The supplementary finance law for 2020, published in the Official Gazette on 4 June 2020, has amended the legal framework for foreign investment in Algeria with the aim of facilitating such investment in the country. This long awaited law implements the following principal changes: (i) the repeal of the 51/49 rule (save for the retail and strategic sectors); (ii) the repeal of the State’s pre-emption right on foreign M&A transactions relating to Algerian companies; and (iii) the repeal of restrictions on accessing foreign financing.

REPEAL OF THE 51/49 RULE

Since 2009, foreign direct investments in Algeria have been subject to the “51/49” rule requiring the setting up of a local company with at least 51% of the share capital owned by national shareholders (i.e. either Algerian citizens who are residents in Algeria or Algerian companies whose shareholders are all Algerian national residents) to be able to carry out activities relating to the production of goods, services and imports. This meant that the foreign investor could hold no more than 49% of the share capital, which was seen by many as limiting investment opportunities.

The supplementary finance law for 2020 (amending the finance law for 2020) limits the 51/49 rule’s application to (i) retail activities; and (ii) strategic activities relating to the following sectors:

  • mining activities (excluding quarries of non-mineral products);
  • upstream and downstream oil and gas activities, including pipeline network operations;
  • power distribution and transportation network activities;
  • military and defence activities under the Ministry of National Defence’s control;
  • railways, ports and airports; and
  • pharmaceutical industries, with the exception of investments related to the manufacture of essential innovative products with high added value, requiring complex and protected technology, intended for the local market and for export.

All other activities relating to the production of goods and services which do not fall into one of the above mentioned strategic sectors are therefore no longer subject to the 51/49 rule, and will be open to foreign direct investment without any obligation to enter into a partnership with a local party.

REPEAL OF THE STATE’S PRE-EMPTION RIGHT

The supplementary finance law for 2020 repeals the State’s pre-emption right on any direct or indirect sales of shares of an Algerian company to or by a foreign entity (article 51).

However, any transfer of shares by a foreign shareholder to another foreign entity of an Algerian company carrying out any of the strategic activities listed above will be subject to the authorisation of the Algerian Government (article 52).

Any asset sale by a foreign entity to an Algerian national resident qualifies as an import of goods or services and is therefore subject to foreign exchange regulation (article 52).

These provisions will be supplemented by orders to be issued.

RIGHT TO USE FOREIGN FINANCING

The supplementary finance law for 2020 repeals the obligation to (i) use local financing to finance foreign investments; and (ii) request governmental authorisation to use foreign financing for strategic investments for Algerian companies (article 54).

This aims at increasing the use of foreign financing in Algeria.

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We are keen to speak with you about your approach to investing in Algeria and how you can restructure your current investments in light of the above, and more generally how we can help you to achieve your strategic goals in Algeria and elsewhere in Africa.

For more information, please contact Bertrand Montembault or Thomas Herman or your usual Herbert Smith Freehills contact.

For further information about our Africa practice please see Related Links above.

Link to the supplementary finance law for 2020 (in French): https://www.joradp.dz/FTP/jo-francais/2020/F2020033.pdf (articles 49 to 54)

Bertrand Montembault
Bertrand Montembault
Partner
+33 1 53 57 74 19
Thomas Herman
Thomas Herman
Associate
+33 1 53 57 72 41