E-BARBARY COAST: PROFITS AND PIRACY IN THE

UNCLAS SECTION 01 OF 03 ALGIERS 000302 SENSITIVE SIPDIS STATE PASS TO USTR PBURKHEAD E.O. 12958: N/A TAGS: ETRD KIPR EINV ECON TSPL AG SUBJECT: E-BARBARY COAST: PROFITS AND PIRACY IN THE ALGERIAN SOFTWARE MARKET REF: A. ALGIERS 228 ¶B. 08 ALGIERS 190 ¶1. THIS CABLE CONTAINS BUSINESS PROPRIETARY INFORMATION. NOT FOR INTERNET DISTRIBUTION. ¶2. (SBU) SUMMARY: Algeria was the second-leading growth market for Microsoft in 2008, and even as the global recession appears to be dampening sales, it might maintain its position relative to other markets in 2009. Nonetheless, Algeria ranks among the ten worst locations worldwide for software piracy, and Microsoft loses some USD 20 million per year to pirated software. Microsoft's country manager recently told us that he was encouraged that parts of the GOA are finally accepting the value of IPR protection and the economic threat posed by software piracy. He also hoped that public awareness campaigns by his company and by the GOA will have the effect of both spurring further government action against piracy and reducing the rate of piracy in Algeria by even a few percentage points. He admitted, however, that the GOA remains disorganized regarding IPR protection, and recommends that the USG take more forceful action on the issue. He told us he believed that, following the presidential election in April, the government will try to improve Algeria's standing in various world rankings, and thus might be embarrassed enough to act if listed on the Special 301 Priority Watch List. He also acknowledged that such a ranking would also risk backlash and nationalist entrenchment by the GOA, but ultimately, he opined in regard to IPR enforcement, "things really cannot get much worse for us here." END SUMMARY. CHASING BOUNTY AND FIGHTING E-PIRATES IN ALGERIA -------------- --- ¶3. (SBU) Samir Said, country manager for Microsoft Algeria, told us during the course of several recent meetings that, with 70-percent growth year-on-year, Algeria represented the second-leading growth market worldwide for his company in 2008, behind only Russia. Even though his business unit has experienced a noticeable slowdown over the last few months, he believes it may be able to maintain its position in 2009 relative to other markets also suffering from the global recession. Contrary to government pronouncements, Said insisted that the worldwide recession has affected Algeria. New orders are down sharply, and he attributed this to GOA agencies having less to spend on major projects as government revenues decline with falling oil prices. Accordingly, private businesses that rely heavily on government contracts are also slowing their software and services expenditures. But even with the economic contraction, Microsoft continues to expand operations, having doubled its staff in the last two years, and currently negotiating new office space to double its physical presence as well. Said expects that his unit's growth rate should remain relatively strong for 2009, possibly surpassing all other markets on the continent and in the region including Nigeria, his unit's closest competitor, but where he said the company faces particular challenges on IPR issues. ¶4. (SBU) Even with an outstanding record and potential for growth, Said complained that Microsoft loses some USD 20 million per year to software piracy, more than 20 percent of the company's total potential market-share according to a recent industry study. Said noted that several industry studies indicate Algeria has an 84-percent piracy rate, placing it within a grouping of the ten worst locations worldwide for piracy, and probably the third-worst in Africa. Said told us that some 80 percent of small- and medium-sized enterprises (SME) in Algeria continue to use the company's software in an illegal manner. He is redoubling his company's efforts to convince the larger of these firms to purchase adequate licensing, and has been implementing a company rule that all Microsoft vendors must be certified as IPR compliant or risk losing contracts for services such as travel bookings and public relations. ¶5. (SBU) Said told us that at least 50 percent of the government's operations also remain non-compliant with IPR rules. He believed, however, that the GOA's non-compliance ALGIERS 00000302 002 OF 003 is now less a matter of willful violation than poor procurement practices. He noted that the GOA generally obtains the wrong kind of licensing. Government agencies continue to purchase multiple single copies of software licensed through Microsoft distributors rather than obtaining organizational licensing that could be applied to all computers in a given agency. This practice is not only more expensive for the government to achieve IPR compliance, it increases the likelihood that IT managers and employees will use pirated software because agencies do not purchase enough one-off packages for all users. Said told us he hoped to change this practice through better marketing strategies aimed at government procurement officers. NEW, BUT LIMITED, RESPECT FOR IPR PROTECTION -------------- ¶6. (SBU) The Microsoft executive told us that the Algerian government is moving very slowly toward full implementation of the IPR laws on the books, even after a 2005 decree by the prime minister that IPR protection is a government priority. Said noted that, like all things bureaucratic in Algeria, the effort is disorganized and left to each government organ to implement. "Algerian leaders seem to assume that if they give an order out loud, it will happen, but rarely is the bureaucracy capable of reacting," Said lamented. He did concede that anti-piracy offices have opened in agencies charged with IPR protection. He was encouraged particularly by new attention paid to the issue by officials at the Algerian copyright office (ONDA),who he said seem now to recognize the value of IPR protection and the economic threat posed by optical media piracy. ONDA, he said, will host a public awareness conference in April in conjunction with the Business Software Alliance (BSA) to commemorate International IPR Day. ¶7. (SBU) Microsoft, Said added, has been running print and radio public service announcements encouraging respect for IPR. The company and enforcement officers from ONDA are also developing a strategy to confront businesses operating in violation of IPR laws. Microsoft successfully negotiated two licensing agreements with Algerian companies that manufacture computers for the domestic market. The state-owned firm Alfatron manufactures computers in Oran, and the privately-held company Condor recently launched a factory in Setif. Both companies will install certified copies of Microsoft's operating system at the factory, and their machines will bear the Microsoft certification seal. The companies' expected combined market-share for consumer-level computer sales is 80 percent, and 20 percent for business sales. ¶8. (SBU) Microsoft's country manager also told us that he has been working with the Ministry of Post, Information and Telecommunications on Algeria's "e-strategy." The government sought Microsoft's advice and incorporated some ideas into its Web-published strategy. While Said fears the government took on too many priorities -- essentially an e-strategy for every sector and public policy issue -- he is planning a conference to be co-hosted by the ministry that would publicly explore information, technology and communications (ITC) options for the government and the nation. He hopes these efforts will also further enhance IPR awareness and enforcement efforts. SPECIAL 301 -------------- ¶9. (SBU) Microsoft's Said was at once hopeful that the GOA may finally be taking IPR protection seriously, and skeptical that much tangible action could be attained during an election year. He indicated his frustration with the GOA's lack of leadership on the issue, noting that even a five-percent reduction in the software piracy rate in Algeria could result in a doubling of his company's revenues here. Upon several days of reflection after our initial meeting on March 23, Said told us that in his opinion the USG should take more forceful action regarding Algerian IPR protection because, he believes, President Bouteflika will want to improve Algeria's standings in various international rankings ALGIERS 00000302 003 OF 003 as part of his third-term legacy. Said was not aware whether Microsoft or the BSA submitted comments for the current Special 301 review. He acknowledged that if the USG were to add Algeria to the more stringent Priority Watch List, the GOA might react negatively by taking a more nationalistic tack and reducing cooperation with foreign entities and companies like his. But, returning to the USD 20 million his company loses annually to piracy, Said concluded that, as far as IPR enforcement is concerned, "things really cannot get much worse for us here." PEARCE