Algeria relaxes rules for foreign investors

Algeria seeks to breathe new life into its investment landscape with a new investment law. Published at the end of July, the updated legislation aims at boosting investment flows in a bid to enhance the country’s economic performance and, more importantly, break with its hydrocarbons dependence.

Following years of social and political uncertainty triggered by popular uprisings in 2019, the investment law is in itself a strong signal sent by the public authorities to all capital holders and potential domestic and foreign investors. In addition to local contractors, Algeria also has its eyes set on foreign ones.

Indeed, attracting foreign direct investments (FDIs) is a key objective of the new legislation. For instance, the 49/51 rule, which formerly stipulated all foreign investment be carried out with a majority Algerian stakeholder, is now only applicable to a few strategic activities. Moreover, the right of first refusal has been relaxed as well as the possibility for foreign investors to access financing outside of the national banking system.

The new law also guarantees the right for foreign investors to repatriate profits, dividends and capital in foreign currency and broadens the prerogatives previously provided under its single window system.

“Creating an electronic portal and broadening the prerogatives of the single window will serve as an interface to all investors and will, above all, offer the guarantees that entrepreneurs expect, in particular at the legal and procedural levels,” Brahim Guendouzi, professor of economics at the University of Tizi Ouzou, told Al-Monitor.

He explained that the skills required for processing investment files will be leveraged to boost the speed of project realization on the ground, and enhance transparency, efficiency and most of all trust.

Abdelhak Bousbia, an investor in the electronics and pharmaceutical industry, told Al-Monitor, “The single window provides more streamlining measures to investors by reducing the processing time for investment files to one month, digitalizing administrative procedures and expanding the scope of guarantee of transfer of funds invested and their revenues for nonresident investors.”

Minister of Industry Ahmed Zeghdar affirmed in an interview with a local outlet that the single window system is dedicated to “large investments and investments involving foreigners in order to put in place a fast and efficient management of these projects.”

He added that the measure aims to turn the single window into a pole for the promotion of Algeria as a global investment hub and will have a prospective role in defining areas with high potential for investment.

The new law also aims to encourage the recruitment by foreign investors of local manpower, in particular labor that does not require special skills.

Zeghdar noted that the recruitment of foreign employees at the onset of operations will be capped at a maximum of 10% of total employees, with the possibility of increasing this to 15% in the event of a local skills shortage.

However, despite the business opportunities available in Algeria, obstacles and bureaucratic constraints persist. It is also necessary to take into account the difficult economic context currently marred by the reemergence of inflation, which is likely to stand as a handicap for many investors who believe their expectations in terms of profitability will be cut short by the persistent rise in prices at the national level and also abroad given the extroverted nature of the Algerian economy.

Bousbia said, “The new law brings significant changes. But its biggest challenge will be its implementation on the ground.”

Economics expert Abderrahmane Mebtoul opined that investment has never been a question of law, but rather of governance. “We have had five or six investment laws since the time of former President Houari Boumediene; 90% of our exports still consist of hydrocarbon derivatives,” he told Al-Monitor.

He recommended lifting the stranglehold of bureaucracy and restructuring the financial system in order to boost investments. He also stressed the importance of guaranteeing monetary stability. However, he said that “the 2022 finance law still provides for a depreciation of the dinar by 20%. This does not help foreign and local investors."

Criticizing the government’s approach, economist Mourad Goumiri denounced what he called “regulatory nomadism” which, according to him, “is not the right method.” He firmly maintained that “doing business is an international reality that must be taken into consideration, otherwise Algeria will remain on the fringes of FDIs.”

He suggested to Al-Monitor, “freeing up the act of investing and conferring to public authorities the possibility of granting tax, customs, state and financial aid … depending on the investment and its impact on production of goods and services, on employment and on the environment. Otherwise, entrepreneurs are wise enough not to take the risk of doing business in Algeria.”