Algeria: Any reason to consider investing in 2020?

Posted in Northern Africa Blog post

A challenging environment for investors

Algeria probably does not look like the most attractive destination for foreign investors today.

It ranks 157th (out of 190 countries) in the 2019 Doing Business Report of the Word Bank. Foreign majority shareholdings are prohibited, administrative processes are notoriously inefficient and cumbersome, exchange control rules are overly restrictive and unpredictable. The country’s reputation for widespread corruption is well documented.

In addition the Algerian political situation is uncertain. In April 2019, following weeks of popular protest, President Bouteflika resigned after twenty years in office. A number of prominent political and business figures have subsequently been arrested and convicted of corrupt practices or fraud. However massive demonstrations continue to be held every week. Protesters fear that the forthcoming December 2019 Presidential elections will only perpetuate a system which they believe has stifled the growth of a country with massive gas resources, a young and dynamic educated work force and a vast potential for tourism, industry and other profitable activities.

However changes might be coming.

Foreign debt and equity and “Strategic“ and “Non-strategic” sectors

The restrictions on foreign majority shareholding (the so-called “49/51 rule”) and foreign financings were imposed in 2009. However even President Bouteflika’s government came to realise the economic consequences of these prohibitions and, in December 2016, the law was amended to allow on a case by case basis the use of foreign loans for “strategic interests projects.”

More recently, on 11th September 2019, the new government announced that under the forthcoming 2020 Finance Law the 49/51 rule would be lifted for “non-strategic sectors” and that “selective recourse to financing from international financial institutions for development” will be used to fund “structuring and profitable projects” for “amounts and tenors compatible with the profitability and solvency” of these projects.

The September announcement did not list the sectors where the 49/51 rule would no longer apply. The Minister of Finance recently indicated that a decree will be published identifying the “strategic” and “non-strategic” sectors and that the 49/51 rule would be maintained for the hydrocarbons, financial and insurance industries. However the term “strategic” is broad or vague enough to include energy, infrastructure or any sector which the government deems to be sensitive. For instance it is not clear in what category the 4000MW solar program regularly trumpeted by the Algerian government would fall. Accordingly the influx of foreign debt and capital is still going to be closely controlled by Algerian authorities.

Why 2020?

Companies that have invested or previously considered investing in Algeria will therefore have some good reasons to view the recent government announcement with caution or skepticism. In addition uncertainty surrounding the aftermath of the December elections remains.

However, contrary to December 2016, when the government had not publicised the authorisation to use foreign financing for “strategic projects” (or published an implementing decree), government representatives have been repeatedly communicating since the September announcement about the need to further open Algeria to foreign investment. Moreover the pressure for change from the population has not diminished whereas the cash reserves from oil revenues, which had been used to quell public discontent, are dwindling. Accordingly, even if the population’s aspirations go beyond economic considerations, opening the door to foreign investors whilst maintaining a firm grip on the latch appears to the government to be a means of appeasing popular discontent whilst not making any radical changes.

The 49/51 is not the sole obstacle to foreign investment but it is seen as the hallmark of the Algerian authorities’ mistrust of foreign investors. Its suppression will therefore be seen as a strong signal sent to such investors. It will also need to be accompanied by a number of other changes if its disappearance is to have a major impact on Algeria; but, as regards the regulatory aspects, the amendments required could be made quite rapidly.

Accordingly whilst it may not yet be time to invest, it is perhaps time for the more resolute investors to start identifying possible business opportunities and partners in Algeria.

Christophe Asselineau has been advising foreign investors and Algerian private and state owned entities since the mid 1990’s. He was instrumental in the development and financing in a wide range of projects and M&A transactions in Algeria and is currently working on various projects in Algeria.

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