Algeria stepping up the pace of reform to boost industrial investment

In response to the drop in oil revenues in June 2014, Algeria’s government has stepped up the pace of economic reforms that have been rolled out over the past two years in order to encourage the development of new industrial avenues, with a clear goal of reaching 7% growth in non-hydrocarbons by 2019. As such, Algeria’s Finance Law 2016 – in line with the previous 2015 finance and amending finance laws – is intended to boost industrial investment further, free up private initiatives and improve the ease of doing business for foreign companies.

Overcoming Bottlenecks

On the fiscal front, the law stipulates that taxes for industrial activities will not be raised in a bid to preserve and consolidate productive investments, despite the government’s current budget constraints. Indeed, the vast majority of the law’s measures are non-fiscal and are aimed at overcoming bottlenecks to private investment, namely, the difficulty in Algeria of accessing land and financing. Specifically, the law opens up the way for foreign operators to create, develop and manage industrial zones in the country in order to boost the amount of available land that is on offer across the territory.

The government has already taken steps to tackle this challenge. In June 2015, it announced massive investments for the development of 31 (out of a planned total of 49) public industrial parks. Moreover, the government has shifted the role played by the National Agency for Intermediation and Land Regulation to focus on facilitating land for investors.

In terms of financing, the law also loosens the noose slightly on international financing for Algerian companies. Under the new 2016 law, domestic firms will have recourse to foreign funding for strategic development projects, although this will be on a case-by-case basis and only with the prior authorisation of the state. Domestic companies have been exclusively funded by local banks since 2009.

On the investment side, the new finance law introduces some notable flexibility measures for foreign investors, repealing the obligation for them to reinvest the amount of perceived tax incentives within a four-year period. The difficulties this requirement incurred in terms of quantifying tax benefits, as well as the bureaucratic burden it caused, were noted by the government as reasons for its retraction.

Easier Selling

In another major step towards liberalising investment, it is now possible for foreign investors to sell all their stakes in Algerian companies on the Algiers Stock Exchange by circumventing the Algerian state’s pre-emptive right. In fact, private equity funds have thus far been reluctant to invest in Algeria due to lengthy capital exit procedures. Now, however, the government expects to boost the attractiveness of Algeria’s emerging private equity market and drive up the diversification of securities available for local investors. In addition, the finance law also carries some provisions which clarify the organisation of the country’s research incentive system, allowing companies to deduct up to 10% of their taxable profits from their research and development spending.

Aside from measures geared towards investment, the 2016 finance law introduces some sector-specific measures to encourage local production. Legislation has been clarified for mining operators who pay a 23% revenue taxes rate, in compliance with the 2014 mining code. Most significantly, the legislation comprises some protectionist measures in developing areas, such as steel and electronics. Import duties on computer equipment and steel products have been raised to 30% to limit the effects of what has been deemed as unfair competition on the international scale. In doing so, the government is perhaps looking to develop local assembly activities in electronics and defend the national steel producers against international dumping practices.

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The Report: Algeria 2015

Industry & Mining chapter from The Report: Algeria 2015

The Report: Algeria 2015

The Report

This article is from the Industry & Mining chapter of The Report: Algeria 2015. Explore other chapters from this report.