Pushing for additional private investment into the sector through the strengthening of tourism development zones

Establishing the right type of incentives to attract private investment has commonly been one of the major challenges authorities have faced in developing the tourism sector. To solve this, the Algerian government has been strengthening a score of Tourism Investment Zones (Zone d’Expansion Touristique, ZET) across the country to try to funnel private investment into the regions. The results have nonetheless been mixed, with excessive bureaucracy remaining one of the key challenges faced by investors aiming to develop tourism projects in these areas.

Strong Foundaations

So far, a total of 205 ZETs have been established, accounting for a total area of over 53,000 ha. A large concentration of these, 160 zones covering an area of up to 37,000 ha, are located by the sea or around lakes, with the potential to focus on beachside offers. An additional 23 are located in the south of Algeria and, once developed, these will complement the country’s desert tourism infrastructure. The Hauts Plateaux region, which constitutes Algeria’s central mountain ranges, holds 22 of the existing zones. On paper, the ZETs are a promising way to develop the sector. Through the establishment of tourism-specific areas across different regions of the country, authorities ensure that access to land – which negatively impacts business expansion in a range of sectors – is facilitated.

However, first developed in the 1960’s, the concept of tourism-specific areas has had a slow start. Part of this has been linked to the low-level of priority given to the tourism sector for several decades. But now, authorities are hoping to accelerate the establishment of tourism projects in these zones. The ZETs were established in regions where cultural, historic and scenic potential can be used to foster the growth in the number of visitors. But of the 205 ZETs established so far, 80% of them were located in only 12 of the country’s 48 wilayas, or provinces.

First Steps

The government is now working to prepare the zones so that investment can start flowing in. In November 2014, Nouria-Yamina Zerhouni, minister of tourism and handicrafts, inaugurated the initial structural work happening in the ZET at Chétaïbi, in Annaba. The government is investing AD45bn (€418.5m) on this 329-ha tourism zone. Authorities also tendered contracts for initial work to be done in three other ZETs in coastal areas in the Mostaganem wilaya, where the government hopes to attract investments for the development of sea tourism. In October 2014, tourism authorities gave seven private investors initial land concession titles to establish hotels in the Aokas ZET, in Béjaïa, which has 61 ha, 21 of which are set aside for development.

In Souk El Tenine, also in the Kabylie region, the Aguerioune ZET already has four hotels, tourist residences and a shopping mall scheduled for development, according to the National Tourism Office, quoted by local media. Development underway in these two ZETs is expected to generate a capacity of over 2400 beds and create 3000 tourism employment positions, according to local media reports.

Seaside ZETs appear to be a governmental priority, with 15 of the 30 zones which were already prepared by the government and made ready to receive investment projects lying by the coast. This will be a good way to attract private investment into beach tourism, but also to help manage the sustainable development of the country’s coast, which in some cases has been neglected over the years.

Promoting tourism options on Algeria’s beaches however, will need more than specifically determined tourism areas. With heavy competition from neighbouring Morocco and Tunisia, Algeria’s best chance to increase its regional share of Mediterranean tourism will be to use the ZETs to improve the quality of its beach product for domestic tourism initially, before being able to promote it overseas.

Excessive Paperwork

Despite the promising trend in ZET revamping, some of the necessary bureaucratic steps needed to establish tourism projects in these areas can be cumbersome. The first challenge is planning. Before any projects are allowed to be implemented, each zone must have its own Tourism Development Plan, which will determine the type of tourism to be developed, the needed infrastructure and the overall strategy of each zone. However, according to the Ministry of Tourism and Handicrafts, only about 30 of the existing 205 ZETs had had their plans developed and approved by authorities, as of August 2014. Additionally, private investors are also required to present specific investment plans, which are regularly delayed or inexistent because of lack of capacity from some of the smaller domestic investors. In other cases, investment plans are presented; however, their approval by both local authorities and the Ministry of Tourism and Handicrafts causes delays.

Other issues related to land use have come up in recent years. In some cases, areas that had been established as ZETs had their land occupied by private construction or the establishment of other infrastructure not related to tourism. “Even tourism authorities have recognised that several ZETs are being used for other purposes,” Saïd Boukhelifa, a former advisor at the Ministry of Tourism and Handicrafts, told OBG. “But there is no mention about any judicial consequences of this misuse of government land,” he added. Issues sometimes arise because of lack of coordination between central and local authorities, or the delayed legal transfer of the land plots within designated ZETs to the hands of the ministry.

Investment Support

In early 2014, the tourism authorities announced that initial permissions had been granted by the ministry for the establishment of 130 new hotels in 40 ZETs across 16 of the country’s wilayas over the coming years. These projects are expected to amount to €134.5bn and add an extra 30,500 new beds to the country’s capacity. Authorities are also trying to increase financing avenues for these projects. In the past, construction of new hotels has faced financial hurdles, with private investors being compelled to stop building due to insufficient financial capacity or low commitment from the banking sector, which has regularly been discouraged by the long-term return on tourism projects. To avoid this, authorities have established agreements with six public financial institutions in order to guarantee that enough liquidity makes it to the sector’s infrastructure construction efforts. Tourism authorities are also aiming to get the private banking sector involved through the backing of loans for hotel projects. Government backing of tourism developments is essential. The aforementioned 130 new hotels, for example, will represent up to 45,000 new jobs over the coming years, 15,000 of which will be direct tourism jobs. Increasingly, Algeria is looking at its tourism industry as an additional tool to fight unemployment, especially amongst young people.

Easing Access

Despite the time it has taken the government to bring the initial concept to fruition, Algeria’s tourism-specific zones seem to be finally proving their worth by slowly attracting investment into new hospitality projects. However, attracting investment into the zones and the sector in general will depend on an improvement of the country’s investment laws. ZETs have been somewhat successful at attracting investment, but a lot of it remains domestic. However, considerable foreign investment is going into the Sidi Fredj ZET, for example, with the construction of a 271-room five-star hotel by Emirati-Algerian company Emiral. The €275.7m complex will also include a shopping centre, 60 apartments and a marina.

In some cases, foreign investment has also flowed to areas outside of designated ZETs. For example, one of these recent investments is the AD27bn (€251.1m) multi-purpose Bab Ezzouar complex in Algiers, which will involve the building of several hotels, office space and a shopping centre. The sustained ability to boost foreign interest in ZETs, though, will be limited by the overall investment laws.

Unde Review

Authorities have announced they are reviewing the current 51:49 investment law which, since its implementation in 2009, has prevented international investors from holding majority stakes in many areas of the economy. Despite the difficulties created by the law, and the criticism it often attracts, foreign investment has nonetheless continued to flow into the Algerian economy. Despite this, a change in the law would impact several sectors, and in the case of tourism, would be automatically reflected in the rate of development at ZETs. The establishment of a onestop-shop where potential investors could have access to approvals for investment plans by both regional and central authorities, land concession agreements, as well as apply for any government financing support mechanisms would accelerate processes and make ZETs more business-friendly. Additionally, developing tourism specific areas will also be essential to mobilise the needed investment in infrastructure and advance some of the government goals for tourism in 2015, such as the adding of 75,000 additional bed capacity and the training of over 40,000 industry workers.