Foreign direct investment (FDI) in Algeria

FDI in Figures

Rich in natural resources and economically stable, Algeria has historically attracted decent FDI flows. After declining since the outbreak of the COVID-19 pandemic, FDI inflows picked up in 2023, reaching USD 1.2 billion according to UNCTAD’s World Investment Report 2024, in line with the three-year average of USD 1.3 billion recorded in 2018-20. At the end of the same period, the total stock of inward FDI stood at USD 36.8 billion. In 2023, net inflows of foreign direct investment in Algeria targeted the extractive industries, manufacturing, and construction sectors, with respective inflows of USD 829 million, USD 133 million, and USD 74 million (data Bank of Algeria). According to official data from the Algerian Agency for Investment Promotion (AAPI), the main investors in the country in terms of stock are the United States (29%), Italy (10%), France (10%), Spain (7%), United Kingdom (6%); whereas investments are mostly directed towards the industry sector (especially hydrocarbons), construction, transport, and agriculture. In 2024, a total of 218 investment projects were registered with the AAPI, including 136 through partnerships and the remaining 82 as foreign direct investments.

Economic operators face various challenges, including complex customs procedures, bureaucratic hurdles, issues with financial transactions, and global price competition. Foreign companies in Algeria express concerns about the frequent changes in laws and regulations, increasing commercial risks for investors. Additionally, limited regional integration and import restrictions hinder the utilization of international supply chains. Until 2019, the participation of a foreign investor in an Algerian company was limited to 49% and foreign contractors are forced to find local partners for public tenders. However, the government of President Abdelmadjid Tebboune eliminated the so-called "51/49" restriction that required Algerian majority ownership of all new companies. The requirement is still in force for "strategic sectors", identified as hydrocarbons, mining, defence, the import of goods for resale in Algeria, and pharmaceutical production. In 2022, the government released supplementary regulations tied to the Investment Law issued in July. These regulations stipulate that foreign investors must cover a minimum of 25% of the total investment cost to have unrestricted repatriation of both the invested capital and its associated income. The government has also approved a new hydrocarbons law, improving fiscal conditions and contract flexibility in order to attract new international investors. As a result of the promulgation of this law, major international oil companies signed memoranda of understanding with the national hydrocarbon company Sonatrach. There are two main agencies responsible for attracting foreign investment: the Agence Algérienne de Promotion de l’Investissement (AAPI) and the National Agency for the Valorization of Hydrocarbons (ALNAFT). Algeria ranks 115th among the 133 economies on the Global Innovation Index 2024, 104th among the 180 on the Corruption Perception Index, and 164th out of 184 countries on the latest Index of Economic Freedom.

What to consider if you invest in Algeria

Strong Points

Algeria's strong points for FDI include:

• Low cost of energy (gas, fuel and electricity)
• Large liquidity reserve which lowers its vulnerability to commodity prices
• Strong potential in renewable energy and tourism
• Skilled and inexpensive workforce
• Recent laws to encourage foreign investments and various incentives for foreign investors
• Algeria’s proximity to Europe, its geographic location as an interface between Europe and Africa and inside the Maghreb.

Weak Points

Algeria's weak points for FDI include:

• Slow administrative procedures and large and inefficient public sector
• Weak business climate, according to international evaluation agencies
• The dependence of the economy on hydrocarbons, which increases dependence on imports of transformed goods
• The insufficient development of regional markets, which restrain Algeria's appeal to foreign investors
• The complexity of legislation, especially tax law
• The difficulty to acquire industrial property
• High level of unemployment among young people
• Degraded regional geopolitical context (Libya, Mali, tensions with Morocco).

Government Measures to Motivate or Restrict FDI

To attract and encourage foreign investment, the Government has set up several attractive measures, including the reduction of corporate taxes for investment in specific locations, a reduction in social security contributions for recruitment of young employees, the concession of land by mutual agreement (which provide similar rights to ownership) and tax exemptions throughout the life of the project for exporting projects. For further details consult the investment guide by KPMG and ANDI (National Agency for Investment Development).

The government is trying hard to attract FDI in sectors that may create jobs and reduce the imports of assembled goods. Several sectors are targets for foreign investors, including the automobile industry and the renewable energy sector.  

Nevertheless, since 2008 there are many FDI restrictions. Until 2019, for each new investment project in Algeria, the majority of its capital (51%) had to be held by local partners; however such limitation has been lifted (except for “strategic sectors” such as hydrocarbons, mining, defense, and pharmaceuticals). The Algerian government has enacted protectionist economic policies (import quotas for several types of products). Nevertheless, in recent years Algeria has benefited from the support of the World Bank to improve its business climate. 

Bilateral investment conventions signed by Algeria

Algeria has signed bilateral investment conventions with more than thirty countries. They define the framework for the protection of foreign investment in Algeria for each of the signatories. For the countries of the European Union, the association agreement signed between the EU and Algeria regulates this issue.
Algeria is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention") and the Convention on the International Center for the Settlement of Investment Disputes (ICSID Convention).