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Algeria: Development talks see tangible results

A joint push by both the French government and private sector to increase business in Algeria has borne fruit in recent weeks, with several major industrial projects confirmed in sectors including pharmaceuticals, construction materials and automotive manufacturing. The intertwined relationship of the two countries has long underwritten strong commercial links, but this latest round of deals come as major firms from other countries such as Germany, the US and South Korea are also showing interest in Algerian industry.

A visit by a French business delegation - led by Jean Pierre Raffarin, special envoy for Franco-Algerian economic cooperation, and Pierre Lellouche, the minister of state for foreign trade - to the Algeria-France Partnership Forum held in Algiers at the end of May, has helped pave the way for more than 12 projects, giving a significant boost to French investment in the Algerian industrial sector.

Among the biggest announcements in recent weeks has been the purchase of Oran-based Alver, a formerly state-owned glass-packaging firm, by Verallia, a subsidiary of major French materials conglomerate Saint Gobain. Alver, which employs 474 people and produces over 60,000 tonnes of glass product a year, has reportedly been a target for Saint Gobain for nearly two years.

Similarly, Axa, the France-based insurance giant, signed a pair of shareholder agreements to set up one life and one non-life insurance company in the North African country. The company will hold 49% of the total company, the maximum allowed under law, in conjunction with the Banque Exterieure d'Algerie and the relatively young sovereign Fonds National d'Investissement (FNI), marking one of the first times the FNI has entered into a joint venture with a foreign firm.

Meanwhile, French pharmaceuticals major Sanofi-Aventis announced in early June that it will build a factory at Sidi Abdallah in the capital Algiers at a cost of AD6.6bn (€63.4m).

The facility, which will be the company's third in Algeria, will eventually produce 80% of the products it distributes in Algeria. The director-general of Sanofi-Aventis's local unit, Thierry Lefebvre, said the investment was a testament to the bright outlook of the pharmaceuticals sector in Algeria.

The hundreds of meetings between Algerian and French diplomats and business leaders also covered a potential investment by French automotive giant Renault. Algeria's minister for industry, small and medium-sized enterprises and investment promotion, Mohamed Benmeradi, said in May that negotiations with Renault over the establishment of a factory in the country were going "very well" and that he hoped the two sides would come to an agreement in the coming months.

Benmeradi said the French firm had agreed that 50% of components used to manufacture cars at the facility would be locally produced. As discussions reportedly stand at the moment, if the project were to go ahead, it would likely be located at Rouiba, around 20 km from Algiers, and involve an investment of approximately €1bn. Production at the factory would reach 150,000 vehicles annually after three years.

According to Benmeradi, the two sides are still negotiating issues surrounding the marketing and sale of the factory's output. Benmeradi said that the bulk of the vehicles produced at the facility would be intended for sale in Algeria, in line with the government's goals to spur local industry in order to reduce imports, though 10% of its output could be exported. Car imports in the first three months of 2011 increased by 40% over the same period in 2010, from 62,711 units to 88,027. This brought the value of imports during the period up from AD62.4bn, (€598.9m) to AD79.9bn (€766.8m).

Renault is not the only firm that appears to be interested in manufacturing cars in Algeria. In late May a local representative of German automotive giant Volkswagen told Algerian press that negotiations that began last November between the firm and the government over a potential factory in the country were going well and that a government delegation was due to travel to Germany for in-depth talks on the matter in June. Benmeradi has also said that a number of South Korean automobile companies are interested in manufacturing operations in the country.

The first Algeria car could be built in the country by 2014, the CEO of the National Industrial Vehicles Company (l'Entreprise nationale des véhicules industriels, SNVI) predicted in June. The prospects for car manufacturing in Algeria are spurring interest and investment in other sectors; for example, steel manufacturer ArcelorMittal, who already has invested huge amounts of capital in the country, is reportedly considering a 700,000-tonnes-per-annum steel facility in Oran to supply the automotive industry.

The fate of some of the other projects covered in the negotiations appears uncertain. In the petrochemicals sector, for example, the negotiations do not seem to have yet resolved disagreements between Algeria and French energy giants Total and Sonatrach over a $5bn ethane cracker project announced in 2007; some reports suggest that the dispute is centred on the pricing of gas feedstock for the cracker.

Nevertheless, recent developments demonstrate major investor interest across a range of industrial sectors in Algeria from both French and other companies, and further signs of progress are likely in coming months.

© Oxford Business Group 2011