Building confidence: Efforts to upgrade infrastructure are multiplying the number of projects across all sectors

The continuous process of upgrading existing infrastructure is helping Algeria to open up its economy as it diversifies activities away from hydrocarbons, and has delivered a boost to contractors and construction firms, particularly in the private sector. Overall, Algerian authorities are set to invest €222bn between 2009 and 2014, involving construction firms at a variety of levels. Funds will be used to expand and repair the road network, establish new rail links, and upgrade airports and ports. Plans are also under way to expand water treatment and distribution centres, build new hospitals and invest in an array of energy-related facilities. This is the continuation of ongoing investment over the past decade, aimed at better equipping the country and spreading growth across less-developed areas.

ATTRACTIVE OPPORTUNITIES: The soon-to-be-finished East-West Highway and the new Hauts Plateaux Highway have both had considerable participation from foreign construction companies. A revamp of the rail system, coupled with the laying down of multiple tramlines, is helping to ease traffic congestion in major cities, while new refineries will boost downstream capacity. In addition, the growth of sea transport is expected to translate into the building of a new port. Overall, public expenditure plans are set to present domestic and foreign companies with opportunities for years to come.

The government’s infrastructure strategy, and corresponding spending programme, will ensure that the construction industry holds a pivotal role in the economy over the coming years. Not only will it help to foster growth and employment through the development of construction projects across different regions of the country, large-scale works are attracting foreign companies, and encouraging local contractors to participate and enhance their capabilities. Crucially, contractors are also able to benefit from an operating environment where liquidity is accessible – avoiding the problem experienced in many other developing nations, of late payments and arrears. “In most African countries there are enough contractors but not enough money to get projects going. In Algeria there is enough financing but sometimes not enough contractors to accomplish projects,” said Dareb Debsi, general manager at Egyptian construction outfit Arab Contractors.

ROADWAYS: Much of Algeria’s public spending is directed at expanding its transport infrastructure. The need to alleviate congestion and connect economic zones with major ports and airports led the government to embark on construction of the 1216-km East-West Highway, which will run from the Tunisian border to Morocco. Budgeted at €8.5bn, the highway was built by China’s CITIC Group, China Railway Construction Corporation, Japanese consortium COJAAL and several Algerian partners.

Also expected to attract attention from international contractors, the Hauts Plateaux Highway will improve connectivity in the hinterland. Several other auxiliary highways will connect the country from north to south, linking major traffic arteries with the network of ports along the northern coast.

RAILWAYS: Rail links have also become a priority, as the government aims to modernise and extend existing lines and increase electrification. A new 1300-km high-speed rail link is expected to connect the country from east to west, and two five-year plans running from 2005 to 2014 allocated a total of €24.9bn for rail infrastructure. In addition to upgrading existing lines in the north of the country, investment will also be channelled to increase connectivity between the more populous northern regions and the country’s central towns.

Despite some delays in the railway expansion plans, mostly due to land expropriation procedures, international engineering companies have been aiming to secure the host of new opportunities. In 2009 the Chinese consortium China Civil Engineering Construction Corporation won three contracts worth a total of €1.4bn, for lines connecting Tissemsilt to Boughzoul, Saïda to Tiaret and M’Sila to Boughzoul. In 2012, a joint venture between the Société Nationale des Transports Ferroviaires and Siemens was awarded a €68m contract to deliver signalling and telecoms equipment for a line between Djelfa and Laghouat. The German group had already implemented signalling and telecoms kit for a freight line between Senia and the port of Arzew. In mid-2013 Italian company Ansaldo STS was awarded a €40m contract to provide European Train Control System technology for the 130-km line being built between Oued Tlélat and Tlemcen, as well as to equip a control centre in Oran and 15 trains.

Urban rail transport systems have also been developing quite rapidly. Besides the expansion of the current Algiers metro line – the initial stage of which was awarded to the Bouygues group’s Colas Rail, in a joint venture with Algeria-based KOU GC for €85m – the authorities are investing in the creation of tram lines in several other cities.

Oran and Constantine saw their tram lines open in 2013, and a Spanish consortium made up of Rover Alcisa, Elecnor and Assignia Infraestructuras has been awarded a €228m contract to build the 12. 6-km tram line in Ouargla, in central Algeria. Overall, the government wants to equip 14 cities with their own tram systems (see Transport chapter).

PUBLIC HOUSING: The housing deficit has led to a flurry of activity in new-build areas on the suburban fringes of major cities and in master-planned communities. For the 2010-14 period the authorities have allocated over €38bn for social housing projects. According to the Ministry of Housing and Urban Development, 225,000 units per year are needed to meet demand. However, on average, the authorities have been able to build only 75,000-80,000 units annually. Several housing projects have been allocated to international contractors in a bid to counter local firms’ lack of capacity to handle the demand on their own. “The housing programme has been delayed, mainly due to shortages of labour, land and certain materials. It is possible that the current social housing programme will not be completed before 2015,” said Sahraoui M’hamed Noureddine, general manager at real estate developer SOPIREF.

The labour shortages stem from the huge amount of construction work going on around the country, while the land issue is to a large extent the result of the fast-growing population, with urban areas becoming increasingly overcrowded. Furthermore, with much of the available land owned by the government, land that is in private hands is typically sold at inflated prices. Despite the delays, the government has remained committed to increasing the number of available housing units throughout the country (see analysis).

NEW URBAN CENTRES: Coupled with expansion of transport networks, efforts are also being made to develop new economic and urban centres by creating up to five new cities by 2030. The most ambitious of these, Boughzoul, will be located in the Médéa region, 200 km from Algiers. The government expects the large-scale development to house some 300,000 people by 2025.

The authorities also expect to launch the tender for the city of Hassi Messaoud before the end of 2013. The €4.7bn project will be constructed on an area of 4483 ha, and will include 18,000 new homes. An array of social infrastructure will be built, including 20 schools and 32 nurseries and kindergarten facilities. It will also feature a clinic, a health centre and a 240-bed hospital. The new urban centre will be able to house up to 80,000 people.

Another development on the outskirts to the east of Constantine, the new town of Bourouag will boast 3000 homes and a range of urban amenities, including six schools, three mosques and a sports complex. The project will be executed over a 40-ha area and is budgeted to cost €780m.

Close to the Tunisian border, on the outskirts of Annaba, work on the new town of Draâ Errich has recently been launched. The government has already unblocked a first slice of financing of around €210m for the construction of the town, which will include 40,000 homes and have the capacity to house 200,000 people once completed.

The building of new towns will help sustain activity in the construction sector, especially in the Hauts Plateaux region – a change from when most activity was concentrated in the coastal areas. However, the size and impact of these projects adds new challenges. The need to move people to new areas to free up space for these projects has sometimes caused social tension, leading to interruptions in construction work. There have been several protests in Bouinan, because the current inhabitants are either against the building of the new city, unhappy with the compensation they have been offered or have not been able to freely sell their homes.

INDUSTRY & ENERGY: With growing demand for electricity putting pressure on the state to increase production levels, the government plans to continue investing heavily in the energy sector. Hydrocarbons and downstream industrial projects are thus set to feature heavily in construction contracts over the coming years (see Energy chapter).

The goals of doubling refining capacity of crude oil over the next five years and boosting the petrochemicals industry are likely to translate into the construction of at least five new oil refineries. These will cost around €11.7bn of the €62bn the government expects to spend on the energy sector in the next few years. One newly started project is the construction of a refinery near Algiers, awarded to French contractor Technip and budgeted at €780m.

Two additional refineries in Tiaret and Biskra are expected to be tendered before the end of 2013, with another two planned to be built in Ghardaïa and Hassi Messaoud, near some of Algeria’s most important oil and gas production areas. Work is also under way to expand capacity at several existing facilities, such as the Skikda and Arzew refineries.

Included in the project to create a second liquefied petroleum gas pipeline between Haoud El Hamra and Hassi R’Mel, in the country’s largest gas field, the Ministry of Energy recently signed a contract for the design and construction of a gas pumping station. Work on the unit will go ahead as part of a joint venture between Zurich-based ABB and Sonatrach, the state oil and gas company, and is set to start operating in 2015. Construction for the energy sector is also due to get a boost from government plans to build six dual-cycle power plants by 2020.

In a bid to develop its industrial clusters, the government has launched a plan to build 42 industrial parks across all of Algeria’s provinces ( wilayas). This programme is being piloted by the National Agency for Land Mediation and Regulation (Agence Nationale d’Intermediation et de Régulation Foncière, ANIREF). Tenders for the first seven of these zones at Ouargla, Relizane, Djelfa, Médéa, Tizi Ouzu, Mostaganem and Aïn Témouchent have already been launched. Government investment for the programme is set to reach €1bn over the next decade.

Also going ahead are plans to establish three new fertiliser plants. In 2012 Algerian authorities announced an €11bn investment plan for the three production units. Norwegian company Yara International has entered into an agreement with Asmidal, which is part of Sonatrach, to build an ammonia, nitric acid, ammonium nitrate and nitrogen fertiliser factory. Another consortium, made up of Qatar and Norway, will partner with the Algerian government to build two additional units. One is a €2.7bn ammonium plant in Hadjar Essed and the second will be a phosphoric acid factory in Oued Koubrite.

WATER DISTRIBUTION: Algeria is also investing heavily in hydroelectric projects and water treatment and distribution systems. This has become a priority, with a fast-growing population putting pressure on municipal services. Under the current five-year plan the government has allocated €15.5bn in an effort to better manage its water resources. This will include the building of 32 new dams across the country, seven of which are set to be finalised before 2014. The construction of 25 water transfer systems is also being planned and the completion of several desalination plants is currently under execution. Financing has also been earmarked for other projects. A total of 40 wastewater treatment plants are set to be built over the coming years, at a combined investment of €800m.

The government has also announced the revamping of water distribution systems in 37 cities, involving a total investment of €780m. Another €540m will go toward drainage and irrigation projects across suburban and rural areas.

Mohamed Kamel Aït Dahmane, president of the board of directors of Société de Gestion des Participations de l'Etat Etudes et Réalisation des Grands Travaux Hydrauliques, or SGP-ERGTHY, told OBG, “The water resources sector has recorded spectacular growth in Algeria, from mobilisation and/or production to distribution and treatment of waste water.”

MATERIALS SHORTAGE: Despite the opportunities, the construction sector is hampered by a continued shortage of cement, which sometimes leads to delays in building. In the past, the cement market had been completely driven by state demand, but this has been changing with the increased participation of private actors. A shortage of domestically produced cement is especially prevalent at the beginning of spring, when construction works accelerate across the country due to improved weather. This has led to a rise in the value of cement imports.

During the first four months of 2013 cement imports reached €90.3m, according to the National Centre for Customs Information and Statistics. This is more than double the figure for the same period in 2012. “Demand is rising and production capabilities are still not moving as fast, so the need to import cement will remain,” said Adel Haddoud, the director of strategy at French producer Lafarge.

With an annual production capacity of 21.5m tonnes but a level of consumption which has been increasing at around 5% per year, Algeria might not have enough installed production capacity to fulfil the current five-year plan.

Some capacity increases are in the pipeline, including government investment of €2.6bn to increase production levels at the state-owned Algerian Industrial Cement Group to 29m tonnes per year by 2020. Lafarge, which currently produces 7.5m tonnes of cement a year, is also expanding capacity through the building of a new cement factory in Biskra, in eastern Algeria, which is set to produce around 3m tonnes a year once it is operational by 2016. In early 2013 a tender was launched for a second production line at the cement unit in Meftah, which is 35% owned by Lafarge and produced some 1m tonnes in 2012.

Besides government efforts to increase domestic production of cement, the authorities are also keen to attract fresh private investment into the sector. Considering Algeria’s favourable conditions for cement production, including the availability of limestone and competitive prices for natural gas to be used as feedstock, it is expected that new units will boost production capabilities over the coming years.

Steel production is also poised to grow in coming years. Turkey’s Tosyalı Holding recently inaugurated a steel and iron unit in Oran. Construction on the €580m plant began in 2011, and will provide an annual production capacity of 1.25m tonnes of liquid steel and 900,000 tonnes of iron.

Further investment is on the way, with the announcement in 2013 of a partnership between Algeria and Qatar to build a steel production complex with an annual capacity of 4m tonnes. The new mill will be 51% owned by Sider and Algeria’s National Investment Fund, with the remaining 49% to be shared between partners Qatar Steel and Qatar Mining. The unit is set to become operational by 2017.

Continuing to invest in steel and cement production is essential if Algeria is to maintain the momentum of its construction industry and complete its ambitious infrastructure plans. But until predicted capacity increases come to fruition, imports will be needed to fill the current gaps. While high demand for commodities has pushed up prices for construction materials as well as workers’ wages, this is likely to subside in the coming year.

INCREASED COMPETITION: With a slowdown in the eurozone pushing Spanish, French, Portuguese and Italian firms abroad, Algeria is an increasingly competitive market for contractors, despite the large number of ongoing projects – something that is noticeable in the tendering, design and execution of infrastructure projects. “For some time, Algeria was not a major target of international companies. This changed with the financial crisis, especially in the southern European countries. Before you would have tenders with two or three competitors bidding for a project. Now you always have at least 10 companies competing for that contract,” said Ricardo Acabado, the production centre director for Portuguese construction company Teixeira Duarte.

Mohamed Abdellaoui, CEO of Entreprise Publique des Traveaux Routiers du Centre, also pointed to the growing competition in the sector. “Given the heightened competition among domestic players, especially in the public works arena, public companies have had to ramp up the quality, speed and cost-efficiency of their operations,” he told OBG.

KNOWLEDGE TRANSFER: The growing involvement of foreign companies in the construction sector has been encouraged by the authorities, which are looking at international partners to not only play a part in the execution of the most challenging projects, but also to encourage the transfer of technical know-how to local construction firms.

Additional training efforts will also be an important component of expanding the capabilities of local operators, according to Brahim Abdelatif, managing director of Knauf’s Algerian operations. “Investing in training centres is crucial and will allow the transfer of know-how and innovative construction techniques,” Abdelatif told OBG. Mohamed Remini, general manager of Entreprise de Viabilisation de Sidi Moussa, echoed this sentiment, telling OBG, “A skilled workforce is a crucial condition for local firms that hope to take advantage of the promising potential in public works projects.”

CHALLENGING ENVIRONMENT: Nevertheless, Algeria can be a challenging environment for foreign companies to operate in. Despite the large number of ongoing projects spanning a host of sectors, regulations and bureaucracy can be cumbersome. Paradoxically, alongside the authorities’ willingness to invite international firms to participate in the infrastructure upgrades, a sometimes slow-moving state bureaucracy can make it hard to get approvals and permits for workers and material.

This is especially relevant for companies aiming to win several contracts in the country. The permits and authorisations needed to bring in human resources and equipment are generally only valid for a specific project, meaning companies cannot simply transfer resources between different undertakings. Only after changing the necessary documents can resources approved for a specific project be used on another one.

More competition is also set to come from domestic companies, which following 2011 regulatory reform now receive preferential treatment, even when their bidding price is up to 25% higher than the most competitive foreign offer.

OUTLOOK: The Algerian construction sector is going through a phase of tremendous activity. The large number of ongoing projects, combined with the public sector’s ability to fund such works, makes it one of the most active markets in the Mediterranean basin. The building of new housing units, transport infrastructure, and energy and industrial facilities should continue to provide work for international and domestic companies alike. Partnerships between local and foreign firms will help boost the country’s human resources capacity. The ambitious development plans are set to continue to feed the sector, but occasional shortages of construction materials will cause delays and increase costs until domestic production can be raised over the coming years.

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The Report: Algeria 2013

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