Algeria lags behind neighbours in attracting foreign investment

While Algeria has significant natural resources and opportunity for growth, businesses have stayed away because of restrictive government policies.
Sunday 01/07/2018
Losing investment. Algerian Foreign Minister Abdelkader Messahel speaks during a news conference in Brussels, on May 14.(AFP)
Losing investment. Algerian Foreign Minister Abdelkader Messahel speaks during a news conference in Brussels, on May 14.(AFP)

TUNIS - Despite a thriving domestic market, Algeria’s economy remains comparatively closed and struggles to attract foreign direct investment, a recently released report by the UN Conference on Trade and Development (UNCTAD) said.

A UNCTAD report said foreign direct investment (FDI) shrank 26% to $1.2 billion year-on-year in 2017, although it was dispersed more evenly across various sectors.

“Despite its strong potential in terms of domestic market, natural resources and opportunities, Algeria remains less attractive in direct foreign investment,” said Algerian economist Hassan Haddouche. “It has the weakest results in attracting foreign investment compared to other states in North Africa.”

The trend, which analysts said was due to protectionist laws, extensive bureaucratic procedures and corruption, came after the country’s foreign minister said business was booming in the North African country.

“Algeria is more stable and more attractive than (other countries in the region),” Foreign Minister Abdelkader Messahel said.

Algerian state media, responding to the UNCTAD report, said the country’s slumping FDI was part of a general trend across the continent.

“The problem with the official media explanation is that the FDI in North Africa was down 4% to $13 billion,” said Haddouche. “The FDI in Tunisia rose in 2017 to [$900 million] after a bad year in 2016 while in Morocco the FDI had jumped 23%.

“The low record in the continent was due to the bad performance of Algeria because it has the third most important economy in the continent.”

While Algeria has significant natural resources and opportunity for growth, businesses have stayed away because of restrictive government policies.

In 2014, Doug Wallace, US commercial attache for North Africa, said that Algeria “has historically been one of the hardest places in the region to do business.” He cited protectionist laws, including a 2009 measure requiring Algerian firms to own 51% of any joint venture.

Pierre Gattaz, chairman of French electronics manufacturer Radiall, said during a visit to Algiers this year that the “49-51 business ownership rule is a lock and obstacle for business. French investors are willing to come to Algeria but they are afraid that they could not own a majority stake in their businesses.”

While Algeria received less foreign investment in 2017, it did see increased diversification.

“In 2017, the diversification of foreign direct investment (in Algeria) was supported by FDI made by Chinese telecoms group Huawei and South Korean Samsung, which opened its first smartphone assembly plant in the country,” said the UNCTAD.

However, low overall investment figures point to lingering obstacles. Apart from protectionist measures, international firms operating in Algeria complain that regulations often change and are unevenly applied, raising the perception of commercial risk for foreign investors.

Other drawbacks include inadequate enforcement of protections for intellectual property rights, limited regional trade, arduous foreign currency exchange requirements and prohibitive bureaucratic customs, all of which impede the efficiency and reliability of supply chains.

International investors were especially put off by the treatment of Egyptian telecommunications firm Orascom Telecom, which took a stake in local mobile phone service network Djezzy in 2009.

As tension built up between Algiers and Cairo due to clashes during World Cup qualifying matches, Algeria presented Orascom with an unexpected $600 million tax bill. The Algerian government blocked the sale of Djezzy to a South African investor and prevented Orascom from importing equipment or repatriating dividends.

The incident was resolved through a Russian buyer but Orascom declared a loss of more than $2 billion in 2014.

Algeria-born Dalia Ghanem-Yazbeck, a resident scholar at the Carnegie Middle East Centre, cited corruption as another obstacle investors face in Algeria.

She said one project can require approval from several cabinet departments and that investors are often met with requests for bribes or “facilitation” payments. The judiciary system is “not very independent,” Ghanem-Yazbeck added. “Investors complain in Algeria that [laws and regulations] are inconsistent and applied unevenly,” she said.

The World Bank’s “Doing Business” index recently ranked Algeria 153rd out of 180 in investment environment — the worst in the region. A World Bank report stated that 14 separate procedures are needed to start a business in Algeria, compared to eight in the rest of the region.

The loss of investment, particularly in fields other than the oil sector, which creates relatively few jobs, has affected Algeria’s employment rate, which is upward of 10% and exceeds 25% for young people. Some 70% of jobs are in the public sector.

Abdelhak Lamiri, an economist at the Algiers-based International Management Institute, said there were 680,000 companies in the country of 41 million people when comparably sized countries have at least 1.5 million.

While Algeria has largely kept the public’s needs met by providing jobs and handing out subsidised housing and food, it could be forced to look for alternative means of employment if no new oil finds emerge.

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