Algeria announces new law restricting foreign investment

Algeria announced a series of measures on Sunday that will give preferential treatment to domestic firms over foreign rivals, strengthening the energy exporter’s trend towards economic nationalism.

As a result, a number of Egyptian firms operating in Algeria are studying the extent to which the new measures will effect their investments in the country.

The new rules were announced in an official statement released after a cabinet meeting chaired by President Abdelaziz Bouteflika.

One of the new measures states that contracts must first be put out to a national tender–for which only Algerian firms are eligible–and only if that fails will foreign firms be invited to bid.

Another measure stipulates that in cases where foreign companies are allowed to bid, domestic firms bidding 25 percent higher than foreign firms will be considered for a state contract. The figure was previously 15 percent.

Bouteflika said foreign firms have a role to play in Algeria’s economy, but that new rules were needed to give Algerian companies a bigger stake, to help reduce youth unemployment and also to combat corruption.

The measures–which do not apply to the energy sector–are likely to make it harder for international contractors to win a share of the US$286 billion that Algeria’s government plans to spend on modernizing the economy over the next five years.

Economic analysts say that as violence has subsided and Algeria’s foreign currency reserves have grown, the government has been back-tracking from its commitment to a market economy and taking a tougher approach to foreign investment.

Like other foreign firms operating in Algeria, Egyptian companies have begun analyzing how the measures will affect their operations in the country.

Ahmad el-Hamsani, director of investor relations at the El Sewedy Electric Company, an Egyptian firm, said he has asked that the company’s Algerian branch to prepare an assessment of how the new measures would effect the company’s existing projects as well as its ability to obtain new contracts in the future.

“We are awaiting the branch’s response because it has a closer perspective on things,” said el-Hamsani. He noted that since the branch was registered as an Algerian company it might not have to face the same restrictions as other foreign firms.

Investment expert Talal Tawfiq expects the new measures to have a palpable effect on the ability of foreign companies to win bids for government contracts. However, the outlook for most Egyptian firms working in Algeria was better, he said, particularly those that have established their branches as Algerian companies.

Algerian investment law grants foreign companies the privileges of domestic firms if a certain proportion of their investment comes from Algerian nationals. According to Tawfiq, such companies would not be affected by the new measures.

The exclusion of the energy sector from the new law may also protect Egyptian companies, who account for the highest percentage of foreign investment in Algeria’s petroleum industry and contribute roughly 31 percent of the capital for new projects.

Egypt currently has 32 investment projects in Algeria worth a combined total of US$4.8 billion. Most are in the fields of agriculture, building materials, industry, services, communications, and cables.

According to the latest statistics, trade flows between the two countries reached US$807 billion during the first eight months of 2009. During this period, Algeria exported US$612.7 billion worth of products to Egypt while Egypt exported US$196.8 billion worth of products in the other direction.

Translated from the Arabic Edition.

Related Articles

Back to top button