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Algeria report

implementation of renewable energy projects in Algeria. The first project will be the construction of a 10MW photovoltaic plant, where the two companies aim to start activities before the end of 2016. Eni’s CEO, Claudio Descalzi, emphasises the significance of the deal: “In the early 1970s, Eni was the first foreign company to sign an agreement with the Algerian state, for the construction of the Transmed gas pipeline, and, in 1987, the first oil and gas company to sign an upstream contract in Algeria. Today Eni is the first oil and gas company to reach a strategic agreement in the field of solar energy in Algeria, a country with an important potential.”

Associates in September, Jeremy Keenan, a professor at the School of Oriental and African Studies (SOAS) in London and a recognised expert on the Sahara-Sahel region and Algeria, said: “Algeria does not need cash, they need more than that, something more sophisticated. They want partnerships. This reduces the risk,” he said.

Banking sector limitations Algeria’s financial environment needs improvement. “Anything that will lead to import substitution is good for the country and an opportunity for investors. But for sure, Algeria needs to change the business climate to generate investment from local and international investors.

“Algeria needs to change the business climate to generate investment. The financial sector in Algeria is almost non-existent.” Rachid Sekak, consultant

He says the sector needs investment in new field exploration, to create partnerships and share costs and risks. “They already have reservoirs, but they need to replenish them and they need new discoveries. They need to explore more,” he says. Recent news concerning Sonatrach, the state-owned petroleum company, suggests it is moving in that direction, having signed a memorandum of understanding with Pertamina, the Indonesian stateowned oil and gas company, to join forces in increasing production. Additionally, the Russian energy minister Alexander Novak announced in September that the two countries are co-operating on energy.

The diversification imperative One of Sonatrach’s latest deals is evidence that energy diversification is possible: the company has started working with Italian oil and gas giant Eni on the

Algeria has some ambitious targets for renewables, aiming to create 22GW of clean energy capacity by 2035. This includes wind energy, but it is solar power that offers the greatest opportunities. Gille Bonafi, a consultant at the UN’s Intergovernmental Committee of Experts, says that Algeria has “an extraordinary potential” that could see it becoming a top exporter of solar-based power to Europe and Africa. Another area which the government is targeting for diversification is agribusiness, as the country is dependent on food imports to meet domestic demand. In 2014, the government announced plans to spend AD300bn (roughly €2.8bn) each year on agriculture as part of the public investment programme to 2019. The parched Algerian land requires increased irrigation, use of fertilisers and new farming techniques. This, too, is an attractive area for foreign investors. Last year, the American International Agricultural Group and the Groupe Lacheb signed a US$100mn joint venture agreement to provide the advanced agricultural technologies needed to integrate US production models in Algeria. But diversification will take more than just investment. Speaking at a briefing on Algeria organised by Menas

The financial sector in Algeria is almost non-existent,” says Sekak. Algeria ranks at the lower end of the World Bank’s Doing Business ranking, even with respect to the Mena region. Banks operate under strict regulations, the local stock market is scarcely populated and credit card use is very limited. Foreign banks in the country are not allowed to bank the local population and can only offer corporate services, one of them being trade finance. According to Sekak, trade finance has been a lucrative business for banks in the country. “Trade finance was some kind of free lunch because all imports had to be financed by documentary trade,” he tells GTR. But trade finance too has been affected by the fall in oil prices and banks will need to look for alternative revenues. “They need to diversify out of trade finance and manage the liquidity concerns,” he advises. In its latest annual report on the country, the Oxford Business Group expects Islamic banking to grow despite the lack of appropriate legal framework. Several banks have launched their own shariah-compliant products in the past year, and according to the study, while about half of Islamic bank Al Baraka’s deposits in Algeria come from retail clients, demand is also strong from corporate customers, particularly SMEs.

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November/December 2016 issue  
November/December 2016 issue