Rail and road infrastructure developments in Algeria forge ahead

Meeting the country’s growing transport needs remains a priority for the Algerian government. The national development plan 2015-19 allocates AD832.7bn (€6bn) to upgrade, modernise and expand the country’s air, rail, road and maritime capacity, with significant progress already made on each of these fronts. Foreign direct investment (FDI) is being actively sought as the authorities look to incorporate the latest technologies and know-how into the modernisation process.

However, efforts to expand the sector face three main challenges. The first is an expertise deficit that harks back to the 1990s, when the country was unable to invest in training programmes because of civil war. The second is a cumbersome and opaque bureaucracy, the effect of which is acutely felt in certain segments, such as logistics. The third is the drop in international oil prices, which has led to declining state revenues and a more restrictive budget. However, evidence suggests that the authorities are actively seeking solutions to overcome these issues. The transport and communications sector remains an important contributor to the economy, accounting for 14% of GDP in 2017, up from 13.4% in 2016, according to the National Statistics Office (Office National des Statistiques, ONS).

Infrastructure Development

In under two decades Algeria’s transport networks have developed significantly, thanks to notable investments in the sector. Between 1999 and 2017 the government spent over AD10,000bn (€72.6bn) in transport infrastructure. This resulted in the reparation of 73,000 km of the country’s 110,000-km road network. As for large-scale road projects, about 1130 km of the 1216-km East-West Highway and 1600 km of the Trans-Saharan Highway were built. The country has a total of 24 city thoroughfares, with 13 under construction, covering a total of 1009 km. The goal behind these road developments is to facilitate the transport of goods and private freights. Since 1999 approximately AD220bn (€1.6bn) has been allocated to security programmes along the country’s land borders in the south, securing a total length of 16,500 km, of which 9500 km is covered in asphalt.

Over the 1999-2017 period 10 cable car lines in Algiers, Tlemcen, Skikda and Constantine were refurbished, and the number of commercial ports remained at 10. In 2000 the rail network was under 1000 km, but after investments targeting its expansion, the total length of rail reached 4200 km in 2017, with plans to extend the network to 6500 km by 2021 and 12,500 km by 2030. The number of hoppers rose from seven to 20, with another 12 under construction as of late-2018.

In 2018 two metro line extensions were inaugurated, namely the Tafourah Grande Poste to Place des Martyrs and the Hai El Badr to Ain Naadja. In the same year two new tram lines were opened in Sétif and Ouargla.

Algeria is home to 36 airports, with at least one designated for most of the country’s 48 wilayas (provinces), and the nation’s flag carrier, Air Algérie, expanded its fleet by 16 aircraft between 2014 and 2016. Four airfields and six airfield extensions have been constructed since 1999. The government plans to revive the national cargo fleet through the acquisition of 26 vessels, 10 of which were already delivered by March 2018.

Government Expenditure

Though lower public spending was budgeted for the transport sector in 2019 than in the previous year, road and rail projects are nevertheless set to receive a financial boost. The 2018 budget allocated the sector AD380.8bn (€2.8bn), a 50% increase on 2017. These funds targeted large-scale projects such as the El Hamdania port (AD150bn, €1.1bn); the maintenance of roads, ports, airports and railways (AD65bn, €471.9m); the construction of new roads in remote areas (AD28bn, €203.3m); and transport upgrades in Algiers (AD6.5bn, €47.2m). An estimated AD178.2bn (€1.3bn) was earmarked for the completion of existing projects. In comparison, the draft budget for 2019 allocated the sector AD279bn (€2bn), a 26.6% decrease on 2018. The lion’s share of these funds (AD250bn, €1.8bn) is reserved for existing projects, especially “strategic road and rail projects”. Rail projects will receive AD76.1bn (€552.5m), Algiers metro extensions AD68.8bn (€499.5m) and roads AD100.3bn (€728.2m). Some AD29bn (€210.5m) will go towards new projects. The 2019 draft also exempts Customs duties from any spare parts or engine repair and aeronautical equipment required by national airlines. The aim is to reduce operating costs and make national airlines more competitive.

Strategies

In addition to building infrastructure, the authorities are dedicated to improving equipment and human resources. In the rail segment, these programmes encompass electrification projects, the installation of new technologies and the training of staff at specialised academies (see analysis). In relation to urban transport, the focus is on intermodality, connectivity, high capacity and environmentally friendly solutions to congestion in major cities. The road segment is intent on upgrading and extending existing infrastructure and investing in projects designed to increase regional mobility, such as the East-West Highway and the Trans-Saharan Highway.

Regarding the air segment, the authorities have stressed increasing the flag carrier’s market share, renovating airports and boosting capacity through the construction of new terminals in Algiers and Oran. Algeria, together with neighbours Morocco and Tunisia, has opted out of the Single African Air Transport Market, which launched in January 2018 as part of the African Union’s Agenda 2063 and consists of 23 countries.

While the country is not yet fully prepared for open-skies agreements, some progress in this regard has been demonstrated through discussions for bilateral agreements, though many of these were on standby as of late 2018, according to local stakeholders.

Investment Opportunities

Efforts to improve transport infrastructure across the country has presented exciting opportunities for investors to capitalise on. “Investment opportunities for foreign investors entail locating inefficiencies and shortcomings in the current infrastructure and providing solutions for them,” Yacine Bendjaballah, managing director of the state-owned National Rail Transport Company (Société Nationale des Transports Ferroviaires, SNTF), told OBG. “In addition, surrounding each investment project are numerous tender calls for specific items.”

Many foreign firms have already signed deals with Algeria that will help expand its transport system. The Algiers Metro Company (Entreprise Métro d’Alger, EMA) has contracted numerous foreign firms, including France’s Colas Rail, which was awarded two contracts worth a combined €168m in 2016 for extension of the existing metro line and construction of five new stations. In early 2018 Algeria received the first of 17 Coradia Polyvalent trains from Alstom, following a €200m contract signed between the French rail transport company and SNTF in July 2015. The Coradia train began its maiden voyage in March 2018, and the other 16 trains are expected to be delivered over the course of the year. In February 2018 Spain’s technology company Indra signed a €42m contract to renew Algeria’s entire aviation traffic management system for local air navigation service provider Etablissement National de la Navigation Aérienne (ENNA).

Despite the attractive incentives offered by the country’s 2016 Investment Law, Algeria’s FDI inflows dropped from $1.6bn to $1.2bn in 2017. According to the UN Conference on Trade and Development, the decline was mainly due to the fact that FDI in Algeria is still very dependent on the oil and gas market, the prices of which dropped in 2017. Nonetheless, the government is committed to diversifying the country’s economy, and with numerous infrastructure projects in the pipeline, the transport sector is especially receptive to FDI.

Public-Private Partnerships

In line with the objective of promoting investment in the sector, the government is also actively seeking to boost public-private partnerships (PPPs). It is hoped that foreign companies will contribute to improving Algeria’s know-how and technological capabilities. In early March 2009 DP World, the Dubai-based port management company, assumed control of the Port of Algiers’ container terminal in a joint partnership with the Algiers Port Authority.

Regarding the urban transport segment, the Algerian branch of France’s public transport operator Régie Autonome des Transports Parisiens (RATP), RATP El Djazaïr has been entrusted with the operation and maintenance of the Algiers metro system since the first line opened in 2011. On its website, the company cites “training employees to transfer skills and knowledge” as a key objective. Formed under a partnership between EMA, RATP and Transtev, Société d’Exploitation des Tramways maintains and has operations in six wilayas.

Some industry observers, however, have argued that partial privatisation is not enough. “The main challenge regarding PPPs is that public and private partners do not have the same mindset at all,” Hakim Aberkane, director of logistics company Anderson National Express, told OBG. “Public management has to shift its focus towards more efficiency and a cost management approach.” Additionally, the 51:49 rule that caps foreign companies’ stake in an investment at 49% may also be a deterrent to international investment.

Urban Transit

Thanks to Algeria’s oil resources, the price of petrol is very low. Therefore, cars remain popular as the cost of private transport is roughly equivalent to the cost of public transport. However, overdependence on motor vehicles creates traffic congestion, especially in Algiers, where there are now 300,000 vehicles on roads that were designed to handle 40,000. To tackle this issue, the government has prioritised urban transit solutions. Before 2011 Algeria lacked a single metro line. Now, Algiers has 17 metro stations, three of which opened in 2018, located along 18.5 km of track. As of January 2018 the average number of passengers using the Algiers metro was from 100,000 to 200,000 travellers daily, according to the Algerian Business Leaders’ Forum. Completion of extension works saw these figures jump from 2.8m passengers in January 2018 to 3.5m in May of that same year, according to data from the EMA. The extended line features 14 six-carriage trains from Spain’s Construcciones y Auxiliar de Ferrocarriles (CAF), with a further 12 CAF Inneo metro trains ordered in 2017. To keep pace with new development challenges, the authorities aim to extend the line to include 34 km of track and 34 stations by 2022. The extension from El Harrach to the capital’s international airport is targeted for completion by 2019.

Algeria is also working to develop its tramway system, and in March 2018 a new 9.7-km line was inaugurated in the city of Ouargla. France’s Alstom and local Cital were contracted in 2013 to deliver the country’s tram system, which currently operates in six wilayas. According to local media in March 2018, before the Sétif line was completed, trams in Algiers received approximately 70,000 passengers daily; Oran (40,000); Sidi Bel Abbès (40,000); Constantine (26,000; and Ouargla (12,000).

The provision of public transport has vastly improved in recent years. In addition to metro and tramways operating in the major cities, Algeria also enjoys extensive road networks, with 80,000 buses carrying over 10m passengers daily. However, approximately half of these buses are old and due to be withdrawn from service in 2020. The government has created a fund to upgrade the bus fleet, though some local experts worry that the amount of aid allocated is insufficient. Abdelghani Zalene, minister of transport and public works, told local press in July 2018 that a total of 60 new Mercedes-Benz buses were delivered in the first half of 2018, while a further 40 are expected to arrive by 2019.

New Trade Rules

Both 2017 and 2018 were difficult years for importers as the government introduced protectionist measures to stimulate national production in other sectors. These measures include imposing import restrictions on certain products, either by enforcing an outright ban, demanding licences or raising duties.

A second, more indirect obstacle is the mandate launched by the Bank of Algeria in October 2017 that importers domicile all goods destined for resale in Algeria prior to shipping. According to the new regulations, importers must also establish a preliminary financial provision covering 120% of the amount of the import at the time of domiciliation at least 30 days before loading the merchandise for shipping. The intention behind the measure is to inhibit importers’ cash flow and thereby facilitate the government in reaching its macro-level import reduction targets.

Local operators have mentioned a lack of communication between the authorities and stakeholders as a further curtailment to import operations. “Nevertheless, the list of restricted goods for 2018 was published in January that year, which was an improvement on the previous year, when the list did not appear until the summer and importers struggled to adjust,” Adlane Belabdelouahab, director of local shipping agency Arkas, told OBG. In addition, slow disembarkation times also remains an obstacle, while the devaluation of the dinar has reduced the country’s purchasing power. Meanwhile, export operations have become easier, mostly thanks to agreements between companies and Customs regarding clearance procedures. While hindering imports, government policy has helped to improve exports, the effects of which can be demonstrated by statistical data provided by the ONS. In the first seven months of 2018 imports were down by 1.1% year-on-year, while exports increased by 17.1%.

According to local experts, physical equipment and infrastructure have also improved. “Customs-clearance procedures experienced significant progress in recent years thanks to the deployment of scanners, cranes and the opening of dry ports,” Mohammed Dib, CEO of Groupe Gema, told OBG. “However, extra costs remain due to clients who don’t get the merchandise in due time, and delays from the banks to provide the documentation.” A system informally known as a guichet unique, or one-stop shop, which aims to streamline port bureaucracy by countering fragmentation, is in the pipeline and should be on-line by 2020.

Air

China State Construction Engineering Corporation was contracted to oversee construction of the new AD80bn (€580.8m) international terminal at the Houari Boumediene Airport, which is scheduled to commence operations at the beginning of 2019. The government welcomed cooperation between national and foreign businesses that sought to provide the necessary links to the new terminal, such as building a metro station, a train station, a four-star hotel, a control tower, and renovating the existing airstrip. The site occupies 20 ha and includes a car park with 4500 spaces, three airplane parking spots, 424,000 sq metres of runway, 120 registration banks and 84 control centres. The new terminal is expected to increase annual passenger-handling capacity by 10m to reach 16m.

ENNA, meanwhile, has conducted several projects to improve standards, including the construction of five new control towers adapted to International Civil Aviation Organisation requirements in Algiers, Oran, Constantine, Ghardaia and Tamanrasset. In line with these modernisation efforts, in February 2018 ENNA signed a contract with Spain’s Indra Sistemas to upgrade aerial navigation equipment in the south of the country.

With the enabling infrastructure and implementation of international standards in place, Algeria is now focused on improving the competitiveness of the sector to attract more airlines and open new destinations.

Freight

Air freight is also seeing greater investment, following the January 2018 lifting of a ban on private investment in maritime and aerial freight. The following month Zalene announced that five companies had submitted proposals to invest in the segment. Among the current players is France’s Aigle Azur, which was allowed to start freight operations from Algiers’ airport to the European market in September 2018. This was followed by Air Algérie Cargo, which signed a framework convention with the Ministry of Commerce in November 2018 to develop a support base for local exporters.

Sea

Algeria’s major ports are located in Algiers, Oran, Béjaïa, Annaba and Skikda. The government has ambitious plans to increase the nation’s market share from 3-4% to 25% by 2025, starting with the acquisition of 26 new ships, 10 of which were received by November 2018. However, according to local operators, investment in skills and training to have the personnel to run the ships is needed, especially for the positions of seamen and managers. The other main challenge is the lack of deepwater ports. Currently, large cargo ships dock at foreign ports and transfer their cargo on to smaller ships before heading to Algeria. The proposed Port of El Hamdania, approved in early 2017 and expected to cost $3.3bn, is meant to address this shortfall, but construction has been delayed, mostly because China and Algeria have been unable to agree on the terms of the deal, such as interest rates and exclusivity, according to local media reports. While negotiations had yet to be concluded as of late 2018, investing in the Algerian terminal supports China’s Belt and Road Initiative, which the country joined in September 2018, is expected to significantly impact global trade. The port would provide an essential maritime link to the Trans-Saharan Highway.

Rail

Algeria has outlined bold targets for rail development, aiming to increase annual capacity to 17m tonnes of goods and 60m passengers by 2021. Approximately 43m passengers travelled via train in the first 11 months of 2018, an increase from 29m in 2015, Bendjaballah told OBG. Meanwhile, total volume of cargo amounted to roughly 5m tonnes, up from 3.8m tonnes in 2017.

Road

Algeria boasts one of the most modern road networks in Africa, and the national development plan aims to expand road infrastructure by 5600 km. One main project is the 1216-km, six-lane East-West Highway, which crosses the northern part of the country from the Moroccan border to Tunisia. Launched in 2009, the project was mostly complete by 2015, at a cost of $11.2bn. China Railway Construction Corporation and CITIC Group constructed the central and western sections of the road, while Japan’s COJAAL built the eastern section. The other major road project is the 4500-km Trans-Saharan Highway, more than 2300 km of which lies within Algerian borders. As of November 2018, some 1600 km of the Algerian section was already complete, while another 200-km section in the southern part of the country was expected to be completed by the end of the year. The project’s overarching aim is to boost regional integration and intra-continental mobility. “Algeria has developed significant expertise in exceptional transport,” Abdelhamid Mazri, CEO of Transmex, a subsidiary of state-owned Sonelgaz and a local company for exceptional transport, told OBG. “We should capitalise on this and enter new markets in Africa, such as Mauritania, Mali, Tunisia and Libya.”

Outlook

Intermodal networks make transport systems more efficient and set international standards. Therefore, it is encouraging to see Algeria push ahead on advances in logistics, with a focus on further connecting key infrastructure across road, rail, air and sea to ensure the competitiveness of the logistics chain.