Onwards and upwards: The new five-year plan will see projects rolled out in a number of sectors

In the past several years, government investment in key areas and public works have helped propel growth in the Algerian economy, which grew by 2.6% in 2011. Major projects in the industry contributed 10% to annual GDP in 2009-11. Projecting an estimated value of $21.7bn in 2012, the industry will continue to be a primary driver of growth for the medium to long term, with many projects in the works to satisfy Algeria’s growing needs. “Recent years have seen a flurry of activity in the construction sector, supported by a generous spending programme,” Georges R Assi, the deputy CEO of Consolidated Contractors Company, told OBG. “New infrastructure projects have led to significant growth.”

Several projects are also expected to have a positive impact on unemployment, which officially fell to 10% in 2012. With large-scale projects in the works to boost housing by 2.4m units and to expand public transport, roads and railways, the sector may create approximately 2m jobs under the state’s current five-year plan. The expansion of Algeria’s cement industry alone is expected to create 2400 jobs, while buildings sites like the Grand Mosque will generate an estimated 17,000 direct and indirect employment opportunities. Work on the East-West Highway has so far produced over 100,000 jobs.

HIT THE ROAD: A crucial emphasis under the previous and the current five-year plans (2005-09 and 2010-14) has been placed on the development of roadways. Faced with congestion and inaccessible routes to many isolated corners of the country, Algeria’s physical infrastructure has been ill-equipped to deal with the volume of cars on roads and highways, prompting multi-billion euro investments in the extension and modernisation of roads. Under the last five-year plan, major projects were initiated to address the inefficiencies of the road system, beginning with the construction of the 1216-km East-West Highway, stretching across 24 provinces from Annaba in the east to Tlemcen in the west. Built by the China-based CITIC Group/CCRR and Japanese consortium COJAAL at an estimated cost of $11.2bn, this six-lane highway is expected to absorb about 85% of national traffic and facilitate transport across the Maghreb, connecting Algeria to Morocco and Tunisia via the 7000-km-long Autoroute Transmaghrébine.

Work likewise began in 2012 on a 1013-km highway running from north to south, Algeria’s National Highway Number One, which will go from the shores of the Mediterranean through the Sahara Desert to the country’s south. In April 2012 construction of the highway’s Chiffa section was awarded to the China State Construction Engineering Company (CSCEC) for AD85.7bn (€822.7m). Work will also begin in 2012 on the 1020-km Hauts Plateaux Highway, designed to boost access to Algeria’s second-most-populous region. An additional AD60bn (€576m) will be invested under the current five-year plan to modernise existing roads and build new infrastructure, with construction on eight new highways beginning in 2013.

These roadways will connect the East-West Highway to ports at Skikda, Bejaia and Djen Djen (Jijel), while others will link the highway to ports at Tipasa, Oran and Ténès (Chlef). Studies for additional roads are set to be implemented to enhance connectivity for new and remodelled highways with airports and cities.

Omar Kadri, the CEO of Societé Algérienne d'Etudes d'Infrastructures, told OBG, “Among the broader array of construction services that are rising in popularity, we can point to environmental impact studies and studies related to traffic and urban transport management.”

According to local press reports, the next three years will see the laying of over 2500 km of new roads and the upgrading of another 8000 km of existing road infrastructure. Local-level infrastructure improvement will also need to be a target of government efforts, some feel. “Although there is a lot of new building going on, more and more efforts will need to focus on maintenance of municipal roads and local-level infrastructure,” R Bayasli, the CEO of Algerian infrastructure contractor SAPTA, told OBG.

RAIL TRANSPORT: Between the previous and the current five-year plan, an estimated $83bn has been set aside for the development of railways. Under the tutelage of the National Agency for Railway Project Studies and Investments, the rail system was expanded from 1700 km in 2008 to 4000 km in 2011 thanks to the completion of such projects as the west Algerian urban motorway. Additional extensions are expected for the near future, with 2000 km of lines under construction and studies for 5000 km of railway (including key projects like the modernisation of the 1200-km Northern Railway and the construction of the Hauts Plateaux Railway) already in progress. Improvements to rail infrastructure are also being made with the electrification of an estimated 10,000 km of track, while major foreign firms like Siemens are updating signalling systems. Finally, France’s TGV system is being emulated in Algeria, as work proceeds on the country’s first high-speed rail network to connect major urban centres.

METRO: The government has put special effort into developing the country’s urban rail systems to combat congestion. In November 2011, Algeria’s first metro service was inaugurated after almost 30 years of efforts that were continuously postponed by economic and security issues. Built by Spanish corporation Construcciones y Auxillar de Ferrocarriles (CAF), the French firm VINCI Construction and Germany’s Siemens, the $1.2bn metro runs 9.5 km and has 10 stations, with three extensions currently in progress. Following the realisation of two eastern lines and one western extension expected in 2014 and 2015, the metro will service almost 20 km of Algiers, with plans to ultimately extend the line to 40 km, running between El Harrach and the Houari Boumediene Airport and around the capital. The success of the Algiers metro has inspired projects in other major cities, with studies launched for a AD138bn (€1.33bn) metro in Oran that will stretch 16-17 km with 18-20 stations.

Urban transport is also expected to improve with the expansion of tramways, with plans to build tram and cable car systems in 14 cities across the country at a cost of over AD447bn (€4.29bn). Currently, Algiers has the country’s only running tram, stretching 16.3 km with 28 stations. However, the system will be complemented shortly by the inauguration of new tramways in Oran (which should occur by the end of 2012) and Constantine (expected in early 2013). Tramways have already been adopted in Constantine and Algiers, with three new aerial tramways in the works.

URBAN DEVELOPMENT: Improvements in urban transport will also be complemented by government initiatives to expand housing, as major urban centres grapple with a lack of accommodation, leading to increases in real estate prices (see analysis). Initiated under the current five-year plan, the government envisions construction of 2.4m homes by 2017, an investment of some €40bn. Specific plans to confront the estimated 1.2m-unit shortfall in housing include the construction of 1m public rental units, 550,000 government-aided housing units and 900,000 rural units. These ambitions outstrip accomplishments so far, with only 30% of housing units completed even though the current five-year plan is already more than half over. Completing housing projects has been partly complicated by a lack of local firms able to handle such large-scale work. The CEO of real estate firm Société de Promotion Imobilière Raoudhet El Feth, M’hamed Sahraoui, estimates most housing developers are responsible for construction of 100 to 500 units at a time. As a result, realising government goals is often dependent on the performance of foreign firms, notably Chinese construction companies, which are reputed for their low bids and rapid construction times. Under the previous five-year plan, CSCEC produced over 50,000 units, helping the firm secure additional work for 1000 more housing units in Sétif under the current five-year plan.

ADVANCEMENTS BY SEA & AIR: With increasing demand for imports to complete Algeria’s massive array of public works projects, the improvement and expansion of port and airport facilities has been deemed an important priority. “Algeria holds all the assets to accommodate one or two deepwater ports that are capable of receiving the latest generation container ships that can carry orders of 10,000 twenty-foot-equivalent units,” M’Hamed Boudouma, the CEO of the Laboratory of Maritime Studies, told OBG. The state has dedicated AD660bn (€6.34bn) to the renovation of existing ports as well as the construction of new maritime facilities through 2025. Algeria’s airports are also undergoing much-needed upgrades, facilitating increased passenger and cargo capacities. Plans to build 14 new airports will begin in 2014, equipping Algeria with 70 airports.

ENERGY & INDUSTRIAL INFRASTRUCTURE: The primary driver of growth in Algeria and the source of the country’s vast revenues, the energy sector will also provide a further boost when it comes to public works contracts in the next few years. In April 2012 Algeria’s state-run power firm, Sonelgaz, announced its intention to invest an estimated $30bn in the construction of new generation plants to satisfy burgeoning electricity demand. According to the CEO of Sonelgaz, Noureddine Bouterfa, demand increases by an average of 10% every year, necessitating investments in energy generation. New plants are expected to add 1200 MW of additional capacity to the national grid every year until 2020, complementing another Sonelgaz investment of $80bn to create 21,000 MW of renewable energy between 2011 and 2030. Given the government’s commitment to explore renewable, the general manager of building materials company Knauf, Brahim Abdelatif, said, “Promoting quality and environmental friendly practices will enable the construction sector to add value in its offering.”

In addition, other investments are being made as part of plans to build new water desalination plants by 2015. The Algerian Energy Company (AEC) hopes to construct a total of 11 privately funded plants with a total a capacity of 1.91m cu metres per day as part of a water sanitation programme (EAU II). Under the current five-year plan, the initiative envisions the construction of 35 dams and 25 water transfer systems in an attempt to improve drinking water infrastructure. The water sanitation programme garners an estimated 75% of its investments from the EU, providing a €30m contribution to the programme in July 2011 alone, while an additional $13.06m will be supplied by the Algerian government.

Backed by an investment of €54bn under the current five-year plan, another key government priority is the modernisation of hydrocarbons infrastructure. Though the oil industry constitutes the main source of construction works in the country, many projects were put on hold in light of corruption issues with the state-owned oil company, Sonatrach, after the CEO and several other senior officials were arrested in early 2010. Despite these setbacks to the industry, projects have begun to regain their momentum. Specifically, three oil and gas pipelines are being constructed out of the El Merk field and will ensure the transport of crude oil to Houd El Hamra and liquefied petroleum gas and condensate to Gassi Touil. Another project is the construction of the €1.9bn Mers El Hadjadj fertiliser complex at Arzew, which is expected to produce 3500 tonnes of urea and 2000 tonnes of ammonia daily.

REACHING NEW HEIGHTS: Work began in May 2012 for the construction of the world’s third-largest mosque (after Mecca and Medina) in Algiers, which will boast the continent’s tallest minaret at 270 metres. Standing almost as tall as the Eiffel Tower, the construction of the Grand Mosque will cost €1bn, with 25 levels and eight elevators that will allow visitors to overlook the Bay of Algiers. Plans have also been made to construct a prayer room for 120,000 worshippers, an art museum, a 2000-seat library and a research centre, according to the newspaper Al Arabiya. The facility, to be located in the Mohammadia district, is expected to be completed in 2015.

FOR BUSINESS OR PLEASURE: A new construction priority is the development of the tourism industry, facilitated by plans to build 750 hotels in 48 locations over the next three years. Estimated to cost $5bn, the initiative is set to double the number of hotel rooms in Algeria. Over the past several years, tourist inflows have continued to increase, jumping from 1.5m in 2010 to 2.4m in 2011, with an estimated 3.2m tourists expected for the whole of 2012. In step with the burgeoning tourism industry, the expansion of hotel facilities has steadily progressed, with the number of hotel rooms increasing from 72,000 in 2010 to 90,000 in 2011. In particular, the list of Algeria’s five-star properties continues to grow. There were 13 facilities at the end of 2011, with plans to build three more top-end establishments by 2015 at a cost of $490m.

A growing emphasis has also been placed on the development of mixed-use projects with the inauguration of Algeria’s first high-end commercial centre in August 2010. Costing €58m, the 70-ha Bab Ezzouar Commercial and Entertainment Centre is located in Algiers’ new business district and includes shops, restaurants, basic services, cinemas and office space. Meanwhile, the surrounding business district of Bab Ezzouar houses the headquarters of national and multinational companies like Mobilis, Air Algérie, Algérie Poste, Ibis, Mercure and Novotel. The construction of the 100-ha Alger Médina constitutes another large-scale multipurpose project that will consist of a shopping complex and hypermarket, a theme park, three business towers and residential properties. Developed by the Algerian firm Arcofina Holding, a subsidiary of Dahli, the project was to be completed in 2012, but has since been delayed.

BUILDING MATERIALS: Algeria’s public works boom has seen a rapid rise in the demand for construction materials. Algeria currently produces around 18m tonnes of cement per year, though growing domestic demand has translated into an annual deficit of about 3m tonnes, with demand running at 21m tonnes. Excess demand coupled with regional and global crises culminated in a shortfall of supply, resulting in a significant hike in prices, especially for cement. According to the daily El Moudjahid, severe shortages in cement supplies led the Algerian Industrial Cement Group (Groupe Industriel des Ciments d'Algérie, GICA) to announce plans to import 450,000 tonnes in August 2012 to meet domestic demand. “Efforts are being made to facilitate end-user access to quality cement at an affordable price,” Luc Callebat, the country CEO of Lafarge, told OBG. “Steps need to be taken to ensure not only the availability of cement, but an efficient distribution network and a steady supply of ready-mixed concrete in order to not only to develop capacity but to reduce possible market speculation.”

EXPANDING SUPPLY: Plans have been initiated to expand the existing production capacities of state-owned cement factories from 11.5m tonnes per year to 29m tonnes by 2020. This will be accomplished through an investment of €2.6bn over the next five years in the modernisation of current facilities and the construction of additional plants, with new factories to be built in Relizane, Bechar, Tamanrasset and Adrar, and possibly in Djelfa and Sigus as well.

The expansion of cement production was not merely initiated out of an effort to meet domestic demand. Rather, it is a product of the state’s desire to consolidate its role in the domestic cement market by increasing its share of total market production from around 67% to comprise 75-80%. This initiative follows in the wake of Lafarge’s acquisition of Orascom Cement in 2008, which gave the French giant a production level of nearly 7m tonnes. The state’s initiative to expand cement production also results from its ambition to begin exporting cement. According to GICA, once national plans for new and upgraded plants come to fruition, public sector factories will be producing an excess of 4m-5m tonnes for export in the next five years.

Additional projects are in the works to increase domestic production of aluminium and steel. Plans for the construction of the largest aluminium facility in the North African region have been initiated by Dubai Aluminium, Mubadala Development Company, Sonatrach and Sonelgaz, though the €5bn Beni Saf complex is currently on hold. Additionally, the Algerian subsidiary of steel giant ArcelorMittal reached an agreement in April 2012 with the Banque Exterieure d’Algerie to increase production capacities. An estimated AD14bn (€134.4m) line of credit was also extended to ArcelorMittal Annaba to expand production from approximately 1m tonnes of steel a year to 1.4m tonnes.

PARTNERSHIPS: While construction projects will continue to entice foreign companies, a growing number will be taken on by local firms with the implementation of new policies encouraging joint ventures between Algerian and international companies. New Algerian-multinational partnerships have become increasingly common, reaping benefits in the form of new projects for foreign companies and experience for local firms.

Though critics note that the new laws constrain foreign participation due to the lack of local partners capable of tackling major projects, foreign firms are at an advantage if they participate in local and national tenders with Algerian companies because they can increase their chances to win bids and contracts. Additionally, international firms benefit form an increase in local competition. The presence of experienced multinational corporations also helps to ensure international standards of quality in construction projects, as few measures exist in Algeria to encourage the quality of completed works. “Without government encouragement of small businesses, many cannot develop – they are too small and unknown, and projects will go to the big companies without their development. However, partnerships should be encouraged because foreigners can help build better quality works,” said Ahmad Souilem of the Central Laboratory of Public Works.

OUTLOOK: With an extensive array of public works projects stretching across sectors as varied as transport, tourism, construction materials and culture, opportunities are numerous for further exploitation in Algeria’s construction sector. Responding to burgeoning local demand, the government has endorsed a multitude of transport and housing projects that will entice much-needed investment and foreign participation for many years to come. However, domestic firms look set to play a growing role in construction projects as well as gain from partnerships with foreign firms, paving the way for the development of the local industry, providing employment opportunities.