ALGIERS: For several sweltering days in August 2002, thousands of Algerians queued outside Orascom Telecom’s stores to buy pre-paid cards that, for the first time, made mobile phones affordable for ordinary people.
Fast forward to November 2009, and the crowds were back, but this time they were ransacking the Egyptian company’s stores under cover of darkness and, according to witnesses, looting thousands of dollars worth of pre-paid cards.
Orascom Telecom’s Algerian unit has gone from a success story lauded by Algerian officials to the point now where, against a backdrop of tax demands and official pressure, it is preparing to sell out to the government and leave.
Shares in Orascom Telecom — one of the three biggest stocks on the Cairo bourse by market capitalization — have fallen a quarter since April 28, when Algeria vetoed its exit plan to sell the Djezzy unit to a private buyer.
But the impact goes beyond one firm.
Orascom’s experience reflects a hardening in attitudes towards foreign investment in Algeria that could affect other investors, which include firms such as ArcelorMittal, Lafarge and port operator DP World.
Orascom’s problems in Algeria also show that even in an era of globalization, some emerging countries — especially those flush with oil and gas revenue — only want foreign investors’ money if they can have it on their own terms.
"The message is that we are strong and that we have the capability to negotiate with our partners from a position of strength," Abdelhamid Si Afif, a member of the governing body of Algeria’s ruling FLN party, told Reuters.
"Enough is enough. Algeria refuses to continue being a market where other countries sell their products."
End of the affair
The story of Orascom Telecom’s fall from grace is also the story of how Algeria grew disillusioned with foreign investment.
The firm paid $737 million in July 2001 for the license to operate a mobile network. It quickly became Algeria’s biggest mobile operator by number of subscribers and the parent company’s largest single source of revenue.
Things started going wrong though early in 2008, when Orascom Construction Industries, run by a member of the same family that controls Orascom Telecom, sold its Algerian cement plants to France’s Lafarge, a firm that had operated in Algeria under French colonial rule.
For Algerian President Abdelaziz Bouteflika, who like many people of his generation fought in the war for independence from France, this was unwelcome.
"All of a sudden, they wake up the next day and they find French people running one of their major cement producers," said Amr Elalfy, analyst with CI Capital in Cairo.
In a July 2008 speech, Bouteflika did not name any of the Orascom companies but made it clear he had them in mind when he complained foreign firms were making modest investments then cashing in huge profits soon after.
A week later the government said it would restrict the sale of assets to foreign firms.
"From now on a (foreign investor) will not have the right to sell its business operating in Algeria to another company without the government’s approval," El Watan newspaper quoted then Communications Minister Abderrachid Boukerzaza as saying.
A diplomatic row between Algeria and Egypt over crowd violence during qualification for this month’s soccer World Cup did not help. It was this that prompted the crowds to ransack the company’s stores in the Algerian capital in November.
But according to analysts, the root of the problem was a growing conviction in Algeria’s ruling elite that foreign investment was not benefiting the country.
Part of that came from the Socialist leanings of Bouteflika and fellow senior officials, forged in the national liberation movements of the 1960s. The Algerian president, now 73, counts Cuba’s Fidel Castro as a personal friend.
"As he enters the sunset of his life, he is returning to these policies," said a report from Eurasia Group consultancy.
Foreign money not required
But perhaps the defining factor in Algeria’s attitude to foreign investment is the size of its cash pile.
When it gave Orascom Telecom its license in 2002, the oil price was about $25 per barrel and Algeria had $23 billion in foreign currency reserves, or 41 percent of its gross domestic product (GDP). It needed investors’ money.
Last November, when it began exerting pressure on Orascom Telecom with a big back tax demand, the oil price was around $72 per barrel and Algeria had over $150 billion in foreign reserves, slightly more than the value of its GDP.
"They look at all the reserves they’ve got from oil and gas, and say, ‘Why should we use expensive foreign money?’" said Alasdair Maclay of private equity group Actis.
He said his firm tried to finance an Algerian power project but walked away when the government kept changing the terms. "Ultimately, they have no interest in foreign money," he said.
That stance could spell trouble for other foreign investors.
Unions at ArcelorMittal’s Algerian steel plant say they will strike unless the state is given control, ministers say they want to cut Lafarge’s market share, and Egypt’s Ezz Steel has been pushed out of a deal to build a steel plant.
Meanwhile, there is little prospect of any change in policy soon. Algeria’s cash cushion is likely to last for some time, and the president has another four years to run of his term.
"As long as Bouteflika remains president … nationalist policies are likely to continue and perhaps become even sharper," said Eurasia Group. –Additional reporting by Alexander Dziadosz in Cairo and Ed Cropley in Johannesburg
