Algeria passes new investment law to improve business climate

The law is part of reforms planned by the OPEC member state to diversify its economy away from oil and gas

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Algeria's parliament on Sunday approved a new investment law that the government hopes will improve the business climate outside the oil sector after a drop in energy earnings of almost 50 percent due to falling oil prices.

The law is part of reforms planned by the OPEC member state to diversify its economy away from oil and gas, which account for 95 percent of export revenues and 60 percent of the state budget.

The passage of the law coincided with a call by a visiting International Monetary Fund (IMF) delegation for quicker and deeper reforms to help compensate for losses caused by the fall in crude oil prices.

The law, due to come into force by the end of this year, stipulates tax cuts and steps to reduce bureaucracy.

"We want to put in place stable, transparent and coherent legislation to ensure efficiency on the ground," Industry Minister Abdesselam Bouchouareb told parliament.

The law does not, however, address one of the main obstacles cited by would-be foreign investors: a rule requiring local partners to hold a majority stake in new investment projects.

The new law states that all imported goods and services intended for investment projects will be exempted from customs duties and value-added tax (VAT).

Businesses will get a 10-year exemption from tax on property needed for a project, as well as a three-year tax exemption on company profits once the project starts.

Furthermore, infrastructure needed for any investment project will be partially or totally financed by the government.

The law identifies industry, agriculture and tourism as priority sectors in which investors will have "additional benefits". It does not provide details; the government says these will be included in upcoming implementation texts.

Algeria has been trying to make the three sectors more attractive to investors in a bid to boost domestic production in a country of 40 million people that imports almost all of its needs, from goods to food and services.

A heavy import bill and the fall in energy revenues contributed to a trade deficit of $13.7 billion in 2015 against a $4.3 billion surplus the previous year. The deficit was up 35.5 percent in the first five months of 2016 from the same period a year earlier.

"The oil shock has had a strong and rapid effect on public finances," Jean-Francois Dauphin, member of the IMF staff team, told the state news agency APS on Sunday.

The law also tries to simplify the bureaucracy around investment applications by largely directing them through a "one-stop" approval process, rather than leaving them up to various authorities.

"The more Algeria accelerates the implementation of necessary reforms to change its economic model, the better it will cope with this situation," Dauphin said.

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