Policies Toward Foreign Direct Investment

The Algerian economy is both challenging and potentially highly rewarding.  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 energy, power, water, healthcare, telecommunications, transportation, recycling, agribusiness, and consumer goods. 

Algerians’ urgency to diversify their economy away from reliance on hydrocarbons has increased amid low and fluctuating oil prices since mid-2014.  The government has sought to reduce the country’s trade deficit through import substitution policies and import tariffs. Despite higher oil prices in 2018 that helped shrink the trade deficit, Algeria’s decreasing hydrocarbons exports has kept government rhetoric focused on the need to diversify Algeria’s economy.  On January 29, 2019 the government implemented tariffs between 30-200 percent on over 1,000 goods it believes are destined for direct sale to consumers. Companies that set up local manufacturing operations can receive permission to import materials the government would not otherwise approve for import if the importer can show those materials will be used in local production.  Certain regulations explicitly favor local firms at the expense of foreign competitors, most prominently in the pharmaceutical sector, where an outright import ban the government implemented in 2009 remains in place on more than 360 medicines and medical devices. The arbitrary nature of the government’s frequent changes to business regulations has added to the uncertainty in the market.

Algerian state enterprises have a “right of first refusal” on transfers of foreign holdings to foreign shareholders.  Companies must notify the Council for State Participation (CPE) of these transfers. 

There are two main agencies responsible for attracting foreign investment, the National Agency of Investment Development (ANDI) and the National Agency for the Valorization of Hydrocarbons (ALNAFT).

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”) which 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.

ALNAFT is charged with attracting foreign investment to Algeria’s upstream oil and gas sector.  In addition to organizing events marketing upstream opportunities in Algeria to potential investors, the agency maintains a paid-access digital database with extensive technical information about Algeria’s hydrocarbons resources. 

Limits on Foreign Control and Right to Private Ownership and Establishment

Establishing a presence in Algeria can take any of three basic forms: 1) a liaison office with no local partner requirement and no authority to perform commercial operations, 2) a branch office to execute a specific contract, with no obligation to have a local partner, allowing the parent company to conduct commercial activity (considered a resident Algerian entity without full legal authority), or 3) a local company with 51 percent of share-capital held by a local company or shareholders.  A business entity can be incorporated as a joint stock company (JSC), a limited liability company (LLC), a limited partnership (LP), a limited partnership with shares (LPS), or an undeclared partnership. Groups and consortia are also used by foreign companies when partnering with other foreign companies or with local firms.

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 majority Algerian ownership (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 2016 Investment Law, but remains in force by virtue of its inclusion in the 2016 annual finance law, which requires foreign investment activities be subject to the incorporation of an Algerian company in which at least 51 percent of capital stock is held by resident national shareholder(s). 

Algerian government officials have defended the 51/49 requirement 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 expertise, and develop local training initiatives.  Additionally, officials contend, and some foreign investors agree, a range of tailored measures can mitigate the effect of the 51/49 rule and allow 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 complex legal and regulatory requirements.  Large companies can find creative ways to work within the law, sometimes with the cooperation of local authorities who are more flexible with large investments that promise of significant job creation and technology and equipment transfers.  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 win contracts, 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.

The Algerian government does not officially screen FDI, though Algerian state enterprises have a “right of first refusal” on transfers of foreign holdings to foreign shareholders.  Companies must notify the Council for State Participation (CPE) of these transfers. In addition, initial foreign investments are still subject to approvals from a host of ministries that cover the proposed project, most often the Ministries of Commerce, Health, 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. In 2017, the government instituted an Investments Review Council chaired by Prime Minister for the purpose of “following up” on investments; in practice, the establishment of the council means FDI proposals are subject to additional government scrutiny.  According to the 2016 Investment Law, projects registered through the ANDI deemed to have special interest for the national economy or high employment generating potential may be eligible for extensive investment advantages. For any project over 5 billion dinars (approximately USD 44 million) to benefit from these advantages, it must be approved by the Prime Minister-chaired National Investments Council (CNI). The CNI meets regularly, though it is not clear how the agenda of projects considered at each meeting is determined. 

Other Investment Policy Reviews

Algeria has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD) or the World Trade Organization (WTO).  The last investment policy review by a third party was conducted by the United Nations Conference on Trade and Development (UNCTAD) in 2003 and published in 2004.

Business Facilitation

Algeria’s online information portal dedicated to business creation www.jecreemonentreprise.dz   and the business registration website www.cnrc.org.dz   are currently under maintenance.  The websites provide information about several business registration steps applicable for registering certain kinds of businesses.  Entrepreneurs report that additional information about requirements or regulation updates for business registration are available only in person at the various offices involved in the creation and registration process.

In the World Bank’s 2019 Doing Business report, Algeria’s ranking for starting a business dropped from 145 to 157 (http://www.doingbusiness.org/en/data/exploreeconomies/algeria  ) despite seeing improvement in rankings for half of the ten indicator categories, including reforms which made getting electricity and trading across borders simpler.  The World Bank report lists 12 procedures that cumulatively take an average of 17.5 days to complete to register a new business. New business owners seeking to establish their enterprises have sometimes reported the process takes longer, noting that the most updated version of regulations and required forms are only available in person at multiple offices, therefore requiring multiple visits.

Outward Investment

Algeria does not currently have any 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 at a time (approximately USD 26; see section 7 for more details on currency exchange restrictions).

Algeria’s National Agency to Promote External Trade (ALGEX), housed in the Ministry of Commerce, is the lead agency responsible for supporting Algerian businesses outside the hydrocarbons sector that want to export abroad.  ALGEX controls a special promotion fund to promote exports but the funds can only be accessed for very limited purposes. For example, funds might be provided to pay for construction of a booth at a trade fair, but travel costs associated with getting to the fair – which can be expensive for overseas shows – would not be covered.  The Algerian Company of Insurance and Guarantees to Exporters (CAGEX), also housed under the Ministry of Commerce, provides insurance to exporters. In 2003, Algeria established a National Consultative Council for Promotion of Exports (CCNCPE) that is supposed to meet annually. Algerian exporters claim difficulties working with ALGEX including long delays in obtaining support funds, and the lack of ALGEX offices overseas despite a 2003 law for their creation.  The Bank of Algeria’s 2002 Money and Credit law allows Algerians to request the conversion of dinars to foreign currency in order to finance their export activities, but exporters must repatriate an equivalent amount to any funds spent abroad, for example money spent on marketing or other business costs incurred.

Algeria has signed bilateral investment treaties with Argentina, Austria, Bahrain, BLEU (Belgium-Luxembourg Economic Union), Bulgaria, China, Cuba, Denmark, Egypt, Ethiopia, Finland, France, Germany, Greece, Indonesia, Iran, Italy, Jordan, Kuwait, Libya, Malaysia, Mali, Mauritania, Mozambique, Netherlands, Niger, Nigeria, Oman, Portugal, Qatar, Romania, Russian Federation, Serbia, South Africa, South Korea, Spain, Sudan, Sweden, Switzerland, Syria, Tajikistan, Tunisia, Turkey, Ukraine, United Arab Emirates, Vietnam, and Yemen.

In 2001, Algeria and the United States signed a Trade and Investment Framework Agreement (TIFA), and its council met most recently in Washington, D.C. in October 2018.

Algeria has trade agreements with the European Union and the Arab League, although neither has been fully implemented.  Recently instituted import barriers violate the terms of both agreements. The Algerian government concluded two years of “renegotiation” talks with the European Union in March 2017.  None of the trade terms of the 2005 EU-Algeria Association Agreement were modified, but the European Union committed to approximately USD 43 million of technical assistance for various Algerian ministries.

Algeria does not have a bilateral taxation treaty with the United States.  Algeria has bilateral taxation treaties with the Arab Maghreb Union (Libya, Mauritania, Morocco, and Tunisia), Austria, Bahrain, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, China, Egypt, France, Germany, Indonesia, Iran, Italy, Lebanon, Portugal, Qatar, Romania, South Africa, South Korea, Spain, Switzerland, Turkey, and United Arab Emirates.

Transparency of the Regulatory System

The national government manages all regulatory processes.  Legal and regulatory procedures, as written, are considered consistent with international norms, although the decision-making process is at times opaque.

Algeria implemented a new accounting system called Financial Accounting System (FAS) in 2010.  Though legislation does not make explicit references, FAS appears to be based on International Accounting Standards Board and International Financial Reporting Standards (IFRS).  Operators generally find accounting standards to follow international norms, though they note that some particularly complex processes in IFRS have detailed explanations and instructions but by comparison are explained relatively briefly in FAS.

There is no specific mechanism for public comment on draft laws, regulations or regulatory procedures.  Typically, government officials give testimony to Parliament on draft legislation, and that testimony receive press coverage.  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, and no summaries are published.  Often secondary legislation and/or administrative acts (known as ‘circulaires’ or ‘directives’) provide important details on how to implement laws and procedures.  Administrative acts are generally written at the ministry-level and not made public, though may be available if requested in person at a particular agency or ministry.  Public tenders are often accompanied by a book of specifications which is not made public, but only provided upon payment.

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.

The National Economic and Social Council (CNES) looks broadly at the effects of Algerian government policies and regulations in economic and social spheres.  The CNES has also been known to provide feedback on proposed legislation, though this is not required and neither the feedback nor legislation are necessarily made public.

Information on external debt obligations up to fiscal year 2018 was publicly available via the Central Bank’s quarterly statistical bulletin online  .  The statistical bulletin only describes external debt and not public debt, but the Ministry of Finance’s budget execution summaries reflect amalgamated debt totals.  The Ministry of Finance is working on a project to create an electronic, consolidated database of internal and external debt information. An amendment of the law on currency and credit authorizes the Central Bank to purchase bonds directly from the Treasury for a period of up to five years.  The Ministry of Finance indicated this would include purchasing debt from state enterprises, a process they described as the Central Bank transferring money to the treasury, which then provides the cash to, for example, state owned enterprises, in exchange for their debt. 

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 2016 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 avenues to advance informally political or protectionist policies. The investments law enacted in 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. 

There is an ongoing effort by customs, under the Ministry of Finance, to establish a new digital platform featuring one-stop shops for importers and exports to streamline bureaucratic processes.

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. Once the economic concentration of enterprises exceeds 40 percent of a market’s sales or purchases, the Competition Council is authorized to investigate, though a 2008 directive from the Ministry of Commerce exempted economic operators working for national economic progress from this review/approval.

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. However, in late 2018 a government measure required farmers to comply with a new regulation altering the concession contracts of their land in a way that would cede more control to the government.  Those who refused to switch contract type by December 31, 2018 lost their right to their land. 

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 companies full recourse to international arbitration. Algeria permits the inclusion of international arbitration clauses in contracts. 

Investor-State Dispute Settlement

Investment disputes sometimes occur, 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, cases can be decided during 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. In 2018 Sonatrach announced it had settled all outstanding international disputes.

The most recent investment dispute involving a U.S. company dates to 2012.  The company, which had encountered bureaucratic blocks on the expatriation of dividends from a 2005 investment, did not resort to arbitration.  The dispute was resolved in 2017, with the government permitting the company to expatriate the dividends.

There is no U.S.-Algeria Bilateral Investment Treaty or Free Trade Agreement.

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, ranging from fines to jail time, so decisions that lead to bankruptcy can be punishable under Algerian criminal law.  However, bankruptcy cases rarely proceed to a full dissolution of assets. The Algerian government generally props up public companies on the verge of bankruptcy 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.

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 2016 investments law (www.joradp.dz/FTP/jo-francais/2016/F2016046.pdf ).  “Common” incentives available to all investors include exemption 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 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 (USD .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 part 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. The sectors of “special interest” have not yet been publicly specified. An investment must receive the approval of the National Investments Council in order to qualify for the exceptional incentives. 

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 imports business are ineligible.

The 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 companies usually must provide extensive justification to various levels of the government as to why an expatriate worker is needed.  Some businesses have reported instances of the government pressuring 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.  Any person or legal entity employing a foreign citizen is required to notify the Ministry of Labor. Contacts at multinational companies have alleged this pressure is applied via visa applications for expatriate workers. 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 are 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.  Industry regulations issued in December 2017 require companies producing or assembling cars in the country to achieve a local integration rate of at least 15 percent within three years of operation.  The threshold rises to between 40 and 60 percent after a company’s fifth year of operation. Since 2014, the government has required car dealers to invest in industrial or “semi-industrial” activities as a condition for doing business in Algeria.  Dealers seeking to import new vehicles must obtain an import license from the Ministry of Commerce. Since January 2017, the Ministry has not issued any licenses. As the Algerian government further restricts imports, localization requirements are expected to broaden to other manufacturing industries over the next several years.  For example, a tender launched in 2018 for 150 megawatts of photovoltaic solar energy power plants mandated that bidders be Algerian legal entities.

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 Electronic Communications (ARPCE), under the Ministry of Post, Information Technology and Communication.  The ARPCE was created in May 2018, dissolving and taking over the function of the previous Agency for Regulation of Post and Telecommunications (APRT). In practice, the Algerian government requires public sector entities to store data on servers within the country.

Real Property

Secured interests in property are generally recognized and enforceable, but court proceedings can be lengthy and results unpredictable.  All property not clearly titled to private owners remains under government ownership. As a result, the government controls most real property in Algeria, and instances of unclear titling have resulted in conflicting claims of ownership, which has made purchasing and financing real estate difficult.  Several business contacts have reported significant difficulty in obtaining land from the government to develop new industrial activities; the state prefers to lease land for 33-year terms, renewable twice, rather than sell outright. The procedures and criteria for awarding land contracts are opaque.

Property sales are subject to registration at the tax inspection and publication office at the Mortgage Register Center and are part of the public record of that agency.  All property contracts must go through a notary.

According to the 2019 World Bank Doing Business report, Algeria ranks 165/190 for ease of registering property.

Intellectual Property Rights

Patent and trademark protection in Algeria is covered by a series of ordinances dating back to 2003 and 2005.  U.S. company representatives operating in Algeria reported that these laws were satisfactory in terms of both the scope of what they cover and the mandated penalties for violations.  A 2015 government decree to pursue patent and trademark infringements increased coordination between the National Office of Copyrights and Related Rights (ONDA), the National Institute for Industrial Property (INAPI), and law enforcement.  However, U.S. companies note that enforcement remains an issue.

ONDA, under the Ministry of Culture, and INAPI, under the Ministry of Industry and Mines, are the two separate entities within the Algerian government that have primary responsibility for IP protections.  ONDA covers literary and artistic copyrights as well as digital software rights, while INAPI oversees the registration and protection of industrial trademarks and patents. Despite strengthened efforts at ONDA, INAPI, and the General Directorate for Customs (under the Ministry of Finance), which have seen local production of pirated or counterfeit goods nearly disappear since 2011, imported counterfeit goods are prevalent and easily obtained.  Algerian law enforcement agencies annually confiscate several hundred items, including clothing, cosmetics, sports items, foodstuffs, automotive spare parts, and home appliances. ONDA destroyed more than 100,000 copies of pirated media to commemorate World Intellectual Property Day in 2017, but software firms estimate that more than 85 percent of the software used in Algeria, and a similar percentage of titles used by government institutions and state-owned companies, is not licensed.

Algeria has remained on the Priority Watch List of USTR’s Special 301 Report   since 2009.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at https://www.wipo.int/directory/en/ .

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 Algeria’s GDP.  Daily trading volume on the exchange averages around USD 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 USD 7.8 billion in the next five years and enlist up to 50 new companies.  However, attempts to list additional companies have been stymied by a lack both of public awareness and appetite for portfolio investment, as well as 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 the public. 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.  Publicly available data from private institutions and U.S. Federal Reserve Economic Data show estimated total assets in the commercial banking sector in 2017 were roughly 13.9 trillion dinars (USD 116.7 billion) against 9.2 trillion dinars (USD 77.2 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 to8 percent. In August 2017, the ratio was further reduced to 4 percent in an effort to inject further liquidity into the banking system.  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 5 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.  In January 2018, the bank increased the retention ratio from 4 percent to 8 percent, followed by a further increase in February 2019 to a 12 percent ratio in response in anticipation of a rise in bank liquidity due to the government’s non-conventional financing policy, which allows the Treasury to borrow directly from the central bank to pay state debts.

Banks are considered financially healthy, although the IMF and Bank of Algeria have noted moderate growth in non-performing assets, currently estimated between 10-12 percent of total assets.  The quality of service in public banks is generally considered low as 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 (USD 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 Financial Action Task Force (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 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 USD 1 in late 2016.  However, the dinar lost only about 10 percent of its value against the euro in the same time frame. The government announced in mid-2018 its intention to maintain the exchange rate between 118-119 dinars to USD 1 through 2020. The parallel market rate saw the dinar devalue by more than 3 percent against the dollar between January and April 2019.

Remittance Policies

There have been no recent changes to remittance policies.  Algerian exchange control law remains strict and complex. There are no specific time limitations, although the bureaucracy involved in remittances can often slow the process to as long as six months.  Personal transfers of foreign currency into the country must be justified and declared as not for business purpose. 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 (USD 26) outside Algeria.

Private citizens may convert up to 15,000 dinars (USD 127) per year for travel abroad.  To do the conversion, they must demonstrate proof of their intention to travel abroad through plane tickets or other official documents.

In April 2019, the Finance Ministry announced the creation of a vigilance committee to monitor and control financial transactions to foreign countries.  It divided operations into three categories relating to 1) imports 2) investments abroad 3) transfer abroad of profits.

Sovereign Wealth Funds

Algeria’s sovereign wealth fund (SWF) is the “Fonds de Regulation des Recettes (FRR).”  The Finance Ministry’s website shows the fund decreased from 4408.2 billion dinars (USD 37.36 billion) in 2014 to 784.5 billion dinars (USD 6.65 billion) in 2016.  Algerian media reported the FRR was spent down to zero as of February 2017. Algeria is not known to have participated in the IMF-hosted International Working Group on SWFs.

More than half of the formal Algerian economy is comprised of state-owned enterprises (SOEs), led by the national oil and gas company Sonatrach, although SOEs are present in all sectors of the economy.  SOEs are so prevalent that a comprehensive public list does not exist; rather all SOEs are amalgamated into a single line of the state budget. SOEs are listed in the official business registry. To be defined as an SOE, a company must be at least 51 percent owned by the state.

Algerian SOEs are generally heavily bureaucratic and may be subject to political influence.  There are competing lines of authority at the mid-levels, and contacts report mid- and upper-level managers are reluctant to make decisions because internal accusations of favoritism or corruption are often used to settle political scores.  Senior management teams at SOEs report to their relevant ministries; CEOs of the larger companies such as Sonatrach, electric and gas utility Sonelgaz, and airline Air Algerie report directly to ministers. Boards of directors are appointed by the state, and the allocation of these seats is considered political.  SOEs are not known to adhere to the OECD Guidelines on Corporate Governance.

Legally, public and private companies compete under the same terms with respect to market share, products and services, and incentives.  In reality, private enterprises assert that public companies sometimes receive more favorable treatment. Private enterprises have the same access to financing as SOEs, but they tend to work more with private banks and they are far less bureaucratic than are their public counterparts.  Public companies generally refrain from doing business with private banks. In 2008, a government directive ordered public companies to work only with public banks. The directive was later officially rescinded, but the effect has held as a self-imposed practice by public companies. SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors, but business contacts report that the government favors SOEs over private sector companies in terms of access to land.

SOEs are subject to budget constraints.  Audits of public companies are conducted by the Court of Auditors, a financially autonomous institution.  A Constitutional revision of Article 192 in March 2016 enshrined the independence of the Court. The constitution explicitly charges it with “ex post inspection of the finances of the state, collectivities, public services, and commercial capital of the state,” as well as preparing and submitting an annual report to the President, heads of both chambers of Parliament, and Prime Minister.  The previous constitution of 1996 had not included the state’s commercial capital in the Court’s mandate, nor had it required its annual report be shared with anyone but the President. Now, the Court makes its audits public on its website, for free.

The Court conducts audits simultaneously but independently from the Ministry of Finance’s year-end reports.  The Court makes its reports available online once they are finalized and delivered to the Parliament, whereas the Ministry withholds publishing year-end reports until after the Parliament and President have approved them.  The Court’s audit reports cover the entire implemented national budget by fiscal year and examine each annual planning budget that is passed by Parliament.

The General Inspectorate of Finance (IGF), the public auditing body under the supervision of the Ministry of Finance, can conduct “no-notice” audits of public companies.  The results of these audits are sent directly to the Minister of Finance, and the offices of the President and Prime Minister. They are not made available publicly. The Court of Auditors and IFG previously had joint responsibility for auditing certain accounts, but they are in the process of eliminating this redundancy.

Privatization Program

There has been very limited privatization of certain projects previously managed by SOEs in the water sector and likely other sectors.  However, the privatization of SOEs remains a highly sensitive issue and has been halted.

Multinational and particularly U.S. firms operating in Algeria are spreading the concept of responsible business conduct (RBC), which has traditionally been less common among domestic firms, with a few notable exceptions.  Companies such as Anadarko, Cisco, Microsoft, Boeing, Dow, and Berlitz have supported programs aimed at youth employment, education, and entrepreneurship. RBC activities are gaining acceptance as a way for companies to contribute to local communities while often addressing business needs, such as a better-educated workforce.  The national oil and gas company, Sonatrach, funds some social services for its employees and supports desert communities near production sites. Still, many Algerian companies view social programs as areas of government responsibility and do not consider such activities in their corporate decision-making process. While state entities welcome foreign companies’ RBC activities, the government does not factor them into procurement decisions, nor does it require companies to disclose their RBC activities.  Algerian laws for consumer and environmental protections exist but are weakly enforced.

Algeria does not adhere to the OECD or UN Guiding Principles and does not participate in the Extractive Industries Transparency Initiative.  Algeria ranks 73/89 for resource governance, and does not comply with rules set for disclosing environmental impact assessments and mitigation management plans, according to the most recent report by National Resource Governance Index.

The current anti-corruption law dates to 2006.  A new bill that would have amended the 2006 law passed the lower chamber of Algeria’s bicameral legislative body in February 2019, but is pending approval by the senate.  If approved, the law would create a financial penal division within the court of Algiers, with a national territorial jurisdiction and whose mission is to research, investigate, prosecute individuals who commit financial offenses of great complexity, and any other offenses related to bribery, tax evasion and avoidance, unlawful financing of associations as well as currency and banking offenses.  It would also provide protection of whistle-blowers reporting acts detrimental to their employment or working conditions.

In 2013, the Algerian government created the Central Office for the Suppression of Corruption (OCRC) to investigate and prosecute any form of bribery in Algeria.  The current number of cases currently being investigated by the OCRC is not available. In 2010, the government created the National Organization for the Prevention and Fight Against Corruption (ONPLC) as stipulated in the 2006 anti-corruption law.  The Chairman and members of this commission are appointed by a presidential decree. The commission studies financial holdings of public officials and carries out studies. Since 2013, the Financial Intelligence Unit has been strengthened by new regulations that have given the unit more authority to address illegal monetary transactions and terrorism funding.  In 2016, the government updated its anti-money laundering and counter-terrorist finance legislation to bolster the authority of the financial intelligence unit to monitor suspicious financial transactions and refer violations of the law to prosecutorial magistrates. Algeria signed the UN Convention Against Corruption in 2003.

The Algerian government does not have a policy that requires private companies to establish internal codes of conduct that prohibit bribery of public officials.  The use of internal controls against bribery of government officials varies by company, with some upholding those standards and others rumored to offer bribes. Algeria is not a participant in regional or international anti-corruption initiatives.  While Algeria does not provide protections to NGOs involved in investigating corruption, there are whistleblower protections for Algerian citizens who report corruption.

International and Algerian economic operators have identified corruption as an obstacle to FDI, indicating that foreign companies with strict compliance standards cannot compete against those companies who can offer special incentives to those making decisions about contract awards.  Economic operators have also indicated that complex bureaucratic procedures are sometimes manipulated by political actors to ensure economic benefits accrue to favored individuals in a non-transparent way. 

Corruption issues recently garnered significant headlines in Algeria.  On April 1, press reported the Prosecutor General’s Office of the Algiers court had opened investigations into corruption and the illegal transfer of capital abroad.  Shortly after, Algeria’s Army Chief of Staff Ahmed Gaid Salah accused unnamed parties of stealing from the Algerian people, and announced the Ministry of Justice’s intention to reopen old corruption cases, including a case regarding corruption in the state hydrocarbons company Sonatrach, though he did not specify which cases.

Resources to Report Corruption

Official government agencies

Central Office for the Suppression of Corruption (OCRC)
Mohamed Mokhtar Rahmani, General Director
Placette el Qods, Hydra, Algiers
Telephone: +213 21 68 63 12
www.facebook.com/263685900503591/  
No email address publicly available

National Organization for the Prevention and Fight Against Corruption (ONPLC)
Tarek Kour, President
14 Rue Souidani Boudjemaa, El Mouradia, Algiers
Telephone: +213 21 23 94 76
Email: contact@onplc.org.dz
www.onplc.org.dz/index.php/  

Watchdog organization:

Djilali Hadjadj
President
Algerian Association Against Corruption (AACC)
Telephone: +213 07 71 43 97 08
Email: aaccalgerie@yahoo.fr
www.facebook.com/215181501888412/  

Beginning on February 22, nationwide peaceful demonstrations against longtime president Abdelaziz Bouteteflika began, with the largest gatherings occurring on Fridays.  The exact number of demonstrators is estimated to be in the millions, though participation varies across city and week. During weekdays, various professional trade groups and student groups have peacefully demonstrated with hundreds to thousands of marchers converging on symbolic points, mainly in Algeria’s large coastal cities.  The demonstrations lead to the April 2 resignation of President Bouteflika.

Prior to February, demonstrations that occurred in Algeria tended to concern housing and other social programs, and were generally limited to tens or a few hundred participants.  While the majority of those small protests were generally peaceful, there were occasional outbreaks of violence that resulted in injuries, sometimes resulting from efforts of security forces to disperse the protests.

Government reactions to public unrest typically include tighter security control on movement between and within cities to prevent further clashes and promises of either greater public expenditures on local infrastructure or increased local hiring for state-owned companies.  During the first several months of 2015, there was a series of protests in several cities in the south of the country against the government’s program to drill test wells for shale gas. These protests were largely peaceful but sometimes resulted in clashes, injury, and rarely, property damage.  Announcements in 2017 that authorities would recommence shale gas exploration have not to date generated protests.

The Algerian government requires all foreign employees of foreign companies or organizations based in Algeria to contact the Foreigners Office of the Ministry of the Interior before traveling in the country’s interior so that the Government can evaluate need for police coordination.  The Algerian government also requires U.S. Embassy employees to request permission and police accompaniment to visit the Casbah in Algiers and to coordinate travel with the government any outside of the Algiers wilaya (province); for this reason U.S. consular services may be limited outside of the Algiers wilaya.

The government’s efforts to reduce terrorism have focused on active security services and social reconciliation and reintegration.  Isolated terrorist incidents still occasionally occur. There have been two major attacks on oil and gas installations in the last 10 years.  In March 2016, terrorists launched a homemade rocket attack on a gas facility in central Algeria that caused limited damage but no casualties.  In January 2013, there was a major attack at a remote oil and gas facility near the town of In Amenas in southeast Algeria (approximately 1,500 kilometers from Algiers) in which nearly 40 people – mostly western energy sector workers, including three Americans – were killed.  Other terrorist attacks claimed by ISIS include an August 2017 suicide attack in Tiaret that killed two police officers and a February 2017 attack that injured two police officers in Constantine. Each of these attacks prompted swift counter-terrorism responses by Algerian security services to uproot the militants responsible for the attacks.

Terrorist attacks usually target Algerian government interests and security forces outside of major cities and mainly in mountainous and remote areas, although attacks in 2017 and 2018 injured and killed police and security forces in the cities of Constantine and Tiaret, and the regions of Sidi Bel Abbas and Annaba.

U.S. citizens living or traveling in Algeria are encouraged to enroll in the Smart Traveler Enrollment Program (STEP) via the State Department’s travel registration website, https://step.state.gov/step, to receive security messages and make it easier to be located in an emergency.

There is a shortage of skilled labor in Algeria in all sectors.  Business contacts report difficulty in finding sufficiently skilled plumbers, electricians, carpenters, and other construction/vocational related areas.  Oil companies report they have difficulty retaining trained Algerian engineers and field workers because these workers often leave Algeria for higher wages in the Gulf.  Some white-collar employers also report a lack of skilled project managers, supply chain engineers, and even of sufficient numbers of office workers with requisite computer and soft skills.

Official unemployment figures are measured by the number of persons seeking work through the National Employment Agency (ANEM), and overall unemployment in 2018 held steady from the previous year, at 11.7 percent.  However, unemployment is significantly higher among certain demographics, including young people (ages 16-24) at 29.1 percent, up 5.2 percentage points from 2017, and college-educated workers, 27.9 percent. Notably, roughly 70 percent of the population is under 30.  Additionally, the International Labor Organization (ILO) estimates that more than one-third of all labor in Algeria is employed in the informal economy. To help train Algerians, including those who did not complete high school, the Ministry of Vocational Training sponsors programs that, according to government figures, offer training to at least 300,000 Algerians annually in various professional programs.

Companies must submit extensive justification to hire foreign employees, and report pressure to hire more locals (even if jobs could be replaced through mechanization) under implied threat of not approving the visa applications for expatriate staff.  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 in the public 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, however unions in the education, health, and administration sectors do meet and negotiate with government counterparts, especially under threat of strike. Collective bargaining is permitted under a law passed in 1990 and modified in 1997, but is not mandatory.

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.  The government has shown an increasing interest in understanding and monitoring the informal economy, and in 2018 partnered with the ILO on workshops and is cooperating with the World Bank on several projects aimed at better quantifying the informal sector.

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, and the government has broad legal authority to requisition public employees. The list of essential services includes services such as banking, radio, and television.  Penalties for unlawful work stoppages range from eight days to two months imprisonment.

In 2018, there were strikes in the beginning of the year, largely in the public health and public education sectors.  Medical residents went on strike demanding higher pay, better working conditions, and male residents sought an exemption from mandatory military service requirements.  After weeks of strikes, the Ministry of Health made some concessions in terms of additional benefits for doctors, and the residents resumed work. Teachers went on strike for higher pay and complained of perceived inequalities in the pay scale.  After weeks of strikes and a closed-door meeting, the Ministry of Education and unions came to an agreement. While the full details of the agreement were not disclosed, teachers noted in broad terms the Ministry expressed a willingness to meet their demands and resumed work.

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, for example, employers are generally required to pay severance when laying off or firing workers.  Unemployment insurance eligibility requirements may discourage job seekers from collecting benefits probably due them, and the level of support claimants receive is minimal. 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, however enforcement of those standards may be uneven.  There were no known reports of workers dismissed for removing themselves from hazardous working conditions. If workers face such conditions, they are able to file a complaint with the Ministry of Labor, who would then send out labor inspectors to investigate the claim.  While this legal mechanism exists, the high demand for employment in the country gave an advantage to employers seeking to exploit employees.

Because Algerian law does not provide for temporary legal status for migrants, labor standards do not protect economic migrants from sub-Saharan Africa and elsewhere working in the country without legal immigration status, which makes them vulnerable to exploitation.  The law does not adequately cover migrant workers employed primarily in construction and occasionally as domestic workers – however migrant children are protected by law from working.

The Ministry of Labor enforces labor standards, including compliance with the minimum wage regulation and safety standards.  Companies that employ migrant workers or violate child labor laws are subject to fines and potentially even prosecution.

The law prohibits participation by minors in dangerous, unhealthy, or harmful work or in work considered inappropriate because of social and religious considerations – as do Algerian norms and practices.  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.  While there is currently no list of hazardous occupations prohibited to minors, the government told us a list was being drafted and would be issued by presidential decree. Although specific data was unavailable, children reportedly worked mostly in the informal sector, largely in sales, often in family businesses, and also begging on the streets, or in agricultural work.  There were isolated reports that children were subjected to commercial sexual exploitation.

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.  In 2018, the Ministry of Labor focused one month specifically on investigating child labor violations, and in some cases prosecuted individuals for employing minors or breaking other child-related labor laws.  While the government claims to monitor both the formal and informal sectors, contacts note that in reality, their efforts largely land in the formal economy.

The National Authority of the Protection and Promotion of Children (ONPPE) is an inter-agency organization, created in 2016, which coordinates the protection and promotions of children’s rights.  As a part of its efforts, in 2018 ONPPE held educational sessions for officials from relevant ministries, civil society organizations, and journalists on issues related to children, including child labor and human trafficking.

An Overseas Private Investment Corporation (OPIC) agreement between the U.S and Algeria was signed in June 1990.  In 2005, the Algerian Energy Company entered a deal with Ionics Inc. of Watertown, Massachusetts, in which Ionics agreed to build a water desalination plant and the state water authority took a minority stake in the plant and agreed to purchase the bulk of the clean water produced.  OPIC provided a USD 200 million loan to Ionics, a desalination equipment manufacturer that was later acquired by General Electric. In 2017, GE sold its stake in the Algiers water desalination plant, OPIC’s first and only project in Algeria to date.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* Algeria Office of National Statistics: http://www.ons.dz/Au-deuxieme-trimestre-2018-les.html  

* National Agency for Investment Development.

Table 3: Sources and Destination of FDI

No information for Algeria is available on the IMF’s Coordinated Direct Investment Survey (CDIS) website.  Neither World Bank nor Algerian sources break down FDI to and from Algeria by individual countries.

Table 4: Sources of Portfolio Investment

No information for Algeria is available on the IMF’s Coordinated Direct Investment Survey (CDIS) website.  Neither World Bank nor Algerian sources break down FDI to and from Algeria by individual countries.

Amber Oliva
Economic Officer, U.S. Embassy Algiers
5 Chemin Cheikh Bachir El-Ibrahimi, El Biar Algiers, Algeria
Telephone: +213 0770 082 153
Email: Algiers_polecon@state.gov

Policies Toward Foreign Direct Investment

The GOT is working to improve the business climate and attract FDI.  The GOT prioritizes attracting and retaining investment, particularly in the underdeveloped interior regions, and reducing unemployment.  More than 3,350 foreign companies currently operate in Tunisia, and the government has historically encouraged export-oriented FDI in key sectors such as call centers, electronics, aerospace and aeronautics, automotive parts, textile and apparel, leather and shoes, and agro-food and other light manufacturing.  In 2018, the sectors that attracted the most FDI were energy (33 percent), services (22.8 percent), the electrical and electronic industry (18 percent), the mechanical industry (6.6 percent), and agro-food products (4.7 percent). Inadequate infrastructure in the interior regions results in the concentration of foreign investment in the capital city of Tunis and its suburbs (58 percent), the northern coastal region (25.7 percent), and the eastern coastal region (9.7 percent).  Internal western and southern regions attracted only 6.6 percent of foreign investment despite special tax incentives for those regions.

The Tunisian Parliament passed an Investment Law (#2016-71) in September 2016 that went into effect April 1, 2017 to encourage the responsible regulation of investments.  The law provided for the creation of three major institutions:

• The High Investment Council, whose mission is to implement legislative reforms set out in the investment law and decide on incentives for projects of national importance (defined as investment projects of more than 50 million dinars and 500 jobs).
• The Tunisian Investment Authority, whose mission is to manage investment projects of more than 15 million dinars and up to 50 million dinars.  Investment projects of less than 15 million dinars are managed by the Foreign Investment Promotion Agency (FIPA).
• The Tunisian Investment Fund, which will fund foreign investment incentive packages.

These institutions were all launched in 2017.  However, the Foreign Investment Promotion Agency (FIPA) continues to be Tunisia’s principal agency to promote foreign investment.  FIPA is a one-stop shop for foreign investors. It provides information on investment opportunities, advice on the appropriate conditions for success, assistance and support during the creation and implementation of the project, and contact facilitation and advocacy with other government authorities.

Under the 2016 Investment Law (article 7), foreign investors have the same rights and obligations as Tunisian investors.  Tunisia encourages dialogue with investors through Foreign Investment Promotion Agency (FIPA) offices throughout the country.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investment is classified into two categories:

• “Offshore” investment is defined as commercial entities in which foreign capital accounts for at least 66 percent of equity, and at least 70 percent of the production is destined for the export market.  However, investments in some sectors can be classified as “offshore” with lower foreign equity shares. Foreign equity in the agricultural sector, for example, cannot exceed 66 percent and foreign investors cannot directly own agricultural land, but agricultural investments can still be classified as “offshore” if they meet the export threshold.
• “Onshore” investment caps foreign equity participation at a maximum of 49 percent in most non-industrial projects.  “Onshore” industrial investment may have 100 percent foreign equity, subject to government approval.

Pursuant to the 2016 Investment Law (article 4), a list of sectors outlining which investment categories are subject to government authorization (the “negative list”) was set by decree on May 11, 2018.  The sectors include natural resources; construction materials; land, sea and air transport; banking, finance, and insurance; hazardous and polluting industries; health; education; and telecommunications.  Per the decree, if the relevant government decision-making body does not respond to an investment request within a specified period, typically 60 days, the authorization is automatically granted to the applicant.  The decree went into effect on July 1, 2018.

Other Investment Policy Reviews

• The WTO completed a Trade Policy Review for Tunisia in July 2016.  The report is available here: https://www.wto.org/english/tratop_e/tpr_e/tp441_e.htm  .
• The OECD completed an Investment Policy Review for Tunisia in November 2012.  The report is available here: http://www.oecd.org/daf/inv/investment-policy/tunisia-investmentpolicyreview-oecd.htm  .

Business Facilitation

The World Bank Investing Across Borders initiative affirms that Tunisia has the fewest limits on foreign equity ownership in the Middle East and the North Africa (MENA) region.  The GOT has opened up the majority of the sectors of the economy to foreign capital participation, with the exception of electricity transmission and distribution (http://iab.worldbank.org/data/exploreeconomies/tunisia  ).

The World Bank Doing Business 2019 report ranks Tunisia 63rd in terms of ease of starting a business.  In North Africa, Tunisia ranked ahead of Egypt (109), Algeria (157), and Libya (186) and behind Mauritania (46) and Morocco (34):  http://www.doingbusiness.org/en/data/exploreeconomies/tunisia#DB_sb  .

The Agency for Promotion of Industry and Innovation (APII) is the focal point for business registration generally for new businesses.  Online project declaration for industry or service sector projects for both domestic and foreign investment is available at: www.tunisieindustrie.nat.tn/en/doc.asp?mcat=16&mrub=122  

APII has attempted to simplify the business registration process by creating a one-stop shop that offers registration of legal papers with the tax office, court clerk, official Tunisian gazette, and customs.  This one-stop shop also houses consultants from the Investment Promotion Agency (API), Ministry of Employment, National Social Security Authority (CNSS), post office, Ministry of Interior, and the Ministry of Trade.  Registration may face delays as some agencies may have longer internal processes. Prior to registration business must first initiate an online declaration of intent, to which APII provides a notification of receipt within 24 hours.

The World Bank’s Doing Business 2019 report indicates that business registration takes an average of 8 days and costs about USD 115 (350 Tunisian dinars):   http://www.doingbusiness.org/en/data/exploreeconomies/tunisia#DB_sb  .

For agriculture and fisheries, business registration information can be found at:  www.apia.com.tn  .

In the tourism industry, companies must register with the National Office for Tourism at:  http://www.tourisme.gov.tn/pour-investir/prestations-administratives.html.

The central point of contact for established foreign investors and companies is the Foreign Investment Promotion Agency (FIPA):  http://www.investintunisia.tn  .

Outward Investment

The GOT does not incentivize outward investment, and capital transfer abroad is tightly controlled by the Central Bank.

Tunisia has signed 55 bilateral investment treaties of which 39 are in force: http://investmentpolicyhub.unctad.org/IIA/CountryBits/213#iiaInnerMenu  .

The 2002 Trade and Investment Framework Agreement (TIFA) between Tunisia and the United States remains active.  A meeting of the Bilateral Trade and Investment Council in April 2017 helped promote engagement and cooperative reform efforts.  A Bilateral Investment Treaty (BIT) between Tunisia and the United States entered into force in 1993.

Tunisia has multilateral and bilateral trade agreements with approximately 127 countries, including its neighbors Libya and Algeria.  Tunisia acceded to the Common Market for Eastern and Southern Africa (COMESA) in July 2018. In January 2008, Tunisia’s Association Agreement with the EU went into effect, eliminating tariffs on industrial goods.  Tunisia and the EU are negotiating a full-fledged free-trade agreement, but it has not yet been concluded. In addition, Tunisia is a signatory to the World Bank’s Multilateral Investment Guarantee Agency (MIGA), which offers private sector political risk insurance.  Tunisia is a member of the World Trade Organization and maintains bilateral agreements with Turkey and the member states of the European Free Trade Association (EFTA), as well as a multilateral agreements with other Arab League states.

A 1985 bilateral treaty and a 1989 protocol guarantee U.S. firms freedom from double taxation.

In 2013, the Tunisian Parliament adopted the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

Transparency of the Regulatory System

As stipulated in the 2014 constitution, Tunisia has adopted a semi-parliamentary political system whereby power is shared among the Parliament, the Presidency of the Republic, and the Government, which is composed of a ministerial cabinet led by a Prime Minister (Head of Government).  The Presidency and the Government fulfill executive roles. The Government creates the majority of laws and regulations; however, the Presidency of the Republic and Parliament also develop and propose laws.

The Parliament debates and votes on the adoption of legislation.  Draft legislation is accessible to the public via the Parliament’s website.

Ministerial decrees and other regulations are debated at the level of the Government and adopted by a Ministerial Council headed by the Prime Minister.

After adoption, all laws, decrees, and regulations are published on the website of the Official Gazette and enforced by the Government at the national level.

The Government takes few proactive steps to raise public awareness of the public consultation period for new draft laws and decrees.  Civil society, NGOs, and political parties are all pushing for increased transparency and inclusiveness in rule-making. Many draft bills, such as the budget law, were reviewed before submission for a final vote under pressure from civil society.  Business associations, chambers of commerce, unions, and political parties reviewed the 2016 Investment Law prior to final adoption.

In January 2019, the Tunisian Parliament passed the Organic Budget Law, which is a foundational law defining the parameters for the government’s annual budgeting process.  The law aimed to bring the budget process in line with principles expressed in the 2014 constitution by enlarging Parliament’s role in the budgetary process and strengthening the financial autonomy of the legislative and judiciary branches.  The law required the government to organize its budget by policy objective, detail budget projections over a three-year timeframe, and revise its accounting system to ensure greater transparency.

Not all accounting, legal, and regulatory procedures are in line with international standards.  Publicly listed companies adhere to national accounting norms.

The Parliament has oversight authority over the GOT but cannot ensure that all administrative processes are followed.

The World Bank Global Indicators of Regulatory Governance for Tunisia are available here: http://rulemaking.worldbank.org/en/data/explorecountries/tunisia  .

Tunisia is a member of the Open Government Partnership, a multilateral initiative that aims to secure concrete commitments from governments to promote transparency, empower citizens, fight corruption, and harness new technologies to strengthen governance: http://www.opengovpartnership.org/country/tunisia  .

Most of Tunisia’s public finances and debt obligations are debated and voted on by the Parliament.

International Regulatory Considerations

As part of its negotiations toward a free-trade agreement with the EU, the GOT is considering incorporating a number of EU standards in its domestic regulations.

Tunisia became a member of the WTO in 1995 and is required to notify the WTO regarding draft technical regulations on Technical Barriers to Trade (TBT).  However, in October 2018 the Ministry of Commerce released a circular that temporarily restricted the import of certain goods without going through the WTO notification process, which negatively impacted some business operations without forewarning.

Tunisia has yet to ratify the WTO Trade Facilitation Agreement (TFA) that would improve processes at the port of entry.  However, Tunisia submitted a “Category A” notification in September 2014, which should have required the GOT to implement TFA measures by February 2017.

Legal System and Judicial Independence

The Tunisian legal system is secular and based on the French Napoleonic code and meets EU standards.  While the 2014 Tunisian constitution guarantees the independence of the judiciary, constitutionally mandated reforms of courts and broader judiciary reforms are still ongoing.

Tunisia has a written commercial law but does not have specialized commercial courts.

Regulations or enforcement actions can be appealed at the Court of Appeals.

Laws and Regulations on Foreign Direct Investment

The 2016 Investment Law directs tax incentives towards regional development promotion, technology and high value-added products, research and development (R&D), innovation, small and medium-sized enterprises (SMEs), and the education, transport, health, culture, and environmental protection sectors.

The primary one-stop-shop webpage for investors looking for relevant laws and regulations is hosted at the Investment and Innovation Promotion Agency (APII) website, http://www.tunisieindustrie.nat.tn/en/doc.asp?mcat=12&mrub=209  .  The 2016 Investment Law (article 15) calls for the creation of an Investor’s Unique Point of Contact within the Ministry of Development, Investment, and International Cooperation to assist new and existing investors to launch and expand their projects.

In addition, the Parliament has adopted a number of economic reforms since 2015, including laws concerning renewable energy, competition, public-private partnerships, bankruptcy, and the independence of the Central Bank of Tunisia, as well as a Start-Up Act to promote the creation of new businesses and entrepreneurship.

Competition and Anti-Trust Laws

The 2015 Competition Law established a government appointed Competition Council to reduce government intervention in the economy and promote competition based on supply and demand.

This law voided previous agreements that fixed prices, limited free competition, or restricted the entry of new companies as well as those that controlled production, distribution, investment, technical progress, or supply centers.  While the law ensures free pricing of most products and services, there are a few protected items, such as bread and electricity, for which the GoT can still intervene in pricing. Moreover, in exceptional cases of large increases or collapses in prices, the Ministry of Commerce reserves the right to regulate prices for a period of up to six months.  The Ministry of Commerce also reserves the right to intervene in sectors to ensure free and fair competition. However, the Competition Council can make exceptions to its anti-trust policies if it deems it necessary for overall technical or economic progress.

The Competition Council also has the power to investigate competition-inhibiting cases and make recommendations to the Ministry of Commerce upon the Ministry’s request.

Expropriation and Compensation

There are no outstanding expropriation cases involving U.S. interests.  The 2016 Investment Law (article 8) stipulates that investors’ property may not be expropriated except in cases of public interest.  Expropriation, if carried out, must comply with legal procedures, be executed without discrimination on the basis of nationality, and provide fair and equitable compensation.

U.S. investments in Tunisia are protected by international law as stipulated in the U.S.-Tunisia Bilateral Investment Treaty (BIT).  According to Article III of the BIT, the GOT reserves the right to expropriate or nationalize investments for the public good, in a non-discriminatory manner, and upon advance compensation of the full value of the expropriated investment.  The treaty grants the right to prompt review by the relevant Tunisian authorities of conformity with the principles of international law. When compensation is granted to Tunisian or foreign companies whose investments suffer losses owing to events such as war, armed conflict, revolution, state of national emergency, civil disturbance, etc., U.S. companies are accorded “the most favorable treatment in regards to any measures adopted in relation to such losses.”

Dispute Settlement

ICSID Convention and New York Convention

Tunisia is a member of the International Center for the Settlement of Investment Disputes (ICSID) and is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

U.S. investments in Tunisia are protected by international law as stipulated in the U.S.-Tunisia Bilateral Investment Treaty (BIT).  The BIT stipulates that procedures shall allow an investor to take a dispute with a party directly to binding third-party arbitration.

Disputes involving U.S. persons are relatively rare.  Over the past 10 years, there were three dispute cases involving U.S. investors; two were settled and one is still ongoing.  U.S. firms have generally been successful in seeking redress through the Tunisian judicial system.

The Tunisian Code of Civil and Commercial Procedures allows for the enforcement of foreign court decisions under certain circumstances, such as arbitration.

There is no pattern of significant investment disputes or discrimination involving U.S. or other foreign investors.

International Commercial Arbitration and Foreign Courts

The Tunisian Arbitration Code brought into effect by Law 93-42 of April 26, 1993, governs arbitration in Tunisia.  Certain provisions within the code are based on the United Nations Commission on International Trade Law (UNCITRAL) model law.  Tunisia has several domestic dispute resolution venues. The best known is the Tunis Center for Conciliation and Arbitration. When an arbitral tribunal does not adhere to the rules governing the process, either party can apply to the national courts for relief.  Unless the parties have agreed otherwise, an arbitral tribunal may, on the request of one of the parties, order any interim measure that it deems appropriate.

Bankruptcy Regulations

Parliament adopted in April 2016 a new bankruptcy law that replaced Chapter IV of the Commerce Law and the Recovery of Companies in Economic Difficulties Law.  These two laws had duplicative and cumbersome processes for business rescue and exit and gave creditors a marginal role. The new law increases incentives for failed companies to undergo liquidation by limiting state collection privileges.  The improved bankruptcy procedures are intended to decrease the number of non-performing loans and facilitate access of new firms to bank lending.

According to the World Bank Doing Business 2019 report, Tunisia’s recovery rate (how much creditors recover from an insolvent firm at the end of insolvency proceedings) is about 52 cents on the dollar, compared to 26.3 cents for MENA and 70.5 cents for OECD high-income countries.

Investment Incentives

Preferential status is usually linked to the percentage of foreign corporate ownership, percentage of production for the export market, and investment location.  The 2016 Investment Law provides investors with a broad range of incentives linked to increased added value, performance and competitiveness, use of new technologies, regional development, environmental protection, and high employability.

To incentivize the employment of new university graduates, the GOT assumes the employer’s portion of social security costs (16 of salary) for the first seven years of the investment, with an extension of up to 10 years in the interior regions.  Investments with high job-creation potential may benefit from the purchase of state-owned land at the price of one Tunisian dinar per square meter. Investors who purchase companies in financial distress may also benefit from tax breaks and social security assistance.  These advantages are determined on a case-by-case basis.

Further benefits are available for offshore investments, such as tax exemptions on profits and reinvested revenues, duty-free import of capital goods with no local equivalents, and full tax and duty exemption on raw materials, semi-finished goods, and services necessary for operation.

On March 9, 2017, the GOT adopted decree #2017-389 on financial incentives to investment in priority sectors, economic performance areas, and regional development.  Investors have to declare their projects through the regional offices of Foreign Investment Promotion Agency (FIPA) and the Agency for the Promotion of Industry and Innovation (APII) to receive incentives.

According to the World Bank’s Doing Business 2019 report, Tunisia’s overall ranking improved to 80 out of 190 countries from 88 the previous year.

Foreign Trade Zones/Free Ports/Trade Facilitation

Tunisia has free-trade zones, officially known as “Parcs d’Activités Economiques,” in Bizerte and Zarzis.  While the land is state-owned, a private company manages the free-trade zones. They enjoy adequate public utilities and fiber-optic connectivity.  Companies established in the free-trade zones are exempt from taxes and customs duties and benefit from unrestricted foreign exchange transactions, as well as limited duty-free entry into Tunisia of inputs for transformation and re-export.  Factories operate as bonded warehouses and have their own assigned customs personnel.

For example, companies in Bizerte’s free-trade zone may rent space for three Euros per square meter annually — a level unchanged since 1996 — plus a low service fee.  Long-term renewable leases, up to 25 years, are subject to a negotiable 3 percent escalation clause. Expatriate personnel are allowed duty-free entry of personal vehicles.  During the first year of operations, companies within the zone must export 100 percent of their production. Each following year, the company may sell domestically up to 30 percent of the previous year’s total volume of production, subject to local customs duties and taxes.  Lease termination has not been a problem, and all companies that desired to depart the zone reportedly did so successfully.

Performance and Data Localization Requirements

Foreign resident companies face restrictions related to the employment and compensation of expatriate employees.  The 2016 Investment Law limits the percentage of expatriate employees per company to 30 percent of the total work force (excluding oil and gas companies) for the first three years and to 10 percent starting in the fourth year.  There are somewhat lengthy renewal procedures for annual work and residence permits, and the GOT has announced its intention to ease them in the future. Although rarely enforced, legislation limits the validity of expatriate work permits to two years.

Central Bank regulations impose administrative burdens on companies seeking to pay for temporary expatriate technical assistance from local revenue.  For example, before it receives authorization to transfer payment from its operations in Tunisia, a foreign resident company that utilizes a foreign accountant must document that the service is necessary, fairly valued, and unavailable in Tunisia.  This regulation hinders a foreign resident company’s ability to pay for services performed abroad.

The host government does not follow “forced localization,” but encourages the use of domestic content.

There are no requirements for foreign information technology (IT) providers to turn over source code that is protected by the intellectual property law; however, they are required to inform the Ministry of Communication Technologies and Digital Economy about encrypted equipment.

Public companies and institutions are prohibited by the Ministry of Communication Technologies and Digital Economy from freely transmitting and storing personal data outside of the country.

Private and public institutions must comply with the recommendations of the National Authority for Personal Data Protection (INPDP) when handling personal data, even if it is business-related.  The National Institute of Office Automation and Micro-computing (INBMI) enforces the rules on local data storage.

Performance Requirements

Until recently, performance requirements were generally limited to investment in the petroleum sector.  Now, such requirements are in force in sectors such as telecommunications and for private sector infrastructure projects on a case-by-case basis.  These requirements tend to be specific to the concession or operating agreement (e.g., drilling a certain number of wells, or producing a certain amount of electricity).

Real Property

Secured interests in property are enforced in Tunisia.  Mortgages and liens are in common use, and the recording system is reliable.

Foreign and/or non-resident investors are allowed to lease any type of land, but can only acquire non-agricultural land.

A large portion of privately held land, especially agriculture land, has no clear title, and the government is investing a great deal of effort to encourage people to clear and register their properties.

Properties legally purchased must be duly registered to ensure they remain the property of their actual owners, even if they have been unoccupied for a long time.

According to the World Bank’s Doing Business 2019 report, registering a property in Tunisia is done in four steps, takes 39 days, and costs around 6.1 percent of the total property cost.

Intellectual Property Rights

Tunisia is a member of the World Intellectual Property Organization (WIPO) and signatory to the United Nations Agreement on the Protection of Patents and Trademarks.  The agency responsible for patents and trademarks is the National Institute for Standardization and Industrial Property (INNORPI — Institut National de la Normalisation et de la Propriété Industrielle).  Tunisia also is party to the Madrid Protocol for the International Registration of Marks. Foreign patents and trademarks should be registered with INNORPI.

Tunisia’s patent and trademark laws are designed to protect owners duly registered in Tunisia.  In the area of patents, foreign businesses are guaranteed treatment equal to that afforded to Tunisian nationals.  Tunisia updated its legislation to meet the requirements of the WTO agreement on Trade-Related Aspects of Intellectual Property (TRIPS).

Copyright protection is the responsibility of the Tunisian Copyright Protection Organization (OTDAV — Office Tunisien des Droits d´Auteurs et des Droits Voisins), which also represents foreign copyright organizations.

If customs officials suspect a copyright violation, they are permitted to inspect and seize suspected goods.  For products utilizing foreign trademarks registered at INNORPI, the Customs Code empowers customs agents to enforce intellectual property rights (IPR) throughout the country.  Tunisian copyright law applies to literary works, art, scientific works, new technologies, and digital works. Its application and enforcement, however, have not always been consistent with foreign commercial expectations.  Print, audio, and video media are particularly susceptible to copyright infringement in Tunisia. Smuggling of illegal items takes place through Tunisia’s porous borders.

The 2009 Intellectual Property law greatly expanded the current scope of protections.  The minimum fine for counterfeiting is 10,000 Tunisian dinars (approximately USD 3,800), and copyright protection is valid for the holder’s lifetime.  Customs agents have the authority to seize suspected counterfeit goods immediately.  Tunisia’s 2014 constitution enshrined intellectual property protection in article 41.

In 2015, the GOT issued a decree defining registration and arbitration procedures for trade and service marks, and establishing a national trademark registry.  The new decree contained provisions governing the registration of trademarks under the Madrid Protocol and included improvements such as the extension of the deadline for opposition to the registration of trademarks, as well as the electronic filing of applications for trademarks registration.

The GOT is currently preparing a new decree to create an IPR Council in charge of drafting a national IPR strategy.

The registration of drugs in Tunisia requires that the product is both registered and marketed in the country of origin.  In 2005, Tunisia removed its restriction on pharmaceutical imports where there are similar generic products manufactured locally.

Resources for Rights Holders

• Peter Mehravari
  Intellectual Property Attaché for the Middle East and North Africa
  U.S. Embassy Kuwait City, Kuwait
  U.S. Department of Commerce Global Markets
  U.S. Patent and Trademark Office
  Telephone: +965 2259 1455
  Email: peter.mehravari@trade.gov
• AmCham Tunisia:  http://www.amchamtunisia.org.tn/  
• Attorneys list:  https://tn.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/

For additional information about national laws and points of contact at local intellectual property offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/  .

Capital Markets and Portfolio Investment

Tunisia’s financial system is dominated by its banking sector, with banks accounting for roughly 85 percent of financing in Tunisia.  Overreliance on bank financing impedes economic growth and stronger job creation. Equity capitalization is relatively small; Tunisia’s stock market provided 13.2 percent of corporate financing in 2017 according to the Financial Market Council annual report.  Other mechanisms, such as bonds and microfinance, contribute marginally to the overall economy.

Created in 1969, the Bourse de Tunis (Tunis stock exchange) listed 82 companies as of December 2018.  The total market capitalization of these companies was USD 8.25 billion. During the last five years, the exchange’s regulatory and accounting systems have been brought more in line with international standards, including compliance and investor protections.  The exchange is supervised and regulated by the state-run Capital Market Board. Most major global accounting firms are represented in Tunisia. Firms listed on the stock exchange must publish semiannual corporate reports audited by a certified public accountant.  Accompanying accounting requirements exceed what many Tunisian firms can, or are willing to, undertake. GOT tax incentives attempt to encourage companies to list on the stock exchange. Newly listed companies that offer a 30 percent capital share to the public receive a five-year tax reduction on profits.  In addition, individual investors receive tax deductions for equity investment in the market. Capital gains are tax-free when held by the investor for two years.

Foreign investors are permitted to purchase shares in resident (onshore) firms only through authorized Tunisian brokers or through established mutual funds.  To trade, non-resident (offshore) brokers require a Tunisian intermediary and may only service non-Tunisian customers. Tunisian brokerage firms may have foreign participation, as long as that participation is less than 50 percent.  Foreign investment of up to 50 percent of a listed firm’s capital does not require authorization.

Money and Banking System

According to the Central Bank of Tunisia (CBT) annual report on banking supervision published in December 2018, Tunisia hosts 30 banks, of which 23 are onshore and seven are offshore.  Onshore banks include three Islamic banks, two microcredit and SME financing banks, and 18 commercial universal banks. After the fall of the former regime, companies, banks, and real estate that belonged to ousted President Ben Ali’s family were brought under GOT receivership and gradually privatized.

Domestic credit to the private sector provided by banks stood at 68.3 percent of GDP in 2017, per the CBT banking supervision report.  According to the World Bank, this level is higher than the MENA region average 56.7 percent. In the World Bank’s Doing Business 2019 survey, Tunisia’s ranking improved in terms of ease of access to credit from 105 in 2018 to 99 in 2019.  Tunisia’s banking system penetration has grown by 4 percent annually for the past five years. 87percent of banks are located in the coastal regions, with about 41 percent in the greater Tunis area alone.  Tunisia’s banking system activity is mainly within the 23 onshore banks, which accounted for 92 percent of assets, 93 percent of loans, and 97 percent of deposits in 2017. They offer identical services targeting Tunisia’s larger corporations.  Meanwhile, SMEs and individuals often have difficulty accessing bank capital due to high collateral requirements.

Foreign banks are permitted to open branches and establish operations in Tunisia under the offshore regime and are subject to the supervision of the Central Bank.

Government regulations control lending rates.  This prevents banks from pricing their loan portfolios appropriately and incentivizes bankers to restrict the provision of credit.  Competition among Tunisia’s many banks has the effect of lowering observed interest rates; however, banks often place conditions on loans that impose far higher costs on borrowers than interest rates alone.  These non-interest costs may include collateral requirements that come in the form of liens on real estate. Often, collateral must equal or exceed the value of the loan principal. Collateral requirements are high because banks face regulatory difficulties in collecting collateral, thereby adding to costs.  According to the CBT banking supervision report, nonperforming loans (NPLs) were at 13.9 percent of all bank loans in 2017, mostly in the industrial (27 percent) and tourism (18.9 percent) sectors.

Beyond the banks and stock exchange, few effective financing mechanisms are available in the Tunisian economy.  A true bond market does not exist, and government debt sold to financial institutions is not re-traded on a formal, transparent secondary market.  Private equity remains a niche element in the Tunisian financial system. Firms experience difficulty raising sufficient capital, sourcing their transactions, and selling their stakes in successful investments once they mature.  The microfinance market remains underexploited, with non-governmental organization Enda Inter-Arabe the dominant lender in the field.

The GOT recognizes two categories of financial service activity: banking (e.g., deposits, loans, payments and exchange operations, and acquisition of operating capital) and investment services (reception, transmission, order execution, and portfolio management).  Non-resident financial service providers must present initial minimum capital (fully paid up at subscription) of 25 million Tunisian dinars (USD 9.4 million) for a bank, 10 million dinars (USD 3.7 million) for a non-bank financial institution, 7.5 million dinars (USD 2.8 million) for an investment company, and 250,000 dinars (USD 94,450) for a portfolio management company.

Foreign Exchange and Remittances

Foreign Exchange

The Tunisian Dinar can only be traded within Tunisia, and it is illegal to move dinars out of the country.  The dinar is convertible for current account transactions (export-import operations, remittances of investment capital, earnings, loan or lease payments, royalties, etc.).  Central Bank authorization is required for some foreign exchange operations.  For imports, Tunisian law prohibits the release of hard currency from Tunisia as payment prior to the presentation of documents establishing that the merchandise has been shipped to Tunisia.

In 2018, the dinar depreciated 8.6 percent against the dollar and 12.9 percent against the Euro.

Non-residents are exempt from most exchange regulations.  Under foreign currency regulations, non-resident companies are defined as having:

• Non-resident individuals who own at least 66 percent of the company’s capital, and
• Capital fully financed by imported foreign currency.

Foreign investors may transfer funds at any time and without prior authorization.  This applies to principal as well as dividends or interest capital.  The procedures for repatriation are complex, however, and within the discretion of the Central Bank.  The difficulty in the repatriation of capital and dividends is one of the most frequent complaints of foreign investors in Tunisia.

There are no limits to the amount of foreign currency that visitors can bring to Tunisia to exchange into local currency.  However, amounts exceeding the equivalent of 25,000 dinars (USD 9,445) must be declared to customs at the port of entry.  Non-residents must also report foreign currency imports if they wish to re-export or deposit more than 5,000 dinars (USD 1,890).  Tunisian customs authorities may require currency exchange receipts on exit from the country.

Remittance Policies

Tunisia’s 2016 Investment Law enshrines the right of foreign investors to transfer abroad funds in foreign currency with minimal interference from the Central Bank.  Ministerial decree #417 of May 2018 stipulates that the Central Bank of Tunisia must decide on foreign currency remittance requests within 90 days.   In case of no response, the investor may contact the Higher Investment Authority, which will give final approval within 30 days.

Sovereign Wealth Funds

By decree #85-2011, the GOT established a sovereign wealth fund, “Caisse des Depots et des Consignations” (CDC), to boost private sector investment and promote small and medium enterprise (SME) development.  It is a state-owned investment entity responsible for independently managing a portion of the state’s financial assets. The CDC was set up with support from the French CDC and the Moroccan CDG (Caisse de Depots et de Gestion) and became operational in early 2012.  The original impetus for the creation of the CDC was to manage assets confiscated from the former ruling family as independently as possible in order to serve the public interest. More information is available about the CDC at www.cdc.tn  .

At the end of 2017, CDC had 6.4 billion dinars (USD 2.6 billion) in assets and 250 million dinars (USD 128 million) in capital.

All CDC investments are made locally, with the objective of boosting investments in the interior regions and promoting SME development.

The CDC is governed by a supervisory committee composed of representatives from different ministries and chaired by the Minister of Finance.

State-owned enterprises (SOEs) are still prominent throughout the economy.  Many compete with the private sector, in industries such as telecommunications, banking, and insurance, while others hold monopolies in sectors considered sensitive by the government, such as railroad transportation, water and electricity distribution, and port logistics.  Importation of basic staples and strategic items such as cereals, rice, sugar, and edible oil also remains under SOE control.

The GOT appoints senior management officials of SOEs, who report to the ministries responsible for the SOEs’ sectors of operation.  SOE boards of directors include representatives from various ministries and public stakeholders. Similar to private companies, the law requires SOEs to publish independently audited annual reports, regardless of whether corporate capital is publicly traded on the stock market.

The GOT encourages SOEs to adhere to OECD Guidelines on Corporate Governance, but adherence is not enforced.  Investment banks and credit agencies tend to associate SOEs with the government and consider them as having the same risk profile for lending purposes.

Privatization Program

The GOT allows foreign participation in its privatization program.  A significant share of Tunisia’s FDI in recent years has come from the privatization of state-owned or state-controlled enterprises.  Privatization has occurred in many sectors, such as telecommunications, banking, insurance, manufacturing, and fuel distribution, among others.

In 2011, the GOT confiscated the assets of the former regime.  The list of assets involved every major economic sector. According to the Commission to Investigate Corruption and Malfeasance, a court order is required to determine the ultimate handling of frozen assets.  Since court actions frequently take years — and with the government facing immediate budgetary needs — the GOT allowed privatization bids for shares in Ooredoo (a foreign telecommunications company of which 30 percent of shares were confiscated from the previous regime), Ennakl (car distribution), Carthage Cement (cement), City Cars (car distribution), and Banque de Tunisie and Zitouna Bank (banking).  The government is expected to sell some of its stakes in state-owned banks; however, no clear plan has been adopted or communicated so far due to fierce opposition by labor unions.

Tunisia adopted law #35 in June 2018 to encourage Corporate Social Responsibility (CSR).  The law requires companies to allocate a portion of their budgets to finance CSR projects such as those in sustainable development, green economy, and youth employment.  According to the law, an organization in charge of monitoring CSR projects will be created to ensure that the projects comply with the principles of good governance and sustainable development.  Tunisia is an adherent to the OECD Guidelines for Multinational Enterprises.

Since 1989, the public sector has been subject to a government procurement law that requires labor, environmental, and other impact studies for large procurement projects.  All public institutions are subject to audits by the Court of Auditors (Cour des Comptes).

The Tunisian Central Bank issued a circular in 2011 setting guidelines for sound and prudent business management and guaranteeing and safeguarding the interests of shareholders, creditors, depositors and staff.  The circular also established policies on recruitment, appointment, and remuneration, as well as dissemination of information to shareholders, depositors, market counterparts, regulators, and the general public.

The national point of contact for OECD for Multinational Enterprises guidelines is:

Abdelmajid Mbarek, Director
Ministry of Development, Investment, and International Cooperation
Avenue Mohamed V
1002 Tunis
Telephone: +216 7184 9596
Fax: +216 7179 9069
Email: a.mbarek@mdci.gov.tn

Tunisia has not yet joined the Extractive Industries Transparency Initiative (EITI).  However, Tunisia participated in the 7th world conference of the EITI in Lima, Peru, in 2016.

Per Tunisia’s 2014 constitution, projects related to commercial development of oil, natural gas, or minerals are subject to Parliamentary approval.

U.S. investors report that routine procedures for doing business (customs, transportation, and some bureaucratic paperwork) are often tainted by corrupt practices.  Transparency International’s Corruption Perceptions Index 2018 gave Tunisia a score of 43 out of 100 and a rank of 73 among 180 countries.  Regionally, Tunisia is ranked 7th for transparency among MENA countries and first in North Africa, ahead of Morocco, Algeria, Egypt, and Libya.  Most U.S. firms involved in the Tunisian market do not identify corruption as a primary obstacle to foreign direct investment.

In February 2017, Parliament passed law #2017-10 on corruption reporting and whistleblower protection.  The legislation was a significant step in the fight against corruption, as it establishes the mechanisms, conditions, and procedures for denouncing corruption.  Article 17 of the law provides protection for whistleblowers, and any act of reprisal against them is considered a punishable crime. For public servants, the law also guarantees the protection of whistleblowers against possible retaliation from their superiors.

Following the passage of the access to information and whistleblower protection laws, the government initiated an anti-corruption campaign led by the prime minister.  A series of arrests and investigations targeted well-known businesspersons, politicians, journalists, police officers, and customs officials.  Preliminary charges included embezzlement, fraud, and taking bribes.

In September 2017, the GOT established the Independent Access to Information Commission.  This authority was prescribed in the 2016 Access to Information Law to proactively encourage government agencies to comply with the new law and to adjudicate complaints against the government for failing to comply with the law.

Tunisia’s penal code devotes 11 articles to defining and classifying corruption and assigns corresponding penalties (including fines and imprisonment).  Several other regulations also address broader concepts of corruption. Detailed information on the application of these laws and their effectiveness in combating corruption is not publicly available, and there are no GOT statistics specific to corruption. The Independent Commission to Investigate Corruption, created in 2011, handled corruption complaints from 1987 to 2011.  The commission referred 5 percent of cases to the Ministry of Justice. In 2012, the commission was replaced by the National Authority to Combat Corruption, which has the authority to forward corruption cases to the Ministry of Justice, give opinions on legislative and regulatory anti-corruption efforts, propose policies and collect data on corruption, and facilitate contact between anti-corruption efforts in the government and civil society.

Post-2011 government efforts to combat corruption include:  the seizure and privatization of assets belonging to Ben Ali’s family members; assurances that price controls on food products, gasoline, etc., are respected; enhancement of commercial competition in the domestic market; establishment of a division within the Prime Minister’s Office dedicated to combatting corruption; arrests of corrupt businessmen and officials; and harmonization of Tunisian corruption laws with those of the European Union.

Since 1989, a comprehensive law designed to regulate each phase of public procurement has governed the public sector.  The GOT also established the Higher Commission on Public Procurement (HAICOP) to supervise the tender and award process for major government contracts.  The government publicly supports a policy of transparency. Public tenders require bidders to provide a sworn statement that they have not and will not, either by themselves or through a third party, make any promises or give gifts with a view to influencing the outcome of the tender and realization of the project.  Starting September 2018, the government imposed by decree that all public procurement operations be conducted electronically via a bidding platform called Tunisia Online E-Procurement System (TUNEPS). Despite the law, competition on government tenders appears susceptible to corrupt behavior. Pursuant to the Foreign Corrupt Practices Act (FCPA), the U.S. Government requires that American companies requesting U.S. Government advocacy certify that they do not participate in corrupt practices.

Resources to Report Corruption

Contacts at agencies responsible for combating corruption:

Chawki Tabib
President
The National Anti-Corruption Authority (Instance Nationale de Lutte Contre la Corruption – INLUCC)
71 Avenue Taieb Mhiri, 1002 Tunis Belvédère – Tunisia
Telephone: +216 71 840 401 / Toll Free: 80 10 22 22
Email: contact@inlucc.tn
http://www.inlucc.tn 

“Watchdog” organization:

Achraf Aouadi
President
I WATCH Tunisia
14 Rue d’Irak 1002 Lafayette, Tunisia
Telephone: +216 71 844 226
Email: contact@iwatch.tn

The end of 2019 will bring the country’s second set of parliamentary and presidential elections since its post-revolution constitution was ratified in 2014.  In the eight years since the revolution, Tunisia has made significant progress in the areas of civil society and rights-based reforms, but economic indicators continue to lag and have been a major force driving periodic protests.  While ideological differences with respect to religion dominate much of the political discord, differing economic ideologies — whether Tunisia will follow a statist economic model or a liberal one — have more tangible effects on policy.  The country’s first municipal elections, held in May 2018, were a critical first step in the decentralization process, which should help alleviate some of the economic disparity between the relatively wealthy coastal areas and the relatively poor interior of the country.

Two major terrorist attacks targeting the tourism sector occurred in 2015, killing dozens of foreign tourists at the Bardo National Museum in Tunis and a beach hotel in Sousse.  Security conditions have markedly improved since then.  Travelers are urged to visit www.travel.state.gov  for the latest travel alerts and warnings regarding Tunisia.

Tunisia has a highly literate labor force of approximately 4.2 million.  The official 2018 unemployment rate was 15.4 percent; however, unemployment is estimated at 29.2 percent among university graduates and is even higher among degree-holding women.  Official statistics do not count underemployment or provide disaggregated data by geography.

In order to keep the unemployment rate at current levels, 60,000 new private sector jobs must be created each year.  Over the past two decades, the structure of the workforce remained relatively stable, and as of the last quarter of 2018 stood at 14 percent agriculture and fishing, 29.3 percent industrial, and 52 percent commerce and services. Tunisia has successfully developed its industrial sector and created low-skilled employment, although several manufacturers struggle to find qualified technical workers.  During 2018, Tunisia reduced the number of unemployed graduates by 8,500.

The right of labor to organize is protected by law.  Currently, four national labor confederations operate in Tunisia.  The oldest and largest is the General Union of Tunisian Workers (UGTT — Union Générale des Travailleurs Tunisiens). The others include the General Confederation of Tunisian Workers (CGTT — Confederation Générale des Travailleurs Tunisiens), the Tunisian Labor Union (UTT — Union Tunisienne du Travail), created in May 2011, and the Tunisian Labor Organization (OTT — Organisation Tunisienne du Travail), created in August 2013.  UGTT claims about one third of the salaried labor force as members, although more are covered under UGTT-negotiated contracts.  Wages and working conditions are established through triennial collective bargaining agreements between the UGTT, the national employers’ association (UTICA — Union Tunisienne de l’Industrie, du Commerce, et de l’Artisanat), and the GOT.  These tripartite agreements set industry standards and generally apply to about 80 percent of the private sector labor force, regardless of whether individual companies are unionized.

Public Wage Increase:  On October 20, 2018, the GOT and UGTT reached an agreement to increase salaries for SOE employees.  Depending on grades and positions, increases ranged from 205 dinars to 270 dinars per month. Another wage increase agreement for the civil service was reached between the GOT and UGTT on February 7, 2019.  Depending on the job category, increases were from 135 to 180 dinars per month and implemented in several increments.

Private Wage Increase:  Negotiations between the UGTT and the employers union UTICA started March 2018 and concluded in September 2018 with an agreement to increase wages by 6.5 percent over three years.

Minimum Wage Increase:  On July 14, 2018, Prime Minister Youssef Chahed decided to raise the minimum wage (SMIG) by 6 percent retroactively, starting from May 2018 for the 48- and 40-hour work week regimes.  For the 48-hour regime, the minimum wage is 378.56 dinars per month. For the 40-hour regime, it is 323.43 dinars per month.

The minimum wage exceeds the poverty income level of 180 dinars per month.

The Overseas Private Investment Corporation (OPIC) has been active in the Tunisian market since 1963.  OPIC provides political risk insurance and financing to U.S. companies. OPIC has designed a number of investment funds that include Tunisia.  These funds cover, among other sectors, franchising and SME development. OPIC supports private U.S. investment in Tunisia and has sponsored several reciprocal investment missions.  In 2015, OPIC signed a credit guarantee facility agreement totaling USD 50 million with three Tunisian banks to increase access to capital for SMEs.

Table 2: Key Macroeconomic Data, U.S. FDI in Tunisia

*Source: Tunisia’s Foreign Investment Promotion Agency (FIPA) yearend December 2017.

Table 3: Sources and Destination of FDI

*Source: Tunisia’s Foreign Investment Promotion Agency (FIPA) yearend December 2018.

*Tunisia was not covered by the IMF’s Coordinated Direct Investment Survey (CDIS).

Table 4: Sources of Portfolio Investment

*Source: Tunisia’s Foreign Investment Promotion Agency (FIPA) yearend December 2018.

*Tunisia was not covered by the IMF’s Coordinated Portfolio Investment Survey (CPIS).

Embassy Tunis Commercial Section
Commercial Officer
U.S. Embassy Tunis, Les Berges du Lac, 1053, Tunisia
Telephone: +216 71 107 000
Email: TunisCommercial@state.gov