As a market of about 38m inhabitants with substantial energy resources as well as a steady demand for modern infrastructure supported by massive public investment, Algeria has attracted strong interest from foreign investors over the last few years.

During 2009, in the context of the fallout from the global economic crisis, Algeria saw a fall in revenues from its oil and gas exports combined with a sharp rise in imports of goods and services, and in dividends distributed to foreign investors. The combination of these three factors led to a deterioration in Algeria’s balance of payments. The situation accordingly prompted the government to amend the regulations overseeing foreign investment by limiting the participating stake of foreign shareholders in Algerian companies. After the enactment of these new laws in 2009 and 2010, no significant new law has been added to the foreign investment regime. Indeed, only a few changes have been made to the foreign investment regime, notably:

• The Finance Law for 2012 clarified that the transfer of shares between directors of joint stock companies does not obligate the concerned firm to comply with the limitation on foreign shareholding rule; and

• Following the enactment of the Finance Law for 2014, foreign trade activities and production of goods and services activities are now subject to the same legal requirement with respect to limitation of foreign ownership (i.e. 51%/49%).

Investment Law

This was due to the 2009 Complementary Finance Law (2009 CFL). Among the most significant provisions of the new law were:

• The limitation of foreign ownership to 49% in any foreign investment. Foreign investors are now obliged to create joint ventures in which Algerian partners hold the majority stake;

• The requirement that any foreign investment generate a positive foreign currency balance in Algeria’s favour throughout its realisation, the idea being that only the projects for which the inflows of foreign currency exceed the outflows may be authorised to distribute dividends; and

• Pursuant to the Finance Law for 2014, the obligation to obtain authorisation from the National Investment Council prior to any foreign investment is now only required when the foreign investor is seeking advantages from the Algerian state.

Retroactivity Of The Rule

The 2009 CFL, as subsequently modified, introduced in Article 58 the obligation for foreign investors to invest in partnerships with one or several Algerian shareholders, who must hold at least 51% of the share capital.

While this obligation was clearly applicable to investments realised after the publication of the 2009 CFL, there were some doubts as to its application to investments realised before then. In practical terms, the question was whether companies incorporated before the 2009 CFL and fully owned by foreign shareholders had to bring themselves into compliance with the new 51:49 rule when modifying their trade register or upon a change in their capital ownership.


This issue was clarified by the publication of the 2010 CFL (as subsequently modified, notably by the Finance Law of 2012).

Pursuant to Article 45 thereof, “Any modification of the trade register leads to the prior bringing into compliance of the company with the rules governing capital ownership.” However, the following modifications are not subject to this obligation:

• Modifying the share capital (increase or decrease) without entailing a change in the proportions of allocation of the share capital as specified above;

• The transfer or exchange between former and new directors of guarantee shares provided by Article 619 of the Commercial Code, provided that the value of those shares does not exceed 1% of the company’s share capital;

• Either removing an activity or else adding a connected activity;

• Modifying an activity further to the modification of the activities’ nomenclature;

• Appointing the director or the company’s managers; and

• Changing the registered office. The National Business Registry (Centre National du Registre du Commerce, CNRC) has not issued a clear definition of “connected activities”. However, on the basis of several informal meetings held at the CNRC, we understand that connected activities are activities belonging to the same economic class or sector.

Requiring Compliance

According to a literal interpretation of this provision, the only event that requires compliance with the 51:49 rule is “the modification of the trade register”. The transfer of shares of an Algerian company does not lead to a modification of the trade register, so it could be argued that the mere transfer of shares as opposed to an increase in share capital does not obligate the company to comply with the rule beforehand.

However, it seems that the spirit of this provision is that any change in the ownership structure of a company incorporated before the 2009 CFL (whether resulting from a share capital increase or decrease, or from a sale of shares) gives rise to a requirement to bring the company into compliance with the 51:49 rule as of that date. In this regard, it is worth recalling that the Finance Law for 2012 allows the transfer of the directors’ “guarantee shares”.

More precisely, Article 63 under the Finance Law specifies that modifications to a company’s trade register further to a “sale or exchange between former and new directors of guarantee shares provided for in Article 619 of the Commercial Code” shall not trigger the 51:49 allocation rule, provided that the value of such guarantee shares does not exceed 1% of the company’s share capital. From a practical standpoint, therefore, it should be noted that any sale of shares in an Algerian company is compulsorily made before a notary and embodied in a notary deed.

Sale Of Guarantee Shares

Any sale of a stake in an Algerian company by or to a foreign shareholder requires, subject to nullity of the sale, the prior delivery of a certificate from the Ministry of Investment after deliberation by the State Shareholdings Council attesting to the waiver by the government of its pre-emption right. However, the regulatory texts necessary for the implementation of the government’s pre-emption right (pertaining notably to the form to be used by the notary to file the application for the delivery of such waiver certificates, the price at which the government could exercise its pre-emption right, etc) have not yet been enacted.

According to Article 57 of the Finance Law for 2014, the absence of an answer from the competent services at the Ministry of Investment within a three-month period from the filing by the notary of the application for the waiver certificate shall be deemed a waiver of the government’s pre-emption right except when the transaction (i) exceeds an amount defined by an order from the Ministry of Investment and (ii) concerns the shares of a company carrying out any of the activities defined in an order.

The above order has not yet been enacted by the Ministry of Investment. Hence, there is uncertainty as regards the effect of receiving no reply from the Ministry of Investment following three months and if this can be considered a waiver of the pre-emption right. As a result, in practice, it could be argued that notaries are not able to validly perform any sale of shares involving foreign investors without applying for the waiver of the government’s pre-emption right.

In this respect, regarding the abovementioned exemption of the transfer of guarantee shares, the Finance Law for 2012 and the Finance Law for 2014 do not deal with the practical modalities regarding the implementation of the pre-emption right pertaining to such transfer of shares between directors.

Therefore, if the sale of guarantee shares does not prompt the implementation of the 51:49 rule, such sales would remain subject to the pre-emption right and so it would remain necessary to notify the relevant department of the Ministry of Investment when one or several guarantee shares must be transferred between directors.

Exercising The Right To Pre-Emption

Another major change resulting from the 2010 CFL is the financial modalities for the exercise of the new right of pre-emption. Under the new right of pre-emption, the price at which the government may exercise its right is to be fixed through an expert valuation.

The modalities of such valuation are to be specified by a forthcoming regulation (more precisely as to the condition of performance of such expertise). This raises questions as to whether or not the seller, who had planned to offer a number of shares at a certain price, could be obliged to sell at the price determined by the expert, which could be less than expected. On the one hand, a negative answer would imply that Article 46 of the 2010 CFL only intended to give the state priority negotiation rights, which would seem contradictory to the term “right of pre-emption” used in the law.

Conversely, a positive answer would mean this provision would have created a case of forced sale, the legality of which is questionable. This issue may be clarified by the implementing regulation to come. It should be noted that, even when expressly waiving its right of pre-emption, the state retains the right to preempt for one year from the date of the tax registration of the transfer deed in the case of the price being insufficient. In such a case, the state could only buy the shares from the acquirer by paying the price paid by the latter, plus 10% (Article 38 quinquies of the Tax Procedures Code).

Repurchase Rights

The state has the right to purchase shares of an Algerian company in the event of a total or partial sale of its foreign parent company’s shares. According to Article 47 of the 2010 CFL, any transfer of shares in a foreign firm holding shares in an Algerian company which has benefitted from advantages at the time of its establishment is subject to “governmental consultation” and gives rise to a “right to repurchase” by the government. This provision refers to a situation in which the shares of the parent company holding a stake in an Algerian company are sold. The shares of the underlying Algerian company are not the object of the transaction.

It should further be highlighted that this “right to repurchase” by the state is limited to the shares of Algerian firms which have benefitted from advantages – which in the absence of further specifications, may include tax and Customs exemptions, granting of a land concession, etc, by the current investment agency, the National Agency for Investment Development (Agence Nationale de Développement de l’ Investissement, ANDI), but also the former investment agency, the Investment Promotion Agency. Based on a literal interpretation of the provision, it would appear that only the sale of shares in a foreign company holding a direct share in an Algerian company (parent company) is being targeted under the law.

In our view, however, such right to repurchase should be extended to sales of shares abroad occurring at the level of the grandmother company and beyond. Indeed, should a different interpretation be accepted, it would be too easy to circumvent the state’s right to repurchase by interposing different levels of companies. The repurchase price shall be determined on the basis of an expert valuation in the same way as the state pre-emption right.

Undefined Consequences

Article 47 of the 2010 CFL does not specify any penalty for conducting transactions involving stakes in an Algerian firm’s parent company that occur without any prior consultation with the government. In this respect, the timeframe and process for “prior consultation with the Algerian government” are not indicated within the body of the law. It is worth noting that this obligation seems difficult to apply with respect to those companies which have shares that are listed on the stock exchange.

Positive Foreign Currency Balance

According to Article 4 bis in paragraph six of Ordinance No. 01-03, relating to the development of investment as per the 2009 CFL, “Foreign investment, direct or in partnership, shall generate a positive foreign currency balance in Algeria’s favour throughout the realisation of the project. A regulation of the monetary authority will ensure the practical implementation of this.” Article 2 of Regulation No. 09-06 of Bank of Algeria dated October 26, 2009 defined the notion of foreign currency balance for any project with regards to either credit or debit elements.

With regard to credits (i.e. incoming foreign currency flows on Algerian territory) this includes repatriation deriving from:

• Any contribution linked to the investments, including the share capital;

• The part of the production sold on the national market in substitution of imports;

• Goods and services export revenues; and

• Foreign loans exceptionally taken. In addition to these elements, the valuation of any imported contribution in kind must be added. With regard to debits (i.e. the outgoing foreign currency flows) this includes transfers abroad resulting from:

• The imports of goods and services;

• The profits, dividends, directors’ percentage of profits, directors’ fees, and wages and bonus of expatriate employees;

• The partial transfers of investments;

• Exceptional foreign debt charges; and

• Any other foreign payments. The foreign currency balance is thereby constituted by the difference between the sum of the credit elements and the sum of the debit elements. The foreign currency balance must be presented in its equivalent value in Algerian dinars. The reasoning behind this obligation is that only investments for which the inflows of foreign currency exceed the outflows may be authorised to distribute dividends and also possibly to repatriate sale proceeds. The practical application of this provision is still unclear. In practice, to date, in spite of this legal restriction, companies are still able to transfer dividends abroad after the entry into force of this provision, without any control being carried out by the authorised intermediary and/or the Bank of Algeria, as to the existence of a positive foreign exchange balance. However, this position may change at any time. It should be underlined that “the part of the production sold on the national market in substitution of imports” is to be included in the credit side of the foreign currency balance. Therefore, if a joint venture’s activity is one of production, this will help to maintain a positive foreign currency balance, thus allowing the distribution of dividends.

Local Financing

According to Article 4 bis in paragraph seven of Ordinance No. 01-03 (resulting from the 2009 CFL), the financing that is necessary to the realisation of foreign investments shall be raised on the local financial market, except (i) for the constitutive share capital or (ii) in particular circumstances.

Pursuant to Executive Decree No. 13-320 dated September 26, 2013, shareholders’ loans granted by foreign partners of an Algerian company are possible on the condition that no remuneration is paid to the shareholder in this respect and to the extent the funds do not remain available to the company for more than three years. After three years, the balance of the shareholders’ loans would have to be capitalised in the share capital of the company.


Article 48 of the 2010 CFL creates an obligation for foreign entities holding shares in companies set up in Algeria to annually provide a list of their shareholders which is certified by the body overseeing the trade register in their country of residence. Like Article 47 of the 2010 CFL, this provision does not contain any indication as to the penalty in the case of non-compliance. In addition, it remains silent as to the identity of the authority to which such notification should be made and the implementation modalities of such an obligation to listed companies. This provision appears as a means to ensure the enforcement of Article 47 of the 2010 CFL and to allow the authorities to carry out ex post facto checks of compliance with the obligations therein.

Reinvesting Obligation

Article 142 of the Direct Tax Code, as modified by Article 5 of the Finance Law for 2014, provides that a company benefitting from exemptions or reductions granted during the exploitation period as a result of the ANDI regime must reinvest in Algeria the “part of profit that corresponds to these exemptions or reductions” within four years from the end of the fiscal year during which the favourable regime is applied.

This reinvestment may intervene: (i) either as per each fiscal year; or (ii) as per several consecutive fiscal years. In this case, the four-year period starts from the end of the first fiscal year. In the case of non-compliance, the company shall not only be made to repay the taxes from which it was exempted in application of the ANDI regime but also pay a penalty amounting to 30% of said taxes. Article 57 of the 2009 CFL, as modified by the Finance Law for 2013, also provides that foreign operators having a partnership with national companies are exempted from the reinvestment obligation when the advantages awarded to them have been reflected into the price of the final goods and services produced.

The companies concerned shall, to benefit from the dividends transfer, support their request with a certificate stating the amounts and the periods for the realisation of the said profit. The modalities of application of the present article are to be determined by way of regulation. The implementing provisions of this article have yet not been published. Therefore, any foreign investor should find a balance between the benefits and advantages which could be obtained in the context of investment incentives regimes and, if applicable, the reinvestment obligation imposed in exchange for such exemptions.

Public Procurement Contracts

The Algerian Public Procurement Code (PPC) comprises various elements, namely Presidential Decrees No. 10-236 of October 7, 2010 as amended by Decrees No. 11-98 dated March 1, 2011 and No. 11-222 dated June 16, 2011; Decree No. 12-23 dated January 18, 2012; and Decree No. 13-03 dated January 13, 2013. The PPC came into force in October 2010. Decree No. 13-03 has reformed the scope of public procurement contracts with a rewriting of Article 2 of the PPC. All procurement contracts entered into by state-owned companies are now exempted from public procurement regulations, whether financed or not with the assistance of the state. Decree No. 13-03 states, “State-owned companies are not subject to the public procurement regulations provided by the present decree.” However, state-owned companies are “required to draw up and to obtain the implementation, by their corporate bodies, of public procurement procedures complying with the principles of freedom of access to public sector contracts, equality of treatment of applicants and transparency of procedures”. As a result, companies remain subject to the key principles of public procurement regulations.

The following elements stem from the new wording of PPC Article 2:

• State-owned companies are no longer subject to specific provisions of the PPC for their procurement contracts, whether directly for those financed by the state or through adaptation of these rules for those self-financing companies;

• State-owned companies shall, however, inevitably define and draw up their own public procurement regulations, with due regard to the general principles governing the regulation of public procurement contracts, namely transparency of procedures, equality of treatment of applicants and freedom of access to public sector contracts.

• Compliance with these principles by state-owned companies will be ensured by the joint external control of all state-owned companies, namely control by two statutory auditors – the Court of Accounts and the General Inspectorate of Finance. Within this framework, state-owned companies are now free to define their own procurement regulations.

Preferential Margin Of Algerian Products & Services

The PPC strengthened existing provisions that were intended to favour Algerian bidders. Article 23 of the PPC now provides for a preferential margin of 25% (as compared to 15% previously) for products of Algerian origin and/or for enterprises organised under Algerian law in which resident nationals hold the majority of share capital.

The application modalities of this preference margin have been stated in a ministerial order issued by the Ministry of Finance dated March 28, 2011 and which stipulated the following:

• Relating to supply procurements, the 25% preference margin is granted to locally manufactured products upon receipt of a certificate of Algerian origin; and

• Relating to the procurements of services the preference margin is granted to enterprises under Algerian law as well as to mixed groups (i.e. comprising both Algerian and foreign members) up to the limit of the part owned by the Algerian enterprise in the group. According to Article 23 of the PPC, in regard to mixed groups, the parts owned by Algerian and foreign enterprises are determined by the works performed by each member and their related amount. In practice, this part is principally determined by the amount of the work performed by each member. However, it is requested that each member performs a determined and identifiable job.

This preference margin applies at the financial offers valuation stage. In addition, the currency of the contract does not impact the application of the preference margin, with the latter depending only on the nationality of the tenderer.

International Tenders

According to Article 24 of the PPC, within the framework of international invitations to tender, the foreign tenderer can be obliged, within the framework of its response to the invitation to tender, to make a commitment to invest in Algeria. The field of application of this obligation has been significantly limited by Decree No. 13-03.

For contracts submitted to the obligation of investment of the foreign tenderer, under the provisions of Article 24 paragraph one of the PPC, the investment obligation does not apply to all international invitations to tender. Rather it applies only to those related to projects listed by a decision of the relevant authority. Such investment obligation has been specified by an order issued by the Ministry of Finance and the Ministry of Industrial Development and Investment Promotion dated November 27, 2013, published in the Journal Officiel on April 9, 2014, laying down the modalities of application of the investment commitment for foreign tenderer. Pursuant to this order, when a project is subject to the investment obligation, by decision of the competent authorities, the investment commitment provision shall be provided in the form of an invitation to tender. Thus, if the specifications of an invitation to tender do not expressly require a commitment, the foreign tenderer would not be subject to the obligation to invest. To date, no decision on this matter has been made by the relevant authorities, and there is still uncertainty regarding invitations to tender.

In this context, one could argue that in the absence of any decision by the relevant authority with regards to projects subject to the investment obligation, a foreign tenderer should not be obliged to undertake an investment commitment. It should be noted that contracts directly awarded (without call for tender) are not subject to these provisions (Article 27 of the PPC). Finally, this obligation seems to apply only to the foreign tenderer, and not to any Algerian tenderers that are held by foreign capital.

Investment In Partnership

Regarding the nature of the partnership, the PPC provides no definition. Nevertheless, the above order dated November 27, 2013 provides that such a partnership shall be implemented in accordance with the applicable laws and regulations. Therefore, under the provisions that are of interest to foreign investors in Algeria and in particular those relating to the 2009 and 2010 CFL, it could be argued that the notion of partnership targeted by these provisions should cover the creation of a joint venture between the foreign tenderer and one or more Algerian resident investors. A simple conclusion of agreements with Algerian subcontractors thus cannot be deemed sufficient to meet the obligations included under these provisions. The above order has also specified that the call for tender file could provide a non-limited list of companies with which the foreign tenderer is likely to implement a partnership. Indeed, the foreign tenderer could communicate the name of the chosen Algerian partner after the notification of the public procurement contract.

Pursuant to Article 7 of the above order, competent authorities could exempt from the investment commitment the foreign tenderer who has already realised an investment or has already committed himself to realise such an investment in accordance with the legal requirements.

Terms Of Investment

The investment commitment of the tenderer must be included in their offer and must respect a strict model, as determined by the above order dated November 27, 2013. As a result, according to Article 24 of the PPC, the planning and the methodology of the investment appear to be defined in the specifications of the call for tenders.

Penalties For Non-Compliance

The non-compliance by the foreign tenderer with their investment obligation through a partnership is strictly penalised. Thus, if the successful tenderer does not realise its investment, or does not respect the timeline and the methodology set out by the call for tenders, the following penalties could be incurred:

• An application of penalties for delay after unsuccessful formal notice by the contracting service;

• Possibility of unilateral termination of the public procurement to the exclusive fault of the co-contracting party after agreement by the authorities; and/or

• Registration of the failing operator on the list of the economic operators forbidden to tender for procurement contracts.

Competition Law

The National Competition Council (Conseil National de la Concurrence, CNC) was officially set up in January 2013 and is an independent administrative authority intended, in accordance with Ordinance No. 03-03 dated July 19, 2003, to observe, rule and sanction trade practices and the functioning of the Algerian market. Indeed, CNC has elaborated its own general doctrine with regards to competition and market matters. It seems that the CNC currently cooperates with the French, Italian and German competition authorities in continuation of a cooperation programme financed by the European Commission, known as the programme d’appui à l’

This programme, which lasted from January 2011 to December 2012, involved notably the future members of the CNC as the leader and principal partner, as well as its European partners. In this particular context, the CNC may be inspired by European competition regulations.

In other words, the CNC may establish a similar case law and accordingly suggest draft legislation to align Algerian law with the European competition law. Until now, there has been no draft legislation that relates to the competition pending before parliament.

However, the CNC is currently contemplating publishing rules that would help to clarify some of the procedural issues. The establishment of the CNC may therefore allow the government to strengthen its role as a strategic regulator. It is also worth noting that the government and the CNC both have regulatory powers in competition and market matters.