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Algeria

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Algeria is the epitome of a challenging, but potentially highly rewarding economy. While the Algerian government publicly welcomes FDI, a difficult business climate, an inconsistent regulatory environment, and contradictory government policies complicate foreign investment. There are business opportunities in nearly every sector, including but not limited to energy, power, water, healthcare, telecommunications, transportation, recycling, agribusiness, and consumer goods. Lower oil prices since mid-2014 have spurred the Algerian government to initiate reforms to drive economic diversification, but progress has been slow. The government has targeted the country’s trade deficit for reduction via an openly-espoused policy of import substitution. Strict import quotas have been instituted for certain products, including automobiles and construction materials, with additional requirements for importers to establish local manufacturing in order to receive permission to import. Certain regulations explicitly favor local firms at the expense of foreign competitors, most prominently in the pharmaceutical sector where an outright import ban remains in place on more than 250 medicines and medical devices. The arbitrary nature of the government’s frequent changes to business regulations has added to the uncertainty of the market.

The National Agency of Investment Development (ANDI) is the primary Algerian government agency tasked with recruiting and retaining foreign investment. ANDI runs branches in each of Algeria’s 48 governorates (“wilayas”) that are tasked with facilitating business registration, tax payments, and other administrative procedures for both domestic and foreign investors. In practice, U.S. companies report that the agency is under-staffed and ineffective; its “one-stop shops” only operate out of physical offices, and there are no efforts to maintain dialogue with investors after they have initiated an investment. The agency’s effectiveness is undercut by its lack of decision-making authority, particularly for industrial projects, which is exercised by the Ministry of Industry and Mines, the Minister of Industry himself, and in many cases the Prime Minister.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity. However, the 51/49 rule requires a majority of Algerian ownership of at least 51 percent in all projects involving foreign investments. This requirement was first adopted in 2006 for the hydrocarbons sector and was expanded across all sectors in the 2009 investments law. The rule was removed from the new investments law in August 2016, but it remains in force by virtue of its inclusion in the 2017 annual finance law. Algerian government officials have defended the law as necessary to prevent capital flight, protect Algerian businesses, and provide foreign businesses with local expertise. The government has argued the rule is not an impediment to attracting foreign investment and is needed to diversify investment in Algeria’s economy, foster private sector growth, create employment for nationals, transfer technology and know-how, and develop local training initiatives. Additionally, officials contend, and some foreign investors agree, that a range of tailored measures can mitigate the effect of the 51/49 rule and allows the minority foreign shareholder to exercise other means of control. Some foreign investors use multiple local partners in the same venture, effectively reducing ownership of each individual local partner to enable the foreign partner to own the largest share.

The 51/49 investment rule poses challenges for various types of investors. For example, the requirement hampers market access for foreign small and medium-sized enterprises (SMEs), as they often do not have the human resources or financial capital to navigate the complex requirements. Large companies can find creative ways to work within the law, sometimes with cooperation of the local authorities, because the larger companies usually create more jobs and may have the technology and equipment that the government often desires. SMEs usually do not receive this same consideration. There are also allegations that Algerian partners sometimes refuse to invest the required funds in the company’s business, require non-contract funds to get projects, and send unqualified workers to job sites. Manufacturers are also concerned about intellectual property rights (IPR), as foreign companies do not want to surrender control of their designs and patents. Several U.S. companies have reported they have internal policies that preclude them from investing overseas without maintaining a majority share, out of concerns for both IPR and financial control of the local venture, which correspondingly prevent them from establishing businesses in Algeria.

Since 2013, the Algerian government has not officially screened FDI. However, foreign investments are still subject to approvals from a host of ministries that cover the proposed project, most often the Ministries of Commerce, Energy, and Industry and Mines. U.S. companies have reported that certain high-profile industrial proposals, such as for automotive assembly, are subject to informal approval by the Prime Minister. Prime Minister Abdelmalek Sellal announced in March 2017 the institution of an Investments Review Council, which he would chair, for the purpose of “following up” on investments; in practice, the establishment of the council means FDI proposals will be subject to additional government scrutiny. Approval by the National Investments Council, also chaired by the Prime Minister, is necessary to obtain benefits and incentives for any project totaling more than 5 billion dinars (approximately $45 million).

Other Investment Policy Reviews

In the past three years, Algeria has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), or the United Nations Conference on Trade and Development (UNCTAD). The last such review was conducted by UNCTAD in 2003.

Business Facilitation

Algeria’s online information portal dedicated to business creation and registration (www.jecreemonentreprise.dz ) is clear, well-designed, and allows quick navigation to the appropriate registration process for a firm. The website is in French and Arabic. The website lists a maximum of nine steps involving seven agencies and taking approximately three weeks to register a firm in Algeria. Only an individual seeking to create a business for self-employment can follow a relatively streamlined process of six steps. The website does not offer any information on the process for registering with the social insurance authorities, creating an official corporate seal, or receiving a required court stamp, additional requirements for establishing a business in Algeria.

In the Bank’s 2017 Doing Business report, Algeria slightly improved its position from 2016 on the indicator for starting a business, but remains with a low ranking at 142 (www.doingbusiness.org/data/exploreeconomies/algeria/#starting-a-business ). The report lists a total of 12 procedures that cumulatively take an average of 20 days to complete to register a new business. Algeria improved on the indicators for gaining construction permits and access to electricity, but remained near the bottom of the rankings for property registration (162) and obtaining credit (175).

Outward Investment

Algeria does not currently have any mechanisms that promote or incentivize outward investment, though there are also no restrictions on domestic investors from investing overseas, provided they can access foreign currency for such investments. The exchange of Algerian dinars outside of Algerian territory is illegal, as is the carrying abroad of more than 3,000 dinars in cash (approximately $27; see section 7 for more details on currency exchange restrictions).

3. Legal Regime

Transparency of the Regulatory System

All regulatory processes are managed by the national government. Accounting, legal, and regulatory procedures, as written, are considered consistent with international norms, although the decision making process is opaque.

There is no specific mechanism for public comment on draft laws. Typically, government officials give testimony to the Parliament on draft legislation, which receive press coverage, and occasionally copies of bills are leaked to the media. However, full-text copies of draft laws are not made publicly accessible before enactment. All laws and some regulations are published in the Official Gazette (www.joradp.dz ) in Arabic and French, but the database has only limited online search features.

In some cases, authority over a matter may rest among multiple ministries, which imposes additional bureaucratic steps and the likelihood of either inaction or the issuance of conflicting regulations due to errors or unusual circumstances. The development of regulations occurs largely away from public view; internal discussions at or between ministries are not usually made public. In some instances, the only public interaction on regulations development is a press release from the official state press service at the conclusion of the process; in other cases, a press release is issued earlier. Regulatory enforcement mechanisms and agencies exist at some ministries, but they are usually understaffed and enforcement remains weak.

Algeria received an overall score of 0.2 out of 6 on the most recent World Bank Global Indicator of Regulatory Governance (rulemaking.worldbank.org/data/explorecountries/algeria#cer_transparency ).

International Regulatory Considerations

Algeria is not a member of any regional economic bloc or of the WTO. The structure of Algerian regulations largely follows European—specifically French—standards.

Legal System and Judicial Independence

Algeria’s legal system is based on the French civil law tradition. The commercial law was established in 1975 and most recently updated in 2007 (www.joradp.dz/TRV/FCom.pdf ). The judiciary is nominally independent from the executive branch, but U.S. companies have reported allegations of political pressure exerted on the courts by the executive. Regulation enforcement actions are adjudicated in the national courts system and are appealable. Algeria has a system of administrative tribunals for adjudicating disputes with the government, distinct from the courts that handle civil disputes and criminal cases. Decisions made under treaties or conventions to which Algeria is a signatory are binding and enforceable under Algerian law.

Laws and Regulations on Foreign Direct Investment

The 51/49 rule in the 2017 annual finance law requires a majority Algerian partner for any foreign investment (see section 2), but otherwise there are few laws restricting foreign investment. In practice, the many regulatory and bureaucratic requirements for business operations provide officials many avenues to advance informally political or protectionist policies. The new investments law enacted in August 2016 charged ANDI with creating four new branches to assist with business establishment and the management of investment incentives. ANDI’s website (www.andi.dz/index.php/en/investir-en-algerie ) lists the relevant laws, rules, procedures, and reporting requirements for investors. However, much of the information lacks detail—particularly for the new incentives elaborated in the 2016 investments law—and refers prospective investors to ANDI’s physical “one-stop shops” located throughout the country.

Competition and Anti-Trust Laws

The National Competition Council (www.conseil-concurrence.dz/ ) is responsible for reviewing both domestic and foreign competition related concerns. Established in late 2013, it is housed under the Ministry of Commerce.

Expropriation and Compensation

The Algerian state can expropriate property under limited circumstances proscribed by law, with the state mandated to pay “just and equitable” compensation to the defendants for the property. Expropriation of property is extremely rare, with no cases within the last 10 years.

Dispute Settlement

ICSID Convention and New York Convention

Algeria is a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention) and the Convention on the International Center for the Settlement of Investment Disputes (ICSID Convention). The Algerian code of civil procedure allows both private and public-sector companies full recourse to international arbitration. Algeria permits the inclusion of international arbitration clauses in contracts.

Investor-State Dispute Settlement

Investment disputes are fairly common, especially on major projects. These disputes can be settled informally through negotiations between the parties or via the domestic court system. For disputes with foreign investors, most cases are decided at international arbitration. The most common disputes in the last several years have involved state-owned oil and gas company Sonatrach and its foreign partners concerning the retroactive application since 2006 of a windfall profits tax on hydrocarbons production. Sonatrach won a case in October 2016 against Spanish oil company Repsol and two Korean firms; a case with French oil company Total is still being decided.

The most recent investment dispute involving a U.S. company dates to 2012, but has not gone to arbitration. The company encountered bureaucratic blocks on the expatriation of dividends from an investment made in 2005; despite the intervention of several Algerian government institutions and ministers, a solution is still outstanding.

International Commercial Arbitration and Foreign Courts

The Algerian Chamber of Commerce and Industry (CACI), the nationwide, state-supported chamber of commerce, has the authority to arbitrate investment disputes as an agent of the court. The bureaucratic nature of Algeria’s economic and legal system, as well as its opaque decision making process, means that disputes can drag on for years before a resolution is reached. Businesses have reported cases in the court system are subject to political influence and generally tend to favor the government’s position.

Local courts recognize and have the authority to enforce foreign arbitral awards. Disputes between state-owned enterprises (SOEs) and foreign investors are rarely decided in domestic courts, since nearly all contracts between foreign and Algerian partners include clauses for international arbitration. The Ministry of Justice is in charge of enforcing arbitral awards against SOEs.

Bankruptcy Regulations

Algeria’s bankruptcy law generally follows international norms. While bankruptcy per se is not criminalized, management decisions (such as company spending, investment decisions, and even procedural mistakes) are subject to criminal penalties from fines to jail time, so decisions that lead to bankruptcy could be punishable under Algerian criminal law. However, bankruptcy cases rarely proceed to a full dissolution of assets. Public companies on the verge of bankruptcy are generally propped up by the Algerian government via cash infusions from the public banking system.

According to the World Bank’s Doing Business report, both debtors and creditors may file for both liquidation and reorganization. The report ranked Algeria 74th on its resolving insolvency indicator for 2017 (www.doingbusiness.org/data/exploreeconomies/algeria/#resolving-insolvency ).

4. Industrial Policies

Investment Incentives

Any incentive offered by the Algerian government is generally available to any company, though there are multiple tiers of “common, additional, and exceptional” incentives under the new investments law (www.joradp.dz/FTP/jo-francais/2016/F2016046.pdf ). “Common” incentives available to all investors include exoneration from customs duties for all imported production inputs, exemption from value-added sales tax (VAT) for all imported goods and services that enter directly into the implementation of the investment project, a 90 percent reduction on tenancy fees during construction, and a 10-year exemption on real estate taxes. Investors also benefit from a three-year exemption on the corporate and professional activity taxes and a 50 percent reduction for three years on tenancy fees after construction is completed. “Additional” incentives are available for investments made outside the coastal regions, namely the reduction of tenancy fees to a symbolic dinar ($.01) per square meter of land for 10 years in the High Plateau region and 15 years in the South of Algeria, plus a 50 percent reduction thereafter. The law also charges the state to cover, in partial or in full, the necessary infrastructure works for the realization of the investment. “Exceptional” incentives apply for investments “of special interest to the national economy,” including the extension of the common tax incentives to 10 years. An investment must receive the approval of the National Investments Council in order to qualify for the exceptional incentives; the sectors of “special interest” have not yet been specified.

Regulations passed in a March 2017 executive decree exclude approximately 150 economic activities from eligibility for the incentives (www.joradp.dz/FTP/jo-francais/2017/F2017016.pdf ). The list of excluded investments is concentrated on the services sector, but also includes manufacturing for some products. All investments in sales, whether retail or wholesale, and the imports business are ineligible.

The August 2016 investments law also provided state guarantees for the transfer of incoming investment capital and outgoing profits. Pre-existing incentives established by other laws and regulations also include favorable loan rates well below inflation from public banks for qualified investments.

Foreign Trade Zones/Free Ports/Trade Facilitation

Algeria does not have any foreign trade zones or free ports.

Performance and Data Localization Requirements

The Algerian government does not officially mandate local employment, but businesses have reported instances of pressure applied by the government on foreign companies operating in Algeria, particularly in the hydrocarbons sector, to limit the number of expatriate middle and senior managers so that Algerians can be hired for these positions. Contacts at multinational companies have alleged this pressure is applied via visa applications for expatriate workers. Companies usually must provide extensive justification to various levels of the government as to why the expatriate worker is needed. U.S. companies in the hydrocarbons industry have reported that when granted, expatriate work permits are usually valid for no longer than six months and delivered up to three months late, requiring firms to apply perpetually for renewals.

In 2017, the Algerian government began instituting forced localization in the auto sector. Any auto distributor was required to submit to the Ministry of Industry and Mines by the end of 2016 a plan for local assembly operations or the distributor would not receive a license to import vehicles in 2017. Import quotas were set at a maximum of 83,000 vehicles for all distributors in 2016, and 55,000 in 2017, down from a peak of nearly 450,000 vehicles imported into Algeria in 2014. Industry operators reported that new regulations from the ministry have stipulated that the assembly plants must reach a 40 percent integration rate by the end of their third year of operation in order to continue to receive manufacturing permission and the requisite investment incentives. As the Algerian government further restricts imports, localization requirements are expected to broaden to other manufacturing industries over the next several years.

Information technology providers are not required to turn over source codes or encryption keys, but all hardware and software imported to Algeria must be approved by the Agency for Regulation of Post and Telecommunication, under the Ministry of Post, Information Technology and Communication. There are no data sovereignty rules mandating data storage within the country; due to IT infrastructure issues, most Algerians use email services with foreign domains.

11. Labor Policies and Practices

There is a chronic shortage of skilled labor in Algeria, especially in the construction industry. Business contacts report difficulty in finding sufficiently skilled plumbers, electricians, carpenters, and other construction/vocational related areas; many of the engineers employed by foreign construction companies active in the country are Chinese or Turkish. Oil companies report they have difficultly retaining trained Algerian engineers and field workers because these workers often leave Algeria for higher wages in the Gulf. White collar employers also report a lack of skilled project managers, supply chain engineers, and even sufficient numbers of office workers with requisite computer and business skills.

Official unemployment figures are measured by the number of persons seeking work through the National Employment Agency (ANEM). Official Algerian government statistics listed overall unemployment at 10.6 percent as of September 2016, an increase of about 0.6 percent from April 2016. For youth aged 16-24, the figure in September 2016 was 26.7 percent. The International Labor Organization (ILO) estimates that more than one-third of all labor in Algeria is employed in the informal economy.

The Ministry of Vocational Training sponsors programs that, according to government figures, train 40-50,000 Algerians annually in various professional programs. There are no current laws requiring companies to hire nationals, although contacts at foreign companies report pressure to do so under implied threat of not approving the visa applications for expatriate staff. Employers are required to pay severance, with slight variations in the law regarding lay-offs and firings. There are no special economic zones or foreign trade zones in Algeria.

The constitution provides workers with the right to join and form unions of their choice provided they are citizens. The country has ratified the International Labor Organization’s (ILO’s) conventions on freedom of association and collective bargaining but failed to enact legislation needed to implement these conventions fully. The General Union of Algerian Workers (UGTA) is the largest union in Algeria and represents a broad spectrum of employees from both the public and private sectors. The UGTA, an affiliate of the International Trade Union Conference, is an official member of the Algerian “tripartite,” a council of labor, government, and business officials that meets annually to collaborate on economic and labor policy. The Algerian government chooses to liaise almost exclusively with the UGTA, sometimes putting other labor unions in Algeria at a disadvantage. Collective bargaining is permitted under a law passed in 1990 and modified in 1997, but is not mandatory, and in practice the UGTA is the only union authorized to engage in collective bargaining. Algerian law provides mechanisms for monitoring labor abuses and health and safety standards, and international labor rights are recognized within domestic law, but are only effectively regulated in the formal economy.

Sector-specific strikes occur often in Algeria, though general strikes are less common. The law provides for the right to strike, and workers exercise this right, subject to conditions. Striking requires a secret ballot of the whole workforce, and the decision to strike must be approved by majority vote of workers at a general meeting. The government may restrict strikes on a number of grounds, including economic crisis, obstruction of public services, or the possibility of subversive actions. Furthermore, all public demonstrations, including protests and strikes, must receive prior government authorization. By law, workers may strike only after 14 days of mandatory conciliation or mediation. The government occasionally offers to mediate disputes. The law states that decisions reached in mediation are binding on both parties. If mediation does not lead to an agreement, workers may strike legally after they vote by secret ballot to do so. The law requires that a minimum level of essential public services must be maintained during public-sector service strikes, and the government has broad legal authority to requisition public employees. The list of essential services included services such as banking, radio, and television. Penalties for unlawful work stoppages range from eight days to two months’ imprisonment.

Stringent labor-market regulations likely inhibit an increase in full-time, open-ended work. Regulations do not allow for flexibility in hiring and firing in times of economic downturn. Unemployment insurance eligibility requirements are so stringent as to discourage many job seekers from collecting benefits probably due them. Employers must have contributed up to 80 percent of the final year salary into the unemployment insurance scheme in order for them to qualify for unemployment benefits.

The law contains occupational health and safety standards that are not fully enforced. There were no known reports of workers dismissed for removing themselves from hazardous working conditions. If workers face such conditions, they may reserve the right to renegotiate their contract or, failing that, resort to the courts. While this legal mechanism exists, the high demand for employment in the country gave an advantage to employers seeking to exploit employees. Labor standards did not protect economic migrants from sub-Saharan Africa and elsewhere working in the country without legal immigration status, which made them vulnerable to exploitation. The law does not adequately cover migrant workers employed primarily in construction and occasionally as domestic workers.

The Labor Ministry generally enforced labor standards, including providing for compliance with the minimum wage regulation and safety standards. Nevertheless, broad enforcement remained insufficient. An estimated 15 percent of workers were not declared by their employers, the director general of social security at the Ministry of Labor announced in August 2015, rendering those violating companies subject to fines.

The law prohibits participation by minors in dangerous, unhealthy, or harmful work or in work considered inappropriate because of social and religious considerations. The minimum legal age for employment is 16, but younger children may work as apprentices with permission from their parents or legal guardian. The law prohibits workers under age 19 from working at night, but there is no list of hazardous occupations prohibited to minors. Although specific data was unavailable, children reportedly worked mostly in the informal sales market, often in family businesses, or on family farms. There were isolated reports that children were subjected to commercial sexual exploitation. According to UNICEF, six percent of children ages 5 to 14 were economically active.

The Ministry of Labor is responsible for enforcing child labor laws. There is no single office charged with this task, but all labor inspectors are responsible for enforcing laws regarding child labor. The ministry conducted inspections and in some cases investigated companies suspected of hiring underage workers. Monitoring and enforcement practices for child labor were inconsistent and hampered by an insufficient number of inspectors.

The Ministry of Labor leads a national committee composed of 12 ministries and NGOs that meets yearly to discuss child labor issues. The committee was empowered to propose measures and laws to address child labor as well as conduct awareness campaigns.

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