The privatization process in Tunisia is starting to run out of steam, though not from lack of support for the program from the government. It has instead become a victim of its own success, as the state is beginning to run out of assets of interest to investors.

Although the program is ongoing, the pace at which it is moving is less than in the past. On Jan. 12, Direction Générale de la Privatization, Tunisia’s privatization authority, announced it was calling for tenders for a 76% stake in the state-owned retail chain Magasin Général. The winning bid for the profit-making chain of 43 outlets is set to be made public in the second quarter of 2007.

Bids have also been called for the privatization of state-owned electrical transformer and power and solar water heater producer Société Anonyme de Constructions Electromécaniques (SACEM). As with the sale of Magasin Général, Banque d’Affaires de Tunisie, which has become something of a specialist in the field of privatization, is serving as the main adviser for SACEM’s sell off.

Another enterprise that has recently been put up for sale is Nour El Ain Hotel, operated by Ain Draham Tourism Society. Located in the north of the country, close to mountain ranges and hunting preserves, the 60-room hotel has drawn strong interest from investors. The tender process for the hotel closed on March 20.

Early adopter of privatization

Tunisia was an early convert to the privatization process in the region, first launching its program in 1987, after the policy shift away from a centralized economy. The program can be divided into three distinct phases. The first ran from 1987 until 1994, when many unprofitable state enterprises were sold off, the majority being in the tourism, commerce, fishery and agro-foods sectors.

The second phase, which covered a four-year period from 1994, saw the state put in place legislative procedures to allow it to sell off more profitable assets, launch initial public offerings and block sales, laying the foundations for the expansion of the program.

Since 1998, the focus has shifted to the privatization of major state enterprises, in strategic areas such as heavy industry, communications, energy, transport and retailing.

To date, Tunisia has achieved solid success, having sold off just over 200 state enterprises, spread across three broad categories—services, industry and fisheries/agriculture—with 45 sell-offs in the tourism sector, one of the most important for the Tunisian economy. Over the past 20 years, some $4.2 billion has been raised from the sales.

During the period of Tunisia’s 10th five-year economic plan, which commenced in 2002, 47 state enterprises were partly or fully sold off. In terms of numbers, this was only exceeded by the preceding five-year term, in which 75 state assets went under the hammer. However, as far as revenues go, 2006 broke all records, with $2.37 billion being transferred into the government’s coffers.

An interesting aspect of Tunisia’s privatization program is the high level of interest it has attracted from overseas investors. Of the total $4.2 billion generated so far, $3.7 billion has come in the form of foreign direct investment (FDI).

Tunisie Télécom a moneymaker

The success of 2006 has been underpinned by the sale in July last year of a 35% stake in Tunisie Télécom to Tecom Dig, a subsidiary of Dubai Holding. The sale raised $2.25 billion, accounting for more than half of the program’s total revenue and the vast majority of FDI.

Another achievement is the ongoing viability of the vast majority of enterprises after their shift away from the public sector. According to studies conducted by the privatization authority, almost all of the businesses and assets privatized have prospered, even those loss makers that the state divested itself of early in the program.

While Tunisia’s privatization program may not have generated some of the highest levels of revenue garnered by other countries in the region, the process has been a steady and carefully moderated one, rather than a “fire sale” of assets. Moreover, according to state surveys, most enterprises have upped their profits and taken on staff following their privatization, translating into an ongoing benefit to the economy, instead of a one-off windfall. As Tunisia is discovering, boosting the private sector can prove fortuitous.

During a conference with various employers’ associations in March, Hamid Temmar, the minister of state shareholdings and investment promotion, unveiled the Algerian government’s new strategy for industry. The state program consists of several growth plans, with a special focus on restructuring and upgrading production facilities to make Algeria more competitive and bring the country in line with international standards.

Temmar emphasized the need for companies to become more independent and act as sole decision-makers in their businesses. “Industrial companies,” Temmar said, “must seek to become modern enterprises with regards to technology. Besides, in the long term, industrial exports are expected to account for an integral part of the liberalized economy.”

If plans for economic diversification are to move ahead, industrial products will make up a greater share of exports, thus reducing the country’s reliance on hydrocarbons. Not only does this shake-up concern the existing industrial sector, including public and private companies, but also any future industrial investments, as they will need to be made with this logic in mind.

Set up in the 1970s and 1980s, the current industrial facilities are outdated and inefficient due to the political turmoil of the 1990s. This era prevented Algeria from following major technological developments. Although foreign direct investment (FDI) has picked up, most of it is still earmarked for the oil and gas sector, while the manufacturing sector in the country has been suffering from poor equipment and foreign competition from low-cost imports.

Time for companies to take center stage

Temmar added that while the government will remain a key actor in implementing the new strategy, individual companies will have to take center stage and not rely on the state for advice and assistance. Firms will need to build on their own strengths and comparative advantages in order to grow. Companies must adapt to world industry standards, create independent decision-making processes, and focus on technical, technological, financial capacities and human resources.

Indeed, among Algerian industrial companies, the training deficit is huge. Issad Rebrab, CEO of Cevital, described it as “the major stumbling block.” He added that “finding the right people in any position, but notably at top managerial posts, is increasingly difficult.”

As Algeria is embracing free market principles, local companies need to start acting and thinking in line with the changing economy. The state will target several sectors for development where it feels the potential is strong and where there are real synergies with other segments. The government has currently singled out the petrochemical industry, pharmaceutical industry, fertilizers, food-processing businesses, the steel industry and mechanical and construction material-making as areas of potential development. Two new activities are to be given priority: automobile production and information and communications technology.

Furthermore, some sites have also been targeted for the implementation of this strategy. Three types of zones have been established or are in the process of development. Firstly, there are “competivity poles,” which will involve the restructuring of facilities located in Algiers, Blida, Oran, Mostaganem, Annaba, Setif-Bordj Bou Arreridj, Boumerdes, Tizi-Ouzou and Ghardaia-Hassi R’mel. Secondly, there are “technopoles,” which will be located at Sidi Abdullah near Algiers for new technologies, Bejaia for food processing and as an export hub due to its sizeable port, and Sidi Bel Abbes for electronics. Finally, “specialized zones” will be developed at Arzew, Hassi Messaoud, Skikda and Oran. Other regions may also be identified in order to promote other sectors such as tourism, agriculture and fishing.

While companies are expected to upgrade their infrastructure, human resources and management remain key to the strategy’s success. An estimated $1 billion will be allocated to support its development, though how this is used will greatly determine the direction economic growth takes in Algeria.

The launch of Morocco’s new telecom operator, Wana, was greeted with much popular relish, revealing the appetite Moroccans have for the fruits of telecommunications liberalization. The high-profile launch comes on the heels of the decoupling of Maroc Télécom’s network and ahead of measures to ensure number portability between operators.

As a sign of the competition gearing up, the newly re-branded Wana (formerly Maroc Connect) launched its Bayn array of services in both the mobile and fixed-line markets on Feb. 7. The company’s offices were swamped by interested customers, with some 24,000 signing up on the first day, over twice the amount expected.

Through an investment of $703 million, the new operator, controlled by two holding groups close to the royal family, ONA and SNI, expects to turn a profit by 2010. Having installed 500 base stations across the kingdom, Wana has tapped into the 4,600 km fiber-optic network installed by the electrical group ONE (Office National de l’Electricité).

While the two existing operators, Maroc Télécom and Méditel, have kept their market shares relatively stable over 2006, Wana states it plans to aggressively gain up to 20% market share in the next three years. Maroc Télécom still dominates the market with 67% of all lines.

Industry insiders are hoping for big things with the new competition in town, expecting a substantial growth in associated telecoms services.

“The new operator, Wana, is welcome to the market, as the competition will drive improvements in service and range of products on the market, while at the same time providing a driving force for our sales,” said Jarmo Santala, Nokia’s general manager for North and West Africa.

Competing for services

A number of technologies are to be implemented by Wana to drive the competition for services, including using Code Division Multiple Access (CDMA) technology, rather than GSM, which will allow the deployment of large-scale fixed telephone and internet services over wider areas, thus optimizing the capacities of Wana’s network.

This noteworthy start was also witnessed at the corporate service level, as Wana has plans to install the local copper infrastructure at Casashore, an industrial park specializing in offshoring. It is estimated that the companies based at Casashore, which is expected to be operational by the fourth quarter of 2007, will benefit from a 30% fall in prices.

The success of the new offer has bred its own problems, however. The excess demand on the first day of services overloaded the network and disrupted communications. In addition, the Bayn numbers are not accessible to subscribers of the two other networks, Méditel and Maroc Télécom, as yet.

These issues, to be resolved shortly according to Wana, arose despite the uncoupling of the local copper loop maintained by the dominant Maroc Télécom. The National Agency for the Regulation of Telecommunications (l’Agence Nationale de Réglementation des Télécommunications, or, ANRT) approved the technical and tariff offer proposed by Maroc Télécom on Jan. 29.

This first phase of the liberalization specifies that, retroactively from Jan. 1, Maroc Télécom’s competitors can offer services using the local loop built and maintained by Maroc Télécom for a fee of $5.90 per user. This phased liberalization process will culminate in the full opening of the local loop on July 8, 2008, at which time all telecoms service providers will be able to use the local loop without paying a fee.

The reduction in this interconnection price should translate into further savings for consumers, as telecoms operators are allowed to compete without having to invest in building their own local loop copper infrastructure.

Additionally, number portability across service providers will have been introduced on March 1. This step will help consumers move between operators, allowing for a more fluid pricing structure.

“The upcoming implementation of number portability between mobile operators proves the level of cooperation within the industry. 2007 is set to be a very healthy year for the telecoms market,” said Santala.

As Inigo Serrano, CEO of Méditel, put it, “The lock-in effect will be broken and consumers will be free to choose an operator without concern about changing their number. We have been working with the other operators and the ANRT for a few months now to organize this transition, which will take effect soon.”

Analysts, however, do not believe these moves will impact Maroc Télécom’s market share, given that penetration rates are set to progress at a healthy rate.

While the market penetration rate for mobile phones rose to 53.4% at the close of 2006 (reaching over 16 million subscribers), fixed-line penetration actually dropped by 5.6% over the same period, to stabilize at a mere 4.24% of the population. With the weakest fixed-line penetration rate in the Maghreb, Moroccans seem to prefer mobile rather than fixed connections, a trend noticed in many other African countries with poor fixed-line architecture.

The real estate sector in Egypt is looking to build on its strong 2006 performance, with new regulations encouraging home ownership. The hoped-for result? As mortgage financing becomes increasingly available, economic growth is expected to help fuel a property boom.

While some analysts have voiced doubts regarding a continuation of the Middle East’s real estate boom, pointing in part to the slowing of the market in the last months of 2006, such concerns don’t appear to be affecting Egypt.

In part, the Egyptian real estate sector has not experienced the same frenzied activity as in the Gulf states, nor seen the same massive levels of investment. Growth has been somewhat more measured, but has increased over the past two years.

Strong price gains in some areas, mainly around Cairo, have occurred. However, the high level of appreciation in some parts of the market does not presage an equally spectacular fall.

According to Maher Maksoud, CEO of the 6th of October Development and Investment Company (SODIC), one of Egypt’s largest home-grown property developers, there is no risk of the real estate bubble bursting.

“Not even close,” said Maksoud in one recent interview. “Egypt is changing significantly. We have a massively frustrated demand for all kinds of real estate, not only housing. Purpose-built office and retail space is still a rarity. The demand has existed for several years now, but the economic situation in the country has previously stood in the way.”

This changing situation has been accelerated by the entry into the market of major Middle Eastern property developers, though many of the ventures by such firms in the Egyptian market have been in the tourism sector. One of the most notable exceptions has been the Dubai giant Emaar, which last year announced plans for a massive $14 billion development outside of Cairo, combining residential, commercial and recreational facilities.

A chronic shortage of housing

Lavish as this and other top of the market developments are, they do little to address the chronic shortage of housing facing the man in the street. Recent figures show that Egypt needs 2.5 million housing units just to meet existing demand and a further 350,000 annually to keep pace with its burgeoning population growth.

One project that will go some way to help is the Talaat Moustafa Group’s Madinaty City development to the east of Cairo. When completed, the new satellite city will comprise 80,000 residential units, a mix of apartments, villas and townhouses, complementing the group’s nearby Al-Rehab development, home to some 200,000 people.

Egypt’s residential property market has received a number of boosts from the government, which in recent years has simplified and speeded up the registering of property and slashed registration fees to $350. The state has also been encouraging the country’s banks to be more active in providing financing for prospective homebuyers. Currently, there are just 12 banks and two mortgage financing companies operating in the domestic market, a figure the government hopes will increase this year.

At least in part, it appears that the government’s hopes are being realized, with Dubai-based finance firm Amlak announcing on Jan. 9 that it would be expanding into Egypt to offer financing and real estate services.

Amlak is to offer long-term housing finance of up to 20 years, using financial models in line with the principles of shariah. Until recently, most home financing on offer in Egypt had a maximum term of just five-years, limiting the number of Egyptians who could avail themselves of the service.

Entering a small market

Amlak is entering what is by global standards a small market. Figures released by the Egyptian Mortgage Finance Authority show the level of mortgage loans at less than 0.5% of GDP. This compares with the UAE’s figure of 2% in 2005, or 39% in the EU.

There is the danger that many middle income earners could be priced out of a market that is just opening up to them. With land and housing prices rising well above the 2006 inflation rate of 12%, potential buyers could be playing catch up in the still tight market.

However, with the Egyptian economy tipped to expand by around 7% this year, and both greater access to financing and an expanding middle range property market, many more Egyptians may end up owning the roof over their heads.