Algeria - Is now discouraging and undoing foreign direct investment in its economy

[ft] Outside the oil sector, Algeria's message to foreign investors has never been a particularly warm one. In contrast to the liberalising noises from Algiers' neighbours, the message has just changed to a flat "you're not welcome here".

The problems facing Orascom Telecom Holdings , an Egyptian international mobile operator, illustrate the authorities' hardening attitude at a time when the north African nation desperately needs to create jobs to address high unemployment and diversify its economy.

The dispute has not been helped by a diplomatic row caused by violence when Algeria and Egypt's soccer teams met last year . Several OTH offices in Algerian cities were ransacked after the Algerian team bus was attacked in Cairo.

But analysts say Algeria's suspicions of foreign investors can be traced back to the 2007 sale of a cement plant by another Orascom company to Lafarge of France.

Now the Algerian government has threatened to expropriate the holdings of the shareholders of Orascom Telecom Algeria, OTH's local subsidiary, if plans to sell the mother group to MTN of South Africa go ahead.

Officials cite recent legislation that gives the state the right of first refusal whenever a foreign investor decides to sell local assets. What they do not say is that the legislation is being applied retroactively because it was not in place when Orascom first entered Algeria in 2001, paying $737m for a mobile license. The deal was the first major foreign investment outside the hydrocarbons sector.

Orascom has also been slapped with a hefty tax bill of $596m for 2004-2007, during which it was supposed to have been exempt.

Algiers' defensive mindset risks a future of isolation