DEVELOPMENT OF ALGERIAN SMEs IN THE AGE OF …akuatrop.umt.edu.my/wp-content/uploads/sites/53/2014/08/5... · Tambahan pula, eksport PKS adalah sangat rendah yang bermaksud bahawa

Journal of Business and Social Development Volume 2(1) 2014: 37-48

Journal of Business and Social Development Volume 2 Number 1, March 2014: 37-48

ISSN: 2289-2915© Penerbit UMT

DEVELOPMENT OF ALGERIAN SMEs IN THE AGE OF GLOBALIZATION (PEMBANGUNAN DI ALGERIA DALAM ERA GLOBALISASI)

AISSA MOSBAH1* AND ROCHDI DEBILI2

1Universiti Sains Islam Malaysia, 2Universiti Malaysia Terengganu.

*Corresponding author: [email protected]

Abstract: This article sheds light on the development of SMEs in Algeria since the independence in 1962. Once independendent, Algeria chose to follow socialism as a model that governs the socio-economic life. Within this model SMEs were marginalized because the focus was on oil and gas sector and heavy industries. In 1988 the country decided to shift to the open market model and, therefore, recognized private sector as a main driver to diversify economic outputs and lessen dependence to hydrocarbons which had showen high vulnerability to different international fluctuations. Since then, successive governments have shown increasing efforts to support SMEs financially and upgrade their competitiveness while creating a conducive environment for their flourishing. Though they have grown locally in terms of number, GDP share and employment, SMEs still face various challenges and issues in both enterprise and environment levels that underminne their business conduct. Furthermore, SMEs’ share of export is very low which means that they are far from competing internationally. Therefore, much efforts are needed in the future to equipe SMEs with necessary managerial, human and financial resources in order to create competitive advantages which are necessary tools for a better competitiveness.

KEYWORDS: Government, Small and Medium Enterprises (SMEs), Development, Support, Algeria.

Abstrak: Artikel ini dilihat pada pembangunan PKS di Algeria sejak kemerdekaan pada tahun 1962. Setelah kemerdekaan, Algeria memilih untuk mengikuti sosialisme sebagai model yang mentadbir kehidupan sosio ekonomi. Dalam model ini PKS dipinggirkan kerana tumpuan diberi kepada sektor minyak dan gas dan industri berat. Pada tahun 1988, Algeria membuat keputusan untuk beralih kepada model pasaran terbuka dan, dengan itu, yang diiktiraf sektor swasta sebagai pemacu utama untuk mempelbagaikan hasil ekonomi dan mengurangkan pergantungan kepada hidrokarbon yang menunjukkan kelemahan tinggi kepada turun naik antarabangsa yang berbeza. Sejak itu, kerajaan telah menunjukkan usaha yang semakin meningkat untuk menyokong PKS dari segi kewangan dan meningkatkan daya saing mereka di samping mewujudkan persekitaran yang kondusif bagi mereka berkembang. Walaupun mereka telah berkembang dalam negara dari segi bilangan, bahagian KDNK dan guna tenaga, PKS masih menghadapi pelbagai cabaran dan isu dalam kedua-dua syarikat dan persekitaran yang melemahkan perniagaan mereka. Tambahan pula, eksport PKS adalah sangat rendah yang bermaksud bahawa mereka adalah jauh ketinggalan di peringkat antarabangsa. Oleh itu, usaha-usaha yang lebih diperlukan pada masa depan untuk melengkapkan PKS dengan pengurusan sumber manusia yang baik dan kewangan untuk mewujudkan kelebihan daya saing yang lebih baik.

KATA KUNCI: Kerajaan, Perusahaan Kecil dan Sederhana (PKS), pembangunan, sokongan, Algeria.

5. Development of Algerian.indd 37 3/11/14 5:47 PM


Aissa Mosbah and Rochidi Debili 38

IntroductionThe increasing integration and globalization has led to recognizing SMEs as an important sector in both developed and developing economies. There is growing recognition of the positive role SMEs may play in economic development of nations. The formal recognition of this role came from the G-8 Group which indicated, during its meeting in Denver in 1997, the considerable contribution of this sector to economic dynamism and employment in the most industrialized countries and acknowledged that this experience would yield sustainable development if replicated in developing countries (Raynard & Forstater, 2002). While SME growth flourished due to incentives and relaxation of labor laws in most developed and emerging countries, their development in transition countries was a result of large enterprises break up and the privatization of public firms (Caner, 2013). SMEs are the most labor-intensive of business entities.

SME development can spur the process of decentralization at the inter and intra-regional levels. Indisputably, SMEs may become an appropriate countervailing tool against the economic power of large firms (Quartey and Abor, 2010) while their development is seen as cornerstone of the achievement of economic and socio-economic objectives, including the alleviation of poverty. More generally, SMEs are considered as an essential driver leading to the creation of job, social cohesion, innovation and growth in both advanced industrialized countries and emerging and developing economies. They represent the seeds of big businesses and the fuel of national economic engines. Their encouragement has proven to be an effective way of increasing productivity which results ultimately to a much better living standard, while it has been recognized during the G20 Summit held in Seoul that SMEs, especially in developing economies, could contribute more to the economies than they currently do (G20 Summit, 2010).

According to OECD (2004), SMEs contribute to over 55% of GDP and over

65% of total employment in high-income countries, over 60% of GDP and over 70% of total employment in low-income countries. However, they contribute over 95% of total employment and about 70% of GDP in middle-income countries. Additionally, estimates suggest that the informal sector alone (which consists essentially of SMEs) accounts for up to 48% of the total labor force and 37% of GDP in developing countries (G20 summit, 2010). Nowadays, governments accross the world are showing more interest on SMEs and multiplying actions to strengthening them in order to play a better socio-economic role. Authorities in Algeria have also increased their interest in the promotion of entrepreneurship and innovation development because good part of this growth was generated by SMEs (Merzouk, 2009; Hanafi, 2010 and Datoussaid, 2011). Algeria is located in North Africa on the southern Mediterranean coast with the total population reaching 38 million in 2012 and 48 provinces. Its total area is 2.38 million square kilometres. Algeria is the tenth largest country in the world, and the largest in the Arab World, Africa and in the Mediterranean region. The economy of Algeria is dependent on petroleum and gas exports. The economy growth was between 2 to 7% yearly since 2001 ( see for instance; NOS, 2012). This article, which is exploratory in nature, uses government documents, scholars research and related statistics to review the historical development of SMEs in Algeria, their current status and challenges and also major government actions and initiatives designed to support their development.

Definition of Algerian SMEsThere has been no official definition of SMEs in Algeria before 2001. The only definition that existed prior to that time was proposed by the National Office of Statistics (NOS). NOS definition denotes that SMEs are businesses producing goods and services and employing no more than 250 workers (Atil, 2009). Here, the number of employees was the only criterion under consideration. In 2001 Algeria signed a partnership with the European union. A new



DEVELOPMENT OF ALGERIAN SMEs IN THE AGE OF GLOBALIZATION 39

law guidance on SMEs emerged soon and led to the adoption of the European definition of SMEs which was decided by the European Union 1996. Under this definition, SMEs, regardless of their legal form, are defined as “any business producing goods and services and employing 1 to 250 persons, with annual turnover not exceeding DZD 02 billion1 or total balance sheet not exceeding DZD 500 million.” This definition, which clearly distinguishes between micro, small, and medium entreprises, uses four criteria; number of employees, total turnover, total balance sheet (See table 1) and independence. The independence criterion means that no more than 25% of the capital or the voting rights in the SME can be held by another organization nor conjointly held with several organizations (MISMEPI, 2012a).

Table 1: Definition of SMEs in Algeria.

Business Size

Number or Employees

Total Turnover

(DZD)

Total Balance

Sheet (DZD)

Micro 1 - 9 ≤ 20 million

≤ 10 million

Small 10 - 49 ≤ 200 million

≤ 100 million

Medium 50 - 250 100 million - 2

billion

100- 500 million

Source: MISMEP (2012a).

Under this definition, the absolute majority of all businesses in Algeria are SMEs. One reason why Algeria has adopted the European definition may be because this definition is considered as good example since the EU has made great efforts to standardize the SME definition accross it member countries. Facilitating future integration with European Union and benifiting from Eropean support and cooperation might be other reasons.

History of SMEs Policy Evolution – A Growing InterestEntrepreneurship has flourished in Algeria and the whole Southern Mediterranean area for more than two thousand years ago, and flourished again during the expansion of Islam to the region. However, this flourishing had declined under the Ottoman Empire and during the Spanish and French colonial periods (MEPI, 2009). For the post-independence period, it can be said that SMEs sector was born late in the 1980s with a mere secondary role played in the local economy prior to that time (Gharbi, 2011), where as its significant expansion has only started in the second half of1990s following incentives and encouragement in favor of the investment promotion made under the new economic reforms (Ministry, 2007a). To properly understand the development of SMEs policy in Algeria, one should look into the development policy of the private sector. Generally SMEs have evolved through four periods:

1962-1982: Neglected SectorImmediately after the independence, companies were entrusted to committees of management after the departure of their foreign owners, and were integrated into national companies from 1967. This period was characterized by the adoption of a planned economy and an industry based on the production of heavy equipments and intermediary goods. In 1963 the first investment code was enacted. Despite the benefits and guarantees offered to investors, this code did not lead to the expected development of the SME. Following this failure, another investment code was issued in september 1966, this code tried to give greater role to the private sector in order to contribute to the economic development while providing a prominent place for the public sector especially in strategic industries. This code also gave birth to the National Investment Commission (NIC); an entity that issues approvals for private investors

1 As for begginning July 2013, 1US$ = 79DZD (Algerian Dinar)




and entrepreneurs. However, SMEs really marked their start during the two four-year plans (1970-1973 and 1974-1977) which formulated a special program for the development of local industries. Throughout this period, the development of SMEs was initiated exclusively by the public sector whose objectives were to ensure regional balance. Thus, a total of 594 SMEs was created during this period.

The National Investment Commission did not play a positive role in developing SMEs sector, rather, it added administrative complexity and bureaucracy, something which led to its dissolution in 1981 (Gharbi, 2011). It is noted that SMEs were seen as complement to the public sector, where all the policies and measures of aid and development has been concentrated in the service of the latter. As a result, private investors chose to operate in services and trade niches, and even these niches didn’t provide favorable and supportive environment because labor legislation was rough, tax was heavy and foreign trade was closed.

1982-1988: Better ConsiderationThis period was marked by great reforms but always within the system of planned economy. Evolution was noticed during this second period but marked with some reluctance although it gave birth to two five-year plans in favor of the private sector (1980-1984 and 1985-1989). These plans have dictated series of measures such as; allowing SMEs access to global import permits (GIP); and the implementation of free-tax-import system. These aid measures led to the creation of more than 775 SMEs. Generally, this period was characterized by some obstacles such as:o The bank financing was not allowed to

exceed 30% of the total investment;o The prohibition of owning several

investment projects by a single entrepreneur and;

o The amount invested was not allowed to exceed 30 million dinars for a limited liability company (LLC).

1988- 2001: Increased RecognitionThe gradual relaxation of the legislation has begun in 1988 by the law 88-25 which released the ceiling of private investment and allowed investment in other areas. Thus the number of private SMEs rose to 19,843 businesses. Permission for foreign investment has been implemented in 1990 by the law 90-10 related to money and credit, then with the decree No. 91-37 of February 1991 which liberalized external trade. As a result, the number of private enterprises reached 22,382 companies in 1992. The following years saw more encouragement and support to SMEs through the creation of several institutions of support and accompanying measures.

The year 1988 was the year that marked the transition of Algerian economy from a planned economy to the open market. This shift has led to the establishment of relations with international institutions such as the International Monetary Fund (IMF) and the World Bank to mitigate the crisis of debts and to apply a new monetary, financial and trade system which dictated the privatization of many public companies. This process helped the launch and the development of SMEs sector. The government has set up a new legislative framework and reforms for recovering the economy. One example of this is the new investment code formulated in 1993 which removed the cap on private investment, previously set at 7 DZD million (FTGO,2012). This code was designed to:o Promote investment;o Maintain equality between national and

foreign private investors;o Reduce the time needed in approving

applications;o Replace the mandatory approval by a

simple declaration to invest.

Since 2001: Full SpportThe satisfactory results have led the government in 2001 to adopt major texts to encourage the development of private, national and foreign investment such as the Ordinance on




the Investment Development (ordinance No. 01/03) and the Law Guidance on the Promotion of SMEs (No. 01/18). These texts have; 1) defined administrative measures related to easing administrative procedures for creating business, abolishing the distinction between public and private investments, and reducing taxes charges, 2) established a Guarantee Fund for loans granted to SMEs, and 3) created the National Council of Investments (NCI). In April 2010, the government anounced a 5 year plan (2010-2014) in wich, 200,000 new SMEs will be created and aimed to generate 1.5 million new jobs. 20.000 others SMEs will be upgraded in the same period, while continuing efforts to eliminate obstacles related to the establishment of new entreprises and improving business climates (MISMEPI, 2012b). New measures was adopted in 2011 following the tripartite consultations including debt rescheduling for SMEs and investment loan subsidies.

Current Economic Profile and CharacteristicsAccording to the Ministry of SMEs and Craftsmanship (2007a), the SME fabric has constantly grown since the 1990s. The statistics of the Ministry of Industry, Small and medium entreprises and promotion of investment (MISMEPI, 2012b) indicate that the number of SMEs has more than doubled in recent years. their number grew from 104,000 in 1992 to

687386 in the first semester of 2012 (see table 2) with an average 9% growth in the last years. In terms of density, there are around 20 SMEs per 1 000 inhabitants only. This density is very low against an average of 50 to 60 per 1 000 inhabitants in emerging countries and much smaller than in other Northern African countries (IMF, 2006). On the contrary, the National Advisory Council (CNC) for the promotion of SMEs argues that mortality among SMEs has reached 20%, while some 30,000 micro enterprises have disappeared during the year 2011. About 95% of SMEs are micro enterprises; this is higher than in the neighboring Europe where their proportion is 91.8% (FTGO, 2012).

At present SMEs constitute 94% of the national businesses network and generate 52% of the total production of non-oil private sector and nearly 35% of the value added of the economy. Arround 99% of total projects between 2002 and 2012 were private (see table 3). SMEs employed around 1.8 million people in 2012 with more than 6% increase over the previous year and with an average of 2.61 jobs per SME in 2012.

Driven by major public spending especially in public infrastructure projects since the 2000s, the per sector share of private SMEs in 2012 showed the predominance of the services sector (especially transportation) with 46%, building and public works (especially buildings)

Table 2: Evolution of SMEs 2001 - 2011.

Year 2001 2003 2005 2007 2009 2010 2011 2012 (1st Semester)

Total 245348 288587 342788 410959 570838 607297 659309 687386Source: Based on data from Ministry of SMEs & Craftmanship, and MISMEPIa.

Table 3: Declared Investment Projects per Type 2002 – 2012 (Value per Million DZD).

Type Projects Number

Percentage Value percentage Employees Number

Percentage

Private 47028 98.81% 4417854 63.72% 656817 86.98%Public 509 1.07% 1837366 26.50% 80934 10.72%Mix 56 0.12% 678392 9.78% 17419 2.31%Total 47593 100% 6933611 100% 755170 100%

Source: ANDI Website.




35%, followed by manufacturing especially processing industries (food industry, wood and paper) 17%, and agriculture and fishing 1% (MISMEPI,2012b).Their operating scope is mostly local and national; only very few SMEs are involved in international operations with less than a hundred of them exporting (FTGO, 2012; khalil, 2006); Locally, most of them are concentrated in 10 wilayas (states) of the northern part. Unfortunately, no data were found about the change by size, with micro entreprises (MiEs) being transformed into medium enterprises (MEs) and MEs becoming large enterprises (LEs). This size-base change of businesses may depict a better picture of the SMEs development. However, statistics about the increase of investments are available (see table 3) and show that total amount of investments has almost doubled from 2001 to 2007.

More than 95% of SMEs have either EURL status (limited liability partnership) or SARL status (limited liability company), and are generally managed in a traditional way where the owner is surrounded by employees belonging mainly to the family; he is in charge of the management and responsible for all decision-making. In terms of resources, SMEs use old technologies and unskilled labor and serve small, localized markets; something that represents an obstacle to their growth and limits their competitiveness and consequently impedes their internationalization (FTGO, 2012). Innovation exists but is limited to very specific areas of activities such as food industry. To these, Khalil (2006) adds that SMEs in Algeria are characterised by;o A good part of micro enterprises operate in

the informal sector, o reluctance to open their capital or shares to

investors from outside the family, o they have various resources which are

underused due to the unsupportive working environment,

o growth methods such as merger and aquisition, licensing and franchising are soldom used.

o concentrate in industries neglected by the public sector; something that help them to operate within a less competitive environment, generate employment and achieve profits.

The Euro-Algerian association project signed in 2001 and the reforms made since in favor of investment have yielded good results. Table 3 shows that private sector, which mainly consist of SMEs (Khalil 2006, MISMEPI 2012a), seized a big share of the total declared investments in the period between 2002 and 2012 with around 99% in terms of projects and 87% of total jobs created.

Constraints Facing Algerian SMEs – Review of the LiteratureAccording to Gharbi (2011), common obstacles that impede the development of SMEs in Algeria are; o Difficulties to acceed financing;o Bureaucracy, slow administrative practices

and lack of organisation; o Lack of support and management training; o Difficulties related to the aquisition of

land which are due to the complication of administrative procedures and the lack of transparence;

In a more comprehensive approach, the final report of the European Commision on Upgrading Program of Algerian SMEs (2007) has identified a plethora of problems within the broad environment of SMEs (see table 4) that includes the enterprise, the macro level, the supporting institutions and the professional groups. Each of these players has engendered problems in terms of finance, management, human resources production and technology and commercial and marketing.

According to the European Investment Bank report on the support to SMEs in developing countries (2011), local financial systems in these countries do not sufficiently cater to the needs of SMEs. Algerian SMEs face various obstacles to their performance and growth. Access to finance is frequently reported as one of their critical




Table 4: A Comprehensive view of issues facing SMEs in Algeria.

Financing Management & Strategy

Human Resources

Productions & Technology

Commercialisation & Markets

Macro Economic Context

Inefficient public banks

Lack of Capital Risk and Leasing Companies

Lack of clear strategy for the development of private sector

Abscence of continuing vocational training

Lack of qualified human capital

Concentration of qualified people within public sector

Litle or lack of information

Weak local market of equipments

Lack of strategy of support for quality and innovation

Liberalization

Inadequate rules and regulations for competion

Intermediary Institutions & Supporting Services

Limited access to banks

Lack of Information

Lack of banks’ credit services

Absence of supporting services

Inefficient supporting servicesLimited number of institutions Lack of information

Lack of qualified trainers

Weak counselling services

Supporting services are less efficient in terms of information, technical support, quality management and development of innovation

Abscence of supporting services

Lack of information

Abscence of training

Professional Groups, Labor Unions And Employers Associations

Lack of guarentee companies and mutual caution

Lack of cooperation with banks

Entrepreneurs are not properly representedLess powerful associations

Lack of consultaion regarding labor market.

No cooperation with training institutions

Shortage in terms of technical exchange and consultaion

No cooperation with supporting centers

Weak promotion of products

Lack of information exchange

Enterprise Level

Family base financing

Traditional financial management

Lack of awarness regarding banks’ offerings

Enterpreneurs are dynamic but they do not have strategic management Weak innovationLack of information

Limited qualification of technical staffs

Staff instability

Entrepreneurs reluctant to deligate some authorities to staff

Low and average quality with high prices

Limited know-how

Poor organization

Old technology materials and equipments

Poor knowledge about markets

Poor channels of distribution

Poor relations with customers

Source: EDPME (2007).




impediments. UNECA (2010) reports that access to financing becomes difficult if not impossible due to the absence of guarantees. This situation is the main reason behind high mortality rates of SMEs especially during the early stages.

Financing difficulties can be due to the nature and the situation of the financial system (where banking sector is still dominated by the state), and to weak regulatory and legal systems. Meliani and Bouadam (2003) anticipate that financing has become a serious issues in Algeria since many years. According to these authors, reasons of this issue are related to the slow process of the banking system reforms; and complexities related to access to financing. Furthermore, good number of SMEs are not aware of financial products provided by banks and other financial organizations. Many SMEs lack the experience necessary to develop business plans, which can indicate their objectives and growth to lending institution in order to get the financial support. The World Bank (2007) Entreprise survey found that family and friends represent the reliable and dominant sources of finance for SMEs in MENA region with high rates of interest required by lenders to compensate for the lack of information related to credit. The same survey shows that collateral required by financial lenders reaches 180% of the loan value in Algeria.

Despite the efforts deployed by the government to lower taxation on enterprises in general and SMEs in particular, the issue of taxation remains a major hurdle that impedes the attraction of private investment and the development of entrepreneurial activities (UNECA, 2010). Reforms done so far to modernize the tax system has not proven successful. Enterprise Surveys made by the World Bank, covering 600 SMEs has shown that about half of the SMEs in Algeria perceived tax rates as either major or very severe impediment

to business activities and growth (World Bank, 2007). The PWC’s Paying Tax Report (2013)2 ranks Algeria in the 172th place among 185 countries surveyed with total tax rate reaching 72% of which; profit taxes (6.6%), labor taxes (29.7%) and other taxes (35.7%).

Explicit Government Support in the Age of CompetitivenessAchieving Competitiveness through Upgrading ProgramsAt the end of 2001, Algeria signed a partnership agreement with the EU. This implied that taxes imposed to some products imported from Europe were reduced with an immediate effect, while many products will no longer be subjected to tax by 2017 when Euro-Algerian Free Trade Area will be fully implemented. If local firms regardless of their size are not competitive, they will face real threat. In order to deal with this issue, Algerian authorities have implemented a variety of programs to upgrade the competitiveness of SMEs; some of which were completed and others are underway. Generally, these programs can be classified into three major programs; First program was implemented in the period 1999-2004 by the former Ministry of Industry and Restructuring (MIR) with the assistance of United Nation Industrial Development Organization (UNIDO) (325 SMEs were upgraded). Second program was initiated by the European Commission for the development of SMEs “EDPME” with two main two sub-programs. MEDA1 (2007-2007) saw the upgrading of 445 SMEs, and MREDA2 (2008 to present) targets some 580 SMEs. Third last program is run by the National Agency for Development of SMEs “ANDPME” and aims to upgrade 20,000 SMEs in the 2010-1014 five-year economic plan with a budget of U.S. $ 5 billion.

2 This report is issued yearly by the Price Water house Coopers Inc. in collaboration with the World Bank.




Financial Support as Critical Ingredient in the Development ProcessAccess to finance has been recognized as a key factor for SMEs to succeed. A banking sector providing loans at low cost is probably the most important factor in the development of SMEs (Caner, 2013). Without appropriate finance, SMEs cannot acquire necessary resources to develop and compete in local and global markets or even build business linkages with larger firms (UNCTAD, 2001). The strategy set by public authorities to facilitate SMEs financing is based on the provision of guarantee funds, the implementation of financial measures and schemes, and the assistance to the banks willing to fund SMEs.Two guarantee funds were established in favor of SMEs; The Guarantee Fund for Loans to SMEs (FGAR) and the Guarantee Fund for Investment Loans to SMEs (CGCI). The FGAR which is a national guarantee body for loans to SMEs began operations in 2004 with the aim of facilitating access to medium term bank financing in order to help both start-up and expansion of SMEs. FGAR shares the financing risk of SMEs by

covering part of the possible loss incurred by the lending bank. Due to the complexity of the issue, this fund assists SMEs in identifying viable projects. According to Algeria Press Service website (citing announcement made by FGAR general manager) more than 10 DZD billion were granted by FGAR to SMEs as financial guarantees up the end of 2010. Some 500 enterprises have benefited from this financing; so far, 40 of them during the creation and the rest used them to fund their expansion.

The CGCI is a joint stock agency with a complementary role to other assistive devices in the assistance of such as FGAR and ANSEJ. CGCI focusses on covering risk of non-repayment of loans contracted by SME to finance their productive investments including renewal of equipment. Its guarantee scheme is a response to the concerns of various economic actors involved in the process of creation and development of SMEs in the country. Furthermore, two other government bodies with branches throughout all the Algerian territory were set up to help people starting up enterprises. The National Agency for Support to Youth

Figure 1: Process of Upgrading SMEs.

Source: ANDI Website




Employment (ANSEJ) and the National Micro Finance Management Agency (ANGEM); The first helps unemployed young people especially university graduates creating micro businesses in all activities except trading, and the latter provides micro credits that range from 30,000 to 1 DZD million with women as the main target. According to the Ministry of Finance website, more encouragement was made in 2011 in favor of entrepreneurs;o Reduction of their personal contribution

from 5% to 1% for investments not exceeding 5 DZD million, and 10% to 2% for investments of up to 10 million DZD

o Increased level of free-interest loans from 25% to 29% of the total cost for investment lesser than or equal to 5 DZD million, and 20% to 28% of the cost of investment for lower or equal to 10 DZD million,

o Increase in the share of subsidized interest on bank lending (80% in the north and 95% in the South and High Plateaus) for building, civil engineering and hydraulics, and processing industries,

o Granting 500.000 DZD interest-free to serve for the payment of the rental of business premises necessary for the creation of their business;

o Increasing to 1 million DZD the amount of loans for free profession such as doctors, lawyers, architects, etc. to pay for their rental costs;

o The introduction of a three-year period during which the micro-enterprise will evolve gradually to full taxation after the exemption period.

It is worthy of note the National Investment Fund may contribute up to 34% of the total equity public listed medium enterprises if it exceeds 100 DZD million. Access to finance is further strengthened by new measures implemented in the 2009 Complementary Finance Law (CFL). This includes;o consolidating training of banks’ human

resources, o creating local investment fundso creating venture capital firms and leasing

companies

o increasing financial guarentees granted by CGCI-SME from 50 ZDZ to 250 DZD million, creating special FGARs ( e.g. tourism, environment, new technologies etc).

o providing subsidised interest rate to SMEs who are; 1) receiving upgrading assistance, 2) located in the southern provinces, 3) investing in water disalination and energy production, 4) investmenting for the public interest.

Discussion and ConclusionSoon after the indepence, Algeria had chosen to follow a planned economy. Private sector was given a slight consideration under this economic model because the focus of the government was on exploiting hydrocarbons while trying to develop heavy industries. The economic crisis of 1986 along with the fall of the socialism in the end of 1980s pushed Algeria to shift to the open market economy and recognize the importance of the private sector in leading the development of the country. Deep reforms has started since the mid 1990s in all areas with Structural Adjustment Program under the control of the International Monetary Fund (IMF). Within these reforms, SMEs received growing recognition and support. New laws have been made, initiatives undertaken, supporting funds created and huge budgets allocated; all with the objective of devloping SMEs to become a reliable alternate to the hydrocarbons sector, to play a greater economic role and to be able to compete in the continuing globalized market.

As a results of these reforms, SMEs have grown significantly in number. Their GDP share increased but not to the expected levels since much of the growth is still driven from oil and gas sector. SMEs have also contributed positively to job creation, however according to some economists this indicator is misleading because of 1) the high mortality among SMEs which reached 30,000 SMEs in one single year. This means that more than 70.000 jobs were lost if we consider the rate of 2.61 jobs per SME, and 2) the jobs are created due to political motives (Ahmed, 2007). In the same way, most




of SMEs growth has been achieved within services and construction sectors; both of which largely depend on government spending. These spendings have increased tremendousely during the last decade due to the financial ease resulting from the increase in oil prices. SMEs are still facing a lot of challenges that stand on their way to development. Financial issues and tax burden along with bureaucracy and corruption are the most recurrent of these obstacles. Banking system is underdeveloped and usually only public banks which are involved in programs designed for financing SMEs. Such situation erases competition and lead to the failure of many programs (Emine, 2012).

Upgrading programs have been set up since 1996; some of these programs were initiated by the government while others had took place as part of regional and international partnership. Many programs have been completed already while others are in process. Real outcomes of these programs are not known but regarding the continuing dependence of the economy on oil and gas industry, the very low share of exports outside this industry (5%), lack of diversification within the economic activities, and small share of labor-intensive industries all indicate that not much has changed outside SMEs’ traditional operating scope. Such situation calls for an urgent need to multiply efforts in order to first assess the impact of previous programs and then implement more adapted programs with tight control over all actions aimed at developing SMEs. Supporting organization were also created by the government to assist in the development of SMEs. This bodies need more power and less centralization in order to be able to engage in the development process efficiently. Clear demarkation in the roles assigned to each organization will have good impact in that it allows for creating synergies while eleminating possible conflicting issues.

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