1. Openness To, and Restrictions Upon, Foreign Investment
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.
Algeria’s online information portal dedicated to business creation and the business registration website 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 ( ) 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.
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.
4. Industrial Policies
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 ( ). “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 ( ). 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.