Boost to businesses in Algeria

Given the fall in oil revenues that were once the main source of income, Algeria is going through a financial crisis. To tackle this situation, the government has undertaken a series of measures to promote the financing of the economy through the collection of personal and company savings, and through the mobilization and regulation of informal business activities.

However, these measures are not enough to restart production, the main perennial source for creating sustainable wealth. In fact, sustainable development can only be effective through the implementation of regulatory and institutional instruments that govern economic activities.

“We are confident that governments rely on the design of a new economic strategy, which focuses on the diversification of activities and strengthens productive investments. However, this policy should focus on the promotion of businesses as its main priority. It is urgent to consolidate this emerging industry,” said Hamza, a young entrepreneur who launched an innovative project in the field of new technologies.

Many entrepreneurs and private-sector CEOs have expressed their demands and expectations for the implementation of further incentives to promote entrepreneurship and enhance investments. Abdeslam Bouchouareb, the Minister of Industry and Mines, stressed that the government was ready to listen to the concerns of entrepreneurs. During a debate at the National Assembly, he underlined that the objective of the new direction the economic policy was taking “is to dispel any ambiguity and counter-productive contradictions” to promote productive investments in the country.

Seeking to continue on the path of reform Algeria embarked on two years ago, the public authorities adopted new regulations to improve the competitiveness of small and medium-sized enterprises’ (SMEs), as well as domestic and foreign investments.

Support for SMEs 

Last July, the Cabinet approved a law on the promotion of SMEs in priority sectors. According to the statement issued by the Presidency, this regulatory framework will pave the way for “the emergence of partnerships and associations, which will further strengthen synergies among sectors.”

Support will be provided by ANDPME, the national agency for SME development, which is a state instrument that focuses on supporting the creation and development of small and medium-sized enterprises.

Abdelghani Mebarek, director-general of SMEs at the Ministry of Industries and Mines, underscores that the new legislation will help improve the competitiveness of companies, particularly those in the subcontracting sectors. He also explained that these measures were aimed at improving the competitiveness of Algerian SMEs and reinforcing land attractiveness. According to the statement, this new direction the economic policy has taken “reflects the growing importance of SMEs in achieving growth, creating jobs and diversifying the national economy.”

Legislators said this new instrument will provide further effective support to investments that will be made in certain priority sectors, such as scientific research, technological and technical innovation, particularly in start-ups and industrial subcontracting companies.

Moreover, the new law provides for the establishment of a help fund to support the creation of innovative start-ups. “This text is a new vision that calls for the implementation of second-generation support tools. It helps improve the contribution of SMEs to the diversification of the economy,” added Mebarek.

Figures published by official bodies seem to confirm an amelioration in the business climate. In fact, according to the report of the National Trade Register Center (NRC), the number of new businesses increased by 5.4 percent in the first half of 2016 compared with the same period last year.

The same report revealed that 9,166 companies – specialized in the production of goods (2,766 companies), services (2,846), trade (1,534), retail distribution (1,071) and wholesale distribution (1,027) – were created between 2015 and 2016.

As for the total number of active legal companies, it is estimated at 169,292, equivalent to nine percent of the total number of registered operators in the commercial register, 32.8 percent or 55,624 active companies are in the capital. The city of Oran placed second with 7.94 percent (13,437), followed by Sétif, the city of high plateaus, with 4.98 percent (8,430 companies).

According to this study, the improving business climate can be felt through a 6.4 percent decrease in the percentage of corporate mortality compared to 2015. Foreign operators are represented by 349 companies, established during the first six months of this year. By the end of last June, the overall number of foreign companies reached 10,064, including French (1,993 companies), Syrian (1,188), Turkish (869), Chinese (850) and Tunisian (690) companies.

Investment law

In June last year, the Council of the Nation approved the new Investment Law. According to Abdelkader Chenini, chairman of the Committee on Economic and Financial Affairs at the Council of the Nation, these legislative provisions will pave the way for “a new dynamic to attract foreign direct investments (FDI) and improve the business climate to promote economic development”.

The coming into force of the new regulatory text, which will be effective by the end of the year, aims at simplifying and accelerating business creation procedures and promoting investments. “It is a major review. It will render the investment law a reflection of our country, especially for foreign direct investments,” said the Minister of Industry and Mines in a press statement.

Tax provisions

To introduce outsourcing expertise and to diversify industrial products, the new Investment Law stipulates that all goods and services companies shall be exempted from customs duty as well as from value-added tax (VAT). The new Investment Law also introduces an exemption from transfer duties and land registration taxes on real estate acquisitions made as part of the investment, and an exemption from registration duties and land tax and a national compensation for concessions on built and non-built properties intended for investment projects. This text also allows a 90 percent reduction on annual rent set during the execution phase and a ten-year exemption, starting the date of acquisition, from property tax on lands used as a part of the investment.

In the new Investment Law, the rights of first refusal and the 51/49 percent rule, which were applied on foreign investments in Algeria, have been deleted. Nowadays, any transfer of shares, bonds or assets, by or for the benefit of foreigners, will be subject to the authorization of the relevant minister. “All transfers of shares, bonds or assets, by or for the benefit of foreigners, will be subject to the authorization of the minister responsible for the investment,” underscored the Algeria Press Service (APS) website.

From now on, the 51/49 percent rule introduced by the 2009 Finance Act will be exclusively governed by the Finance Acts. According to authorities, the right of first refusal has thus “lost its role as the tool that controls the access of foreigners to the national economy since the cancellation of the National Investment Council screening procedure.” Article 31 also stipulates that all shares and/or bonds transfers of ten percent or more from Algerian-owned foreign companies would be examined by the Council of State Holdings (CPE).

According to the drafters of the new Investment Law, this measure will limit the proliferation of commercial activities – especially import activities – taking place at the expense of productive investments. Economists say that this situation can only be counter-productive for the Algerian economy.

Official figures prove that between 2008 and 2013, 5,141 foreign operators entered the local market to provide commercial services, 711 of which were working on imports. As for real productive investments, the National Investment Council has approved 110 foreign investment declarations. As a remedy, new activities will enjoy tax exemptions such as exemptions from corporate income taxes and tax on professional activity for three years. According to the government, these measures will have “additional benefits on privileged activities in the industry, tourism and agriculture sectors.”

Domestic investors can now make transfers without the permission of state institutions. “Technical capital assets acquired with benefits for the purpose of the exercise of the registered investment activity are subject to transfer once authorization is delivered, as appropriate, by the Agency (ANDI) or the management center of the relevant benefits,” stipulates the law. That said, the new system requires the future owner to honor all obligations undertaken by the initial investor, otherwise these benefits will be canceled.

Two other measures were moved out of the Investment Law: the rule of mandatory use of internal financing – which will be integrated in the Bank of Algeria prerogatives – and the rule that governs partnerships with state-owned economic enterprises during the opening up of their capital. Regulatory provisions relating to the privatization of state-owned companies will thus be included in the Finance Act.

Other exceptional advantages also include an extension of the period of common benefits for five years instead of three, and up to ten years for specific investments in the south and the region of high plateaus.

To promote productive investments, which create jobs, exceptional and specific investments will also benefit from the contribution of the state. Founded in 1997 in the industrial area of Ain Smara in Constantine, the public company for Stacking and Handling (GERMAN) received an investment plan of €12 million. This allowed it to modernize and revive its industrial activity, particularly through the acquisition of cutting-edge technological equipment.

This public company aims at becoming a major player in the local outsourcing market. It will, therefore, offer a wide range of forklifts, some of which have a 20-ton carrying capacity. It will also be the subcontractor company that produces the parts and tools necessary for industrial activities, including those required for the mechanical industry.

“An initial quota of these trucks was delivered to the Skikda Port,” explained Mounir Zerragui, the company’s CEO. He stressed that the objective of developing his company was to cover, on the medium term, the needs of all the country’s ports. This is one example among many that prove that Algerian companies can contribute more effectively to economic diversification, provided they are supported by a smoother, healthier business environment and a wise,
pragmatic governance.