HomeReportsBureau of Economic and Business Affairs2017 Investment Climate Statements...Algeria

# 					2017 Investment Climate Statements: Algeria			

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													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

Algeria is a lucrative but challenging market with significant potential for many U.S. businesses. Economic growth has been primarily driven by oil and natural gas production, which have traditionally accounted for more than 90 percent of export revenues, 60 percent of state budget revenues, and 40 percent of GDP. The drop in oil prices since 2014 has reversed the trajectory of both the balance of payments and government budget, the latter of which has been the principal engine of non-hydrocarbons activity, largely through infrastructure spending. The Algerian government has announced it aims to diversify its economy and rely increasingly on the private sector to spur economic growth, with an emphasis on attracting more foreign direct investment (FDI) to boost employment and offset imports via increased local production.

Private sector interlocutors report that multiple sectors potentially offer substantial opportunities for long-term growth for U.S. firms with many having reported double-digit annual profits. Sectors targeted for robust investment include agriculture, tourism, information and communications technology, manufacturing (especially vehicles), energy (both fossil fuel and renewable), construction infrastructure, and healthcare. A new investments law passed in August 2016 offers lucrative, long-term tax exemptions, along with other incentives.

However, significant challenges remain. U.S. companies must overcome language barriers, distance, customs challenges, an entrenched bureaucracy, difficulties in monetary transfers, currency conversion restrictions, and price competition from Chinese, Turkish, French and other European businesses. International firms that operate in Algeria sometimes complain that laws and regulations are constantly shifting and applied unevenly, raising the perception of commercial risk for foreign investors. Business contracts are likewise subject to changing interpretation and revision, which has proved challenging to U.S. and international firms. Other drawbacks include the 51/49 rule that requires majority Algerian ownership of all new foreign partnerships, inadequate enforcement of protections for intellectual property rights (IPR), and limited regional trade. Arduous foreign currency exchange requirements and overly bureaucratic customs processes combine to impede the efficiency and reliability of the supply chain, adding further uncertainty to the market.

Algeria’s adoption of an import substitution policy has severely restricted foreign trade. As of April 2017, 21 imported products now require authorization from the Ministry of Commerce via the issuance of import licenses, and many items—including vehicles, cement, steel, and certain fruits and vegetables—are subject to strict quotas up to 90 percent below import levels in 2014. Delays inherent to the opaque and inefficient system under which licenses are granted has in some instances led to the complete halt of certain imports. For many finished goods, importers are now unable to clear items into Algeria unless they have filed plans to build or are already operating local manufacturing facilities. Although import substitution policies have introduced volatility of supply and price increases, the Algerian government appears to view these policies as a success in the wake of late 2016 announcements of several joint ventures with European and Asian automakers. The Algerian government’s overriding economic policy priority appears to be reducing the import bill to minimize its current account deficit while reducing government capital expenditures, a major source of non-hydrocarbon investment within the country.

*Table 1*

							1. Openness To, and Restrictions Upon, Foreign Investment					

**Policies Towards Foreign Direct Investment**

Algeria is the epitome of a challenging, but potentially highly rewarding economy. While the Algerian government publicly welcomes FDI, a difficult business climate, an inconsistent regulatory environment, and contradictory government policies complicate foreign investment. There are business opportunities in nearly every sector, including but not limited to energy, power, water, healthcare, telecommunications, transportation, recycling, agribusiness, and consumer goods. Lower oil prices since mid-2014 have spurred the Algerian government to initiate reforms to drive economic diversification, but progress has been slow. The government has targeted the country’s trade deficit for reduction via an openly-espoused policy of import substitution. Strict import quotas have been instituted for certain products, including automobiles and construction materials, with additional requirements for importers to establish local manufacturing in order to receive permission to import. Certain regulations explicitly favor local firms at the expense of foreign competitors, most prominently in the pharmaceutical sector where an outright import ban remains in place on more than 250 medicines and medical devices. The arbitrary nature of the government’s frequent changes to business regulations has added to the uncertainty of the market.

The National Agency of Investment Development (ANDI) is the primary Algerian government agency tasked with recruiting and retaining foreign investment. ANDI runs branches in each of Algeria’s 48 governorates (“wilayas”) that are tasked with facilitating business registration, tax payments, and other administrative procedures for both domestic and foreign investors. In practice, U.S. companies report that the agency is under-staffed and ineffective; its “one-stop shops” only operate out of physical offices, and there are no efforts to maintain dialogue with investors after they have initiated an investment. The agency’s effectiveness is undercut by its lack of decision-making authority, particularly for industrial projects, which is exercised by the Ministry of Industry and Mines, the Minister of Industry himself, and in many cases the Prime Minister.

**Limits on Foreign Control and Right to Private Ownership and Establishment**

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity. However, the 51/49 rule requires a majority of Algerian ownership of at least 51 percent in all projects involving foreign investments. This requirement was first adopted in 2006 for the hydrocarbons sector and was expanded across all sectors in the 2009 investments law. The rule was removed from the new investments law in August 2016, but it remains in force by virtue of its inclusion in the 2017 annual finance law. Algerian government officials have defended the law as necessary to prevent capital flight, protect Algerian businesses, and provide foreign businesses with local expertise. The government has argued the rule is not an impediment to attracting foreign investment and is needed to diversify investment in Algeria’s economy, foster private sector growth, create employment for nationals, transfer technology and know-how, and develop local training initiatives. Additionally, officials contend, and some foreign investors agree, that a range of tailored measures can mitigate the effect of the 51/49 rule and allows the minority foreign shareholder to exercise other means of control. Some foreign investors use multiple local partners in the same venture, effectively reducing ownership of each individual local partner to enable the foreign partner to own the largest share.

The 51/49 investment rule poses challenges for various types of investors. For example, the requirement hampers market access for foreign small and medium-sized enterprises (SMEs), as they often do not have the human resources or financial capital to navigate the complex requirements. Large companies can find creative ways to work within the law, sometimes with cooperation of the local authorities, because the larger companies usually create more jobs and may have the technology and equipment that the government often desires. SMEs usually do not receive this same consideration. There are also allegations that Algerian partners sometimes refuse to invest the required funds in the company’s business, require non-contract funds to get projects, and send unqualified workers to job sites. Manufacturers are also concerned about intellectual property rights (IPR), as foreign companies do not want to surrender control of their designs and patents. Several U.S. companies have reported they have internal policies that preclude them from investing overseas without maintaining a majority share, out of concerns for both IPR and financial control of the local venture, which correspondingly prevent them from establishing businesses in Algeria.

Since 2013, the Algerian government has not officially screened FDI. However, foreign investments are still subject to approvals from a host of ministries that cover the proposed project, most often the Ministries of Commerce, Energy, and Industry and Mines. U.S. companies have reported that certain high-profile industrial proposals, such as for automotive assembly, are subject to informal approval by the Prime Minister. Prime Minister Abdelmalek Sellal announced in March 2017 the institution of an Investments Review Council, which he would chair, for the purpose of “following up” on investments; in practice, the establishment of the council means FDI proposals will be subject to additional government scrutiny. Approval by the National Investments Council, also chaired by the Prime Minister, is necessary to obtain benefits and incentives for any project totaling more than 5 billion dinars (approximately $45 million).

**Other Investment Policy Reviews**

In the past three years, Algeria has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), or the United Nations Conference on Trade and Development (UNCTAD). The last such review was conducted by UNCTAD in 2003.

**Business Facilitation**

Algeria’s online information portal dedicated to business creation and registration (www.jecreemonentreprise.dz ) is clear, well-designed, and allows quick navigation to the appropriate registration process for a firm. The website is in French and Arabic. The website lists a maximum of nine steps involving seven agencies and taking approximately three weeks to register a firm in Algeria. Only an individual seeking to create a business for self-employment can follow a relatively streamlined process of six steps. The website does not offer any information on the process for registering with the social insurance authorities, creating an official corporate seal, or receiving a required court stamp, additional requirements for establishing a business in Algeria.

In the Bank’s 2017 Doing Business report, Algeria slightly improved its position from 2016 on the indicator for starting a business, but remains with a low ranking at 142 (www.doingbusiness.org/data/exploreeconomies/algeria/#starting-a-business ). The report lists a total of 12 procedures that cumulatively take an average of 20 days to complete to register a new business. Algeria improved on the indicators for gaining construction permits and access to electricity, but remained near the bottom of the rankings for property registration (162) and obtaining credit (175).

**Outward Investment**

Algeria does not currently have any mechanisms that promote or incentivize outward investment, though there are also no restrictions on domestic investors from investing overseas, provided they can access foreign currency for such investments. The exchange of Algerian dinars outside of Algerian territory is illegal, as is the carrying abroad of more than 3,000 dinars in cash (approximately $27; see section 7 for more details on currency exchange restrictions).

							2. Bilateral Investment Agreements and Taxation Treaties					

Algeria has signed bilateral investment treaties with Argentina, Austria, Bahrain, BLEU (Belgium-Luxembourg Economic Union), Bulgaria, China, Cuba, Denmark, Egypt, Ethiopia, Finland, France, Germany, Greece, Indonesia, Iran, Italy, Jordan, Kuwait, Libya, Malaysia, Mali, Mauritania, Mozambique, Netherlands, Niger, Nigeria, Oman, Portugal, Qatar, Romania, Russian Federation, Serbia, South Africa, South Korea, Spain, Sudan, Sweden, Switzerland, Syria, Tajikistan, Tunisia, Turkey, Ukraine, United Arab Emirates, Vietnam, and Yemen.

In 2001, Algeria and the U.S. signed a Trade and Investment Framework Agreement (TIFA), and its council met most recently in Washington in March 2016.

Algeria has free trade agreements with the European Union and the Arab League, although neither has yet been fully implemented. Recently instituted import barriers violate the terms of both agreements. The Algerian government concluded two years of “renegotiation” talks with the European Union in March 2017. None of the trade terms of the 2005 EU-Algeria Association Agreement were modified, but the European Union committed to approximately $43 million of technical assistance for various Algerian ministries.

Algeria does not have a bilateral taxation treaty with the United States. Algeria has bilateral taxation treaties with the Arab Maghreb Union (Libya, Mauritania, Morocco, and Tunisia), Austria, Bahrain, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, China, Egypt, France, Germany, Indonesia, Iran, Italy, Lebanon, Portugal, Qatar, Romania, South Africa, South Korea, Spain, Switzerland, Turkey, and United Arab Emirates.

							3. Legal Regime					

**Transparency of the Regulatory System**

All regulatory processes are managed by the national government. Accounting, legal, and regulatory procedures, as written, are considered consistent with international norms, although the decision making process is opaque.

There is no specific mechanism for public comment on draft laws. Typically, government officials give testimony to the Parliament on draft legislation, which receive press coverage, and occasionally copies of bills are leaked to the media. However, full-text copies of draft laws are not made publicly accessible before enactment. All laws and some regulations are published in the Official Gazette (www.joradp.dz ) in Arabic and French, but the database has only limited online search features.

In some cases, authority over a matter may rest among multiple ministries, which imposes additional bureaucratic steps and the likelihood of either inaction or the issuance of conflicting regulations due to errors or unusual circumstances. The development of regulations occurs largely away from public view; internal discussions at or between ministries are not usually made public. In some instances, the only public interaction on regulations development is a press release from the official state press service at the conclusion of the process; in other cases, a press release is issued earlier. Regulatory enforcement mechanisms and agencies exist at some ministries, but they are usually understaffed and enforcement remains weak.

Algeria received an overall score of 0.2 out of 6 on the most recent World Bank Global Indicator of Regulatory Governance (rulemaking.worldbank.org/data/explorecountries/algeria#cer_transparency ).

**International Regulatory Considerations**

Algeria is not a member of any regional economic bloc or of the WTO. The structure of Algerian regulations largely follows European—specifically French—standards.

**Legal System and Judicial Independence**

Algeria’s legal system is based on the French civil law tradition. The commercial law was established in 1975 and most recently updated in 2007 (www.joradp.dz/TRV/FCom.pdf ). The judiciary is nominally independent from the executive branch, but U.S. companies have reported allegations of political pressure exerted on the courts by the executive. Regulation enforcement actions are adjudicated in the national courts system and are appealable. Algeria has a system of administrative tribunals for adjudicating disputes with the government, distinct from the courts that handle civil disputes and criminal cases. Decisions made under treaties or conventions to which Algeria is a signatory are binding and enforceable under Algerian law.

**Laws and Regulations on Foreign Direct Investment**

The 51/49 rule in the 2017 annual finance law requires a majority Algerian partner for any foreign investment (see section 2), but otherwise there are few laws restricting foreign investment. In practice, the many regulatory and bureaucratic requirements for business operations provide officials many avenues to advance informally political or protectionist policies. The new investments law enacted in August 2016 charged ANDI with creating four new branches to assist with business establishment and the management of investment incentives. ANDI’s website (www.andi.dz/index.php/en/investir-en-algerie ) lists the relevant laws, rules, procedures, and reporting requirements for investors. However, much of the information lacks detail—particularly for the new incentives elaborated in the 2016 investments law—and refers prospective investors to ANDI’s physical “one-stop shops” located throughout the country.

**Competition and Anti-Trust Laws**

The National Competition Council (www.conseil-concurrence.dz/ ) is responsible for reviewing both domestic and foreign competition related concerns. Established in late 2013, it is housed under the Ministry of Commerce.

**Expropriation and Compensation**

The Algerian state can expropriate property under limited circumstances proscribed by law, with the state mandated to pay “just and equitable” compensation to the defendants for the property. Expropriation of property is extremely rare, with no cases within the last 10 years.

**Dispute Settlement**

*ICSID Convention and New York Convention*

Algeria is a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention) and the Convention on the International Center for the Settlement of Investment Disputes (ICSID Convention). The Algerian code of civil procedure allows both private and public-sector companies full recourse to international arbitration. Algeria permits the inclusion of international arbitration clauses in contracts.

*Investor-State Dispute Settlement*

Investment disputes are fairly common, especially on major projects. These disputes can be settled informally through negotiations between the parties or via the domestic court system. For disputes with foreign investors, most cases are decided at international arbitration. The most common disputes in the last several years have involved state-owned oil and gas company Sonatrach and its foreign partners concerning the retroactive application since 2006 of a windfall profits tax on hydrocarbons production. Sonatrach won a case in October 2016 against Spanish oil company Repsol and two Korean firms; a case with French oil company Total is still being decided.

The most recent investment dispute involving a U.S. company dates to 2012, but has not gone to arbitration. The company encountered bureaucratic blocks on the expatriation of dividends from an investment made in 2005; despite the intervention of several Algerian government institutions and ministers, a solution is still outstanding.

*International Commercial Arbitration and Foreign Courts*

The Algerian Chamber of Commerce and Industry (CACI), the nationwide, state-supported chamber of commerce, has the authority to arbitrate investment disputes as an agent of the court. The bureaucratic nature of Algeria’s economic and legal system, as well as its opaque decision making process, means that disputes can drag on for years before a resolution is reached. Businesses have reported cases in the court system are subject to political influence and generally tend to favor the government’s position.

Local courts recognize and have the authority to enforce foreign arbitral awards. Disputes between state-owned enterprises (SOEs) and foreign investors are rarely decided in domestic courts, since nearly all contracts between foreign and Algerian partners include clauses for international arbitration. The Ministry of Justice is in charge of enforcing arbitral awards against SOEs.

**Bankruptcy Regulations**

Algeria’s bankruptcy law generally follows international norms. While bankruptcy per se is not criminalized, management decisions (such as company spending, investment decisions, and even procedural mistakes) are subject to criminal penalties from fines to jail time, so decisions that lead to bankruptcy could be punishable under Algerian criminal law. However, bankruptcy cases rarely proceed to a full dissolution of assets. Public companies on the verge of bankruptcy are generally propped up by the Algerian government via cash infusions from the public banking system.

According to the World Bank’s Doing Business report, both debtors and creditors may file for both liquidation and reorganization. The report ranked Algeria 74th on its resolving insolvency indicator for 2017 (www.doingbusiness.org/data/exploreeconomies/algeria/#resolving-insolvency ).

							4. Industrial Policies					

**Investment Incentives**

Any incentive offered by the Algerian government is generally available to any company, though there are multiple tiers of “common, additional, and exceptional” incentives under the new investments law (www.joradp.dz/FTP/jo-francais/2016/F2016046.pdf ). “Common” incentives available to all investors include exoneration from customs duties for all imported production inputs, exemption from value-added sales tax (VAT) for all imported goods and services that enter directly into the implementation of the investment project, a 90 percent reduction on tenancy fees during construction, and a 10-year exemption on real estate taxes. Investors also benefit from a three-year exemption on the corporate and professional activity taxes and a 50 percent reduction for three years on tenancy fees after construction is completed. “Additional” incentives are available for investments made outside the coastal regions, namely the reduction of tenancy fees to a symbolic dinar ($.01) per square meter of land for 10 years in the High Plateau region and 15 years in the South of Algeria, plus a 50 percent reduction thereafter. The law also charges the state to cover, in partial or in full, the necessary infrastructure works for the realization of the investment. “Exceptional” incentives apply for investments “of special interest to the national economy,” including the extension of the common tax incentives to 10 years. An investment must receive the approval of the National Investments Council in order to qualify for the exceptional incentives; the sectors of “special interest” have not yet been specified.

Regulations passed in a March 2017 executive decree exclude approximately 150 economic activities from eligibility for the incentives (www.joradp.dz/FTP/jo-francais/2017/F2017016.pdf ). The list of excluded investments is concentrated on the services sector, but also includes manufacturing for some products. All investments in sales, whether retail or wholesale, and the imports business are ineligible.

The August 2016 investments law also provided state guarantees for the transfer of incoming investment capital and outgoing profits. Pre-existing incentives established by other laws and regulations also include favorable loan rates well below inflation from public banks for qualified investments.

**Foreign Trade Zones/Free Ports/Trade Facilitation**

Algeria does not have any foreign trade zones or free ports.

**Performance and Data Localization Requirements**

The Algerian government does not officially mandate local employment, but businesses have reported instances of pressure applied by the government on foreign companies operating in Algeria, particularly in the hydrocarbons sector, to limit the number of expatriate middle and senior managers so that Algerians can be hired for these positions. Contacts at multinational companies have alleged this pressure is applied via visa applications for expatriate workers. Companies usually must provide extensive justification to various levels of the government as to why the expatriate worker is needed. U.S. companies in the hydrocarbons industry have reported that when granted, expatriate work permits are usually valid for no longer than six months and delivered up to three months late, requiring firms to apply perpetually for renewals.

In 2017, the Algerian government began instituting forced localization in the auto sector. Any auto distributor was required to submit to the Ministry of Industry and Mines by the end of 2016 a plan for local assembly operations or the distributor would not receive a license to import vehicles in 2017. Import quotas were set at a maximum of 83,000 vehicles for all distributors in 2016, and 55,000 in 2017, down from a peak of nearly 450,000 vehicles imported into Algeria in 2014. Industry operators reported that new regulations from the ministry have stipulated that the assembly plants must reach a 40 percent integration rate by the end of their third year of operation in order to continue to receive manufacturing permission and the requisite investment incentives. As the Algerian government further restricts imports, localization requirements are expected to broaden to other manufacturing industries over the next several years.

Information technology providers are not required to turn over source codes or encryption keys, but all hardware and software imported to Algeria must be approved by the Agency for Regulation of Post and Telecommunication, under the Ministry of Post, Information Technology and Communication. There are no data sovereignty rules mandating data storage within the country; due to IT infrastructure issues, most Algerians use email services with foreign domains.

							5. Protection of Property Rights					

**Real Property**

Secured interests in property are generally recognized and enforceable, but court proceedings can be lengthy and results unpredictable. All property not clearly titled to private owners remains under government ownership. As a result, the government controls most real property in Algeria, and instances of unclear titling have resulted in conflicting claims of ownership, which has made purchasing and financing real estate difficult. Several business contacts have reported significant difficulty in obtaining land from the government to develop new industrial activities; the state prefers to lease land for 33-year terms, renewable twice, rather than sell outright.

Property sales are subject to registration at the tax inspection and publication office at the Mortgage Register Center and are part of the public record of that agency. All property contracts must go through a notary.

**Intellectual Property Rights**

Patent and trademark protection in Algeria remains covered by a series of ordinances dating from 2003 and 2005, and representatives of U.S. companies operating in Algeria reported that these laws were satisfactory in terms of both the scope of what they cover and the penalties they mandate for violations. A 2015 government decree increased coordination between the National Office of Copyrights and Related Rights (ONDA), the National Institute for Industrial Property (INAPI), and law enforcement to pursue patent and trademark infringements. However, U.S. companies note that enforcement remains an issue.

ONDA, under the Ministry of Culture, and INAPI, under the Ministry of Industry and Mines, are the two separate branches of the Algerian government that have primary responsibility for IPR protections. ONDA covers literary and artistic copyrights as well as digital software rights, while INAPI oversees the registration and protection of industrial trademarks and patents.

Despite strengthened efforts at ONDA, INAPI, and the General Directorate for Customs (under the Ministry of Finance), which have seen local production of pirated or counterfeit goods nearly disappear since 2011, imported counterfeit goods are prevalent and easily obtained. Algerian law enforcement agencies annually confiscate roughly 1.5 million counterfeit items, including clothing, cosmetics, sports items, foodstuffs, automotive spare parts, and home appliances. ONDA destroyed more than 2 million copies of pirated media in its annual destruction campaign in April 2016, but software firms estimate that more than 85 percent of the software used in Algeria, and a similar percentage of titles used by government institutions and state-owned companies, are not genuine copies.

Algeria has remained on the Priority Watch List of USTR’s Special 301 Report  since 2009.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at www.wipo.int/directory/en/ .

							6. Financial Sector					

**Capital Markets and Portfolio Investment**

Algeria’s stock exchange is the smallest in the Middle East and North Africa. Currently, there are five companies listed on the Algiers Stock Exchange—each at no more than 35 percent equity—with a total market capitalization of f $86 million, which represents less than 0.1 percent of GDP. Daily trading volume on the exchange averages less than $2,000. Despite its small size, the market functions well and is adequately regulated by an independent oversight commission that enforces compliance requirements on listed companies and traders.

Officials aim to reach a capitalization of $7.8 billion in the next five years and enlist up to 50 new companies. However, attempts to list additional companies have been stymied by both a lack of public awareness and appetite for portfolio investment and unpreparedness by private and public companies to satisfy due diligence requirements that would attract investors. Proposed privatizations of state-owned companies have also been opposed by nationalist politics. To date, Algerian society generally prefers material investment vehicles for savings, namely cash. Public banks, which dominate the banking sector (see below) are required to purchase government securities when offered, meaning they have little leftover liquidity to make other investments. Foreign portfolio investment is prohibited—the purchase of any investment product in Algeria, whether a government or corporate bond or equity stock, is limited to Algerian residents only.

**Money and Banking System**

The banking sector is roughly 85 percent public and 15 percent private as measured by value of assets held, and is regulated by an independent central bank. Estimated total assets in the sector in 2015 were roughly 9.2 trillion dinars ($83.6 billion) against 7.3 trillion dinars ($66 billion) in liabilities. The central bank had mandated a 12 percent minimum ratio for assets to liabilities until mid-2016, when in response to a drop in liquidity the bank lowered the threshold to eight percent. The decrease in liquidity was a result of all public banks buying government bonds in the first public bond issuance in more than 10 years; buying at least five percent of the offered bonds is required for banks to participate as primary dealers in the government securities market. The bond issuance essentially returned funds to the state that it had parked in funds at local banks during years of excess hydrocarbons profits.

Despite falling liquidity, the banks are still considered financially healthy, with only about five percent of assets considered to be non-performing, which is standard for emerging markets. The quality of service in public banks is generally considered low; generations of public banking executives and workers trained to operate in a statist-style economy lack familiarity with modern banking practices. Most transactions are still materialized (non-electronic). Many areas of the country suffer from a dearth of branches, leaving large amounts of the population without access to banking services. ATMs are not widespread, especially outside the major cities, and few accept foreign bank cards. Outside of major hotels with international clientele, hardly any retail establishments accept credit cards. Algerian banks do issue debit cards, but the system is distinct from any international payment system. In addition, approximately 4.6 trillion dinars ($40 billion), or one-third, of the money supply is estimated to circulate in the informal economy.

Foreigners can open foreign currency accounts without restriction, but proof of a work permit or residency is required to open an account in Algerian dinars. Foreign banks are permitted to establish operations in the country, but they must be legally distinct entities from their overseas home offices. Of the handful of foreign banks with presence in Algeria, all are engaged exclusively in commercial banking; none offer retail banking services.

On October 23, 2015, the FATF removed Algeria from its Public Statement, and on February 19, 2016, removed Algeria from the “gray list.” The FATF recognized Algeria’s significant progress and the improvement in its anti-money laundering/counter terrorist financing (AML/CFT) regime. The FATF also indicated Algeria has substantially addressed its action plan since strategic deficiencies were identified in 2011.

**Foreign Exchange and Remittances**

*Foreign Exchange*

There are few statutory restrictions on foreign investors converting, transferring, or repatriating funds, according to banking executives. Monies cannot be expatriated to pay royalties or to pay for services provided by resident foreign companies. The difficultly with conversions and transfers results more from the procedures of the transfers rather than the statutory limitations: the process is heavily bureaucratic and requires almost 30 different steps from start to finish. The slightest misstep at any stage can slow down or completely halt the process. In theory, it should take roughly one month to complete, but in reality, it often takes three to six months. Also, the Algerian government has been known to delay the process as leverage in commercial and financial disputes with foreign companies.

Expatriated funds can be converted to any world currency. The IMF classifies the exchange rate regime as an “other managed arrangement,” with the central bank pegging the value of the Algerian Dinar (DZD) to a “basket” composed of 64 percent of the value of the U.S. dollar and 36 percent of the value of the euro. The currency’s value is not controlled by any market mechanism and is set solely by the central bank. As the Central Bank has full control of the official exchange rate of the Dinar, any change in its value could be considered currency manipulation. When dollar-denominated hydrocarbons profits fell starting in mid-2014, the central bank allowed a slow depreciation of the dinar against the dollar over 24 months, culminating in about a 30 percent fall in its value before stabilizing around 110 dinars to $1 in late 2016. However, the dinar lost only about 10 percent of its value against the euro in the same time frame.

*Remittance Policies*

There have been no recent changes to remittance policies. There are no specific time limitations, although the bureaucracy involved in remittances can often slow the process to as long as six months. There is no legal parallel market by which investors can remit; however, there is a substantial black market currency exchange system in Algeria. Exchange rates for the dollar and euro are about 40 percent stronger on the black market than the official rates. With the more favorable informal rates, local sources report that most remittances occur via foreign currency hand-carried into the country. Under central bank regulations revised in September 2016, travelers to Algeria are permitted to enter the country with up to 1,000 euros or equivalent without declaring the funds to customs. However, any non-resident can only exchange dinars back to a foreign currency with proof of initial conversion from the foreign currency. The same regulations prohibit the transfer of more than 3,000 dinars ($27) outside Algeria.

**Sovereign Wealth Funds**

Algeria does not have a sovereign wealth fund.

							7. State-Owned Enterprises					

About two-thirds of the Algerian economy is comprised of state-owned enterprises (SOEs), led by the national oil and gas company Sonatrach, although SOEs are present in all sectors of the economy. SOEs are so prevalent that a comprehensive public list does not exist; rather all SOEs are amalgamated into a single line of the state budget. SOEs are listed in the official business registry. To be defined as an SOE, a company must be at least 51 percent owned by the state.

Algerian SOEs are generally disorganized, heavily bureaucratic, and may be subject to political influence. There are competing lines of authority at the mid-levels, and contacts report mid and upper-level managers are reluctant to make decisions because internal accusations of favoritism or corruption are often used to settle political scores. Senior management teams at SOEs report to their relevant ministry; CEOs of the larger companies such as Sonatrach, electric and gas utility Sonelgaz, and airline Air Algerie report directly to ministers. Boards of directors are appointed by the state, and the allocation of these seats is considered political. SOEs do not adhere to the OECD Guidelines on Corporate Governance.

Legally, public and private companies compete under the same terms with respect to market share, products and services, and incentives. Private enterprises have the same access to financing as SOEs, but they tend to work more with private banks as they are far less bureaucratic than their public counterparts. Public companies generally refrain from doing business with private banks. In 2008, a government directive ordered public companies to work only with public banks. The directive was later officially rescinded, but the effect has held as a self-imposed practice by public companies. SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors, but business contacts report that the government favors SOEs over private sector companies in terms of access to land. Ties between SOEs and the government are close, and when involved in domestic investment disputes with other companies, SOEs generally win.

SOEs are subject to budget constraints. Audits of public companies are conducted by the Court of Auditors under the jurisdiction of the Office of the President. The Court is generally considered independent, but may be subject to pressure or interference from government officials, particularly with regard to politically sensitive financial results. It is widely believed that the Court is reluctant to release potentially controversial results. The General Inspectorate of Finance (IFG) is a public auditing body under the supervision of the Ministry of Finance authorized to conduct “no-notice” audits of public companies. The results of these audits are sent directly to the Minister of Finance, and the offices of the President and Prime Minister. They are not published publicly.

**Privatization Program**

Limited privatizations that would allow private investors to purchase up to 66 percent ownership in unprofitable state-owned companies are authorized by law. However, sales of shares in the companies would only be open to Algerian citizens or companies, limiting any foreign purchase to less than 49 percent via a local joint venture (see above). Final approval of the sales would be subject to a Ministerial council chaired by the Prime Minister. No Algerian SOEs have been privatized, even partially, for more than 10 years.

							8. Responsible Business Conduct					

Multinational, and particularly U.S., firms operating in Algeria are spreading the concept of responsible business conduct (RBC), which has traditionally been less common among domestic firms, with a few notable exceptions. Companies such as Anadarko, Cisco, Microsoft, Boeing, Dow, and Berlitz have supported programs aimed at youth employment, education, and entrepreneurship. RBC activities are gaining acceptance as a way for companies to contribute to local communities while often addressing business needs, such as a better-educated workforce. The national oil and gas company, Sonatrach, funds some social services for its employees and supports desert communities near production sites. Still, many Algerian companies view social programs as areas of government responsibility and do not consider such activities in their corporate decision-making process. While state entities welcome foreign companies’ RBC activities, the government does not factor them into procurement decisions, nor does it require companies to disclose their RBC activities. Algerian laws for consumer and environmental protections exist, but are weakly enforced.

Algeria does not adhere to the OECD or UN Guiding Principles and does not participate in the Extractive Industries Transparency Initiative. In 2011, Algeria received a “failing” score of 38, and ranked 45th out of 58 countries, in its most recent rating on the Natural Resource Governance Institute’s Resource Governance Index.

							9. Corruption					

In 2013, the Algerian government created the Central Office for the Suppression of Corruption (OCRC) to investigate and prosecute any form of bribery in Algeria. The current number of cases currently being investigated by the OCRC is not available. In 2010, the government created the National Organization for the Prevention and Fight Against Corruption (ONPLC) as stipulated in the 2006 anti-corruption law. The Chairman and members of this commission were appointed by a presidential decree. The commission studies financial holdings of public officials and carries out studies. Since 2013, the Financial Intelligence Unit has been strengthened by new regulations that have given the unit more authority to address illegal monetary transactions and terrorism funding. As recently as 2016, the government updated its anti-money laundering and counter-terrorist finance legislation to bolster the authority of the financial intelligence unit to monitor suspicious financial transactions and refer violations of the law to prosecutorial magistrates.

The Algerian government does not have a policy that requires private companies to establish internal codes of conduct that prohibit bribery of public officials. The use of internal controls against bribery of government officials varies by company, with some upholding those standards and others rumored to offer bribes. Algeria is not a participant in regional or international anti-corruption initiatives. While Algeria does not provide protections to NGOs involved in investigating corruption, there are whistleblower protections for Algerian citizens who report corruption.

U.S. firms have not identified corruption as an obstacle to FDI. Investigations into conflicts-of-interest and corruption have been opened in the last several years in several sectors, most prominently in the award of contracts for hydrocarbons development and government procurement.

*Resources to Report Corruption*

Official government agencies:

Central Office for the Suppression of Corruption (OCRC)Mohamed Mokhtar Rahmani, General DirectorPlacette el Qods, Hydra, Algiers+213 21 68 63 12www.facebook.com/263685900503591/ 

National Organization for the Prevention and Fight Against Corruption (ONPLC)Mohamed Sebaibi, President14 Rue Souidani Boudjemaa, El Mouradia, Algiers+213 21 23 94 76www.onplc.org.dz/index.php/ contact@onplc.org.dz

Watchdog organization:

Djilali HadjadjPresidentAlgerian Association Against Corruption (AACC)www.facebook.com/215181501888412/ +213 07 71 43 97 08aaccalgerie@yahoo.fr

							10. Political and Security Environment					

Political violence has greatly declined in Algeria since the widespread terrorism of the 1990s and much of the country, including Algeria’s large urban centers, are stable. The government’s effort to reduce terrorism has focused on active security services and social reconciliation and reintegration. Isolated terrorist incidents still occasionally occur. In March 2016, terrorists launched a home-made rocket attack on a gas facility in central Algeria that caused limited damage but no casualties. In September 2016, a policeman was killed by terrorists in the western city of Constantine. In February 2017, ISIS claimed responsibility for an attempted suicide bombing that reportedly injured several policemen, but killed only the attacker. In September 2014, a French citizen was abducted and murdered in the remote mountains in eastern Algeria. In January 2013, there was a major attack at a remote oil and gas facility near the town of In Amenas in south-east Algeria (approximately 1,500 kilometers from Algiers) in which nearly 40 people – mostly western energy sector workers, including three Americans – were killed. Each of these attacks prompted swift counter-terrorism responses by Algerian security services to uproot the militants responsible for the attacks.

Protests in Algeria occur frequently concerning housing and other social programs. While the majority of these protests are generally peaceful, there are occasional outbreaks of violence that result in injuries, sometimes resulting from efforts of security forces to disperse the protests. Brief riots erupted in Bejaia province, about 100 kilometers from the capital, after the passage of the 2017 state budget law that included various price and tax increases.

Government reactions to public unrest typically include tighter security control on movement between and within cities to prevent further clashes and promises of either greater public expenditures on local infrastructure or increased local hiring for state-owned companies. During the first several months of 2015, there was a series of protests in several cities in the south of the country against the government’s program to drill test wells for shale gas. These protests were largely peaceful but sometimes resulted in clashes, injury, and rarely, property damage.

The Algerian government requires all foreign employees of foreign companies or organizations based in Algeria to contact the Ministry of Foreign Affairs before traveling in the country’s interior so that the Government can evaluate need for police coordination. The Algerian government also requires U.S. Embassy employees to coordinate all staff travel outside of the Algiers wilaya (province) with the government; for this reason U.S. consular services may be limited outside of the Algiers wilaya.

U.S. citizens living or traveling in Algeria are encouraged to enroll in the Smart Traveler Enrollment Program (STEP) via the State Department’s travel registration website, https://step.state.gov/step, to receive security messages and make it easier to be located in an emergency.

							11. Labor Policies and Practices					

There is a chronic shortage of skilled labor in Algeria, especially in the construction industry. Business contacts report difficulty in finding sufficiently skilled plumbers, electricians, carpenters, and other construction/vocational related areas; many of the engineers employed by foreign construction companies active in the country are Chinese or Turkish. Oil companies report they have difficultly retaining trained Algerian engineers and field workers because these workers often leave Algeria for higher wages in the Gulf. White collar employers also report a lack of skilled project managers, supply chain engineers, and even sufficient numbers of office workers with requisite computer and business skills.

Official unemployment figures are measured by the number of persons seeking work through the National Employment Agency (ANEM). Official Algerian government statistics listed overall unemployment at 10.6 percent as of September 2016, an increase of about 0.6 percent from April 2016. For youth aged 16-24, the figure in September 2016 was 26.7 percent. The International Labor Organization (ILO) estimates that more than one-third of all labor in Algeria is employed in the informal economy.

The Ministry of Vocational Training sponsors programs that, according to government figures, train 40-50,000 Algerians annually in various professional programs. There are no current laws requiring companies to hire nationals, although contacts at foreign companies report pressure to do so under implied threat of not approving the visa applications for expatriate staff. Employers are required to pay severance, with slight variations in the law regarding lay-offs and firings. There are no special economic zones or foreign trade zones in Algeria.

The constitution provides workers with the right to join and form unions of their choice provided they are citizens. The country has ratified the International Labor Organization’s (ILO’s) conventions on freedom of association and collective bargaining but failed to enact legislation needed to implement these conventions fully. The General Union of Algerian Workers (UGTA) is the largest union in Algeria and represents a broad spectrum of employees from both the public and private sectors. The UGTA, an affiliate of the International Trade Union Conference, is an official member of the Algerian “tripartite,” a council of labor, government, and business officials that meets annually to collaborate on economic and labor policy. The Algerian government chooses to liaise almost exclusively with the UGTA, sometimes putting other labor unions in Algeria at a disadvantage. Collective bargaining is permitted under a law passed in 1990 and modified in 1997, but is not mandatory, and in practice the UGTA is the only union authorized to engage in collective bargaining. Algerian law provides mechanisms for monitoring labor abuses and health and safety standards, and international labor rights are recognized within domestic law, but are only effectively regulated in the formal economy.

Sector-specific strikes occur often in Algeria, though general strikes are less common. The law provides for the right to strike, and workers exercise this right, subject to conditions. Striking requires a secret ballot of the whole workforce, and the decision to strike must be approved by majority vote of workers at a general meeting. The government may restrict strikes on a number of grounds, including economic crisis, obstruction of public services, or the possibility of subversive actions. Furthermore, all public demonstrations, including protests and strikes, must receive prior government authorization. By law, workers may strike only after 14 days of mandatory conciliation or mediation. The government occasionally offers to mediate disputes. The law states that decisions reached in mediation are binding on both parties. If mediation does not lead to an agreement, workers may strike legally after they vote by secret ballot to do so. The law requires that a minimum level of essential public services must be maintained during public-sector service strikes, and the government has broad legal authority to requisition public employees. The list of essential services included services such as banking, radio, and television. Penalties for unlawful work stoppages range from eight days to two months’ imprisonment.

Stringent labor-market regulations likely inhibit an increase in full-time, open-ended work. Regulations do not allow for flexibility in hiring and firing in times of economic downturn. Unemployment insurance eligibility requirements are so stringent as to discourage many job seekers from collecting benefits probably due them. Employers must have contributed up to 80 percent of the final year salary into the unemployment insurance scheme in order for them to qualify for unemployment benefits.

The law contains occupational health and safety standards that are not fully enforced. There were no known reports of workers dismissed for removing themselves from hazardous working conditions. If workers face such conditions, they may reserve the right to renegotiate their contract or, failing that, resort to the courts. While this legal mechanism exists, the high demand for employment in the country gave an advantage to employers seeking to exploit employees. Labor standards did not protect economic migrants from sub-Saharan Africa and elsewhere working in the country without legal immigration status, which made them vulnerable to exploitation. The law does not adequately cover migrant workers employed primarily in construction and occasionally as domestic workers.

The Labor Ministry generally enforced labor standards, including providing for compliance with the minimum wage regulation and safety standards. Nevertheless, broad enforcement remained insufficient. An estimated 15 percent of workers were not declared by their employers, the director general of social security at the Ministry of Labor announced in August 2015, rendering those violating companies subject to fines.

The law prohibits participation by minors in dangerous, unhealthy, or harmful work or in work considered inappropriate because of social and religious considerations. The minimum legal age for employment is 16, but younger children may work as apprentices with permission from their parents or legal guardian. The law prohibits workers under age 19 from working at night, but there is no list of hazardous occupations prohibited to minors. Although specific data was unavailable, children reportedly worked mostly in the informal sales market, often in family businesses, or on family farms. There were isolated reports that children were subjected to commercial sexual exploitation. According to UNICEF, six percent of children ages 5 to 14 were economically active.

The Ministry of Labor is responsible for enforcing child labor laws. There is no single office charged with this task, but all labor inspectors are responsible for enforcing laws regarding child labor. The ministry conducted inspections and in some cases investigated companies suspected of hiring underage workers. Monitoring and enforcement practices for child labor were inconsistent and hampered by an insufficient number of inspectors.

The Ministry of Labor leads a national committee composed of 12 ministries and NGOs that meets yearly to discuss child labor issues. The committee was empowered to propose measures and laws to address child labor as well as conduct awareness campaigns.

							12. OPIC and Other Investment Insurance Programs					

An Overseas Private Investment Corporation (OPIC) agreement between the U.S and Algeria was signed in June 1990. In 2005, the Algerian Energy Company entered a deal with Ionics Inc. of Watertown, Massachusetts, in which Ionics agreed to build a water desalination plant and the state water authority took a minority stake in the plant and agreed to purchase the bulk of the clean water produced. OPIC provided a $200 million loan to Ionics, a desalination equipment manufacturer which was later acquired by General Electric. The Hamma Water facility, which opened in 2008, was Algeria’s first privately-owned water desalination plant, as well as OPIC’s first and only project in Algeria to date.

							13. Foreign Direct Investment and Foreign Portfolio Investment Statistics					

*Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy*