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Algeria As An Investment Destination : Reasons You Should Consider Investing In Algeria

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Algeria shares its borders with Libya and Tunisia on the east, Morocco, Western Sahara, and Mauritania on the west, and Mali and Niger on the south. The country has a strong track record of political stability and it’s making progress in terms of the business environment and governance.

The French speaking North African country Algeria serves as a gateway between Africa and Europe and has an estimated population of 40 million comprising mostly of the younger population which are less than 19 years making up about 39 percent of the population, those in the age bracket of 19 to 65 years make up of about 56 percent of the population and above 65 years age group makes up of about 5 percent of the population with average population density of Algeria is estimated at 16.08 inhabitants per square kilometer.

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Investment opportunities abound in its non-hydrocarbon resources and various sectors such as Agriculture, Fishing, Tourism, Renewable Energy, Transport, Health, ICT Sectors, and Mining.

 

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Now let’s delve into the subject matter proper. Algeria is located in North Africa. It shares its borders with Libya and Tunisia on the east, Morocco, Western Sahara, and Mauritania on the west, and Mali and Niger on the south.

It gained independence from France on 5 July 1962. Its capital is Algiers and the country which has 48 Provinces is a multiparty republic with its President sitting as the Head of State and government to run a bicameral parliamentary system of government.

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Major languages in the country include Arabic, French, and Berber with Islam as the major religion, it has a mixed legal system of French civil law and Islamic law with an area size of 2.4 million square kilometers.

Bordered by the Mediterranean Sea on the north, Algeria serves as a gateway between Africa and Europe and has an estimated population of 40 million comprising mostly of the younger population which are less than 19 years making up about 39 percent of the population, those in the age bracket of 19 to 65 years make up of about 56 percent of the population and above 65 years age group makes up of about 5 percent of the population with average population density of Algeria is estimated at 16.08 inhabitants per square kilometer.

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In terms of human development indicators, it has a life expectancy of 75 years for Women and 72 years for men and it achieved universal primary education with a 98 percent Primary enrolment rate, 97 percent secondary education enrolment rates in 2015, and overall literacy level of 86 percent as at 2015.

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Broad Economic Overview of Algeria: The mainstay of Algeria’s economy is Hydrocarbon predominantly Oil & Natural gas as it constitutes about 40 to 45 percent of the country’s GDP. It is the 6th largest exporter of gas in the world and ranks 10th in terms of the largest reserves of natural gas globally. It also boasts of large shale gas reserves ranking 3rd in the world.

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In addition, Algeria has huge deposits of phosphate, Zinc, Gold, Uranium, iron, Tungsten, Kaolin etc. The country achieved a 2.8 percent compound growth in GDP over 5 years period with a strong contribution from Oil and gas sector. Non-Oil and gas sectors growth remain modest with Agriculture and services sectors gaining increasing contribution to GDP.

The main export of Algeria includes oil and gas, derivatives of hydrocarbons, foodstuffs, non-alimentary goods, and industrial capital goods.

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Major imports include iron or steel products, capital goods, engines, pumps, Machines, electronic equipment, foodstuffs, and consumer goods.

 

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Foreign direct investment (FDI) in Algeria: The North African country is rich in natural resources and economically stable, Algeria attracted decent FDI flows between 2006 and 2011. However, recently, there has been a sharp decline in European investment and greater interest from Gulf investors. According to the data published by the United Nations Center For Trade And Development in the World Investment Report 2021, Foreign Direct Investment in Algeria decreased by 19 percent to 1.1 billion dollars in 2020 down from 1.3 billion dollars in 2019 with inflows directed primarily to the natural resources sector, in the wake of the global health and economic crisis triggered by the Covid-19 pandemic.

On the other hand, the stock of Foreign Direct Investment increased, reaching 33 billion dollars in 2020. Over the last few years, The country has seen a reorientation of Foreign Direct Investment towards the domestic market, thanks to the proliferation of development projects in transportation and infrastructure.

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China and Turkey have been investing heavily in Algeria, taking over France’s historical position as the largest investor in the country. One of the biggest investors is BAIC International, a Chinese company with an investment of more than 100 million dollars in a manufacturing plant.

Among the other big investors, there are Hyundai and Ford. On a country level, China, Singapore, Spain, and Turkey are the leading investors; Tourism, construction, and agriculture are the sectors that receive most Foreign Direct Investments in Algeria.

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The protectionist measures, as well as corruption, bureaucracy, a weak financial sector, and legal insecurity in terms of intellectual property rights, are serious obstacles to investment.

Until 2019, the participation of a foreign investor in an Algerian company was limited to 49 percent and foreign contractors are forced to find local partners for public tenders. However, in 2020, the government of President Abdelmadjid Tebboune eliminated the so-called 51 by 49 restriction that required Algerian majority ownership of all new companies.

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The requirement will be maintained for strategic sectors which are identified as hydrocarbons, mining, defense, and pharmaceutical production.

The government has also approved a new hydrocarbons law, improving fiscal conditions and contract flexibility in order to attract new international investors. As a result of the promulgation of this law, major international oil companies signed memoranda of understanding with the national hydrocarbon company Sonatrach.

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Algeria was ranked 157th out of 190 countries in the Doing Business 2020 report published by the World Bank, the same place as the year before.

What to consider if you invest in Algeria: Strong Points for foreign investment in Algeria includes Low cost of energy which are gas, fuel, and electricity, Large liquidity reserve which lowers its vulnerability to commodity prices, Strong potential in renewable energy and tourism, Skilled and inexpensive workforce, Recent laws to encourage foreign investments and various incentives for foreign investors, Algeria’s proximity to Europe: its geographic location as an interface between Europe and Africa and inside the Maghreb.

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Algerian Government Measures to Motivate Foreign Direct Investment and attract foreign investors include: The Government has set up several attractive measures, including the reduction of corporate taxes for investment in specific locations, a reduction in social security contributions for recruitment of young employees, the concession of land by mutual agreement which provide similar rights to ownership and tax exemptions throughout the life of the project for exporting projects.

The Algerian government is trying hard to attract Foreign Direct Investment in sectors that may create jobs and reduce the imports of assembled goods. Several sectors are targets for foreign investors, including the automobile industry and the renewable energy sector.

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Nevertheless, since 2008 there were many FDI restrictions. Until 2019, for each new investment project in Algeria, the majority of its capital 51 percent had to be held by local partners; however such limitation has been lifted.

In recent years Algeria has benefited from the support of the World Bank to improve its business climate.

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Algeria has signed bilateral investment conventions with more than thirty countries. They define the framework for the protection of foreign investment in Algeria for each of the signatories. For the countries of the European Union, the association agreement signed between the EU and Algeria regulates this issue. Algeria is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards New York Convention and the Convention on the International Center for the Settlement of Investment Disputes ICSID Convention.

Investment Opportunities in Algeria: Persistent moderation in the global oil price has necessitated a drive by the Algerian authorities to diversify its economic base. It has devised an ambitious structural reforms plan meant to boost transparency, improve governance, reform the pension system, streamline business regulation and modernize its financial sector.

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The country is seeking to develop its non-hydrocarbon resources and has opportunities in various sectors such as Agriculture, Fishing, Tourism, Renewable Energy, Transport, Health, ICT Sectors, and Mining.

Agriculture sector: Agriculture has become an important contributor to Algeria’s socio-economic development. After hydrocarbons, agriculture is the country’s second-largest GDP contributor, at around 10 percent, with 25 percent of the population employed in the sector. Self-sufficiency with regard to fruit, vegetables, and meat has been achieved while cereal, milk production, and fishing have been expanded. Algeria is also transitioning gradually from a net importer of agricultural goods into an exporting economy by focusing on the promotion of those particular goods that have a comparative advantage, such as dates, wine, and olives. The agricultural sector is working on raising the standards up to international norms and a new framework for exports is in the process of being constructed. Hence Algeria’s agricultural sector is one of the most viable sectors for investment.

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Minning: Aside from its hydrocarbons wealth, Algeria is rich in a variety of minerals, such as phosphate, gold, iron, zinc, lead, and others. These ores are still largely untapped which makes it a good sector to consider investing in.

Information and Communications Technology: Algerians are increasingly tech-savvy and interested in technology and know-how transfer in the Information and Communications Technology (ICT) sector. Government ministries are also interested in process modernization and the digitization of record-keeping. Home Internet penetration rates remain below 10 percent, but business Internet usage is estimated at over 40 percent. Mobile phones (GSM) are commonplace, and Algeria is looking toward fourth-generation technology. This opens doors for more investment in Algeria’s telecoms sector.

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Healthcare: The healthcare sector continues to be a relatively attractive market. Demand for medical equipment and disposals is considerable and depends largely on imported goods. The population’s standard of living is improving, albeit slowly. Algerians are increasingly conscious of cutting-edge medical services, such as laser corrective eye surgeries, panoramic dental radiology, and plastic surgery.

There are investment prospects in Medical equipment and supplies, including diagnostics, imagery, and laboratory equipment, hospital, and outpatient clinic design and construction services, Hospital and medical office administration software and solutions, Low-intensity cosmetic surgery. The new construction throughout Algeria over the next decade of 172 public hospitals, 377 private clinics, 45 specialized health units and 70 centers focusing on people with disabilities will increase demand for medical equipment and supplies, as well as medical construction services. Algerians increasingly turn to private clinics for outpatient care. Opportunities will increase for the design and management of such facilities and for the sales of cutting-edge diagnostics and treatment equipment. Cosmetic surgery is not yet common, but consumer interest is rising.

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Financial Sector: The finance sector presents enormous opportunities for foreign investors. It’s opening to the private sector at the beginning of the nineties has lead to the installation of banks including Arab and French. In its reform policy, the Government has committed itself to modernize the financial sector and one of the measures taken in this respect is the privatization of some state banks.

Construction: The government has simultaneously focused on roadways, rail systems, airport upgrades, public housing, hospital construction, water treatment, transportation, and electrification as part of a USD286 billion infrastructure development program. In this regard, there are a lot of opportunities.

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Hydrocarbons: The renewable energy program aims to install 22,000 MW of power generating capacity from renewable sources by 2030, of which 10,000 MW would be dedicated to export. Installed renewable power capacity is expected to reach 650 MW by the end of 2015, 2,600 MW by 2020, and 22,000 MW by 2030. This is a huge investment potential.

 

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