Algeria News

Algeria restrictions hitting foreign investment: IMF

* IMF mission says foreign investment flows “very low”

* Says low FDI linked to govt restrictions

* Govt says foreign investors exploit Algeria for profits

ALGIERS, Nov 4 (Reuters) - Tough new conditions imposed on foreign firms in Algeria are depressing foreign direct investment (FDI) which the energy exporter badly needs to create jobs, the International Monetary Fund said on Thursday.

Algeria experienced a 60 percent drop in FDI in 2009 as the global downturn cut investment worldwide, but while similar economies saw a strong recovery in capital flows in the first half of this year, in Algeria they rose by only 5 percent.

Joel Toujas-Bernate, head of an annual IMF mission to Algeria, said there was a link between weak investment and a set of restrictions imposed by the Algerian government over the past two years as part of a policy of economic nationalism.

“There has been without any doubt an impact from these measures on the behaviour of investors because ... they have taken the position of waiting to see on what terms they can come and invest in Algeria,” said Toujas-Bernate.

“In 2010, while ... in lots of emerging countries we have observed a fairly significant recovery in capital flows, we have not observed a similar recovery in the Algerian economy with the level of foreign direct investment, which remains very low,” he told a news conference.

The IMF’s figures exclude foreign direct investment in the financial and energy sectors.

Changes in the rules for foreign investment include a law limiting the stake that a foreign investor can hold in a local firm to 49 percent, and a requirement that foreign bidders for state contracts find local partners.

Some investors say a dispute over the local mobile phone unit of Egypt's Orascom Telecom ORTE.CA has also sent negative signals about the business climate. The unit has been hit with back taxes and is now set to be nationalised.

However, Toujas-Bernate said there were special circumstances involved in the Orascom Telecom dispute and that it did not have an impact on the broader business climate.

The IMF mission said Algeria should also allow a greater role for the private sector, reform banking and diversify the economy outside the dominant oil and gas sector to tackle the country’s high unemployment.

Speaking earlier at a conference in Algiers attended by IMF Managing Director Dominique Strauss-Kahn, Algeria’s Prime Minister Ahmed Ouyahia set out a different vision.

“The state is obliged to provide the bulk of the effort, pending the development of a real domestic private sector and while we wait for our foreign partners to finally agree to offset their profits on the Algerian market through productive investment here,” Ouyahia told the conference.

Toujas-Bernate said he expected inflation in Algeria to reach 4-4.5 percent this year, above a government forecast of 3.5 percent. Inflation was 5.7 percent in 2009. (Editing by Susan Fenton)