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An industrial leader in the making

Article - June 28, 2012
Already one of Africa's top five economies, Algeria aims to become a major manufacturing partner for leading European brands

While Algeria has previously experienced tough times – with the 1986 oil price collapse, IMF intervention in 1994, and the ‘Black Decade’ of social distress and political crises – on the occasion of its 50th anniversary of independence the country can celebrate impressive economic development and renew its determination to consolidate and improve upon its position as one of Africa’s top five economies.

Mohamed Benmeradi, Minister of Industry, SMEs and Investment Promotion, recalls the challenging years: “We had to close thousands of companies, and cut hundreds of thousands of jobs, especially in industry. In 2000, when the situation calmed down, the economy was totally fragmented: the companies created in the 70s were functioning, but at 50 per cent of their capacity, and they needed to be reorganised, upgraded and stimulated.”                

Paradoxically, this crisis was the starting point of the country’s economic stabilisation, and eventually its growth. “The country was obliged to reschedule its debt and to adopt a series of measures to restructure its economy. As a result of these steps, by 1997-98 all the country’s macro-economic indicators were positive,” explains Ahmed Tibaoui, President of the World Trade Centre Algeria in Algiers.

The oil price collapse in 1986 also illustrated the need to diversify the economy, and to remove dependence on high energy prices.

Nowadays, Algeria has virtually no external debt, little or no public deficit, and an inflation rate among the lowest in the Middle East North Africa region. It successfully resisted the various financial crises that have so affected the global economy: while many countries still suffer the effects of prolonged recession, Algeria enjoys a steady 4-5 per cent annual growth.

Only those companies that innovate to improve their competitiveness manage to survive.

Mohamed Benmeradi,
Algerian Minister of Industry, SMEs
and  Investment Promotion

A market economy emerges

The adjustments advised by the IMF led Algeria to open up to privatisation, foreign investment and competitiveness – a huge step for a country which had been largely socialist since its formation. “The state had been present everywhere: as employer, regulator, sponsor and protector,” comments Reda Hamiani, President of the Business Leaders Forum (FCE).

Algeria started a process of industrial transformation and transition towards a market economy, with major state enterprises reformed and opened up to the private sector and foreign capital.
“We told the public enterprises: we accept your consolidation plans, we will review your financial situation, we will give you the benefits of an investment plan – but we will do so on the condition that you find an international technology partner,” explains Mr Benmeradi.

With the renewed trust of the citizenry (the FNL party won the elections in May), President Abdelaziz Bouteflika has a mandate to press on with the transition of the Algerian economy towards the free market. The bid to reduce £32 billion-worth of imports, to provide jobs for a fast-growing population, and to modernise the economy have persuaded the government and people of the need to both privatise and open up to the world.

After many years of international isolation, Algeria has redefined its position and become a key regional player. President Bouteflika was invited to Germany in 2010, after Angela Merkel visited Algeria in July 2008. Last February, it was the US Secretary of State Hillary Clinton’s turn to visit the country. The international community, acknowledges Algeria’s role in the fight against terrorism, and the country is now classed as a strategic partner – the second largest of its kind in the Arab world.

With its political and economic situation now stabilised, the country offers attractive opportunities for foreign investors and enjoys excellent diplomatic and commercial relationships with Europe, particularly the UK, Spain and Germany. Various co-operation agreements covering trade and culture provide a reassuring framework for foreign investors. German interest has been particularly strong: more than 200 German companies including Mercedes, Daimler and MAN Ferrostaal have operations in Algeria and Siemens has just built the country’s first metro in Algiers.

Shaping a new industrial landscape: The 2010-2014 Development Plan

The challenges facing Algeria can be read between the lines of its advantages: the need to diversify its economy away from oil and gas revenue, the necessity to upgrade the manufacturing base and skills, the call for better infrastructure, and the need to develop small and medium-sized enterprises (SMEs) and reduce its reliance on imports.

These challenges are precisely those addressed by the ambitious $286 billion 2010-2014 Development Plan, a concerted effort to put Algeria on the map of industrial players.

“We have implemented very large projects: an estimated investment of $500 billion over the past 12 years by the state. This is the equivalent of three or four times the GDP of Algeria,” says Mr Benmeradi.

While energy-related ventures figure prominently in the investment plan, industrial projects worth $6 billion also feature. Not all the money is destined for large companies, the majority being reserved for SMEs through the development of sub-contractor networks within industrial development zones. “We have a $4 billion programme for the upgrade of 20,000 SMEs,” says Mr Benmeradi.

A range of opportunities

While Algeria has advanced its food processing, construction materials and pharmaceutical industries, the auto and electronics industries figure among the list of sectors in need of development. Steel represents another opportunity, as Mr Benmeradi explains: “Each year we import $5 billion of steel products. We have the natural resources, but we have only one complex which produces less than a million tons per year.” 

The modernisation of infrastructure is another Algerian priority, reflected in the administration’s plan for $632 million of public works. The need for diversification opens opportunities in the services and tourism sectors worth $1.3 billion and $382 million respectively, while the Minister has also identified cement, engineering and paper as fields that require foreign investment.

Thus, Algeria offers many opportunities for international companies wishing to gain access to a market of 37 million people, a large and educated workforce, and a selection of large-scale projects. Meanwhile the range of fiscal and legal incentives, private and public funds, and support from government agencies clearly demonstrates the sincerity of Algeria’s wish to build mutually profitable long-term partnerships with capable foreign investors.