July 10, 2013
By Hamid Ould Ahmed
Photo Credit:Reuters/Zohra Bensemra
ALGIERS, July 10 (Reuters) – Political and social pressures are combining to open Algeria’s construction market to international competition, potentially making billion of dollars worth of contracts available to foreign companies.
For decades, Algeria tightly limited foreign participation in its oil- and gas-rich economy, a legacy of the Socialist ideology it adopted after independence from France in 1962.
But the government is now under heavy pressure from its own population to address a severe housing shortage. Local firms seem unable to satisfy the demand for new housing by themselves, so authorities are looking abroad – an example of how political priorities can lead to liberalisation of the economy.
“They are in need of money. We are in need of expertise and modern construction means,” said Housing Minister Abdelmadjid Tebboune, referring to Western and Asian construction companies interested in entering the country.
The government has allocated about $50 billion to the housing sector under a five-year, $286 billion state spending plan that aims to modernise infrastructure and create jobs between 2010 and 2014. It has said it is ready to spend even more money if necessary.
“We can mobilise additional resources,” Prime Minister Abdelmalek Sellal said last week as he visited construction sites in Algiers.
Housing supply has long been a source of public discontent in Algeria, which has a young and growing population of 37 million. Migration to the cities has packed some extended families into tiny apartments or forced them to live in shacks.
Riots sometimes break out when local authorities announce lists of people allocated new apartments. The government has a system which aims to sell subsidised apartments at cut-rate prices to the most needy people – for example, those who applied for an apartment seven years ago have a bigger chance to obtain one than those who applied five years ago. But this does not always satisfy people.
“Construction sites are everywhere and we always hear about housing units being built, but it is difficult to get an apartment,” complained Djamel Kaloul, a teacher looking for an apartment in Algiers.
Influential newspaper El Watan called the housing situation a “national tragedy” and said the government needed to rethink its approach.
While Algeria has escaped the uprisings that have shaken other parts of the Arab world since 2011, the unrest has underlined to the government the importance of addressing social discontent over issues such as housing.
“The authorities, who have constantly stated their willingness to definitively solve this thorny problem, are aware of the importance of housing security,” El Watan said.
Partly because of bureaucratic delays, however, the government has carried out housing projects in recent years more slowly than it hoped. So authorities want to catch up by building 200,000 units annually – but local companies’ total capacity is estimated not to exceed 80,000 units.
Filling the gap with foreign construction firms is the logical solution, and in some ways the timing is perfect.
More than two years of high oil prices have left Algeria’s state finances in fairly good shape, with general government gross debt expected to decline to just 9.0 percent of gross domestic product this year from 9.9 percent in 2012, according to the International Monetary Fund.
Meanwhile, many European construction firms are hungry for work because of their continent’s economic slump and cutbacks in state spending due to the euro zone debt crisis.
After a tender that attracted expressions of interest from some 200 foreign companies, Algeria’s housing ministry has released a shortlist of 60 firms, including 53 from abroad, that may each build between 2,000 and 5,000 housing units.
Among the foreign construction firms that have worked in Algeria in the past, Chinese operators have dominated, and 20 are in the new shortlist including CGCOC Group and China Communications Construction Co .
But six Spanish companies, such as Corsan-Corviam Construccion, also feature on the list along with five bidders from Portugal and two from Italy, including Astaldi SpA
. The shortlist also names firms from countries such as Turkey, India, Romania and Jordan.
“The large volume of investment allows Spanish companies to benefit, especially in this period of stagnation and financial crisis,” Algeria’s official APS news agency quoted the head of an association of Spanish construction firms, Serafin Abilio Martinez Fernandez, as saying.
Algeria has also signed deals for 13 joint ventures between local and foreign firms; the ventures are to build at least 120,000 units.
Abdelmalek Aissiou, chief executive of a state holding company known as INDJAB, said the deals included technology transfer and training for Algerian workers.
“Algeria is not interested in partnerships with companies that carry out some projects and get away with our money, but rather with strong partners who stay here for a long period,” Tebboune said.
Joint ventures involving Italy’s Costruzioni & Servizi, Portugal’s Prebuild and two local firms last week began building 6,000 units in Algiers at a cost of $171 million.
Meanwhile a tie-up between Prebuild and Algeria’s EC Blida has launched a 1,064-unit project in Algiers with an investment of $61 million; it will include a market and health centre. That project will create 5,000 jobs, according to officials, in a country which is struggling to cut unemployment; the jobless rate is officially estimated at 10 percent.
Algeria’s housing push could have diplomatic ramifications if it erodes the current status of state-owned Chinese firms as the main foreign players in the construction market. But the government insists this will not happen.
“This strategy does not affect our Chinese partners because they will be present in the Algerian market. Relations between Algeria and China are highly strategic in all areas,” Tebboune said after a ceremony to sign deals with Portuguese firms.
“Diversifying partners will boost competition.”