Doing business in Algeria

Investing in Algeria

Algeria’s market of 35 million inhabitants, energy wealth, and growing demands for modern infrastructure, has generated interest from governments and companies around the world. On one hand, Algeria’s economy is expected to grow at a healthy rate of 3-5% over the next several years based on higher world prices for oil. High level Algerian government officials and businessmen have outwardly expressed their desire for greater Irish business collaboration and involvement in water resources, environmental technologies, safety & security equipment, agriculture, petrochemicals, public works projects and medical equipment.

 


Conditions are good to consider doing business in Algeria, with its stable political conditions, and strong economic growth over the last several years. The Algerian government has set ambitious infrastructure development goals to foster economic growth, particularly in environmental and water technologies, hospital construction, solar power, and port/airport projects.

 

The Algerian Government has recently implemented new policies concerning trade and investment. Below is a summary of a ‘Complementary Finance Law’ published in the Official Journal July 26, 2009.

 

Complementary Finance Law:


I - Investments

All foreign investment can only be realized in a 49/51 partnership with Algerian investors. The 51% majority Algerian share can be represented by several Algerian partners or entities.

All foreign investments must demonstrate a favorable balance in foreign exchange during the lifetime of the project.

The Government and Algeria and state-owned companies can reject or accept all transfers of shares of foreign shareholders.

Foreign investments in goods and services must register a Declaration of Investment with ANDI, the National Agency for Investment Development. 

Foreign investment is subjected to prior review by the National Investment Council, NCI.

Foreign investors must commit to preferential treatment for Algerian goods and labor in order to obtain Algerian Government investment incentives. This commitment must be submitted in writing to the CNI and ANDI.

Foreign investors are exempt from VAT only when purchasing Algerian products or products that are not produced in Algeria.

The CNI has the authority to grant, for a limited period not exceeding 5 years, exemptions or reduction of duties, taxes or charges, including VAT.

An exemption period of 5 years on Corporate Tax is granted to companies that create over 100 jobs.

Investors that benefit from Algerian Government tax exemptions are required to re-invest the equivalent of their tax exemption inside Algeria within four years of commencing the investment activity. 

Corporate taxes are established as follows: 19% for production, public works and tourism activities; 25% for commercial and services activities.

Commercial banks registered under Algerian law are only allowed to grant loans to individuals as part of real estate activities.

     Dispositif encouragement 2010 en
     Climat investissement 2010 en
     Guide to investing in Algeria 2010


II – Measures affecting imports

Import activities can only be exercised by individuals or foreign legal entities within the framework of a partnership whose resident national shareholding is equal to at least 30% of the share capital.

A banking domiciliation fee of 10,000 DZD (approx. $150) is levied on each import transaction of goods.  For import of services, the fee is 3% of the transaction amount.

Capital goods and raw materials are explicitly excluded from this requirement, provided the importer commits in writing that imported goods are not to be re-sold.

Algerian importers must obtain a Tax Identification Number, NIF, from the Algerian Tax Administration in order to proceed with import activities.

Imports operation may not be carried out by third parties.  Banking domiciliation procedures relating to the imports business should be performed by the holder of the trade registration or the general manager of the importing company.  The physical presence of the holder is required for border control formalities (Border Police and Customs).  This measure was amended on August 12 2009 authorizing the formalities to be made by a third party provided they can show a mandate (procuration) as well as an official declaration at the Wilaya (state) where the import company is headquartered.

An importing company must domicile its operations at an Algerian bank before beginning business.

A letter of credit in the only way to pay for imports.  LC’s may only be opened with correspondent banks approved by Algerian banks.

Importing companies that want to cancel their trade registration must submit a tax certificate to the National Center of Trade Registration within the Ministry of Commerce within 48 hours of applying for cancellation. /p>

The customs administration may engage specialized companies to check goods and perform inspections before shipments arrive to Algeria.

These measures enter into effect and are enforceable as of July 27 2009.

 

Economic Situation:

Since 2000 Algeria has consolidated its economic growth, and the reforms undertaken are beginning to bear fruit. Growth in 2008 was 3.3 per cent and inflation 4.4 per cent. Having appreciated since 2007, the exchange rate of the dinar (DZD) remained close to its equilibrium value in 2008 (68 dinars to the US dollar [USD]), and unemployment stabilised at around 12 per cent of the active population. Strengthened by an average oil price of USD 99 per barrel in 2008, the Bank of Algeria built up foreign exchange reserves amounting to almostUSD142 billion. Following early repayments, total external debt fell to USD 460million (0.27 of gross domestic product [GDP]), and internal public debt dropped by nearly 30 per cent. Weak growth of 0.2 per cent is expected in 2009, as a result of falling global demand and reduced prices of oil and gas.


The state budget remains expansionary because of the higher wage bill and increased public investment, but the deficit, excluding oil taxes, remains high (approximately 42 per cent of GDP, excluding oil and gas). The overall fiscal position remains positive thanks to higher oil and gas revenue, but in 2009 it is expected to feel the effects of the global crisis and the collapse in oil prices. To ensure the medium-term viability of public finances and balance of payments, the country will need to diversify further its non-oil economy. This is the only solution to create enough jobs, reduce unemployment and improve the standard of living of the population.

 

Figure 2 - GDP by Sector

 

Market Opportunitie:

Oil, Electricity, Gas:

 

With regard to the global energy picture and Algeria’s place in it, the country ranks 15th in terms of oil reserves, 18th in terms of production and 12th in terms of exports.  The refining capacity of Algeria amounts to 22 million ton/year (2005).  Algeria ranks 7th in the world with regard to proven natural gas resources, 5th in production and 3rd in exports, behind Russia and Canada.  In light of these numbers, Algeria typifies a true energy giant.


Oil and gas continue to dominate the Algerian economy. The sector accounted for nearly 46.7 per cent of GDP in 2008 and 97.5 per cent of export revenue. The country’s oil and gas reserves remained high: 43 billion barrels of oil equivalent (BOEs) for oil, and nearly 5 trillion cubic metres (m³) for gas. The public operator Sonatrach (Société nationale pour la recherche, la production, le transport, la transformation et la commercialisation des hydrocarbures) controls 43 per cent of the national mining industry and 75 per cent of extracted oil and gas. In addition, it benefits from contracts of association with foreign partners. Although the level of crude oil production has changed very little over the past few years, remaining at around 1.4 million barrels a day, this has been compensated for by the country’s gas output, particularly for liquefied petroleum gas (LPG) and condensates. Once production begins on the In Amenas gas fields, in partnership with British Petroleum, gas production will increase by nearly 18 billion m³ per year.
The development of the gas fields discovered in the southern Saharan regions of Illizi and the Ahnet Basin will increase the country’s export capacity to 85 billion m³ per year by 2010, and to nearly 100 billion m³ by 2017. Local demand will also increase, from 27 billion m³ in 2008 to nearly 52 billion m³ in 2013. Local demand will double because of the growing needs of new, energy-intensive projects such as fertilisers, electricity generation and seawater desalination, as well as increased housing demand and the use of gas to fuel motor vehicles.  


In 2008, public sector gas export capacity rose to 70 billion m³, compared with 62 billion in 2006. The Transmed gas pipeline, which transits through Tunisia, is expected to increase its annual capacity from27 to 33 billion m³, thereby making it possible to transport more gas to Europe. The collapse in global crude oil prices since July reduced oil and gas export revenue in 2008 by nearly USD 2 billion (USD 78.2 billion, compared with projections of USD 80 billion). Combined with the fall in global oil prices and the stagnant level of oil production, Sonatrach’s reduction in production by 200 000 barrels/day to respect its OPEC quota will automatically affect export revenue, which is expected to fall to USD 38.3 billion in 2009, based on a reference price of USD 50 per barrel. In spite of this downturn in production, Sonatrach intends to continue with its plan to invest more than USD 63 billion from 2008 to 2012 in partnership with foreign oil companies.


Industry:

Growth in industry (excluding oil and gas) rose to 2 per cent from 0.8 per cent in 2007. This sector, which accounts for less than 4.5 per cent of GDP, owes its performance to high levels of electricity production and a slight recovery in manufacturing (0.8 per cent increase).  The sectors responsible for this modest upturn in industrial activity are agribusiness (12.8 per cent growth); energy (9.1 per cent); chemicals, rubber and plastics (8 per cent); and mines and quarries (7.9 per cent).The sectors in decline were wood, cork and paper (10.6 per cent decline); steel, engineering and electrical goods (5.2 per cent); hides and skins (3.2 per cent); and textiles (1.9 per cent). The Agence nationale du patrimoine minier (ANPM) awarded 27 exploration licences worth DZD 350 million for various minerals, including gold, iron, copper and lead.


The Algerian market for industrial products as a whole shows great vitality.  National production covers only part of the needs of a market estimated at more than 5 billion USD for industrial products. 

 

New Information and Communications Technologies (NICT):

In these two sectors, Algeria currently appears to be the biggest market in the Euro Mediterranean region.  Sizeable equipment programs have been initiated; more than 12 million mobile telephone lines and 3 million additional landlines.  Several hundred thousand computers have been slated to equip thousands of educational establishments, cybercafés, banks, administrations, local communities.

 

Growth in the application of computer science and Internet in Algeria has been considerable.  The intense NICT is a real social phenomenon.  The International Telecommunications Union revealed in 2006 that there were close to 2.2 million Internet users in Algeria, with almost 200,000 subscribers.  Algerian websites grew from 10 websites in 1997 to 4,500 current websites.

 

Construction:

The construction sector saw a decline in growth from a rate of 9.8 per cent in 2007 to 9.4 per cent in 2008. This downturn was partly due to the saturation of capacity to absorb investment in infrastructure. The sector, which accounts for 8.7 per cent of GDP, continues to benefit from domestically funded capital expenditure: it absorbs 40 per cent of funds allocated to infrastructure and to house building (nearly 150 000 homes were completed in 2008).

 

Public Works:

Within the framework of Algeria’s economic and social development and in the wake of the Economic Revival Support Plan, the public works sector benefited from important programmes with regard to infrastructures development.  In this regard the public works action programme includes the revival of the East-West highway, the opening up of the high plateaus and the Southern regions, and the construction of new port and airport infrastructure.

 

Infrastructure:

Major infrastructure programmes are being implemented in Algeria including the construction of the 1,250 km long East West highway, as well as dozens of projects pertaining to road transportation, ports, airports, bridges, aqueducts, dams and new cities.

The Complimentary Budget Plan for the Support of Growth contains provisions calling for:

700 billion DZD for transportation (subways, high speed trains, tramways etc)

600 billion DZD for public works (East-West highway etc)

400 billion DZD for major hydraulic works (dams, canals etc)

350 billion DZD for the modernization of economic sectors having social impacts (rural areas, agriculture etc)

 

Health:

Since 1962, Algeria has added a sizeable number of healthcare structures, accumulating a global capacity of almost 100,000 beds. A sustained effort to train qualified medical and paramedical personnel had a very positive influence on this development of the infrastructure.  Algeria increased from 258 doctors and specialists in 1962 to more than 45,000 in recent times.  During this time, life expectancy of Algerians has increased by 26 years.  The overall coverage rate of the population now reaches a respectable rate of one doctor for every 900 inhabitants.

 

The healthcare sector has come up against serious challenges and problems, particularly in relation to the modernization of the reception and care of patients, but has benefitted from complementary budget assistance and reorganization programmes launched in 2002.

 

Pharmaceuticals and medical products:

Estimations of cumulative future needs in medicine, medical consumables and devices amount to 1.5 billion USD a year.  Local production covers less than 20% of the markets needs.

 

Education:

Education and training have always been a preoccupation for the Algerian Government.  Since its independence, Algeria has opted for free, compulsory education until the age of 16.  Thanks to sustained budgetary efforts and substantial investments representing about one fourth of the total budget (operations and equipment), Algeria now guarantees access to education to approximately 98% of school age children.  Meanwhile, Algeria’s higher education system spreads across 36 cities comprising of 62 university level institutions which welcome 1.1 million students, 54% of whom are female.

 

Agriculture:

The agricultural sector, which produces more than 6.5 per cent of the country’s wealth, grew by only 1 per cent in 2008, as against 5 per cent in 2007. This weak growth was essentially due to the decline in cereal production, which represents more than 40 per cent of value added in the sector. The estimated production for 2008 of 21 million quintals is less than half the size of the 2007 harvest (43 million quintals). Accordingly the volume of food imports reached a record level of USD 8 billion in 2008, but the figure may be even higher for 2009.  This would affect the country’s public finances, given the weight of state-approved subsidies to consumer staples to protect the population’s purchasing power.

 

Water:

The goal is to improve services and reduce the waste of water through an effort to mobilize resources.  The aim also includes stabilizing and upgrading operators in this sector.  Private sector involvement in the management of resources is planned for some time in the future.

 

Learn more about Business in Algeria

Algeria
KPMG INVEST 2009 web version
Plan quinquenal 2010 en
Kpmg

 

 

Business Sectors in Algeria