In the face of the constant fall in revenues from the oil and gas exports, the Algerian government has demonstrated a clear determination to substitute the hydrocarbon-dependent economic model with a new model substantially less dependent from the oil and gas revenues.
Over the course of the last two years, the Algerian authorities have made significant efforts to improve the business and investment climate in particular through the adoption of the following recent measures:
• The reform of the legal framework applicable to investments carried out through the adoption of the Law No. 16-09 on the promotion of investment dated August 3, 2016 (the Investment Law) and the publication of its implementing texts in 2017, reflecting the willingness of the Algerian authorities to improve the business climate;
• The softening of the preemption right of the Algerian state, demonstrating the willingness to attract foreign investments in Algeria through the adoption of this advantageous measure to the benefit of foreign investors;
• The setting up of an interbank foreign-exchange market through the creation of currency risk hedging instruments, which will profit Algerian enterprises that have suffered from the depreciation of the Algerian dinar. The adoption of this new measure providing a currency risk heading instrument will undoubtedly protect the Algerian enterprises against the currency risk. PUBLICATION OF TEXTS IMPLEMENTING THE NEW INVESTMENT LAW: In a move to improve the Algerian business climate, the texts implementing Law No. 16-09 on the promotion of investment (the Investment Law) published in August 2016 were adopted on March 5, 2017. The main implementing text is Decree 17-101 specifying the three main aspects of the Investment Law, namely:
• Negative lists: Decree 17-101 lays down the list of activities, goods and services excluded from the advantages provided by the Investment Law (for example, import activities, cement plants, grey cement and so on);
• Eligibility thresholds for the transfer guarantee: As a reminder, the transfer guarantee is the right for any foreign investor to transfer in foreign currency the dividends and other revenues resulting from its investment (subject to certain conditions being met). Article 25 of the Investment Law made the benefit of this transfer guarantee conditional upon the satisfaction of certain thresholds, which had to be fixed by regulation.
• Article 16 of Decree 17-101 defines the minimum thresholds provided for in Article 25 of the Investment Law for the benefit of the transfer guarantee calculated in instalments on the basis of the foreign shareholding’s share in the total cost of the investment, as follows: 1. 30% when the investment amount is lower than or equal to AD100m (€829,500); 2. 15% when the investment amount is in excess of AD100m (€829,500) and is lower than or equal to AD1bn (€8.3m); and 3. 10% when the investment amount is in excess of AD1bn (€8.3m). Additionally, in cases with foreign shareholders, their share of financing in the total investment cost is proportional to the share they hold in the company’s capital.
Investment Incentives Regime
Decree 17-101 specifies the arrangements for implementing the investment incentive regimes, namely:
• The advantages applicable to the extension and rehabilitation of investments;
• The exceptional advantages;
• The other advantages granted depending on the investment’s location;
• The advantages for any investment exceeding AD5bn (€41.5m); and
• The advantages for projects of particular interest to the national economy.
Overview Of The Other Decrees
undefined • Decree 17-100 modernises the powers, organisation and operation of the National Agency of Investment Development (Agence Nationale de Développement de l’Investissement, ANDI). It specifies in particular the concept of decentralised one-stop shop.
• Decree 17-102 establishing the registration procedures for investments and the form and effects of the related certificate provides that the registration of an investment is made on the basis of a form furnished by the ANDI equivalent to the registration certificate.
• With the exception of the investments that are equal to or higher than AD5bn (€41.5m) and of a particular interest for the national economy, the effect of registration is to automatically provide an investment with the advantages under the project’s implementation phase without any further formalities, which covers the ordinary advantages and the additional advantages benefiting the privileged and/or job-creating activities.
• Decree 17-103 establishes the amount and conditions with regards to the collection of the fee for processing the investment files; those fees vary depending on the type of investment without exceeding AD200,000 (€1659).
• Decree 17-104 sets the conditions for monitoring investments and the applicable sanctions in case of non-compliance with the obligations and commitments accepted by the investor in return for the advantages granted.
• In terms of monitoring, the investor shall draw up a progress report of its investment that shall be sent to the ANDI on a yearly basis. In case of non-compliance with this progress report, the ANDI is entitled to suspend the advantages granted to the investor.
The ANDI then summons the investor so that it may submit the supporting documents for this failure to comply.
The investor must rectify its situation within one month. Otherwise, it incurs the cancellation of its registration certificate and loss of its rights, with a reimbursement of all the advantages received and payment of penalties set by law.
• Decree 17-105 establishes the terms and conditions for granting the operational advantages to investments creating more than 100 jobs located outside the South, the Highlands and other areas, whose development requires a specific contribution from the state.
51: 49 Rule
Since the 2009 Complementary Finance Law (2009 CFL), Algerian foreign investment regulations provide for the limit of foreign ownership at 49% in any investment — so the 51:49 rule implies the creation of joint ventures in which Algerian partners hold the majority stake.
The 2009 financial crisis prompted Algeria to amend regulations overseeing foreign investment by limiting the participating stake for foreign shareholders in Algerian companies to 49%.
Non-Retroactivity Of The Rule
While the 51:49 rule was clearly applicable to investments realised after the publication of the 2009 Complementary Finance Law, there were doubts as to its application to investments realised before then.
The 2010 Complementary Finance Law (2010 CFL), as subsequently modified, most notably by the 2012 Finance Law for 2012 (2012 FL) and the Finance Law for 2016 (2016 FL), clearly provides that “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 (by increasing or decreasing it) 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 guaranteed 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 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.
Preemption Right Of The Algerian State: The State Holding Council (Conseil des Participations de l’Etat, CPE) has undertaken certain measures in order to facilitate the transfer of shares for the benefit of Algerians shareholders through the resolution No. 10/154 dated from October 12, 2017.
As a reminder, Article 30 of the Investment Law provides the principle that any sale of shares by or to foreign investors is subject to the state preemption right. However, the CPE through this resolution immediately implemented devotes a new principle, namely the CPE would not intend to exercise the preemption right in the following cases:
• The transfer of shares from a foreign shareholder to the benefit of other foreign shareholders provided that such transfer does not affect the 51:49 rule;
• The transfer of shares by Algerian resident shareholders owning 100% of an Algerian entity provided that such transfer will not exceed the maximal limit of 49% of the share capital;
• The transfer of shares by foreign shareholders to the benefit of Algerian resident shareholders under the companies established before the 2009 CFL.
Article 47 of the 2010 CFL introduced the Algerian state’s right to repurchase; however, there were a certain number of uncertainties regarding the implementation of such right.
Article 31 of the Investment Law clarified that any sale of 10% or more of shares of a foreign company owning an interest in an Algerian company that enjoyed advantages or benefits at the time of establishment triggers prior information of the CPE.
Non-compliance with this specific obligation or the reasoned objection of the CPE, within one month of receipt of the relevant information, confers on the state a right to repurchase, at most, the interests in the Algerian company held by the sold foreign company.
It should be highlighted that this right to repurchase by the state is limited to the shares of Algerian firms that have benefitted from advantages — which, in the absence of further specifications, may include tax and Customs exemptions, or the granting of a land concession and so forth, by the current investment agency, the ANDI or by the country’s former investment agency, the Investment Promotion Agency.
In the absence of specifications regarding its implementation conditions, the Algerian government’s right to repurchase should not be applicable as it currently stands, unless reference is made to past practice.
The obligation to resort to local financing for investments (excluding the constitution of social capital for companies), which has been relaxed since the enactment of Article 55 of the 2016 FL enables Algerian businesses to resort to outside financing essential to the completion of strategic investment, and is subject to case-by-case approval by the government. In the absence of a regulation implementing such a measure, it cannot be applied as is.
Shareholders’ loans granted by the 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 that the funds do not remain available to the company for more than three years.
After the three-year period, the balance of the shareholders’ loans would have to be capitalised in the share capital of the company.
Article 142 of the Direct Tax Code, as modified by Article 5 of the 2014 Financial Law and Article 2 of the 2016 FL, provides that a company benefitting from exemptions or reductions granted during the exploitation period as a result of the ANDI regime must reinvest at least 30% of their profit in Algeria.
The timeframe corresponding to these exemptions or reductions is within four years of the end of the fiscal year during which the favourable regime is applied.
The ministerial order defining the new regime applicable to the representative offices (bureaux de liaison) of foreign companies in Algeria was released in December 2015. There was a significant degree of expectation surrounding this text, which aims to clarify the conditions under which representative offices can open and operate in Algeria.
It confirms the temporary and the non-commercial nature of these representation structures of foreign companies, which are prohibited from performing any economic activities.
The opening of a representative office remains subject to approval from the Ministry of Commerce, which has imposed stricter conditions:
• The payment of a registration duty of AD1.5m (€12,400), which was formerly AD100,000 (€829);
• The increase in the amount of blocked deposit during the existence of the liaison office from $20,000 to $30,000; and
• The opening of a foreign account in Algerian convertible dinars bank account in the name of the liaison office, credited with at least $5000.
Approval is granted for two years by the Ministry of Commerce and is renewable. The order also specifies that no approval other than that delivered by the Ministry of Commerce can be granted to a representative office.
• Lastly, consulting and Customs declarant companies are expressly excluded from the possibility of creating a representative office.
Public Procurement Contracts
The newly established Public Procurement Code (PPC) was instituted by Presidential Decree No. 15-247 on September 16, 2015. According to Article 9 of Decree No. 15-247, “State-owned companies are not subject to the public procurement procedures.”
However, state-owned companies are “required to draw up and to obtain the implementation, by their corporate bodies, of public procurement procedures, according to their specificities, 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 operating in Algeria remain subject to the key principles of public procurement regulations.
Compliance with these principles by state-owned companies will be ensured by the joint external control of all state-owned companies, namely control by statutory auditors, the Court of Accounts and the General Inspectorate of Finance. Within this framework, state-owned companies are free to define their own procurement regulations.
The National Competition Council (Conseil National de la Concurrence, CNC) was officially set up in January 2013, and is an 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.
The CNC has elaborated further on its own general doctrine with regards to competition and market matters in the business realm. It seems that the CNC currently cooperates with European countries, namely — the French, Italian and German competition authorities in continuation of a cooperation programme financed and supported by the European Commission, known as the Support Programme for the Association Agreement between Algeria and the EU.
This programme, which lasted from January 2011 to December 2012, involved future members of the CNC as the leaders and principal partners, as well as its European partners. In this particular context, the CNC may be inspired by European competition regulations. New draft legislation that relates to the competition is under preparation and evaluation by the government.
Extension Of Import Licences
In its ruling No. 1 issued on March 31, 2017, No.2 on April 3, 2017 and No.3 on May 31, 2017, the Ministry of Trade extended the import licensing system to cover industrial, agricultural, electrical and beauty products.
The ministry made the decision having announced earlier that the scope of the licensing system would be generalised to include all products intended for final consumption in Algeria (see statement dating from March 21, 2017).
The extension of the licensing system should be considered within the framework of a two-year ongoing process, resulting in Algeria becoming more restrictive on imports.
As early as 2015, Law No. 15-15 (Law 15-15), which amends and adds to order No. 03-04 of July 19, 2003 (the Order 03-04), set in place a specific import licensing system. Executive decree No. 15-306 of December 6, 2015 sets out the application terms and conditions for merchandise import and export licence regimes.
With the current era of falling oil revenues in mind, this system aims to help safeguard Algeria’s exterior financial balance in order to limit the decrease of the country’s foreign reserve assets.
Classification Of Import Licences
In accordance with the classification of the World Trade Organisation, the above mentioned system distinguishes between two types of import licences that may be imposed on operators. The two licences are described in the section below:
• Automatic licences: they are granted in all cases following the submission of an application and are not administered in such a manner as to have restricting effects on imports or exports. These licences may be maintained as long as the reasons for their implementation still exist.
• Non-automatic licences: these licences are those that do not fall within the automatic licences definition. These licences shall not have trade-restrictive or distorted effects on imports or exports, which add to those caused by the imposition of the restriction. Non-automatic licences are divided in two sub-categories:
• The quota by type of product, expressed as a percentage or absolute value;
• Contingent trade-protective measures, applicable to certain types of product from a specific country.
The Award Criteria Of Licences
The applications for non-automatic licences are reviewed by the permanent inter-ministerial committee, which takes into account the expressed needs, the statistics resulting from the exploitation of data obtained and/or issued by the ministerial departments, and the accredited trade and employer’s association representatives. Each licence gives right to the allocation of quotas and contingents made in accordance with one of the following conditions:
• When the processing method is based on a chronological order, the allocation of quotas and contingents is made on a first-come-first-served basis.
• When the processing method is based on the allocation of requested amounts in quota, all the registered applications are simultaneously reviewed in order to determine the quantity or portion of the quota or contingent necessary to the granting of import licences.
• When a quota or contingent is reserved for the so-called traditional operators, the traditional flow of trade is taken into account.
• When the processing method is based on a call for expression of interest, the quota or contingent use rights are auctioned. If the allocation conditions “prove to be inadequate”, the permanent inter-ministerial committee may resort to any other more appropriate method, which shall be specified in the licence’s notice of initiation.
Measures Regarding The Restriction Of Imports
The Ministry of Commerce has suspended the banking domiciliation of several industrial and food products, which have been published by the Professional Association of Banking and Financial Establishments.
Foreign Exchange Interbank Market
Regulation No. 17-01 dated on July 10, 2017 relating to the foreign exchange interbank market and currency risk hedging instruments was published in the Official Gazette of September 26, 2017 and provides the following measures:
• Keeping of foreign exchange interbank market of the Bank of Algeria; and
• The creation of currency risk hedging instruments.