Algeria - Market OverviewAlgeria - Market Overview
Algeria remains a lucrative but challenging market for many U.S. businesses. GDP growth for 2018 will reach 3.5% and inflation will reach 7.5%. Oil and natural gas, which account for 95% of export revenues and 75% of total government revenues, drive economic growth. The drop in oil prices since 2014 has hurt government finances. Total currency reserves will fall from $108 billion in 2016 to $60 billion in 2018 . Furthermore, the deterioration of Algeria’s terms of trade led to a 20% nominal depreciation of the dinar since mid-2014. These developments spurred the government of Algeria (GoA) to attempt to lower the country’s sizeable import bill through a policy of diversification. Unfortunately for U.S. businesses, the application of this policy has consisted of reinvigorated protectionist policies as the government attempted to reduce imports in order to reduce the outflow of hard currency.
U.S. companies must overcome language barriers, distance, customs challenges, an entrenched bureaucracy, difficulties in monetary transfers, currency conversion, repatriating dividends, and price competition from Chinese, Turkish, and European businesses. International firms that operate in Algeria complain laws and regulations are continually shifting and are applied unevenly. This augments the perception of commercial risk for foreign companies. Likewise, business contracts are subject to changing interpretation and revision, which has proved challenging to U.S. and international firms. Other drawbacks include the 49/51 investment law (which permits no more than 49% foreign ownership of any business), inadequate IPR enforcement, and limited regional trade. The lack of access to a regional market also hurts Algeria, because on its own Algeria's market may not be attractive enough to firms that can locate elsewhere to create a regional distribution hub.
Despite these challenges, U.S. exporters can find substantial opportunities in Algeria if they have patience and effective local agents or distributors to help translate these opportunities into sales. Given the time and resources necessary to develop this market, Algeria is a challenging destination for small- to medium-sized enterprises (SMEs).
U.S. companies play a significant role in Algeria’s oil and gas sector. Algerian government officials encourage non-hydrocarbon U.S. investment. Despite some large projects awarded to U.S. companies, government measures have made the country’s investment climate more complicated and restrictive. There are often unanticipated regulations, heavy bureaucracy, and few incentives. As a result, there have been a limited number of U.S. investments in Algeria outside of the hydrocarbon sector.
Privatization, which began in 1995, has all but stopped due to a lack of interest among foreign investors and dissatisfaction among government leaders with past privatization and foreign-investment efforts. A change in the 2016 budget law allowed for the possibility of partial privatizations of state-owned firms, subject to case-by-case approval by the Prime Minister, but only for sales to Algerian buyers.
Inadequate economic reforms and an antiquated banking system have left non-hydrocarbon sectors mostly underdeveloped. Algeria has not yet joined the WTO and admission is not a priority.
The United States enjoys a positive image in the Algerian market. Algerians respect the quality of U.S. goods and services and U.S. companies are well regarded for their after-sales service and transfer of expertise. European countries such as France, Italy, Turkey, and Spain are traditional suppliers to Algeria in a wide range of sectors, and Chinese firms enjoy a growing presence. The EU-Algeria Association Agreement, which entered into force in 2005, maintains the EU’s dominance as the major trade partner of Algeria.
Algeria’s agricultural production does not meet domestic demand. The country imports large volumes of bulk agricultural products and packaged foodstuffs, though the government has begun limiting imports of the latter in favor of domestic producers.
U.S. businesspeople must take precautions when traveling to and within Algeria. Business travelers and companies should continue to exercise vigilance and consult the Embassy and the Department of State's travel advisories for updated information.
Algeria Trade Development and Promotion