SMEs drive growth in non-energy sectors of the Algerian economy

 

Small and medium-sized enterprises (SMEs) predominate among Algerian firms, forming the backbone of the private sector. At end-2016 Algeria’s 1m SMEs employed more than 2.5m people and engaged in some AD75bn ($622.1m) in bilateral trade. According to the Ministry of Industry, Algeria created an average of 60,000 SMEs per year in the 2012-15 period, and there is evidence that the pace of business creation is accelerating. There was a net increase of 88,100 SMEs in 2016 alone – up 9.4% on the 2015 figure – and a 7.2% rise in employment among SMEs. The government’s goal is to establish another 1m SMEs over the 2015-19 period.

Of the 1m SMEs in existence at the end of 2016, 56.3% were incorporated, while only a small minority of these – just 390 companies – were state-run. The remaining 43.7% were sole traders.

At 97.1%, the vast majority of Algeria’s SMEs are micro-enterprises, with less than 10 employees. There are only 3170 registered firms of medium size – those having between 50 and 249 employees – accounting for 0.31% of all SMEs. This “missing middle” phenomenon is shared with many other emerging markets, as is the issue of having a large informal economy.

Government Support 

The government supports the SME sector by investing in private sector companies through the National Investment Development Agency. While 2016 saw a 9.6% reduction to 7185 in the number of such investments, the amount invested increased by 24.8% to AD1.8trn ($14.9bn), and the number of jobs supported by these firms grew by 9.1% to 164,000.

In 2011 the authorities launched a national programme worth AD380bn ($3.2bn) to revamp the country’s SME sector, with a target of more than tripling the number of SMEs from just over 600,000 to approximately 2m by 2025. Although this programme benefitted more than 20,000 SMEs across multiple sectors, it was judged in many quarters to be falling short of its objectives. With this in mind, the government stepped up its efforts to stimulate the SME sector in 2017.

New Law 

On January 10, 2017 Law No. 17-02 on the development of SMEs was adopted. The new legislation aims to encourage the establishment of new SMEs, and to improve both their competitiveness and export capacity. The law tasks the National Agency for the Development of SMEs with the growth and modernisation of the SME sector, as well as the execution of the country’s accompanying development strategy. The law also provides for the creation of a coordination council, which brings together the specialist and representative organisations relevant to Algerian SMEs. This council was formally launched on August 1, 2017.

Lastly, the law foresees the establishment of two funds to support the development of SMEs, including the Algerian Credit Guarantee Fund and a seed capital fund. The latter helps finance costs related to the development of product prototypes, such as business plans, research and development.

Access To Finance

These funds should help ease one of the most binding constraints on small businesses in Algeria. In the World Bank’s “Doing Business 2018” report, Algeria ranked 177th out of 190 countries for getting credit, down two places on its 2017 score. This was Algeria’s second-lowest position in any category, and below its overall ranking of 166th.

While accessing finance has always been an obstacle for Algerian SMEs, the drying up of excess liquidity in the banking sector has made it more challenging and costly (see Banking chapter). The SME compartment of the local stock market has been open since 2012, but has yet to see its first listing. This could become a viable alternative source of financing for some larger, high-potential SMEs, thereby contributing to the development of the country’s capital markets and economy at large (see Capital Markets chapter). It is hoped that when the governance and financing framework envisaged under Law No. 17-02 is fully up and running, this limited access to finance and other challenges currently facing Algerian SMEs can be tackled more effectively.

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The Report: Algeria 2017

Economy chapter from The Report: Algeria 2017

The Report: Algeria 2017

The Report

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