Algeria developing domestic auto industry, cutting imports
To successfully establish a healthy industrial sector, Algeria must compete with Morocco.
Meeting demand. Car traffic in the capital Algiers. (AFP)
2017/03/12 Issue: 97 Page: 19
The Arab Weekly
Tunis - Algeria has taken steps to increase domestic auto manufacturing in an effort to boost an economy hurt by lower oil and gas prices, which account for more than 95% of its export revenues.
One of the most visible policies the government has enacted towards this goal is decreasing vehicle imports. The total value of auto imports dropped from more than $2 billion in 2015 to an estimated $1.3 billion in 2016 and is expected to be $900,000 this year. Algeria still imports more cars than any other country in the Maghreb.
Previous attempts to develop an industrial sector in Algeria have been hampered by decades of political instability and violent uprisings by Islamist militias.
In the 1970s, Algerian president Houari Boumediene put forward an ambitious plan to build up the manufacturing sector by investing oil money in industry. However, in the 1980s, Algeria was forced to prioritise security spending during a decade-long civil war, which cost the country $20 billion.
Since then, Algeria’s economy has made little progress, experts said.
“Just like a baby, the Algerian economy has no means of developing on its own,” said Abdelatif Benachenhou, an Algerian economist. “Like a baby needs its mother and father to survive, Algeria’s economy needs foreign contribution to function.”
However, the country is dependent on oil gas. “The Algerian economy produces nothing outside of hydrocarbons,” said Benachenhou, who noted that the population still enjoys living standards similar to those in most developed countries.
The Algerian government has met demand for durable goods, such as vehicles, and expensive cars are visible signs of improved living standards in the country.
However, with the decline in oil prices, Algeria can no longer sustain large-scale vehicle imports, the value of which reached approximately $8 billion in 2012.
Algeria has also invested more in security since 2012 to contain the spread of “Arab spring” uprisings.
Algeria’s overall economic picture is dire. In 2016, the country’s trade deficit jumped from $13 billion to $17 billion due to the declining value of oil and gas exports. Algeria’s budget deficit climbed to unprecedented levels, reaching 15% — approximately $25 billion — of gross domestic product (GDP) in 2016.
To compensate, the government has stocked more than $100 billion in foreign currency reserves and tightened control of foreign imports and currencies.
Now Algeria’s leaders are building an economic model designed to substitute expensive imports, such as cars and cement, with local goods and reduce the country’s dependence on oil revenue.
Given Algeria’s demand for vehicles, the auto industry is a good place to start.
In 2014, Algeria ranked as the Maghreb’s largest market for cars, bringing in about 40,000.
In the 15 years leading up to 2016, Algeria imported 4 million cars, spending $25 billion, official figures indicate.
To successfully establish a healthy industrial sector, Algeria must compete with Morocco, where French automobile manufacturing firm Renault produces 200,000 units annually.
Morocco used a plant in Tangiers as a platform to export cars through Tangiers Med port, whose location on the Moroccan coast nearest to the Iberian peninsula makes it a key springboard for maritime trade routes of Europe, the Americas and Africa.
To compete, Algeria is using its huge domestic market to incentivise foreign car manufacturers to open local plants. In 2014, Renault began operating a plant in Algeria’s western city of Oran, which is to produce 75,000 vehicles annually. German automaker Volkswagen is planning to open an assembly plant in the western Relizane province this year.
The Volkswagen plant is to cover 150 hectares near the village of Sidi Khettab. It is being built by China State Construction Engineering Corporation, which built Algiers Boumediene International Airport, Algiers International Conference Centre and Algiers’ Grand Mosque.
Expanding the automobile industry is expected to provide thousands of jobs.
Industry experts estimate that increased wages could drive demand for new cars to 2.5 million annually.