Re­bound in oil & gas to fuel Al­ge­rian econ­omy

FICCI Business Digest - - Special Features - Hamza Yahia Cherif *Hamza Yahia Cherif is Al­ge­rian Am­bas­sador to In­dia

Al­ge­ria is the fourth­largest econ­omy on the con­ti­nent af­ter South Africa, Nige­ria and Egypt and the sec­ond largest in North Africa. The Al­ge­rian econ­omy ben­e­fits from its vast nat­u­ral resources. Hy­dro­car­bons re­serves cur­rently rep­re­sent around 31% of GDP and more than 60% of the Gov­ern­ment's rev­enue.

Ben­e­fit­ing from po­lit­i­cal sta­bil­ity, Al­ge­ria's econ­omy con­tin­ued to per­form solidly in 2014, grow­ing by 3.8% (3.0% in 2013). Growth was driven by pri­vate de­mand and in­vest­ment by pub­lic en­ter­prises, which off­set a down­turn in pub­lic ex­pen­di­ture and ex­ports, es­pe­cially oil and gas. Af­ter sta­bi­liz­ing at 10% be­tween 2010 and 2012, un­em­ploy­ment fell slightly in 2014, stand­ing at 9.6%.

In­fla­tion re­turned to its pre-2012 level, fall­ing from 8.9% to 3.3% thanks to a pru­dent mone­tary pol­icy, fis­cal con­sol­i­da­tion and gov­ern­ment mea­sures to con­trol and im­prove dis­tri­bu­tion chan­nels for con­sumer goods.

Re­cent de­vel­op­ments and prospects

With oil and gas pro­duc­tion on the wane, na­tional en­ergy con­sump­tion on the rise and oil and gas ex­ports fall­ing both by vol­ume (-7.4%) and by value (-10.3%), the Al­ge­rian econ­omy's vul­ner­a­bil­ity to fluc­tu­a­tions in this sec­tor in­creased in 2013, but was lastly con­tained dur­ing 2014, high­light­ing the ur­gent need for di­ver­si­fi­ca­tion and struc­tural trans­for­ma­tion of the econ­omy, since pri­vate-sec­tor de­vel­op­ment and di­ver­si­fi­ca­tion of sources of growth are hin­dered by a busi­ness en­vi­ron­ment that needs pur­su­ing the ma­jor re­forms launched by the Gov­ern­ment.

Agri­cul­ture (10% of GDP in 2013) saw an ac­cel­er­a­tion of growth from 6.3% in 2012 to 9.4% in 2013. All ar­eas of agri­cul­ture grew ex­cept ce­real pro­duc­tion (-4%) and tobacco (-5%).

The in­dus­trial sec­tor still con­trib­utes less than 5% to GDP, but grew strongly dur­ing the year 2014. Ac­cord­ing to the in­dus­trial pro­duc­tion in­dex pro­duced by the Na­tional Statis­tic Of­fice, the steel, me­tal, me­chan­i­cal, elec­tronic and elec­tri­cal in­dus­tries grew by 12.5%; chem­i­cals, rub­ber and plas­tics grew by 7.5%; and wood, cork and pa­per grew by 7.3%. Thanks to the ma­jor in­fras­truc­ture projects car­ried out as part of the five-year 2010-14 Pub­lic In­vest­ment Pro­gram, con­struc­tion and pub­lic works grew by 8.2% in 2012 (up from 5.2% in 2011), pro­vid­ing 9.6% of GDP. Ser­vices, mean­while, pro­vided 41% of GDP in 2012, with mar­ket ser­vices grow­ing by 4.2% to pro­vide 23% of GDP and gov­ern­ment ser­vices grow­ing by 6.4% to pro­vide 18% of GDP.

Al­ge­ria's ex­ter­nal financial po­si­tion is nev­er­the­less strength­ened by for­eign ex­change re­serves worth $196 bil­lion, or nearly three years of im­ports, and by very low ex­ter­nal debt, es­ti­mated at $3.2 bil­lion (1.5% of GDP) as of end-2013.

In­deed, in 2015 growth is ex­pected to be higher than in the pre­vi­ous two years, reach­ing 4.3%. It will be driven by pub­lic in­vest­ment and sup­ported by a re­bound in oil and gas, which is ex­pected to grow by around 2%. Ex­clud­ing oil and gas growth

should reach 5.3%.

Pro-in­vest­ment vi­sion

Gov­ern­ment’s pro-in­vest­ment mea­sures should at­tract for­eign in­vestors. Th­ese in­clude the ANDI's one-stop shop, sim­pler cus­toms pro­ce­dures, at­trac­tive tax laws, the de­cen­tral­iza­tion of in­vest­ment func­tions, a skilled work­force and in­te­grated­de­vel­op­ment in­dus­trial zones. The Al­ge­rian Gov­ern­ment has put in place mech­a­nisms aim­ing to cut down the bu­reau­cracy in cus­toms pro­ce­dures and busi­ness reg­is­tra­tion.

The is­sue of in­dus­trial land seems to have been re­solved since ANIREF was set up in 2008 to pro­vide in­ter­me­di­a­tion and reg­u­late land, bring­ing an end to re­stricted pub­lic auc­tions for land.

Busi­ness Op­por­tu­ni­ties

Hy­dro­car­bons

Hy­dro­car­bon sec­tor ac­counts for about 30% of the coun­try's gross do­mes­tic prod­uct (GDP), more than 95% of ex­port earn­ings, and 60% of bud­get rev­enues.

As of Jan­uary 2014, Al­ge­ria was es­ti­mated to hold 12.2 bil­lion bbls of proved crude oil re­serves. De­spite huge pro­duc­tion, this es­ti­mate has been un­changed for many years be­cause of con­stant dis­cov­er­ies. Al­ge­ria pro­duced ap­prox­i­mately 1.2 mil­lion bpd of crude oil in 2013 but roughly two thirds of Al­ge­rian ter­ri­tory re­mains un­der­ex­plored or un­ex­plored.

Most crude ex­ports are sent to neigh­bor­ing Europe coun­tries (Spain, Italy, France), with the re­main­der to the Amer­i­cas and Asia & Ocea­nia.

Al­ge­ria is a lead­ing nat­u­ral gas pro­ducer in Africa, the sec­ond­largest nat­u­ral gas sup­plier to Europe, and is among the top three oil pro­duc­ers in Africa. The coun­try is also es­ti­mated to hold the third-largest amount of shale gas resources in the world. If gross nat­u­ral gas and crude oil pro­duc­tion have grad­u­ally de­clined in re­cent years, mainly be­cause new pro­duc­tion and in­fras­truc­ture projects have taken time to be re­ceived, the Min­istry of En­ergy an­nounced that the coun­try will be ready to grow its pro­duc­tion 40% by 2019.

In 2013, Al­ge­ria re­vised parts of the hy­dro­car­bon law. The gov­ern­ment stated it needs for­eign part­ners to in­crease oil and gas re­serves and ex­plore new ter­ri­to­ries, such as off­shore in the Mediter­ranean Sea and on­shore ar­eas con­tain­ing tra­di­tional oil and gas resources.

Al­ge­ria's gov­ern­ment is at­tempt­ing to re­duce the coun­try's de­pen­dence on nat­u­ral gas in the power sec­tor by ini­ti­at­ing more re­new­able en­ergy projects. Soneglaz, Al­ge­ria's state elec­tric­ity and gas util­ity, has signed con­tracts to bring on­line so­lar, biomass and wind farm pi­lot pro­grams and projects.

Phos­phate and fer­til­iz­ers

Al­ge­rian Gov­ern­ment has re­peat­edly in­vited for­eign com­pa­nies to give big­ger fo­cus on the part­ner­ship op­por­tu­ni­ties of­fered by Al­ge­ria par­tic­u­larly in the field of mines. Al­ge­ria is de­vel­op­ing its ex­port of fer­til­izer and am­mo­nia ca­pac­i­ties in or­der to be­come by 2020 one of the most im­por­tant play­ers in the global mar­ket. Al­ge­ria has ex­ten­sive re­serves of phos­phates (2 bil­lion proven tons)

The gov­ern­ment wants ex­ports of phos­phates to rise to 30 mil­lion tons a year by 2020. This would make Al­ge­ria the third largest phos­phate pro­ducer in the world, af­ter the United States and China. The author­i­ties es­ti­mate sales could gen­er­ate USD 7-8 bil­lion a year".

For this pur­pose, As­mi­dal, a pub­lic com­pany spe­cial­ized in the pro­duc­tion, mar­ket­ing and de­vel­op­ing fer­til­iz­ers, am­mo­nia and their de­riv­a­tives, have sold shares to for­eign play­ers and in re­turn, the let­ters in­vested mil­lions of USD in the ren­o­va­tion of the pro­duc­tion tool, build­ing new plants for the pro­duc­tion of am­mo­nia.

With the eco­nomic open­ing and lib­er­al­iza­tion of the mar­ket, As­mi­dal is no longer the only provider of fer­til­izer; pri­vate com­pa­nies have in­vested the mar­ket.

Bi­lat­eral Co­op­er­a­tion: To­wards new per­spec­tives

Al­ge­ria and In­dia are fo­cus­ing on the need to strengthen eco­nomic co­op­er­a­tion both in terms of mech­a­nisms and le­gal frame­work, and it is in this con­text that both the par­ties agreed to hold the 9th ses­sion of Al­ge­ria-In­dia Joint Com­mis­sion, in Al­giers on May 25-26, 2015. On this oc­ca­sion, the bi­lat­eral co­op­er­a­tion in many fields will be re­viewed and dis­cussed and im­por­tant bi­lat­eral agree­ments will be signed. Nir­mala Sithara­man, Min­is­ter of State of Com­merce and Industry of In­dia, will co-chair the ses­sion.

It is worth men­tion­ing the par­tic­i­pa­tion of In­dia as Guest of Honor in the 48th In­ter­na­tional Trade Faire 2015, sched­uled to be held from May 26 to June 1, 2015. This event, in which par­tic­i­pa­tion of more than 60 In­dian com­pa­nies is so far con­firmed, will cer­tainly be a plat­form of in­ter­ac­tion be­tween Eco­nomic play­ers of the two coun­tries when the ca­pa­bil­i­ties of In­dian com­pa­nies will be show­cased and more vis­i­ble to the Al­ge­rian eco­nomic play­ers. In the side­lines of this pres­ti­gious event, a meet­ing of Al­ge­ria-In­dia Joint Busi­ness Coun­cil will take place (the last meet­ing was held in 2003).

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