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Algeria: Algeria Economy Profile

2015/08/08

 

Business outline for Algeria

Major Industry Sectors

Agriculture contributes about 12% of the GDP and employs almost fifth of the active people. The major crops are wheat, barley, oats, citrus fruit, wine grapes, olives, tobacco and dates. Algeria produces a large quantity of cork and has a significant amount of livestock farming.

The industry contributes nearly 55% of the GDP and employs a quarter of the people. The oil and gas sector accounts for the majority of budgetary income, and almost amount of export income. Algeria is the 2nd biggest gas exporter in the world. It ranks 18th for its petroleum reserves and 10th for its gas reserves. The ores mined in large quantities are iron, lead, phosphate, uranium, zinc, salt and coal. The major activities of the manufacturing sector are industrial food processing, textile, chemical products, metals and construction materials.

The tertiary sector contributes about a third of the GDP and employs additional than half of the workforce.

Economic Overview

After having slowed down due to the world economic crisis and a drop in the prices of oil and gas, the Algerian economy resumed its increase in 2010. Driven by the resumption of request in the hydrocarbon sector and the strong performance of the service and construction sectors, aided by a program of public a lot of(PIP), increase reached 3.8% in 2010 (compared to 2.4% in 2009) and should continue in 2011.

In order to promote the increase of the domestic market, the Algerian government has launched a major construction policy, namely in the sector of transport infrastructures. Today, this policy is criticized because of reasons. Firstly, at the time this program was started, the price of the oil barrel was very high. Current world market conditions have changed considerably and some observers question the suitability of this policy. Additional so because Algeria is running on a "negative multiplier", which means that the resources injected into the economy are much higher than the wealth generated. The new-year plan for 2010-2014, which follows in the direction of the previous, emphasizes modernization the infrastructures and privatization of the economy.

The current unemployment rate in Algeria is officially at 10% but some claim it is closer to 20%. The per capita GDP was USD 4,600 in 2008. It should be noted that there is a large discrepancy between the urban and rural living conditions.

FDI in Figures

Rich in natural resources and enjoying economic stability, Algeria has been attracting record levels of FDI in the recent years, reaching 17.3 billion USD in 2009. These extremely encouraging figures nevertheless hide opposing trends: a net decrease in European investments and a revival of interest from the Gulf investors.

The series of protectionist measures taken by the Algerian government, including a new regulation concerning the FDIs and imposing an Algerian majority stake of 51%, can as well be seen as a discouraging factor in terms of the FDIs. Likewise, corruption and heavy bureaucracy, inclunding the weak economy and legal insecurity in terms of intellectual property rights, constitute an impediment to investment. Officially, the government remains committed to economic liberalization and continues to seek foreign investment in sectors such as the infrastructures, telecommunications, energy and water supply. There has as well been a noticeable reorientation of the FDI toward the domestic market, through an efflorescence of developmental projects in transport and infrastructure.

The sectors attracting most FDI are the energy sector, followed by the telecommunications and tourism.

FDI Government Measures

To attract and encourage foreign investment, the government has set up various attractive measures. You can consult these mesures on the ANDI website. At the same time, on the 22nd December 2008, the Algerian prime minister published a directive which leans towards restricting foreign FDIs. In effect, it has been provided that amount new investment projects in Algeria have to have local majority (51%) shareholding. This directive further provides that foreign investors should only revert to local financing. Finally, FDI projects will no longer come under ANDI (National Agency for Investment Develompment) but under CNI (National Investment Council), something which would engender delays in the handling of files. Additional data on these new mesures is available.

Country Strong Points

  • - The low cost of energy constituents (gas, fuel and electricity): industrial gas is 22 times cheaper than the European average, electricity is 6 times cheaper. See the summary of factors costs on the ANDI website
  • - The workforce is skilled and cheap; it is 10 times cheaper than in France.
  • - Algeria's proximity to Europe. This motivates the relocation of industrial activities which consume energy.
  • - A country part an economic metamorphosis.

Country Weak Points

  • - Slow administrative procedures are often pointed out;
  • - The legislation is very complex, especially tax law.
  • - It is difficult to acquire industrial property.

Foreign Trade Overview

Algeria’s current account balance turns negative, but its external balance remains strong

Algeria’s external position remains very strong, even as declining hydrocarbon export revenues and rising domestic demand, contribute to a continuous deterioration of the current account from a surplus of 20% of GDP in 2008 to an expected deficit of 0.5% of GDP this year. While Algeria’s foreign exchange reserves of about USD 200bn currently provide a vast 36 months of import cover, declining current account surpluses have contributed to a slowdown in reserve accumulation in recent years.

However, given the current ample foreign exchange reserves levels and external debt of a mere 2% of GDP, Algeria still has some way to go before its current economic challenges start to undermine its benign external position.

 

Fiscal Policy

Fiscal policy was particularly expansionary in 2011. Public spending rose by almost 25% compared with 2010 and amounted to 40.6% of GDP. The budget deficit rose to 2.3% of GDP in 2011.

Public investment was sustained with a view to containing the strong social demands in respect of purchasing power, jobs and housing. Public spending increased but part of the fiscal receipts continues to feed into the oil stabilisation fund, the Revenue Regulation Fund (FRR) through a budgetary programme based on a reference price set at USD 37 (fiscal price) per barrel of crude oil, while the real average price in 2011 was USD 112.8.

Operating budget execution was 85% and the capital-equipment budget execution 65% as a result of the overestimate of the costs of the projects for which financing had been budgeted. The increase in spending made it possible to raise wages, subsidise consumer prices and operate social transfers. These latter grew by around 70% in 2011. Fiscal receipts rose by 10.6% over 2010, a level substantially lower than the increase in spending. Tax on oil accounts for 70% of fiscal resources although ordinary taxation grew by 17% in 2011. On the spending side, ministries were given a high level of flexibility in executing their investment and capital-goods programmes, since the resources of the FRR were available in the event of overshoots.

In the short term, fiscal policy will depend on the world request for oil and gas. The estimate trend assumes that the price will stabilise, or that there will be a slight drop in request, with receipts from oil and gas accounting for around 23% of GDP in 2012 and 21% in2013. The budget deficit is expected to deepen. It is estimated at 5.4% of GDP in 2012 and expected at 6.3% in2013.

Monetary Policy

Monetary policy is focused on control of the money supply, the exchange rate and inflation. The Bank of Algeria aims to keep inflation stable around 3.5%. It operates strict control over the foreign-exchange market and is the chief source of foreign currency. The exchange-rate policy in force takes the form of a controlled float of the Algerian dinar (DZD). The yearly average appreciation of the dinar against the USD was 2.1% in 2011, but it lost 3% relative to the euro, reflecting an alignment of the nominal rate of the dinar with the real market rate. The bank as well plays a key role in banking supervision, monitoring prudential ratios and the excess liquidity of the commercial banks.

Credit flows to the economy grew by 20% in 2011, against an increase of 15.6% in 2010, as a result of support measures undertaken by the authorities. Of these credits 54% went to the private sector in a reversal of the normal trend in financing the economy.

In 2011 the M2 money supply grew by 19.5% as a consequence of the increase in credit flows to the economy and better budgetary outlays. Money in circulation grew by 22.5%, but the Bank of Algeria recorded deposits of DZD 1.1 trillion to lower the level of monetary liquidity in circulation. These deposits earn 1.25%.

To guarantee better financial stability and meet the requirements of the Basel Committee norms the body responsible for money and credit (CMC) issued instructions in May 2011 governing identification, measurement, management and risk control. The central bank forecasts an increase in the M2 monetary accumulation of around 12% in 2012 in the light of the vigorous acceleration in the pace of distribution of credit to SMEs.

Economic Cooperation, Regional Integration & Trade

Algeria is second only to Russia as a gas supplier to Europe and is its 13th major source of oil. Trade relations with the European Union (EU) have intensified since the entry into service in April 2011 of the gas pipeline that links Algeria with Europe via Spain. The country is as well continuing talks with the World Trade Organization (WTO) with a view to joining it. The new (2011) statement by the United Nations Committee on Trade and Improvment(UNCTAD) puts foreign investment in Algeria in 2010 at USD 2.29 billion, or 1.4% of GDP.

The external position remains healthy. The current-account balance in 2011 was 9.3% of GDP and the trade surplus 14.1% of GDP, as against 11.2% in 2010. The rate of coverage of imports by exports was 158%. Official reserves were put at USD 182.2 billion at the end of December 2011, the equivalent of three years of imports.

The price of exports was put at USD 73.39 billion, or about 37% of GDP. Income from the export of oil and gas account for 98% of exports, or USD 71.24 billion in 2011. Gas products in the form of natural gas, condensate and liquefied petroleum gas (LPG) made up about half this total, mainly destined for the European market. Non-hydrocarbon exports are on the rise and amounted to USD 2.15 billion.

Imports of goods rose by 14.78% to USD 46.45 billion, or 23% of GDP. Imports of services for the oil-and-gas and construction sectors amounted to USD 11.77 billion.

Algeria's major trading partners are the Organisation of Economic Co-operation and Improvment(OECD) nations and in particular those of the EU, which account for 52% of imports and 45% of exports. In 2011 the country's chief customers were the United States (USD 15.24 billion), Italy (USD 9.88 billion),Spain (USD 7.18 billion), France (USD 6.61 billion) and the Netherlands (USD 5.12 billion. The volume of trade with the nations of the Maghreb is still marginal (3.5% of exports,1.5% of imports) because of the low level of integration of the region's economies.

Monetary Policy

 
At the end of June 2009, bank liquidity had seen a sharp reduction, down 10.4% in the first months of the year to DZD 2 549 billion from DZD 2 845 billion at the end of 2008, in a context of stabilisation of the country's net external assets, which in 2008 had been the major source of money creation. Inflation in the first ten months of 2009 was 5.8%, mainly because of higher prices for fresh agricultural produce, as the national was unable to be in command of the regulation-and-control systems for fruit and vegetables. Inflation thus became endogenous, and was no longer generated by the rise in the prices of imported agricultural products as it had been in 2007 and 2008. Food prices rose 7.8% in general during the first ten months of 2009, with fresh produce rising 20.7%. The prices of services and manufactured goods rose by 6.4% and 2.1%, respectively, over the same period, contributing to the general rise in inflation. The authorities hope to reduce inflation to about 3.5% in 2010.

The M2 money supply shrank in the first half of 2009, mainly because of a 1.13% fall in primary-bank deposits, especially those from the oil and gas sector, which fell 26.6% because of the fall in world oil prices and the sector's own-financing needs. The decline in M2 money supply is new for Algeria and highlights the magnitude of the economic shock suffered in 2009. Outside the gas-and-oil sector's deposits, however, the M2 money supply grew 4.74% in the first half of 2009, mainly at private banks.

Credits to the economy rose 6.1% over 2009, after a 5.4% rise in the first months, confirming the sustained recovery of credits to the economy, even though the 22% increase target was not reached. Credits to the national were very weak, with the treasury being a net creditor of the central bank (DZD 152.5 billion) and the banking sector. Outside the purchase of public-sector liabilities by the treasury, the rise in credit is estimated to have been 7.4%. Medium- and long-term credit rose by 12.9%, while short-term credit fell by 2.2%, reflecting companies' need to finance their investments, in particular in the water and energy sectors. In fact the relative share of companies rose from 54.5% at the end of December 2008 to 58% at the end of June 2009. Half of the credits to the economy went to the private sector, but mainly to a small number of major enterprises. The development of credit to SMEs remained below the expected target, reflecting the reluctance of banks to take the kind of credit risk associated with this type of enteprise, in particular those with accumulated liabilities.

Despite the stagnation of currency reserves at USD 144.3 billion at the end of June 2009 (as against USD 143.1 billion at the end of 2008) and the M2 contraction, the Bank of Algeria pursued its policy of sterilisation of excess bank liquidity by resorting to absorption of liquidity and interest-bearing deposit facilities. At the same time, the central bank's intervention rates were reviewed in March 2009 and fixed at 1.25% for absorption of liquidity on three months, 0.75% for absorption on days and 0.30% for deposit facilities. Reserve requirements were set at 8%, while their interest rate at the Bank of Algeria was limited to 0.50%. The weighted average rate on the interbank market was fixed in a range between 3.1% and 3.6%.

Monetary authorities as well took measures to facilitate and improve banking intermediation in order to channel available savings to sectors outside the gas and oil sector, the private sector in particular. Amount the same, the monetary-policy goal for 2010 is to control excess liquidity and inflationary pressures in a context of rising world request and prices for oil and gas.
 

Debt Policy

 
External debt has been within sustainable limits since 2006 after the total prepayment of restructuring loans and the suspension of any new debt. It amounted to 2.3% of GDP in 2011. The country is therefore sheltered from any direct financial contagion. It continues its policy of financing the economy internally, thanks to the excess liquidity in the banking sector.
In 2011 the total external debt stock fell to USD 4.4 billion, compared with USD 5.6 billion at the end of December 2010 as medium- and long-term debt shrank. External debt represents about 8% of exports of goods and services. Short-term debt (a year or less) was put at USD 1.14 billion and relates to advances by the headquarters of enterprises to their Algerian subsidiaries. These advances are treated as a form of foreign direct many(FDI) for balance-of-payments accounting purposes. After the reduction of the external debt in 2006 and the introduction in 2009 of measures abolishing external investment financing of partnerships, the structure of medium- and long-term debt, by type of credit, indicates that bilateral external debt accounts for virtually amount outstanding debt (about 75%). It is followed by financial credits. Multinational credits only represent about 0.2% of the total, divided between the World Bank and the European Investment Bank (EIB).
Nevertheless, debt stock has increased, rising from USD 14.72 billion to USD 16.25 billion between 2010 and 2011. Internal debt amounts to about 9% of GDP, with 55% made up of debt restructuring with a view to clearing the debts of public enterprises to the banking sector. The rest of the internal debt comes from market debt which makes it possible to keep the country's bond market functioning.
The government is continuing with the debt-management policy drawn up in 2009, which is based on forecasts of the international price of oil and gas, and on the composition of medium-term debt in order to maintain the fiscal and external sustainability of the country. Economic and financial steering structures have enabled the government to benefit from expert views and advice, which have made a positive contribution to decision making.


External Position

With oil and gas accounting for additional than 97% of Algeria's exports, after the fall in world request for raw oil and gas and the decline in the international prices of these commodities, the world figure for exports fell in 2009 to USD 43.68 billion from USD 79.29 billion in 2008, a 44.91% fall. Imports of goods fell to USD 39.10 billion in 2009 against USD 39.47 billion in 2008, a 0.95% decline when the government had targeted a 5% fall. Imports of industrial capital goods amounted to USD 15.04 billon, up 14.9%, semi-finished products to USD 10.24 billion (+2.34%) and agricultural capital goods to USD 0.23 billion (+31.61%). The only fall in imports was in food products, which declined 25.6% to USD 5.81 billion in 2009 from USD 7.81 billion in 2008. Cash payments were made for 74.39% of the imports, credit arrangements were made for 13.2% of them, own foreign-currency accounts were used to pay for 4.73% of them, and the rest were paid through other sources. The trade surplus thus dwindled to USD 4.58 billion from USD 39.82 billion in 2008.

The price of imported services remained high in the first half of 2009, at USD 5 billion, almost the same figure as for the first half of 2008. USD 1.4 billion went to imports of services related to construction and USD 1.46 billion to imports of technical services for enterprises, usually for public infrastructure and to meet the needs of oil companies. Although the services deficit, which had worsened in 2008, reached semester-on-semester stability starting in the first semester of 2009, it remains high in a context of such strong contraction of export receipts.

Despite the shock of the world crisis, Algeria's external financial position remains strong, with official reserves equivalent to additional than three years of imports. The net external financial position as well grew stronger as the medium- and long-term external outstanding debt improved to USD 3.9 billion at the end of June 2009 from USD 4.3 billion at the end of 2008, which allows the Algerian economy to somewhat cushion the effects of the external shocks on its major balances. The government has as well drastically reduced internal public debt to DZD 750 million in June 2009 from DZD 1 170 billion in 2008. Considering the impact of world oil prices the real effective exchange rate for the dinar remained close to its estimated equilibrium level of about DZD 73 to USD 1. The Bank of Algeria continues to intervene on the interbank foreign-exchange market to correct differences between the nominal exchange rate and the real effective rate.

Algerian market will be halted until 2014. Otherwise, Algeria's talks to join the World Trade Organization are held up over the question of energy prices on the domestic market.

Structural Issues

 

Private Sector Development

The 2012 World Bank Doing Business statement on the business climate ranks Algeria 148th out of 183 nations. It emphasises the constraints that weigh on the business climate, in particular in respect of creating businesses and transferring property. These procedures entail major delays and costs. In addition, it remains difficult for SMEs to get access to bank financing. Furthermore, a survey into trends carried out by the forum of business leaders, the FCE, yields a negative index of confidence by entrepreneurs.

Steps were taken during 2011 in the framework of the tripartite conference of the social partners to improve the business climate and investment. New methods of payment were introduced for inputs and raw materials imported by production enterprises. Investment loans to SMEs were enhanced and a procedure for dealing with the bank debts of SMEs in difficulty was introduced. Tax procedures and the rescheduling of unpaid tax were simplified. Incentives for non-hydrocarbon exports were strengthened. These measures go in tandem with the reforms undertaken in recent years. Those include revision of the commercial code, simplification of the procedures for registering a business, lower taxes for enterprises, development of industrial zones to make it easier to attract investors, and revision of the legislation relating to acquiring land.

After the series of reforms in the 2009 supplementary budget, the 2011 supplementary budget brought in new measures to encourage investment and give a boost to SMEs, in particular in the areas of taxation and access to industrial land. The national agency for investment improvment(ANDI) reports that non-hydrocarbon investment since 2006 has reached USD 25 billion, 33% of which is FDI. Non-hydrocarbon FDI trebled in comparison with 2010. This FDI is part of the 7 900 projects registered in 2011, in particular in the pharmaceutical, agrifood and construction-materials industries.

Financial Sector

The banking sysytem is made up of 26 banks, 6 of them public, part them a savings bank, Caisse nationale d’épargne et de prévoyance (CNEP). It as well includes non-banking establishments such as insurance companies, and leasing and microfinance companies, and a limited stock exchange. The treasury's financial operations are conducted through the bond market for the purchase of the debts of public enterprises and the financing of public investment. The public banking sector remains dominant, with 89% of total assets, but the private banks are taking an increasingly prominent position in financing the economy(23.2% of credits in 2011, compared with 19.2% for the public banks).

There is still a structural excess of liquidity in Algeria's banks. Since 2001, the commercial banks have no longer sought refinancing from the Bank of Algeria. In 2011 they strengthened their financial solidity with a solvability ratio of 23% at the end of December but they suffer from weak banking intermediation in attracting household savings and are having trouble transforming resources into investment.

The proportion of non-performing loans declared by the banks fell from 19.05% to 16.63% between the end of 2010 and the end of 2010. Long-term capital resources are rare and stricter prudential regulations prevent the banks from financing major projects.

Transactions on the stock exchange are limited. A small number of businesses account for activity on the exchange. The major players on the financial markets are the national financial institutions and the public banks. Algeria has embarked on a programme of modernising the banking and financial sector with a view to stimulating increase, and promoting and diversifying investment, developing SMEs and creating jobs.

Monitoring of the measures taken by banks and financial institutions to combat money-laundering and the financing of terrorism has been intensified. The currency and credit council, the Conseil de la monnaie et du crédit (CMC), put in place in 2011 a system of internal surveillance and limitation of counterparties of outstanding interbank loans and borrowing, in particular on the money market. These new mechanisms have enhanced the stability and robustness of the banking system.

Public Sector Management, Institutions & Reform

Economic reforms that seek to diversify and modernise the economy have been adopted. The government is pressing ahead with the reorganisation of the government with the intention of improving the quality of services.

The authorities want to establish a link between wages and productivity and economic performance outside the oil and gas sector. Wages were raised in 2011, adding 25% to the wage bill, as part of a wider reform of public services. This aims to bring in a new system of pay and promotion in the interest of better efficiency and retaining qualified managers.

Electronic connection part ministries and within each ministry are not from now on effective. The digital modernisation project known as "E-Algérie 2013" was launched in 2009 but has made only limited evolution. As a result Algeria occupies 131st position out of 192 nations in the United Nations "e-government" ranking.

The recommendations of the African Peer Review Mechanism (APRM), to which Algeria signed up voluntarily in 2003, are implemented to ensure better transparency in the management of public affairs. Transparency International's Corruption Perceptions Index (CPI) put Algeria in 112th place (out of 183 nations) in 2011.


Natural Resource Management & Environment

The so-called "clean" development programme takes into account a number of elements: public health; national of the environment; vitality of ecosytems; water and air quality; greenhouse-gas emissions; and the effect of the environment on health. Algeria has a national environment strategy and a national plan for environmental action and sustainable development.

A regular review is conducted of the environmental-performance contracts signed with various partners. These make it possible to undertake action before regulation and the progressive implementation of environment-related legislation is quite in effect. They are established between the authorities and industry, which voluntarily defines its commitments. The Environmental Performance Index (EPI) published by Yale and Columbia Universities puts Algeria in 86th place out of 132 nations.

The 2011 budget allocated to the national renewable energies fund, the Fonds national des énergies renouvelables (FNER), 0.5% of oil royalties. Algeria is, furthermore of the few nations to have successfully carried out a project to capture and store carbon in rock formations. The project is at Ain-Salah, in Algeria's deep south. Another renewable-energies programme foresees Algeria entering by 2020 the club of nations deriving 40% of their electricity from solar power.

Other Recent Developments

 
In the public sector, the industrial strategy prioritises structural projects in the automotive, chemicals, fertilisers, electronics and Data and Communication Technologies (ICT) sectors. The national has decided to allocate DZD 600 billion to cover the tax liabilities of the enterprises that came out of the restructuring process, which will be grouped into 13 public holdings. The major public enterprises in the automotive, pharmaceutical, electronics, air transport and rail transport sectors will be prioritised in the distribution of investment in technical and managerial modernisation. Almost 3 000 private companies will as well be eligible for funds for upgrading. To avoid the practice of cost overruns and re-evaluation, the CNED development fund now has to evaluate major public-equipment projects and propose funding only for mature projects.
LFC 2009 as well stipulates that, starting in January 2010, foreign investors may not hold additional than 49% of the capital of a project, with Algerian partners holding the rest. The law as well establishes the national's pre-emption right on the transfer of assets by any foreign investor and obliges amount foreign companies based in Algeria to maintain a permanent foreign currency surplus.

Public Resource Mobilisation

In general tax revenue has been increasing in recent years thanks to improved revenue collection from ordinary taxation and oil taxes. In 2008 tax revenue rose by 57%, thanks mainly to improved revenue collection from direct taxes, registration fees and stamp duty, tax on turnover and customs duties. The rate of revenue collection of oil taxes increased by 76% during the period. Non-tax revenue, which consists mainly of windfall revenue and various budget products, has increased each year since 2000. In 2008, tax revenue accounted for nearly 92% of total revenue, mainly because of the large contribution of oil taxes.
Supplementary finance and fiscal obligations are set out in annual finance laws, which are often amended through complementary finance acts, or LFCs (Lois de finances complémentaires). LFC 2009, for instance, introduced several amendments affecting external trade, at the risk of introducing protectionist measures in the eyes of investors. A new tax law shall be instituted in 2012 to replace and bring together the existing laws on direct taxes, indirect taxes, turnover tax, registration fees and stamp duty.
Ordinary taxation (direct and indirect taxes, customs duties, VAT on imports, and registration fees and stamp duty) accounted for close to 37% of total tax revenue in 2009, the equivalent of approximately 9% of GDP. This contribution will rise to 43.4% in 2010, thanks mainly to better collection of taxes and a broadening of the tax base. The remaining tax revenue consists of oil taxes.
The tax on civil service wages and salaries is a withholding tax, while for the IBS and the IRG tax statements need to be filed. IBS is 25%, IRG is between 10% and 25%, and VAT is 17%.
The investments law provides tax exemptions for projects launched in the remote Hauts-Plateaux and Sud regions. LFC 2009 provided a cut in VAT for tourism services from 17% to 7%, and cut IBS to 19% for production, tourism and public works. LFC 2009 as well extended the exemption period by years for IRG and local business tax for young entrepreneurs who commit to opening permanent jobs, and from three to years' exemption from IBS for promoters opening 100 permanent jobs when launching their project. These tax exemptions are not, however, always reflected in the prices of products sold by companies benefiting from them.
The measures to support infant industries include giving the CNI the capacity to grant, for up to years, exemptions and reductions on taxes and duties, including VAT, on locally produced goods. The government as well plans to reduce employers' contributions for first-time job seekers from 34.5% to 24.5% in wilayahs of the Nord region, 20.5% in the Hauts-Plateaux region and 16.5% in the Sud region. Since 2008, the tax authorities have assimilated the transfer of profits of branches and subsidiaries of multinational corporations as dividend payments, thereby making them subject to a tax rate of 15%. The authorities have as well introduced a specific 20% capital-gains tax on the transfer of assets or company shares by non-residents.
 
The tax government designs fiscal policies, which are promulgated by the finance ministry once they have been adopted by the parliament. The modernisation and simplification of the tax system led to the introduction of VAT, IBS and IRG, which has resulted in fewer taxes and a lower tax burden. In 2006, fiscal registration through a tax identification number (NIF) was made compulsory. This made it possible to identify taxpayers and their non-moveable assets, track transactions and the transfer of funds from overseas to Algeria and vice versa, and to monitor taxpayers over space and time. This new instrument enables external-trade operators to carry out operations through a-stop customs facility. In 2006, to increase effectiveness, three departments were set up: the DGE (Direction des grandes entreprises) for large corporations, the CDI (Centre des impôts) for SMEs, and the CPI (Centre de proximité des impôts) for private individuals. Regional and wilayah centres throughout Algeria are empowered to charge taxes, issue rulings on local disputes, and pay out VAT and IBS reimbursements.
 
The tax authorities, which were organised by tax category, have opted for a system based on missions (assessments, inspection and disputes) designed to be multipurpose and decentralise management. The tax authorities remain undermanaged, however, especially locally, and the general level of wages of civil servants is generally considered too low. Companies do not manage their VAT well and few companies keep evidentiary analytical accounts. Experts were brought in to set up an online tax-filing system for the DGE. This system will from now on be extended to taxpayers in order to improve compliance with tax obligations.
 
Tax collection is much lower than it should be because of the poor management of the tax authorities, especially at the local level, and the tax evasion resulting from the almost complete lack of invoicing of commercial transactions, especially in the informal economy. Another factor limiting tax revenue is the absence of management of wholesale markets and the freedom granted to operators, especially in the agricultural sector, to sell large quantities of goods outside these markets. The informal economy, which is estimated to account for additional than 35% of economic activity, and self-employed workers, most of whom pay a fixed tax, are as well significant factors underpinning the low tax revenue. Despite attempts by the authorities to formalise these categories, they are reluctant to make their accounts transparent, blaming high taxes, harassment from tax agents and the high cost of formalisation.
 
Nevertheless, the tax base is growing, and thanks to the improved business climate, the number of taxpayers has increased. Administrative rigidities, however, penalise new investors and the formalisation of informal activities. In Paying Taxes 2010, a study carried out by PricewaterhouseCoopers in cooperation with the World Bank, Algeria was ranked 168th out of 183 nations. According to the study, the low tax burden in the country is not necessarily generating higher economic activity, since the in general fiscal system is disorganised. Nevertheless, measures such as the single fixed tax, the improvement of interest rates, exemptions and the payment of a proportion of employers' contributions by the national has enabled additional SMEs to be set up and a lot of companies from the informal economy approaching "out of the woods". By obliging foreign trade operators to have an NIF, the authorities have been able to clean up the sector and eliminate additional than-third of fictitious or informal importers.
 
Because of the volume of imports, the external sector is frequently subject to attempted corruption, tax fraud and capital flight, often related to false declartaions of quantities of imports and the prices of transfers. The authorities therefore decided to impose the almost systematic use of a letter of credit as the only way to pay for imports starting in 2010, and to call in international firms specialising in pre-shipment inspections in order to improve monitoring of transactions, ensure additional accurate declarations of the quality and quantity of goods declared, confirm the origin of products, put an end to false declarations of customs price, and combat counterfeit goods. The mining and quarrying industries are subject to the general scheme of the profits tax. Only the oil industry is subject to a specific tax scheme, on the initiative of the national authorities alone.

INDUSTRY

Increase in the increasingly vital industrial sector, which contributes 5% of GDP and has expanded 2% annually, is being propelled by the National Development Master Plan 2025. Outside of the petrochemicals industry the sector is dominated by family-owned small and medium-sized enterprises (SMEs). The majority developed segments in the country are mining, the agri-food industry, pharmaceuticals and construction materials. Integrated industrial zones (zones industrielles intégrées, ZIIs) will be created across the country to promote the upgrading of the sector and attract investment. FDI totalled €515m in 2007 but jumped to €5.25bn in 2008. Several reform laws were passed in 2009 increasing the participation of Algerians in industry, including an executive decree for foreign companies that export to Algeria to partner with a local firm.

 

The government banned the import of 409 pharmaceuticals that are being locally produced and aims for local production to meet 60% of domestic needs in the medium term (compared to 30% in 2008). Local manufacturing is as well expanding thanks to transport infrastructure projects, ZIIs and laws limiting imports. To help bridge the gap between local production and construction needs, significant sector investments are under way in steel, aluminium and cement, while the Ministry of Industry and Investment Promotion is spearheading the creation of a local car industry.

 

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