Algeria infrastructure

Algeria Economic Policy

Africa

In 1994, after the failure of the socialist development model from the 1970’s and 1980’s, Algeria stood on the brink. The oil crisis since 1984 led to a drop in government revenues; Algeria was insolvent and had to seek help from the International Monetary Fund. This decreed a drastic structural adjustment program: liquidation of the deficit state enterprises, restructuring of the enterprises. 815 companies were closed, with a total loss of 405,000 jobs during 1994-97. These layoffs meant the release of employees and civil servants in the modern public sector, which until then had been a protected segment of the market.

As a result, the unemployment rate rose from 24% in 1994 to 29% in 1997. Unemployment among young professionals became a mass phenomenon. Unemployment now became an urban phenomenon, many unemployed people gave up looking for a job and were pushed to the margins of society.

Other consequences were: an increase in female employment, the recurrence of child labor and an increase in small businesses. The declining standard of living of the vulnerable groups forced them to adopt survival strategies that went beyond employment behavior and affected family structures (decline in marriages, low birth rate).

President Bouteflika continued on this path after 2001: the way out of the crisis was to be found through privatization and the facilitation of foreign investment. Many international companies came to Algeria.

According to estatelearning, the Algerian production of goods and services, however, concentrated on the extraction and transport of oil and natural gas or their refinement and processing. However, Algeria had a lot of catching up to do in terms of imports, from capital goods to machinery to consumer goods and food, and numerous technology companies came into the country to promote and coordinate the sale of their products.

At the same time, the promotion of agriculture was neglected, so that the former agricultural export country became an import country.

It is true that after the devastating results, the departure from the planned economy was inevitable, and privatization led to a certain wave of start-ups by Algerian companies. But these mostly arose in the import and export environment, e.g. distribution of imports in various sectors, forwarding agents, transport companies, customs agencies, maintenance of imported machines and devices, training of employees. Numerous institutions, such as the German-Algerian Chamber of Commerce or the corresponding embassies, endeavored to promote and intensify external relations and to stimulate the Algerian import demand.

The Algerian economy was not really diversified, but oriented around external relations. There was only a very limited amount of in-house production of goods and services for the domestic market. The disparity between in-house production and imports grew bigger and bigger.

Therefore, in 2009 the Algerian government introduced import restrictions in the form of bureaucratic obstacles (prohibition of cash payments, so-called letter of credit). But these were relaxed again soon afterwards. Imports should be taxable and could no longer be financed “undocumented”. However, the dependency on imports and exports is now so deeply rooted that there can only be limited countermeasures.

In addition, there has long been a lack of regional integration within the Maghreb states, which only account for around 1% of their foreign trade with one another (EU around 60%).

On the macroeconomic demand side, the state minimum wage has been massively increased in the past three years, from 6,000 to 18,000 dinars (approx. 180 €) for the purpose of social pacification. However, this does not necessarily stimulate Algerian production, but rather the consumption of imported goods.

The infrastructure program

It makes sense to use the surpluses from the oil business to build an efficient infrastructure. Massive investments, for example in road construction, were realized.

Expenditure of US $ 156 billion is planned (in 5 years). The largest part of this goes into the expansion of the infrastructure, state housing and other construction measures. In addition to the investments planned from the current five-year plan – with a volume of more than 100 billion US dollars – there are projects from the investment plan 2005-2009 that have not yet been completed.

This includes the expansion of the road and rail network. The east-west highway, in the west to Morocco, in the east to Tunisia, is to be completed within 5 years at a cost of around US $ 10 billion. There are major technical challenges to be overcome, especially in the rocky and mountainous regions of the country, e.g. near Constantine (building kilometer-long tunnels).

For the expansion of the rail network, around 25 billion US $ are planned; a north-south connection Oran-Bechar for the transport of people and goods already exists. The plan envisages to triple the existing rail network by 2015, namely from approx. 3000 to approx. 10,000 kilometers. In addition, the local rail network is being expanded, and 14 cities are to get a tram.

Other focal points are the improvement of the water supply through seawater desalination plants and dams, but also wastewater treatment through sewage algae and sewage ponds.

4 new fishing ports are to be built, existing ones modernized and the airports also to be renovated.

The infrastructure program makes a consistent and plausible impression on paper. In our opinion, however, it is questionable whether the country’s project management and management capacities are sufficient for such an effort. Experience since the Boumedienne era, but also more recently, shows that foreign manufacturers, suppliers and general contractors do the business and hand over the projects “turnkey”.

Algeria infrastructure

The Desertec project

The high hopes that were placed in the Desertec project, in which leading groups Munich Re, Siemens, RWE or E.ON wanted to participate or in the planning stage, have not been fulfilled. The commitment of leading German companies seems to be heavily dependent on the expected government funding. In the meantime, most companies have left the project, the future of the project is uncertain: it has not yet died, but is currently only running on the back burner – measured against the originally overly optimistic ideas.

In the three North African countries Tunisia, Algeria and Morocco, wind parks, solar systems and power lines should be built and around € 400 billion should be invested by 2050. According to a study by the initiative, Europe’s electricity needs could largely be met from renewable energies by the middle of the century with desert electricity from North Africa and the Middle East. Nothing came of that at first – you have to be prepared for significantly longer start-up times. The further development is not yet done – but Desertec has not finally died.