VZCZCXYZ0001
PP RUEHWEB

DE RUEHAS #0078/01 0280956
ZNR UUUUU ZZH
P 280956Z JAN 10
FM AMEMBASSY ALGIERS
TO RUCPCIM/CIMS NTDB WASHDC PRIORITY
RUCPDOC/USDOC WASHINGTON DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 8365
INFO RUCNMGH/MAGHREB COLLECTIVE PRIORITY

UNCLAS ALGIERS 000078 
 
SIPDIS 
 
EB/IFD/OIA FOR DAHN AND TWALSH, TREASURY FOR DO/JWALLACE, 
USDOC FOR ITA/JKOZLOWICKI, USTR FOR JKALLMER, OPIC FOR 
RO'SULLIVAN 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV USTR OPIC
SUBJECT: 2010 INVESTMENT CLIMATE STATEMENT - ALGERIA 
 
REF: STATE 124006 
 
Following is posts's submission of the 2009 Investment 
Climate Statement. 
 
Begin Statement: 
 
Overview 
-------- 
 
Algeria, with its population of 36 million, its energy 
wealth, and growing demand for modern infrastructure and 
consumer products, has begun attracting interest from 
companies around the world.  Despite the international 
financial crisis, U.S. firms continue to consider Algeria 
as an emerging export market that is expected to grow in 
¶2010.  However, the climate for U.S. firms considering 
direct investments in Algeria has worsened, particularly in 
the wake of a series of restrictive foreign investment 
rules enacted in 2009.  Algeria's failures to join the WTO 
or to modernize its banking sector are other factors that 
have prevented significant foreign investment outside the 
energy sector. 
 
These new investment measures, along with statements by 
senior leaders critical of foreign investors, reinforce the 
impression of a government turn in the direction of 
economic nationalism.  This trend began in 2006 with 
amendments to the hydrocarbons laws that backtracked from 
market liberalization and required the national oil company 
Sonatrach to be a majority partner in all oil and gas 
projects, and imposed a windfall profits tax on oil 
production.  President Abdelaziz Bouteflika sharply 
criticized the government's approach to foreign investment 
and privatization in July 2008, noting the policies had not 
achieved growth for Algeria's economy.  Prime Minister 
Ouyahia shortly thereafter ordered a review of government 
policy.  This review led to new, more stringent foreign 
investment regulations codified in the 2009 Complementary 
Finance Law, decreed by the government in July and 
subsequently ratified by parliament. 
 
Financial sector reform is incremental at best, and the 
world financial crisis resulted in the indefinite 
suspension of the privatization of the state-owned bank 
Credit Populaire d'Algerie (CPA).  Privatization in general 
has stalled across all sectors, although one American 
company successfully purchased the majority share of an 
industrial plant in early 2008.  The government has 
supported state-owned companies experiencing financial 
difficulties by cancelling their debts and providing 
investment credits and technical assistance.  Despite the 
less open investment climate, Algerian officials, often 
state their desire to see U.S.-based companies consider 
projects in Algeria. 
 
Openness to Foreign Investment 
------------------------------ 
 
Algerian officials are quick to seek technology and 
know-how transfer.  However, they have been pursuing 
efforts to secure greater returns for Algerian interests 
since the 2006 amendments to the hydrocarbons law, which 
required majority state partnership in all oil and gas 
projects and imposed a heavy windfall profits tax on oil 
profits when prices are above USD30 per barrel. 
 
In July 2008, President Bouteflika publicly expressed anger 
over alleged massive profits reaped from foreign 
investments in Algeria and repatriated abroad.  Since that 
speech, the tax law has been amended to require that 
investors re-invest within four years the equivalent value 
of any tax benefits they obtain as incentives to locate in 
Algeria. In addition, the major local cell phone provider 
in Algeria, a subsidiary of the Egyptian firm Orascom, was 
levied a USD600-million tax readjustment in November.  U.S. 
investment outside of the oil and gas sector is currently 
limited to a pharmaceutical factory, a desalination plant, 
a bottling plant, and a cable-making factory. 
 
Three agencies have mandates to encourage and manage 
investment in Algeria.  The National Agency for Investment 
Development (ANDI) (www.andi.dz) is responsible for 
facilitating investments and granting tax exemptions; the 
National Investment Council (CNI) was created to define 
investment strategies and priorities as well as to approve 
special investment incentives by sector; and the Ministry 
 
for Industry and Investment Promotion (www.mipi.dz) 
maintains one office for investment policy and another for 
the promotion of privatization.  The privatization process 
in Algeria has all but stopped, however, due in part to a 
lack of interest by foreign firms and the lack of a stable 
regulatory environment. 
 
In July 2009, the government adopted a budget amendment 
(the Complementary Finance Law of 2009) which enacted 
restrictions on imports and foreign investment. These 
measures require 51 percent Algerian ownership of new 
foreign investment, 30 percent Algerian ownership of 
foreign import companies, and use of letters of credit for 
the payment of import bills.  Additionally, a new Central 
Bank regulation stipulates that all invoices must state a 
due date for payment.  Invoices without a due date or that 
exceed 360 days cannot be paid. 
 
Conversion and Transfer Policies 
-------------------------------- 
 
The Algerian dinar is considered fully convertible for all 
commercial transactions.  The Bank of Algeria (Banque 
d'Algerie, the nation's central bank) manages Algeria's 
foreign reserves, controls foreign exchange, and delegates 
most of these controls to the banks themselves.  Legally 
registered economic operators can access foreign currency 
to make payments, subject to bank domiciliation, without 
any pre-authorization. Operators must possess a clean audit 
report and a certificate from the tax authority in order to 
repatriate funds. 
 
Foreign investors can repatriate dividends, profits, and 
real net income out of their assets through transfers or 
liquidation.  In certain cases, due to the inefficiency of 
the banking system and the heavy bureaucracy, it may take 
longer to obtain official permission from the central bank 
to make transfers/payments, or for the local bank to 
proceed with the transfer.  However, U.S. suppliers benefit 
from generally faster and more predictable payments as a 
result of the mandatory letter of credit requirement.  In 
addition, payment delays may result due to the new 
regulation that limits Algerian importers' payment options 
to letters of credit. Direct wire payments are no longer 
authorized. 
 
Expropriation and Compensation 
------------------------------ 
 
The government of Algeria has not engaged in expropriation 
actions against U.S. or other foreign firms. 
 
Dispute Settlement 
------------------ 
 
Algeria is a signatory to the convention on the Paris-based 
International Center for the Settlement of Investment 
Disputes (http://www.worldbank.org/icsid).  Algeria 
ratified its accession (http://arbiter.wipo.int/arbitration 
) to the New York Convention on Arbitration, and is a 
member of the Multilateral Investment Guarantee Agency 
(http://www.miga.org).  The 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. 
 
An American oil company this year exercised the dispute 
settlement mechanism in its contracts with the state oil 
company to contest the implementation of a windfall profits 
tax imposed long after the company began doing business in 
Algeria.  Negotiations prior to conciliation and binding 
arbitration were very slow.  The entire dispute resolution 
process, including arbitration, will likely take 18 to 24 
months. 
 
Performance Requirements and Incentives 
--------------------------------------- 
 
Algeria does not impose general performance requirements on 
foreign investments.  However, the national energy company, 
Sonatrach, must be a majority shareholder in any 
hydrocarbon sector venture.  In accordance with the 2009 
Complementary Finance Law, foreign investments in any 
sector now require a 51-percent Algerian partnership. 
 
The investment code provides a number of incentives for 
investment in Algeria, which are primarily related to VAT 
and other tax exemptions, for periods of time that are 
dependent on the type of investment and the nature of the 
package agreed between the investor and the National Agency 
for Investment Development (ANDI). The 2009 Complementary 
Finance Law requires foreign investors to reinvest in 
Algeria the equivalent of any tax benefits bestowed upon 
them, in a manner similar to the offsets investment 
requirement commonly seen in Gulf countries. 
 
Right to Private Ownership and Establishment 
-------------------------------------------- 
 
Foreign entities have largely equal rights to establish and 
own business enterprises in Algeria and engage in most 
forms of remunerative activity, within the framework of the 
requirements for majority Sonatrach participation in 
hydrocarbon ventures and the new requirement for majority 
Algerian participation in all new foreign investment. 
Private enterprises have equal status with public 
enterprises and compete on an equal basis with respect to 
access to markets, credit, and business operations. 
 
Protection of Property Rights 
----------------------------- 
 
Secured interests in property are generally recognized and 
enforceable, but court proceedings can be lengthy and 
results unpredictable.  Most real property in Algeria 
remains in government hands, and controversy over the years 
has resulted in conflicting claims for real estate titles, 
which has made purchasing and financing real estate 
difficult.  One prospective U.S. investor seeking to build 
a factory in Algeria tried in vain for two years to obtain 
approvals from a local governor to purchase suitable land 
for the project. 
 
While there is legislation protecting copyright and related 
rights, trademarks, patents, and integrated circuits, 
implementation has been inconsistent, and enforcement 
remains spotty.  The Office of the U.S. Trade 
Representative placed Algeria on the Priority Watch list in 
2009 for ineffective protection of pharmaceutical tests and 
data. 
 
Transparency of Regulatory System 
--------------------------------- 
 
Generally, Algeria's regulatory system is transparent, but 
decision-making authority remains opaque.  Each ministry 
defines its rules for doing business in the sectors it 
manages, and regulatory bodies are established to 
administer them.  Challenges arise in managing the 
bureaucracy, because authority is generally vested at the 
top of every organization, and access to decision-makers is 
often limited.  Furthermore, the Algerian bureaucracy is 
slow and protocol-oriented, such that even minor 
deficiencies in paperwork can lead to significant delays, 
frustration, and fines.  In some cases, authority over a 
matter may rest among multiple ministries, which imposes 
additional bureaucratic steps and the likelihood of 
inaction due to errors or unusual circumstances. 
 
Efficient Capital Markets & Portfolio Investment 
--------------------------------------------- --- 
 
After ten years, the Algerian stock exchange remains 
nascent, with only three companies listed.  Long-term 
treasury bonds were listed on the stock market in 2008, but 
trading has sharply declined due to the increased number of 
fees required to trade the bonds.  Shorter yield bonds 
continue to be managed through bond dealers.  Other private 
bond investment vehicles are occasionally offered to the 
public for major construction or other ventures with rates 
of return reaching 6.5 percent. 
 
The bond market plays a marginal role in the financing of 
the Algerian economy, which is mainly done through public 
expenditure or traditional banking credits.  Most bonds are 
issued by public companies; however, a small number of 
private firms have issued bonds to finance investment in 
public works projects.  In order to finance development 
projects and absorb excess liquidity, some state-owned 
companies have launched corporate bonds.  Public companies, 
such as the national oil company Sonatrach, often choose to 
finance through a bank investment pool, which is guaranteed 
by the government. 
 
Corporate Social Responsibility 
------------------------------- 
 
Corporate social responsibility practices are uncommon in 
Algeria.  The state-run oil and gas company, Sonatrach, 
funds some social services for its employees and desert 
communities near production sites. Some multinational 
companies conduct similar social investment activities. 
Most companies, however, view social programs as areas of 
government responsibility and do not consider such 
activities in their corporate decision-making process. 
Many Algerians view corporate responsibility as a marketing 
tool used by companies to improve their image and increase 
their profits. 
 
Political Violence 
------------------ 
 
Political violence has declined since the widespread 
terrorism of the 1990s.  The government's effort to reduce 
terrorism through military pressure and social 
reconciliation and reintegration has been markedly 
effective.  However, incidents of terrorism, including 
suicide bombings against government and international 
organization installations, occurred in 2006 and 2007, and 
armed attacks against army and police continue sporadically 
to this day.  In 2007, a group of Algerian terrorists known 
as the Salafist Group for Preaching and Combat (French 
acronym GSPC) formally affiliated itself with al-Qa'ida and 
assumed the name Al-Qa'ida in the Islamic Maghreb (AQIM). 
 
The U.S. Government considers the potential threat to U.S. 
Embassy personnel assigned to Algiers sufficiently serious 
to require them to live and work under significant security 
restrictions.  These practices limit, and may occasionally 
prevent, the movement of U.S. Embassy officials and the 
provision of consular services in certain areas of the 
country.  The Government of Algeria requires U.S. Embassy 
personnel to seek permission to travel to the Casbah within 
Algiers or outside the province of Algiers and to have a 
security escort.  Travel to the military zone established 
around the Hassi Messaoud oil center requires Government of 
Algeria authorization.  Daily movement of Embassy personnel 
in Algiers is limited, and prudent security practices are 
required at all times.  Travel by Embassy personnel within 
the city requires prior coordination with the Embassy's 
Regional Security Office.  American visitors are encouraged 
to contact the Embassy's Consular Section for the most 
recent safety and security information concerning travel to 
the city of Algiers. 
 
Americans living or traveling in Algeria are encouraged to 
register with the U.S. Embassy in Algiers through the State 
Department's travel registration website, 
https://travelregistration.state.gov, and to obtain updated 
information on travel and security within Algeria. 
Americans without internet access may register directly 
with the U.S. Embassy Algiers.  By registering, American 
citizens make it easier for the Embassy to contact them in 
case of emergency. 
 
Corruption 
---------- 
 
Corruption is not as blatant a problem in Algeria as it is 
in many developing countries, although there have been a 
number of arrests in 2009 of high-ranking Algerian 
government officials in a variety of ministries and 
state-owned enterprises.  Foreign companies do not complain 
of requests for bribes or lost contracts due to failure to 
pay bribes.  However, customs officials have been known to 
demand bribes to expedite goods lingering in Algerian ports 
awaiting customs clearance.  Many Algerian citizens believe 
that corruption is a problem within the upper reaches of 
government.  Some evidence suggests that bribes are usually 
paid to bypass Algerian bureaucracy or to avoid government 
interference. 
 
The government investigated several high-profile corruption 
scandals in 2009 and early 2010.  One investigation 
implicated officials at the Ministry of Transportation on 
charges of fraud related to the construction of the 
East-West highway.  Another involved senior officials of 
the state oil company Sonatrach investigated for corruption 
in procurement.  Lower-level investigations involved 
customs officials and private sector executives charged 
with embezzlement, illegal currency transfers, and misuse 
 
of public funds. 
 
In 2006, the Government of Algeria adopted an 
anti-corruption bill that reinforced existing legislation 
and brought Algeria into compliance with the UN Convention 
against Corruption, which Algeria ratified on August 25, 
¶2004.  The law was designed to promote transparency in 
government and public procurement, introduce new crimes 
such as illicit enrichment and reinforce existing penal 
sanctions. 
 
Algeria is not a financial center, and financial 
transactions are tightly regulated.  However, it is 
estimated that half of the country's economic transactions 
are done within the informal sector, effectively escaping 
the purview of state auditors.  In 2005, the government 
adopted anti-money laundering legislation and established a 
financial intelligence unit to monitor suspicious financial 
transactions and refer violations of the law to 
prosecutorial magistrates. 
 
Bilateral Investment Agreements 
------------------------------- 
 
The United States and Algeria signed a Trade and Investment 
Framework agreement (TIFA) in 2001 to create a forum for 
involved discussion.  TIFA council meetings were held in 
2001 and 2004. 
 
Algeria executed a European Union association agreement in 
¶2005.  The agreement provides for the gradual removal of 
import duties on EU industrial products over 12 years, and 
removed duties immediately on 2,000 other products. 
However, the EU has complained that some provisions in the 
2009 Complementary Finance Law violate that agreement. 
 
Algeria signed bilateral investment agreements for the 
protection and promotion of investments with the following 
countries in the indicated years: Belgium/Luxembourg 
(1991), Italy (1991), France (1993), Romania (1994), Spain 
(1994), China (1996), Germany (1996), Jordan (1996), Mali 
(1996), Vietnam (1996), Egypt (1997), Bulgaria (1998), 
Mozambique (1998), Niger (1998), Turkey (1998), Denmark 
(1999), Yemen (1999), Czech Republic (2000), Greece (2000), 
and Malaysia (2000).  There is no bilateral investment 
treaty between Algeria and the United States. 
 
Algeria has also signed bilateral treaties to prevent 
double taxation with the following nations:  United Kingdom 
(1981), France (1982), Tunisia (1985), Libyan Arab 
Jamahirya (1988), Morocco (1990), Belgium (1991), Italy 
(1991), Romania (1994), Turkey (1994), Syrian Arab Republic 
(1997), Bulgaria (1998), Canada (1999), Mali (1999), 
Vietnam (1999), Bahrain (2000), Oman (2000), Poland (2000), 
Ethiopia (2002), Lebanon (2002), Spain (2002), and Yemen 
(2002).  There is no double taxation treaty between Algeria 
and the United States. 
 
In 1990, Algeria signed both investment protection and 
double taxation agreements with the Arab Maghreb Union 
(AMU) countries (Libya, Morocco, Mauritania, and Tunisia. 
 
OPIC & Other Investment Insurance Programs 
------------------------------------------ 
 
The U.S. Overseas Private Investment Corporation (OPIC) ( 
http://www.opic.gov), the U.S. Export-Import Bank (Ex-Im)( 
http://www.exim.gov), and the U.S. Trade and Development 
Agency (USTDA) (http://www.ustda.gov) support projects in 
Algeria.  However, the Government of Algeria announced in 
2009 that all financing for future foreign investments in 
the country must be financed through Algerian banks. 
 
A USD250-million water desalination project in Algiers was 
completed in 2008 with OPIC support, and Ex-Im supported 
the U.S. content of a power project in Skikda in 2003. 
 
Labor 
----- 
 
Algeria's labor force consists of roughly 10 million 
(10,315,000 in December 2008) people out of a total 
population of 36 million.  According to the National Office 
of Statistics, over 70 percent of the population is under 
age 30.  Beginning January 1, the monthly minimum wage 
increased to DA 15,000 (USD215) from DA 12,000 (USD170). 
The official unemployment rate is approximately 13 percent 
(11.3 percent in December 2008), but international 
organizations believe it is as high as 25 percent. 
 
Algeria's labor code sets minimum work standards, including 
a minimum work age of 16, a 40-hour workweek, and higher 
rates for overtime pay.  Employers pay 26 percent of gross 
salaries in social security taxes, including provisions for 
both retirement and health/accident insurance. 
 
U.S. companies are able to hire trained technical staff. 
However, recruiting and retention has become more 
difficult, as well-educated and trained Algerians are 
increasingly lured by higher salaries offered in the Gulf 
region.  English speakers remain difficult to find.  Arabic 
is Algeria's official language, and French is the most 
common language of business. 
 
There are no restrictions on the number of expatriate 
supervisory personnel a company may establish.  Entry visas 
for foreign workers must be requested through the Ministry 
of Employment and Social Solidarity ( 
http://www.massn.gov.dz).  Foreign workers must then obtain 
work permits from the Ministry of Labor ( 
http://www.mtss.gov.dz) and a residency card from the local 
police office in the district where they will be working. 
The employer is responsible for submitting all tax payments 
for individual workers to the proper local tax collection 
authorities. 
 
Algerian regulations allow foreigners to repatriate 50 
percent of their salaries. 
 
Foreign-Trade Zones/Free Trade Zones 
------------------------------------ 
 
There are currently no free trade zones in Algeria. 
 
Foreign Direct Investment Statistics 
------------------------------------ 
 
The Governor of the Bank of Algeria, Mohamed Laksaci, 
stated that foreign direct investment was USD700 million 
during the first half of 2009, compared to USD1 billion for 
the same period in 2008.  Total foreign direct investment 
in 2008 was USD2.34 billion. 
 
Web Resources 
------------- 
 
Algerian government: 
 
Algerian Embassy in Washington, D.C.: 
http://www.algeria-us.org/ 
Bank of Algeria (central bank): 
http://www.bank-of-algeria.dz/ 
Ministry of Employment and Social Solidarity: 
http://www.massn.gov.dz/ 
Ministry of Energy and Mines: http://www.mem-algeria.org/ 
Ministry of Finance: http://finances-algeria.org/ 
Ministry of Labor and Social Security: 
http://www.mtss.gov.dz/ 
Ministry of Industry and Investment Promotion: 
http://www.mipi.dz/ 
National Investment Development Agency: http://www.andi.dz/ 
Sonatrach: http://www.sonatrach-dz.com/ 
 
United States Government: 
 
U.S. Department of State travel information: 
http://travel.state.gov/ 
U.S. Embassy in Algiers: http://algiers.usembassy.gov/ 
U.S. Department of Commerce: http://www.export.gov/ 
Export Import Bank: http://www.exim.gov/ 
Overseas Private Investment Corporation (OPIC): 
http://www.opic.gov/ 
U.S. Trade and Development Agency: http://www.ustda.gov/ 
 
Non-Governmental: 
 
Business Software Alliance (BSA): http://www.bsa.org/ 
U.S.-Algeria Business Council: http://www.us-algeria.org/ 
 
International: 
 
E.U. Association Agreement: 
http://europa.eu.int/comm/external_relations/ euromed/med_ass 
_agreemnts.htm 
 
European Free Trade Association (EFTA): 
http://www.efta.int/ 
International Monetary Fund (IMF): http://www.imf.org/ 
Multilateral Investment Guarantee Agency: 
http://www.miga.org/ 
World Bank: http://www.worldbank.org/ 
 
Conventions: 
 
New York Convention on the Recognition and Enforcement of 
Foreign Arbitral Awards 
-- 
http://arbiter.wipo.int/arbitration/ny-conven tion/index.html 
Paris-based International Center for the Settlement of 
Investment Disputes: http://www.worldbank.org/icsid/ 
 
End Statement 
PEARCE