The Algerian stock market has launched reforms to encourage new listings and bolster its market capitalisation, although private sector representatives have pushed for greater regulatory transparency.
The bourse has had mixed success in recent years in its efforts to attract more capital, with only four companies listed at present and a market capitalisation of around 0.1% of GDP. This compares to neighbouring Morocco, whose market cap is above 50% of GDP, according to a RMA Capital report.
Nonetheless, Algeria's market cap has doubled between 2009 and 2014, reaching €137.6m in October last year, and the country has set ambitious targets for the future. The bourse is aiming to grow exponentially in the years to come, with a goal to raise the market cap to €7.35bn within five years.
Key to this is an increase in the number of local listings. To help with this, the regulatory authority, the Commission for the Organisation and Oversight of the Stock Market (Commission d'organisation et de surveillance des opérations de bourse, COSOB), has announced a series of reforms to be executed by the end of 2015, including tax incentives for companies joining the exchange as well as reduced charges to enter the bourse.
COSOB’s president, Abdelhakim Berrah, told OBG that reforms should energise the market and increase the level of investor confidence in Algeria.
“The impact of greater participation in the stock market is wide-ranging,” said Berrah. “Currently the ability to provide an accurate valuation of companies is limited, but with a greater emergence of the stock market there will be greater transparency of both state and private enterprises alike, which will allow for reliable valuation. Furthermore, transparency and audit requirements will lead to better management of companies, which will benefit the economy.”
The biggest impetus for the market may come from state-owned companies; eight are planning to make partial listings on the market this year, according to the CEO of the Algerian Stock Market, Yazid Benmouhoub. These are: Compagnie Algérienne d’Assurance et de Réassurance (CAAR); Crédit Populaire d’Algérie (CPA); quarry operator Cosider Carrières; the water and sanitation firm, Entreprise Nationale des Aménagements Hydrauliques; three cement factories belonging to state-owned cement holding firm Groupe Industriel des Ciments d’Algérie (GICA); and Mobilis (Algérie Télécom Mobile).
Benmouhoub said participation of state-owned companies was essential for the bourse to reach its full potential by building a critical mass, by not only bringing in well-capitalised companies but also demonstrating the government’s political will in developing the capital markets.
As with many North Africa markets, the bourse faces a general lack of awareness among companies in terms of the benefits of listing. Benmouhoub told OBG, “Many large family companies are unaware of the value or method of functioning of the stock market and as a consequence they lack the confidence or familiarity to join the stock market.”
The measures being taken by both the government and the COSOB should help dramatically boost growth in the country’s capital markets – particularly if accompanied by an overhaul of rules on sales and trading, given the impact the complex regulatory environment has had on the pace of transactions in the past.
In December, for example, multi-sector conglomerate Cevital’s purchase of 15% of NCA Rouiba shares, one of Algeria´s leading juice makers, was held up over differing interpretations of the government's right of first refusal clause (droit de préemption), which may allow a third party such as the government in this case to prevent the sale of shares between two consenting parties.
“The blockage of the transaction illustrates the need to address the limits of the current legal frameworks and create a clearer multi-stakeholder consensus,” NCA Rouiba’s president, Slim Othmani, told OBG. “Nevertheless, I am confident that the necessary discourse will take place to rectify the situation and re-establish confidence and I believe that the regulator is earnest in its desire to see the stock market grow. The key is improving clarity and dialogue.”
If the country is able to clarify the regulatory environment, and improve awareness among the private sector of the benefits of listing, then the bourse should see visible results in the medium term. The push by the government to list shares in a number of state-owned companies is key to this, and the success of those transactions will go a long way in strengthening the bourse’s outlook for the next few years.( OBG )