Efforts to Incentivise Foreign Investment in the Maghreb States

20 February 2020 - Christian Steiner

Speaking of the rule of law and doing business, the Maghreb countries Morocco, Tunisia and Algeria are not those that many would usually think of in particularly outstanding terms. Rather would the Nordic countries or Singapore spring to mind, and, in fact, they do lead most relevant rankings. Frankly, reaching those countries’ levels of efficiency and effectiveness in the public administration and courts to infuse confidence in citizens and foreign investors alike, is a huge and continuous challenge for any government. But on the level that the countries in the Maghreb are competing with other countries or regions, some of their efforts are encouraging. 

Distorted perception

As reflected in the World Justice Project’s Rule of Law Index, by the standards of civil justice – most relevant for businesses – those three North African countries achieve similar results to those of China and Brazil, and even to EU member states, such as Italy and Bulgaria. While there is room for improvement in many areas – a conclusion that not only derives from statistical data, but also from our daily experience representing foreign companies in the Maghreb –, it seems the perception is unfairly negative. Sometimes the foreign investors in the Maghreb themselves are part of the problem: Instead of observing the same compliance standards as they would observe at home, they get carried away by the wrong assumption of endeavoring into the „Wild West“ of North Africa where “anything goes“ and nobody cares about the rules. 

The fact is that, although with different levels of determination, Morocco, Tunisia, and Algeria have pushed reforms in recent years to improve the performance of their public administrations and courts as well as the business environment in their relevant jurisdictions. They are doing this in a context of political instability or conflict threatening to spillover from the neighbouring countries, like Libya and Sudan. 

Starting a business

When it comes to starting a business in the Maghreb, Morocco and Tunisia present surprising figures concerning the procedures, time, cost and paid-in minimum capital to start a limited liability company. Both countries are on a par or even better than the OECD high income (h.i.) average on most criteria. 

While Tunisia did provide some reform especially in the financial sector, many other projects are on hold. The country increased the official costs for company registration but is now facilitating start-ups by merging more services into a one-stop-shop authority and reducing the corresponding fees. 

Morocco carried out reforms in the financial sector, public finances and compensation, public enterprises and privatization, foreign trade, labour market, and regulatory framework. For instance, it abolished or reduced various company registration fees, combined a reduced stamp duty with the application for business incorporation, introduced an online platform to reserve the company name (OMPIC), and eliminated the minimum nominal capital requirement for limited liability companies. Also, a business incorporation no longer needs to be registered with the Ministry of Labour, and various free zones offer attractive tax conditions for companies that operate internationally. 

In Algeria, apart from an institutional reorganisation (e.g. the setup of a Ministry for Participation and Reforms and the creation of one-stop-shops to streamline administrative procedures), public companies were privatised or opened for private investment, a public fund for promoting investment was installed, the requirements of a minimum capital for business incorporation or the presentation of the manager’s criminal records were eliminated.

Registering property

Not as competitive are the scores concerning the transfer of property and the quality of the land administration system, although Tunisia partly manages to beat the OECD h.i. average. The three countries still need to do some homework on the mechanisms of land administration, especially in rural areas where the modern property registry has not been fully implemented like in the modern parts of the cities. Moroccan efforts in this field tend to render property transactions easier. Property registration fees have been increased and the registration procedure has become less transparent because statistics on the number of property transactions and land disputes for the previous calendar year are not published. But transactions have become easier since the land registry and cadaster have streamlined procedures. Also, registration is faster thanks to electronic communication links between the different authorities involved. Tunisia sped up property registration and increased the transparency of land administration.

Protection of minority investors

In Morocco and Tunisia, the level of protection of minority shareholders is above the regional average. In recent years Morocco undertook many measures to better protect minority investors, especially by

– expanding the shareholders’ role in major transactions, 

– promoting independent directors, 

– increasing transparency on directors’ employment in other companies,

– making it easier to request general meetings, 

– clarifying ownership and control structures, 

– requiring greater corporate transparency, 

– allowing minority shareholders to obtain any nonconfidential corporate document during the trial, and 

– requiring greater disclosure in companies’ annual reports.

Tunisia, in turn, improved disclosure requirements of related-party transactions to the public and now requires disclosure of directorships and primary employment.

Cross-border trading

In the realm of international trade, Tunisia and Morocco achieve high scores not only as compared to the region but also to the OECD h.i. average when it comes to the time effectiveness; not so, however, concerning costs. Moreover, importing is more time-consuming and costly as compared to the OECD h.i. average, even though Morocco remains well below half of the regional average. Morocco has undertaken significant efforts in this regard: It made international trading faster by introducing e-payment of port fees, streamlining paperless customs clearance, extending hours of port operation, further developing its single window system, and by reducing the number of export documents required. Tunisia improved border compliance time by improving the efficiency of the governmental port handling company and upgrading its electronic data interchange system for international trade. In all three countries, investments in port infrastructure have been made in recent years. 

Enforcing contracts

No less a delicate issue for foreign investors is time and cost to resolve a commercial dispute and the quality of judicial processes, which, on average, takes 622 days in the region. This may seem exorbitant to many, but it is only about a month more than the 590 days average in the OECD h.i. countries, while Morocco and Tunisia even manage to stay below this threshold. The costs for doing so are only slightly higher than the OECD h.i. average, but the quality of the available mechanisms leaves room for improvement. With a 9.5 score, Morocco does come pretty close to the OECD h.i. average (11.7 of 18 points) and positions itself well above the regional average (6.3). Morocco introduced an automated system that randomly assigns cases to judges and publishes court measurement performance reports. The country also endeavours in a broader effort to curb corruption in the public administration and courts. Entirely new legislation on international arbitration is also in the making. Algeria, for the time being, is determined to reform its justice system. 

Further background can be found here: 

European Bank for Reconstruction and Development, the European Investment Bank, and The World Bank, Whats Holding Back the Private Sector in MENA? Lessons from the Enterprise Survey, 2016, https://www.eib.org/attachments/efs/econ_mena_enterprise_survey_en.pdf.

Hamza Marzouk, Grandes réformes: où en est-on ?, 13.12.2019, https://www.leconomistemaghrebin.com/2019/12/13/grandes-reformes-tunisie-ou-en-est-on/.

International Crisis Group, Breaking Algerias Economic Paralysis (Middle East and North Africa Report N°192), 2018, https://www.crisisgroup.org/middle-east-north-africa/north-africa/algeria/192-breaking-algerias-economic-paralysis.

Mouna Cherkaoui, 20 Ans De Réformes Économiques Au Maroc, 26.7.2019, https://www.forbes.fr/brandvoice/20-ans-de-reformes-economiques-au-maroc/?cn-reloaded=1.

Nourredine Boukrouh, Ministre algérien de la Participation et de la Coordination des réformes, Les réformes économiques en Algérie, 13.2.2020, http://www.senat.fr/ga/ga37/ga374.html.

World Bank Group, Doing Business 2020, https://www.doingbusiness.org/en/reports/global-reports/doing-business-2020.

World Justice Project, Rule of Law Index 2019, https://worldjusticeproject.org/our-work/research-and-data/wjp-rule-law-index-2019.

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