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Algeria: Algeria Infrastructure Report 2012


Increase in Algeria's construction industry will bounce back in 2011 demonstrating the resilience of the sector. Continued revenue from the country's extensive oil and gas resources has helped to power infrastructure development. Real year-on-time(y-o-y) increase of 6.9% is expected for 2011 as a result of investment in the county's power sector. This will see construction industry price rise to US$14.8bn for 2011, a positive trend that will continue until the end of the estimate period in 2015 when the industry price will be US$20.8bn.


Recent factors in the estimate include:

  • In May 2010, Oil Minister, Chakib Khelil announced plans to produce 5 % of the Algeria's electricity needs from solar energy by 2017. This is in line with the government's intention to diversify into renewable energy and decrease reliance on fossil fuel.
  • New laws passed in Algeria in September 2010 mean that foreign contractors aiming to win a share of Algeria's US$286bn infrastructure budget will need to form joint ventures (JVs) with local firms. The move is the Algerian government's new attempt to give preferential treatment to local firms and is the new illustration of the national's growing intervention in the private sector. Bids submitted by local companies for government contracts are now allowed to be up to 25% higher than those submitted by international firms.

Along with the other frontier markets in North Africa (Libya, Morocco and Tunisia) Algeria offers significant opportunities for investors wanting exposure to the region's high increase. The infrastructure sector currently possesses the greatest increase potential over the long term.

Risks to doing business are considerable, with an overreliance on request from the eurozone, concerns over long-term property rights, and elevated political risk, likely to lead to the region maintaining its high risk profile for the time being. New laws reportedly aimed at reducing unemployment may as well have the effect of further reducing investor confidence in Algeria's already uncertain business environment

Algeria: Building keeps busy

Recent years have seen a flurry of activity in Algeria’s construction sector, pushed by a generous spending programme on the back of sizeable hydrocarbons revenues. New motorways, ports, trams, industrial facilities and housing projects have amount led to significant increase in the sector – and it does not look as though things are going to change any time soon, following the completion of the bidding process for what will be of the major mosques in the world.

On August 22, Bouabdallah Ghlamallah, the minister of religious affairs, announced that the government had prequalified consortia and construction firm for the major contract to build a grand new mosque with the highest minaret in the world.

In amount, 15 bids were considered, with the successful three bidders including a consortium consisting of the Italian-Lebanese firm Astaldi and the Lebanon-based Arabian Construction Company; a Spanish-Algerian joint bid by COSIDER-FCC and ETRHB Haddad; and China National Construction.

The new mosque – which aims to be the third major in the world after Saudi Arabia’s Mecca and Medina – will be located in Mohammadia, in the eastern outskirts of Algiers. The 20-ha complex will have room for 120,000 worshippers, with the centre of the complex dominated by a 300-metre tower, the world’s highest.

The amount of investment in the mosque has not from now on been made public, but early estimates put the cost at around €500m, while later reports suggested €975m as the upper limit.

Given the amount of investment and the importance of the project, bidding was open only to companies with a permanent staff of additional than 2000 and an annual turnover of at least €1bn. Placing the bar high was as well aimed at ensuring those companies that did qualify would be able to complete the project without delays caused by financing or equipment constraints, highlighting some of the issues that other construction projects in Algeria have come up against.

The prerequisites for bidders come within the context of a broader push by the government to address capacity and standards within the sector.

The government is working on modernising regulations governing the construction industry, with additional robust enforcement procedures being put in place. A new law strengthening earthquake safety standards, and based on US and European legislation, is currently in the works. The law will mark Algeria, which lies in a seismic zone, as the first African country to implement a framework for earthquake risk management.

Furthermore, the country is bolstering urban planning regulations in a bid to cut down on illegal habitations and improve coordination amongst municipalities to address issues including overcrowding and traffic flows.

Indeed, with so much of the focus of the government’s $286bn development plan on infrastructure for 2009-14 – €116bn will go to new projects and €96.7bn to existing schemes, including rail, road, water, education facilities, and around 2m new homes – these are very busy times indeed for the sector’s companies and capacity constraints have caused significant issues.

A consistent concern in the construction sector as a whole is materials prices and supply. Regarding the latter, request for steel has rocketed in recent years, from 4.2m metric tonnes (MT) in 2007 to around 6m MT in 2010. Steel-reinforcing rods, used in construction, account for around half of this request. This surge is, however, being addressed in part by a €500m investment in the Arcelor-Mittal steel plant at El Hajar. This should see a-phase facelift, first boosting steel output to 1.4m MT per year, then to 2.4m MT per year in the second phase.

In cement, rising request has led the national, which currently supplies around 65% of market request through the recently established Cement Industry Group, to launch an investment project for 2011-15 in a new cement plant that it hopes will boost supply from around 11.5m MT to 20m MT. This comes on top of plans for another new 3m-tonne capacity facility by ASEC Algerie, a subsidiary of Egypt’s ASEC Cement Holding, that is slated to open next year.

These moves should ease some of the supply – and thus pricing – concerns for contractors, as they try to stretch and fulfil the ever-increasing inventory of construction projects now under way around the country.

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