VZCZCXYZ0000
RR RUEHWEB

DE RUEHAS #0185/01 0590740
ZNR UUUUU ZZH
R 280740Z FEB 10
FM AMEMBASSY ALGIERS
TO RUEHC/SECSTATE WASHDC 8504
INFO RUCNMGH/MAGHREB COLLECTIVE

UNCLAS ALGIERS 000185 
 
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: ENTREPRENEURSHIP ROUNDTABLE 
 
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