Capital Markets and Portfolio Investment

The Algiers Stock Exchange has five stocks listed—each at no more than 35 percent equity—with a total market capitalization representing less than 0.1 percent of GDP. Daily trading volume on the exchange averages less than $2,000. Despite its small size, the market functions well and is adequately regulated by an independent oversight commission that enforces compliance requirements on listed companies and traders.

Officials aim to reach a capitalization of $7.8 billion in the next five years and enlist up to 50 new companies. However, attempts to list additional companies have been stymied both by a lack of public awareness and appetite for portfolio investment and by private and public companies’ unpreparedness to satisfy due diligence requirements that would attract investors. Proposed privatizations of state-owned companies have also been opposed by nationalist politics. Algerian society generally prefers material investment vehicles for savings, namely cash. Public banks, which dominate the banking sector (see below), are required to purchase government securities when offered, meaning they have little leftover liquidity to make other investments. Foreign portfolio investment is prohibited—the purchase of any investment product in Algeria, whether a government or corporate bond or equity stock, is limited to Algerian residents only.

Money and Banking System

The banking sector is roughly 85 percent public and 15 percent private as measured by value of assets held, and is regulated by an independent central bank. Estimated total assets in the sector in 2015 were roughly 9.2 trillion dinars ($83.6 billion) against 7.3 trillion dinars ($66 billion) in liabilities. The central bank had mandated a 12 percent minimum ratio for assets to liabilities until mid-2016, when in response to a drop in liquidity the bank lowered the threshold to eight percent. The decrease in liquidity was a result of all public banks buying government bonds in the first public bond issuance in more than 10 years; buying at least five percent of the offered bonds is required for banks to participate as primary dealers in the government securities market. The bond issuance essentially returned funds to the state that it had parked in funds at local banks during years of excess hydrocarbons profits.

Despite falling liquidity, the banks are still considered financially healthy, with only about five percent of assets considered non-performing, which is standard for emerging markets. The quality of service in public banks is generally considered low; generations of public banking executives and workers trained to operate in a statist economy lack familiarity with modern banking practices. Most transactions are still materialized (non-electronic). Many areas of the country suffer from a dearth of branches, leaving large amounts of the population without access to banking services. ATMs are not widespread, especially outside the major cities, and few accept foreign bank cards. Outside of major hotels with international clientele, hardly any retail establishments accept credit cards. Algerian banks do issue debit cards, but the system is distinct from any international payment system. In addition, approximately 4.6 trillion dinars ($40 billion), or one-third, of the money supply is estimated to circulate in the informal economy.

Foreigners can open foreign currency accounts without restriction, but proof of a work permit or residency is required to open an account in Algerian dinars. Foreign banks are permitted to establish operations in the country, but they must be legally distinct entities from their overseas home offices. Of the handful of foreign banks with a presence in Algeria, all are engaged exclusively in commercial banking; none offers retail banking services.

In 2015, the FATF removed Algeria from its Public Statement, and in 2016 it removed Algeria from the “gray list.” The FATF recognized Algeria’s significant progress and the improvement in its anti-money laundering/counter terrorist financing (AML/CFT) regime. The FATF also indicated Algeria has substantially addressed its action plan since strategic deficiencies were identified in 2011.

Foreign Exchange and Remittances

Foreign Exchange

There are few statutory restrictions on foreign investors converting, transferring, or repatriating funds, according to banking executives. Monies cannot be expatriated to pay royalties or to pay for services provided by resident foreign companies. The difficultly with conversions and transfers results more from the procedures of the transfers rather than the statutory limitations: the process is heavily bureaucratic and requires almost 30 different steps from start to finish. The slightest misstep at any stage can slow down or completely halt the process. In theory, it should take roughly one month to complete, but in reality, it often takes three to six months. Also, the Algerian government has been known to delay the process as leverage in commercial and financial disputes with foreign companies.

Expatriated funds can be converted to any world currency. The IMF classifies the exchange rate regime as an “other managed arrangement,” with the central bank pegging the value of the Algerian Dinar (DZD) to a “basket” composed of 64 percent of the value of the U.S. dollar and 36 percent of the value of the euro. The currency’s value is not controlled by any market mechanism and is set solely by the central bank. As the Central Bank has full control of the official exchange rate of the Dinar, any change in its value could be considered currency manipulation. When dollar-denominated hydrocarbons profits fell starting in mid-2014, the central bank allowed a slow depreciation of the dinar against the dollar over 24 months, culminating in about a 30 percent fall in its value before stabilizing around 110 dinars to $1 in late 2016. However, the dinar lost only about 10 percent of its value against the euro in the same time frame.

Remittance Policies

There have been no recent changes to remittance policies. There are no specific time limitations, although the bureaucracy involved in remittances can often slow the process to as long as six months. There is no legal parallel market by which investors can remit; however, there is a substantial black market currency exchange system in Algeria. Exchange rates for the dollar and euro are about 50 percent stronger on the black market than the official rates. With the more favorable informal rates, local sources report that most remittances occur via foreign currency hand-carried into the country. Under central bank regulations revised in September 2016, travelers to Algeria are permitted to enter the country with up to 1,000 euros or equivalent without declaring the funds to customs. However, any non-resident can only exchange dinars back to a foreign currency with proof of initial conversion from the foreign currency. The same regulations prohibit the transfer of more than 3,000 dinars ($26) outside Algeria.

Sovereign Wealth Funds

Algeria does not have a sovereign wealth fund.