July 11, 2010 / 6:38 PM / in 7 years

UPDATE 1-New Algeria rules squeeze foreign contractors

* Measures don’t apply to the energy sector

* Foreign, local firms competing for share of $286 bln plan

* New measures underline trend towards economic nationalism

(Adds quotes, background)

By Lamine Chikhi

ALGIERS, July 11 (Reuters) - Algeria announced a series of measures on Sunday that will give preferential treatment to domestic firms over foreign rivals, strengthening the energy exporter’s trend towards economic nationalism.

The measures -- which do not apply to the energy sector -- are likely to make it harder for international contractors to win a share of the $286 billion that Algeria’s government plans to spend on modernising the economy over the next five years.

One of the new measures stipulates that a domestic firm will be considered for a state contract if its bid is up to 25 percent higher than the bid submitted by a foreign firm. The figure was previously 15 percent.

Another measure states that contracts must first be put out to a national tender -- for which only Algerian firms are eligible -- and only if that fails or if no local firm is up to the job will foreign firms be invited to bid.

The new rules were announced in an official statement released after a meeting of the cabinet chaired by President Abdelaziz Bouteflika.

Algeria launched the $286 billion investment plan to put its economy back on track after more than a decade of violence between security forces and Islamist insurgents which killed 200,000 people and threw the country into chaos.

Economic analysts say that as the violence has subsided and Algeria’s foreign currency reserves have grown, the government has been back-tracking from its commitment to a market economy and taking a tougher approach to foreign investment.

They cite the case of Egyptian mobile phone operator Orascom Telecom, which is in talks to sell its profitable Algerian unit to the state after it was hit with tax demands.

FOREIGN CONTRACTORS

International contractors such as SNC-Lavalin, Alstom, Siemens and Todini are already in Algeria working on infrastructure projects including new roads, dams, railways and water desalination plants.

Bouteflika said foreign firms had a role to play, but that the new rules were needed to give Algerian companies a bigger stake in the economy, to help reduce youth unemployment and also to combat corruption.

Senior officials in Algeria’s energy sector, which dominates the economy, were fired earlier this year following a corruption scandal over the awarding of contracts. Rules on energy sector contracts have since been tightened.

“It is up to our businesspeople to seize the opportunities offered by the programme of public investment, as well as the preferential treatment afforded to them,” Bouteflika was quoted as saying in the official statement.

“It is ... up to foreign firms interested in the Algerian market to join us on the path to a win-win partnership and, in return for the contracts they will obtain, to take part in the modernisation of our own enterprises,” he said. (Writing by Lamine Chikhi and Christian Lowe; editing by David Stamp)

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