Algeria has attracted strong interest from foreign investors over the last few years. As a market of 40m people, which boasts substantial energy resources and maintains a steady demand for modern infrastructure supported by significant public investment, the country appears primed for significant growth in the coming years.
In 2009, in the context of the fallout from the global economic crisis, the country saw a fall in revenues from its oil and gas exports, along with a sharp rise in dividends distributed to foreign investors and imports of goods and services. The combination of these three factors led to a deterioration in Algeria’s balance of payments. The situation prompted the government to amend existing regulations overseeing foreign investment in the country by limiting the maximum permitted participating stake for foreign shareholders in Algerian companies to 49%. The move was intended to shore up the economy.
Known as the 51:49 rule, this restriction applies to any investments made in the sectors pertaining to the production of goods and services, as well as in the sector of importation.
New Investment Code
Following the adoption in June 2016 by the People’s National Assembly ( Assemblée Nationale Populaire) and in July 2016 by the Council of the Nation (Conseil de la Nation) of the bill relating to investment promotion, Law No. 16-09 on the promotion of investment was published in the Official Gazette on August 3, 2016.
With the exception of certain provisions concerning the National Agency of Investment Development (Agence Nationale de Développement de l’Investissement, ANDI) and the National Investment Council (Conseil National de l’Investissement, CNI), Law No. 16-09 repeals the provisions of Ordinance No. 01-03 on the development of investment.
The legal framework currently applicable to investments mainly comprises a series of laws,including Law No. 16-09 and the 2016 Finance Law (2016 FL), in which a certain number of key provisions of Ordinance No. 01-03 have already been reflected, including:
• The 51:49 rule and the obligation for companies that are majority-owned by foreign investors to comply with the rule in question, now governed by Article 66 of the 2016 FL;
• The obligation to resort to local financing for investments, a softer version of which is currently set out in Article 55 of the 2016 FL;
• The privatisation through the opening up of stateowned companies’ share capital, formerly ruled by Article 4 of Ordinance No. 01-03, is now governed by Article 62 of the 2016 FL. It should be noted that certain provisions of Ordinance No. 01-03 have merely been repealed, without being included in Law No. 16-09 or in the 2016 FL, such as:
• The obligation for foreign investors to generate a foreign currency surplus to the benefit of Algeria for the duration of the project;
• The annual information obligation regarding the shareholding of foreign legal entities owning shares in Algerian companies.
51: 49 RULE: Since the 2009 Complementary Finance Law (2009 CFL), Algerian foreign investment regulations provide for the limitation of foreign ownership to 49% in any investment — so the 51:49 rule implies the creation of joint ventures in which Algerian partners hold the majority stake. The 2009 financial crisis prompted Algeria to amend regulations overseeing foreign investment by limiting the participating stake for foreign shareholders in Algerian companies to 49%
Non-Retroactivity Of The Rule
While the 51:49 rule was clearly applicable to investments realised after the publication of the 2009 CFL, there were doubts as to its application to investments realised before then.
The 2010 Complementary Finance Law (2010 CFL), as subsequently modified, notably by the 2012 Finance Law for 2012 and the 2016 FL, clearly provides that “any modification of the trade register leads to the prior bringing into compliance of the company with the rules governing capital ownership”. However, the following modifications are not subject to this obligation:
• Modifying the share capital (increase or decrease) without entailing a change in the proportions of allocation of the share capital as specified above;
• The transfer or exchange between former and new directors of guaranteed shares provided by Article 619 of the Commercial Code, provided that the value of those shares does not exceed 1% of the company’s share capital;
• Either removing an activity or adding a connected activity;
• Modifying an activity further to the modification of the activities’ nomenclature;
• Appointing the director or the company’s managers; and
• Changing the registered office.
Preemption Right Of The Algerian State
Undefined Article 30 of Law No. 16-09 restates the principle that any sale of shares by or to foreign investors is subject to the state preemption right.
Law No. 16-09 refers to regulations pertaining to the implementation of provisions. Since former Article 4 quinquies (five times) of Ordinance No. 01-03, which set out a minima the implementing provisions of this right, was repealed, it currently seems difficult to apply the state preemption right as is unless reference is made to past practice.
Repurchase Rights
Article 47 of the 2010 CFL introduced the Algerian state’s right to repurchase; however, there were a certain number of uncertainties regarding the implementation of such right.
Article 31 of Law No. 16-09 clarified that any sale of 10% or more of shares of a foreign company owning an interest in an Algerian company that enjoyed advantages or benefits at the time of establishment triggers prior information of the State Holding Council (Conseil des Participations de l’Etat, CPE).
Non-compliance with this obligation or the reasoned objection of the CPE, within one month of receipt of information, confers on the state a right to repurchase, at most, the interests in the Algerian company held by the sold foreign company.
It should be highlighted that this right to repurchase by the state is limited to the shares of Algerian firms that have benefitted from advantages — which, in the absence of further specifications, may include tax and Customs exemptions, or the granting of a land concession, etc, by the current investment agency, the ANDI, or by the country’s former investment agency, the Investment Promotion Agency.
In the absence of specifications regarding its implementation conditions, the Algerian government’s right to repurchase should not be applicable as it currently stands, unless reference is made to past practice.
Local Financing
The obligation to resort to local financing for investments (excluding the constitution of social capital for companies), which has been relaxed since Article 55 of the 2016 FL, enables Algerian businesses to resort to outside financing essential to the completion of strategic investment and is subject to case-by-case approval by the government. In the absence of regulation implementing such measure, it cannot be applied as is.
Shareholders’ loans granted by the foreign partners of an Algerian company are possible on the condition that no remuneration is paid to the shareholder in this respect, and to the extent that the funds do not remain available to the company for more than three years.
After the three-year period, the balance of the shareholders’ loans would have to be capitalised in the share capital of the company.
Reinvestment
Article 142 of the Direct Tax Code, as modified by Article 5 of the 2014 Finance Law and Article 2 of the 2016 FL, provides that a company benefitting from exemptions or reductions granted during the exploitation period as a result of the ANDI regime must reinvest at least 30% of their profit in Algeria.
The timeframe corresponding to these exemptions or reductions is within four years of the end of the fiscal year during which the favourable regime is applied.
Recasting The Investment Incentive Regime
After slightly amending the definition of investment in terms of its meaning for Algerian law, Law No. 16-09 provides for a single and prior registration of investments with the ANDI in order to benefit from the advantages provided for by this law. Eligibility for advantages: Investments registered with the ANDI that are not included on the lists of activities excluded from all advantages (negative lists), automatically benefit from the advantages provided for by Law No. 16-09, except:
• Investments where the amounts are equal to or higher than AD5bn (€41.3m) and which are subject to prior CNI approval;
• Investments with a specific interest in the national economy and that are subject to the derogation regime of the investment agreement; and
• Activities with their own regime of advantages (such as the hydrocarbons sector). Three levels of advantages: Law No. 16-09 makes a distinction between:
• The advantages that are common to all eligible investments;
• The additional advantages for privileged activities and/or employment-generating activities; and
• The exceptional advantages for projects presenting a special interest for the national economy. Mature advantages: Law No. 16-09 grants advantages whose nature and duration vary according to the qualification of the investment and the implementation stages of the project (completion and operational stages).
Representative Offices
The ministerial order defining the new regime applicable to the representative offices (bureaux de liaison) of foreign companies in Algeria was released in December 2015. There was a significant degree of expectations surrounding this text, which aims to clarify the conditions under which representative offices can open and operate in Algeria.
It confirms the temporary and the non-commercial nature of these representation structures of foreign companies, which are prohibited from performing any economic activities. The opening of a representative office remains subject to approval from the Ministry of Commerce, which has imposed stricter conditions:
• Payment of a registration duty of AD1.5m (€12,408), which was formerly AD100,000 827.20);
• Increase in the amount of blocked deposit during the existence of the liaison office from $20,000 to $30,000; and
• Opening of a foreign account in Algerian convertible dinars (CEDAC) bank account in the name of the liaison office, credited with at least $5000. Approval is granted for two years by the Ministry of Commerce and is renewable. The order also specifies that no approval other than that delivered by the Ministry of Commerce can be granted to a representative office.
Lastly, consulting and Customs declarant companies are expressly excluded from the possibility of creating a representative office.
Public Procurement Contracts
The newly established Public Procurement Code (PPC) was instituted by Presidential Decree No. 15-247 on September 16, 2015.
According to Article 9 of Decree No. 15-247, “State-owned companies are not subject to the public procurement procedures.” However, state-owned companies are “required to draw up and to obtain the implementation, by their corporate bodies, of public procurement procedures, according to their specificities, complying with the principles of freedom of access to public sector contracts, equality of treatment of applicants and transparency of procedures”. As a result, companies operating in Algeria remain subject to the key principles of public procurement regulations.
Compliance with these principles by state-owned companies will be ensured by the joint external control of all state-owned companies, namely control by statutory auditors, the Court of Accounts and the General Inspectorate of Finance. Within this framework, state-owned companies are free to define their own procurement regulations.
Preferential Margin Of Algerian Products & Services
Pursuant to Article 83 of Decree No. 15-247, a preferential margin of 25% is applied for products of Algerian origin and/or for enterprises organised under Algerian law in which resident nationals hold the majority of share capital.
Application modalities of this preferential margin as follows:
• Relating to supply procurements, the 25% preference margin is granted to locally manufactured products upon receipt of a certificate of Algerian origin; and
• Relating to the procurements of services, the preference margin is granted to enterprises under Algerian law as well as to mixed groups (i.e,. comprising both Algerian and foreign members) up to the limit of the part owned by the Algerian enterprise in the group.
International Tenders & Investment In Partnership
According to Article 84 of the PPC, within the framework of international invitations to tender, the foreign tenderer can be obliged, within the framework of its response to the invitation to tender, to make a specific commitment to invest in Algeria.
The investment obligation does not apply to all international invitations to tender. Rather, it applies only to those related to projects listed by a decision of the relevant authority.
As of December 2016, such investment obligation remains specified by an order issued by the Ministry of Finance and the Ministry of Industrial Development and Investment Promotion dated November 27, 2013 laying down the modalities of application of the investment commitment for foreign tenderers.
Pursuant to this order, when a project is subject to the investment obligation as a result of a decision made by the competent authorities, the investment commitment modalities shall be provided by the specifications.
Thus, if the specifications of an invitation to tender do not expressly require a commitment, the foreign tenderer would not be subject to the obligation to invest.
To date, no list of projects has been made by the relevant authorities.
It should be noted that contracts directly awarded (without call for tender) may not be subject to these provisions (Article 84 § 5 of Decree No. 15-247).
Lastly, this obligation seems to apply only to the foreign tenderer and not to any Algerian tenderers that are held by foreign capital.
Regarding the nature of the partnership, Decree No. 15-247 provides no definition. Nevertheless, the above order dated November 27, 2013 provides that such a partnership shall be implemented in accordance with the applicable laws and regulations.
Therefore, under the provisions that are of interest to foreign investors operating in the Algerian marketplace — and in particular those relating to the 2009 and 2010 CFL — it could be argued that the notion of partnership targeted by these provisions should cover the creation of a joint venture between the foreign tenderer and one or more Algerian resident investors. Pursuant to Article 7 of the above order, the competent authorities could exempt from the investment commitment the foreign tenderer, who has already realised an investment or has already committed to realising such an investment in accordance with the legal requirements.
Non-compliance by the foreign tenderer who has received their investment obligation through a partnership is strictly penalised. Thus, if the successful tenderer does not realise its investment, or does not respect the timeline and the methodology set out by the call for tenders, the following penalties could be incurred:
• An application of penalties for delay after unsuccessful formal notice by the contracting service;
• The possibility of unilateral termination of the public procurement to the exclusive fault of the co-contracting party after agreement by the authorities; and/or
• Registration of the failing operator on the list of the economic operators forbidden to tender for procurement contracts.
Competition Law
The National Competition Council (Conseil National de la Concurrence, CNC) was officially set up in January 2013 and is an administrative authority intended — in accordance with Ordinance No. 03-03 dated July 19, 2003 — to observe, rule and sanction trade practices and the functioning of the Algerian market.
The CNC has elaborated further on its own general doctrine with regards to competition and market matters in the business realm. It seems that the CNC currently cooperates with European countries, namely — the French, Italian and German competition authorities in continuation of a cooperation programme financed and supported by the European Commission, known as the Support Programme for the Association Agreement between Algeria and the EU.
This programme, which lasted from January 2011 to December 2012, involved future members of the CNC as the leaders and principal partners, as well as its European partners. In this particular context, the CNC may be inspired by European competition regulations. New draft legislation that relates to the competition is currently under preparation and evaluation by the government. INTRODUCTION OF IMPORT LICENCE & QUOTA REGIMES: Law No. 15-15 of July 15, 2015, which amends and adds to Order No. 03-04 of July 19, 2003, sets in place a specific importer licence system that is similar in type to that of the World Trade Organisation. Its Executive Decree No. 15-306 of December 6, 2015 sets out the application terms and conditions for the merchandise import and export licence regimes.
The first practical implementations of such a regime concerned the following key products: food and agricultural products from the EU, vehicles, cement and concrete reinforcing bars.
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