2010 INVESTMENT CLIMATE STATEMENT - ALGERIA

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