Algeria opens its housing market to foreign contractors
With the housing shortage in Algeria having become ever-more pressing, the government has departed from its usual policy of protecting domestic industry to bring international companies on board for its projects.
Rapid population expansion and a high rate of urbanisation have contributed to overcrowding in Algeria’s cities, leading to the spread of unregulated housing and shantytowns. The population has nearly doubled since 1980 to the current 38m people, while the percentage living in urban environments has increased from 43.5% to 73.7%.
To address this situation, the government has launched a number of initiatives directed at boosting the supply of housing. In 2010, the government introduced the five-year Public Programme of Economic and Social Development (PPESD), which allocated some €34bn to building more than 1m new homes between 2010 and 2014.
However, progress towards the PPESD’s goals has been slow due to a combination of bureaucracy and limited local capacity. It is estimated that domestic companies have the capacity to construct about 80,000 housing units per year.
To help meet identified targets, the housing ministry has turned to foreign contractors, an unusual move for the government. In November of last year, Algeria signed a high-level agreement with the Spanish government, paving the way for that country’s contractors to become involved in the construction of up to 50,000 homes through joint ventures with local businesses. Among the conditions was a requirement that the foreign partner provide training to Algerian workers. Similar deals were also signed with Portugal and Italy.
According to international media reports, as of July, a total of 13 joint venture agreements between foreign contractors and local builders had been signed. Participants include Italy’s Costruzioni & Servizi and Portugal’s Prebuild, which combined are building more than 7000 homes in Algiers.
Such is the urgency of the housing deficit that beyond the bilateral approaches with Spain, Portugal and Italy, the government has also put out a broader call to get international companies involved in the housing build programme. Some 200 firms have expressed interest, from which the government has determined that 60 meet its technical and price requirements. Chinese contractors dominate the short list, with a total of 20 identified companies, along with six from Spain, five from Portugal and two from Italy. The winners, which will have the chance to build between 2000 and 5000 housing units, will be required to enter into joint ventures with domestic partners.
While these housing projects have been funded by the government, private financing is also playing a role. In May, the head of Algerian bank Credit Populaire d'Algerie told local media that the country’s public banks were set to finance the construction of 250,000 new homes in one of the biggest financing operations in Algeria’s history, worth a total value of €12bn. A deal was signed with the National Company of Real Estate Promotion for 150,000 homes, while a prior agreement with the National Agency for Housing Improvement and Development is now set to see the construction of 100,000 public housing units.
But many challenges remain, including a limited supply of building materials, which has contributed to higher costs and delays for some projects. In recent years the country has had an annual cement deficit of 3m tonnes, with some estimates placing the shortage as high as 5m tonnes. Imports have so far helped reduced price volatility, and the government is hoping to reduce reliance on imports by expanding domestic production capacity.
Given the large volume of housing projects currently in the pipeline, concerns have also been raised that the demand for other building materials may considerably outstrip supply. In June, the president of the Algerian Bricklayers Association warned that Algeria risked having to import bricks within the next few years if new investments were not made to increase production from existing clay reserves.
Algeria’s housing shortage is one of the greatest challenges facing the government. However, the state’s commitment to expanding social housing options and involvement by private developers in these initiatives will ensure that the housing market continues to propel growth.