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Finance Bill draft for 2020

To a reduction of the 51/49 rule?


During the government meeting on Wednesday, 11 September, Finance Minister Mohamed Loukal presented the Finance Bill draft for 2020. This draft aims to improve the business climate in Algeria and attract foreign capital for the benefit of the national economy.
One of the major proposed reforms is to mitigate the rule limiting foreign equity stakes up to 49% of the share capital of a company governed by Algerian law, commonly referred to as the 51/49 rule.
Indeed, the Algerian government proposes to partially or fully waive the rule requiring capital to be held by resident national shareholders in non-strategic sectors.
The explanatory notes accompanying the Finance Bill draft for 2020 state that the 51/49 rule, introduced by article 58 of the complementary Finance Bill for 2009, modified and transposed into the Finance Bill for 2016, in its article 66, has “largely achieved the objectives assigned to it”. These explanatory notes also specify that the recent evolution of the national economy, in particular within the current global context, requires a revision of the investment policy, by limiting this obligation (i.e. partnership) only to investments that would present a particular or strategic interest for the Algerian economy.
To date, there have been no clarifications about the target level of easing or the sectors considered “of particular interest” or “strategic” and which would therefore remain subject to this rule. According to the terms of the Finance Bill draft for 2020, the list of activities related to the production of goods and services that would present a strategic interest for the national economy shall be defined by way of regulation to be adopted.
Given the uncertainty as to the extent of this reform, it would be wise to avoid speculation about which sectors will be affected by the reform of the law. As a reminder, Algeria experienced a similar situation in 2015 when the investment promotion act was amended, although the proposed elimination of the 51/49 rule was eventually abandoned.
However, a joint analysis of the business environment in Algeria and applicable regulations could suggest that the legislature will first identify sectors in which the Algerian State directly or indirectly holds equity stakes with foreign partners in order to define them as strategic sectors (e.g. telecommunications and automotive).
On the other hand, sectors in which the Algerian State is rarely in partnership with foreign investors should therefore benefit from the planned reform. For example, one of the potential targeted sectors could be banking and insurance.
Lastly, we do not expect the hydrocarbons sector to be included in the proposed reform, since that sector is subject to its own body of laws and regulations.
Although we cannot predict whether this reform will be adopted in the Finance Bill for 2020, which will be promulgated at the end of December, the fact remains that such reform is consistent with a desire to make the Algerian economy more attractive.
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Samir Sayah
Partner Africa Practice – Corporate, M&A