Domestic impact: Knowledge transfer from foreign operators will help strengthen local capacities

A major investment plan that is set to reach $286bn between 2009 and 2014 is helping to revamp Algeria’s transport infrastructure, through the construction and upgrading of highways, railways and urban transport systems. Parallel to the government’s infrastructure expansion ambitions, efforts are being made to increase the positive impact that that these development projects have on local firms.

Because of the sheer size of some of the projects, as well as their distribution across several wilayas (provinces), Algerian authorities have been able to attract a number of tier-one international construction companies to work on them. Besides building key infrastructure throughout the country, the government also hopes that these foreign partners can improve the capacities of local contractors.

HELPING HAND: Development of local skills and know-how has been encouraged through a series of legislative tools that ensure Algerian contractors are involved in public projects. First enacted in late 2010, the current public procurement law gives special status to domestic firms bidding for projects. The law prohibits overseas companies from participating in public tenders unless they establish a partnership with an Algerian-owned firm. The law also allows exclusively domestic tenders to be launched, barring foreign companies from participating unless a suitable domestic firm could not be found.

The government also designed rules that allow local companies to win tenders more easily, even in cases where their price is higher than that offered by foreign companies. Under the procurement law, domestic firms are given preferential treatment and can be awarded a contract even if their offer is up to 25% higher than that of a competitive foreign bidder. The 2010 law considerably increased the competitive edge given to domestic bids, as, under the previous procurement law, preferential treatment could only be given to domestic companies if their offer was no more than 15% above the lowest bid.

TEMPORARY PARTNERS: Efforts to attract foreign firms that can help improve Algerian know-how go beyond the scope of infrastructure construction contracts. In late 2012, state-owned Algérienne de Gestion des Autoroutes (AGA), which manages the highway network, announced plans to select a foreign company to help with the management of the East-West Highway. This is, however, a temporary phase in which AGA hopes to develop local expertise so that it can eventually become the sole entity managing the new highway. Comparable management contracts are also expected to help authorities gain the skills necessary to manage other types of transport infrastructure.

In 2012, an amendment to the 2010 public procurement law outlined a number of sanctions that could be placed on foreign construction companies if they failed to meet contract expectations. Companies can now face monetary penalties of up to 20% of the total value of the contact and be banned from bidding on future tenders in Algeria.

In January 2013, the government also eased the tendering rules for state-owned enterprises, which were excused from the public procurement rules and instead required to establish their own procurement procedures based on the same general principles. The authorities believe that this will reduce delays and help state-owned companies working on infrastructure expansion projects to become more efficient. The new rule is expected to increase competition from public companies.

ADDITIONAL CONSIDERATIONS: In addition to the previously mentioned legislative limitations on foreign companies wishing to bid on public tenders, there are a number of other factors to be considered by firms wishing to do business in Algeria. As with all foreign firms operating in the country, any investments made by international construction companies must be at least 51%-owned by an Algerian partner. Although this policy has increasingly