Sectors of opportunities
Introduction
The opening of the Algerian economy has grown significantly in recent years and has turned into a market-oriented economy. Seeking to diversify and modernise the economy, the Algerian government has embarked on an aggressive liberalisation programme to attract foreign direct investment.
After years of economic stagnation, Algeria is today confronted with the challenge to strengthen and diversify its economy. This challenge is analysed in development plans and priority initiatives programmed. Algerian authorities are using various tools to encourage and facilitate investments in strategic sectors. Various supporting funds are also available.
To improve the external competitiveness of enterprises and prepare them for a widespread privatisation programme, several upgrading programmes for public and private enterprises have been launched, including the Programme for Industrial Competitiveness managed by the Ministry of Industry with assistance from the United Nations Development Programme (UNDP), the United Nations Industrial Development Organization (UNIDO) and the Euro-Development Programme for Small and Medium-sized Enterprises (Programme Européen de Développement des PME – EDPME), with support from the European Commission. In addition to these co-operative programmes, a new programme for upgrading small and medium-sized enterprises was announced in June 2005 and entrusted to the national agency for the development of small and medium-sized companies (Agence Nationale de Développement des PME), set up for this purpose. All this public support will hopefully enable small businesses to stand up to the increased competition resulting from the association agreement with the European Union and application of WTO multilateral rules.
Partnership between Algerian and foreign companies is advancing by leaps and bounds. The Ministry of Industry lists projects proposed for partnership and ensures wide diffusion. The process for total or partial privatisation of public companies as well as projects related to the conversion of foreign debt to investment has been launched anew and this development creates very attractive options for foreign operators. Negotiations for WTO accession have reached an advanced stage. Efforts continue to modernise the legal framework in line with WTO rules, with revision of trade law and promulgation of new legislation on international trade, free trade areas, protection of intellectual property rights and competition.
According to a recent market study, the Algeria’s needs for national and foreign direct investment (FDI) are estimated at DZ 570 billion (1 Euro = 100 DZ) by 2010. If the investment climate improves, Algeria could attract between EUR 3.6 and 4.3 billion of FDI a year.
At the beginning of 2006, the Minister of Holdings and Investment Promotion announced that the privatisation process would be accelerated to reach at least 500 companies (out of 1055 targeted) by the end of the year. The list of these companies is available online at: http://www.mppi.dz/Annuaire/index.asp
Sectors of investment in Algeria
The investment code was revised by ordinance n°01-03 of 20 August 2001 on investment promotion. It governs domestic and foreign investment in the economy to produce goods and services and provides a framework for concessions and licensing regulations. The ordinance recognises the principle of freedom to invest in any and all activities, including those covered by specific regulations (hydrocarbons, financial institutions or insurance companies) and there are no restrictions on the percentage of capital that can be held by a foreign investor (except in hydrocarbons, where foreign companies can own no more than 71 percent of capital).
In addition, all State-owned companies are now open to privatisation. Legislation provides an appropriate legislative framework that harmonises rules and reaffirms requirements for transparency and regularity in privatisation transactions under the supervision of the Council of State Holdings (CPE).
It also provides incentives for investors and introduces new measures to promote investment, such as creation of the National Investment Council (CNI) chaired by the Head of State, created to strengthen the legal and regulatory framework for investment. The CNI is in charge of defining investment strategy and priorities, approving special investment incentives by sector, and giving final authorisation for special investment schemes. The National Investment Development Agency (ANDI) is in charge of assisting investors, facilitating administrative procedures, and granting tax exemptions or rebates and other incentives. It provides for a one-stop shop in each region or province (wilaya) to simplify procedures and formalities for setting up new companies and implementing projects. A central structure in charge of foreign investment was created within the Agency’s Directorate General. An Investment Support Fund is also managed by this agency.
Any initial founding, extension, rehabilitation or reorganisation carried out by a legally constituted economic entity engaged in the production of goods and services other than trade is eligible for the incentives available under the Investment Code whether it is a resident or non-resident company.
A comprehensive tariff reform has been in effect since 2001, reducing the average tariff rate from 26 percent to 19 percent. 2001–05 temporary additional duty on certain imports is being phased out as planned. Important steps have also been taken to liberalise the hydrocarbons and telecommunications sectors.
Under the investment code, the generic incentive regime includes exemption from VAT for goods and services directly related to the investment as well as exemption from transfer taxes on real estate related to the investment. A second category of incentives offered on a case-by-case basis includes: exemption from corporate income taxes, exemption from VAT for goods and services directly related to the investment, and exemption from transfer taxes for real estate related to the investment. In addition to the above-mentioned incentives, special incentives are also available for investment in special development zones and investments that use environmental or energy saving technologies. Additional incentives are available to companies whose production and investments are export-oriented.
There are five free trade zones in Algeria where investments are exempt from all customs, taxes and other fees. The law also grants essential guarantees for investments, such as:
Respecting international standards relating to foreign investments: national treatment and most favoured nation clauses.
Transfer policy: according to the 2001 investment code and the 2003 law on currency and credit, foreign investors are authorised to repatriate profits, even if revenues exceed the original amount invested, provided that the initial investment was made in convertible currency. Foreign investors are also free to repatriate dividends, profits, and real net income resulting from transfer of assets or liquidation.
Nationalisation and expropriation: The Constitution of 8 December 1996 provides legally-binding guarantees against expropriation and confers the right to equitable compensation. The Constitution also guarantees private property and freedom of trade and industry.
Dispute settlement: Algeria has signed the convention of the International Centre for the Settlement of Investment Disputes (ICSID), ratified its accession to the New York Convention on arbitration, and is a member of the Multilateral Investment Guarantee Agency. The Code of Civil Procedures allows both private and public sector companies full recourse to international arbitration at ICSID or ad hoc arbitration at the U.N. Commission on International Trade Law (UNCITRAL) model for dispute settlement between the Algerian State and private companies. Algeria has also signed several bilateral investment agreements for the protection and promotion of investments with 27 countries as well as 12 bilateral treaties to prevent double taxation.
Investors wishing to enter the Algerian market can either open a branch office or set up a company by creating a legal entity under Algerian trade law, a joint venture with an Algerian resident (private individual or corporate entity) by creating a mixed investment Company (SEM), or securing shares in the capital of an already existing company. A law (passed in 2005) requires that all companies working in foreign trade increase capital stock equity to a minimum of DZ20 million (about $275,000) by 26 December 2005.
Recently in 2009, a law has been enacted over the foreign investment saying that the foreign companies must share by 30% their capital with an Algerian company. This regulation is no longer retroactive which means that starting from January 1st, 2010 the foreign companies must be in compliance with the new law (70% foreign company – 30% local company).
Possible legal forms for a new company are: joint stock company (SPA), limited liability company (SARL), individual limited company (EURL), joint venture (SNC), sleeping partnership (SCS), holding company (SP), partnership limited by shares (SCA).
Customs tariff dismantling came into effect on 1 January 2002, based on eight-digit international HS nomenclature and comprising four customs duty rates: 0 percent, 5 percent, 15 percent and 30 percent, according to the degree of transformation of imported materials. The 5 percent rate is applied on raw materials and capital goods, the average rate of 15 percent to semi-finished and intermediate products and the highest rate of 30 percent to consumer products. Tax exemptions are also available in some sectors and for the equipment needed for new investments. Customs fees have been removed, but provisional additional duty (DAP) of 12 percent is applied to protect goods produced locally, abolished in January1st, 2006.
The tax regime is being reformed to increase flexibility, transparency, and simplification. Foreign investors benefit from tax incentives, including five years of tax exemption for companies investing in new projects. As for tax on income, trade companies have to pay: corporate tax (IBS), value-added tax (VAT), the professional tax (TAP), property tax and water purification tax (taxe d’assainissement). For tax purposes, Algeria defines ‘foreign company’ as a permanently established business. The normal corporate tax rate is 30 percent, unless funds are reinvested, in which case a more attractive rate of 15 percent is applied. Income from loans, deposits, and guarantees is taxable at a 10 percent rate, a 20 percent rate is applied on income from management contracts, and a 30 percent rate for anonymous cash vouchers. A hydrocarbons law was passed in 2005 governing taxation for oil companies.
Finance and Banking
Financial infrastructure is the object of on-going major reforms to modernise the sector. A more stable macro-economic framework and financial balances have helped to effectively implement these reforms. The 1990 law opened the banking environment to national and foreign private capital. Thus, of the 22 banks authorised to do business at the end of 2003, over 12 are foreign. Several foreign banks, including French, Belgian and Spanish, set up representational offices prior to future establishment. In addition to the introduction of universal banks, the law introduced other financial institutions such as investment banks and leasing companies. A draft law on factoring is in preparation.
The financial sector includes 30 public and private banks and government controlled companies. The bank ratio is around 30,000 inhabitants per agency, reflecting weak density and financial intermediation. Public banks dominate the market, holding 94.4 percent of resources and accounting for 42 percent of GDP.
The State foresees the sale of certain public banks to strategic foreign investors. A number of corrective measures have been taken to restructure balance sheets at public banks and clear up their debt portfolio, proceeding with recapitalisation prior to privatisation, especially the Crédit Populaire d’Algérie (CPA) and the Banque de Développement Local (BDL). Operating licences have been withdrawn from Khalifa Bank, the Commercial and Industrial Bank of Algeria (BCIA), and two other private banks. The government has taken steps to modernise the financial sector by overhauling outdated banking management methods (stricter ratios and capital requirements, deposit guarantee premiums, tighter performance contracts for public banks), improving service and bank audit standards, modernising payment systems, and computerising banking services to improve quality and data transmission and facilitating banking supervision by the Central Bank of Algeria. However, access to loans remains limited. Under-capitalisation at private banks limits loan capacity in light of prudential standards. Although this situation is likely to continue, Algerian authorities are encouraging banks to increase their capital. Specialised private institutions are starting operations on the money market such as Arab Leasing Corporate.
Movement of capital is free for foreign exchange, as is repatriation of profits. The Algerian Dinar (DZ) is convertible for current operations and commercial activities are eligible for foreign currency accounts.
Telecommunications and internet
The Government has been carrying out a comprehensive reform in the telecommunications and postal sector since 2000 and a new legal and regulatory framework for a multi-operator telecommunications system has now been established. The Government published a telecommunications strategy in May 2000 and subsequently (in August 2000) enacted a new postal and telecommunications law creating the Regulation Authority for Postal Services and Telecommunications, the national fixed telephony operation Algeria Telecom, Algeria Telecom Mobile that has now become Mobilis, and the postal operator Algeria Post.
The Government’s strategy in this area is to gradually liberalise all telecommunications and postal service market segments. According to the World Bank, Algeria’s telecommunications market has become the most liberalised market in the MENA region, with growing competition leading to significant investment, the sale of several cellular telephone licences, VSAT, GMPCS and fixed telephone licences. This lead to the opening of capital in the state owned Algeria Telecom and its subsidiary companies in 2006.
The first private mobile telecommunications operator, Orascom Telecom Algeria (commercial name “Djezzy”) started business in 2001 and currently services 10 million subscribers, followed by Wataniya Telecom Algeria “Nedjma” (3 million subscribers) in 2007. Two VSAT licences were also awarded in 2004 to Djezzy and a consortium of Monaco’s Divona Telecom and Algeria’s Kpoint Com. A fixed telephony licence was also granted in April 2005 to Orascom Telecom Holding in partnership with Telecom Egypt.
Algeria Telecom, with turnover of DZ 130 billion (approximately $1.885 billion) in 2007, has defined new objectives targeting capacity of almost 7 million fixed lines, 3 million ADSL subscribers and 6 million mobile subscribers by 2010. It plans to invest some $2.5 billion by 2010. Over 70 percent of the two million fixed telephone subscribers are administrations, public utilities and trade and services companies, while the household connection rate remains very low at less than 30 percent. The French equipment supplier Alcatel has signed a contract for deployment of a cellular network with Orascom, representing more than 50 percent of infrastructure, the rest of equipment being provided by the German company Siemens. Ericsson holds a majority share in the infrastructure of the Mobilis GSM network. Chinese suppliers like Huewey and ZTE are very active, mainly on the telegraphic telephony market, administration PABXs, and mobile and fixed telephony. The French ISP Wanadoo (a subsidiary of France Telecom) has signed a technical assistance contract with EEPAD, the leading internet service provider. The internet, operational since 1997, is serviced by about ten Internet Service Providers (ISP) for 700,000 users.
Market opportunities: The fixed telephony licence sold to a consortium made up of Orascom Telecom Holding and Egypt Telecom in 2005 for $65 million is a good business opportunity for equipment suppliers, with planned investments of $1 billion over ten years. Several small alternative operators who have launched public phone services also constitute an opportunity for supply of equipment as well as services. All new ICT services present market opportunities over the short-medium term (call centres, VoIP, SMS Gateway, contents). The electronics industry has recorded fast growth these past few years, up from 5 to 10 percent per annum. According to the Ministry of Industry, turnover in the electrical and electronics sector came to some $33 billion in 2007. Algeria has a very favourable tax system and low energy costs, both of which are attractive incentives for investors. Although electronic industry structure continues to be dominated by public companies (60 percent of the production), private companies like BYA Electronics and Maghreb Vision are leaders on the local market. These companies play an important role in imports and in manufacturing electronic products under licence from international corporations.
Agriculture, fishing and food processing industries
The sector has considerable economic potential and agricultural imports amount to the equivalent of $3 billion per annum. During the years of centralised economy, Algeria gave high priority to heavy industry, neglecting the strategic value of agriculture. In the National Plan for Agricultural and Rural Development (PNDA), the Government has developed a new vision for agricultural and rural development, outlined in the 2004 Sustainable Rural Development Strategy. These programmes sought to reduce imports and provide food security by diversifying farm production: cereal crops, tree cultivation (especially olive trees), wine growing, market gardening and husbandry.
However, the question of foreign ownership of land is a burden likely to act as an obstacle to investment in agriculture and industry. This issue needs to be resolved soon.
Many opportunities exist in the fields of food processing, conservation technologies, and marketing initiatives as well as in transfer of expertise/capacity building and sharing of knowledge. With 1250 km of coastline on the Mediterranean, Algeria has major potential for fishing, long underestimated and unexploited. Since 2003, several protocol agreements for fishing, conservation, and supply of equipment have been signed by Algerian economic operators and foreign companies. Thus an aquaculture project to breed sea perch and sea bream has been launched, with investment of EUR 8 million, under the supervision of the National Office for Aquaculture Development with the support of the Arab Organization for Agricultural Development (AOAD). The private “Union Bank” has set up a specialised subsidiary company to develop industrial fishing.
The fisheries sector in Algeria has strong potential, but the need for upstream and downstream support is considerable. Opportunities exit for trawlers, equipment (electronic navigation), nets, and other materials required for fishing. Similarly, there is considerable need for technical support, training, and evaluation of fishery resources. There are considerable prospects for processing industries, especially canning facilities, transformation of sea products and activities related to canning, freezing, cold storage and door-to-door cold transportation, packaging, distribution, etc.
Water sector
Algeria suffers from a chronic water deficit, worsened by persistent bad weather and high population growth in large urban centres. The water resources strategy focuses on expanding storage facilities by building new dams and desalination plants and better rehabilitation/management of existing infrastructure. A water code was adopted in 2005, targeting reduction of the critical supply-demand gap, and the Government has earmarked public investment for a 10 year integrated water resource management initiative. A number of BOT and concession projects will be launched over the short and medium terms.
The time frame has been stepped up for urgent investments and alternative schemes launched for water production, such as desalination plants under BOT schemes. An ambitious programme has been initiated to attract the participation of private international operators in water distribution in the largest cities and World Bank assistance has been requested for this purpose. Many opportunities have been identified in the various market segments (infrastructure, processing, purification, distribution, studies.). Currently, the main initiatives include:
Ongoing construction of a hydraulic complex at Beni-Haroun in the region of Constantine, which counts several dams, the second largest pumping station in Africa, and several water purification units: At the end of 2001, the ALSTOM group was awarded the contract for pumping operations, worth EUR 150 million;
The contract for the Kourdate Acerdoune dam was awarded to the RAZEL company, worth about EUR 110 million;
The Bredeah wastewater demineralisation plant is being implemented by the Ondeo-Degremont company;
Rehabilitation of the water purification networks of Algiers and Oran was entrusted to SAUR for Oran and SEM for Algiers. Multilateral investors and donors also give priority to the water sector, with $4 billion in investment planned over the next fifteen years. The majority of building sites will be accompanied by studies and contracts for assistance to supervise the work. Projects planned by the Algerian government include the following:
Finalisation of the Beni-Haroun complex, expected to encompass civil engineering works (dams, tanks, reservoirs, tunnels) and hydroelectric equipment;
Construction of the water supply network serving the city of Algiers and settlements along the Tizi Ouzou-Algiers corridor that uses water resources based in Taksebt. This project, estimated at a cost of some EUR 600 million, was allotted to the French-Canadian consortium SNC Lavalin-Ondeo Degremont Services;
The MAO project for the water supply network serving Mostaganem, Arzew and Oran includes the construction of dams, water pipes, and pumping and treatment stations;
A drinking water supply project for the corridor of Chlef, Tenes, and El Guelta;
Rehabilitation of distribution networks for Annaba, Constantine and Jijel;
Construction of desalination plants to supply the Arzew oil terminal as well as the cities of Algiers, Oran and Skikda. The main projects launched to date are at Arzew and Skikda, where power stations will also be built.
Building and Construction
According to the authorities, there is a housing shortage exceeding one million units and high demographic growth means that this figure will be increasing.At least 150,000 residences will have to be built over each of the next ten years in order to keep up with requirements. Over the period 2005-09, the sector absorbed almost half of the PCSC’s budget.
To carry out these ambitious goals for new housing and real estate, the government must secure private sector involvement, from architects and promoters to engineering and building companies as well as building material and equipment suppliers.
Public works, transportation and infrastructure
A comprehensive roadmap for reforms throughout the sector is under way. The Government’s strategy is to modernise, expand transport infrastructure, and attract private foreign and local investment. Large-scale building, replacement, upgrading, and enhancement efforts are needed in Algeria, from roads and highways to railways, ports/airports, and civil engineering. The objective for commercial services is to privatise the remaining public enterprises and encourage competition in the market. For public goods or services, private sector participation will be sought under concession contracts. A substantial budget of almost EUR 2 billion has been allocated to upgrade overall transport infrastructure, which deteriorated over the ten years of terrorism. Thus, it is expected that work on the Algiers subway, launched more than 20 years ago, resumed in 2005, with line 1.
The 100,000 km network of roads remains insufficient to meet the country’s development needs. Paved roads constitute 72 percent of the national network, but a quarter of today’s road network is in bad condition, much deteriorated. The Algerian road network also counts 3350 civil engineering structures, half of which must be rehabilitated. The highway network is no more than embryonic, with only a few hundred kilometres.
The planned 1216 km long Trans-Maghreb East-West motorway launched in 1987 to link Tlemcen and Annaba to the Maghreb motorway (7000 km from Nouakchott to Tripoli), is the most important in a series of large-scale public works to be completed in the coming years. In addition, a new southern bypass around the capital is expected to break ground in 2005.
As for urban development, efforts to improve traffic flow in the capital include large-scale building sites to improve access to upland areas. The city of Algiers has been equipped with seven new underpasses, three of which were built by the French company Razel at a cost of nearly EUR50 million. Soletanche-Bachy, in partnership with the Algerian company Hydrotechnique, built an underpass in association with a 300 car underground parking lot at the Chevalley intersection. On-going work includes a beltway around Wadi Ouchaiah, the Annasser access road, the Oulmane Khelifa exchange and four underpasses at sensitive intersections of the capital (in the districts of Ruisseau, Chateauneuf, Hydra, and Bir Mourad Rais).
National airport infrastructure includes 53 fields, of which 12 are international class airports, eight national class airports, and 14 regional class airports. Currently, capacity remains largely under-utilised. Major initiatives include airport expansion, notably at the Algiers Airport (by the Chinese company CSCEC) as well as air navigation and air terminal equipment. Medium-term development prospects focus on airports renovation and upgrading, new initiatives to open up areas in the high plateaus and the south, and construction of a second runway at the Oran and Hassi Messaoud Airports. An international airport has been built in the region of Chlef.
The harbour and maritime sector counts 11 ports: 8 general-purpose and 3 specialised in hydrocarbons (Arzew, Skikda and Bethioua). Harbour capacity remains under-utilised. There are many opportunities for development, notably: maintenance work (dredging of the ports of Bejaia, Algiers, Arzew, Annaba and Tenes), modernisation of infrastructure to handle container traffic (extension and upgrading of terminals in Oran, Tenes, Arzew and Skikda) and creation of new harbour capacity in central coastal Algeria, directed primarily at container traffic. Public Private Partnerships (PPP) at port and airport facilities will be needed.
Equipment and public works material is also a very dynamic market. Despite a local supplier (National Public Works Materials Company, SNVI) and high tariff protection, imports are massive. The main supplier of equipment and materials for civil works is France followed by Germany and the US.
Hydrocarbons
The energy sector is the backbone of Algeria’s economy, accounting for roughly 60 percent of budget revenues, 30 percent of GDP, and over 98 percent of export earnings. With reserves of 16 billion cubic meters of oil equivalent discovered in 1948, Algeria is the third largest oil-producing country in Africa and twelfth in the world. Only 25 percent of initial proven oil reserves of approximately 10 billion barrels of liquid hydrocarbons are considered recoverable with available processes. Half of these recoverable crude oil reserves have already been pumped and current estimates of probable remaining reserves stand at more than 400 MCM. The Energy Information Administration reported that as of 2005 Algeria had 160 trillion cubic feet (Tcf) of proven natural gas reserves, eighth largest in the world.
Algeria is a major exporter of oil and gas. It is the world’s 14th largest oil exporter and it supplies some 20 percent of Europe’s natural gas. Oil production reached 1.9 million barrels/day in 2004 (about 2.5 percent of world production) and marketed gas production stood at 225 MCM/day (about 3 percent of world production).
The hydrocarbons sector has been open to foreign participation for almost 20 years. In 2008, foreign partners accounted for slightly less than half of Algeria’s crude oil output, 14 percent for gas. However, foreign investors are required to work in partnership with the state-owned hydrocarbon company Sonatrach. The complex contractual arrangements imposed by law increasingly have hampered financing of Algeria’s investment needs in the upstream hydrocarbon sector, estimated at $70 billion for the period 2005–2015. In March 2005 Parliament adopted a law, which promotes a more liberal operating environment by more liberal, operating environment, including:
Simplifing the contractual framework for upstream activities (exploration, production) and introduces free entry for foreign operators in transportation and downstream activities;
Replacing the existing production-sharing regime with a system of taxes and royalties;
establishing investors’ rights and obligations, including Sonatrach; and
creating a regulatory agency to tender upstream contracts, set baseline gas prices, and collect royalties and taxes; and another to issue permits for downstream activities.
This law should lead to more investment upstream, through foreign investment and by freeing Sonatrach from the obligation of owning and operating all oil and gas infrastructure, financing new pipelines, and fulfilling non-commercial roles such as regulation, tendering, and taxes and royalty management.
An ambitious development policy in the field of hydrocarbons has contributed to the creation of a solid economic base and major petrochemical, chemical and plastic industries. The national company SONATRACH maintains its monopoly on hydrocarbons but has the possibility of entering into joint venture contracts for upstream and downstream activities. Investment in the sector is growing.
Two gas pipelines connect the Sahara to Europe. The first Trans Tunisian Pipeline Company (TTPC) pipeline crosses the Mediterranean from Algeria to Sicily through Tunisia and the second goes through Morocco to Spain. Sonatrach’s network covers some 13,000 km, involving 14 oil pipelines and 11 gas pipelines. Transport capacity for Sonatrach’s pipeline network in North Africa is about 101.32 billion m3 of gas, 12.52 million tons of LPG and 79.44 million tons of oil (crude oil and condensate).
In 2005, the Italian oil company ENI and Sonatrach have reached the agreement for the expansion of the Trans Tunisian Pipeline Company. The agreement sets the increase up to 3.2 billion cubic metres of annual transport capacity started in 2008 and up to further 3.3 annual billion cubic metres starting from 2012. The investment for the expansion of the TTPC pipeline amounts to 330 million euro and will be entirely financed by ENI.
Electricity
Reforms in the power sector are defined in the 2002 electricity law, which allows private sector investment and competition, unbundling of this national utility, creation of a separate company for system operations and subsidiaries for generation/transmission/distribution of gas and electricity, and creation of a regulatory agency the Electricity and Gas Regulatory Commission (CREG) to oversee the newly-opened industry and to ensure non-discriminatory access to the sector.
Electricity transmission remains a state monopoly, managed by Sonelgaz. The new law enables initial initiatives by independent power producers (IPP) and creation of the Algerian Energy Company (AEC) in a 50/50 partnership between Sonatrach and Sonelgaz. This subsidiary company manages energy and water desalination projects by opening them to international private investors. Algerian law requires that all foreign operators establish joint ventures with AEC, and in return, AEC guarantees that it will purchase all electricity generated by these plants. Since the opening of the sector in 2002, there has been considerable private investment in new electricity generating capacity. AEC contracted with Anadarko and General Electric to build the country’s first privately-financed gas power plant at Hassi Berkine. In August 2003, the French company Alstom agreed to build a 300-MW power plant at F’Kirina, 300 miles east of Algiers ($5,7 billion). Canada’s SNC-Lavalin won a contract to design and build an 825-MW combined cycle power plant in Skikda. SNC-Lavalin also won a tender to build a 1200-MW combined cycle power plant in Tipasa, west of Algiers. In early 2005, Siemens built a 500-MW, gas-fired plant in Berrouaghia, which was operational in the end of 2006. The need to supply power to desalination plants has driven a large part of foreign investment in gas-fired power plants in Algeria. The U.S.-based Black and Veatch began construction of a facility near the Arzew oil export terminal, with a generating capacity of 310 MW and desalination capacity of 3.1 million cubic feet per day (cf/d); and Japan’s Mitsui and U.S.-based Ionics won a tender for a 7.1-million-cf/d desalination plant near a 400-MW power plant in Hamma, near Algiers.
In spite of the interconnection of all power plants in northern Algeria (95 percent powered by gas), the current rate of capacity reserves is only 10 percent, largely insufficient to meet the country’s needs. The national operator Sonelgaz (which recently became a joint stock company) has set the objective of reaching a rate of reserve of some 15 to 20 percent. To face the growing demand for electricity (+7 percent per year over the period 2002-2011), ten new power stations will be created by 2010. Sonelgaz has worked out a $12.2 billion programme, with $5.4 billion earmarked for production of electricity (power stations construction), the remainder for transport and distribution.
In July 2002, Sonatrach and Sonelgaz formed a joint venture, New Energy Algeria (NEAL), to pursue the development of alternative electricity sources, including solar, wind, and biomass. One project reportedly under consideration is a 120-megawatt (MW), hybrid gas/solar power plant near Timimoun. In January 2003, Algeria and the International Energy Agency agreed on technological cooperation in developing solar power. Overall, Algeria hopes to increase the share of solar in the country’s electricity mix to 5 percent by 2010.
In the mining sector, Algeria has an excellent but untapped geological potential. There is a wide range of underground minerals such as phosphates, iron ore, zinc, uranium, gold, tungsten, diamonds, and precious stones. Overall, more than thirty resources can be extracted. Algeria’s major mining operations include the 3 million ounce Tirek Amesmessa gold mine; the 2400 million tonne Djebel Onk phosphate mine; the 5000 million tonne Quenza and Bou Khrada iron ore mines; plus several industrial mineral mines producing salt, bentonite and barite.
A mining law, law 01-10 of 3 July 2001, has been adopted, which encourages private investment. This law covers geological infrastructure, research and exploitation of mineral and fossil substances and provides for a special tax system for mining companies.
Following an international tender, the majority of assets belonging to the state owned gold exploration and mining company (ENOR) were sold to the Australian-based Gold Mine of Algeria (GMA). The feasibility study is being finalized and gold exploration and exploitation will start soon. The Australian company in turn will provide transfer of technology and know-how to its new partner ENOR. The main gold producing facility is the Tirek Amesmessa gold mine.
213 licences and 11 mining areas have been allotted to the private sector since 2001. Indeed, the government’s willingness to develop the mining industry make Algeria a prospective target for the international mining community and the new mining activity opens up many prospects for international suppliers of equipment in the fields of drilling, transport, handling, mechanical shovels, pumps, power generating units, etc.
Health care and medical supplies & services
The Algerian health system continues to suffer from multiple problems, is short of financing, and needs to align to the country’s changing circumstances (medical, epidemiological, demographic and economic). The population’s medical needs are considerable. National production is insufficient to meet needs and so Algeria is a major importer of drugs. The market for pharmaceutical products is estimated at more than EUR 700 million per year, of which 80 percent are imported.
Difficulties in the public health system have spawned private sector involvement. State owned establishments are being rehabilitated/built and private clinics, doctors’ offices and radiology centres set up. Some 102 private clinics were operational in 2002, 125 more private clinics are being built and 45 projects are under study. New health mapping at the Ministry of Health is determining plans to build three private 250 to 500-bed hospitals for the treatment of serious diseases.
In spite of the various measures taken by the Algerian government (requirement to produce, suspension of imports, etc.), the level of local pharmaceutical production is low, as is the number of manufacturers (just 34 in 2003). Moreover, production concerns mainly products with low technological content. However, local production is likely to increase thanks to new private investment initiatives.
Both the main international laboratories working in Algeria and national authorities would like to develop a major national pharmaceutical industry under partnership and licensing arrangements. Partnership with foreign laboratories would allow transfer of know-how, guarantee quality, and save foreign currency as well as create future prospects for exporting a portion of local production.
In spite of certain legal obstacles, the Algerian market for pharmaceutical products remains attractive to foreign laboratories because of the country’s large population, high per-capita consumption of pharmaceuticals, progressive scaling down of customs duties, and attractive incentives offered to foreign investors, etc.
Tourism
Algeria has major but untapped potential for tourism.
It is a large country (nearly 2.5 million km2).
It has a unique geographical location.
There is a 1200 km coastline on the Mediterranean.
There is an extensive network of airport and road infrastructure.
Desert covers nearly 80 percent of the country.
Nevertheless, this potential, largely unexploited except in the South, suffers from a deficit in terms of accommodation capacity, hotel structure, and quality of services/skilled labour.
Concerning hotel infrastructure, the country has 92,000 beds of which 36,000 are owned by the public sector. There is a serious deficit in terms of accommodation for international customers: businessmen, conventions, tourists … There are only two foreign investors in tourism, the Accor group with “Sofitel” and “Mercury” hotels in Algiers and the American group “Starwood” with two “Sheraton” hotels in Algiers and Oran.
The government has targeted 174 zones for expansion of tourism throughout the country, providing national and foreign investors with opportunities to launch initiatives in urban, rural, sea resort, mountain or Saharan settings. Development strategy and investment opportunities to be launched by 2013 target:
3 million tourists a year, of whom nearly 2 million would be foreigners (up from 1.234 million tourists in 2004 including 369,000 foreigners);
investment of over DZ 232 billion;
an increase in accommodation capacity from 92,000 to 187,000 beds;
230,000 new jobs.
The Ministry of Tourism has launched a long-term development strategy for the period up to 2013, aiming at developing the potential of natural and cultural heritage sites, improving the quality of services and Algeria’s image as a tourism destination, and rehabilitating hotel and tourism establishments. In addition, the government has launched privatisation procedures for a number of hotels belonging to the Tourism and Hotel Company “GESTOUR” and SGP “Société de Gestion des Participations de l’Etat”. The list of hotels to be privatised can be found on the Ministry of Holdings and Investment Promotion website: www.mdppi.dz. Several international groups have announced their intention to invest in this sector, such as:
Starwood Hotels and Resorts, for the construction of a “Westin” hotel in Algiers;
Accor, in association with the Mehri group, for the construction of 36 hotels;
Marriott, for the construction of a hotel near the Sheraton in Algiers;
The Eddar-Sidar Group, to set up tourist resorts in Algiers and Boumerdes, at a total cost of $300 million and capacity of 25,000 beds;
The Al Hamed Group, for a tourism initiative budgeted at $90 million on the coast of Algiers;
The US tourist group Panorama announced its intention to invest $500 million in the region of El Aouana near the city of Jijel to build a tourist resort.
It should be noted that a new regulating the development of tourism was recently promulgated, granting incentives such as 10-year tax exemptions.
The improvement of security issues and the current economic boom will help in developing national and international investment in Algerian tourism over the medium and long term. Growing tourism in southern Algeria, the return of international airlines (Air France, Eagle Azur, British Airways, Alitalia, Lufthansa, Qatar Airways), the opening of the new international airport in Algiers in 2006 and declaration of investment intentions by major hotel groups indicated a healthy future for the sector.