Algeria is a lucrative but challenging market with significant potential for many U.S. businesses. Economic growth has been primarily driven by oil and natural gas production, which have traditionally accounted for more than 90 percent of export revenues, 60 percent of state budget revenues, and 40 percent of GDP. The drop in oil prices since 2014 has reversed the trajectory of both the balance of payments and government budget, the latter of which has been the principal engine of non-hydrocarbons activity, largely through infrastructure spending. The Algerian government has announced it aims to diversify its economy and rely increasingly on the private sector to spur economic growth, with an emphasis on attracting more foreign direct investment (FDI) to boost employment and offset imports via increased local production.
Private sector interlocutors report that multiple sectors potentially offer substantial opportunities for long-term growth for U.S. firms with many having reported double-digit annual profits. Sectors targeted for robust investment include agriculture, tourism, information and communications technology, manufacturing (especially vehicles), energy (both fossil fuel and renewable), construction infrastructure, and healthcare. A new investments law passed in August 2016 offers lucrative, long-term tax exemptions, along with other incentives.
However, significant challenges remain. U.S. companies must overcome language barriers, distance, customs challenges, an entrenched bureaucracy, difficulties in monetary transfers, currency conversion restrictions, and price competition from Chinese, Turkish, French and other European businesses. International firms that operate in Algeria sometimes complain that laws and regulations are constantly shifting and applied unevenly, raising the perception of commercial risk for foreign investors. Business contracts are likewise subject to changing interpretation and revision, which has proved challenging to U.S. and international firms. Other drawbacks include the 51/49 rule that requires majority Algerian ownership of all new foreign partnerships, inadequate enforcement of protections for intellectual property rights (IPR), and limited regional trade. Arduous foreign currency exchange requirements and overly bureaucratic customs processes combine to impede the efficiency and reliability of the supply chain, adding further uncertainty to the market.
Algeria’s adoption of an import substitution policy has severely restricted foreign trade. As of April 2017, 21 imported products now require authorization from the Ministry of Commerce via the issuance of import licenses, and many items—including vehicles, cement, steel, and certain fruits and vegetables—are subject to strict quotas up to 90 percent below import levels in 2014. Delays inherent to the opaque and inefficient system under which licenses are granted has in some instances led to the complete halt of certain imports. For many finished goods, importers are now unable to clear items into Algeria unless they have filed plans to build or are already operating local manufacturing facilities. Although import substitution policies have introduced volatility of supply and price increases, the Algerian government appears to view these policies as a success in the wake of late 2016 announcements of several joint ventures with European and Asian automakers. The Algerian government’s overriding economic policy priority appears to be reducing the import bill to minimize its current account deficit while reducing government capital expenditures, a major source of non-hydrocarbon investment within the country.
|TI Corruption Perceptions Index||2016||108 of 175||transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report “Ease of Doing Business”||2017||156 of 190||doingbusiness.org/rankings|
|Global Innovation Index||2016||113 of 128||https://www.globalinnovationindex.org/
|U.S. FDI in partner country||2015||$4.8 billion||bea.gov/international/factsheet/
|World Bank GNI per capita||2015||$4,850||data.worldbank.org/indicator/NY.GNP.PCAP.CD|