Our study at Roland Berger 'Africa – The Next Growth Opportunity' analyses the business opportunities and challenges in Algeria. The study also gives a fair understating of many promising industries in the country. To know more about Algeria, you can read an excerpt out of our study here

1. 41
1. Algeria
1.1 Country overview
1.1.1 Algeria: A promising destination for investment in North Africa
Algeria offers direct access to a large
consumer market in the North African and
European region. Algeria has a large
population of 40 million with a relatively high
per capita GDP of USD 4781 (constant 2010
prices). The country has signed FTAs with
major North African as well as European
nations. It is a member of Arab Maghreb
Union and Greater Arab FTA which provides
direct access to the markets of Libya,
Morocco, Mauritania, Tunisia, Egypt, Jordan
etc. Additionally, it is also a signatory of the
EUROMED FTA, which provides access to
markets of the entire European Union
123
. The
extent of accessibility to European markets is further enhanced by the geographic proximity of Algeria
with Europe. The second largest sea port in Algeria, Oran, is just 106 nautical miles (196 kms) away
from the Almeria port in Spain
124
.
In addition, Algeria possesses abundant energy resources, both renewable and non-renewable, which
hold the potential for driving strong economic growth for the country in the near future. Algeria has the
third largest oil and second largest gas reserves in Africa and third largest shale gas reserves in the
world
125
. It is the twelfth largest exporter of oil and fifth largest exporter of natural gas in the world.
Moreover, Algeria possesses a potential for annually generating 51 TWh of electricity from renewable
sources. Algeria receives around 2000 hours of sunshine each year, which provides it with a potential
of generating 14 TWh/year of power. Additionally, Algeria is blessed with high intensity winds,
especially in the Sahara region, which further enhance the power generating potential by
37 TWh/year.
Lastly, Algeria has a huge economy which is characterized by stable growth, low inflation, low
external debt and large foreign exchange reserves. Algeria's GDP amounted to a total of USD 190
bn
126
(constant 2010 price) in 2015. It has had a stable growth of 3.4% between 2011 and 2015.
Moreover, Algeria has managed to keep inflation under the 5% mark since 2012
127
. Over the past
decade, Algeria maintained a strong external debt policy and collected substantial foreign exchange
reserves. Algeria has negligible external debt, which amounted to only DZD 25 bn (~ USD 310 mn) in
2014. Additionally, Algeria has large foreign exchange reserves, which amounted to USD 121.9 bn as
of third quarter of 2016
128
.
Access to a large consumer market, abundant energy resources and a resilient economy
make Algeria a promising destination to invest in

2. 42
Algeria's attractiveness for investment is further complemented by a fair amount of political stability
and cost competitiveness. Algeria offers an attractive environment for investment since it is one of the
politically more stable countries in North Africa. It has successfully managed to avert major political
and social upheavals in the past two decades, even during the turbulent period of the Arab Spring.
Notably, Algeria's political stability index has improved from -1.36 in 2011 to -1.17 in 2014, as the
government carried out large expenditure programs on social welfare
129
.
Algeria offers high cost competitiveness in terms of monthly wages and power prices. The minimum
monthly wage in Algeria is only USD 210 which is much more competitive than European nations like
Germany and France where the minimum monthly wage is USD ~1600
130
. Due to the abundance of
energy resources in Algeria, power is available at a lower rate than in its European neighbors.
Depending on the province, the electricity price ranges between 1 and 4 Euro cents per kWh as
compared to the price of 6.4 Euro cents per kWh in Germany
131
.
The real GDP of Algeria grew at a rate of
3.9% in 2015 against the rate of 3.8% in
2014. The inflation rate remained under the
5% mark during the same period.
Additionally, the growth attained was
inclusive wherein both hydrocarbon and
non-hydrocarbon sectors grew. The
hydrocarbon sector reported a recovery of
5% in the fourth quarter of 2015, resulting
in an annual sectoral growth of 0.4% in
2015 against a decline of 0.6% in 2014.
The non-hydrocarbon sector grew at an
average rate of 5.5% in 2015.
Since 2014, the government's revenue has dropped because of the sharp decline in global oil prices.
Historically, the Algerian economy has remained highly reliant on the oil and gas sector. Between
2002 and 2014, the sector on an average had accounted for 98 percent of export earnings, 69
percent of fiscal revenues, and 36 percent of the national GDP
132
. Thus, the sharp drop in average oil
prices from USD 100 per barrel in 2014 to USD 59 per barrel in 2015 has adversely affected Algeria's
fiscal balance, trade balance and currency valuation. Algeria's fiscal deficit narrowed to -13.2 in 2016
from -18.5% in 2015. Its trade balance declined sharply to -9% of GDP in 2015 from -1.5% in 2014.
Moreover, the Algerian Dinar depreciated 20% with respect to the USD and 4% with respect to the
Euro between 2014 and 2015.
Source: "Minimum Wages." 2016 Euromonitor International.
http://www.portal.euromonitor.com/portal/analysis/tab
Source: "Algeria Political Stability - Data, Chart |
Theglobaleconomy.Com". 2016. Theglobaleconomy.Com.
http://www.theglobaleconomy.com/Algeria/wb_political_stability/.
Source: "Algeria | African Economic Outlook". 2016. African Economic Outlook.
http://www.africaneconomicoutlook.org/en/country-notes/algeria.

3. 43
1.1.2 Government Response
The government has launched an inclusive and sustainable growth plan called Industrial and Energy
Competitiveness Support Programme (PACIE), which is based on three broad objectives:
strengthening fiscal consolidation through improved domestic revenue mobilization and rationalization
of budgetary expenditure; improving the investment climate for private investment; improving the
efficiency of the energy sector and promoting renewable energy. The programme has also received
financial support of USD 1 bn (Euro 900 mn)
133
from the African Development Bank (AfDB).
Fiscal Consolidation: The government aims
to increase non-oil tax revenue from 17.1% of
GDP in 2015 to 17.7% of GDP in 2017 and to
simultaneously reduce the public expenditure
from 34.6% of GDP in 2015 to 30.6% of GDP
in 2017. This is planned to be carried out by
increasing the tax revenues and by managing
the public expenditure more effectively.
The improvement in tax collections is planned by increasing tax rates and tax collection efficiency.
The government has proposed to increase tax rates on vehicle purchase, land and office registration
and on the income of managers of limited liability companies and partners of limited partnerships, in
addition to the recent tax rate increase on oil and gas products. The government has already
increased VAT from 7% to 17% on consumption of diesel and natural gas (beyond 250 mn BTUs per
quarter)
134
. Additionally, the government has planned to open more taxation centers (CDIs) in order to
strengthen the national tax collection mechanism and broaden the tax base.
In addition, the government plans to control the public expenditure by decreasing the budgetary
allocations towards capital development, by imposing restriction on imports and by effectively
monitoring the execution of planned expenditure. A 9% cut in expenditure was announced, in the
2016 budget primarily on capital expenditure
135
.
In response to weakening macroeconomic stability, the government has taken corrective
measures to consolidate fiscal expenditure, promote investment and diversify the economy
Source: "Global Economic Databank". 2016.
http://www.oxfordeconomics.com/forecasts-and-
models/countries/data-and-forecasts/global-economic-databank.
Source: "External Balance On Goods And Services (% of GDP) |
Data". 2016. Data.Worldbank.Org.
http://data.worldbank.org/indicator/NE.RSB.GNFS.ZS?end=2014&lo
cations=DZ&start=2006.
“The reduced oil price has been a wake-up call for
Algeria and has pushed it towards diversifying away
from energy sector and towards new industries as
well as to attract more partners from abroad,”
— Ismail Chikhoune,
President and CEO of the US-Algeria Business
Council. “

4. 44
Improving the investment climate: The government plans to introduce a number of reforms to
improve economic competitiveness, stimulate investment, improve the business climate and facilitate
business development. It has established a national committee for improving the business
environment in Algeria. It has planned to build 50 industrial parks nationwide and establish 14
industrial clusters to bring together the stakeholders of each sector for making that sector more
competitive.
The government has also started promoting local manufacturing of pharmaceuticals, automotive
parts, solar power panels, electrical equipment, etc., by providing various tax incentives. It subsidizes
the interest rates by 3%, irrespective of the lender, for investments made in the priority sectors like oil
and gas, renewable energy, healthcare, mining, tourism, etc., for 5 years
136
. It has established a
guarantee fund for financially supporting small and medium-sized enterprises (SME) and youth
entrepreneurs in order to generate more jobs. Additionally, the government plans to standardize the
customs tariff structure at 10 digits, in accordance with the standards set by the nomenclature of the
Harmonized System of Description and Codification of Goods for promoting trade.
Promoting renewable energy and energy efficiency: In order to reduce dependence on the
exhaustible fossil fuels for its domestic power needs and to increase its exports, the government is
planning to develop its renewable energy resources for fulfilling domestic power requirements. It has
planned to install 4525 MW and 22000 MW of renewable power generating capacity by 2020 and
2030, respectively
137
.
In addition to developing the renewable power generation capacity, the government has also planned
to improve the efficiency of energy utilization. It is emphasizing on improving heat insulation of
buildings, developing solar water heating, promoting low energy consumption lamps, substituting all
mercury lamps by sodium lamps, promoting LPG and NG fuels. Moreover, it is promoting co-
generation technology by converting simple cycle power plants to combined cycle power plants
wherever possible
8
.
1.1.3 Challenges to growth
The business environment in Algeria is relatively difficult as reflected from its poor rank of 156 out of
190 countries on the Ease of Doing Business rankings in 2017 published by the World Bank.
Bureaucratic hurdles in starting a business, getting credit, paying taxes, etc., are considered the
biggest reasons behind the poor performance.
8
In electric power generation a combined cycle is an assembly of heat engines that work in tandem from the same source of
heat, converting it into mechanical energy, which in turn usually drives electrical generators. Combining two or more
thermodynamic cycles results in improved overall efficiency, reducing fuel costs.
The low ease of doing business due to bureaucratic hurdles, low level of diversification in
the economy, increasing threat of terrorism and low availability of skilled labor are the
major risks that could deter private investment and dampen the overall economic growth in
Algeria

5. 45
Additionally, Algeria has a restrictive
regulatory environment with foreign
investment allowance of only up to 49%
stake in any business activity. However, the
government is undertaking several reforms to
improve the investment climate in the
country.
The Algerian economy is over dependent on
the oil and gas sector revenues and lacks
diversification. As discussed earlier, the
sector on an average forms 98% of the total
export earnings and 36% of the national
GDP
138
. As a result, the Algerian economy
remains vulnerable to the fluctuations in
global oil prices. Although the government is
undertaking measures to diversify and
reduce its reliance on fossil fuels, the
success of these measures will be evident
only over the medium to long term.
Increasing terrorist activities in neighboring
countries like Libya have also posed a security
threat to Algeria. In 2013, there was a terrorist
attack on one of the largest gas fields in Algeria in
which forty workers were killed. The facility was
severely damaged which led to production loss of
8 bn cu.ft. per annum. However, the government
has been investing in upgrading Algeria's security
apparatus.
Lastly, Algeria has low availability of technically skilled labor force. Moreover, it was ranked 132
nd
out
of 138 countries in terms of labor market efficiency in the Global Competitiveness report published by
the World Economic Forum in 2016
139
. However, the scenario is expected to improve as the
government plans to expand the network of vocational training institutes, to enhance the accessibility
of ICT in schools and universities and to establish new universities.
1.1.4 Promising industries in Algeria
Oil and gas, renewable energy and pharmaceuticals are emerging as the prominent
industries in Algeria that are expected to grow and drive new investments into the country
"Bureaucracy is the biggest challenge while
setting up a business in Algeria; you need a
local person or an embassy official to help
you out in the process."
— Mr. Farouk Benabdoun,
Head, Siemens Algeria
Source: "Doing Business In Algeria - World Bank Group". 2017. Doingbusiness.Org.
http://www.doingbusiness.org/data/exploreeconomies/algeria/.

6. 46
The oil and gas industry contributes significantly to Algeria's revenues and overall economic growth.
In addition to this, it is also the largest receiver of foreign direct investment in Algeria. Between 2011
and 2015, the oil and gas sector in Algeria has received a total foreign direct investment of USD 10.5
bn. Moreover, the sector reported a recovery of 5% in the fourth quarter 2015, ending nine
consecutive years of decline
140
. It is thus no surprise that the government keeps on promoting this
sector.
The Government of Algeria focuses on reducing its dependence on fossil fuels for its energy needs
and promotes the development of the renewable energy sector. Algeria had a total installed
renewable power generation capacity of 180 MW in 2015. The Government has planned to increase it
to 4525 MW by 2020 and 22000 MW by 2030. Local and foreign private investments in the sector are
being promoted with all upcoming projects being implemented in Public Private Partnership mode.
Algeria has the third largest pharmaceutical market in the Middle East and Africa region, after Saudi
Arabia and Egypt, with total pharmaceutical sales of USD 4.1 bn 2015. It is also the largest importer of
pharmaceutical products in Africa and relies heavily on imports for meeting its pharmaceutical
requirements. From 2012 and 2014, Algeria had imports equivalent to 70% of its total annual
pharmaceutical sales every year. In order to reduce its overdependence on imports, the government
is promoting local production by providing tax incentives and by investing in the improvement of the
healthcare infrastructure.
Thus, Roland Berger selected and further analyzed these three sectors for their growth potential and
the investment opportunities that they offer.
Source: "Undata | About Us". 2016. Data.Un.Org. http://data.un.org/CountryProfile.aspx

7. 47
1.2 Renewable Energy
1.2.1 Sector Overview
The renewable energy sector in Algeria is growing
rapidly. Presently, Algeria relies heavily on fossil
fuels like crude oil and natural gas for meeting its
increasing power requirements. In 2015, the power
generated from renewable energy sources
constituted merely 0.3% of the total on-grid
production. Installed renewable capacity based on
solar and wind contributed 35 MW towards the
total power generation capacity of 17 GW. The
hydel capacity amounted to 135 MW. Overall the
sector contributed ~1% to the entire GDP of
Algeria in 2015
141
.
Meeting domestic energy requirements by
renewable sources for releasing more non-
renewable sources for exports, along with the
potential to address concerns of environmental
preservation, is driving the government's policy
actions for quick development of renewable
resources in Algeria.
The Algerian government is aggressively
promoting development of its renewable sources
and wants to position itself as a major player in the
production of electricity from renewable sources
such as photovoltaic and wind power. In 2015, it
announced modifications to its existing renewable
energy development program and now aims to
install about 4500 MW and 22000 MW of
renewable power generation capacity by 2020 and
2030, respectively. Three solar power plants in
Meghair, Naama and El Oued with respective
capacity of 80 MW, 70 MW and 150 MW and two
wind power plants, each with a capacity of 20 MW,
are already planned
142
. Moreover, the country aims
to capture the electricity export market in the
region as it plans to utilize 10000 MW of the
installed renewable capacity to export electricity to
the power hungry neighbors in North Africa and
Europe
143
.
The renewable energy sector in Algeria, though currently small, is expected to grow rapidly
to cater to domestic consumption energy requirements and release of non-renewable fuels
for exports
Source: "Ministère De L'énergie - Algérie - Bilan Énergétique National".
2016. Energy.Gov.Dz.
http://www.energy.gov.dz/francais/index.php?page=bilan-des-
Source: "National Renewable Energy Program - Algeria (2015 - 2030)
- Renewable Energy Development Center Algeria". 2016. Cder.Dz.
https://www.cder.dz/spip.php?article1748.

8. 48
1.2.2 Drivers and growth outlook
Increasing domestic demand: The total national demand for electricity has grown from 41 TWh in
2011 to 58 TWh in 2015, at a CAGR of 9%
144
driven by an increase in population, industrialization and
urbanization. This increase in demand has been met by increasing power generation capacity based
on fossil fuels.
The power consumption is forecasted to increase from 58 TWh in 2015 to 80 TWh in 2020
145
. It can't
be completely met by increasing installed power generation capacity based on exhaustible fossil fuels
in a sustainable manner. Hence, the government has realized the need to increase the renewable
share in the national energy mix. Sonelgaz, the state owned power generation company and the
largest in Algeria, plans to build additional 28 GW of power generation capacity by 2025 and half of it
is planned to be composed of renewable energy.
Huge potential: Algeria has a potential of annually generating 14 TWh from solar energy and 37 TWh
from wind energy. Thus in total Algeria has the potential to generate more power through renewable
sources than what it consumed in 2013
146
.
Government support: The government is providing both financial and institutional support for
promoting private investment in the renewable energy sector. The financial support is provided in
terms of technology specific premiums, tax benefits and feed-in-tariffs. The government has promised
technology specific premiums to private electricity producers for each kWh of renewable power they
feed into the national grid over the market price of electricity. A premium of 300% is offered for wind
and solar power while premiums worth 100% and 200% are provided for electricity generated through
hydel and waste incineration
147
.
Additionally, Feed-in-Tariffs (FITs) have also been fixed for 20 years for ground-mounted solar power
installations of capacity greater than 1 MW. For plants with capacities between 1 and 5 MW, the tariff
has been set at DZD 16/kWh for the first five years and between DZD 12-20/kWh for subsequent 15
years. For plants with higher capacity, the tariff has been at DZD 13/kWh for the first 5 years and
between DZD 9-13/kWh for subsequent 15 years
148
. Moreover, the government has invited foreign
investors to propose their desirable tariffs in international currencies like USD, Euro, etc., since the
recent depreciation in the Algerian Dinar's value has made these aforementioned tariffs economically
less attractive.
Meanwhile, institutional support is provided by streamlining and simplifying the administrative
processes under a single regulator viz. CREG (Electricity and Gas Regulation Commission) and by
establishing a market for renewable energy trade. The government has also established IAER, the
Algeria Institute of Renewable Energy, for training the work force (engineers and technicians) and for
promoting R&D in this field.
Planned public investment: In addition to the above factors, the government is planning to invest
heavily in developing renewable energy. It has taken the prime responsibility of funding ~USD 99
bn
149
for renewable energy development until 2030.
The sector is poised to witness a robust growth in the near future because of rising domestic
demand for electricity, huge potential for power generation, planned public investment and
the support provided by the government for setting up new plants

9. 49
1.2.3 Investment opportunities
The government is inviting private investors to engage in a public-private partnership agreement with
it for developing power plants based on solar and wind energy. Majorly, opportunities exist to build,
own, operate a power plant for a predetermined period and then transfer it to the government.
The government also aims to achieve localization of 80%, 50% and 50% for the solar PV, solar
thermal and wind energy industry by 2020. This has opened up several new avenues in addition to
existing opportunities of supplying equipment.
In the field of photovoltaic solar energy, opportunities exist for manufacturing solar panels, silicon,
inverters, batteries, transformers, cables and other equipment used in the construction of the plants.
Opportunity also exists to partner with state owned CEEG (Company of Engineering of Electricity and
Gas) for setting up an integrated PV equipment production facility in Rouiba. In the field of solar
thermal energy, opportunities exist for manufacturing mirrors, coolant, energy storage equipment and
power unit equipment. Additionally, opportunities also exist for building design and engineering
capacities in the country.
In the field of wind energy, manufacturing opportunities exist for the equipment of wind turbines such
as masts, rotors and nacelles.
150
1.3 Oil and Gas sector
1.3.1 Sector Overview
On the global scale, these reserves rank at fifteenth and seventh place respectively. Quantitatively,
Algerian reserves for crude oil and natural gas amount to be 12.2 billion barrels and 159 trillion cu.ft.
respectively
151,152
. The Algerian reserves are concentrated in a few large fields. Most proven oil
reserves are in the country's oldest and largest oil field, Hassi Messaoud, located in the eastern part
of the country, near the Libyan border. Hassi Messaoud is estimated to hold 3.9 bn barrels of proved
and probable recoverable reserves, followed by the Hassi R'Mel field (3.7 bn barrels) and the
Ourhoud field (1.9 bn barrels). Moreover more than half of the total proven natural gas resources
reside in Hassi R'Mel field, located in the center of the northwest of Hassi Messaoud.
In addition to the abundant conventional resources, Algeria is endowed a total of 707 trillion cu.ft. of
technically recoverable shale gas reserves. The reserves rank third in the world only behind China
(1115 trillion cu. ft.) and Argentina (801 trillion cu. ft.)
153
. The Ghadames Basin, encompassing
eastern Algeria, southern Tunisia, and western Libya, has been identified as a major shale gas
basin
154
.
The government's focus on increasing installed renewable capacity and on locally sourcing
the equipment has opened up a lot of new opportunities for foreign investors.
Algeria is one of the leading oil and gas producers in Africa. It is endowed with some of the
largest proven resources in the world. It possesses the third largest proven reserves of
crude oil and second largest proven reserves of natural gas in Africa.

10. 50
Algeria is the fifteenth largest producer of crude oil and ninth largest producer of natural gas in the
world
155
. In 2015, Algeria produced ~80 M TOE (mn-ton of oil equivalent) of natural gas and ~ 54 M
TOE of crude oil
156
. It produces high quality light crude oil with low sulfur content which is also known
as Sahara blend. Algeria exports nearly 2/3
rd
of its total production. It is the twelfth largest exporter of
oil and fifth largest exporter of natural gas in the world. Europe is the largest consumer of Algerian oil
and gas products. It consumed 86% of the total natural gas exported by Algeria in 2014 and 76% of
total oil exported by Algeria in 2015
157
.
These large exports are enabled because of the
presence of an extensive network of pipelines,
connecting production fields and refineries to tanker
terminals at the ports. The most important pipelines
carry crude oil from the Hassi Messaoud field to
refineries and export terminals at Arzew, Skikda,
Algiers, Annaba, Oran, and Bejaia in Algeria and La
Skhirra in Tunisia. Additionally, two major natural gas
pipelines connect the biggest gas field, Hassi R'Mel,
to export terminals at Arzew and Skikda. The south
eastern gas field in Alrar is connected via Hassi R'Mel
to these export terminals. Apart from these domestic
pipelines, Algeria also has three transcontinental
export natural gas pipelines: two transport natural gas
to Spain and one transports natural gas to Italy.
However, between 2011 and 2015, the total export of
oil and gas has decreased from 114 MTOE to 100
MTOE. This can be attributed to the stagnation of production output and increase in domestic
consumption in the same period. The production has stagnated because of over exploitation of
existing fields and delays in discovering, developing and allocating new fields due to indecisiveness of
bureaucracy, corruption scandals, technical problems and infrastructural gaps. Only the production of
liquefied natural gas has increased from 8 MTOE in 2011 to 10 MTOE in 2015. Meanwhile, national
consumption has increased at a CAGR of 7% due to enhanced affordability of subsidized oil and gas
products and increased urbanization and transportation activities
158
.
Source: "Ministère De L'énergie - Algérie - Bilan Énergétique
National". 2016. Energy.Gov.Dz.
http://www.energy.gov.dz/francais/index.php?page=bilan-des-
realisations-2.
Source: Stafford, James. 2016. "Betting On Mediterranean Shale: 3 Plays, 1 Winner | Economonitor". Economonitor.Com.
http://www.economonitor.com/blog/2013/01/betting-on-mediterranean-shale-3-plays-1-winner/.

11. 51
The exploration and production of oil and gas in Algeria is primarily dominated by the national oil
company, Sonatrach. In 2013, it produced 83% of total crude oil output and 93% of total natural gas
output
159
. The remaining production was carried out by private players, all of them being European in
origin. Italy based ENI and Norway based Statoil are the largest private players present in the
exploration and production of crude oil and natural gas respectively.
Additionally, Sonatrach controls nearly the entire downstream operations in the sector. The
downstream activities majorly include refining, processing, marketing and distribution of oil and gas
products. It owns and operates four major oil refineries which have a total capacity of 0.5 mn barrels
per day. The only foreign player present in downstream is China's national petroleum company
CNPC, which owns and operates the Adrar refinery which has capacity of producing 13,000 barrels
per day
160
.
1.3.2 Drivers and growth outlook
Huge potential for further exploration: At the current production rates, Algeria's proven crude oil
and natural gas reserves will last for another 20 years and 24 years, respectively. In addition to it, the
undeveloped, proven shale gas resources can comfortably cover the next 100 years at the current
production rate of natural gas. However, the prospects of developing shale gas resources can be
affected by Algeria's limited water resources, since the process of producing shale gas is highly water
intensive.
Planned public investment: The government invests heavily in building the oil and gas
infrastructure. There are upcoming natural gas production plants which will enhance the existing
production capacity by 15% by the end of 2019. In addition to upcoming plants, the existing In
Amenas gas plant, which was shut down due to a terrorist attack in 2013, will come back to full
operation in 2017. This is expected to increase the production by 4 mn. cu.meters per day.
Huge potential of further exploration, upcoming public investment, government incentives
and rising domestic consumption are the major drivers for the sector
Source: Energyboardroom.Com.
http://www.energyboardroom.com/country_reports/algeria-oil-gas-report/.
Source: Energyboardroom.Com.
http://www.energyboardroom.com/country_reports/algeria-oil-gas-report/.

12. 52
Moreover, two new transcontinental pipelines have also been planned: one will run from Algeria to
Italy (the GALSI pipeline), another one will connect Algeria to Nigeria via the Niger (the TSGP
pipeline). The GALSI pipeline is expected to be commissioned by 2018
161
. Together, both of these
pipelines will enhance the existing pipeline transport capacity of 2010 bn cu.ft. per annum by 1341 bn
cu.ft. per annum
162
.
Lastly, the government has planned to
invest nearly USD 68 bn over next 20
years for the development of shale gas
resources.
Incentives provided by the
government: In order to promote
private investment, the government has
carried out reforms in its tax policy. It has
replaced revenue based tax with profit
based tax and has also extended the
exploration period. The exploration
period and production for shale gas and
shale oil has also been increased to 40
and 30 years, respectively, from an
earlier limit of 25 years. This provides the
investors with more time to produce and
earn profits.
Increasing domestic demand: The
domestic demand for oil and gas
products will increase because of an
increase in power consumption. Owing to
growing urbanization as well as
manufacturing and transportation activity, power consumption is forecasted to increase from 58 TWh
in 2015 to 80 TWh in 2020
163
. In order to meet this increase in demand, Sonelgaz has planned to
install an additional 28 GW by 2022 of power generation capacity, half of which will be based on fossil
fuels i.e., oil and gas.
1.3.3 Investment opportunities
Exploration and development is one of the biggest opportunities because of the large potential for
further exploration of Algerian resources. Nearly 99% of the USD 10.5 bn FDI that the sector received
between 2011 and 2015 went into upstream activities (exploration and development).
Additionally, the aforementioned upcoming projects offer new opportunities for supplying tools and
equipment used in upstream activities like drilling equipment (drilling outfits, bails, draw works
winches, crown blocks, traveling blocks); pumping equipment (centrifugal pumps, well head fittings,
Owing to substantial public investment planned in the near future, Algeria's oil and gas
sector offers tremendous opportunities across the entire value chain, especially in
upstream activities
Source: "Algeria - International - Analysis - U.S. Energy Information
Administration (EIA)". Eia.gov.
https://www.eia.gov/beta/international/analysis.cfm?iso=DZA.

13. 53
fans, compressor, actuators); storage and transportation equipment (corrosion resistant pipes, tanks),
etc., and for partnering with Sonatrach for improving production from the existing plants. Sonatrach
has been searching for partners who can help it maximize the output from old and matured fields in
Hassi Massoud, Hassi Berkine and Illizi. Recently, it awarded a USD 339 mn contract to Japanese
firm GJC for improving the production from Hassi Massoud field
164
.
1.4 Pharmaceutical industry
1.4.1 Sector overview
The large size of Algeria's pharmaceutical market is
because of Algeria's large population of elderly (above 65
years) and children (below 15 years) and the universal
health cover supported by the government. In 2015, Algeria
had total population of 40 mn with high a dependency ratio
9
of 53%. Moreover, Algeria supports universal healthcare,
which is accessible and free of charge to all its citizens
even for terminal diseases like cancer.
In 2015, the Algerian government contributed USD 8.2 bn
towards the total healthcare expenditure of USD 11.1 bn
(7.2% of GDP). The rest was private expenditure.
Consumption of pharmaceutical products was one of the
major constituents of the total healthcare expenditure,
accounting for 37% or USD 4.1 bn
165
.
The per capita drug spending in Algeria stands at USD
104, much higher than other North African countries (e.g.,
USD 41 drug spending per person in Morocco) but lower
than developed countries having a universal health cover
like Germany (USD 678)
166
.
Of the overall drug market in 2015, prescribed patented
drugs accounted for ~53% of the total sales by value. This
was followed by prescribed generic drugs accounting for
31% and OTC drugs accounting for 16% of total sales.
Between 2012 and 2015, the prescribed generic drugs
segment grew the fastest at a CAGR 16.7% followed by
prescribed patented drugs growing at 12.4% over the same
period
167
.
9
The dependency ratio is a measure showing the number of dependents, aged zero to 14 and over the age of 65,
to the total population, aged 15 to 64.
Source: "Algeria Pharmaceuticals & Healthcare Report".
2016. English. http://store.bmiresearch.com/algeria-
pharmaceuticals-healthcare-report.html.
Algeria has the third largest pharmaceutical market in the Middle East and Africa region,
after Saudi Arabia and Egypt with total pharmaceutical sales of USD 4.1 billion in 2015
Source: "Algeria Pharmaceuticals & Healthcare Report".
2016. English. http://store.bmiresearch.com/algeria-
pharmaceuticals-healthcare-report.html.

14. 54
Domestic pharmaceutical manufacturing predominately comprises of generic drug manufacturing,
which accounts for 90% of the total local production. Local manufacturing is dominated by three state
owned players namely Simedal, Saidal (the most prominent) and Central Pharmacy Hospital (CPH).
Algeria relies heavily on imports for meeting the demand for other drugs. Between 2012 and 2014,
Algeria had imported nearly 70% of its total pharmaceutical sales, each year
168
.
Many global pharmaceutical companies are
already present in Algeria and record strong
sales in the Algerian market. Sanofi was the
market leader in the Algerian pharmaceutical
market with sales of USD 481 mn in 2013,
which grew at 18% over the previous
year
169
. Moreover, Sanofi had more than
double the sales of the second market
player (Glaxo Smithkline). The company
offers a number of prescription products,
including those in respiratory, cardiovascular
and anti-infective therapeutic areas.
In the recent years, local production in
Algeria rose significantly, increasing by 41%
in 2014, according to Algeria's Ministry of
Health. In 2015, there were 132
pharmaceutical factories and production
units operating in the country. Also in
2014
170
, in order to cut down on rising import
expenditure, the government imposed import
restrictions on those pharmaceutical
products that were also being locally
manufactured. These developments led to
significant decline in the value of
pharmaceutical imports falling from USD 2.6
bn in 2014 to USD 1.9 bn in 2015
171
.
Drugs and other pharmaceutical products are primarily sold through two channels, namely, hospitals
and pharmacies. Sales via hospitals account for 30-40% of the total pharmaceutical sales. The
Central Pharmacy Purchasing Body (PCH) controls the purchase of pharmaceuticals for hospitals.
The pharmacy market is quite fragmented and comprises of several small players. In 2015, there
were around 12,100 pharmacies in Algeria, which totally accounted for pharmaceutical sales of USD
1.4 bn or 34% of the total sales during the same period
172
.
1.4.2 Drivers and growth outlook
The total market for pharmaceutical products is forecasted to grow at a CAGR of 9% from USD 4.1 bn
in 2015 to USD 6.4 bn in 2020 and the demand for generic drugs is expected to increase the most.
The consumption of pharmaceuticals is expected to grow at a CAGR of 9% between 2015
and 2020 because of increasing population of elderly and children. Government reforms
focusing on improving market access for local manufacturers will support local
production.
Source: "New Algeria Pharmaceuticals Report". 2016. Pharmaboardroom.Com.
http://pharmaboardroom.com/pharmaboardroom-releases-new-algeria-
pharmaceuticals-report/.

15. 55
The growth is driven by increase in population of elderly and children. Government policy reforms
focusing on improving market access for local manufacturers such as imposing import restrictions,
setting up a stronger regulatory system and providing better intellectual property protection, will
support local manufacturing.
Algeria's population is forecasted to grow from 40 mn in 2015 to 46 mn in 2025. The growth is
characterized by increasing number of elderly (above 65 years) and children (below 15 years). The
combined population in both the age groups is expected to increase by 18% between 2015 and 2025.
Since the number of people in more vulnerable age groups will increase, the demand for
pharmaceutical products will increase accordingly
173
.
According to BMI research, the total expenditure on healthcare is expected to reach USD 16 bn or
9.1% of the GDP by 2020, out of nearly USD 12 bn will be spent by the government. The expenditure
on pharmaceutical products will amount to 40% of the total healthcare expenditure.
In order to sustainably provide its citizens with free healthcare amidst the falling revenues due to a
slowdown in the oil and gas sector, the government targets to meet 70% of national demand for
pharmaceuticals from domestic production by 2017. The government plans to achieve the target by
increasing the production by state owned entities and by promoting private investment for local
pharmaceutical production. For example, it plans to increase the output of Saidal to a minimum of
30% of national production by 2017.
Additionally, policy reforms that aim at promoting local production are being carried out. Algeria is
working with Pharmaceutical Research and Manufacturers of America (PhRMA) to eliminate
intellectual property issues, fix the slow regulatory system, provide reference pricing and impose
import restrictions. Several incentives are also being provided for local production, such as exemption
from corporate tax (19%) for 5 years.
Moreover, the government invests to establish 172 hospitals, 45 specialized health complexes, 377
polyclinics and 1,000 treatment rooms by 2025 which will enhance the market outreach of
pharmaceuticals
174
.
Source: "Algeria Pharmaceuticals & Healthcare Report". 2016.
English. http://store.bmiresearch.com/algeria-pharmaceuticals-
healthcare-report.html.
Source: "Algeria Pharmaceuticals & Healthcare Report". 2016.
English. http://store.bmiresearch.com/algeria-pharmaceuticals-
healthcare-report.html.

16. 56
1.4.3 Investment opportunities
Given the increased interest of the government in locally producing patented drugs and the low
technical prowess of state owned players, significant opportunities lie in partnering with state players
via technology transfer agreements. Many international players have entered the market in
partnership with the local players or are operating with 100% subsidiaries. Also, some of the
international players have partnered and entered the market together as a single firm.
The pharmaceutical industry in Algeria offers numerous opportunities across the entire value chain.
The opportunities range from engaging in R&D (developing the testing formulations) to full scale
manufacturing. Several large multinational corporations have acted to make the most out of these
opportunities and have announced plans to setup production facilities in Algeria.
In 2015, Anglo-Swedish pharmaceutical giant AstraZeneca announced its plans to build a USD 125
mn manufacturing facility for cardio, cancer, gastroenterology and diabetes drugs as part of a 51:49
joint venture with two local firms, Salhi and Hasnaoui. The production from the plant is expected to
begin in 2017. The Algerian pharmaceutical industry's market leader, Sanofi Aventis, announced in
2014 plans to invest Euro 70 mn in building its third plant in Algeria. The proposed plant will also be
Sanofi's largest in Africa with a capacity to produce 100 mn units per year. The planned capacity is
equivalent to ~80% of the current sales volume of Sanofi in the Algerian market. Lastly, the lucrative
Algerian market is also attracting non-European pharmaceutical manufacturers to setup production
facilities in Algeria. In October 2015, the Indian manufacturer Cipla announced its plan to establish a
40:60 joint venture company with a consortium of Algerian companies led by Biopharm to produce
respiratory products in Algeria. The joint venture is reported to invest up to USD 15 mn into the new
manufacturing facility.
1.5 Examples of successful foreign companies
Despite all the challenges, companies have always been interested in investing in Algeria primarily
because of its vast market size. Many multinational companies are operating in Algeria under different
models. The models vary from only operating a sales office to having a complete production facility in
Algeria. Moreover, many are engaged with the government via public-private partnership, wherein
they build, own and operate a facility for a predetermined period and then transfer the facility to the
government. Following are a few examples of how companies have succeeded to run their
businesses in Algeria.
1.5.1 Siemens in Algeria
Siemens' presence in Algeria dates back to 1857, when it installed the first pan-oceanic telegraphic
cable between Europe and Algeria. However, it began operating locally in Algeria by establishing a
Owing to the government's increasing focus on expanding local production, many new
opportunities are emerging in the entire value chain of the industry, especially in local
manufacturing, packing, distribution and retailing.

17. 57
representative office in 1962. It later formed a regional company in 2002, which was followed by the
founding of Siemens Spa, a joint stock company, in 2005, and the consolidation of the regional
company in 2006. Additionally, in 2004, Siemens Algeria also acquired a 51-percent stake in ESTEL
Rail Automation Spa, a subsidiary of the National Company of Railway Transportation. Since then,
Siemens Spa has seen continuous growth.
Today, Siemens' presence in Algeria has grown to multiple sectors and a total size of 400+
employees. It plays an active and vital role in some of the most important sectors of the Algerian
economy viz. energy, transportation, water, industry and healthcare. It helped Algeria to achieve
many of its breakthroughs. For example, it built Algeria's first large scale power plant with a capacity
of 700 MW. Siemens supported the commissioning of Algeria's first fully automatic metro line by
supplying automatic train control systems, radio transmission systems and train locating systems. The
company has become one of the most trusted suppliers of power generation equipment like gas
turbines, switch gear substations, turbo compressors, and solar panels. It has also been successful in
providing the country with pumping equipment and communication systems.
Adopting an asset lite approach for running business and investing in developing its employees has
enabled Siemens to reach its current position.
Siemens has adopted an asset lite approach for running its business in Algeria. It has managed to
supply and commission a large number of power generation equipment and pumping systems in the
country without having a local production facility. Siemens Algeria works in consortium with Siemens
Germany, wherein the latter manufactures all
the equipment and the former procures,
commissions and provides after sale support.
According to company officials, this approach
has helped Siemens expand its presence
without having to struggle much with the
bureaucratic procedures.
Siemens has also invested heavily in developing its employees in order to overcome the issue of low
availability of skilled labor force in Algeria. It runs an active and comprehensive training programme
for all its stakeholders viz. current workforce, the future workforce (the students) and the customers.
Under the programme, it provides on the job technical training to its current workforce. For its
customers, it holds special sessions to teach them better utilization and maintenance practices for
installed equipment. Additionally, it has partnered with a local university and offers a master's course
in which Siemens trains students to enhance their job readiness by providing training on project
management, sales pitching, professional ethics, etc.
1.5.2 General Electric in Algeria
General Electric (GE) has been present in Algeria since the past four decades as a
supplier of turbomachinery and oil and gas equipment. In 1993, it also started providing repair and
maintenance services by acquiring Nuevo Pignone and subsequently by entering into a joint venture
named ALGESCO with state owned Sonatrach and Sonelgaz. In 2008, it entered into partnership with
Algerian Electric Company for building the Hamma desalination plant and in 2014 it established a
turbine manufacturing facility in association with Sonelgaz.
Today, GE Algeria employs more than 230 employees and plays a crucial role in the oil and gas,
power generation and water desalination sectors. GE has supplied over 480 gas and steam turbines
for power generation, which accounts for 70% of the total number of installed turbines in Algeria. For
the oil and gas sector, GE installed 340+ compressors, 200+ centrifugal pumps and supplied 35000
“We offer a masters course in partnership with a
local university for training the future workforce,
i.e., the students.”
— Mr. Farouk Benabdoun, Head, Siemens Algeria

18. 58
km of inspected pipeline till 2010. Additionally, GE provides for 25% of Algiers' (Algeria's capital)
potable water requirement through its 200,000 m
3
capacity water desalination plant in Hamma.
Investing heavily in capacity building, selecting right partners and running an extensive training
programme for its employees are the key reasons behind GE's success in Algeria.
GE has invested close to USD 250 mn in building
its production facilities in Algeria, which it utilizes to
cater to the needs of other North African countries
as well. In 2010, it had invested USD 36 mn to
open its largest ever oil and gas service center in
the world
175
and a center of excellence in
turbomachinery in Algeria under the supervision of
ALGESCO. Further in 2014, the company invested
USD 200 mn to establish a manufacturing facility in
association with Sonelgaz. The facility is designed
to annually produce 2 GW of power generation
equipment like gas turbines, steam turbines, generators and power control boxes.
In addition to these, GE also holds several training sessions for its employees, partners and clients.
So far it has provided over 6,000 hours of in-house training, 500 days of on-site training, and more
than 3,000 hours of skills training to its employees.
1.5.3 Cegelec in Algeria
Cegelec SA is a French electrical engineering solutions provider. The company specializes in
providing engineering solutions for power generation, for instance, power plant retrofitting, installation
and maintenance of electric infrastructure, etc. In addition to these, it also provides services like
engineering, designing, manufacturing, installation and maintenance to aviation and manufacturing
industries. Globally, the company employs around 22,000 people and operates in 30 countries, with
major activity in France, Brazil, Indonesia, the Middle East and Africa.
Cegelec won the contract of building Algeria's first wind farm near the city of Adrar by competitively
bidding the lowest tariff of USD 0.0975 per kWh. Cegelec was awarded the right to build, own and
operate the 10 MW wind farm, spanning over 30 hectares of land, by Algeria's Electricity and Gas
Engineering Company (CEEG), a subsidiary of state-utility Sonelgaz. The EUR 23 mn project was
entirely financed by Cegelec, which plans to recover its investment in the subsequent years via its
power purchase agreement with Sonelgaz
176
.
1.5.4 Abengoa Solar in Algeria
Abengoa Solar is a Spain based multinational company which specializes in solar technology. It
specializes in building, operating and maintaining solar power plants based on both concentrated
solar power and photovoltaics technology. It also designs, manufactures and markets components for
solar facilities, such as tower heliostats, parabolic trough collectors and solar electrical systems.
“The construction of the new ALGESCO
Service Center in Boufarik further strengthens
our commitment to Algeria. We are delighted
to be part of Algeria's long-term growth plans,
building deeper relationships with our regional
partners, and creating additional local support
capabilities for our customers.”
— Mr. Claudi Santiago,
President and CEO, GE Oil and Gas

19. 59
Additionally, it offers operation and maintenance equipment, including solar field maintenance
application tools for monitoring solar fields in real time, cleaning trucks for heliostats and parabolic
trough collectors, and real time management systems for meteorological and production forecasting
essential for thermal solar power plants
177
.
Abengoa along with New Energy Algeria (NEAL), a joint venture of Sonelgaz and Sonatrach, built an
integrated solar combined-cycle (ISCC) plant in Hassi R'Mel, Algeria in 2007. The plant is the world
first solar hybrid plant with a combined cycle. The plant has a total power generation capacity of 150
MW, out of which 25 MW is powered by solar energy captured and amplified by 224 parabolic
troughs, a combined reflective area of over 1.94 mn sq. ft. The EUR 315 mn project was primarily
financed by local banks. The plant was commissioned in 2011 and Abengoa is responsible for
operating and maintaining the plant till 2036, i.e., for 25 years
178,179
.
1.6 Key takeaways
Algeria offers easy access to a large consumer market with high per capita GDP. It also offers a
relatively stable economic and political landscape for running business. The government has planned
large investments in order to develop Algeria's abundant natural resources, both renewable and non-
renewable. This has opened up numerous and wide ranging opportunities in the key industries of the
energy sector viz. oil and gas and renewable energy as well as pharmaceutical sector for foreign
investors.
We have identified four key lessons from the pioneers who have successfully invested in Algeria that
new investors can profit from and that are crucial for ensuring success in the country:
• Because of government regulation of having a local partner with at least 51% stake, it becomes
extremely crucial to identify a competent, trusthworthy and friendly local partner who can support
the foreign investor in government liasing and finding local talent
• It is extremely important to build good relations with the government in order to be successful in
Algeria. A proven way of achieving the same is a consistant investment in building a competent
local talent base.
• Cost efficient production can be set up to leverage factor cost advantages in labor and energy.
• Investment should target both the growing domestic market as well as take advantage of Algeria
as an export base for Europe.

20. 82
Contact
Study Author:
Dr. Wilfried G. Aulbur
Managing Partner India,
Member of Supervisory Board
Roland Berger
Phone: +91 99 206 30131
E-mail: Wilfried.aulbur@rolandberger.com