Strategy

The development of Algeria’s downstream manufacturing sector has been a key objective for Algiers for several years, and the country is blessed with an almost perfect set of features on which to develop its industrial base: abundant raw metals and minerals, large gas reserves and close proximity to the giant consumer market of Western Europe.

Yet despite these assets, the expansion of downstream manufacturing in Algeria has been frustratingly slow and the economy remains overwhelmingly dependent on oil and gas.

MEED estimates that the combined value of investments in major industrial projects planned or under way is about $9.5bn, less than 4 per cent of a total project sector estimated at about $251bn of work planned or under way.

The country has attracted investment in downstream metals production, primarily steel and aluminium, and has seen a significant expansion of cement production to support its infrastructure programme. But a combination of domestic politics, protectionist legislation, bureaucracy and the global economic downturn have combined to stunt the development of higher-value industries, such as automotive and pharmaceuticals, over the past five years, despite significant international interest.

Yet there is good reason for optimism as the government seeks to stimulate investment through the development of a series of investment zones.

In March 2012, Algiers announced that it had launched feasibility studies into a scheme to create 39 new industrial zones with a total area of 9,000 hectares. The programme will be split into three categories: 16 zones with plots of up to 150 hectares (ha) a unit; 12 zones with plots between 150-300ha; and 11 zones of more than 300ha a unit.

The zones will be located to give them access to the new East-West motorway, the national rail network and key ports. Another major industrial zone is being planned by local private company Cevital.

Steel

As one of the leading iron ore resource holders in the region, Algeria has made numerous efforts to expand its downstream steel industry. But progress has been faltering, with foreign investors such as Egypt’s Ezz Steel and Luxembourg-based ArcelorMittal both putting steel plant projects on hold in recent years.

The only producing facility is the El-Hadjar complex, 12 kilometres south of Annaba in the northeast. The plant, operated by a joint venture of ArcelorMittal (70 per cent) and the local Groupe Sider (30 per cent), is the largest integrated steel plant in the Maghreb, with a capacity of 2 million tonnes a year (t/y). In February, its operators were reported to be in talks with the government about expanding capacity.

Growing the steel industry would be a logical step for Algeria, which is in the midst of a major public infrastructure development programme. It would also fit with the country’s ambitions to reduce its imports bill. Algeria spends an estimated $10bn on steel products each year, equivalent to about one-fifth of its total imports, according to government figures.

But a deal with two Qatari state-owned companies offers hope that a major steel project may finally come to fruition. In early 2012, Qatar Steel Company and Industries Qatar formed a joint venture, Qatar Steel International (QSI), to build an integrated steel, mining and power project in Bellara, about 40km from the port of Jijel in the northeast. In January this year, QSI committed to the $3.2m, 5 million-t/y factory and is in talks over the project management consultancy contract.

Aluminium

As in the steel sector, Algeria has struggled to deliver any significant increase in production in its aluminium industry. The country has been trying for years to agree terms for a new manufacturing plant, and the part-privatisation of the sector in 2007 also ran into difficulties.

Societe Algerienne de l’Aluminium (Algal), a subsidiary of state-owned Entreprise Nationale de Metallurgie & de la Transformation des Metaux non-Ferreux (Metanof), is responsible for aluminium production from four facilities, at Algiers, Annaba, Oran and Ghazaouet. Algal has a production capacity of about 5,000 t/y.

A consortium of Abu Dhabi’s Mubadala Development Company and Dubai Aluminium, known as Emirates Aluminium, has been in negotiations with state energy company Sonatrach for several years to build an aluminium smelter at Beni Saf on the northwest coast.

The $5bn, 1.5 million-t/y plant was initially due to come onstream in 2009, but the already-delayed project was shelved that year due to a change in investment regulations.

Cement

Algeria is a major producer of cement, with capacity standing at some 20 million t/y. The two main developers are the state-owned Groupe Industriel des Ciments d’Algerie (Gica) and France’s Lafarge.

At the moment, the state has 12 cement plants with a combined output of about 11.5 million t/y, equivalent to about 60 per cent of local production. Lafarge accounts for the remaining 40 per cent of domestic sales, including 500,000 t/y of white cement from a manufacturing facility near Oran in the northwest.

Lafarge was at the centre of a controversy in 2007, when it bought out the Algerian cement-producing assets of Egypt’s Orascom Construction Industries. Since then, the government has ensured it has the right of first refusal over any assets in the country sold by foreign companies.

Algeria’s already significant cement sector is on a major expansion drive. The government has announced plans to consolidate and expand its cement production facilities. Gica plans to increase output from state-run facilities to almost 29 million t/y by 2020, according to a statement by the company in May 2012. The expansion drive will cost an estimated $4bn.

Automotive

The government has made it a matter of policy to develop a local automotive manufacturing sector to substitute local car production for overseas imports, which increased to 390,140 vehicles in 2011, compared with 285,337 in 2010. But despite years of negotiations with foreign partners, no car plant has yet come to fruition.

However, France’s Renault signed an agreement with the government in May 2012 for a car manufacturing facility, which is due to start production this year, ramping up to produce 25,000 cars a year by 2015.

Pharmaceuticals

Efforts to substitute local production for imports in the pharmaceuticals sector have enjoyed some success, but a shortage of essential medical products has been a problem.

The government aims to meet 70 per cent of demand for pharmaceuticals products with local production by the end of this year. In December 2011, it announced it would spend close to $250m in developing the local pharmaceuticals sector. The government has a list of more than 250 products it is forbidden to import, and regulations have been introduced to prevent importers of pharmaceutical goods from selling their products at inflated prices. Measures were introduced in the government’s supplementary budget in mid-2011 to exempt local producers of pharmaceuticals from corporation tax.

The drive to reduce imports of pharmaceuticals has had an impact. Local production increased 47 per cent in 2011, compared with an increase in imports of 17.2 per cent.

French pharmaceutical company Sanofi-Aventis has the largest international presence in Algeria, with a 13 per cent share of the local market. It has two manufacturing plants and a total of 630 employees. The firm has announced plans to invest AD6.6bn ($86m) in a new plant and distribution centre. It aims to locally produce at least 80 per cent of its goods for the Algerian market.

Fertilisers

Algeria’s cheap source of gas and proximity to the European market make it an excellent location for the development of an ammonium-based fertiliser industry.

Europe has ammonia gas demand of 3-5 million t/y, and a deficit of supply. Unlike imports of ammonia from the Black Sea, which are subject to taxes equivalent to 2-5 per cent of their total price, European imports of ammonia from Algeria are not taxed.

The key driver behind the development of Algeria’s fertiliser industry is access to cheap feedstock. Gas feedstock accounts for 50-70 per cent of total expenditure necessary to produce any nitrogen fertiliser product. One tonne of urea requires about 26 million BTUs of gas to produce. The cost of gas in Algeria is as little as 50 cents a million BTUs, compared with more than $5 a million BTUs in many parts of the world, giving a major advantage.

Ammonia and urea production is also an excellent means of monetising Algeria’s gas. It is a relatively simple process with a well-developed international market, and the investment required is much smaller than for liquefied natural gas export infrastructure or major petrochemicals facilities.

Excluding capital costs, urea producers can make a margin of more than $200 a tonne on a market price of about $350 a tonne.

The vast majority of Algeria’s fertiliser production has been carried out by Fertial, a joint venture company created in 2005 by Fertiberia, a subsidiary of Spain’s Grupo Villar Mir (GVM), and Asmidal, the state-owned fertiliser company. GVM has a 66 per cent share in the company, with Asmidal holding the remaining 34 per cent. In November 2013, Fertial awarded the US’ KBR engineering consultancy work at two of its plants.

Algeria also has plans to develop a phosphate-based fertiliser industry.