COMMERCE MINISTER SAYS PRIVATIZATION WILL CONTINUE

C O N F I D E N T I A L SECTION 01 OF 02 ALGIERS 000690

SIPDIS

E.O. 12958: DECL: 06/10/2018
TAGS: ECON EINV PGOV AG
SUBJECT: COMMERCE MINISTER SAYS PRIVATIZATION WILL CONTINUE

REF: A. 2007 ALGIERS 1748

B. ALGIERS 24

C. ALGIERS 662

Classified By: Ambassador Robert Ford for reasons 1.4 (b) and (d).


1. (C) SUMMARY: Commerce Minister El Hachemi Djaboub told
the Ambassador that Algeria is determined to go forward with
the privatization of public enterprises, but admitted that it
has more parastatals than interested buyers. Djaboub said he
noted a trend over the last decade within the government
toward support for privatization, but complained of obstacles
created by unions. Djaboub and the Ambassador discussed
several examples of successful privatization efforts,
including one by an American firm, and the Minister said the
government recognizes the need for its various enterprises to
modernize and become efficient, rather than simply
redistributing Algeria's oil profits. END SUMMARY.

PRIVATIZATION IS ACCEPTED
--------------


2. (SBU) On June 8, during a discussion of Algeria's bid
for WTO accession (septel),Commerce Minister El Hachemi
Djaboub discussed at length his country's privatization
efforts. He began the conversation by defending Algeria's
treatment of foreign companies, insisting that
foreign-domiciled companies are not discriminated against
under Algerian law, and that Algeria is gradually
implementing economic and financial sector reforms. He said
Algeria remained "very enthusiastic" about foreign private
banks operating in Algeria, but admitted that there was still
lingering fear of opening the market too much or too quickly
as a result of the 2004 Khalifa bank scandal. Ambassador
noted it was important for Algeria to keep moving ahead and
pointed to the technical assistance coming from the U.S.
Treasury Department to strengthen commercial bank supervision
so as to avoid a repeat of the Khalifa bank scandal.


3. (C) Minister Djaboub said that he believed there is far
more support within the government for privatization of
Algerian state-owned companies today than existed 10 years
ago when he worked at the Ministry of Industry. He admitted
that Algerian public companies need access to modern business
know-how and marketing techniques in order to compete
internationally and actually export products. Djaboub said
specifically that managers of Algerian parastatals needed to
learn best practices regarding business strategy, operational
processes, and standards of quality. He said that many in
the government recognize that these companies must adapt to
modern market conditions and not simply exist as a means to
redistribute oil profits. The biggest challenge, the
Minister said, is that Algeria has more companies to
privatize than there are interested buyers.

EXCEPT AMONG UNIONS
--------------


4. (C) The Ambassador cited several successful examples of
former parastatals that were acquired by Algerian investors
and that are now not only exporting to nearby markets in the
Mediterranean region and sub-Saharan Africa, but also to the
United States. He also mentioned the recent USD 120 billion
investment by American company General Cable to acquire 70
percent of an Algerian industrial cable factory in Biskra,
southeast of Algiers. The Ambassador noted, however, that
company officials told him that while the facilities are
sound, the company has far more employees than needed to run
at peak efficiency. Djaboub nodded his head in
understanding, and said that Algerian unions still have a
"Socialist vision," and that privatization is considered a
"taboo" subject among unions.


5. (SBU) Djaboub said that 95 percent of Algeria's
privatization efforts have gone smoothly. But, he added,
some obstacles created by labor unions do inhibit the
privatization process. By way of example, he said that under
Algerian law, a company cannot downsize its workforce after
acquiring the controlling interest of a state-owned firm, and
must share 10 percent of its profits with its workers. For
many companies, he said, this is not a problem; for example,
he pointed to the SIM corporation (which the Ambassador
recently visited and which actually doubled its workforce
after acquiring two parastatal bottling companies and is now
exporting bottled water to the United States). Other

ALGIERS 00000690 002 OF 002


companies have developed ways around the hiring and
profit-sharing regulations, he said, by helping groups of
workers form their own companies and then contracting with
them for services such as security and cleaning. He
mentioned a German firm that acquired an Algerian soap
company and now contracts with a group of former employees
for delivery services. He said the workers accepted these
arrangements and the company is now producing soap to German
standards.

COMMENT: LAYING IT ON THE TABLE
--------------


6. (C) Djaboub's statements in support of privatization --
made in front of his staff -- along with his somewhat
antagonistic riff about unions, are interesting coming from a
high profile member of the Islamist Movement for a Society of
Peace (MSP) Party. In fact, he echoed a story told to us by
the president of the Algerian SIM Group, that Socialist
Workers' Party leader and member of parliament Louisa Hanoune
falsely and publicly accused company executives of slashing
salaries and jobs when it acquired two state-owned companies,
a claim the company vehemently denies. Djaboub's willingness
to discuss privatization so openly and critically may signal
that it has become a largely accepted topic within the
government, even if it seems to run counter to the beliefs of
minority parties, including his own. He and other ministers
have, in recent months, floated a number of proposals for
moving forward with the privatization of state-owned
companies, including the consolidation of parastatals within
sectors, and creating joint ventures between the public
companies and foreign firms. The process remains slow and
the Algerians move with great trepidation, especially in
light of turbulence in world financial markets (reftels) and
their worries about domestic unrest and labor strikes.
Nonetheless, Djaboub's interest and openess about
privatization seems to indicate that the process will
continue, even if at a slow and careful pace.
FORD