03 July 2015
With several large-scale infrastructure projects in the works driving up demand for building materials, Algeria has turned its attention to boosting local production in a bid to reduce costly imports.

Activity across Algeria's construction industry is booming, buoyed by a wave of ambitious public projects, which includes dams, roads and housing developments. The former Minister of Public Works, Abdelkader Kadi, said earlier this year that road projects worth AD4.1trn (€37.4bn) and port projects worth AD550bn (€5.0bn) would be executed between 2015 and 2019. Similarly, the Minister of Housing and Urbanism, Abdelmadjid Tebboune, has confirmed that the ministry still intends to construct 1.6m housing units, despite weaker oil prices.

The increase in building work has led to demand outstripping supply when it comes to key materials such as cement. Algeria's cement manufacturing capacity stood at 21m tonnes per annum (tpa), according to the 2014 Global Cement Directory, 5m tonnes short of what was needed to meet demand. Customs data showed that the country's bill for cement imports reached $513.7m in 2014, up from $400.08m in 2013, the Algerian Press Service reported. Iron and steel were also in high demand, with the two making up 57% of last year's total construction material import bill when combined at a cost of $1.84bn.

So far 2015 has seen a slowdown in imports but the government is still keen to expand local capacity. Earlier this year, Tebboune said the government is targeting 85% local construction materials to be used in Algeria's construction projects, up from the current level of 65%.

However, the pressure has eased somewhat, as building materials imports − including cement, iron and steel, ceramics and wood − fell by more than a third to $664.8m in the first quarter of 2015, from 995.1m a year ago, according to Customs data. The quantity of major construction materials imported also dropped 12% to 2.2m tonnes in the same period.

Investment provides a boost

Based on the scope and volume of the expansion and greenfield developments currently in the pipeline, that drop is unlikely to be an aberration.

Turkish steelmaker Tosyali Holding inked a $508m deal in June with China's Sinosteel to expand capacity at its ore-to-steel plant in Algeria from 1.6m tonnes per year to 2.3m tonnes, according to a statement from Sinosteel.

The company chairman told Bloomberg in an interview at the end of November that it plans to spend $1.3bn to expand production capacity, after it began operations at its steel and iron manufacturing unit in mid-2013.

In a separate development, construction was scheduled to begin in the first quarter on the Bellara steel production site, which is located near Jijel. Operators of the joint venture - Algerian group Sider and Gatari Qatar Steel − are targeting 2m tpa in the first phase of the $2bn project.

Algeria's cement industry has also benefitted from a major increase in investment. South African cement producer PPC signed a $278m factory deal with Hodna Algerian Cement Company. Construction work is expected to begin shortly, according to Abdelkrim Mansouri, director-general of the Algerian National Development Agency for Investment (NDAI) quoted by industry media in April. Once up and running, the facility will produce 2.2m tpa of cement.

The state-owned Groupe Industriel des Ciments d'Algérie has also channelled AD154bn (€1.4bn) into operations with the aim of pushing up annual production from 11.5m tpa currently to 18.5m tpa by 2017. The Algerian unit of French construction giant Lafarge will also be bringing additional production capacity online within weeks through an AD30bn (€270m) project that will see regular production hit 2.7m tpa by 2016.

Algeria's efforts to boost local production of construction materials will help reduce imports, but softening demand in the near term may also help close the supply shortfall. The country's commitment to drive forward large-scale infrastructure projects has also come under the spotlight against the backdrop of weaker oil prices, prompting concerns about how the government will finance developments. Construction work on 230,000 social housing units is scheduled to begin before the end of 2015. While capacity for producing construction materials is increasing, production could still find itself playing catch-up with demand.

© Oxford Business Group 2015