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.
3. Legal Regime
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 ( ) 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 . 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 ( ). 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 ( ) 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 ( ) 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.
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.
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.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
* 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.