The Algerian government’s decision to delay the privatization of Crédit Populaire d’Algérie (CPA) has met with a mixed reception. While one of the banks involved in the bidding had called for suspension of the sell-off and labor unions have applauded the move, others have questioned the government’s fundamental commitment to privatization.
State banks are responsible for almost 95% of deposits and credits in the Algerian banking market. Despite their high levels of non-performing loans, they have retained the support of the authorities, particularly since the collapse of Algeria’s biggest private bank in 2003. However, the much-delayed CPA privatization had seemed to be a sign of renewed confidence in private banking.
On November 24, 2007, the government announced it had suspended the final bidding process for the sale of a 51% stake in CPA, the country’s first privatization of a public bank, to reassess the effects of the global mortgage crisis on the Algerian market. The announcement came two days before technical bids for the bank were scheduled to have been opened and will delay the privatization beyond the target date of the end of the year.
Deputy finance minister Fatiha Mentouri has said that the privatization process will recommence after the global effects of the collapse in the US sub-prime lending market have become apparent.
Citing “uncertainty” caused by the crisis, Mentouri said that “the opening of the sale has been postponed until there is some clarification about the international financial markets.”
However, no set date has been specified by the government and the delay could be longer than optimists might anticipate.
CPA has a 12% market share and assets totaling around $6 billion, and is seen as a prime candidate for banks hoping to expand their operations in Algeria, or establish a foothold there, without a capital outlay that runs to many zeros. The CPA privatization initially attracted France’s Crédit Agricole, Banque Populaire and BNP Paribas; Citibank, from the US; and Spain’s Santander when bidding opened in late 2006. However, Santander withdrew its bid in May to concentrate on expanding its operations in Europe and Citibank retired from the fray to attend to the wounds inflicted on it by over-exposure to the sub-prime market. Meanwhile, the government’s decision to postpone the technical bidding process came the day after Crédit Agricole called for more time.
Santander’s retreat, Citibank’s withdrawal to the sidelines and Crédit Agricole’s request for the process to be temporarily halted may have given the government a reason to re-open the bidding process to ensure greater competition and guarantee the bank makes its forecast $1.5 billion sale price.
However, for others, it is yet another unnecessary hold-up to the process which has already taken too many years. The CPA privatization plan was first drafted in 2000 and the sale slated to be completed by the beginning of 2007. However, the process was sidetracked by the collapse in 2003 of Khalifa Bank, Algeria’s largest private lender, which led to the uncovering of widespread corruption and mismanagement across the Algerian banking sector. This was a blow to confidence in private banking and caused the authorities to reconsider their policy. In the wake of the Khalifa scandal, the government barred private banks from lending to public institutions and prioritized strengthening the system and fighting corruption ahead of privatization.
The latest suspension has caused doubts that the government’s heart is really in privatization.
Former Algerian treasury minister Ali Ben Ouari has said that he is skeptical about the government’s stated reason for the suspension of bidding, noting that most of the bidders have not been affected by the sub-prime loss. Ben Ouari has warned that the government may be considering limiting foreign ownership in CPA. Given the fact that the economy is now in considerably better shape than when the privatization was first proposed, a majority stake may be offered to a domestic partner instead.
The government has also come under considerable union pressure to halt the privatization and the decision to postpone the sale indefinitely garnered praise from unionists representing CPA employees.
The halting of the sale calls into question not only the privatization of CPA but of the process of banking privatization in Algeria as a whole. The Banque de Développement Local is lined up for privatization this year and bidders will be watching recent events with interest. If the CPA sell-off suspension turns out to be a permanent change of heart, the banking sector as a whole risks being marooned from modernity in terms of technology, capital and the improved services that competition would engender.
