"We are looking for mutually advantageous co-operation. You can't base a strategic relationship only on trade," says Boudjema� Delmi, Director General for Africa in the Ministry of Foreign Affairs.

"We have made some profound moves towards economic reform. We cannot understand why Europe, the UK and US are here making investments but not South Africa. Nepad will never work if the big countries in Africa don't develop favourable business relations."

Big projects with other African countries are going ahead under the Nepad umbrella. These include the building of a gas pipeline between Algeria and Nigeria, a trans-Sahara highway south to Nigeria through Chad and Niger and a fibre optic cable along the same route. This type of co-operation, where third countries benefit from the activities of the regional powers, is what Algeria is looking for with South Africa.

Despite the logistical problems for South Africans of trading with a country on the other end of the continent, Algeria's unstable political history has been a factor in holding back business, as is the fact that the economy is dominated by the hydrocarbon industry.

South Africa's trade with Algeria's neighbour, Morocco, has been brisk with exports from South Africa rising by more than 43 percent in 2002 over 2001, and imports rising by 250 percent in the same time.

This is despite the fact that diplomatic relations between South Africa and Morocco have been cooled by South Africa's unofficial support for Algeria over the Western Sahara issue (Algeria is headquarters for the Polisario Front which is fighting for the self-determination of Western Sahara, an area which Morocco has laid claim to).

Bouteflika: courting Europe and Africa

The Western Sahara dispute has cost both Algeria and Morocco in terms of trade and business. Despite the difficult conditions, trade between the two countries amounts to around $1.4 billion a year but it could be a lot higher. Before Morocco introduced a visa requirement for Algerians, an estimated one million Algerians visited their western neighbour each year. Now Algerians visit Tunisia instead.

But Algeria's traditional business ties are with Europe. Around 80 percent of its trade is with the European Union and most of the balance is with the US. Trade with the Arab League countries and Africa is minimal.

Algeria has concluded free trade agreements with the European Union and is a member of the planned Euro-Mediterranean free trade zone.

Algeria's gas and oil have a ready market in the European Union which sources a quarter of its gas imports through two pipelines across the sea into Spain and Italy.

Algeria's prospects for success with its economic reform programme, first put in place in 1994, have improved markedly in the past year.

It has regained international acceptance since the September 11 US attacks because of its help in the US's war against terror. Shortly after the attacks, it provided the US with a list of some 350 Islamic militants it believed had links to Osama bin-Laden and his Al-Qaeda movement. The new relationship was sealed by a visit by Bouteflika to the US later that year. The US's lead prompted many other countries to renew relations with Algiers, particularly under the able leadership of Bouteflika.��

Prior to this, Algerians were subjected to the perception that they were all terrorists and as a result, the country had little support in its own fight against terrorism during the 1990s perpetrated by Islamic fundamentalists.

However, officials in Algiers are quick to point out that support for the US's anti-terrorism campaign does not imply support for the war against Iraq. In fact they believe the Iraq war will undermine any gains in the war against terror. However, they are clear that their anti-war stance does not imply support for Iraq's President Saddam Hussein.

Algiers has been chosen as the site of the African Union's institute of terrorism, which is to be established to increase the capacity of African countries to fight terrorism.

Relations with France, which have been rocky for a long time mostly because of their colonial history, have also improved post-September 11. In March this year, President Jacques Chirac paid a full state visit to Algiers - the first by a French president since the former colony won independence in 1962 - and was given a standing ovation by the parliament, signalling a new dimension in the relationship.

The economy has regained pace

Algeria is confident that its economy has turned the corner and that there is no turning back on reform despite the short-term social problems it is likely to cause.

The focus on macroeconomic stability has paid dividends. It has pushed inflation down from 39 percent in 1994 to four percent at end-2001, its deficit at under nine percent of GDP in 1993 has become a healthy surplus, gross official reserves have increased to $22 billion on the back of high oil prices and debt as a percentage of GDP has shrunk from more than 70 percent in the mid-1990s to less than 50 percent.

But Algeria has yet to diversify its economy and is still reliant on the hydrocarbon sector, which provides more than 95 percent of exports, 60 percent of state revenue and represents around 30 percent of GDP.

The hydrocarbon sector is expanding as demand for Algeria's oil and gas increases. Oil revenues continue to shore up the economy and attract investment. US investment alone in the sector is around $4 billion.

But Algeria has already had its fingers burned by its reliance on one sector. A massive decline in the oil price in the mid-1980s, which pushed average per capita income down from $4,000 to $1,300, was a turning point in the country's economic political fortunes. The government, with its revenues in freefall, was suddenly unable to be the generous benefactor that Algerians had come to expect. This resulted in political and economic dislocation, exacerbated by economic austerity measures that played a large role in the political instability that dogged the country thereafter.�

Attempts to increase agriculture's contribution to GDP are slowly gaining ground and while it is not yet an export sector, renewed production has mean a major drop in food imports. Algeria is also promoting its mining sector.

But probably the most ambitious economic programme embarked on so far is privatisation. It is ambitious not only in the number of state-owned companies due to be privatised - 1,300 representing 800,000 workers - but also because of the inherent social and economic consequences.

There is major resistance to the programme from trade unions, which fear more job losses in a situation where unemployment is already very high. Given that three-quarters of the population is under 25, and that most people are already struggling to make ends meet, the prospects for political instability are high. Already anti-privatisation strikes have taken place.

Although the violence of the 1990s was politically motivated, it was fuelled by economic hardship, poverty, political exclusion and a restless youth, a combination of factors, which the government is working to address. But some fear that tangible results may be too long in coming to keep the process on track.

As much as people understand that the path of reform is necessary for long-terms gains, they are finding the short-term sacrifices difficult to sustain.

Legislation passed in 2001 put in place the legal framework to back privatisation and government has budgeted around $20 billion to support it. It is planning a road show in Europe and parts of Africa to publicise its big sale which covers a wide range of activities including tourism, hotels, transport services, housing, agro-industry and various areas of industry.

To kick off the programme, the government has restructured the financial sector to play its part and has begun the restructuring of state industry, the first sector targeted. In the first year, it plans to sell off 40 companies and concedes that the process will have to speed up once all the problems are ironed out. The major utilities are not included in the programme at this stage.

Foreign ownership has been welcomed although the state has provided for 10 percent of free shares for workers who have an option to take up more at a 15 percent discount. This is an attempt to get their buy in.

Apart from internal resistance in a country used to state patronage and a socialist economy, other problems include a lack of expertise and commercial skills, communication problems, challenges in the legal environment and the problem of access to credit locally. But probably the biggest problem is the high debt exposure - around $7 billion - to public banks and the financial community by state-owned enterprises. Companies buying these enterprises will have to assume the debt.

Apart from revenue generation, the privatisation programme has three main aims. Firstly, it aims to push GDP growth up from 2.5 percent currently to four percent in 2004 by generating economic activity; secondly to help diversify exports away from hydrocarbons and thirdly, to increase the private sector and overall commercial activity.

It also hopes to boost its small stock exchange, set up 10 years ago, through privatisation. Currently there are only three companies listed, all of them state-owned.

For privatisation to succeed, foreign investment is essential as the private sector is too small to support such a wide-ranging programme. In addition, many skills and a lot of money have moved abroad. The government is hoping to lure back people and these funds as the economy presents new opportunities.

Algeria: A brief history

1842� .����� Algeria annexed by France; 1954� .����� the principal Algerian nationalist movement, the Front de liberation nationale (FLN) begins a war for independence; 1962� .����� France agrees to a ceasefire and independence is declared in July. In August, the provisional government transfers its functions to the Political Bureau of the FLN. In September, a National Constituent Assembly is elected from a single list of FLN candidates and a Republic proclaimed. FLN founder Ahmed Ben Bella becomes prime minister; 1963� .����� A draft constitution approved by referendum providing for a presidential regime with the FLN as the sole party. Ben Bella is elected president; 1965� .����� Ben Bella is deposed in a coup by defence minister Col Houari Boumedienne who takes control of the country as president of a Council of the Revolution composed of army officers; 1975� .����� a National Charter is drafted enshrining a socialist system and the maintenance of Islam as the state religion. A new constitution is drawn up; 1976� .����� Boumedienne stands for election unopposed and wins 99 percent of the vote; 1978� .����� Boumedienne dies; the Council of the Revolution takes over the government; 1979� . The FLN elects a Central Committee as the highest policy-making body; 1984� . Col Ben Djedid Chadli becomes president after winning 95.4 percent of the vote; 1985� .����� a new National Charter is drawn up keeping the principles of Islam and socialism in place but also encouraging private enterprise; 1985 - 1989 . Opposition to the government increases, opposition members are imprisoned and battles begin with Islamists. The international petrol price dives and economic austerity measures are introduced which provoke strikes and rioting. In response, Chadli introduces constitutional amendments, which include allowing non-FLN candidates to take part in elections. Chadli is elected for a third term; 1989� .����� A new constitution signifying the end of the one-party socialist state is approved by referendum. By 1991, 47 parties are registered including radical Islamist group, the Front Islamique due Salut (FIS). State control of the economy is reduced to allow foreign investment. However, strike and riots persist; 1990� .����� In June, the FIS wins 55 percent of the votes in local elections and FLN only 32 percent. Chadli acceded to FIS demands for an early general election and an amnesty for political detainees but also adopts a controversial law decreeing that after 1997� .����� Arabic would be Algeria's only official language. This leads to massive protests; 1991� .����� The country's first general strike, over price increases, is held prompting the government to increase subsidies and introduce other benefits. FIS protests against Chadli's suggestion that an early presidential election be held separately from the general election. Violent confrontations lead Chadli to declare a state of emergency and postpone elections. The military crackdown on FIS begins. However, in the two-stage election held finally in December, FIS wins 47.5 percent of votes and the FLN 15 percent. The FLN alleges intimidation and irregularities by FIS. It cancels the second round of legislative voting and a High Council of State is established to govern the country until� Chadli's term expires in 1993. This prompts widespread protests and security forces crack down on FIS. Another state of emergency is declared; 1993� .����� Protests continue and the state of emergency is renewed indefinitely. Terror attacks begin targeting senior government officials and later intellectuals, journalists and civilians are attacked and killed by the GIA, the most radical Islamist militant group. The security forces retaliate and thousands are killed; 1995� .����� a presidential election is held, boycotted by many parties including the FIS. The five-year term is won by Liamine Z�roual, a retired general. The FIS says it will negotiate under certain conditions but the GIA threatens reprisals if it does so and steps up its terror campaign; 1999� .����� Abdelaziz Bouteflika wins the presidential election amid wide support from other parties, the military and the trade union umbrella. However, there are allegations of massive electoral fraud and opposition parties dispute his 73.8 percent win. Negotiations with FIS begin and steps to end the violence are taken; 2000� .����� There is a sharp escalation in violence and reports of conflict between Bouteflika and his military command on appeasement with Islamist fundamentalists; 2001� .����� Violence continues. A bomb goes off in Algiers - the first in two years - and rumours of major human rights violations by security forces surface; 2002� .����� Violence is dramatically reduced and confined to the countryside. The government steps up its economic reform programme.