Financing Mechanisms in Support of the Creation of SMEs in Algeria (part 1)

Jul 06, 2020

Small and medium-sized enterprises (SMEs) make up most of the economic fabric of developed countries. These entities must also have a strong place in developing economies, because they create wealth, generate inclusive growth, and contribute to the reduction of unemployment, poverty, and inequality. They thus play a very important socio-economic role. In the first half of 2018, Algeria had a ratio of 25 SMEs per 1000 inhabitants, compared to 45 SMEs per 1000 inhabitants on average globally; this ratio remains low despite major efforts by governments to encourage the creation of small and medium-sized enterprises, in addition to the challenges of the informal economy that affect many developing countries. Indeed, in a context of endemic unemployment, leading unquestionably to social insecurity, Algeria introduced financing mechanisms to support entrepreneurship as early as 1996. Before detailing the characteristics of the oldest mechanism put in place, in this case the National Youth Employment Support Agency (ANSEJ), the landscape of Algerian SMEs will be briefly presented, as well as the outline of all the mechanisms put in place by the public authorities.

Landscape/Overview of Algerian SMEs:

First of all, it should be clarified that in Algeria the concept of SMEs is defined by law[1]. A fairly generous concept since SMEs can have up to 250 employees, 4 billion Algerians dinars (DA) [2]of turnover and total assets of DA 1 billion [3]. Natural and legal persons engaged in handicraft activities and the liberal professions are also considered to be SMEs.


In the first half of 2018, Algeria had more than one million SMEs, with more than 32,000 SMEs created between 2017 and 2018. Despite strong growth in the number of SMEs created over the last ten years, Algeria continues to record a lower density than its neighbours. According to the World Bank, Algeria creates fewer businesses than Morocco or Tunisia. (Figure 2)


 In its annual report Doing Business 2020, the World Bank Group ranks Algeria 157th according to the overall criterion of the business environment, far behind Morocco (53rd) and Tunisia (78th). In terms of business creation, Algeria is ranked 152nd globally, thus largely outpaced by its neighbours, including Tunisia (19th) and Morocco (43rd). In addition, access to credit is another challenge facing project promoters. This ranking of Algeria substantially reflects the persistent difficulties (procedures, duration, costs etc.) impeding the creation of enterprises, but also the need to revise certain public policies in order to render them more effective. Moreover, the breakdown of SMEs by size and sector of activity shows that Very Small Enterprises (VSEs) constitute more than 97 % of the fabric of Algerian SMEs. It should be recalled that many of these VSEs have been created through enterprise creation support mechanisms which have been put in place by the authorities (Figure 3).


The breakdown by sector of activity shows a dominance, with more than 50% of SMEs, of the services sector, followed by the construction sector; agriculture represents only 0.63% of the total SMEs, despite the advantages offered to promoters engaged in the sector (Figure 4).



In the service sector, handicraft activities such as painting, carpentry and mechanics are popular because they require little capital, education and relatively modest professional qualifications. The construction and public works sector (CPW), on the other hand, has expanded widely, driven by public procurement. Indeed, the State has launched large investment projects in road infrastructure and social housing in order to eradicate the phenomenon of precarious housing; this has helped to boost the performance of this sector of activity. However, the agriculture sector remains poorly represented, despite the advantages offered. In addition to agricultural land problems, the sector remains dependent on unstable rainfall, even though efforts have been made by the government to raise the irrigated area to 2 million hectares, that is, 24% of the usable agricultural area by the end of the current year.

Presentation of SMEs Creation Support Mechanisms in Algeria:

The first mechanism to be established is ANSEJ, followed by the other two mechanisms operated respectively by CNAC (National Unemployment Insurance Fund) and ANGEM (National Agency for the Management of Micro-Credit). The triangular operating principle is, to a few differences, the same for all the three mechanisms. It involves three players: the agency in charge of overseeing the mechanism, the promoter and a local public bank.[4].

As an indication, in order to benefit from ANSEJ's financing mechanism, any promoter must provide equity capital representing 1% to 2% of the project's financial requirements, while the agency provides 29% of the required amount and the rest is financed by a bank loan at a subsidised rate contracted with the bank. The personal contribution, the assistance of the agency and the bank credit are paid into an account opened by the promoter at the bank where the loan was contracted.

The following table summarizes the broad outlines and differences between the three mechanisms, including the above-mentioned ANSEJ mechanism: 

Table 1: Summary of the various SMEs Creation Support Mechanisms:


The three mechanisms alone have so far financed the establishment of more than one million micro-enterprises and contributed to the creation of more than two million jobs in the country.  In the first half of 2018, the stock of subsidised loans represented 6% of total credits to the economy.

The second part of this blog will deal in detail with the characteristics and evolution of the historically established support mechanism for the creation of VSE/SMEs in Algeria: ANSEJ.

[1]       Law 01-18 relating to the Guidance Law on the Promotion of SMEs repealed by Law 17-02 relating to the Guidance Law on the Development of SMEs.

[2]       USD1 = DZD 128,743 as of 08/06/2020.

[3]   Very Small Enterprise (VSE): 1 to 9 employees; Turnover < DA 40 million; or Total balance sheet < DA 20 million. Small Enterprise (SE): 10 to 49 employees; Turnover < DA 400 million or Total balance sheet < DA 200 million. Medium Enterprise (ME): 50 to 250 employees; DA 400 million<Turnover<04 billion or DA 200 million or Total balance sheet< DA (01) billion.

[4]  There are (06) large Algerian public banks which constitute the bulk of the banking market and 5 of them are involved in these mechanisms. 

About the author

Assia Mezieche is a PhD candidate in Economics at the University of Rouen, focusing on SMEs financial inclusion, holder of a Master’s degree specializing in economic policies in developing countries and a Higher Diploma in Banking Studies. Assia is also an analyst at the Bank of Algeria, which allowed her to capitalize on a deep knowledge of the financial system in place and its operating mechanisms. She is interested in the problems of financial inclusion, their connection with other objectives of the Central Bank, as well as the public policies to be implemented.

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