A new investment framework in Algeria

As part of steps to reduce the country’s economic reliance on oil and gas production, Algeria’s parliament in mid-July 2016 passed a law aimed at attracting new private sector investment by modifying the national investment promotion framework, which dates from 2001. The law is due to be implemented by the end of 2016. In keeping with this timetable, the Ministry of Industry and Mines in November 2016 indicated that applicatory decrees for the legislation had been completed and submitted to the government for approval.

Measures & Incentives

Specific measures contained in the law include a 10-year exemption from property tax, as well as value-added tax and import duty exemptions for all goods and services acquired for use in an investment project. Such projects will also be exempted from corporate tax and professional activity taxes during the first three years of operation. A total of 200 economic activities judged to lack economic utility, which is to be laid out in a government decree, are excluded from such incentives.

The law also simplifies the administrative requirements for investors in order to reduce the burden of bureaucracy on such projects. Measures along these lines include the replacement of three previously separate steps that investors were required to complete as part of an investment project – namely an investment declaration, an application for incentives and an administrative dossier – with a single registration document. The law also removes previous stipulations that effectively blocked local investors from importing second-hand equipment. Foreign investors were already able to do so via a temporary import mechanism.

The law grants additional advantages to investment projects in the industrial, agricultural and tourism sectors. These include the government partially or fully covering infrastructure costs for the realisation of such projects, as well as the provision of land for projects in under-developed parts of the country at concessionary rates. The latter incentive applies for 10 years for projects in the Hauts Plateaux region and “other zones in which development requires a contribution from the state,” and 15 years in the south of the country.

Evolving Framework

The law also affects a major aspect of the local investment framework, namely the requirement since 2008 that Algeria-based economic entities be majority Algerian-owned, which is known as the 51:49 rule. While the rule remains in effect, the changes saw it moved from the investment code to the finance law, which determines the government budget and is renewed every year. The law also entirely eliminates the state’s right of first refusal on the sale of stakes in foreign-owned Algerian-based firms. This has been replaced with a requirement that companies instead obtain permission from the relevant ministry prior to undertaking any such transaction.

Investment Promotion

The legislation also foresees the reorganisation of the country’s National Investment Development Agency, which is to focus entirely on its investment promotion and support for investors. As part of this change, the body’s current responsibilities for granting tax incentives to investors are to be transferred to a new entity under the control of the country’s tax service, which is to be known as the Incentives Management Centre.

More To Be Done

While the incentives appear positive for investment, industry representatives at a panel held by private sector representative body the Forum for Business Leaders in November 2016 had some qualms. Local daily Le Temps d’Algérie reported that investors argued that the changes did not go far enough in addressing some of the problems faced by firms in the country. In particular, participants agreed that bureaucratic difficulties in dealing with Algerian banks and the country’s central bank, the Bank of Algeria, would blunt the impact of the new incentives and make it difficult for government industrialisation targets, such as a goal of achieving a 40% integration rate the auto manufacturing industry within five years.

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The Report: Algeria 2016

Economy chapter from The Report: Algeria 2016