Algeria

Executive Summary

Following the April 2, 2019 resignation of President Abdelaziz Bouteflika, Algeria entered into a transition period headed by an interim president.  Algeria’s state enterprise-dominated economy has traditionally been a challenging market for U.S. businesses, though one that offers compelling opportunities.  Multiple sectors offer opportunities for long-term growth for U.S. firms, with many having reported double-digit annual profits. Sectors primed for continued growth include agriculture, tourism, information and communications technology, manufacturing, energy (both fossil fuel and renewable), construction, and healthcare.  A 2016 investment law offers lucrative, long-term tax exemptions, along with other incentives. Rising oil prices in the latter half of 2018 helped reduce the trade deficit and restore some revenue to the government budget, though government spending is still higher than revenue. 

The energy sector, dominated by state hydrocarbons company Sonatrach and its subsidiaries, forms the backbone of the Algerian economy, as oil and gas production and revenue have traditionally accounted for more than 95 percent of export revenues, 60 percent of the state budget, and 30 percent of GDP.  The Algerian government continues to pursue its goal of diversifying its economy, with an emphasis on attracting more foreign direct investment (FDI) to boost employment and offset imports via increased local production. Algeria has pursued a series of protectionist policies to encourage local industry growth.  In December 2017, the government scrapped a short-lived policy requiring importers of certain goods to obtain import licenses (the license requirement was subsequently retained only for automobiles and cosmetics), replacing it with a temporary ban on 851 products announced January 1, 2018. The government replaced that ban on January 29, 2019 with a set of tariffs between 30-200 percent on over 1,000 goods.  The import substitution policies have generated some regulatory uncertainty, supply shortages, and price increases.

Algeria’s political transition may affect economic policies, though most leaders recognize the importance of economic diversification and job creation.  Economic operators currently deal with a range of challenges, including overcoming customs issues, an entrenched bureaucracy, difficulties in monetary transfers, and price competition from international rivals, particularly China, Turkey, and France.  International firms that operate in Algeria sometimes complain that laws and regulations are constantly shifting and applied unevenly, raising the perception of commercial risk for foreign investors. Business contracts are likewise subject to changing interpretation and revision, which has proved challenging to U.S. and international firms.  Other drawbacks include limited regional integration and the 51/49 rule that requires majority Algerian ownership of all new foreign partnerships. Arduous foreign currency exchange requirements and overly bureaucratic customs processes combine to impede the efficiency and reliability of the supply chain, adding further uncertainty to the market.

Table 1: Key Metrics and Rankings

Angola

Executive Summary

Angola is a lower middle-income country located in southern Africa with a USD 114 .5 billion gross domestic product (GDP), a 29.1 million population and a per capita income of USD 3,924 according to 2018 International Monetary Fund (IMF) estimates. The third largest economy in sub-Saharan Africa, Angola is a member of the Organization of the Petroleum Exporting Countries (OPEC) and produces an average of 1.373 million barrels per day, the second highest volume in the sub-Saharan region behind Nigeria. Angola also holds significant proven gas reserves as well as extensive mineral resources.  Oil still accounts for 90 percent of exports and 37 percent of GDP. The Government of Angola (GRA)’s commitment to improve oil sector transparency led to the creation of the National Oil and Gas Agency (ANPG), an independent regulator to manage oil and gas concessions, which also ensures that the state-owned oil monopoly Sonangol will relinquish substantial control in the sector and on its core upstream business. In addition to reforms in the oil sector, the administration of President Joao Lourenco has implemented numerous other structural reforms to improve macroeconomic stability and the climate for economic growth.  In early 2018, the government scrapped the Angolan currency’s fixed peg to the U.S. dollar over concerns of dwindling foreign exchange reserves, and to institute a more transparent market-based foreign exchange regime. A new private investment law and an antitrust law in 2018 have been key administration initiatives to encourage private-sector competitiveness and growth. 

Although the more than 47 percent devaluation of the local currency throughout 2018 has improved exchange rate flexibility, it has also increased public debt, now close to 85 percent of GDP.  To anchor rising inflation against the impact of the exchange rate devaluation, the Central Bank of Angola (BNA) adopted a restrictive monetary policy and implemented various other financial sector policies.  The BNA also increased the minimum share and start-up requirements for commercial banks, and closed several non-complaint commercial banks.

In early December 2018, the Lourenco administration rolled-out an ambitious five-year strategy to tackle corruption, money laundering, and other economic and financial crimes. The strategy focuses on three main pillars – prevention, prosecution, and institutional capacity building, and includes short and long-term initiatives for a-whole-of society approach to help reduce the impact of corruption.  These strong anti-corruption initiatives led to the detention of several high-level public and private figures, and the president dismantled most of the influence of his predecessor’s family over key sectors of the economy. 

The business environment remains challenging, spurred by a tedious bureaucracy with limited bottom-up leadership.  Angola ranked 173 out of 190 in the 2019 World Bank’s Doing Business ranking.  Inadequate supply chain infrastructure, slow and inefficient institutions, and corruption continue to constrain the private sector’s contribution to growth. A lack of institutional, human, and material capacity also risks drastically undercutting the government’s anti-corruption intentions.  Rolling back dependency on oil will require significant investment in other economic sectors to stimulate growth.  Opportunities lie in the precious minerals, tourism, agriculture, fisheries, and hydropower sectors.

Continued infrastructure development opportunities are most obvious in the areas of public transportation, tourism, port rehabilitation, energy and power, telecommunications, mining, natural gas, and in creating national oil refining capacity.

Key sectors that have attracted significant regional and international investment in the country include energy, construction, and oil and gas.  Non-oil economic sectors such as agriculture, energy, fisheries, and extractives will open up new areas to foreign and national investment.  As the country continues to seek to diversify its economy, an emerging sector is agriculture, in which the country lacks technical knowhow and the necessary startup capital resources to develop.  Agriculture represents only 11 percent of GDP. Angola has decided to open up its telecoms market in a bid to attract foreign capital. 

Key Issues to watch:

• Angola continues to suffer from a relatively poor investment climate due in large part to the lack of openness to competition in the private sector and the dominance of the state on state-owned enterprises and in the economy.  However, the new government of President Lourenco has prioritized the privatization of 74 state-owned enterprises by 2020.
• Angola benefits from a relatively stable and predictable political environment, especially when compared to its neighbors in the region.  A peaceful transition following presidential elections in 2017, resulting in new leadership after 38 years of Jose Eduardo dos Santos rule, has raised local and international expectations for change.
• Angola will hold its first municipal elections in 2020, which may lead to some decentralization of decision-making authority, disbursement, and management of public resources.
• There is an abundant supply of unskilled labor, particularly in the capital, Luanda. Skilled professionals are available, but often require additional training.
• Portuguese is commonly spoken, while English competency levels are relatively low.
• The new private investment law of 2018 provides greater tax incentives to companies investing in the domestic economy, and does away with the local partnership requirements for foreign investment and ends minimum levels for investment.
• Real estate and living expenses remain expensive, but have recently moderated due to the ongoing economic crisis, and the local currency weakening against the U.S. dollar.  In 2018, Luanda ranked sixth as the most expensive city for expatriates globally, down from first in 2017.
• Infrastructure is limited, roads are often in poor condition, power outages are common, and water availability can be unreliable.
• The investment climate remains hampered by rampant corruption, and a complex, opaque regulatory environment, as reflected by rankings from globally recognized entities outlined in Table 1.
• Despite the slight upswing in global oil prices in 2018, the oil crisis continues to affect the Angolan economy, creating drastic losses in export revenue and a severe limitation in foreign exchange, forcing substantial cuts in government spending.

Angola’s high external imbalances and forex shortages have hurt private sector growth, and rapidly declining foreign currency reserves.  However, the government approved a law on February 23, 2018 that provided amnesty to any citizen repatriating more than USD100, 000 from overseas accounts until year-end, which the government hopes will help increase its access to forex.

Repatriation of capital, dividends, and transfers of remittances abroad remain challenging.

Portfolio investment in Angola is embryonic.

Women empowerment:

Although only 23 percent of Angola’s entrepreneurs are women, Angola boasts one of the highest growth rates of female entrepreneurs in Africa.  However, the government has not instituted any significant reforms to increase the percentage of female entrepreneurs and limited access to credit remains a significant impediment to entrepreneurship in general.

Table 1: Key Metrics and Rankings

Cameroon

Executive Summary

In December 2018, the International Monetary Fund (IMF) completed the third review of Cameroon’s 2017 Extended Credit Facility (ECF), concluding that program performance had improved, though structural reforms remain delayed.  From June 2018, the ECF prescribed a package of reforms aimed at restoring external and fiscal sustainability and sustaining growth in Cameroon and Central African Economic and Monetary Community (CEMAC).  The IMF also commented that risks from heightened global uncertainty, insufficient adjustment at the regional level, and continued insecurity in the Anglophone regions are increasing.  Cameroon had hoped hosting the 2019 African Cup of Nations (CAN) soccer tournament would boost consumer spending, but lost the event in November 2018 due to serious delays in promised infrastructure improvements.  Delays are likely to increase the cost of the construction of the infrastructure earmarked for the tournament, now scheduled for 2021, and increase pressure on public finance and public debt.  Firms have claimed CEMAC is attempting to hoard foreign exchange as reserve buffers have failed to grow as expected.

Infrastructure, energy, and extractives remain priority areas for Cameroon.  The government offers incentives for investment in agriculture, technology, and manufacturing, especially when investments lead to the transformation of local commodities in Cameroon.  The government, under the auspices of the ECF, has ramped up tax collection on the relatively small number of companies that actually pay taxes, including foreign firms.  FDI inflows were lower than expected over the last year and the loss of CAN will lead to even lower foreign exchange inflows in 2019.

Cameroon’s ranking in the World Bank’s 2019 Doing Business Report – 166th out of 190 countries – and Transparency International’s 2018 Corruption Perceptions Index – 152nd out of 175 countries – accurately reflect a business climate growing more difficult.  The most important factors that affect the business climate are dysfunctions within public administration, corruption, and poor infrastructure.  These challenges contrast with the country’s huge potential in terms of untapped natural resources and its strategic position as the gateway to landlocked neighbors.

Source: Cameroon Ministry of Finance, IMF, World Bank

Sectors that have historically attracted significant investment are:

Agriculture

Agriculture has attracted significant investment over the past decade, mostly from the Cameroonian government.  Cameroon is often described as the breadbasket of Central Africa because it supplies foodstuffs to Nigeria (180 million people) and to the countries of CEMAC (50 million people).  Market opportunities exist in the transformation of raw crops into finished or semi-finished products.  Access to credit, poor infrastructure, securing land rights, and ongoing fighting between separatists and government security forces in the cocoa and coffee-growing regions are significant obstacles.

Transportation

The economy of Cameroon and those of neighboring countries suffer from Cameroon’s poor roads, limited capacity of the aging rails, and the unreliability of the national airline.  The government has engaged in an ambitious program to upgrade and build new transport infrastructure, but Chinese companies dominate the sector.  Incentives to invest exist, though administrative procedures cause long delays.

Information & Communication Technology

Information and communication technology is the fastest growing economic sector in Cameroon, though internet penetration is still one of the lowest in Sub-Saharan Africa.  The mobile sector is still concentrated in the hands of four companies, including the state-owned Cameroon Telecommunication (CAMTEL), which also functions as the market regulator.  Despite CAMTEL’s monopoly on the communication backbone, such as sub-marine fiber optic cables, faster internet broadband and 3G-4G offer lucrative investment opportunities.

Extractive industry (Oil, Gas, Mining)

Cameroon has been an oil exporter since 1977.  Oil production has stagnated as prices fluctuated, but the country can count on untapped gas reserves estimated at 3.5 billion cubic meters.  The government dominates the sector and generally operates a revenue-sharing business model with foreign investors.

Banking and Finance

The financial sector of Cameroon has 15 banks, 26 insurance companies, one state pension fund, and one state-owned mortgage bank.  In addition, the country has over 400 microfinance institutions, a state-owned postal bank, and a nascent stock market based in Douala.  According to the International Monetary Fund (IMF), the total financial assets represent 40 percent of the national GDP, two-thirds of which is held by banks.  Less than 15 percent of Cameroonians have access to financial services.  There are investment opportunities in subsectors of the financial industry, particularly in conventional banking, risk protection, or in the increasingly popular mobile money business.

Table 1: Key Metrics and Rankings

Chad

Executive Summary

Chad is one of Africa’s largest countries, with a land area of 1,284,000 square kilometers that encompasses three agro-climatic zones.  Chad is a landlocked country bordering Libya to the north, Sudan to the east, Central African Republic (CAR) to the south, and Cameroon, Niger, and Nigeria on the west (with which it shares Lake Chad).  The nearest port, Douala, Cameroon, is 1,700 km from the capital, N’Djamena. Chad is one of six countries that constitute the Central African Economic and Monetary Community (CEMAC), a common market.

Chad’s human development is one of the lowest in the world according to the UN Human Development Index (HDI), and poverty continues to afflict a large proportion of the population.  Since oil production began in 2003, the petroleum sector has dominated economic activity and has been the largest target of foreign investment. However, agriculture and livestock breeding are important economic activities that employ the majority of the population, and the government has prioritized these sectors in an effort to diversify the economy and to maximize non-petroleum tax receipts in the wake of the drop in global oil prices.

The Government of Chad (GOC) has focused on improving internal economic and social conditions, although its efforts have been constrained by regional instability arising from the continued terrorist threat, an influx of refugees along the Chad-Sudan-Central African Republic (CAR) border, and low oil revenues (which account for over 70 percent of government revenue) due to the fall in global oil prices.

According to the IMF, after three consecutive years of contraction, non-oil economic activity has stabilized and pressures on the government fiscal position have eased. Nonetheless, the social, economic, and financial situation remains fragile. While oil production rebounded strongly in 2018, growth in the non-oil sector was estimated at only 0.5 percent. Economic recovery continues to be held back by the domestic debt overhang and underlying structural fragilities. Average inflation picked up to 4 percent in 2018, pulled largely by a 90 percent increase in the administered price of fresh water in May 2018. 

The GOC is favorably disposed to foreign investment, with a particular goal of attracting North American companies.  There are opportunities for foreign investment in Agribusiness; Agricultural, Construction, Building & Heavy Equipment; Architecture & Engineering; Automotive & Ground Transportation; Education; Energy & Mining; Environmental Technologies; Food Processing & Packaging; Health Technologies; Industrial Equipment & Supplies; Information & Communication; and Services.

Chad’s business and investment climate remains challenging.  Private sector development is hindered by poor transport infrastructure, lack of skilled labor, unreliable energy, weak contract enforcement, corruption, and high tax burdens on private enterprises. 

Table 1: Key Metrics and Rankings

Egypt

Executive Summary

Progress on Egyptian economic reforms over the past two years has been noteworthy.  Though many challenges remain, Egypt’s investment climate is improving. The country has undertaken a number of structural reforms since the flotation of the Egyptian Pound (EGP) in November 2016 and implemtation of a three-year, USD 12 billion International Monetary Fund (IMF)-backed economic reform program.  Increased investor confidence and the reactivation of Egypt’s interbank foreign exchange (FX) market have attracted foreign portfolio investment and grown foreign reserves. As yields on government debt fall, investors may shift towards direct investments, which would be a positive market signal that the Egyptian economy is beginning to trend  towards higher growth. The Government of Egypt (GoE) understands that attracting foreign direct investment (FDI) is key to addressing many of the economic challenges it faces, including low economic growth, high unemployment, current account imbalances, and hard currency shortages. Though FDI inflows grew 13 percent year-on-year in 2017, they declined slightly in 2018 from USD 7.9 to 7.7 billion, according to the Central Bank of Egypt.

Egypt implemented a number of regulatory reforms in 2017 and 2018.  Key among these are the new Investment Law and the Companies Law – which aim to improve Egypt’s ranking in international reports of doing business and to help the economy realize its full potential.  These reforms have increased investor confidence.

The Investment Law (Law 72 of 2017) aims to attract new investment and provides a framework for the government to offer investors more investment-related incentives and guarantees.  Additionally, the law aims to attract new investments, consolidate many investment-related rules, and streamlines procedures.

The government also hopes to attract  international investment in several “mega projects,” including a large-scale industrial and logistics zone around the Suez Canal, the construction of a new national administrative capital, a 1.5 million-hectare agricultural land reclamation and development project, and to promote mineral extraction opportunities in the Golden Trianlge economic zone between the Red Sea and the Nile River.

Egypt is a party to more than 100 bilateral investment treaties, including with the United States.  It is a member of the World Trade Organization (WTO), the Common Market for Eastern and Southern Africa (COMESA), and the Greater Arab Free Trade Area (GAFTA).  In many sectors, there is no legal difference between foreign and domestic investors. Special requirements exist for foreign investment in certain sectors, such as upstream oil and gas as well as real estate, where joint ventures are required.

Several challenges persist for investors.  Dispute resolution is slow, with the time to adjudicate a case to completion averaging three to five years.  Other obstacles to investment include excessive bureaucracy, regulatory complexity, a mismatch between job skills and labor market demand, slow and cumbersome customs procedures, and various non-tariff trade barriers.  Inadequate protection of intellectual property rights (IPR) remains a significant hurdle in certain sectors and Egypt remains on the U.S. Trade Representative’s Special 301 Watch List. Nevertheless, Egypt’s reform story is noteworthy, and if the steady pace of implementation for structural reforms continues, and excessive bureaucracy reduces over time, then the investment climate should continue to look more favorable to U.S. investors.

Table 1: Key Metrics and Rankings