The Report: Algeria 2015

Algeria is a country rich in history and situated in a strategically important region. While its past has at times been turbulent, the last decade has been one of relative peace. Economic growth and development has followed, driven primarily by advances in the hydrocarbons sector.

Country Profile

Occupying a strategic position in North Africa, with its major population centres abutting the Mediterranean and its hinterland stretching deep into the desert, Algeria is home to 39.5m people, making it the 34th-most-populous country in the world. The population is predominantly Arab-Berber, with less than 1% identifying as European. Approximately 15% of Algerians self-identify as Berber. The country profits from a rich and varied natural resource base, extracting oil, gas, phosphates, uranium, iron ore, zinc and lead. It is the 19th largest producer of crude oil globally, with an average production rate of 1.42m barrels per day in 2014. Algeria’s foreign policy has long been characterised by an independent streak, which has allowed the country to broaden its diplomatic ties to strengthen and deepen trade ties. This chapter contains a viewpoint from President Abdelaziz Bouteflika; and interviews with Tobias Ellwood MP, UK Parliamentary Under Secretary of State for Middle East and North Africa; and Ségolène Royal, French Minister of Ecology, Sustainable Development and Energy.

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With industrial production increasing, construction projects breaking ground and transport activity rising, Algeria’s economy has benefitted from stable growth in a diverse array of sectors. However, oil and gas remain its lifeblood. The economy grew by 3.8% in real terms in 2014, according to figures from the National Office of Statistics, up from 2.8% in 2013. The IMF forecasts the figure to fall to 3% in 2015, before recovering to 3.8% in 2016. The government’s 2016 budget is based on non-hydrocarbons GDP growth of 4.6%. Algeria’s near-term economic prospects will depend heavily on oil price movements, and current price levels are putting the country’s trade and fiscal balances under substantial pressure, which will only increase should prices remain steady or fall further. However, the current environment is also pushing the country to attract more investment and step up long-standing plans for diversification, which could help to put Algeria on a more sustainable economic footing in the long term. This chapter contains interviews with Abderrahmane Benkhelfa, Minister of Finance; Ali Haddad, President, Algerian Business Leaders Forum; Kaddour Bentahar, General Manager, Algerian Customs Agency; Michael Lally, US Deputy Assistant Secretary of Commerce for Europe, the Middle East and Africa; and Mohamed Chami, Director-General, Algerian Chamber of Commerce and Industry.

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Hydrocarbons wealth has underwritten Algeria’s growth for decades, allowing the country to accumulate huge foreign currency reserves and underwrite a major public spending campaign over the past 10 years. However, the dramatic drop in oil prices since mid-2014 has had an impact. Despite GDP growth of 4% in 2014, Algeria also experienced its first current account deficit since the late 1990s, equivalent to 18% of its GDP. In response to this situation the government has made aggressive plans to boost oil and natural gas production, including increasing onshore exploration, starting production on unconventional deposits and reforming the regulatory framework to improve investment attractiveness. A significant acceleration of its renewables targets is also under way to help meet rising domestic demand. This chapter contains a viewpoint from Salah Khebri, Minister of Energy; and interviews with Francesco Starace, CEO, ENEL; and Touffik Fredj, President and CEO for North-west Africa, General Electric.

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Banking & Financial Services

Algeria’s banking sector is characterised by low intermediation and penetration rates, although both have increased dramatically in recent years thanks primarily to ample liquidity stemming from abundant hydrocarbons revenues. In light of the rapid decline in hydrocarbons receipts in late 2014, the authorities have accelerated implementation of planned reforms and announced new measures to empower the sector to finance broad-based economic development. In 2015 important steps were taken to integrate the very large informal economy into the formal financial system. Today Algeria’s banks are seeking new revenue streams as they adapt to the demands of an evolving macroeconomic climate. Algeria’s capital markets offer considerable potential in light of the size of the country’s economy, but have historically been fairly shallow. Few corporate stocks and bonds have traded on the market since it opened in 1998, and the last initial public offering (IPO) was in 2013. Trading has been comparatively light in recent years as investors await the listing of several state-owned companies to increase capitalisation and breathe life back in the markets. The insurance sector has grown more than five-fold since the 1990s, but it still remains small relative to the size of the economy. The market is characterised by low penetration and density of coverage, and is dominated by non-life coverage, representing some 93% of premiums, with automotive lines alone accounting for half the sector’s revenues. Better efforts to raise public awareness, coupled with expanding networks of sales channels, can help the industry navigate the expected risks and challenges precipitated by the drop in oil prices and state spending. This chapter contains interviews with Mohammed Laksaci, Governor, Bank of Algeria; Boualem Djebbar, President, Professional Association of Banks and Financial Institutions, and President, Economic Interest Group; Mohamed Krim, Banque de Developpement Local; and Brahim Djamel Kassali, President, Algerian Union of Insurance and Reinsurance Companies; as well as a viewpoint from Adel Si-Bouekaz, Managing Director, Nomad Capital.

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Industry & Mining

Given the Algerian economy’s reliance on the oil and gas sector, manufacturing industries have historically taken a secondary role in the country’s economic development policies. However, since the early 2000s, industry has received renewed interest from authorities, who have been looking to counteract rising demand for imports and revamp new industrial chains as a means to support massive public investment programmes geared towards infrastructure and housing. Following on from the reorganisation of the industrial public sector in February 2015, decisive steps are now being taken to reduce reliance on imports in a number of manufacturing segments, including automotive, fertilisers, petrochemicals and smartphones. Recent years have also seen key steps towards realising Algeria’s mining potential by enacting a new mining law and developing large-scale projects in the areas of phosphates, iron ore, base metals and gold. This chapter contains interviews with Abdesselam Bouchouareb, Minister of Industry and Mining; Sami Mainich, General Manager, Dow Chemical Maghreb; and Guillaume Josselin, Managing Director, Renault Algeria.

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Construction & Real Estate

Algeria’s construction sector remains buoyant despite the impact of the significant drop in global oil prices, with the government continuing its support for the main social programmes and infrastructure projects as a means of diversifying the economy. A new five-year investment plan for the period 2015-19 worth €233.7bn was approved by the government in late 2014 to build upon the achievements of the first plan of this sort for the 2005-09 period, which was worth €178.4bn, and the 2010-14 plan worth €255.1bn. The real estate market has in recent years seen a proliferation of private property developers seeking to tap into growing demand among the upper and middle classes for mid-to-high-end residential property, shopping malls, quality hotels and tourist resorts. However, demand remains highest for low-income units, which the public sector is looking to address. Supply is constrained as a result of the scarcity of land available for new development, dampening interest among private developers and resulting in the government building much of its new social housing stock in greenfield areas. This chapter contains interviews with Abdelmadjid Tebboune, Minister of Housing and Urban Development; and Samer Khoury, President of Engineering and Construction, Consolidated Contractors Company.

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New capital projects, from upgraded port facilities to multi-lane motorways and underground metros, have been a hallmark of Algeria’s transport sector in recent years. While bottlenecks persist – including an over-reliance on road transport and limited rail connectivity – generous public spending on transport infrastructure, largely funded by oil and gas revenues, has ensured continuous development in the sector since the early 2000s. Private investment has taken a leading role in the transport and communications sectors, accounting for 83.5% of total spending in 2014 and contributing €14.2bn to GDP, up from €8.6bn in 2010 and €7.6bn in 2008. While the sharp decline in hydrocarbons revenues since 2014 is leading the government to re-evaluate spending priorities, it appears to remain committed to maintaining capital investment in transport. The government’s latest five-year plan, which accounts for the 2015-19 period, allocates AD832.7bn (€7.7bn) to the transport sector, ensuring significant continued development of transportation networks in the coming years. This chapter contains interviews with Boudjema Talai, Minister of Transport; and Yacine Bendjaballah, CEO, National Company for Rail Transport.

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Telecoms & IT

With a population of 39.5m, concentrated along a narrow strip of coastline, along with comparatively high rates of consumption and a push for investment in fibre backbone infrastructure, Algeria offers significant potential for telecoms operators. Since the launch of 3G mobile internet services in 2013, operators have continued to roll out 3G networks across the country, with one aiming to cover all provinces by the end of 2016. The sector is now preparing for the launch of 4G long-term evolution mobile networks, on which telecoms firms and the authorities have begun to complete some preliminary work – though the government is keen to ensure that operators are capable of making the necessary investments before doing so – as well as legislative reforms, which among other measures could open up the monopolistic fixed-line segment. The IT sector appears to be on the cusp of a new stage of growth. The launch of 3G at the end of 2013 has led to rapid growth in internet access, and the planned launch of 4G and the rollout of fibre should further boost uptake. A new submarine cable due to enter into operation in 2016 will boost national bandwidth – already one of the highest in the region – and a planned ICT law may lead to increased competition, bringing down prices in the fixed segment, while fixed 4G long-term evolution services are being made available in areas where DSL access is difficult. This chapter contains an interview with Azouaou Mehmel, CEO, Algérie Télécom.

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A drive to improve food security, coupled with weakened oil prices worldwide, has prompted Algeria to accelerate its planned agricultural reforms over the next five years. To that end, in 2014 the government announced plans to spend AD300bn (€2.8bn) each year on agriculture as part of the Public Investment Programme 2015- 19. However, some key challenges must be addressed. In this respect, government-led efforts to increase the area of irrigated land, encourage the use of fertiliser and promote uptake of new farming techniques constitute a big step forward. In the coming years, water usage is expected to play a central role in sector development plans, given the challenges posed by Algeria’s hot, dry climate and the government’s declared intention to intensify local production levels as a means to reduce the country’s reliance on food imports. This chapter contains interviews with Sid Ahmed Ferroukhi, Minister of Agriculture, Rural Development and Fisheries; and Kaci Ibrahim, General Manager, Ifri.

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In the face of declining revenues on the back of low oil prices, Algeria has renewed its focus on economic diversification, with tourism – among other sectors – being viewed as a key source of potential alternative revenues, as well as a vehicle for job creation and rural development. To that end, government priorities include accelerating hotel construction, improving personnel training, raising service quality and facilitating investment promotion. Global tourism indicators bode well for the future development of the industry, and with the volume of planned public spending on bed capacity, private partnerships and training, Algeria should be well placed to capitalise on these projections. The future development of Algerian tourism will depend on its ability to tap into such opportunities and focus on new trends such as rising purchasing power and the shifting demographics of travellers. Identifying such trends and distinguishing between the different categories of potential visitors will be crucial in determining the type of developments and offerings that are required to cater to each category. This chapter contains and an interview with Amar Ghoul, Minister of Tourism.

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Health & Education

Over the past five decades Algeria has made significant progress in the provision of health care to its citizens and tackling communicable diseases. Although basic health indicators have improved and living standards have risen, the country has witnessed an increase in chronic diseases, a common occurrence in a number of emerging markets, and these now represent the main burden on the health care system. While many countries in the region struggle to finance health infrastructure and services, Algeria – on the back of years of high oil revenues – has been able to divert significant funds into the expansion of clinics, hospitals and preventative care in a bid to improve overall health indicators. Algeria continues to pursue its ambitions to upgrade the overall quality of education nationwide. Although results are slow to come by, the sector has made some headway over the years with school enrolment rates at the primary and secondary levels exceeding 97% and illiteracy rates dropping to 14% in 2014, down from 22% in 2008. This comes on the back of sustained efforts on behalf of the government to boost schooling capacities through enhanced infrastructure, teacher training, aligning offerings with the needs of the job market, as well as reaching out and raising awareness on the importance of education in disadvantaged areas. This chapter contains interviews with Abdelmalek Boudiaf, Minister of Health; Habib Bennaceur, ‎North West Africa President, AstraZeneca; and Mohamed Mebarki, Minister of Training and Professional Education.

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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 Algeria’s voluntary tax compliance programme.

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Legal Framework

OBG introduces the reader to the different aspects of the legal system in Algeria, in partnership with Gide Loyrette Nouel. This chapter contains a viewpoint from Samy Laghouati, Partner, Gide Loyrette Nouel.

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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.

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