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Cablegate: Algeria and the Presidential Entrepreneurship

VZCZCXYZ0000
RR RUEHWEB

DE RUEHAS #0186/01 0590753
ZNR UUUUU ZZH
R 280753Z FEB 10
FM AMEMBASSY ALGIERS
TO RUEHC/SECSTATE WASHDC 8507
INFO RUCNMGH/MAGHREB COLLECTIVE

UNCLAS ALGIERS 000186

SENSITIVE
SIPDIS

STATE FOR NEA/MAG
STATE PASS FOR USTR
COMMERCE FOR NATE MASON

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ECON PREL KISL AG
SUBJECT: ALGERIA AND THE PRESIDENTIAL ENTREPRENEURSHIP
SUMMIT

REF: A) 09 STATE 130991 B) 09 STATE 115658 C) 09
STATE 112495

Introduction/Summary
--------------------

1. (SBU) Embassy Algiers has been working to prepare for the
April 26-27 Presidential Entrepreneurship Summit. This cable
summarizes post's efforts to date in support of that event
and indicates what we think the Algerian participants will be
looking for in terms of Summit outcomes. Their analysis of
Algeria's situation and needs were highlighted during a late
December roundtable with fifteen entrepreneurs from large and
medium-sized companies as well as business educators. They
identified strong vestiges of socialist culture and
bureaucracy enforced by an aging elite and financed by
hydrocarbon rent income as fundamental institutional barriers
to entrepreneurship and business growth in Algeria. Many
agreed that Algeria's overarching problems of governance
based on privilege hampered business development and raised
questions as to whether anything short of systemic change in
terms of governance could positively transform the business
climate. The biggest immediate barriers to forming new
businesses and expanding old ones are access to financing and
land. Algeria needs new financial instruments and
institutions to channel its large financial reserves into
entrepreneurial investment. The state should also
deregulate, especially in IT. Algeria has a shortage of
management talent and needs more management training.
Roundtable participants supported new partnerships between
U.S. and Algerian firms for investment and know-how transfer,
and between U.S. and Algerian universities to set up
train-the-trainer programs. Regional fora/networks for
entrepreneurs would also help. They also pointed to a
successful business and technology incubator program in
Tunisia and a Canadian-funded exchange program between
private businesses as successful partnerships that have
produced start-ups and helped companies innovate. Although
some of these ideas help point the way to a successful
outcome for our Algerian invitees, it may be hard for the
Summit to avoid entirely some discussion of governance
problems that hold back the entire MENA region. End summary.


Anti-Entrepreneurial Culture
----------------------------

2. (SBU) Per reftel, the Embassy hosted a roundtable December
28 with 16 Algerian entrepreneurs representing small and
medium-sized firms as well as business educators to outline
the President's Entrepreneurship Summit and to canvass views
on how to spread entrepreneurship and improve business
conditions in Algeria. Among the key points expressed in
that roundtable:

--Algeria creates only 80 new businesses per year per 100,000
inhabitants vs. 350 for other countries at a similar level of
development.

--Algeria's entrepreneurial backwardness was not related to
Islam per se, and several participants cited Malaysia and
next-door Tunisia as proof. Algeria's problem was instead
the result of an anti-entrepreneurial culture that had
survived Algeria's socialist era. This culture manifested
itself in an administration that had little knowledge of or
interest in private enterprise but imposed barriers and
regulations that stymied business at many steps along the way
of business creation.

--Conditions for start-ups and continuing businesses had been
more flexible earlier in this decade but had deteriorated and
become more bureaucratic due to deliberate government policy
in 2009.

--Income from hydrocarbon rent was a specific element that
had historically distorted Algeria's development and defied
easy solutions. Some participants agreed that the heritage
of colonialism, which deprived African countries of the
possibility of participating fully in the industrial
revolution, had afflicted Algeria as well.

--A former prime minister believed that if the Washington
Summit was to be credible, it would need to address the
fundamental problem of government based on privilege rather
than law. Throughout the Middle East and North Africa,
states had been captured by corrupt elements that supported
the status quo at the expense of entrepreneurial innovation.


--On the other hand, as some speakers noted, there were small
solutions -- such as Tunisia's "electronic administration"
that made many documents accessible online -- as an approach
that did not become political.

--The principal barrier to forming new businesses is
difficulty accessing capital. Although Algeria is awash in
petro-reserves and saves 20 percent of GDP yearly, Algeria's
banks are exclusively commercial, not oriented to investment,
and have no capacity for risk evaluation. Algeria needs new
financing instruments, such as business or investment banks.

--An especially acute problem for small businesses is that
that, absent rock-solid collateral, banks only lend to
businesses sponsored by persons or institutions of influence.

--Equally difficult is obtaining land to build on. Algeria
lacks a strong legal framework for property, making access to
land a process of maneuvering with the central and local
governments. The roundtable produced no suggested remedies.

--Algeria needs a tax structure that incentivizes business
formation and job creation. Small business representatives
complained of the irksome and omnipresent bureaucracy that
implements anti-business regulations. The participants
strongly advocated deregulation, especially for information
technology.

--Some of the help Algeria needs can come in the form of
partnerships. The know-how that business here lacks can come
from partnerships between U.S. and Algerian firms that invest
in joint ventures. (Note: this is the arrangement mandated
in the amended 2009 budget, which requires that all foreign
investment occur in a 51/49 percent Algerian/foreign
ownership arrangement. End note)

--Some participants pointed to "technopoles" in Tunisia that
brought together universities and research centers with
aspiring entrepreneurs to form an enterprise incubator that
enjoyed special financing arrangements.

--A business educator advocated U.S.-Algerian university
partnerships focused on business education. He had arranged
for professors from the Sloan School of Management to train
Algerian professors who would teach at a private university
he was setting up in Algiers. Algeria's own National School
of Administration should amend its curriculum to give better
training in business administration.

--Another partnership model cited was the Canadian Fund for
Private Sector Development, which organizes exchanges between
entrepreneurs and managers in the same line of business
between Canada and other countries.

--There should ideally be some sort of effort made to promote
ties among entrepreneurs in the immediate Maghreb region,
partly to exchange ideas and best practices, partly to
facilitate business. This could translate into networks that
could function as fora or "clubs."

Preparing for the Summit
------------------------

3. (SBU) Since the roundtable, post has issued invitations to
the eight participants selected and sought occasions to
engage with them. One such occasion was the Commerce
Department trade mission February 16-19, during which
invitees were invited to mingle at receptions with U.S.
company representatives. Such contacts, we hope, may
continue and be nurtured during the Summit.

4. (SBU) Closer to the Summit, post intends to host an event
that will give us a chance to re-engage with invitees to
refine their thinking and get a fuller understanding of their
expectations. We hope to elicit more concrete but realistic
proposals. Post also intends to work with NEA/MAG in the
organization of events for the invitees while in Washington
with the Algerian embassy and U.S.-Algerian Business Council.

Comment
-------

5. (SBU) Entrepreneurship abounds in Algeria, as evidenced by
the many small privately owned shops and business everywhere
in this country. However, this entrepreneurship is
overwhelmingly small-scale and only episodically represents

an ambitious vision. The Algerian invitees to the Summit,
like those who attended the Embassy's roundtable, represent
the rare breed of local entrepreneurs who are trying to make
a difference in their country. They have broken through
considerable barriers to establish a viable niche in the
marketplace, and are open to new U.S. ideas on engaging
Algeria and North Africa to improve conditions for business
creation and innovation. This Embassy has long believed that
a more dynamic environment for start-ups and an increase in
the number of medium-size private enterprises are crucial to
any Algerian effort to develop its economy in a way that
would both create jobs and engage the energy and talents of
its young population. A more fruitful business environment
is the only real hope of diminishing Algeria's total
dependence on hydrocarbon revenues and reversing its current
backsliding into economic nationalism and tighter state
control. There is not a lot of time to make changes, as
projections show hydrocarbon production, and thus revenues,
peaking and starting a steady decline within the next decade.

6. (SBU) Our roundtable underscored that discussing barriers
to business as well as policy changes and partnerships that
could help overcome them should be center stage at the
Summit. But our Algerian invitees have indicated that,
without some acknowledgement that governance issues are a
fundamental problem, the Summit will only touch on part of
the reality -- and challenges -- they face at home.

JORDAN

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