In 2003, the World Bank launched a Country Assistance Strategy in Algeria for Fiscal Years 2004 -2006 aimed at increasing the state's capacity to regulate the market and encourage the private sector to adopt good corporate governance practices through technical assistance. In a subsequent 2004 Financial Sector Assessment (FSA), the World Bank noted that, since the end of the 1980s, Algerian authorities have embarked upon a wide-ranging and credible modernization of laws and regulations governing financial intermediation. Significant deficiencies remain, however, with regards to laws and regulations, and Algeria lacks a modern corporate governance framework. Furthermore, although shareholders' rights seem to be well-protected, the absence of regulation on corporate governance weakens the protection of minority shareholders. Despite the information provided above, there is insufficient publicly available information regarding Algeria's compliance with the Principles on Corporate Governance developed by the Organization for Economic Cooperation and Development. The Algerian Stock Exchange, which became operational in 1999, is still at an embryonic stage, according to a 2007 U.S. Department of Commerce Doing Business report. The World Bank's 2004 FSA adds that the stock market in Algeria could play an important role by speeding up the privatization process, easing companies' reliance on bank financing, and promoting corporate governance practices.

General Overview

In 2003, the World Bank launched a Country Assistance Strategy in Algeria for Fiscal Years 2004 -2006. The project focused on "increasing the state's capacity to regulate the market and encourage the private sector to adopt good corporate governance through the establishment of the basic legal framework of a market economy" (p. 10). By providing technical assistance, the World Bank seeks to modernize Algeria's institutions, and mitigate risks. As part of the Country Assistance Strategy, the World Bank's main objective is to improve the operational efficiency of banks in credit and financial risk management, credit monitoring, and loan recovery. It further seeks to strengthen corporate governance and to ensure "arm's length" relations with business groups and the government. In a subsequent 2004 Financial Sector Assessment (FSA), the World Bank notes that, since the end of the 1980s, Algerian authorities have embarked upon a wide-ranging and credible modernization of laws and regulations governing financial intermediation. The modernization program has also led to important changes in the Commerce Code, including the reform of creditors and shareholders' rights. Deficiencies remain, however, with regards to laws and regulations, and several provisions are not in line with international standards. Per the same report, Algeria lacks a modern legal framework with regard to corporate governance, bankruptcy, mergers and acquisitions, and life insurance. Furthermore, although shareholder rights seem to be well-protected, the absence of regulation on corporate governance weakens the protection of minority shareholders. According to Kaufmann et al. in their 2007 working paper on governance indicators prepared for the World Bank, Algeria has shown an improvement in its Government Effectiveness and Control of Corruption indicators between 2002 and 2006 but remains characterized by low levels of Political Stability, Voice and Accountability.

The Algerian Stock Exchange, which is supervised by the Stock Exchange and Surveillance Commission, was established under a 1993 legislative decree, and became operational in 1999, as noted in a 2007 U.S. Department of Commerce (DoC) Doing Business report. The Stock Exchange is only composed of three listed companies: Saidal Group, Eriad Setif, and El Aurassi Hotel. Eleven other state-owned companies are expected to trade on the stock exchange as part of the government's privatization program. According to the World Bank's 2004 FSA, the stock market in Algeria could play an important economic role by speeding up the privatization process, easing companies' reliance on bank financing, and promoting corporate governance practices.

In its 2008 Doing Business report, the World Bank ranks investor protection in Algeria in 2007 above the regional average, but slightly below the Organisation for Economic Co-operation and Development (OECD) mean. The Investor Protection Index is a subcomponent of the Doing Business Indicators, and consists of three dimensions of investor protection: transparency of transactions (Extent of Disclosure Index), liability for self-dealing (Extent of Director Liability Index) and shareholders' ability to sue officers and directors for misconduct (Ease of Shareholder Suits Index). The indexes range between 0 and 10, with higher values indicating greater disclosure, greater liability of directors, greater powers of shareholders to challenge the transaction, and better investor protection. Algeria scores 6.0 in the disclosure index against a regional average of 5.8 and an OECD average of 6.4. It scores 6.0 in the Director Liability Index against a regional average of 4.7 and an OECD average of 5.1 and 4.0 in the Shareholder Suits Index against a regional average of 3.7 and an OECD average of 6.5.

The Principles

Principle I: Ensuring the Basis for an Effective Corporate Governance Framework

II

Although Algerian authorities have embarked upon a wide-ranging and credible modernization of laws and regulations since the end of the 1980s, as noted in the World Bank's 2004 FSA, laws and regulations in Algeria nonetheless show significant deficiencies, and several provisions are not in line with international standards. Per the same report, Algeria lacks a modern legal framework with regard to corporate governance, bankruptcy, mergers and acquisitions, and life insurance. Amendments to the Commercial Code have helped reform creditors and shareholders' rights. According to the World Bank's 2004 FSA, the development of the stock market in Algeria could play an important role by speeding up the privatization process, easing companies' reliance on bank financing, and promoting corporate governance practices. Nevertheless, the available sources do not directly address Algeria's compliance with this principle.

Principle II: The Rights of Shareholders and Key Ownership Function

II

According to the World Bank's 2004 FSA, issues related to corporate governance and shareholder's rights have not been raised so far in Algeria. Per the same report, although shareholder's rights seem to be well-protected, the absence of regulation on corporate governance weakens the protection of minority shareholders. In its 2004 Financial System Stability Assessment (FSSA), the International Monetary Fund (IMF) notes that rights of shareholders have not been assessed because Algeria lacks a modern bankruptcy framework and there is no distinction between ownership and control in state- and family-owned companies. However, the available sources do not directly address Algeria's compliance with this principle.

Principle III: The Equitable Treatment of Shareholders

II

According to the World Bank's 2004 FSA, although shareholder rights seem to be well-protected, the absence of regulation on corporate governance weakens the protection of minority shareholders. However, the available sources do not directly address Algeria's compliance with this principle.

Principle IV: The Role of Stakeholders in Corporate Governance

II

There is insufficient information publicly available addressing Algeria's compliance with this principle.

Principle V: Disclosure and Transparency

II

As noted in the IMF's 2004 FSSA, the exposure and financial condition of banks is difficult to assess, due to inadequate accounting systems. Furthermore accounting standards do not require the preparation of consolidated financial statements, and financial statements are often not submitted to the supervisory authorities in a timely manner. The chart of accounts also needs to be completed. The IMF report recommends ensuring the timely delivery of documents to the supervisory authorities and involving external auditors in accounting controls. It further advises updating the chart of accounts. As a follow-up to the IMF's 2004 FSSA recommendations, accounting systems are in progress and implementation of the accounting reform project is planned for end of 2007, as stated in the IMF's 2004 Article IV Consultation report. However, the available sources do not directly address Algeria's compliance with this principle.

Principle VI: The Responsibilities of the Board

II

There is insufficient information publicly available addressing Algeria's compliance with this principle.