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    Algeria: Modernising infrastructure, boosting economic growth


    March 12, 2010 -- Algeria is modernising its infrastructure and by so doing boosting its economic growth. In order to further encourage growth the country is seeking to diversify its economy which is heavily reliant on hydrocarbons by developing both the traditional sectors such as agriculture and services such as tourism and ICT. Foreign Direct Investment represents a relatively small share of the total investment in Algeria at present and one objective of the new industrial strategy is to increase this. Increasing FDI is especially important because it has a significant impact on the transfer of technology and improvements in innovation capacities. Another key economic objective is to strengthen domestic consumption and move towards less reliance on imports and increase its own exports. Job creation is a priority and in recognition of the central role played by the private sector, particularly SMEs, Algeria has initiated a major programme of reforms to transform the framework for production and the structure of the national economy. The aim is to improve the competitiveness of domestic enterprises in international markets.

    Several important programmes have been launched in four main areas of the economy: land planning, industry, agriculture and fishing and tourism. As a first step, Algeria decided to give priority to upgrading the country’s infrastructure. In 2005, it launched a Complementary Plan for growth Support which aimed to improve the services and facilities available to economic actors. Supplemented by special programmes for the Highlands and the South, this provided more than $180 billion in investments by 2009. Some 70% of this budget has been spent on basic infrastructure, housing and public facilities. Most of the guidelines are translated into the 2005-2025 Land Master Plan. A new five-year plan for funding of basic infrastructure and utilities is set to be introduced from 2010. This will have a budget of $150bn.

    The new industrial strategy has yet to be adopted, but by setting targets to encourage growth, the strategy aimed at positioning Algeria in those sectors with high growth potential:

    - Industries processing primary resources such as petrochemicals, fertilisers, steel and nonferrous metals, construction materials such as hydraulic binders;

    - Upstream industries of existing activities such as agri-business, pharmaceuticals, electrics;

    - Industries which are still underdeveloped in the country such as renewable energies, automotive and ICT.

    So far the proposal to establish 13 economic development companies has been implemented. As national economic champions, these companies will forge partnerships with the private sector to develop the planned large infrastructure projects and revive domestic industry. In recognition of the significant untapped tourism potential of the country, Algeria has developed a master plan for the sector. This adopts a short, medium and long-term vision for the development of tourism for the years 2009, 2015 and 2025 respectively. Given that technology dissemination requires the anchoring of FDI into the national fabric, Algeria has opted to focus its intervention on the development of partnerships between subsidiaries of transnational organisations operating in the country and locals SMEs; along with downstream connections mainly in highly energy intensive industries and finally training programmes in new techniques or new businesses by foreign companies.

    Presented in May 2009, Algeria’s new plan of action strengthened this policy. Foreign companies are obliged to sell to local partners 51% of their participation in investment in the country and 30% of the capital in their import companies. Measures have been adopted in respect of the pharmaceuticals sector in order to protect local production and prevent excessive growth in the pharmaceuticals bill: restrictions have been placed on the import of nearly 400 drugs that can be produced locally. The improvement in the business environment in Algeria provides important incentives for encouraging investment. Likewise the simplification of the customs procedures and taxation, reforms to the labour market and the creation of integrated industrial zones.

    In order to attract investment in the different regions around the country, Algeria has undertaken a major modernisation programme of its industrial zones. During the period 1999-2009, some €273 million (25 billion Algerian dinars) have been spent to rehabilitate the country’s industrial infrastructure. In addition, an extra €55mn in special programmes has been invested in the southern and central highlands. Following the model of clusters, Algeria has sought to establish 14 integrated industrial zones comprising seven multipurpose activity zones; three techno parks for ICT, agri-business and electronics; and four specialised zones. These new zones will offer international companies all the necessary services including one-stop shop business centre. Further information can be obtained from the country’s National Agency for Intermediation and Property Regulation (ANIREF): www.aniref. dz

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    Hydrocarbons, Energy and Mining

    As Algeria’s main strategic sector, oil and gas are substantial resources making the country an energy giant. In 2007, the sector accounted for 45% of the country’s GDP and 97% of foreign exchange earnings. Faced with a sharp rise in consumption, many power plants have been planned and the internal network of gas distribution multiplied by threefold as a result of the injection of $12bn investment over the 2000-2010 period. An objective of 6% of renewable energies in overall electricity production by 2015 has also been adopted. Algeria also plans to develop its mining sector for which a massive investment in infrastructure is essential. Opportunities for investors exist in areas such as gas operations (new deposits and output enhancement); construction of pipelines, production and distribution of electricity (gas and renewable energies); and mining. National companies such as Sonatrach, Sonelgaz and Naftal remain dominant in the sector but they have developed contacts and partnerships with foreign firms including BG Group and BP. Foreign investors are not subject to income tax in the hydrocarbons sector. Downstream activities are exempted from VAT and customs duties. Also, mining is exempted from TAP and VAT on purchased or imported goods, from customs duties on equipment and from any taxation except the mining profit tax. For further information about the opportunities in this sector see the Ministry of Energy and Mines: www.mem-algeria.org

    Petrochemicals and Fertilisers

    Algeria is taking the initiative to exploit its considerable gas resources in order to develop the downstream segment of petrochemicals, including plastics, resins, rubber and others fibres that may contribute to the revival of the textile industry. It recognises that there is a strong demand both domestic and international fir such products and is driven by the awareness that petrochemicals is a strategic industry which has vital links to plastics, construction materials, textiles, automotives and others. The country’s gas resources also enable it to specialise in the production and export of urea. The increasing demand for fertilisers driven by the search for greater agricultural productivity globally is furthermore encouraging Algeria to more effectively exploit its vast reserves of phosphates in the Djebel Onk area situated in Tebessa. The reserves are largely under exploited and amount to 1.5 million tons/year for reserves of two billion tons. A value chain from mineral extraction to fertiliser production through to conversion into phosphoric acid is being structured. Business opportunities for investors in this sector exist in the areas of plastics, resins, elastomers and other textile fabrics; the production and export of urea; phosphate mining, conversion into phosphoric acid and production of fertilisers. Production facilities are being opened with foreign partners that include BP.

    Metal, Steel and Building Materials

    Algeria has launched some major construction projects over recent years and the demand for materials that this has brought about has led to a rapid growth in the metals, steel and building materials sector. Metallurgical companies are involved as sub-contractors or co-contractors in the production of framework equipment, boilers and heavy mechanics. Given the quality of cement and the need for price competitiveness, Algeria is intending to develop production and exports by optimising processes, diversifying products and extending the local value chains downstream. The steel industry benefits from the increasing use of iron sponge in the steel mills and the upward trend in the steel market driven by developing countries such as China, India and Brazil. Algeria sees the possibility of producing aluminium by means of electrolysis through energy intensive processes and is encouraging its development. It is looking to attract foreign investment across the sector and in particular to provide essential scientific engineering. Specific opportunities exist in the production and export of aluminium, zinc, plaster and cement including new lines of white cement, marine cement and fast set cement. Further information can be obtained from the Ministry of Industry and Investment Promotion: www.mipi.dz and the National Agency for Investment Development (ANDI): www.andi.dz

    Agriculture, Agri-business and Fishing

    Algeria adopted a law in 2008 on agriculture which targeted growth in the sector of 8% by 2013. This includes measures for streamlining and restructuring the sector by creating synergies with agri-business. Previously a budget of €3.8 billion (350 billion Algerian dinars) has been announced as part of a National Plan for Agriculture and Rural Development which was aimed at reducing the country’s dependence on imports and came as recognition that the sector required investment. A budget of €53million (4.9 billion dinars) was adopted under a similar plan for fishing and aquaculture. Another €10billion of aid for agriculture for the period 2010-2014 is also planned. Projects for the establishment of integrated agricultural centres and competitiveness poles around agriculture and food and around food biotechnology are also under way. Policies allowing for tax benefits and enabling easier access to credit for the sector are being adopted. Opportunities for investors now exist in areas such as the production of cereals, milk, potatoes, white and ovine meat for the domestic market, olive oil for export; processing and packaging; the acquisition and repair of fishing equipment and aquaculture. For further information about agriculture in Algeria see the Ministry of Agriculture and Rural Development: www.minagri-algeria or and the National Chamber of Agriculture/Fishing and Aquaculture.

    Electrical and Electronic Industries

    Algeria is seeking to develop its electrical and electronics industries by stimulating innovation, product diversification and upstream development of the value chains in response to rising domestic demand. As a result, Algeria aims to reposition itself in the relocation process of European companies. Traditionally the Algerian electrical industry has been limited to the activities of assembling imported products. Opportunities exist in the production and export of electric cables, electronic components and appliances; specialist electronics such as spare parts for the automotive, aerospace and defence industries and the development of solar panels and power stations. Further information can be obtained from the Ministry of Industry and Investment Promotion: www.mipi.dz and ANDI: www.andi.dz

    ICT

    Algeria is the largest ICT market in the Euro-Mediterranean area and the recent rapid development of the sector has been supported by a complementary Plan for Growth Support covering the years 2005-2009. The opening of ICT techno parks and training academies have been under development in recent years. There are opportunities for the construction and operation of telecommunications networks, mobile, landline, Internet, WiMax and the like as well as the development of ICT services. Further information about the sector can be obtained from the Post and ICT Ministry: MPTIC and ANDI: www.andi.dz

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