Private Sector Development
The government has launched major reforms to improve the business environment and encourage private investment. These reforms are aimed at making it easier to create companies and to improve the regulatory and judicial framework, increase competition and promote private investment. They have made possible significant improvement in the regulatory framework, investor protection and the granting of building permits. The global business climate, however, remains constrained by delays and transaction costs linked to the administrative formalities required to create new companies. The persistent activity of the informal sector also limits the impact of these reforms. The 2011 edition of the World BankÃ¢â‚¬â„¢s reportÃ‚Â Doing Business, which examines business environments, ranks Algeria 136th out of 183 countries (in the 2008 report it was ranked 125th out of 178 countries).
Reforms undertaken include changes in the commercial code, the simplification of trade register accession procedures and the easing of company taxation. In addition there are the development of industrial areas designed to attract new investors and revised legislation governing access to land (a revision of the conditions and modalities concerning the concession of federal land, etc.). Specific measures have also been put in place to encourage the creation of SMEs (the setting up of guarantee funds, the launch of a programme to upgrade industrial companies to improve their competitiveness, the adoption of international standards in the areas of organisation and management, etc.). During the period 2010-14 the industrial sector should benefit from a strengthening of industrial standards as well as their modernisation, and from the creation of 80 industrial activity zones for which DZD 50 billion have been set aside. An overall grant of DZD 702 billion should accompany the creation of 200,000 SMEs by 2014. Among support bodies, the SME Development Agency (ANDPME) is responsible for upgrading SMEs and for improving their environment. Encouraging investment by easing the pressure of taxation, incentives provided by the National Industrial Development Agency (ANDI), and the easing of access to industrial property should also contribute to the development of the private sector.
For the past two years the government has been adopting new measures affecting the private sector, trade and, in particular, investment: i) an obligation for all foreign investors undertaking projects in Algeria to associate themselves with Algerian partners, with foreign investors not permitted to hold more than a 49% stake in any company; ii) the establishment of the right for the state of first refusal for any sale of assets held by foreign investors; iii) an obligation for all foreign companies tendering for public contracts to undertake to make an investment in partnership with a local company; iv) the establishment of the possibility for the state to take over assets transferred in the framework of a privatisation if the investor fails to fulfil its obligations, notably regarding payments; v) a prohibition on ceding to foreigners property recovered or nationalised by the state; vi) authorisation to import renovated production chains to encourage local investment and the relocation of activities to Algeria by foreign investors; vii) the granting of a state guarantee on bank appropriations granted to strategic public companies within the framework of their modernisation investments and the defrayment by the state of the interest on these appropriations during periods of deferred payment.
As regards trade the new measures are: i) a ban on consumer credit with the exception of property credit; ii) the obligatory use of documentary credit as the method of financing imports of goods and services (except for SMEs importing spare parts or inputs with a limit of DZD 2 million per year); iii) an obligation on foreign importers involved in the resale of goods in the same condition as received to cede at least 30% of the capital to national entrepreneurs. With these measures the authorities hope Ã¢â‚¬â€œ among other things Ã¢â‚¬â€œ to reduce the level of imports of goods and services.
The government, furthermore, adopted in 2010 a reform of the public procurement code, which is aimed at automating all fiscal and customs procedures. It also introduced a unique identifier for all economic operators. To stimulate the creation of new companies, in particular by young entrepreneurs, the exemption period for both income tax on total income (IRG) and tax on professional activity (TAP) has been extended to two years, while the exemption period for tax on company profits (IBS) has been extended to five years.
The impact of these various programmes and measures has not yet been assessed. However, some measures have begun to bear fruit. Imports of goods and services dropped 2% compared with 2009, producing a trade surplus of USD 16.45 billion compared with USD 5.90 billion in 2009. As regards measures concerning Foreign Direct Investment (FDI) it is too early to know what effect they have had because of their relatively recent introduction.
Other Recent Developments
In the financial sector measures put in place in recent years were consolidated in 2010. The National Investment Fund (FNI), created in 2009 and endowed with DZD 150 billion (approximately EUR 1.5 billion), which was set up to mobilise part of the treasuryÃ¢â‚¬â„¢s financial surpluses to finance projects generated by Algerian companies (especially public companies), saw its funds boosted in 2010 by DZD 75 billion (EUR 750 million). In the medium term, the fundÃ¢â‚¬â„¢s resources are expected to reach about DZD 1 trillion (EUR 10 billion). The FNIÃ¢â‚¬â„¢s mission is to place at the disposal of strategic growth-enhancing sectors the funds required to finance their projects thanks to a variety of instruments including, in particular, equity participation. The FNI intervenes in the financing of structure projects and its work has a knock-on effect on other areas of activity. The state has also put in place financial arrangements to make it possible for SMEs to gain access to credit guarantees through the intermediary of guarantee institutions (FGAR-SGR). SMEs will also benefit from lower treasury interest rates on bank loans. Local funds (organised byÃ‚Â WilayaÃ‚Â or departments, of which there are 48 in all), each endowed with DZD 1 billion and aimed at financing local companies (SMEs and micro-companies), have also been created. Furthermore, the securities market is developing and the state encourages transactions in the framework of credit sales operations.
Banking and non-banking financial institutions (insurance companies, credit sale companies, credit institutions etc) fell into line in 2010 with new controls that oblige them to increase their equity so as to expand their commitments and respect prudential rules. Finally, efforts to make the Algiers stock exchange more dynamic have continued with the listing of an insurance company, which pushed the market capitalisation from DZD 8 billion to about DZD 13 billion. The bonds sector, in particular fungible Treasury bonds (OAT), remains however the most active on the financial market.
Although economic macroeconomic indicators have improved over the past several years, structural economic restraints and societal demands fuel most of the debates in the country. The financial regulation law for the 2008 tax year was passed by the parliament at the beginning of 2011 to make it possible for politicians to evaluate public finance management (PFM) and its impact on the overall level of development in the country. The national fiscal council (CNF), inactive since it was set up in 2001, will be relaunched in 2011. The CNF, made up of members of the tax administration, economic operators and unions, is a consultative body which should allow members to debate the implications of tax provisions on economic activity. In the area of public companies, the authorities have decided to re-invigorate and recapitalise the large public industrial groups such as industrial vehicles group SVNI, the national company of electronics industries ENIE, the agricultural engineering body PMA and the civil engineering equipment company ENMTP.
As regards transparency and good governance the government has continued applying the recommendations of the African Peer Review Mechanism (APRM), to which Algeria voluntarily acceded in 2003. In respect of corruption, Algeria is ranked 105th out of 178 countries (it was ranked 111th out of 180 countries in the preceding report) according to the 2010 Corruption Perceptions Index published by Transparency International. Several measures were taken in 2010 to try to fight corruption:Ã‚Â i)Ã‚Â a reworking of the civil serviceÃ¢â‚¬â„¢s general statute as well as a review of civil servantsÃ¢â‚¬â„¢ working conditions in order to promote values of integrity, responsibility and efficiency in public administration;Ã‚Â ii)Ã‚Â a reorganisation and reinforcement of the bodies that control and verify the public finances (the general inspectorate of finances, the court of auditors etc.).
Following the spike in consumer food products observed in January 2011 and in order to respond rapidly to the social crisis this brought in its wake (riots in several of the countryÃ¢â‚¬â„¢s towns and cities) the authorities have adopted several measures aimed at bringing down the price of basic foodstuffs. These measures apply between 1 January and 31 August 2011 and include:Ã‚Â i)Ã‚Â the suspension of customs duty on imports and of value added tax (VAT), which is 17%, on brown sugar and other essential items;Ã‚Â ii)Ã‚Â the suspension of VAT (17%) on raw materials used in the production of edible oils;Ã‚Â iii)Ã‚Â exemption from income tax (19% for production activities and 25% for distribution activities) for companies that produce, process and distribute edible oils and sugar; etc. All these measures will have an impact on public finances in 2011.
This sector generates nearly 97% of export earnings, 70% of government revenue and 45% of GDP. A poor performance by this sector of the economy, therefore, is a source of economic vulnerability for the country. Some of the resources from the sector are channelled into the FFR, which was set up with the aim of guaranteeing public spending against fluctuations in production and the price of oil and gas. These FFR resources are constituted by the difference between actual tax revenues generated by the sector and those budgeted for on the basis of a reference price of USD 37 a barrel.
As regards environmental management, Algeria has put in place a plan focusing on a reduction of pollution of various types, and the preservation of biodiversity and natural zones. It includes training, informing and generally making people more aware of environmental issues. Legislative apparatus has been put in place to integrate the protection of the environment into public policy. Advances have also been made in the area of industrial decontamination.
As regards infrastructure, vital for the development of economic activity and for the equilibrium between regions, there was a sustained effort in 2010, a crucial year sandwiched between the 2005-09 plan and the new 2010-14 public investment programme. The aim was to reduce the pressure on industry in coastal areas. Some 80% of the east-west autoroute, almost 1 200 km long, has been built, and it should be finished in 2011. A second autoroute 1 300 km long is at the study stage. It will link the steppe regions with the high plateaux. A high-speed train link is planned between the coastal cities of Jijel and Setif (130 kilometres). Work on a tramway system for Algiers, Oran and Constantine, the countryÃ¢â‚¬â„¢s three biggest cities, continued in 2010. Studies to build tramways in three other large cities were launched during the year. In the public amenities sector a 150 MW solar/gas combined-cycle power plant was approved at the end of 2010 in the gas-producing region of Hassi RÃ¢â‚¬â„¢mel. Finally, efforts to increase electrification and develop a grid of drinking water and gas supplies continued in 2010.
In 2010 the plan to renovate the agricultural sector, theÃ‚Â Plan du renouveau agricole et rural,accelerated. The plan has been funded to the tune of by DZD 1 trillion, a large part of which has been allocated to various validated projects. A significant part of the debt owed by farmers has also been written off. The implementation of provisions for the disposal of private state land also accelerated under the auspices of the office for agricultural transactions and the first civil, joint-stock agricultural companies aimed at opening up the capital of agricultural holdings to national savings were created.