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In the past, investors have viewed Algeria as an unstable and unsecure place to pursue ventures due to the country’s tumultuous history. Now that its turbulent past is behind it, Algeria has made great strides towards becoming a hospitable place for investors looking to establish a foothold in this strategic North African country. The initial push towards market liberalization, launched in 1995, created several incentives for foreign investment in Algeria.
Examples of Foreign Direct Investment in Algeria |
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Emirates Aluminum International invested EUR 5 billion in the construction of an aluminum plant. |
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American company, Ionics secured financing from OPIC for a water desalination project in Algeria worth $225 million. |
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Henkel, Siemens, and Knauf: three renowned German manufacturers set up shop in Algeria in 2008; and in 2007 German investments in the country amounted to EUR 400 million.
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UAE direct investment in Algeria has topped $40 billion spread out across various sectors including real estate.
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With its eyes on market reforms, the Algerian government ushered in the new millennium with Ordinance 01-04 of August 20, 2001 which guaranteed all investors, resident or non-resident, the ability to create a business entity governed by Algerian law, enter into a partnership with one or more persons or legal entities governed by Algerian law, share an existing company’s capital, and partially or totally privatize an existing public activity.
Algerian law guarantees basic protections on foreign investments including freedom of private property, freedom from expropriation, the right to equitable compensation, and equitable treatment of all persons whether resident or non-resident with respect to investment. The 2001 legislation also created the National Investment Development Agency (“ANDI”) to serve as a one-stop shop to help facilitate foreign and national investment.
In addition to these assurances, Algeria has also entered into several international and bilateral treaties that promote a sense of security for foreign firms, such as the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards Agreement (“New York Convention”) which guarantees enforcement of international arbitration decisions in Algerian courts, as well as the Overseas Private Investment Corporation (“OPIC”), which serves as an insurer and financier for risks involved in overseas investment.
These reforms have made investment in Algeria more attractive for foreign companies, paving the way for Algeria’s ascension as a formidable player in international trade.
General Benefits of the 2000-2007 Reforms
Ordinance 01-04 of August 20, 2001 guarantees all investors, residents and non-residents alike, the ability to create a business entity governed by Algerian laws. The ordinance also removes the restrictions on the percentage of capital that could be held by a foreign investor. Furthermore, the ordinance provides the following benefits:
i. Tax Incentives
Several tax exemptions implemented during this period make investing in the country more appealing. In order to benefit, all foreign investors are required to declare their intentions to invest with ANDI. ANDI was created in 2001 by the Algerian government to help facilitate foreign and national investment, and offers investors assistance and services to ease their endeavors.
Once an investor receives these tax breaks, ANDI then places the investment into one of three investment categories. The more beneficial to the national economy the investment is determined to be, the greater the tax benefit it is granted will be. The first category, known as the “general regime,” refers to investments in projects outside the areas the country seeks to develop. During the investment phase, a general regime project enjoys exemptions on value added tax (“VAT”), customs duties on certain equipment, and transfer tax on real estate transactions. Furthermore, for three years projects are exempt from corporate and professional activity tax
The second category, the “special regime,” refers to investments in specially-designated geographical zones the government determined to be in critical need of development. During the investment phase, this scheme enjoys all of the benefits of the general regime as well as exemption from customs duties, property transfer taxes, and support by the state for infrastructure expenses. During the execution phase, this scheme enjoys a ten-year tax exemption from company profit, professional activity, and land taxes.
The third category, the “investment agreement scheme,” refers to any investment projects that are of particular interest to the national economy, a determination made as the result of an agreement between the investor and ANDI. This category benefits from all the above exemptions available in the first and second categories, as well as exemption from taxes, duties and levies on all imported or locally purchased goods and services; exemption from registration duties; exemption from the land tax; and finally benefits from a ten-year exemption on tax of company profits and professional activity.
ii. Repatriation of Funds
Between 2000 and 2007, Algeria introduced several measures easing the way in which money made in Algeria could be removed from the country, thereby making the movement of profits easier for investors. With the adoption of Regulation 05-03 of June 6, 2005, capital that was previously restricted became freed up for repatriation, as Regulation 05-03 requires that banks and accredited institutions execute without delay the transfer of dividends, earnings, proceeds from the transfer of foreign investments
iii. Arbitration and Dispute Settlement Mechanisms
Along with the economic reforms of the current decade, Algeria has also made great strides in implementing international dispute mechanism standards within the Algerian Code of Civil Procedure (“ACCP”). Algeria’s ascension to the 1958 New York Convention in 1988 and its implementation into law in 1993 ensures that arbitration awards, both foreign and domestic, will be enforced by Algerian courts. The 1958 New York Convention requires the courts of contracting states to stay all proceedings in domestic courts that are subject to international arbitration and recognize and enforce arbitral awards and decisions. Algeria has already taken the steps to ensure compliance with these requirements in the ACCP.
These institutions were again reformed in 2008 with the passage of a law ensuring flexibility in choice of venue and choice of arbitrator, thereby ensuring that foreign firms will not find themselves subject to litigation in unfamiliar and unfriendly forums.
iv. The Overseas Private Investment Corporation
The Overseas Private Investment Corporation is an initiative of the U.S. government aimed at facilitating investment and development in developing nations. OPIC offers foreign investors with political risk insurance which covers inconvertibility, political violence and expropriation. Although there is no history of expropriation of U.S. investments in Algeria, OPIC still provides investors dealing with Algeria through OPIC a number of significant benefits, including tax exemptions within Algeria on interest and fees on loans made or guaranteed by OPIC. Furthermore, should disputes arise, OPIC provides investors with significant protection, ensuring that disputes are settled with mandatory negotiations followed by binding international arbitration, all paid for by the U.S. government. Through the support of OPIC’s services, U.S. firms were able to undertake a $250-million water desalination project in Algeria in 2008.
Conclusion
The incentives instituted and codified in the last decade have created a friendly and welcome environment for foreign investors and corporations looking to do business in Algeria. These entities should not be deterred by the most recent changes, since those reversals have been minor compared to major reforms in trade liberalization of the early 2000s. Algerian officials continue to invite foreign investors to help grow their much needed sectors and steer away from over reliance on hydrocarbons. As Algeria continues down the path towards World Trade Organization (“WTO”) ascension, it will likely continue its overall goal to liberalize trade and ensure a safe and friendly climate for foreign investors.
| About the author: |
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Mr. Omar Mohammedi, Esq. is the Managing Partner of New York based Law Firm of Omar T. Mohammedi focussing on various commercial and international trade, investment and business transactions, as well as civil itigation. Mr. Mohammedi has litigated high profile civil cases, namely, Diallo v. City of New York, et al. and Tiffany v. Tartaglione, et al.
Mr. Mohammedi has also worked with with the Algerian lawyers and the Ministry of Justice on developing commercial law principles and training legal professionals on international commecial law practices and standard.
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He has worked with Algerian companies on international agreements affecting trade and investment in Algeria.
He obtained his law degree from Tlemcen University, Algeria in 1985. An LL.M. degree in International Business and Investment Law from Cambridge and Warwick Universities, England in 1989. He further pursued his legal career in the United States where he obtained his Law degree in International Business and Trade Law from Fordham Law School in 1995. |
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