Algeria experienced an 8.5% drop in economic growth in the pandemic year of 2020, largely due to a 40% drop in revenue from the oil industry. The response in the form of a post-covid package was expected to cost the Algerian treasury up to billion USD. However, subsidies to the private sector are not paid until 2021 and are widely criticized for being insufficient.
The impact of covid-19 has had a significant impact on the labor market, where up to 1 million jobs are expected to be lost. State-owned enterprises recorded losses in the order of tens of billions of DZD, in sectors such as tourism and hospitality there were even business closures (e.g. termination of activity of 2,000 travel agencies). In the banking sector, although there was a reduction in required reserves, there was nevertheless a decrease in bank liquidity.
The austerity regime in relation to the drawdown of foreign exchange significantly reduced the budget of the state-owned oil company Sonatrach by 35%. Algeria continues to pursue a protectionist trade policy, which primarily aims to reduce import expenditure and, on the contrary, to strengthen the country’s export potential. Last year, there was a drop in imports by 18%, with an expenditure of USD 3billion.
The budget law for 2021 envisages a further reduction of up to 28.2 billion USD. In this spirit, the import of pharmaceutical products, red meat, vegetables and fruit is significantly restricted, and in addition, a 45-day payment delay for imported goods is introduced (except for strategic, food products and goods requested through public procurement).
The so-called DAPS super duty still applies. The situation in the automotive industry remains unclear, with the exception of the import of CKD and SKD parts for use in the military sector, where the import is exempt from customs duties including VAT. Algeria’s protectionist trade policy continues to be criticized by the EU, and the so-far fruitless negotiations call for a solution in the form of international arbitration.
The Minister of Finance A. Benabderrahmane ordered to shorten the processing time for applications for business loans to 30 days, under the auspices of the Ministry in cooperation with the banks BEA and BNA, the National Investment Fund was created (currently allocated 11 billion DZD) in an effort to diversify financial instruments for small and medium-sized enterprises. Support is enjoyed by start-ups, which are exempted from the greater part of the tax burden and can draw financing from the state agency ANADE up to 95% of the capital. ANADE also concluded a memorandum with the state enterprise Sonatrach in order to support the creation of domestic companies as future suppliers to the state enterprise.
Algeria also stepped up to foreign investment, which had long been neglected as a source of income, and abolished the restrictive investment rule 49/51 with the exception of strategic sectors, i.e. pharmaceuticals, energy and mining. The canceled investment rule is then followed by the cancellation of the right of pre-emption, which is replaced by the permission to realize other foreign investments without the need for cooperation with domestic investment partners. The success of measures aimed at improving the investment environment, promoting exports and rationalizing state spending largely depends on the outcome of the parliamentary elections in June 2021 and the stabilization of the political situation.
Post-COVID-19 opportunities for foreign exporters
Mining, mining and oil industry
According to allcountrylist, the 2021-2023 rock mining program under the auspices of the Algerian Ministry of Energy and Mines talks about all aspects of rock mining, from the digitization of geological maps to school cooperation to strengthening the capacities of domestic mining companies. 26 mining projects across the country will focus mainly on reserves of iron ore, lithium, phosphates, manganese, but also gold and diamonds. The Algerian government believes in the export potential of mineral raw materials and is establishing partnerships across departments with a view to developing the processing industry. Both for mining and for the creation of processing complexes, however, it needs domestic or foreign investors.
Exploration and mining will mainly focus on the already existing important deposits in Ghar Djbilet, then gold deposits in Hoggar, lead and zinc in Oued Amizour (village of Béjaia) and, of course, phosphates in the area of Bled El-Hadba (village of Tebessa) and in the east of Algeria. This mining should be accelerated. Especially in the case of phosphates, a megaproject with a budget of up to USD 16 billion is planned in Tindouf (in the west of Algeria). The Algerian-Chinese investment cooperation of the companies Asmidal (a branch of Sonatrach) and the state-owned company Manal, together with the Chinese group CITIC, has the ambition to place Algeria among the world’s largest fertilizer exporters. With rising prices, it is phosphates that can provide Algeria with absolutely crucial income for the state budget.
The crisis in global food production can also be exacerbated by the lack of phosphates, which are used as industrial or natural fertilizers. Without them, the current agricultural yield can be reduced by up to half. After all, the European Commission repeatedly includes phosphates on the List of Critical Raw Materials. Negative forecasts even say that the absence of a solid solution to the phosphate issue could subsequently become the cause of another major global crisis, as the mineral reservoir could be exhausted as early as 2040.
And it is here that Algeria, together with Western Sahara, Syria and China, where 80% of the world’s phosphate reserves lie, play an important role. Algerian partners are interested not only in the direction of foreign investors, but also in the direction of suppliers of mining equipment, decontamination equipment, experts in the reclamation of mined mines and quarries, and last but not least, also experts in prospecting studies.
Energy industry
Algeria, as the 5th largest producer of natural gas and the 13th largest producer of oil, with 98% of its income coming from the export of oil and natural gas, is aware of the need to gradually reduce dependence on these two commodities and has been introducing legislation aimed at energy mix with an emphasis on solar energy sources. The solar potential in Algeria is even 8 times greater than its already world-leading gas reserves.
In 2020, the Algerian government set the energy transition as one of the three main axes of the Economic Development Plan. While the country’s electricity consumption has doubled in the last 5 years, the outlook for 2050 threatens to increase by another order of magnitude to 250 TWh (i.e. 60% of the energy produced would be consumed domestically, which significantly threatens gas reserves and export earnings). In addition, Algeria, which is still self-sufficient in energy, is also troubled by drastic drops in oil prices, which threaten its position as an energy giant, which is why the government approved the Revised Program for the Introduction of Renewable Energy Sources for the Period 2021-2030, which sets approximately four times higher goals for the introduction of renewable energy sources and expects to issue international of public contracts for photovoltaic projects in mid-2021.
The EU also perceives the energy transition in Algeria as a key priority, especially with regard to solar and wind resources, and within the framework of the Economic and Investment Plan for the Southern Neighborhood (A New Agenda for the Mediterranean) is counting on projects to optimize energy efficiency and diversify the energy mix, which will strengthen Algeria’s position on international energy markets and will ensure the sustainability of domestic energy consumption. Other opportunities can also be expected within the framework of the new membership in the EBRD and the Green Cities program offered by it, or within the strategic plan of the state-owned enterprise Sonelgaz 2035, which primarily aims at the digitalization of the energy sector.
Defense industry
According to a SIPRI survey, Algeria is the 6th largest arms importer in the world, and has even increased its arms imports by 64% in the last 5 years. The biggest partners here are Russia, Germany and China. Algeria has also long had the largest army budget in Africa. The large investments in the defense sector reflect the complex geopolitical situation of Algeria, which in recent years has also been complicated by the presence of the Hirak People’s Revolutionary Movement.
The results of the Algerian defense industry are presented annually at the Foire de la production algérienne in the capital, Algiers. The Algerian army is interested in security and defense technologies, weapons and ammunition, aviation technology and communication and radar systems. An overview of public contracts in this sector can be viewed on the portals www.baosem.com, www.algeriatenders.com and www.mdn.dz.
Agricultural and food industry
The Economic Development Plan 2020 relies heavily on the development of the agricultural sector to ensure the country’s food security. The plan talks about the modernization and above all the digitization of agriculture, improving its performance and competitiveness with a view to strengthening the export of agricultural products in the horizon of 2024. It also foreshadows the introduction of investment incentives for projects located in the southern parts of the country and on plateaus, focused mainly on strategic crops (cereals, oil seeds, sugar) and their further processing. Special attention is paid to the development of agriculture in the Sahara region with regard to camel breeding – dairies, slaughterhouses and processing plants should be created.
From January 2021, the import of fresh and frozen red meat is prohibited in Algeria. The country’s annual imports of red meat came to an incredible 122 million USD and reached 5,000 tons in annual volume. The objective of the Agricultural Development Plan was, among other things, an inventory of livestock and an overall evaluation of the prospects of the given sector. With it, Algeria declares an effort to strengthen its own cattle breeding capacities and an effort to ensure self-sufficiency. The Algerian Ministry of Agriculture has announced new zootechnical requirements stipulating the age, weight, health status and selected breeds that can be imported into the country. The priority given by the Algerian Ministry of Agriculture to the import of live animals is also reflected in the reduction of customs duties, which in some cases are close to zero.
The Algerian Ministry of Agriculture also supports organic farming and has created a department for bio-certification in its structure, together with the Office for Food Quality Control and Accreditation (Algerac) they are working on the tender documentation of Algerian organic agriculture so that it meets the phytosanitary criteria for import into the EU. We can thus expect an increased interest in the import of agricultural machinery, but also of previously unavailable varieties, especially oilseeds, cereals and nuts.
