Algeria - Investments

Investments

In another major policy shift, the government decided to seek badly needed cash and access to credit in order to ensure sustained economic growth. Despite concerns about foreign ownership of Algerian "patrimony," economic pragmatism dictated passage of the Law on Money and Credit of April 1990. This law liberalized the country's foreign-investment code to the extent that only telecommunications, electricity production, hydrocarbon refining and distribution, and railroad transport remained closed to foreigners. As for the exchange system, the new law prohibited multiple exchange rates for the dinar and assigned the Money and Credit Council, a board composed of Central Bank and other Algerian government officials, the responsibility of setting foreign-exchange and external-debt policy. The council was also charged with approving foreign investments and joint ventures.

Another objective of the April 1990 law was to attract foreign capital by formalizing the legal framework for investment. The law permitted the repatriation of capital and accumulated profits, subject to approval by the Central Bank. Investments in the hydrocarbon sector, however, were still governed by Law 86-14 of August 1986, which limited foreign investors to joint ventures with Sonatrach. The government's investment priorities were listed as agriculture and agribusiness; agricultural machinery; mineral, hydrocarbon, and electricity production and distribution; petrochemicals; basic and primary transformed steel and metallurgical products; railroad transport; capital goods; and tourism.

The Law on Money and Credit not only created a more positive investment climate but also proved to be quite a contrast to previous foreign-investment laws of August 1982 and August 1986. These two laws had only allowed the repatriation of profits and indemnities awarded by Algerian courts to foreign investors, who were denied any recourse to international arbitration of disputes, except those covered by a special Franco-Algerian protocol, and whose commercial disputes could be resolved only under Algerian law.

The Supplementary Finance Law of August 1990 introduced the system of concessionaires and wholesalers (exclusive dealers representing foreign companies) as a major ingredient of the import liberalization process. Before this law was passed, only monopolies could import goods for resale. The same law also broadened the right to use a foreign-currency account to include any business in addition to individuals. The new accounts could be used for making any legitimate payments relating to the business of the account holder. In April 1991, the government announced a change in the import system: all imports of merchandise not prohibited were given full access to foreign exchange at the official exchange rate. All import licensing restrictions were abolished, except for imports receiving government subsidies, which continued to be subject to administrative control because of domestic trading restrictions.

Several other measures also served to attract foreign capital. In December 1987, the government joined the International Finance Corporation, a World Bank body that specializes in encouraging private enterprises. In June 1990, it signed an agreement allowing the Overseas Private Investment Corporation to operate its investment promotion, financing, and insurance program for United States investors in Algeria. In October 1990, the government established the Agency for Development and Promotion of Investment to familiarize potential foreign investors with Algeria's business climate and to facilitate their investments in its companies.

Although the authorities indicated a strong and understandable interest in enhancing employment opportunities in the eastern and southern desert areas of the country, geographic investment preferences were not made a prerequisite for foreign investment. Nor were sectoral preferences required, but it was clear that the authorities would evaluate any foreign-investment proposal for its potential contribution to increasing Algeria's productive capability, nonhydrocarbon exports, and technology transfer. The Ministry of Economy issued a supplementary regulation in September 1990, outlining its own priorities and defining the objectives of investments. These were to finance production of goods and services that generated hard currency; to reduce imports of goods and services; to improve distribution of goods and equipment; and to engage in economic activities that enhanced the profitability of public transport, telecommunications, and water and electricity distribution-- subject to approval by the competent government agencies. Both foreign investors and Algerian entities were given equal access to credit from local banks, with no restrictions on reinvestment. No discriminatory or preferential export or import regulations were to be applied to foreign-owned businesses. Any firm engaged in exporting its output would, regardless of ownership, be allowed to retain 100 percent of its foreign-exchange earnings for use in importing raw materials and machinery needed to sustain its production.

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