Overhaul of Algeria car industry over suspicion of corruption among previous officials

The new push to develop an auto industry in Algeria would exclude French carmaker Renault.
Sunday 08/03/2020
 This file photo taken on November 10, 2014 shows employees of the French car maker Renault group working on a new production line during its inauguration, in Oued Tlelat in the south of the Algerian city of Oran. (AFP)
This file photo taken on November 10, 2014 shows employees of the French car maker Renault group working on a new production line during its inauguration, in Oued Tlelat in the south of the Algerian city of Oran. (AFP)

TUNIS - The Algerian government repeatedly promised in recent years to expand the domestic auto industry and make home-produced vehicles available to the public at lower prices than imported cars.

However, officials in the current government accused the former government’s policy of being a ploy to enrich businesspeople close to ousted President Abdelaziz Bouteflika.

“The previous policy dealing with the car industry was a fiction, a fraud,” said Algerian Industry and Mining Minister Ferhat Ait Ali as he outlined a new strategy to jump-start the domestic car industry.

Two former prime ministers, Abdelmalek Sellal and Ahmed Ouyahia, and two former industry ministers, Youcef Yousfi and Mahjoub Bedda, are standing trial alongside 17 other senior officials and businessmen for alleged corruption in the auto industry.

The stated plan was to trim imports, provide jobs and diversify the economy from its reliance on oil and gas. Incoming officials have pointed to serious flaws in the strategy.

“Car assembly lines do not necessarily imply the establishment of an auto industry,” Ait Ali said. “A group of people sought to make Algerians understand that the assembly lines of vehicles were the first stage of car industry integration.

“It does not reflect any logical economics. It is not by launching assembly lines of around 60 car brands that we can develop a domestic auto industry. The integration of the car industry cannot be done in dispersing and fragmentation of the industry.”

Under the previous programme, foreign carmakers, in partnership with lo­cal investors, were eligible for state incentives, including tax exemptions and foreign curren­cy transfer waivers, to pay for the im­ported parts to be assembled at local plants. The incentives were meant to encourage growth in Algeria’s car industry and reduce the outflow of foreign currency by cutting vehi­cle imports.

In the 15 years leading up to 2016, Algeria imported 4 million cars, spending $25 billion, industry and customs figures indicated.

Industry experts estimated that increased wages and population growth could drive demand to 2.5 million new cars a year.

Fuel subsidies also help keep en­ergy costs low for car-makers, with Algeria’s energy subsidies estimated at about $45 billion annually by the International Monetary Fund.

However, the main barrier to foreign invest­ment is the country’s shareholder regulations, which require local partners to own 51% of any project. Ait Ali said the “51%-49% shareholding condition was aimed at frightening away serious investors.”

“A true investor will never give up such share because it is not just an issue of money. It involves the issue of patent, invention and technology,” he said.

The new policy scraps that requirement but tightens other investors’ conditions.

“To close the file of the domestic auto industry, the new specifications are aimed to satisfy the conditions of serious investors intent on establishing a genuine car plant in Algeria,” said Ait Ali. “If big carmakers do not want to come to Algeria, we will not bring them at any price.”

“The Algerian government is under no obligation to attract auto industry investors to the detriment of the national economy,” he added.

The new guidelines for car industry investors include a required 30% integration rate.

“The 30% integration rate means that 30% of inputs in the car plant will come from the domestic industry,” said Ait Ali, adding that foreign car manufacturers “must employ only Algerian workers.”

The new push to develop an auto industry in Algeria would exclude French carmaker Renault.

“After the 1990s, carmakers decided to de-localise plants because they saw high profits and benefits in some countries offering advantages like cheap workforce,” said Ait Ali.

Algeria missed that trend because “it had no vision at the time,” he said, and when it tried to catch up, it made a mistake by picking Renault as its first partner.

“Is it logical to select that main partner which has the same investment in a neighbouring country (Morocco)? Do you believe this partner which produces cars in Morocco can afford to invest in Algeria to produce the same number of cars here? That defies all logic,” he said.

In 2014, Renault opened a plant in Algeria’s western city of Oran to produce 75,000 vehicles annually. German automaker Volkswagen has its assembly plant in the western Reli­zane province. Asian carmakers are also present in the country.

Auto experts said Algeria must compete against Morocco to foster a sustainable domestic car industry but it is not clear which foreign car maker Algeria is eyeing as a partner.

Within a few years, Morocco is expected to be one of the most prominent destinations for the automotive industry, given its geographical position for exports and good investment climate.

Morocco’s automotive sector’s exports jumped by an annual average of 14.5% for the decade leading up to 2018 to $17.7 billion. About 116,600 jobs have been created since the launch of the Industrial Acceleration Plan in 2014, with an installed production capacity of 700,000 vehicles mainly by Renault and French carmaker Peugeot.

Also drawn to Morocco is Chinese automotive equipment giant Nexteer Automotive, which inaugurated its first production site in Africa in Kenitra last year with an investment of more than $35 million.

With a surface area of 10,000 sq.metres, the factory recruited 500 employees in the Atlantic Free Zone of Kenitra to produce power-assisted pinion steering systems. It will have to position itself as the first production unit for the Chinese firm in Africa.