ALGERIA: An Introduction to Corporate/Commercial

Overview 

Algeria is the leading natural gas producing country in Africa and the second largest extra-regional supplier to Europe.

Algeria has the fourth largest GDP on the African continent (USD144 billion in 2020), with a territory of 2.4 million km² and a dynamic demographic.

The Algerian economy is highly dependent on the export of hydrocarbons. On average, hydrocarbons accounted for 93% of the country’s exports and 19% of its GDP over the period 2016–2021.

As a result of the global recovery following the COVID-19 recession and the war in Ukraine, hydrocarbon prices have risen. This has led to a significant increase in Algeria’s revenues.

Business Climate and Opportunities 

Algeria continues to be a large and lucrative market for foreign investors. Several factors highlight Algeria’s significant potential:

• a strategic geographical location;

• well-developed infrastructure;

• abundant natural resources; and

• a growing population (44 million).

Algeria also offers a skilled and affordable labour force. Electricity, gas and water are available at competitive prices.

The COVID-19 pandemic seems to have acted as a catalyst for the pace of change: no less than three reforms have been launched in less than two years, covering key sectors such as energy and pharmaceuticals:

• A new investment law, published in 2022, to facilitate market entry for foreign investors and remove the 49% cap on foreign equity in all non-strategic sectors.

• A new Hydrocarbons Law, which is expected to create a more competitive and flexible environment for investing in oil and gas and provide attractive opportunities for investors; for more details, see the Algeria chapter of the Energy: Oil & Gas Chambers Global Practice Guide 2022.

• New pharmaceutical regulations aimed at ensuring the continued availability and affordability of pharmaceutical products for all citizens.

Ambitious efforts to address the energy transition have also been undertaken by the Algerian government. Steps taken include the launch of the first solar tender in December 2021 for the deployment of 1 GW of solar capacity (“Solar 1,000 MW“).

Investment Legal Framework 

On 28 July 2022, a new Investment Law No. 22-18 dated 24 July 2022 (the “Law 22-18”) was published in the Official Gazette.

Eight texts implementing Law 22-18 were published in the Official Gazette on 18 September 2022, the main provisions of which are summarised below.

No restrictions on foreign ownership except in limited activity sectors

For more than ten years (2009–2020), the participation of any foreign investor in the capital of an Algerian company was limited to 49% (the so-called “51/49 rule”) for all sectors of activity.

On 4 June 2020, the Supplementary Finance Law for 2020 was published in the Official Gazette. The new law represents a major shift in the country’s foreign investment policy compared to the approach taken ten years ago.

The main feature of the Supplementary Finance Law for 2020 is a striking reversal of principle: a foreign investor may now invest up to 100% of the share capital of an Algerian company in all sectors of the economy, with the exception of strategic sectors, which are relatively limited in scope, and the importation of goods for resale in the same condition.

Executive Decree No 21-145 of 17 April 2021, published in the Official Gazette of 22 April 2021, defines a list of 44 strategic activities, classified into five main sectors:

• The exploitation of the national mining domain, as well as all the underground or surface resources related to an extractive activity, with the exception of quarries and sand pits of non-mineral products.

• The upstream sector, as well as the operation of the distribution network and the transport of electrical energy by cable and the transport of hydrocarbons (liquids and gases) by overhead or underground pipelines.

• Military industries and related activities under the authority of the Ministry of Defence.

• Railways, ports and airports.

• The pharmaceutical industry, with the exception of investments related to the manufacture of essential, innovative, high value-added products requiring complex and proprietary technology, intended for the domestic market and for export.

Investment guarantees  

The transfer guarantee  

Law 22-18 reaffirms the transfer guarantee in favour of foreign investors, namely the right to transfer in foreign currency the capital invested, the income derived from it, as well as the proceeds from selling and liquidating the investment.

As before, in order to benefit from the transfer guarantee, foreign investors must make capital contributions in cash imported through the banking channel and denominated in a freely convertible currency (the amount of which must be equal to or higher than minimum thresholds defined according to the total cost of the project).

In addition, contributions in kind (contributions of new assets, assets transferred to Algeria, imported assets duly valued by a judicial expert) and reinvestments of profits and transferable dividends are also treated as external contributions.

Legal stabilisation  

Law 22-18 provides for a legal stabilisation mechanism: the effects of any future revisions or repeals of Law 22-18 will not apply to investments made under Law 22-18, unless the investor expressly requests otherwise.

The legislator’s intention to create a positive environment for investment seems to be reflected in such a “freezing clause” in the new law.

Recourse to international arbitration  

Like the previous law, Law 22-18 allows for recourse to international arbitration in the event of a dispute between the foreign investor and the Algerian State, provided that an international convention on arbitration exists. In the absence of an international convention, arbitration remains possible within the framework of a compromise between the agency (acting on behalf of the State) and the investor (an innovation of the new law).

Incentive schemes  

Whereas the previous law (and its implementing decrees) were unclear as to the investment incentive schemes, Law 22-18 provides for only three schemes. Investments must first be registered with a one-stop shop in order to benefit from these incentives.

These incentives essentially consist of an exemption from customs duties, value added tax and real estate tax during the investment phase and an exemption from taxes on profits and taxes on professional activities for a period of five to ten years during the operating phase.

Sectoral regime  

Certain sectors listed by law are eligible for this regime, in particular renewable energy, pharmaceuticals, petrochemicals, agriculture, mining and quarrying, tourism, information technology, etc.

Zone regime  

This regime applies to investments made in certain regions (the Highlands and the South) and in localities where the State intends to develop certain resources or encourage them to be developed.

Investment structuring regime  

The favourable “structuring investment” regime applies to projects that create at least 500 jobs and are worth at least DZD10 billion (approximately EUR75 million).