Investment prospects in Algeria
Algeria - Market Overview
Discusses key economic indicators and trade
statistics, which countries are dominant in the market, the U.S. market share,
the political situation if relevant, the top reasons why U.S. companies should
consider exporting to this country, and other issues that affect trade, e.g.,
terrorism, currency devaluations, trade agreements.
Last Published: 11/22/2019
Algeria
remains a lucrative but challenging market for many U.S. businesses. GDP
growth for 2018 reached 2.3% with 5% inflation. Oil and natural gas, which
account for 95% of export revenues and 60% of total government revenues, drive
economic growth. Declining oil prices have hurt government finances.
Total currency reserves fell from $108 billion in 2016 to $75 billion in
2018. Furthermore, the deterioration of Algeria’s terms of trade led to a 20%
nominal depreciation of the dinar since mid-2014. These
developments spurred the government of Algeria (GoA) to attempt to lower
the country’s sizeable import bill through a policy of diversification.
Unfortunately for U.S. businesses, the application of this policy has consisted
of reinvigorated protectionist policies as the government attempted to reduce
imports in order to reduce the outflow of hard currency.
Following the April 2nd, 2019 resignation of President Abdelaziz
Bouteflika, Algeria has entered into a transitional period headed by an interim
president. Authorities postponed presidential elections scheduled for
July 4 and have not set a date for a new vote.
U.S. companies must overcome language barriers, distance, customs challenges,
an entrenched bureaucracy, difficulties in monetary transfers, currency
conversion, repatriating dividends, and price competition from Chinese,
Turkish, and European businesses. International firms
that operate in Algeria complain laws and
regulations are continually
shifting and applied unevenly. This augments the perception of commercial
risk for foreign companies. Likewise, business contracts are subject
to changing interpretation and
revision, which has proved challenging to
U.S. and international firms. Other drawbacks include
the 49/51 investment law (which permits no more than 49% foreign
ownership of any business), inadequate
IPR enforcement, and limited regional
trade. The lack of access to
a regional market also hurts Algeria, because on its own
Algeria's market may not be attractive enough to
firms that can locate elsewhere to create a
regional distribution hub.
Despite these challenges, U.S. exporters can
find substantial opportunities in
Algeria if they have patience and effective
local agents or distributors to help translate
these opportunities into sales. Given
the time and resources necessary to develop
this market, Algeria is
a challenging destination for small- to medium-sized enterprises
(SMEs).
U.S. companies play a significant role in Algeria’s oil and gas sector.
Algerian government officials encourage non-hydrocarbon U.S. investment.
Despite some large projects awarded to U.S. companies, government measures have
made the country’s investment climate more complicated and restrictive. There
are often unanticipated regulations, heavy bureaucracy, and few incentives. As
a result, there have been a limited number of U.S. investments in Algeria
outside of the hydrocarbon sector.
Privatization, which began in 1995, has all but stopped due
to a lack of interest among foreign investors and
dissatisfaction among government leaders with past privatization and
foreign-investment efforts. A change in the 2016 budget law allowed for
the possibility of partial privatizations of state-owned firms, subject to
case-by-case approval by the Prime Minister, but only for sales to
Algerian buyers. Subsequently in 2018, then-Prime Minister Ahmed Ouyahia,
National Head of General Union of Algerian Workers (UGTA), Abdelmadjid Sidi
Said, and then-President of the Business Owners Forum (FCE), Ali Haddad
attempted to reinvigorate privatization efforts through a “Public-Private
Charter,” ostensibly to enhance the competitivity of state-owned enterprises by
permitting private sector investment. Strong public backlash to this
initiative led to a declaration from the presidency that any privatization
would have to be approved by his office, effectively rendering the charter
irrelevant.
Inadequate economic reforms and an antiquated banking system have left non-hydrocarbon sectors mostly underdeveloped.
Algeria has not yet joined the WTO and admission
is not a priority.
The United States enjoys a positive image in the
Algerian market. Algerians respect the quality of
U.S. goods and services and
U.S. companies are well regarded
for their after-sales service and
transfer of expertise. China, France, Spain, Italy, Turkey and
Germany are among the top traditional suppliers to Algeria. The
EU-Algeria Association Agreement, which entered into
force in 2005, maintains the EU’s dominance as the major
trade partner of Algeria.
Algeria’s agricultural production does not meet
domestic demand. The
country imports large volumes of bulk agricultural products and packaged foodstuffs,
though the government has begun limiting imports of the latter in
favor of domestic producers.
U.S. businesspeople must take precautions when
traveling to and within Algeria. Business
travelers and companies should continue
to exercise vigilance and consult the Embassy and the Department of State's travel advisories for updated information.
[1] https://www.imf.org/en/Countries/DZA
[2] http://www.worldbank.org/en/country/algeria/publication/economic-brief-july-2016
Issued by the US Embassy
in Algeria.