Algeria is one of Africa’s most powerful economies, with the continent’s third-largest GDP at USD 244.7 billion. The country is home to 45.7 million people and is a top producer of natural gas in Africa, supplying much of it to Europe. This makes Algeria a key player in the world’s energy market.
For a long time, the rules for doing business in Algeria were seen as complicated, which sometimes discouraged foreign investment. Now, the government is making major changes to welcome international companies and make it easier to invest. A new Investment Law, No. 22-18 dated, 24 July 2022 is at the heart of this effort to grow the economy beyond the oil and gas sector.
The main challenge for any company now is to understand these new laws and how they create fresh opportunities. To make this clear, our member firm in Algeria, Loucif & Co, has published a detailed guide explaining these important updates. This article uses their guide to look at what you need to know to do business in Algeria today.
The End of an Era: Rethinking Partnerships in Algeria
For over a decade, one rule defined foreign investment in Algeria: the “51/49” rule. This law required foreign companies to partner with a local Algerian entity that had to own at least 51% of the share capital. This was a significant barrier, but it was abolished in 2020 for non-strategic sectors as part of a government plan to improve the investment climate.
This new approach is showing early signs of success. According to a recent investment analysis by Lloyds Bank, FDI inflows are growing, reaching USD 1.2 billion in 2023. This shows rising investor confidence, though it is crucial to know that the 51/49 rule has not disappeared completely. It remains in place for certain “strategic sectors” that the government continues to protect.
As an article on navigating FDI explains, these strategic areas include the military industry, railways, ports, airports, and specific activities in the pharmaceutical,mining sectors (only with respect to quarry operations) and production of fertilizers. However, for all other sectors, such as agri-food, construction, and telecommunications, foreign investors can now establish fully-owned subsidiaries. This reform, detailed in the Loucif & Co guide, is a true game-changer for the business climate.
A Clear Path to Investment: Algeria’s New Incentive Schemes
New laws have also created clear and attractive investment incentives to encourage growth across the country.
Past investment laws were often unclear about incentives, creating uncertainty for foreign companies. The new Investment Law 22-18 fixes this by creating just three straightforward incentive schemes. To qualify for these benefits, a company must first register its investment project with a government one-stop shop, simplifying the application process significantly.
The core benefits are designed to lower costs during both the setup and operational phases of a project. During the initial investment stage, companies can receive exemptions from customs duties, Value Added Tax (VAT), and real estate tax. Once the business is running, it can be exempt from corporate income tax and tax on professional activities for a period of five to ten years.
Sectoral Regime
This incentive scheme targets specific high-priority industries that the government wants to develop. Key sectors eligible for these benefits include renewable energy, pharmaceuticals, and agriculture. Other targeted areas are petrochemicals, mining, tourism, and information technology. This approach helps direct foreign capital toward sectors that can aid Algeria’s economic diversification.
Zone Regime
The Zone regime focuses on geographical development rather than specific industries. It applies to investments made in certain regions, such as the Highlands and the South of the country. The goal is to encourage economic activity and resource development in specific locations targeted by the state for growth. This helps spread investment more evenly across Algeria.
Structuring Investment Regime
This regime is reserved for major projects that have a significant economic impact on the country. To qualify, an investment must create at least 500 jobs and be valued at a minimum of DZD 10 billion (approximately EUR 75 million). These large-scale projects receive the most favourable incentives due to their substantial contribution to the national economy and employment.
Guarantees for Long-Term Investment
Beyond tax breaks and incentives, new legislation in Algeria addresses two fundamental concerns for any General Counsel: legal stability and the ability to repatriate profits. These protections are designed to build long-term investor confidence and are a cornerstone of the new business environment. They signal a shift towards a more predictable and secure framework for foreign companies.
Protection from Future Legal Changes
A key feature of Investment Law 22-18 is a powerful legal stabilisation mechanism. This “freezing clause” ensures that any future changes or repeals to the investment law will not negatively affect investments made under the current rules. An investor can choose to adopt new, more favourable laws, but they are protected from any less favourable changes. This provides a vital layer of security, shielding long-term projects from unexpected shifts in government policy and creating a more stable planning horizon.
Guaranteeing the Repatriation of Profits
The law also explicitly reaffirms the transfer guarantee for foreign investors. This gives companies the legal right to transfer dividends and other investment proceeds out of Algeria in foreign currency. To benefit from this, the initial capital must be imported through official banking channels. While the administrative process with local banks can sometimes be slow, especially for the first transfer, the legal right to repatriate funds is now clearly and firmly established.
A New Chapter for Investment in Algeria
The Algerian government’s recent reforms represent a fundamental shift in its approach to foreign investment. By removing the long-standing 51/49 rule for most sectors, creating clear and simple incentive schemes, and establishing robust legal protections for investors, the country has significantly improved its business climate. These are not minor adjustments; they are foundational changes designed to attract and secure international capital for the long term.This proactive approach sends a clear signal to the global business community. As the comprehensive business guide from our Algerian member firm, Loucif & Co, states, “These new laws are positive signs for investors, especially foreigners, to increase the attractiveness of the country.” This sentiment captures the essence of the current moment, an era of renewed opportunity and potential in a key North African market.
