Interview: Samir Hadj Ali

Algerian investment law, under its reframed policy published in August 2016, is deemed to be a general frame of legislation, the purpose of which is to define the general policy of investment for both foreign and local investors. Among the key changes made to the investment law was the removal of the pre-emption right and the limitation of stakes imposed on foreign investors, although these are still in force through other forms of regulation, such as finance acts.

On the other hand, the investment law references implementing regulations that are determined to be more flexible when it comes to the monitoring of changes to the practical aspects and selection process of an investment. Under the chapter regarding the exclusion of some activities not eligible for incentives and the implementation procedures, executive decree No. 17-101, dated March 5, 2017 has brought more clarification on the activities excluded from these incentives, as well as the implementing measures related to the different kinds of investments.

The list of excluded activities and excluded capital expenditure items appended to this executive decree discloses the sectors that are already developed or overdeveloped and that do not need further enhancement. It also clarifies the level of investment required from foreign shareholders to grant the repatriation of their dividends, their share capital and the related capital gains. Foreign shareholders are required to invest at least 30% of the total value of the investment when the total is less than AD100m (€829,450). That minimum is lowered to 15% when the investment is within a range of AD100m (€829,450) to AD1bn (€829.45bn) and to 10% when the investment is above AD1bn (€829.45bn).

The executive decree also defines what is meant by investment for refurbishment and investment for extension. Refurbishing is defined as the acquisition of goods and services that remedies the technological obsolescence of existing equipment and its depreciation, in order to enhance productivity. Extension is defined as enabling the enhancement of manufacturing capacities in quantity and/or in quality, while the acquisition of sideline equipment is not considered to be an investment. The same exclusion also applies to the replacement of capital expenditure items.

In order to calculate the investment necessary for refurbishment and extensions, the executive decree No. 17-101 has implemented the minimum level of investment that should apply in reference to the total value capital expenditures to benefit from the incentives, which mainly consist of tax holidays.

Companies with a gross capital expenditure of less than AD100m (€829,450) on their last balance sheet should dedicate a minimum of 25% of that value for extension or refurbishment to enjoy further tax incentives. That rate is 15% for investments within a range of AD100m (€829,450) and AD1bn (€829.45bn), and 10% for investments above AD1bn (€829.45bn). Although these rates may appear to be restrictive, the aim is to govern the ratios of investment while also enhancing levels of investment. For a more efficient practice, stakeholders should consider the potential growth of the investment for higher revenue and greater profitability. These rates are important factors for assessing the risk of an investment in the long term, as this regulation is unlikely to procure short-term profits. By introducing these rates, it is clear that the legislator aims for long-term and stable investments.

For investors, this requires a long-term commitment, with proper risk management related to the choice of investment on their capital expenditures, as the business environment may lead to new factors that could change the expected return on investment.

Sizing up investment definitively affects the economy, as on one hand, small and medium-sized enterprises might be excluded from this regulated selection, while on the other hand, companies with the capacity to invest might face the risk that their capital expenditures could be too large for the size of their company.