the largest market in North Africa. Its growth potential is huge despite the long-term heavy sequels of the civil war. In October 2013, the announcement that Algeria is taking part in the loan floated by the IMF with 5 billion dollars symbolizes what has been accomplished since 1993-94 when Algeria was forced to negotiate Stand-By Arrangements with the IMF and a debt-rescheduling package with the Paris-Club group of creditors. It also reflects the growing financial capacity of Algeria and its ability to play a key role in the Mediterranean, North-African and even sub-Saharan Africa.

Algeria has dramatically increased its foreign currency reserves (now around 1200 billion dollars) 2012 due to its strong hydrocarbon revenues. Therefore, in 2011, the Algeria sovereign fund, replenished by these revenues, culminated at 57 billion dollars. However, this must not hide certain weaknesses. Algeria seems still to hesitate between, on the one hand, the continuing liberalization of its economy, free-trade and compliance with the international norms that rule the financial sector, and, on the other hand, a sort of State-capitalism that grants the government a major role in all sectors of economy.

The “49/51%” ownership rule, which requires a 51% Algerian share in foreign direct investments, is considered as an obstacle by many foreign investors, even though it did not prevent a lot of foreign companies from moving into Algeria. Then, the government’s efforts to diversify the economy from hydrocarbons, which are still the backbone of the economy, have not yet produced much effect. Finally, the explosive social situation characterized by massive youth unemployment and huge housing demand that provoked sporadic riots, captures recurring public grants (more than 23 billion in 2011) and highlights the lack of redistribution.

Even though the domestic situation remains fragile, Algeria’s wealth gives the country the ability to choose its partners. Algeria does not want to depend economically on only one partner anymore, and particularly France, with whom it has had tumultuous political relations. Algeria’s market size and the business opportunities that exist there stir up the appetites. Over the last decade, the foreign investors coming from Southern Europe or Turkey have flourished. The Arabs, like the Egyptian telecom company Orascom with Djezzy or Gulf Bank, came very early on, in the late 1990s, when the security was not provided throughout but new president Bouteflika encouraged foreign investment.

Nevertheless, China is now the most important and growing foreign investor in Algeria. China that ranked second behind France (but first by some months) contributes to the funding of most major projects and leads the construction boom: the country’s largest prison, a new airport, malls, thousands of homes, etc. A Chinese state company is building two-thirds of Algeria’s 745-miles-long east-west highway, which is the longest in Africa. All that represents around 20 billion dollars in government construction contracts. China’s role in Algeria is now most significant since Mao supported the newly independent country all along the 1960s. Very recently and after protracted negotiations, the Chinese company HNA bought 48% stake in Paris-based airline Aigle Azur that holds 43% market share in Algeria.

A Cloudy Future?

According to many Algerian entrepreneurs and policy-makers, France is no more the adequate partner nowadays. French companies are known to be ‘chilly’ compared with Americans, Chinese or Turks that are all more pragmatic. Moreover, many Algerians do not understand why the French do not use much more of the resources of the Algerian diaspora in France. Through immigration and television, Algerians are strongly connected to what happens in France, to the French politics and the recurrent Algeria- or Islam-related issues that occur in the public debates.

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