Free investment in Algeria: background and key points of the new law

• Africa

• Corporate
• Investment funds and asset management

10-06-2020

Foreign direct investments in Algeria – the enactment of the supplementary finance law for 2020 limiting the scope of foreign takeover restriction

According to article 49 and following the additional finance law for 2020 enacted last Thursday, direct foreign investments in Algeria are no longer subject to the 51/49 majority principle (except for some sectors) according to which direct foreign investments in Algeria can only be performed through a joint-venture having at least 51% of its share capital held by one or more Algerian residents. The new rule becomes: foreign investment is free unless some exceptions.

The end of the well-known restriction, established by article 58 of the supplementary finance law for 2009, has already been announced by the finance law for 2020 enacted in late December of last year. However, at that time, the initial finance law for 2020 assigned to executive power the mission to define the strategic sectors for which the new rule would not be applicable, and no decree has been issued to date.

In this regard, the major breakthrough of the newly enacted law is that it provides (i) the repeal of the previous regulations (i.e. article 58 of the supplementary finance law for 2009 as well as article 109 of the finance law for 2020) and (ii) setting up the new rule through the law according to which production of goods and services’ activities can now be undertaken by foreigners without a local partnership requirement except for the now broadly defined strategic sectors.

Scope of the majority rule’s relaxation

• According to the new law, foreign investment is free, so the Algerian market is opening up to foreign investors in the production of goods and services’ activities field.
• The resale activity is excluded from the scope and remains subject to the local partnership rule.
• The strategic sectors, as now defined by the law, remain subject to the former restriction. It concerns:
  • national mining operations and all underground or surface resources falling within the scope of the extractive industry excluding non-mineral product quarries;
  • upstream energy sector and all other activities governed by the law on hydrocarbons, as well as the operation of the distribution network and transportation of electric energy by cable, gaseous and liquid hydrocarbon by above ground and underground pipelines.
  • the defense-related industries;
  • the railways, ports and airports;
  • the pharmaceutical industry, excluding the investment related to production of essential and innovative products, with high value-added products requiring a protected and sophisticated technology, for the local market and export.

However, it is important to note that the legislator added at the end of the above-mentioned list that the detailed conditions of these measures will be determined by executive decrees.

Notable additional measures

As a result of the loosening of the majority rule, the Algerian legislature removed the restriction related to the right to use foreign financing in relation to foreign investment in Algeria. As a reminder, the finance law for 2016 and the initial finance law for 2020 introduced some possibilities to use external financing for strategic and structuring projects for the national economy.

In the same vein, the Algerian state’s right of pre-emption, over the transfer of shares owned by foreign shareholders or to foreign investors, has been repealed. Instead, all the sale of shares issued by Algerian companies operating in strategic sectors carried out between foreigners are now subject to the approval of the authorities. The details related to this new approval process will be provided by decree.