Algerian president Abdelmajid Tebboune released the first draft of a new finance law in May 2020. The new law voids the 51/49 majority ownership law: Will this signal any tangible change?
Rabat – In Algeria, the more things change, the more they stay the same. Since February 2019, the country has buzzed with words like “overhaul,” “new,” and “reform” but, despite the resignation of former president Abdelaziz Bouteflika, despite a new draft constitution, and despite changes to both domestic and foreign policy, the Hirak (protest movement) is far from over.
The latest big change billed for Algeria is the reform of a finance law that, on the surface, will revolutionize the North African country’s economy.
President Abdelmajid Tebboune’s government submitted a report to parliament on May 26. Under the draft legislation, Algeria’s iconic 51/49 finance rule will be declared void. The law previously stipulated that foreign investors could not own more than 49% of any given company and would, therefore, be obliged to enter into a majority partnership with an Algerian national.
The majority ownership rule, enshrined in law in 2009, reflected Algeria’s image as a closed country and was seemingly designed to protect the financial interests of the Algerian population, as well as maintaining Algerian control over Algerian resources.
In practice, however, the law had quite a different effect on the Algerian economy. While it did mean that foreign fingers were not able to delve into Algeria’s pie, it also stunted economic growth and, in part, led to the now struggling oil-dependent economy.
Considering Algeria’s current financial woes, the repeal of the majority ownership law seems, from a distance, like a step in the right direction in that the draft legislation could facilitate foreign investment, while maintaining Algerian control over certain “strategic sectors.”
“It’s certain that Algeria is opening up to foreign investors and it’s a very encouraging sign for the Algerian economy, especially as the list of strategic sectors is rather limited,” said Samy Laghouati, partner and head of Algeria at Gide Loyrette Nouel law firm in a statement to the Africa Report.
As a linking state between sub-Saharan Africa and Europe, Algeria, with its rich natural resources, could be setting itself up as a rival to Morocco’s economic ambition of becoming “the gateway to Africa” for investors.
However, a closer look at the proposed legislative text does prompt a number of questions. The first being over the repeal of the law giving the Algerian state the right to buy “all sales of shares or shares in the capital of the company carried out by or for foreign entities.”
The Algerian government’s report on the draft law calls this provision “a necessary prerequisite to opening up the country to serious foreign investors with their own capital.”
Though perhaps necessary for attracting foreign moneybags, this particular clause is questionable. As Laghouati put it, “the repeal of the 51/49 rule is meaningless if this provision contrary to the national interest is maintained.”
Meanwhile, Article 51 of the draft law outlines the “strategic sectors” that will remain unaffected by the repeal of the majority ownership law.
“National mining operations, all underground or surface resources falling within the scope of the extractive industry” are exempt, as are the upstream energy sector and “activities governed by the law on hydrocarbons and the operation of networks for the distribution and transportation of energy.” Defense, transport, and pharmaceuticals will also remain under the 51/49 rule.
Speaking to the Africa Report, Laghouati highlighted the gray areas of the legislation.
“While things are pretty clear for future investments, what will the situation be once these provisions enter into force for existing foreign-controlled companies that have a mix of resale activities and production operations, which are no longer governed by the 51/49 rule?” the legal expert asked.
Laghaouti had more questions: “How will they be affected by these new measures? Within the stated strategic sectors, will all business activities be subject to the rule? What will the competent decision-making authority be? What is the timeframe?”
Some of the less transparent wording in the draft legislation appears to favor foreign investment, particularly in terms of energy production.
Independent Power Producers (IPPs) do not fall within the exception category for the 51/49 rule, meaning that foreign investors can hold majority ownership. Algeria’s solar power potential could make this a fruitful economic prospect for a renewable energy mogul.
But, one may ask, how would lining the pockets of foreign investors help Algeria’s struggling economy?
A deepening crisis
In early May, Tebboune announced a national budget cut of 50% to mitigate the financial crash caused by the COVID-19 lockdown and the global tumble of oil prices.
The North African country was already facing an economic decline before COVID-19 struck hard, with foreign exchange reserves sitting at a mere $62 billion, compared to $180 billion in 2014, while the global economic dip has left swathes of the Algerian population struggling to make ends meet.
With Algeria’s economy hitting rock-bottom and societal tensions rumbling just above the surface, Tebboune and his government may be hoping that a quick injection of cash from a deep-pocketed foreign investor may just keep their heads above water.
However, the vast gray areas of the draft legislation call into question the true aim of the legislation.
Tebboune has made it clear that he will not seek a loan from outside Algeria and is not willing to open Algeria’s doors to nosy neighbors, including those who might help to mitigate the worsening financial crisis within.
On May 1, the president ruled out taking a loan from the International Monetary Fund (IMF), saying: “I personally think that the absence of international debt is a strengthening mechanism amid the COVID-19 crisis.”
Algeria is a “free country,” the president underlined. Debts to international actors compromise this freedom, he argued.
The president said his country would prefer to take internal loans than to risk its autonomy through international debt.
The decision, or apparent decision, to open up Algeria to foreign investors is an interesting u-turn for the president, since allowing foreign companies full autonomy to operate without the input of Algerian stakeholders would, necessarily, mean change for the country’s domestic and foreign policy, as well as outside eyes scrutinizing the state of affairs within the North African country.
The proposal of the draft law came after the release of Tebboune’s new draft constitution, which, like the finance legislation, is very much open to interpretation.
“Upon taking office, Tebboune said he had heard the demands of the Hirak movement. The preamble to the draft constitution even nods to the aspirations for ‘a new Algeria as expressed peacefully by the popular movement since February 19, 2019.’ However, the body of the draft delivers none of the systemic change the Hirak had demanded,” said Eric Goldstein, Deputy Director of Human Rights Watch Middle East and North Africa Division.
While the new finance law could be a change in direction for the Algerian economy, the vast gray areas and lack of transparency, coupled with Tebboune’s known distaste for foreign interference in Algerian affairs, beg the question: Is it, like the draft constitution, a “nod to the aspirations” and needs of Algeria’s people rather than a route to tangible change?