Algeria Adopts Draft Supplementary Finance Law, 2020 to Boost Foreign Investments
On 11 December 2019, the Algerian Government adopted the law 19-14, establishing the finance law for 2020 (the Finance Law, 2020) which has partially repealed the existing rule which provided that foreign investments can only be made under the framework of a partnership in which one or more Algerian shareholders must hold at least 51 per cent of an Algerian law company (colloquially known as the 51/49 Rule) for non “strategic sectors” and has entitled Algerian law companies to be entirely held by foreign shareholders.
However, the 51/49 Rule remained in force until the adoption of implementing regulations defining “strategic sectors”.
Definition of Strategic Sectors: The draft supplementary finance law for 2020 approved on 10 May 2020 by the Council of Ministers (the Draft Supplementary Finance Law) notably aims at defining the “strategic sectors” that will remain subject to the 51/49 Rule.
The Draft Supplementary Finance Law provides that the sectors that qualify as “strategic” are:
- the exploitation of the national mining domain as well as all underground or surface resources relating to an extractive activity, with the exception of quarries and aggregates;
- the upstream energy sector and any other activity governed by the law on hydrocarbons (including downstream activities), as well as the operation of the network for the distribution and transportation of electrical energy by cable, and hydrocarbons (gas and liquid) by underground or overhead pipelines;
- the military industry and related activities under the authority of the Ministry of National Defense;
- the sectors related to transportation infrastructures such as railways, ports and airports; and
- the pharmaceutical industry, except for investments related to the manufacturing of essential innovative, high value-added products, requiring complex and protected technology, intended for the local market and export.
It should also be noted that the Draft Supplementary Finance Law maintained the 51/49 Rule for distribution activities.
The Draft Supplementary Finance Law expressly provides that “any other activity for the production of goods and services is open to foreign investment without any obligation of association with a local party”.
Non-Strategic Sectors: All other sectors, notably, the telecommunications, banking & insurance, construction and manufacturing of goods sectors will now be open to a 100 per cent of foreign shareholding.
Other Key Measures:
In addition, the Draft Supplementary Finance Law also provides, inter alia, for the two following important measures:
- the withdrawal of the State pre-emption right and its replacement by authorisation of “any transfer of shares by foreign parties to other foreign parties of the share capital of an Algerian law entity operating in one of the strategic activities”. The terms and conditions relating to the authorisation will be defined by an implementing decree; and
- the removal of the obligation to have recourse to local financing. As a result, foreign companies investing in Algeria should now be able to finance their investments with loans and facilities provided by foreign banks.
Major Step Forward: There is no complete visibility at this stage on the exact content of the final version of the signed supplementary finance law that should come into force in July 2020. However, should the Draft Supplementary Finance Law be confirmed in its current form, it will be a confirmation of a major step forward for Algeria in terms of opening up its market to foreign investors and lenders.
Should you require more information, please do not hesitate to contact Foued Bourabiat
Partner, ALN Algeria | Bourabiat Associés