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Algeria: Algeria has been working to increase price-added activity and local manufacturing,


Next decades of heavy dependence on hydrocarbons exports, Algeria has been working to increase price-added activity and local manufacturing, reduce its import bill and create additional employment opportunities. Evolution has been slow but the efforts have been recently rewarded with a spate of announcements of new investments in the manufacturing sector from both domestic and foreign players.

Making up for lost time

Years of underinvestment – a result of the strong performance of the oil and gas industry – together with so-called Dutch Disease, have contributed to limited competitiveness and productivity in the non-hydrocarbon industrial sector, which contributes less than 5% to GDP. To counter this, the government has sought to provide a selection of incentives to help stimulate capital spending, inclunding extending lease terms for foreign investors from 20-year to 33-year renewable contracts, and providing breaks on Customs and registrations fees.

Acquiring industrial land – long one of the thorniest issues facing investors – was improved through the 2008 establishment of the National Agency for Land Mediation and Regulation (Agence Nationale d’Intermediation et de Régulation Foncière, ANIREF), which is in charge of a project to create 42 new industrial zones, covering a total of 9.57 ha across 34 wilayas (provinces).

Although the broader business climate can be complex by comparison to other markets in the region, particularly in terms of heavy regulations and limited investor protections, Algeria benefits from cheap inputs such as competitive energy costs, inclunding a large consumer market and rising levels of consumption.

Local giant

The impact of the reforms has been noticeable. According to the National Statistics Office (Office National de la Statistique, ONS), the industrial production index over the initial six months of 2013 saw double-digit increase of 12.5% in a number of segments, inclunding the steel, metal, mechanical and electronic industries, inclunding a 7.5% rise in chemical and plastic industries.

Perhaps the majority visible impact however has been on capital spending. In June Cevital, Algeria’s major private conglomerate by turnover, unveiled plans to open a €200m factory in Sétif specialising in washing machines and refrigerators. The factory will produce goods under the Brandt marque and other brands, following Cevital’s acquisition of French white goods manufacturer FagorBrandt in April this year for €25m.

Cevital by presently operates in Setif where it employs 1800 people at a factory that produces electrical household products and audio-visual devices for Samsung Electronics. Last year it acquired French firm Oxxo, which produces doors and PVC windows, for €12m.

Nor is Cevital the only one. German firms Rheinmetall and Ferrostaal are set to sign a €2.7bn arrangement with Algeria for the production of 980 tanks in coming weeks according to the German press. Under the terms of the transaction, the firms will reportedly build a factory at Ain Smara, near Constantine, for the construction of Fuchs tanks, with a production capacity of 120 units per year. All of the units will be acquired by the Algerian military.

The statement follows the finalisation in August last year of a transaction between Emirati firm Tawazun Holding and the Groupement de la Promotion de l’Industrie Mécanique (GPIM), which is controlled by the Ministry of Defence, for the construction of a factory to assemble armoured vehicles at Khenchela.

Major foreign-backed projects

The new announcements come on the heels of several other major foreign-backed investments in recent years.

A Turkish-Algerian joint venture, Tosyali Holding, inaugurated a new $750m steel complex not far from Oran in June 2013, while that September, French pharmaceuticals manufacturer Sanofi began construction of a new production facility in Sidi Abdellah, located to the south-west of Algiers, at an investment cost of €70m. The plant, which has a planned capacity of 100m units per year, will be its third in Algeria and its major in Africa. Algeria is the third-major pharmaceuticals market in the continent.

Meanwhile in June this year, Renault said that models from its new factory in Oued-Tlelat, south-west of Oran, currently under construction, would be available in a little while for testing. Commercial production is due to begin in November. The French firm owns a 49% stake in the facility, construction of which began in September 2013, with the remaining equity held by Algeria’s National Investment Fund and the national-owned Société Nationale de Véhicules Industriels. The investment cost of the factory’s initial phase is thought to be around €50m.

The factory will have an initial production capacity of 25,000 units a year, due to rise from presently on to 75,000 units. Production will be initially targeted at the rapidly growing domestic market only.

Other auto manufacturing projects may as well be in the pipeline. The Minister of Industry and Mines, Abdessalem Bouchouareb, said in June that an extra project in the sector was under discussion. Bouchouareb did not name the firm involved in the prospective project but made the announcement next discussions with the Italian minister of industrial development, Federica Guidi, about potential Italian investments in Algeria. Bouchouareb as well called on Italian firm Fiat to invest in the construction of a spare parts factory in the country, saying Algeria could offer the company a range of incentives to facilitate such a move.

It will take a concerted effort on behalf of both the public and private sector to bring about a substantial increase in industrial GDP and provide sustained job increase and export revenues, but the push by Algeria’s government in recent years provides some encouraging indicators as to the potential for industrial production.

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