2009 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
February 2009
Report

Overview

Algeria's population of roughly 35 million, its energy wealth, and growing demand for modern infrastructure and consumer products have generated broad interest in this market from companies around the world. But an often difficult business regulatory environment, symbolized by Algeria's failure to date to join the WTO or to modernize its banking sector, has impeded significant foreign investment outside the energy sector. Statements in mid-2008 by the president and prime minister blaming foreign investors for Algeria's "failed" economic reform measures and suggestions that future foreign investment will require a majority Algerian stakeholder signal a renewed government effort at economic nationalism. This trend began in 2006 with amendments to the hydrocarbons laws that backtracked from market liberalization and required the national oil company Sonatrach to be a majority partner in all oil and gas projects, and imposed a windfall profits tax on oil production. Financial sector reform is incremental at best, and the world financial crisis resulted in the indefinite suspension of the privatization of the state-owned bank Credit Populaire d'Algerie (CPA). In fact, privatization in general has stalled across all sectors. Algerian ministers and government officials, nonetheless, urge U.S.-based companies to consider projects in Algeria, and they welcome trade delegations to explore such opportunities.

Openness to Foreign Openness

While Algerian officials are quick to seek technology and know-how transfer, they have pursued efforts to secure greater returns for Algerian interests since the 2006amendments to the hydrocarbons law. Algerian law now requires a majority state partnership in all oil and gas projects and imposes a heavy windfall profits tax on oil profits when prices are above USD 30 per barrel. At least one American company successfully purchased the majority share of an industrial plant in early 2008, but statements from the president and prime minister since then indicate that future foreign investment in some sectors will require majority Algerian partnership. In July 2008 the president publicly expressed anger over what he perceived to be massive profits expropriated to foreign capitals reaped from investments in Algeria. Since that speech, the tax law was amended to require companies to re-invest within four years the equivalent value of any tax benefits they obtain as incentives to locate in Algeria, and a new 15 percent tax was imposed on foreign companies transferring profits out of Algerian. Three agencies have mandates to encourage and manage investment in Algeria. The National Agency for Investment Development (ANDI) (www.andi.dz) is responsible for facilitating investments and granting tax exemptions. The National Investment Council (CNI) was created to define investment strategies and priorities, and approve special investment incentives by sector. The Ministry for Industry and Investment Promotion (www.mipi.dz) maintains an office for investment policy and one for promotion of privatization. The privatization process in Algeria has all but stopped, however, due in part to a lack of interest by foreign firms and to a lack of confidence by the government in the process. The government is now seeking to consolidate state-owned firms according to sector.

Conversion and Transfer Policies

The Algerian dinar is considered fully convertible for all commercial transactions. The Bank of Algeria (Banqued'AlgQrie, the nation's central bank) manages Algeria’s foreign reserves, controls foreign exchange, and delegates most of these controls to the banks themselves. Legally registered economic operators may have access to foreign currency to make payments, subject to bank domiciliation, without any pre-authorization. The same transfer procedures apply to both goods and services, including insurance, transportation, maintenance, technical assistance, and even training contracts related to imported or exported goods. Algerian exporters outside the hydrocarbon sector must repatriate their receipts and can convert only 50 percent into hard currency, receiving the other half in local currency. Hydrocarbon export remuneration, by law, is remitted 100 percent in Algerian dinars to local accounts. Foreign investors are allowed to repatriate their profits, even if revenues exceed the original amount invested. Foreign investors can repatriate dividends, profits and real net income out of their assets transfer or through liquidation. In certain cases, due to the inefficiency of the banking system and the heavy bureaucracy, it may take longer to obtain official permission from the central bank to make transfers/payments, or for the local bank to proceed with the transfer.

Expropriation and Compensation

The government of Algeria has not engaged in expropriation actions against U.S. or other foreign firms.

Dispute Settlement

Algeria is a signatory to the convention of the Paris-based International Center for the Settlement of Investment Disputes (http://www.worldbank.org/icsid). Algeria ratified its accession (http://arbiter.wipo.int/arbitration) to the New York Convention on Arbitration and is a member of the Multilateral Investment Guarantee Agency (http://www.miga.org). The code of civil procedure allows both private and public sector companies’ full recourse to international arbitration. Algeria permits the inclusion of international arbitration clauses in contracts. An American oil company exercised the dispute settlement mechanism in its contracts with the state oil company to contest the implementation of a windfall profits tax that the company argued violates its contract. The process for negotiation, non-binding conciliation and binding arbitration has been slow but apparently consistent with the dispute resolution clauses of the contract.

Performance Requirements and Incentives

Algeria does not impose general performance requirements on foreign investments. However, the national energy company Sonatrach must be a majority shareholder inane venture in the hydrocarbons sector. Furthermore, statements made by the president and prime minister inmid-2008 suggest that future foreign investments in Algeria in many sectors will require Algerian majority partnership. The investment code provides a number of incentives for investment in Algeria, primarily related to VAT and other tax exemptions for periods of time that are dependent on the type of investment made and the nature of the package agreed two between the investor and the National Agency for Investment Development (ANDI). Changes to ANDI's mandate maybe changed, however, as the President referred to the agency’s results as a "failure" for Algeria in his July 2008remarks.

Right to Private Ownership and Establishment

Foreign entities have largely equal rights to establish and own business enterprises in Algeria, and engage in most forms of remunerative activity within the framework of the requirements for Sonatrach participation in hydrocarbons ventures. Private enterprises have equal status with public enterprises and compete on an equal basis with respect to access to markets, credit, and business operations.

Protection of Property Rights

Secured interests in property are generally recognized and enforceable, but court proceedings can be lengthy and results unpredictable. Most real property in Algeria remains in government hands, and tumult over the years has resulted in conflicting claims for real estate title, making the purchase and financing of real estate difficult. As part of Algeria's negotiations for WTO accession, the government adopted new laws in July 2003 on copyright and related rights, trademarks, patent and integrated circuits. Implementation has been inconsistent, and enforcement remains spotty. Nonetheless, the customs service has stepped-up the fight against counterfeit products.

Transparency of Regulatory Reform

Algeria's regulatory system is largely transparent, even if decision-making authority remains opaque. Each ministry defines the rules for doing business in the sectors it manages, and regulatory bodies are established to administer them. Challenges arise in managing the bureaucracy because authority is generally vested at the top of every organization, and access to decision-makers is often limited. Furthermore, the bureaucracy is slow and protocol-oriented, such that even minor deficiencies in paperwork can lead to significant delays and frustration. In some cases, authority over a matter may rest within multiple ministries, adding additional bureaucratic steps and the likelihood of inaction in the face of a problem or unusual circumstance. Efforts were undertaken in 2008 and early 2009to begin modernization of the bureaucracies of the tax administration and customs service.

Efficient Capital Markets and Portfolio Investment

After ten years, the Algerian stock exchange remains nascent, with only three companies listed. Long-term treasury bonds were listed on the stock market in 2008, but trading seems to have declined sharply due to the increased number of fees required to trade the bonds. Shorter yield bonds continue to be managed through bond dealers. To absorb excess liquidity, some stated-owned companies have launched corporate bonds to finance their development projects. More recently, Sonatrach projects are also being financed through a bank investment pool, rather than bond markets. The pool is guaranteed by the federal government. Private bond vehicles are launched periodically for large-scale construction or venture projects, such as a2009 harbor and marina development that offers the Algerian public 6.5 percent interest for shares purchased to capitalize the project.

Political Violence

Political violence has declined since the brutal acts of terror that took place in the 1990s. The government’s efforts to reduce the terrorist threat through military engagement and societal reconciliation have achieved results. Algeria has mostly defeated terrorism as a political threat to the country, but U.S. firms should be aware of the security risks they face when visiting and working in Algeria. Algerian terrorists aligned themselves with Al Qa'idain 2007. Since late 2006, there have been a series of suicide bombings against mostly government installations, but also against several foreign targets, including within the Algiers metropolitan area. The U.S. Embassy in Algiers maintains a high level of security, and security preparations must be considered when doing business in Algeria. Visitors should read the State Department’s Consular Information Sheets and Travel Advisory before traveling to Algeria, at www.travel.state.gov.

Corruption

Corruption is not as blatant of a problem in Algeria as it is in many countries, and foreign companies generally do not complain of being asked to pay bribes or that contracts were lost because of corruption. Algerian citizens believe that corruption is a problem in the upper reaches of government, however, and anecdotal evidence suggests that bribes are used to manage the vast Algerian bureaucracy, or to avoid the reach of government. The Algerian government adopted an anti-corruption bill in 2006. The law reinforced existing legislation to bring Algeria into compliance with the U.N. Convention against Corruption, which Algeria ratified August 25, 2004.The law was designed to promote transparency in government and public procurement, introduced new crimes such as illicit enrichment, and reinforced existing penal sanctions. A national anti-corruption body under the direction of the presidency has not yet been established. Algeria is not a financial center and financial transactions are tightly regulated. However, it is estimated that half of the country's economic transactions are done within the informal sector, effectively escaping the purview of state auditors. The government adopted anti-money laundering legislation in 2005 and established a financial intelligence unit to monitor suspicious financial transactions and refer violations of the law to prosecutorial magistrates.

Bilateral Investment Agreements

The United States and Algeria signed a Trade and Investment Framework agreement (TIFA) in 2001 to create a forum for involved discussion. TIFA council meetings were held in 2001 and 2004.Algeria executed a European Union association agreement in2005. The agreement provides for the gradual removal of import duties on EU industrial products over twelve years, and removed duties immediately on 2,000 other products. Algeria signed bilateral investment agreements for the protection and promotion of investments with the following countries in the indicated years: Belgium/Luxembourg (1991),Italy (1991), France (1993), Romania (1994), Spain (1994),China (1996), Germany (1996), Jordan (1996), Mali (1996),Vietnam (1996), Egypt (1997), Bulgaria (1998), Mozambique(1998), Niger (1998), Turkey (1998), Denmark (1999), Yemen(1999), Czech Republic (2000), Greece (2000), and Malaysia(2000). There is no bilateral investment treaty between Algeria and the United States. Algeria has also signed bilateral treaties to prevent double taxation with the following nations: United Kingdom (1981),France (1982), Tunisia (1985), Libya (1988), Morocco (1990),Belgium (1991), Italy (1991), Romania (1994), Turkey (1994),Syrian Arab Republic (1997), Bulgaria (1998), Canada (1999),Mali (1999), Vietnam (1999), Bahrain (2000), Oman (2000),Poland (2000), Ethiopia (2002), Lebanon (2002), Spain (2002),and Yemen (2002). There is no double taxation treaty between Algeria and the United States. In 1990, Algeria signed both investment protection and double taxation agreements with the Arab Maghreb Union (UMA) countries (Libya, Morocco, Mauritania and Tunisia).

OPIC & Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation (OPIC) (http://www.opic.gov), the U.S. Export-Import Bank (Ex-Im) (http://www.exim.gov), and the U.S. Trade and Development Agency (USTDA) (http://www.ustda.gov) support projects in Algeria. A USD 250-million water desalination project in Algiers was completed in 2008 with OPIC support, and Ex-Im supported the U.S. content of a power project in Skikda in 2003.

Labor

Algeria's labor force consists of roughly 10 million people out of a total population of some 35 million. According to the National Office of Statistics, over 70percent of the population is under age 30. The monthly minimum wage is DA 12,000 (USD 200). The official unemployment rate is near 11 percent, but international organizations speculate it is much higher, perhaps as high as27 percent. Algeria’s labor code sets minimum work standards, including a minimum work age (16 years), a 40-hour workweek and rates for overtime pay. Employers pay 26 percent of gross salaries in social security taxes, including provisions for both retirement and health/accident insurance. U.S. companies are able to hire trained technical staff. However, recruiting and retention have become more difficult, as well-educated and trained Algerians are increasingly being lured to higher salaries offered in the Gulf region. English speakers remain difficult to find. Arabic is the official language, and French is the most common language of business. There are no restrictions on the number of expatriate supervisory personnel a company may establish. Entry visas for foreign workers must be requested through the Ministry of Employment and Social Solidarity (http://www.massn.gov.dz). Foreign workers must then obtain work permits from the Ministry of Labor (http://www.mtss.gov.dz) and a residency card from the local police office in the district where they will be working. The employer is responsible for submitting all tax payments for individual workers to the proper local tax collection authorities. Algerian regulations allow foreigners to repatriate 50percent of their salaries.

Foreign-Trade Zones/Free Ports

There are currently no free trade zones in Algeria.

Foreign Direct Investment Statistics

The latest data available from the Central Bank shows foreign inflow to Algeria was USD 1.8 billion for 2006. The CIA World Factbook estimates the total FDI stock to be USD10.6 billion.

[This is a mobile copy of Algeria]