Investment Opportunities in Algeria
Investment opportunities in Algeria
Overview of the national economy
The hydrocarbons sector is the backbone of the Algerian economy, accounting for roughly 60% of its budget revenues and over 95% of export earnings. With its seventh-largest natural gas reserve rank in the world and the Arab second-largest gas exporter one, Algeria has fairly consolidated its GDP, which passed from $83,9 billion in 2004 to $135 billion in 2007. Per capita skyrocketed in 2007 reaching $3968, non-oil GDP growth hovered 6%.
After the implementation of a rigorous macroeconomic stabilization program and the rescheduling of its Paris Club debt in the1990s, Algeria has lunched a complementary macroeconomic program which contributed in reducing inflation from averages of 30% in the mid-90s to 4,6% in 2007 and the budget deficit as well. The economy has grown to 4.5% in 2007 and the foreign debt fall to $4.8 billion after the 2006 arrangements with Algeria’s creditors of Paris Club for paying by anticipation of nearly $13 billion debt.
Algeria has invested heavily to improve the business environment with the efforts aiming to consolidating the result of the 2001-2004 public spending plan through the $55 bn Complementary Growth Support Plan lunched by President Abdelaziz Bouteflika for developing spending between 2005 and 2009, a plan aimed at improving living conditions, upgrading the country’s infrastructure, improving the business environment and rebalancing the regional development. The major projects to be carried in the same period are the construction of 1 million housing units, a 1260km east-west highway and the capital underground metro, plus the capital new airport got into service since last July 2006. Almost a similar Development Program for the South and the Hauts Plateaux region was launched.
The Algerian economy is not sufficiently diversified and Algeria is still dependent on the crude oil sector consolidated by the hydrocarbons low of April 2005, modified in July 2006. However, it can take advantage of its geographical position in the center of the Maghreb and North Africa, the potential of its population, its skilled and competitive labor force, a dense industrial fabric (steel industry, petrochemicals, electronics..) and a new policy favorable to business.
The Government pledges to continue its efforts to diversify the economy by attracting foreign investment outside the energy sector and the legislation for this aim provides all the measures to encourage investment without distinction between domestic and foreign capitals.
Since January 2002, a new customs tariff has been in force. It comprises four customs rates: 0, 5, 15 and 30%, depending on the degree to which the imported products have been transformed. The rate of 5% is applicable for raw materials and generally for capital equipment, the average rate (15%) for semi-finished and intermediate products, and the highest rate (30%) for final end-user consumer goods. These rate levels mean that Algeria is more open country in the Mediterranean basin even before the phasing out of tariffs planned by the free trade area comes into force. However, an additional temporary duty (DAP) is applied to certain goods so as to protect locally produced products. From 60% at the start (2001), it is a digressive duty (12% /annum) in time until its entire disappearance.
Algeria is undertaking a public finance reform that started with the currency and credit Law in the beginning of the 90s. The suspension of the State bank "Credit Popular d’Algérie" privatization process to assess the international financial crises implications will resume as earlier as possible.
Many other reforms are currently underway as Algeria is gearing up to reap the fruit of the Association Agreement with the European Union (came into effect since September, 1st,2005) and the coming country’s accession to the World Trade Organization (WTO).
The Algerian Agriculture Sector
The Algerian agriculture sector has always had tremendous potential. Once major exporter of agriculture goods to Europe, Algeria became one of the largest food importers because of two main causes: the country's post-independence centralized economy, which favored industrialization, and the mass migration from rural areas to the urban zones. A poor relation of the Algerian economy for many decades, agriculture is currently undergoing far-reaching changes and achieving spectacular results. Three years after the implementation of the 2000 National Agricultural Development Program (Plan National de Développement Agricole, PNDA), Algeria became an exporting country. This new developing program allowed the sector to regain its role in the country's long-term socio-economic growth. Algeria is transforming from a net food importer into an exporter.
In fact, to increase the level of agriculture exports, the Government initiated reforms focusing on promotion of goods having comparative advantages, such as dates, wine and olives, as well as giving attention to agro-industry, transformation and packaging and commercialization of foodstuffs.
A true indicator of the state of the agricultural sector, the agriculture became the second-largest GDP contributor (12%), with around 25% of the labor population of the country and in term of growth, the sector has increased by 4.9% in 2006 and 5.9% in 2007. With around 1000.000 jobs created, including 620,000 permanent ones, agriculture is now one of the highest job generating sectors.
However, Algeria remains a top importer of agriculture goods, basically cereals and dairy products followed by vegetable oil and sugar (almost $4.8 billion or 17% of its total imports). A figure which explains the major measures taken by the Government to reduce cereals imports (4.6 million of tones of wheat and 2.27 million of corn) basically the extension of the area used for cereal production and the new irrigation policy. Up to now, there are around 800 000 ha of irrigated land in Algeria
Olive production is currently expanding. Olive groves are being expended and the production and processing of olive and olive oil is being modernized. There are currently 300 000 ha of olive groves in Algeria and, in 2007, the sector produced about 40.000 tones of olive oil and 100.000 tones of table olives.
Cultivated in 9 Saharan Wilayas, of which the most productive are Biskra, Adrar, El Oued, Ouargla and Ghardaia, Dates are the single largest agriculture export item in Algeria which is the world seventh largest date-exporting country ($20 million in 2007). The production was around 550.000 tons in 2006 and the surface covered by date palm trees has significantly increased under the PNDA, rising from 12million trees and 100.000 ha in 2000 to 17 millions trees and 154.800 ha by 2006.
Estimated at 700.000 tons, tomato production far exceeds the requirements of local markets and is now hampered by limited processing and conditioning capabilities. Many market fruit and vegetable productions exceeding national consumption levels are now facing the same obstacles. With an inventory of 30 million animals, red meat production is nearly meeting the domestic demand while white meat production actually does meet the demand.
Although previously significant increase in the milk production under the PNDA, this sector production is now meeting 40% of local needs based on a per capita annual consumption of 110 liters, far exceeding WHO standards, for a total production of 1.6 billion of liters. The annual average need in Algeria is about 3.3 billion liters and about $600 million are spending annually by the State to bridge the deficit estimated at 900 millions liters.
Fishing is also doing very well with a record production of 149,000 tons as well as potatoes (21.765 millions quintals in 2006) and oranges (620.000).
Consequently, Algeria is entering the new millennium knowing that its dynamic agricultural sector will be better equipped to feed its inhabitants, both quantity and quality wise. There are however new challenges: the issue is not to deal with the shortage, as before, but to reorganize production by investing in conditioning and refrigeration as well as updating commercial networks and the export industry.
* Agriculture: the mythical, prosperous past
Whether collective or individual, private or public, the overall relationship with the land has always determined social evolution, and still does. As Marc Coté states in one of his works on the Algerian environment, the 1830-1962 colonial era generated considerable upheaval amongst the land and its people.
Military conquest may have lasted for only forty years but territorial colonization lasted for a century, until 1930. It had a tremendous impact on the Algerian agricultural space which underwent drastic changes.
Towards the end of the 19th century several laws were enacted to expropriate the land of Algerian peasants. Of the 7.5 million hectares of arable land, 3.5 million were taken away from their rightful owners and given to French settlers, almost free of charge.
These lands were the most fertile and, therefore, they were the most desirable plots. They played a major role in assuring the self-sufficiency of the population, and at times their true food prosperity, as confirmed by many reports issued by the French military during the first decades of colonization.
Initially self-sufficient and at times producing surpluses, Algerian agriculture would undergo a transformation to meet external needs which continues to produce repercussions today.
The introduction of so-called commercial products such as soft wheat, grapes and citrus fruits occurred at the expense of forests, traditional crops and animal breeding because pasturage was greatly reduced.
After a devastating drought that decimated the population by an estimated one-fifth according to various French sources, and a coincident reduction of the amount of cereals available for the population, Algeria was forced to start importing cereals in the 1930's after having exported them for centuries.
Besides the negative impact of an anarchic occupation and excessive exploitation of sensitive soils, the secular social equilibrium was brutally and permanently upset.
Stripped of their possessions, with their numbers depleted by the colonization, Algerian laborers had no choice but to leave the mountains where they had been forced into isolation and to offer their services to major colonial estates at planting and harvest times.
Even though nine-tenths of the Algerian population was receiving an inadequate dietary ration, as confirmed by many documents from the 1950's and 1960's, wine exports of up to 17 million hectoliters and citrus fruits ex-ports helped preserve the myth of a prosperous agriculture and gave the illusion of self-sufficiency, a misperception that continues till this day about that period.
Algerian agriculture was definitely prosperous on the vast colonial estates which benefited from the latest technology, were over-equipped, and which had no equivalent in a metropolitan society.
Given their exogenous nature in terms of production, market and financial means, French government subsidies were rolling in and, with the exploitation of a quasi-free labor force which was denied minimal rights, the agricultural sector could not remain unchanged after the drastic changes brought about by Independence.
The "self-management" imposed on these sectors by decree in March 1963, which would later become the ideological basis for Algeria's unique form of socialism, simply accelerated the collapse foreshadowed by existing general trends in a country undergoing extensive restructuring.
Agriculture is now the new engine of economic growth. Contributing roughly 12% of the GDP. Its turnover represents between 8 and 12 billion US$ in current terms, and it employs 25% of the labor force.
Agriculture: the new engine of economic growth
Algeria's agriculture surface area currently stretches over 8.5 million ha and is expected to reach 9 millions ha by 2010. Two funds have been created to promote and modernize the sector: the national Agriculture Investment Development Fund (to support the agriculture investment) and the National Fund for the Regulation of Agriculture Production (to support the agriculture production).
To increase the level of agriculture exports, reforms have focused on promoting those goods that have comparative advantages. However, the country still relies on imports to meet domestic demand for basic foods products such as cereals, meat, milk and sugar.
With an annual growth rate of 6% over the last decade, recent Algerian agricultural performance is often underrated. Since it did not rely heavily on artificial inputs, the natural orientation of Algerian agriculture could benefit from the increased European demand for organic products.
Given total maximum imports of $3.2 billion, each Algerian is only consuming $100 worth of imported products. Based on CNES data each household allots 50% of its revenues to food related expenses, or approximately $500 annually per capita. This is hardly the total dependency on imported food often cited in the press, both in Algeria and abroad.
New challenges must be met to maintain the remarkable progression of the agricultural sector following the implementation of the 2001 National Agricultural Development Plan. The objective is to fast-track investments in order to increase stocking, canning and processing capabilities and to energetically develop foreign markets, especially, as the Government funding is provided to the farmers through the "Banque de l'Agriculture et du Developpement Rural (BADR)". Options to reschedule debts and access enhanced credit facilities are also incentive.
The objective of the Government is to increase the amount of arable farmland by more than 1000,000 hectares, to create 2.000.000 new jobs and to achieve a growth rate averaging between 8% and 10% starting in 2010 and continuing thereafter.
The adaptation of production systems to climatic and physical conditions of the various regions, in order to increase production and diversification and to ensure food security at the national level, is among the objectives of the NADP.
In light of such attainable results Algeria will gradually recover its national agricultural potential. Furthermore, implementation of the National Agricultural Development Plan (NADP) is carried out through a concrete set of programs that affect the various components of the agriculture sector:
a reforestation program emphasizing the development of useable and economical forests while confining the encroachment of the desert;
a Land Management Program based on a concession system to increase arable farmland;
a Steppe Protection Program emphasizing the protection of grassland ecosystems and the development of grazing areas;
a Livestock breeding and agricultural product development programs.
Mining industry of Algeria
Hydrocarbons are the leading sector in Algeria’s mineral industry, which includes diverse but modest production of metals and industrial minerals. In 2006, helium production in Algeria accounted for about 13% of total world output. Hydrocarbons produced in Algeria accounted for about 2.9% of total world natural gas output and about 2.2% of total world crude oil output in 2006. Algeria held about 21% of total world identified resources of helium, 2.5% of total world natural gas reserves, and about 1% of total world crude oil reserves.
Revenue attributed to natural gas and petroleum production, processing, and sales activity accounted for 78% of Government income. Hydrocarbon activity accounted for more than 33% of the nation’s gross domestic product (GDP). The continued increase of international crude oil and natural gas prices resulted in a significant increase in the value of Algerian exports, most of which were shipped through the country’s eight main seaports or exported by pipeline. In 2006, Algerian exports of goods and services were valued at $57.3 billion, of which hydrocarbons accounted for about $53.6 billion, compared with 2005, when exports of goods and services were valued at $48.8 billion, of which hydrocarbons accounted for about $45.6 billion. Other mineral commodity exports included base metals (about $206 million), iron and steel ($197 million), industrial minerals (about $52 million), and precious minerals (about $4 million).
About 28,000 people were employed in the mining sector, of which slightly less than one-half was in the private sector. Aggregate and stone production companies accounted for more than 60% of the mining sector workforce; clay production companies, 12%; phosphate production companies, 6%; and iron ore production companies, 5%.
Several significant changes in production were posted in 2006. Mineral commodities with notable production increases included aggregate and crushed stone, barite, cement, dolomite, feldspar, iron ore, phosphate rock, salt, construction sand, and steel. Mineral commodities with notable production decreases included ammonia, gold, gypsum, helium, pozzolan, quartzite, silica sand, silver, and zinc.
Structure of the mineral industry
About 950 nonfuel mineral operations were active in Algeria in 2006, of which nearly 70% were aggregates, construction sand, or crushed stone operations. Private-sector companies dominated the aggregate, common clay, gypsum, and sand sectors. Large- and medium-sized public-sector enterprises dominated the ranks of barite, bentonite, cement, natural gas, petroleum, and phosphate rock producers. The joint ventures of private and state-owned companies dominated the gold production sector, the helium production sector (Helios s.p.a.), and the steel production sector (Mittal Steel Annaba s.p.a.).
In late 2006, the government offered to sell its majority interests in Société des Mines de Baryte d’Algérie s.p.a., Société des Diatomites d’Algérie s.p.a., and Société des Feldspaths d’Algérie s.p.a. [all of which were subsidiaries of state-owned Entreprise Nationale des Produits Miniers Non Ferreux & des Substances Utiles, s.p.a. (ENOF)]. In 2006, ENOF closed the Chabet El Hamra zinc mine, and Société des Kaolins d’Algérie s.p.a. (which was an ENOF subsidiary) closed the Djebel Debbagh kaolin pit.
In 2006, about 300 exploration permits were in effect. Notable exploration and development and redevelopment contracts under negotiation included those with subsidiaries of the Mineral Resources Management Bureau of Henan Province, China for the Boukais copper prospect, the Boukhedma-Aïn Sedjra-Kef Semmah lead zinc prospects, the El Abed zinc prospect, the Guettara manganese prospect, and the Issefane gold prospect. Western Mediterranean Zinc s.p.a., which was a joint venture of Terramin Australia Ltd. (65% interest) and ENOF (35% interest), acquired the rights to explore the Oued Amizour zinc project.
ENOR produced 38,914 metric tons (t) of ore with an average grade of 9.57 grams per metric ton gold from the Tirek Mine in 2006, which was significantly less than the 65,718 t of ore that the company mined in 2005. The decline was attributed to the delayed delivery of equipment. Development of the Amesmessa Mine continued; production was expected to begin in 2007.
Lead, Silver, and Zinc
Assays of samples from a 5-hole drilling program at the Tan Chaffao deposit by Tan Chaffao Mining Co. S.A.R.L., which was a joint venture of Maghreb Minerals PLC of the United Kingdom (85% interest) and Gold and Industrial Minerals [GOLDIM] [which was a subsidiary of the Government-owned Office National de la Recherche Géologique et Minière (15%)] indicated less than expected mineralization. At yearend, the joint venture was reevaluating whether to continue exploration of the isolated Tan Chaffao deposit, which is located about 250 kilometers (km) northwest of Tamanrasset.
In late 2006, Western Mediterranean Zinc began a drilling program on the Tala Hamza deposit of the Oued Amizour zinc project. Tala Hamza was located about 12 km southwest of the Port of Bejaia.
Helium and Liquefied Natural Gas
In 2006, the testing of the Helison Production s.p.a. plant located at the GL1K liquefied natural gas (LNG) facility in Skikda resulted in the plant’s initial liquid helium production. Designed with a nominal production capacity of 16 million cubic meters per year of liquid helium, the plant capacity would be restricted to 8 million cubic meters per year because of an explosion and fire that destroyed three LNG trains at Skikda in 2004. The construction of a 4.5-million-metric-ton-per-year-capacity LNG train at the GL1K facility (to replace the destroyed LNG trains) was expected to begin in 2007.
Petroleum and Natural Gas
Giant petroleum fields include the Hassi R'Mel gas field and the Hassi Messaoud oil field. High international crude oil and natural gas prices encouraged stepped-up exploration and development drilling in Algeria. The number of exploration wells drilled in 2006 increased to 77 compared with 64 in 2005 and 36 in 2001. The number of development wells drilled in 2006 increased to 208 compared with 161 in 2005 and 175 in 2001.
Existing and expected local and European high demand for oil and gas has resulted in the construction and planning of a number of pipelines in Algeria: