Algeria leans on France to develop domestic automobile industry
High demand. An employee works on a van as it moves along the assembly line at Peugeot Citroen PSA Sevelnord carmaker factory in Hordain in northern France. (Reuters)
2017/11/26 Issue: 133 Page: 19
The Arab Weekly
Tunis - The Algerian government is turning to French carmakers for support in expanding its domestic automobile industry as it competes with neighbouring Morocco in the trade.
Algerian officials are putting pressure on France to further integrate car assembly lines into the local economy. French Firm Renault has been operating in Algeria for two years.
On November 12, the French car and motorcycle manufacturer Peugeot Citroen PSA announced it would invest 100 million euros ($117 million) to build a factory in the western city of Oran.
The plant is expected to begin operations in 2018 and produce 75,000 cars annually once it reaches full capacity.
PSA also announced plans to set up a “car academy” in Algeria to train Algerian workers and technicians.
The announcements were made at a joint ministerial meeting in Algiers on November 12, during which both countries affirmed their commitment to economic cooperation.
The day before the meeting, the Algeria Patriotique newspaper, the unofficial mouthpiece of the Foreign Ministry, quoted unnamed Algerian officials as saying that “Algeria has decided to bang its fists on the table to signal to France our dissatisfaction.”
“French investors must do serious work here if they want to preserve their business interests in Algeria. This is the case for Peugeot, which must build an assembly line here. Otherwise, Peugeot will lose its Algerian market,” the newspaper reported an official saying. “For its part, Renault must expand its production, which is now lower than the local market needs.”
In 2014, Renault began operations in Oran, but the plant has produced less than half of the 75,000 vehicles planned per year.
France has shown more interest in Morocco as a hub for producing and exporting vehicles.
In 2015, Peugeot Citroen signed a deal with Rabat to build a plant in the northern city of Kenitra.
The $632 million plant, likely to be operational by 2019, is expected to produce 200,000 vehicles per year and create 3,500 jobs.
Peugeot will use the Moroccan plant as a launching pad for regional expansion, following in the footsteps of rival Renault, which recently topped 1 million vehicles produced from its Moroccan plants in Tangier and Casablanca.
The Rabat government aims to increase industrial contribution to GDP from 16% to 20% by 2030 and create about 500,000 jobs in the same period.
While Algeria has yet to match Morocco in trade incentives, authorities have leveraged the country’s huge domestic market, currently dominated by Renault and Peugeot, and the two countries’ bilateral trade of around $8 billion per year.
Algiers’ plan to increase French direct investments is part of a bold scheme to rebuild its manufacturing industry, which shrank from 10% of GDP in the 1980s to less than 3% this year.
Previous attempts to develop an industrial sector in Algeria have been hampered by decades of political instability and violent uprisings by Islamist jihadists.
In the 1970s, Algerian President Houari Boumediene put forward an ambitious plan to invest oil money in the manufacturing sector. In the 1980s, however, the country was forced to prioritise security spending during a decade-long civil war that cost an estimated $20 billion.
As oil prices rose in the years leading up to 2014, Algeria took in more imports, further straining its local manufacturing sector.
In 2014, Algeria ranked as the Maghreb’s largest market for cars, bringing in about 40,000. It plans to import 50,000 units in 2017.
But with oil prices declining in recent years, Algeria’s auto imports have dropped from $2 billion in 2015 to an estimated $1.3 billion in 2016 to a projected $900 million this year.
With high demand, however, Algeria is viewing its auto industry as a prime place to start for building up the manufacturing industry.
Some, however, have noted that Algeria lacks the right industrial environment to ensure the long-term success of a domestic car industry.
“The Algerian economy produces nothing outside of hydrocarbons,” said Algerian economist Abdelatif Benachenhou, noting that the population still enjoys living standards similar to those in most developed countries thanks to oil exports.
In August, Algeria’s then Industry and Mines Minister Mahdjoub Bedda said the domestic industry was merely “disguised imports.”
He promised to “put an end to the current model,” which was based on automobile assembly.
His successor, Youcef Yousfi, said he would release details of the “new model” in the next few days, adding that about 30 car manufacturers from across the world want to launch ventures in Algeria.
Increasing French direct investment in Algeria, including in car manufacturing, remains Algeria’s economic priority.
Algerian officials said the topic will be among the main issues discussed when French President Emmanuel Macron visits Algiers December 6.