Investing in Algeria – Any progress?
As a country largely dependent on its hydrocarbons exports to finance its public sector centred economy and extensive welfare programs, Algeria has been severely affected by the oil prices fall. In response to the resulting deficit and economic difficulties the Government, after tapping into its financial reserves, announced at the end of 2017 that it will use quantitative easing measures for a period of 5 years subject to the review of an independent commission headed by the President of the Republic. It has excluded raising debt on international markets and made more difficult the import of foreign goods.
Yet as regards private foreign investments it had taken some encouraging steps at the end of 2016 and launched a number of encouraging initiatives in 2017. As a result, from a legal perspective only a few changes would now be needed to facilitate foreign investments into Algeria’s growing private sector or infrastructure projects.
The more liberal reforms already implemented included the following:
- Removal of the obligation for foreign investments to present a positive foreign exchange balance.
- Relaxation of the prohibition on foreign debt financing for ‘strategic investments’ subject to the approval of the Algerian Government.
- Limitation of the State’s pre-emption right on foreign shareholders’ stake in Algerian companies to transfers in excess of 10% of the share capital.
- Restructuring of the incentives package for foreign investors.
Recent years have also seen the growth of local private players who have been trying to expand their activities, both in Algeria and abroad, in sectors other than hydrocarbons. Although the political landscape remain complex, the private sector’s representative body (the Forum des Chefs d’Entreprises) seems to be playing an increasingly important role.
There is also a sizeable Algerian diaspora with the entrepreneurial skills, and, for some of it access to funds, which could bring to the Algerian economy much needed resources, expertise and know how. The importance of this non-resident Algerian population has not escaped the attention of the Government which has recently announced its intention to extend to young Algerians living abroad the benefit of incentives packages for the creation of small businesses in Algeria.
Although Algeria savvy foreign investors and experienced practitioners have found ways of continuing to operate or invest in Algeria despite existing constraints, the level of investments has remained very low compared to the interest expressed by various international companies for the country’s potential.
However only a few additional measures would be needed to retrigger a new wave of foreign investment. These would be:
- The removal of the 49/51 rule which limits foreign shareholding to 49% of any Algerian company.
- The complete removal of the State’s pre-emption right over Algerian related share transfers from or to foreign investors.
Putting an end to these two restrictions would send a strong positive signal and, if past experience is any indication, could quickly lead to an influx of foreign investments, large and small, as had been the case before their implementation. In such case the impact of the announced quantitative easing measures will need to be considered further as encouraging foreign investors, Algerian expatriates and local entrepreneurs may be a quicker way to accelerate economic growth and generate some genuine enthusiasm for the Presidential elections in 2019.