A high investment potential sector
The introduction of new logistics concepts is in the hub of the development of new maritime transport technologies noticed internationally over the last two decades. These are:- globalization of markets,- offshoring,- tailored production,- A just-in-time system (of manufacturing).These new concepts have led to the development of increasingly complex infrastructure and distribution chains to ensure the delivery of the right product in due time all around the world to producers.Given Algeria’s many assets, well-advised investors would benefit from helping to equip the country with a plan for developing modern and efficient logistics.This plan, with the support and back-up of the public authorities, should be based on fundamentals and reliable structures to ensure that investment gradually evolves into interconnected, efficient, sustainable, open, and global logistics platforms.These potential investors, always in close consultation with the public authorities, should provide adequate and sustainable logistical solutions. Well-considered training plans and programs should be the subject of investment programs to support basic developments in accordance with international standards.The progress made in recent decades, both in human and in infrastructure development, provides Algeria with fundamentals for taking up this challenge.Assessment of the current situationAccording to the World Bank, logistics costs in developing countries are too high: they would be around 18 to 50% of GDP, while they would be around 8% in the USA and 10% of GDP in CANADA.Logistics costs in Algeria represent 25% of GDP. It is considered that if Algeria were able to reduce this cost by 5%, it would represent an annual saving of nearly 8 billion dollars and 40,000 direct jobs.Investment climateBetter logistics should enable Algerian companies to export products with higher added value.Investment Code: Algeria has established incentive schemes to attract investment taking into account the location and the importance of the project. Thus, considerable advantages are given to investment in the highlands and the South.The rail transport sector has experienced remarkable development in recent years, driven by the government’s will to open up remote areas and ensure balanced economic and social growth.The road network is one of the heaviest on the African continent, along 112,039 km including 29,573 km of national roads and more than 4,910 highway structures.Algerian road network is right in the heart of development thanks to the program of modernization of highways. The construction of the 1,216 km East-West motorway and the 1,020 km high plateau motorway should be mentioned.Moreover, the trans-Saharan (north-south) road crossing Algeria (3,400 km), Tunisia (900 km), Mali (1,974), Niger (1,635 km), Chad (900 km) and Nigeria (1,131 km) has been promoted by the concerned States to increase trade between the six countries crossed by such road.The Algerian section is under important works to transform it into a North South highway, and under extensions, at the same time, in the extreme South to open up several localities of the Ahaggar. This great African road completed several years ago on Algiers-Tamanrasset Road link (National Road no. 1) will be one of the North-South express lanes designed to better serve the High Plateaux and the Great South.An airport network well spread throughout the territory: It consists of some sixty airport sites of all types, 35 of which are open to civil traffic. About 90% of passenger traffic is carried out at 7 airports, namely: Algiers, Oran, Constantine, Annaba, Ghardaïa, Hassi Messaoud and Tamanrasset.A port facility right in the heart of development and modernization, located close to one of the most important Asia-Europe Sea routes for the purpose of meeting the current needs of the containerized trades and implementing measures of reduction of time of stopover, goods processing, documentation treatment and clearance operations.Actions are underway to optimize and develop some key ports to fit much higher volumes of containerized cargo.Achievement of a new infrastructure: Port Centre In order to make up for lost time in the development of new capacity (reception of container ships and other modern ships), the Public Authorities attaches the highest priority to the completion of the central port at El-Hamdania (province of Cherchell).This future central port connected to the rail, motorway, and road network (the Trans-Saharan connecting 7 African countries), aims to become a major port of transfer in the Mediterranean and a « Gateway » for Algeria and the African continent.Optimization and modernization of existing port infrastructureExtension work has begun on Oran Port container terminal for the purpose of achieving a planned capacity in a 1st phase of 500,000 TEUs and a 2nd phase of 1,500,000 TEUs to serve the western region of the country.Port Information SystemBoosting and modernization of port activities required, among other actions, the establishment of a port platform for electronic data exchange « Port one-stop shop », a system widely used in most ports in the world.The « Community port platform for digital data exchange », through the dematerialization of documents and data required for the port transit of goods, makes it possible to achieve significant saving of time, costs, and resources for all port activity.It shall facilitate transactions and administrative formalities at commercial ports. It will interface with the “Customs One-stop Shop” under development.Under the aegis of the harbour services group SERPORT, a community platform for digital data exchange has been initiated.The undertaken structural and institutional reforms will enable Algeria to begin a process of bringing these institutions and the various schemes into line with international standards. Modernizing administration and lightening procedures are major objectives to be achieved.Algeria has countless assets. The reforms that have been initiated and those that are under way are a prelude to a better competitiveness of companies and a better attractiveness of the territories.Investment opportunitiesThe development and progressive deployment of interconnected logistics platforms represent, in Algeria, an excellent investment opportunity to position properly the country with regard to the international environment.The main objective is to provide project owners with many services efficiently and cost-effectively, while minimizing environmental and social impacts.High value-added niches and guaranteed return on investment:Establishment of a modern multimodal transport network to move people and goods throughout the country.Development of modern logistics platforms linked to the various transport networks offering all the required services for economic operators.Establishment of logistics companies.Development of modern means to optimize the flow of goods.Development of logistics training capacities to meet the huge needs in this field.
Why invest in Algeria?
Investing often means choosing technology, an option for a business model, but also means respecting standards and integrating various external constraints.It is a compromise between strategic choices and meticulous arbitrations.Investing abroad is an opportunity to open up to new markets that we often already know, the result and the consequence of successful local partnershipsThe possible destinations for foreign direct investment in the region, are numerous and attractive.So why invest in Algeria today?Algeria has a unique geostrategic position in the north of Africa on the natural air routes connecting Europe to the south of the continent. Its proximity to Europe on the southern shore of the Mediterranean is a major trading asset.With an area of 2,382,000 Km², it is the largest country in Africa, in the Arab world and in the Mediterranean.Algeria is one of the largest markets in the MENA region and the African continent.The country’s resident population is 44.7 million inhabitants, growing at a constant rate of about 2% per year, with a predominance of young people aged 25, who represent more than 60%. The population is composed equally of men and women.The working population speaks several languages. In addition to Arabic and Tamazigh, French is widely used in business environment, and English is spoken by the new generation.The literacy rate is close to 90 %; it is close to 100 % among the youngest.With more than 100 universities and colleges across the country, millions of graduates have been trained in all disciplines, particularly in the scientific and new technology fields.Human resources are manifold and available, seasoned, and qualified. Skilled labour force is also available and is affordable. The infrastructure is present and constantly developing.The road network is the heaviest on the African continent, with more than 180,000 km of roads and motorways and about 4,000 civil engineering structures.Port activity is important. It is structured around 40 ports located in the main cities, along 1,622 km Mediterranean coast.Airport activity is also significant with 37 passenger and cargo airports, ensuring air link between the north and the south of the country.Telecommunication and high-speed Internet network is widely deployed throughout the territory and is fully available and very easy to reach.Energy resources and various utilities such as water, gas and electricity are available, and they meet the standards required for industrial units.All these comparative parameters are advantageous, as they are at a minimum cost 50% lower than the corresponding average costs in Europe.Foreign direct investment develops only when visibility and stability are present and when risk measurement is possible and favourable.Algeria is a stable country in both political and economic terms.Democracy has been established for decades in a sustainable way.The security of property and persons is ensured and guaranteed.Expatriate’s families are easily educated in many foreign schools and in the main foreign languages.Algeria has shown its willingness to promote investment in general, and foreign investment in particular, through its tax and customs laws and regulations.Algeria has concluded more than thirty bilateral conventions with many countries on the protection of foreign investment, ratified and supplementing the multilateral conventions already signed.The Association Agreement with the European Union, the accession to the New York Convention on the Recognition and Enforcement of Arbitral Awards and the Convention on the International Center for Settlement of Investment Disputes are all real guarantees for investors.Today in Algeria, everyone has the chance to start a business in just a few days, the same for foreign investors. The rules are clearly established, transparent and extremely simple.The State has set up the National Investment Development Agency, ANDI, which acts as a single counter for the registration of investments.Moreover, many local and international law firms are working to provide legal, tax, and customs advice and assistance for setting up businesses, seeking partners and concluding agreements.Transfer of dividends, as well as the outcome of possible sale of all or part of shares, including capital gains are guaranteed for the foreign investor.The domiciliation of technical assistance contracts has been simplified and is now only a banking formality. It depends only on compliance with the rules set out by La Banque d’Algérie, which consist essentially in the traceability of the foreign origin of the invested funds.The State has set up a mechanism to encourage and promote investment, granting several tax and customs advantages and priority access to industrial land.The social climate has calmed down, and the SMB base is becoming more significant, enabling private/private partnerships between local and foreign investors in many sectors of industry and services to be considered.The business environment and climate have improved obviously.The State is promoting the digital economy, and creation of start-ups is speeding up, by strengthening more the industrial sector and available services by integrating new technologies.Many sectors offer unlimited investment opportunities, such as tourism and agriculture, as well as upstream and downstream industries.Algeria offers foreign investors the possibility of exporting in optimal conditions the production surplus, through the 7 land borders to the Maghreb, sub-Saharan Africa and to the countries around the Mediterranean, of an easy access. This potential additional market increases opportunities for development and regional cooperation and opens the field to even more investment.Finally, the quality of life in Algeria, the legendary hospitality of the Algerians, the variety and excellence of gastronomy and cuisine, and the multiplicity of reliefs and landscapes, make it a country where life is enjoyable, that one often leaves with regret.In just a few hours, by car or by plane to the regions of the Great South, you can relax by the sandy beaches or in remarkable coves, or you can ski in the mountains of Kabylie. You can discover the Roman ruins or the oases of the m’zab and the gates of the South, as you can explore the Tassili, Hoggar, Gourara, with their cave paintings, the Ksours, and the great Western erg with its endless dunes.Large coastal cities offer historical and cultural attractions. You can admire the works of Orientalist painters, miniaturists and young Algerian painters or the rich and varied handicrafts.The hotel offer is wide and varied, as are the services provided for visitors, putting at the disposal of foreign companies, qualified staff, technicians, and consultants.Obtaining residence permit and work authorisation is now simplified and faster.Today, Algeria is one of the most attractive and competitive places for foreign investment in the region.In Algeria, however, certain values are promoted and privileged such as the investment and technology transfer to simple trade, value creation chains to import and resale as seen (in the current condition). Priority is given to integrating projects that involve local players and subcontracting.Many multinationals in oil & gas, pharmaceuticals, industry, finance, but also in telecommunications, civil engineering works and construction sectors, have been present in Algeria for years.Many small and medium-sized businesses from Germany, France, Italy, Spain, Great Britain, Turkey, Portugal, Switzerland, South Korea, etc. are also present in these sectors, but also in agriculture, tourism, and services fields.Many public/private and private/private partnerships have been successfully established, namely in high-tech sectors, with full integration and full Algerian staff and leadership team’s recruitment.Extraordinary success stories are cited as examples today.Large international groups, have seen their Algerian subsidiary, achieve the best global performance of their network. Without mentioning specific companies, it is about three sectors, namely hotels, agribusiness, and telecommunications.Major international groups have integrated into their international job requirements, profiles of Algerian executives whom they have trained locally in their Algerian subsidiary and, succeed brilliantly abroad.The objective constraints that have existed until recently and which are linked mainly to the administrative red tape, have been examined, taken into charge at the top of the State, and completely corrected.The new legal and regulatory framework is inspired by the need and desire for efficiency and success and is part of the new non-hydrocarbon economic policy.
Economy Diversification: Promoting Export as a strategic option
Indeed, Algeria is dependent on the hydrocarbon’s income with GDP estimated at more than US$ 174 billion in 2019.Out of the total exports (for the same year) estimated at US$35.82 billion, 93% of the revenues are derived from hydrocarbon exports.Comparing these data with those of other countries in the region, such as Morocco, which made $29.13 billion, or Tunisia, which made $14.93 billion, these figures do not reflect the alarming reality of the national economy.On the other hand, the analysis of the evolution of exports during the period ranging from 2000 to 2019 shows a worrying fall in the export’s revenues, compared to imports.Unlike neighbouring countries which recorded stable performances during the said period, such as Morocco, which registered only a small decrease, and Tunisia (limited to -4%), the drop in Algerian national exports is estimated at 14.29%, while the various measures taken to control imports only allowed a decrease of 9.49%.The situation is becoming more troublesome as import prices increase and export prices decrease. Besides the disruption caused to the oil markets during the years 2019 and 2020, it should be noted that export prices which covered 82% of import prices in 2018 covered only 64% in 2019.Thus, the country’s challenge is no longer to diversify its exports in order to protect itself from the disruption in oil markets, but also to aim for a structure of products to be exported that can help the country to maintain or develop its revenues in general and those of the non-oil sectors in particular.In this context, it was noted that Algeria’s non-hydrocarbon exports for the year 2020 were limited to 2.26 billion US dollars, that is 6.30% of the total exports of the year, estimated at 24 billion, namely a fall of 12.59% compared to 2019. A brief reading of the structure of these exports shows that they are essentially derivatives of oil and gas production and brings out an extended dependence on natural resources. This should not obscure the efforts of some investors who intend to turn the tables.In recent years, we have witnessed many initiatives that have allowed diversifying the portfolio of exported products, notably sugar with 303 million US dollars, cement with 81.8 million US dollars and dates with 73.3 million US dollars.Other investors have also been able to place other products in the food-processing industry, electronics and many other activities, but the volumes remain insufficient and well below the objectives and requirements of the diversification process.In comparison with Morocco, the neighbouring country achieved in 2019 a volume of US$ 29.13 billion in exports, including US$ 20.85 billion in manufactured products and nearly US$ 2 billion in agricultural products, as well as a diversified portfolio of products placed on international markets.Encouraging export diversification experiencesThe same can be said for Tunisia, which achieved an export volume of manufactured goods estimated at 12.20 billion US dollars out of a total of 14.93 billion US dollars of global exports, namely more than 81% of the exported goods.The structural nature of industrial and agricultural investments in these countries gives the reached financial results significant macroeconomic stability, protecting them from fluctuations in the raw materials markets.While these countries have experienced an increase in the export’s volume, such is the case of Morocco, which imported US$ 50.73 billion in 2019, i.e. a deficit balance (Export/Import) of more than US$ 24 billion, these imports are mainly oriented towards the supply of the production devices.Despite the implemented restrictive measures, Algeria has imported US$ 41.93 billion, which is more than its exports, knowing that the imported goods are mainly intended to meet consumer needs.Thus, the Algerian economy remains one of the most concentrated in the region with an estimated concentration index of 0.471 and low diversification, according to UNCTAD (United Nation Conference on Trade and Development) estimates.While this is the situation of the Algerian economy and its exports, the country’s export potential remains significant.Indeed, despite the difficulties encountered in promoting productive investments, the experiences carried out by cement companies, Oran Steel Plant and other operators in the agricultural, food-processing and electronic sectors have shown that local production can easily position itself on regional or even international markets.The country now has 1468 operators active in export. They need support and incentives to make them a pool for more intense and targeted activity, highlighting the effect of the country’s comparative advantages and promoting the competitive advantages of resident operators.It should be noted in this connection that out of the total exports of non-hydrocarbon products, US$ 2.14 billion represent products from activities with high technological potential and not from traditional or labour-intensive activities.This indicator shows the quality of the made investments, although their number and production volume have not yet reached significant thresholds, likely to trigger a real economic transformation.The proximity of European markets, the available financial potential for investment encouraged by proactive public policies, as well as local technological innovations in the industrial field, really constitute important levers, which enable the investor in this promising market to benefit from certain assets.The strategic potential of Algerian economy has a particular interest for every seasoned investor, including European ones, due to the Association Agreement with the European Union and the preferential arrangements put in place, preparing for the transition to the future free trade area.Establishment of a special fundAlgeria will play a major role in the Arab Free Trade Area (AFTA) and the African Free Trade Area (AFTA) that have been unstable.It is obvious that the potential, geo-economic position and trade interactions with the regional environment are likely to place Algeria at the core of the economic exchanges in MENA and Africa.At the national level, Public Authorities are doing their best to improve the export ecosystem and are trying to increase public actions aiming at promoting and diversifying exports.Within this framework, a special fund for export support and promotion was set up and support measures were decided for investors, synthesized and made available to exporters, available online in dedicated guides published by the National Agency for the Promotion of Foreign Trade "ALGEX" (www.algex.dz).In addition to the tax incentives that have involved significant tax exemptions (Income tax(IRG), Professional activity tax (TAP), Corporate profit tax (IBS), VAT, ...), new measures have just been decided for the support of international transport costs on the national territory and abroad, as well as the reimbursement of participation expenses in fairs and economic events popularizing the local product.Measures have also been taken for the insurance and guarantee of export operations through CAGEX (Algerian Company of Export Insurance) and the organization of repatriation operation of export transactions proceeds, through the regulations of Banque d’Algérie.The overall process remains hard and not very flowing. It still suffers from bureaucratic red tape, but it is likely to be alleviated and simplified, leading to improvement in the medium term.Investors operating on the national territory are already aware of this bureaucratic routine and feel the need to spread out abroad and invest in regional markets. As they conduct surveys in the region’s markets, they perceive their preferred position and certain competitive advantages they hold.This is evident even before the completion of the facilitation measures decided upon by the public authorities and despite the constraints they face in developing their activities and conducting export processes.Thus, beyond the field contingencies and the economic situation, Algeria thanks to its geo-economic vocation and the scope of its natural and economic potential as well as its human capital, is predestined to play a vital role in the international trade of the whole region.Therefore, besides Algeria’s economy diversification, positioning in this export market is a strategic option for the future players of the global economy.