The Report: Algeria 2014

Economy

After years of sustained high oil prices and a comparatively prudent fiscal policy – albeit balanced on a high breakeven price – Algeria has built up considerable financial buffers, which will help the country to ride out the current decline in global commodity prices. Declining oil prices have also highlighted the government’s efforts to develop the non-hydrocarbons sector, something it has sought to do for several years, with varying levels of success. The state continues to play a key role in the economy, through both regulatory tools and direct intervention via state-owned enterprises. According to the IMF, overall GDP is projected to jump 4% in 2014 to €167.5bn, up from 2.8% in 2013.

This section includes interviews with Amara Benyounes, Minister of Commerce; Issad Rebrab, CEO, Cevital; Mohamed Laid Benamor, President, Algerian Chamber of Commerce and Industry; Kamel Moula, President, Club des Entrepreneurs & des Industriels de la Mitidja; and Réda Hamiani, Former President, Algerian Business Leaders’ Forum.

Energy.

The country boasts the fourth-largest oil reserves and second-largest natural gas reserves in Africa, but production has declined in the last decade as existing fields mature. Changes to the regulatory framework in recent years have resulted in tighter capital inflows, but the government is working to encourage new investment and exploration to bolster production, including a long-awaited revision to the Hydrocarbons Code in 2013. Algeria benefits from some of the largest and most underexplored blocks of territory in the world, and the outlook for both conventional and non-conventional production is significant. Nonetheless, the country faces a number of challenges as it works to scale up energy and electricity production.

This chapter contains interviews with Youcef Yousfi, Minister for Energy and Mines; Saïd Sahnoun, Interim CEO, Sonatrach; Karen Agustiawan, Former CEO, Pertamina; and Abdallah Salem El-Badri, Secretary-General, OPEC.

Financial Services

The banking industry in Algeria is characterised by a high level of stability and ample liquidity, which owe much to the country’s robust hydrocarbons revenues. Lending to the economy has been growing strongly, albeit from a low base, and while intermediation rates are low, plans to relax a government ban on consumer credit and launch a new credit registry in 2015 should help facilitate more lending in the coming years. Algeria’s stock market remains modest in size, with a market capitalisation equivalent to around just 0.1% of GDP – a result in part of the country’s surplus liquidity and accessible bank lending. However, recent years have seen the first equity listings by private sector companies on the exchange, and plans by the government to float stakes in eight state-owned firms should have an enormous impact on capitalisation. A number of proposed reforms, such as plans to remove the requirement for bank guarantees for bond issuers, should help to further boost market activity in coming years. The Algerian insurance market is underdeveloped by regional standards, with penetration particularly low in the life segment; however, the sector has witnessed strong expansion in recent years. State-owned firms still dominate the sector, though private insurers are gradually increasing their market share. Following the successful separation of life and non-life activities, the life insurance segment should continue to see particularly strong growth, albeit from a low base.

This chapter contains viewpoints from Mohammed Laksaci, Governor, Bank of Algeria; and Adel Si-Bouekaz, Managing Director, Nomad Capital. It also contains a dialogue with Youcef Benmicia, CEO, Algerian Insurance Company; and Nacer Sais, CEO, Algerian Insurance Society.

Industry and Retail

Overreliance on the energy sector in the last three decades has siphoned investment away from manufacturing and left Algeria with high import demand in a number of critical areas, including food supply, machinery, electronics and other consumer goods. However, in the last 10 years, Algeria has focused on developing local manufacturing industries in order to reduce its heavy import spending, boost employment, increase value addition and export revenues, and diversify the economy. Industry’s redevelopment has been somewhat arbitrary in recent years, yet a handful of segments have grown quickly, attracting new sources of foreign direct investment.

In the retail sector, consumption patterns in Algeria are beginning to shift towards modern retail, supported by rising income levels and greater exposure to formal shopping outlets and international brands. Retail sales increased 30% from $28.7bn in 2007 to $37.5bn in 2011, while per-capita spending rose by 22% over the same period, to reach $1023 in 2011. Authorities hope that the rise of modern retail stores, particularly in the grocery segment, will have a positive knock-on effect for locally produced goods.

This chapter contains interviews with Hamoud Tazerouti, CEO, Entreprise Nationale des Véhicules Industriels (SNVI); Amor Habes, Owner and General Manager, Faderco; and Javier Goñi, CEO, Fertiberia Group

Construction and Real Estate

Benefitting from the government’s push for transport infrastructure and public housing, and guided by a new capital-intensive five-year plan, the construction sector has been seeing constant activity. During the 2009-14 five-year period, authorities channelled $286bn to modernise transport infrastructure, expand energy production and improve urban housing. However, while the demand for construction materials and expertise is high, contracts have faced operational constraints. Despite these difficulties, Algeria’s comparative stability in the region continues to garner international interest for a host of development projects that will cover areas such as road and rail construction, energy production and water infrastructure.

As the government channels state funds into its public housing programme, growing private interest is stoking growth in the higher-end residential segment of Algeria’s real estate market along with office and commercial real estate. One positive aspect of the housing programme has been that it has attracted a larger number of foreign contractors to help increase the number of houses Algeria is able to build every year. This chapter contains interviews with Abdelkader Kadi, Minister of Public Works; and Lakhdar Rekhroukh, CEO, Cosider Group.

Transport

As a result of high oil revenues over the past decade, Algeria’s transport infrastructure has been significantly overhauled, benefitting from generous public sector spending. During the 2010-14 period, the government allocated €30.1bn to be used for road expansion and maintenance, as well as improvements in port infrastructure, with an extra €27.2bn invested in the railway sector and air transport infrastructure. This sort of capital-intensive spending is likely to continue, even as the state sees a drop in oil revenues, its primary income. More crucially, the government is gradually shifting attention to soft infrastructure to ensure that processes and execution keep pace with capacity upgrades.

This chapter contains an interview with Amar Ghoul, Minister of Transport.

Telecoms and IT

The telecoms market in Algeria has shown dynamic growth in recent years; as with many emerging markets, the mobile penetration rate has gone from zero to nearly 100% in less than 15 years and the market has demonstrated strong demand for new technologies. The long-awaited launch of 3G services in December 2013 has helped to develop new sources of growth in an increasingly saturated sector. The modernisation of sector regulation will be necessary in order to encourage further investment in this key market, which may provide the boost legislators need to restart work on the new ICT law.

The introduction of 3G mobile services in December 2013, followed in May 2014 by state-owned operator Algérie Telecom’s (AT) 4G fixed wireless data service, stand to significantly impact the IT sector in the near term, particularly in terms of consumption and demand. Private sector operators estimate that the IT sector contributes 1.3% of GDP, compared to 3.3% for the telecommunications sector. In the short term, AT will focus on deploying fibre-optic and wireless internet infrastructure, which will help to strengthen Algeria’s nascent digital economy.

This chapter contains an interview with Joseph Ged, CEO, Ooredoo; and a viewpoint from Mourad Nait, Country General Manager, Microsoft.

Agriculture

Although agriculture’s contribution to GDP had dipped slightly from 10% in 2012, domestic output is on the rise. The Ministry of Agriculture and Rural Development estimates that the value of agricultural production increased five-fold over the last 15 years, from €4.65bn in 2001 to €23.81bn in 2013. The government has made it a priority to boost domestic production to reduce its ever-rising import bill and end the country’s reliance on imports of dietary staples such as cereals and milk. Government efforts to subsidise fertilisers, certified seeds, machinery and irrigation equipment have helped to modernise the sector. The presence of private agro-industry groups should further help to carry this effort onwards and increase productivity going forwards.

This chapter contains interviews with Abdelwahab Nouri, Minister of Agriculture; and Hocine Mansour Metidji, CEO, Group Metidji.

Tourism

Despite its unique natural and historical heritage, Algeria’s tourism sector has long struggled to transform into an important component of the country’s economy. Nonetheless, new government incentives, along with private initiatives to expand existing hotel capacity, are helping to modernise the sector, which has historically been sidelined by government focus on other economic activities. Although Algeria is in a prime location to attract many tourists, the country has sought to avoid mass-market tourism in an effort to maintain high-quality offerings. The role of the tourism sector in the economy is expected to continue on an upward trend, although this evolution will most likely happen at a slow pace. As Algeria aims to attract more travellers from traditional markets such as France, Spain or Germany, it will be competing with more developed destinations such as Egypt, Tunisia and Turkey.

This chapter contains an interview with Frtiz Van Paasschen, CEO, Starwood Hotels and Resorts.

Health and Education

Having made considerable gains in health care provision over the past five decades, Algeria has been undergoing a transition in terms of its health challenges. Under the current 2009-14 five-year plan, the government had pledged $6.2bn for the establishment of new health infrastructure, including 1500 new facilities. Renovation of existing facilities is also being undertaken, coordinated with a certain level of decentralisation to allow the management of health efforts to become more autonomous in the regions. Algeria continues to put a strong emphasis on improving provision of education across the country. A decade has passed since the beginning of educational reform, and authorities are now cementing new practices and aiming to understand which elements need further work. Expansion of infrastructure and continued teacher training should also help to improve standards.

This chapter contains interviews with Yiğit Gürçay, Senior Vice-President and Area Director – MENA, GlaxoSmithKline; and Abdelhak Lamiri, President, Groupe INSIM

Tax

In conjunction with Mazars, OBG explores the taxation system, examining Algeria’s investor-friendly environment. OBG talks to Samir Hadj Ali, Chartered Accountant and Managing Partner, Mazars, on encouraging research and development.

Legal Framework

OBG introduces the reader to the different aspects of the legal system in Algeria, in partnership with Gide Loyrette Nouel. This section also includes an interview with Samy Laghouati, Partner, Gide Loyrette Nouel.

The Guide

This section includes information on hotels, government and other listings, alongside useful tips for visitors on topics like currency, visas, language, communications, dress, business hours and electricity.