Algeria stands as the premier natural gas producer in Africa and the second-largest supplier of natural gas to Europe beyond its borders.
With its economy heavily reliant on hydrocarbon exports, Algeria has long depended on the production and exportation of hydrocarbons as a central pillar of its economy. This sector contributed significantly, comprising 19 percent of the gross domestic product (GDP), 93 percent of product exports, and 38 percent of budget revenues from 2016 to 2021.
In 2021, a robust resurgence in hydrocarbon output facilitated a rebound in the economy, mitigating the impacts of the COVID-19-induced recession.
Presently, Algeria aims to broaden its economic horizons by diversifying revenue sources.
In 2020, the Algerian Government initiated ambitious endeavors to enhance the investment climate and attract greater Foreign Direct Investment (FDI).
These efforts have included revising investment legislation to streamline market entry for foreign
investors and abolishing the 49% cap on foreign equity in all non-strategic sectors.
Key legal considerations for foreign investors looking to invest in Algeria
For foreign companies contemplating investment in Algeria, three primary legal considerations merit attention: entry, operation, and exit.
Algeria has taken strides to simplify the business establishment process and expand the range of corporate structures available for operation within its borders. Additionally, Algeria has streamlined the exit process for foreign entities.
On July 28, 2022, the Official Gazette published the new Investment Law No. 22-18, dated July 24, 2022 (“Law 22-18“).
Under Law 22-18, all activities pertaining to the production of goods and services—encompassing sectors such as telecommunications, banking and insurance, agri-food, and construction—are now open to foreign investment without the requirement of establishing a partnership with local entities.
Restrictions on foreign ownership of companies in Algeria mainly relate to imports, the military industry, infrastructure, the pharmaceutical industry, mining, the upstream oil and gas sector and the transport of hydrocarbons.
The Algerian government has also streamlined procedures for foreign investors seeking to divest from their Algerian investments, through the enactment of the Supplementary Finance Law for 2020. This legislation has removed the Algerian government’s previous pre-emption right on both direct and indirect share transfers involving foreign entities.
At present, only the direct transfer of the share capital of an Algerian company to foreign parties is subject to approval by the ‘competent authorities’ if the Algerian company in question is engaged in strategic activities. The Supplementary Finance Law for 2020 does not specify the procedure for securing such authorization, it refers to forthcoming regulations for guidance.
What are the restrictions on foreign ownership of businesses in Algeria, and how can these be navigated?
Restrictions on foreign ownership of companies in Algeria mainly relate to the following activity sectors:
Five strategic sectors remain subject to the “49/51%” rule, mandating the establishment of partnerships with one or more Algerian entities holding at least 51% of the share capital:
The military industry and related activities placed under the authority of the Ministry of National Defense.
Railways, ports and airports.
The pharmaceutical industry except for investments related to the manufacturing of essential, innovative, high value-added products which require complex and protected technology, intended for the domestic market and export.
The exploitation of the national mining domain as well as all underground or surface resources relating to an extractive activity, except for quarries and sandpits of non-mineral products.
The Oil & Gas upstream sector as well as operating the distribution network and transportation of electrical energy by cable and transportation of hydrocarbons (liquids and gas) by overhead or underground pipelines.
Importation activities of raw materials and finished goods for resale in the same condition remain subject to the 49/51% rule in order to discourage the development of these costly activities for the Algerian external balance and to limit the transfers of foreign currencies outside Algeria.
To navigate these restrictions, foreign investors can explore the option of setting up a joint venture with one or more Algerian partners and entering into a shareholders’ agreement containing contractual mechanisms to give the foreign partner control over the management of the joint venture. However, financial rights remain limited to 49%.
What are the investment incentive schemes available to investors seeking to invest in Algeria?
Whereas the prior legislation lacked clarity regarding investment incentive schemes, Law 22-18 now delineates only three such schemes. To access these incentives, investments must first be registered with the Algerian Investment Promotion Agency (the “Agency”).
These incentives principally encompass exemptions from customs duties, value-added tax, and real estate tax during the investment phase, along with exemptions from profit taxes and professional activity taxes for a period ranging from 5 to 10 years during the operational phase.
In addition, as part of streamlining administrative processes and enhancing transparency, a “digital investor platform” (https://invest.gov.dz/en) has been established, managed by the Agency, to provide comprehensive information on investment opportunities in Algeria, available land, investment incentives, and related procedures. This digital platform, interconnected with the information systems of relevant agencies and administrations, enables the digitisation of all procedures and the online completion of investment-related formalities. Additionally, it serves as a tool for guiding, supporting, and monitoring investments from registration through the operational phase.
1. Sectoral regime
This regime pertains to specific sectors delineated by law, notably encompassing renewable energy, pharmaceuticals, petrochemicals, agriculture, mining and quarrying, tourism, and information technology, among others.
Zone regime
Applicable to investments within designated regions such as the Highlands and the South, this regime also extends to localities earmarked by the State for resource development or incentivized development initiatives.
Structuring investments regime
Reserved for ‘structuring investments,’ this favorable regime applies to projects generating a minimum of 500 direct jobs and having a value of no less than DZD 10 billion (approximately USD 74 million).
“Structuring investments” may also be eligible for the Algerian State to cover some or all of the costs associated with land development and infrastructure projects. This support is provided through an agreement between the investor and the Agency, representing the State, after approval by the Government.
How easy is it to access land? What facilities are available for accessing land?
To promote and facilitate investment, Law No. 23-17 of 15 November 2023 (“Law 23-17“) establishes the conditions and modalities for granting state-owned land intended for investment projects.
As a reminder, Law 22-18 states that investments in the economic activities of producing goods and services, whether carried out by national or foreign persons, residents or non-residents, can now benefit from state-owned land.
Law 23-17 applies to state owned land, encompassing developed areas in industrial zones, business parks, and new towns.
On 30 December 2023, several implementing texts were published in the Official Journal to ensure the effective application of this law.
The Agency plays a pivotal role in implementing Law 23-17 as it has been entrusted by the State
with the authority to award concessions for investment projects on state owned land.
Acting through its one stop shop, the Agency acts on behalf of the Algerian State to grant economic land to investors by means of a direct concession.
The process for the application for granting of state-owned land is carried out digitally on the above investor platform, through the project evaluation grid.
Concession deeds are prepared by the territorially competent land registry, as directed by the Agency, based on the decision to grant the concession. Investors subscribe to a set of specifications accompanying the concession.
The concession, which is granted for 33 years for most investment projects (excluding commercial real estate development), confers the right to obtain a building permit and create a mortgage on the resulting land right. The concession can be renewed.
The investor is bound by obligations defined in the specifications, such as the commitment not to change the destination or use of the land (except with the Agency’s authorization), to complete the project within the prescribed deadlines, to pay annual rental fees due, and to maintain the economic destination of the granted land after the project’s completion.
The concession may be converted into a sale by the Agency at the request of the concessionaire once the project has been completed in accordance with the terms of the specifications, the compliance certificate has been obtained, and operations have commenced and been acknowledged by the relevant authorities.
How effective are the available dispute resolution mechanisms and protections for foreign investors in Algeria?
Law 22-18 establishes the principle of equal treatment for investments, alongside protections and guarantees aligned with international standards.
According to Law 22-18, foreign investors may resort to international arbitration in case of disputes with the Algerian State, provided bilateral or multilateral treaties are in force.
Algeria has ratified 46 bilateral investment protection treaties (including with the UAE, Qatar, Egypt, etc.), in addition to various multilateral conventions covering similar aspects.
In the absence of an international treaty, arbitration remains an option through a mutual agreement between the Agency (representing the State) and the investor.
Furthermore, a “High National Commission for Investment-Related Appeals” operates under the auspices of the Presidency of the Republic to adjudicate appeals brought by investors.
Ultimately, investors retain the option to pursue legal action before competent courts, in compliance with prevailing legislation.
For more information contact the author and LEX Africa member in Algeria, Rym Loucif from Loucif + Co law firm. Article first posted in Legalcommunity MENA.
