Investment in technology parks and startups signal ICT's importance to Algerian economy

Internet infrastructure and usage have developed rapidly in Algeria in recent years, helping to pave the way for the growth of IT segments, such as hosting and cloud storage. Plans to liberalise fixed-line internet access as well as develop e-commerce and payments should also help to further boost development. Both the authorities and the private sector are working on various initiatives to encourage ICT start-ups in the country. While the sector will face short-term pressures as a result of government spending cuts, advantages such as a young population, a well-qualified IT workforce and cheap energy should help underpin further rapid IT sector development over the long term.

Internet Penetration

According to the Post and Telecommunications Regulatory Authority (Autorité de Regulation de la Poste et des Télécommunications, ARPT), the sector regulator, Algeria’s internet penetration rate rose from 25.6% in 2014 to 46% in 2015, with the total number of internet subscriptions growing by 83.8% to 18.6m. This substantial rise was largely down to the rapid uptake of 3G mobile data services, which were launched in late 2013; 3G subscriptions rose by 91.8% between 2014 and 2015 to 16.3m, or 87.6% of total internet connections. ADSL connections were also up during that period, increasing by 21.1% to 1.84m, and so-called fixed 4G LTE services – a service offered by state-owned telecoms operator Algérie Télécom (AT) primarily to business customers in major cities in order to circumvent long backlogs in meeting ADSL connection requests – by 424.6%, to 423,280. There are also a small number of Wimax and VSAT internet connections, which use satellites, in the country.

Internet usage and speed are set to rise further following the launch of mobile 4G LTE networks in October 2016. AT has also been engaged in a major initiative to roll out a fibre-optic network, having announced plans in 2015 to lay 10,000-15,000 km of cabling a year.

Expanding Access

A telecoms law currently in the works appears likely to substantially increase competition in the market by opening up the country’s local loops, which are currently operated solely by AT, to alternative providers. This could possibly result in lower prices and a subsequent boost to internet access. In the meantime plans announced by the ARPT to open up the outdoor Wi-Fi hotspot market to competition should have the same effect, effectively allowing private internet service providers to sell internet access to individuals for the first time. According to Ali Azzouz, owner of local ICT firm Icosnet, this is a market which has major potential. “People will be able to buy subscriptions and use them wherever there is a network, which will be much cheaper than using mobile data as it requires less infrastructure investment on the part of the provider,” he told OBG.

Difficult Period Ahead

However, given the large size of the public sector in Algeria’s economy and the fact that it accounts for a majority of IT activity, industry figures say that major cuts in government spending, and infrastructure spending in particular, in response to the collapse in oil revenues following the 2014-15 oil price slump (see Economy chapter) will have a substantial impact on the development of the IT sector as a whole in the near term. “The next two or three years will be difficult for the IT and ICT infrastructure sectors as the state is the sector’s main client,” Azzouz told OBG. “Projects which go ahead will also be subject to delays, and non-urgent projects, including long-standing ones, now need approval directly from higher authorities because of budgetary restrictions” he added.

Promising Segments

Thanks to the rapid growth of internet usage and related infrastructure improvements, internet-reliant services such as hosting, data centres and content development are all emerging as promising IT segments. “There is a severe shortage of data centres in Algeria, so the segment represents an enormous opportunity, particularly given that there is still an enormous number of Algerian companies and institutions that are not yet on the net,” Abdelhakim Bensaoula, director-general of the National Agency for the Promotion and Development of Technoparks (Agence Nationale de Promotion et de Développement des Parcs Technologiques, ANPT), told OBG, adding that the hosting of data for foreign firms as well as domestic companies represented a potential opportunity for the segment. “Data centres require substantial amounts of energy, which is cheap in Algeria, as is labour, giving the country significant competitive advantages in the segment,” Bensaoula told OBG. The Sidi Abdellah Technopark is in the process of building its own data centre, which will enable it to train technicians in fields like data centre maintenance, helping to boost prospects for the development of the segment.

Technopark Network

To encourage further development of the sector, the government is currently working to expand the availability of infrastructure and office space for IT companies as well as incubate promising new start-ups, in part through the creation of a network of technoparks across the country.

The ANPT, which has been given the task of developing the network, launched the first facility of this kind, the Sidi Abdellah Technopark, in 2004. The park is located on a 100-ha site just outside of Algiers and is being developed as part of plans for a broader new city, also known as Sidi Abdellah, to be built in the same area. To date the park has received investment totalling approximately AD5bn (€41.4m).

The site consists of four main buildings, including a 9800-sq-metre incubation facility and a 20,000-sq-metre business centre, which currently hosts 50 companies, with another 65 on a waiting list. Existing firms operating at the site include content developers, hosting firms and hardware manufacturers. The agency is also in the process of building a data centre on the site. Although the park’s location outside of Algiers has proven a hindrance for some start-ups, the city has recently launched a bus service to various locations in Algiers and is also expected to establish a shuttle bus service between the site and the University of Algiers. This is in addition to the construction of a new train station, which will soon be operational close to the park, further improving connectivity.

Due to the popularity of the park’s business centre, ANPT is currently working to develop two new towers on the site to expand its facilities. These are expected to be operational by the end of 2017. Going forward, the agency hopes to maintain a high level of diversity as the centre expands. “We want to benefit from synergies between different kinds of firms and develop a dynamic ecosystem,” Bensaoula told OBG.

Expansion Plans

Parks are also planned for Oran in the west of the country, Annaba in the east and Ouargla in the south. In September 2016 the agency adopted a new development plan for the Oran park, which will be 32.1 ha in size and will offer at least 80 lots to investors, according to local press reports. Construction on the project is due begin before the end of 2016, and as of September of that year, a total of 25 investors had expressed interest in launching projects at the park. Various ICT majors such as AT and some of the country’s mobile telecoms network operators are supporting the development of the project.

The agency is expected to take a different approach for the development of the Annaba and Ouargla sites, building administrative infrastructure and incubators but leaving the parks’ tenants to take the lead on construction. Work has already started at the Annaba park, where a 29,000-sq-metre building is in place, though it is in need of refurbishment, in particular in regards to IT infrastructure. According to Bensaoula, while works at the Annaba site could be completed by mid-2017, the Ouargla park is still at the planning stage.

Incubation Efforts

The ANPT pays the development costs of the firms it incubates at the Sidi Abdellah park, taking the view that successful firms will go on to rent space in the business centre, helping to fund further incubation activities. The incubation process takes around four months per firm, with the facility able to simultaneously deal with 25 firms at each stage, namely pre-incubation, incubation and start-up. Examples of projects that the park was incubating as of August 2016 include one working on applications for telecoms operators and another for e-ticketing.

Young Algerians are showing a great deal of interest in the ICT sector, and start-ups in particular, and the authorities are making efforts to foster the development of high-quality IT engineers in the country. However, a large number of people currently seeking to launch start-ups do not have a background in IT education. According to the ANPT, this is not necessarily an issue. The agency does not require entrepreneurs with potential incubation projects to have IT qualifications, as its places more value on innovative ideas.

Local ICT operators are also supporting the development of start-ups. Mobile phone operator Ooredoo launched its own incubation scheme in 2013 and now has incubators in place in Algiers, Oran and Annaba. As part of this, in conjunction with the National Agency for the development of Small and Medium Enterprises, the firm runs an incubation initiative called tStart, which backs around five projects a year. In 2014 the firm also launched a competition for young developers called Oobarmijoo, from the Arabic for the verb to programme, which aims to provide training, access to equipment and business development support for participants.

Meanwhile, fellow local mobile network operator Djezzy is a partner of another competition for start-ups, known as Seedstars Algeria. An app for visually impaired people won the second and most recent edition of the competition in October 2016.

Online Commerce

E-commerce has been slow to develop in Algeria, which has subsequently held back the wider growth of the IT sector. However, this is likely to change in the near future. In September 2016 Imane Houda Feraoun, minister of post and ICT, announced that a new law on e-commerce would be submitted to the government before the end of the year. The following month also saw the launch of an e-payment system across 11 banks and nine major companies, including telecoms operators, two insurance companies, the national water utility and national airline Air Algérie.

The system, which will be expanded to more vendors in the future, is based around new bank cards, which can be used for electronic payments. An initial total of 5m cards are being printed, with 500,000 passwords for their online use. Customers will be able to use the system to make online purchases from December 2016.

Outlook

The Algerian IT sector is about to enter a challenging period as a result of reductions to government spending. Despite the impact this is likely to have, industry figures say that the sector’s long-term development prospects are bright. “The potential of Algeria’s ICT sector is enormous, in regard to the development of the industry itself and of ICT services,” Bensaoula told OBG. “Sector development will improve efficiencies and reduce costs within other industries, making the country as a whole more competitive.” Indeed, despite budgetary constraints, ICT is likely to remain a strategic priority in years to come, as the government seeks to capitalise on the sector’s high potential in line with its efforts to diversify the country’s economic base.