Algeria economic review

Investment oportunities
Tokyo November 2015
Contents

Algeria macroeconomics and sectors of investment

1 Economy overview

2 Macroeconomic indicators

3 Renewable Energy

4 Banking system

5 Insurance

6 Health

7 Questions and Contact

Page  2
Geographical situation : It takes less time to travel from
Algiers to Barcelona, Nice, Roma, than from Central Tokyo
to Narita Airport
 Algeria is the largest country in Africa
with 2,3M sq. km
 The country border the Mediterranean
sea between Morocco and Tunisia
 Geographically close to the developed
market of the South of Europe by sea
(Spain, France, Italy)
 Algeria has the 10th-largest reserves of
natural gas in the world and it ranks
16th in oil reserves

Page  3
Population data (source: CIA World Factbook)

 A demographic economic
endowment:
 39,2 millions in 2013 with 1.84%
growth rate
 Qualify young population : 68% of the
population is under 35
 One of the most advanced education
system and health coverage system in
Africa
 Most of the population speak at least
Arabic (official) and French (lingua
franca)

Page  4
Economy overview

 Algeria's economy remains dominated by the public spending, but based on current
economic situation and perspectives the government, now it is the momentum for economy
diversification and business environment reforms.
 Hydrocarbons have long been the backbone of the economy, accounting for roughly 60% of
budget revenues, 30% of GDP, and over 95% of export earnings.
 Strong revenues from hydrocarbon exports have brought Algeria relative macroeconomic
stability, with foreign currency reserves of $159 billions (June 30, 2015). In addition, Algeria's
external debt is extremely low at about 2% of GDP.
 The GDP growth rate has been positive the last 10 years despite the financial crisis.

GDP growth rate

6.00%
3.90% 4.10% 3.90% 4.00%
4.00% 3.30%
2.80% 2.80% 2.60%
Algeria
2.00%
Middle East

0.00%
00-10 2011 2012 2013 2014e 2015f 2016f 2017f
-2.00%
Source: World Bank

Page  5
Economy overview

 The Trade balance is expecting to be negative for the first time for 20 years due to
the fall of oil prices…
Overall trade 2010 2011 2012 2013 2014 2015*
exchange
Imports (bn USD) 40,5 47,2 50,3 55 58,5 39
Exports (bn USD) 57 73,4 71,9 65 63 29

Trade balance 16,5 26,2 21,4 10 4,5 (10)

Source: algerian customs

 …however the important hydrocarbon exportations of the last years has allowed
Algeria to accumulate foreign exchange reserves and secure the financial system.
2010 2011 2012 2013 2014
Foreign exchange reserve (bn USD)
151 183 191 193 179
Source: CIA factbook

Page  6
Evolution of foreign trade in millions of US $
 The results in terms of foreign trade achievements Algeria for the nine
months 2015 recorded a deficit of 10.33 billion US dollars, against a
surplus of 4.08 billion US Dollars, this trend is mainly due to the
respective declines exports and imports (40.24%) and (11.34%).

60,000

-40,24%
50,000

-11,34%
40,000
30,000
20,000
10,000
0
-10,000
-20,000
Trade
imports exports
balance
sept 30, 2014 44,203 48,292 4,089
sept 30, 2015 39,192 28,860 (10,332)
Evolution % -10.40 -37.30

Page  7
Geographical situation

 Algeria is the largest country in Africa

with 2,3M sq. km
 The country border the Mediterranean
sea between Morocco and Tunisia
 Geographically close to the developed
market of the South of Europe by sea
(Spain, France, Italy)
 Algeria has the 10th-largest reserves of
natural gas in the world and it ranks
16th in oil reserves

Page  8
Population data (source: CIA World Factbook)

 A demographic economic
endowment:
 39,2 millions in 2013 with 1.84%
growth rate
 Qualify young population : 68% of the
population is under 35
 One of the most advanced education
system and health coverage system in
Africa
 Most of the population speak at least
Arabic (official) and French (lingua
franca)

Page  9
Unemployment rate (Source: ONS)

 Unemployment rate has strongly decrease between 2004 and 2009 and
remains stable since.

20.0%

18.0%
17.7%
16.0% 15.3%
13.8%
14.0%
12.3%
12.0% 11.3% 11.0%
10.2% 10.0% 10.0% 9.8%
10.0%

8.0%

6.0%

4.0%

2.0%

0.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Page  10
Macroeconomic indicators

 The Dinar's value has fallen roughly 30% in the last year with the goal
to preserve social spending as a result of the fall of oil price.
 The side effect is making imports more expensive which encourage
production and consumption of domestic products and
exportations.
120

100
105.38 106.602
97.022
80
83.241
60

40

20

Page  11
Macroeconomic indicators

 The external financial position remains strong even if it shows signs of slowing,
however, with a level of foreign exchange reserves estimated at $179 billion at
end-2014, equivalent to 32 months of imports of goods and services and
consolidated by a small external debt, estimated 4 billion USD in 2014, 1.9% of
GDP.
 The Algerian authorities have already taken steps to curb the effects of the drop in
oil prices, while pursuing social and investment projects included in the 2015-19
five-year plan.
 In terms of sectoral distribution of GDP, the Algerian economy remains dependent
on hydrocarbons which represents 28% of GDP in 2014.
 If the significant drop in oil prices observed during 2015 continue, the fundamental
balance of the Algerian economy could be affected.
 There is therefore an urgent need to initiate a diversification of the Algerian
economy. Such structural transformation requires a more favorable business
environment and development of a private sector capable of revive the productive
system and create jobs.
Page  12
Business and investment opportunities

Renewable Financial
Health
Energy services

Construction
Petrochemicals Engineering
materials

Mining Hospitality Consumers

products

Page  13
RENEWABLE ENERGY

Page  14
Renewable energy

 The government, in the context of the Climate Conference has undertaken

to reduce carbon gas emission by 7% to 22% by 2030.
 The global cost of the renewable electricity program is expected to reach
between 60-100 billion US dollars.
 Government has established the National Energy Control Fund (FNME)
which aims to facilitate the projects financing by the granting of interest-
free loans and guarantees of loans from banks.
 Expected volume of natural gas saved by 2030 is 300 billion m3.

Page  15
Renewable energy target (source : CDER)
 The Algerian government plans to switch to a renewable energy capacity of
4.5GW/h by 2020 and 22GW/h in 2030 (27% of the national production), with a
large part of solar energy. As far as exports are concerned, the target is 2000MW
for 2020 and 10000MW for 2030.
 The repartition of this program in 2030: Production of renewable energy in 2030
 Photovoltaic energy : 13 575 MW
Solar energy
 Wind : 5 010 MW photovoltaic
Wind
 Thermal solar : 2 000 MW
 Biomass : 1 000 MW Thermal solar

 Cogeneration : 400 MW Biomass

 Geothermal : 15 MW Cogeneration

 Algeria has also set a target for exports (2000MW for 2020 and 10000MW for
2030), subject to the construction of an interconnection to the EU.

Page  16
Current state of the power production (source :minister of energy)

 The electricity production in Structure of power production 2013

Algeria amounted to 59.9
TW/h in 2013 with 98% come
from fossil energy (gas, oil).
Combined cycle
Gas turbine
 Base pricing in Algeria is Steam turbine
presently very low but an Self generators
increase is expected in the Hybrid
future in order to promote Hydraulic
energy saving.

The 125 first kw/h $0,02 the kw/h

Beyond 125 kw/h $0,04 the kw/h

Page  17
How to get in the solar market in Algeria?

The legal framework in Algeria applicable to the power sector is well

developed with a feed-in tarif of 0.15 to 0.20 USD per Kw/h

How to enter Solar market in Algeria?

Investor/Operator Independent projects under the new Feed in Tariff
scheme
Manufacturing of panels
Solar EPC Engineering and Maintenance

Page  18
Processus

• Application for the certificate of guarantee of origin

• Application for autorisation to operate
Before • Application for the conclusion of a purchase agreement
construction • Request for a hook-up to the electrical network

• Grid connection commissioning

• Single tariff during 5 years
Plant • Reajusted tariff during 15 years
Operation

Page  19
Great potential of renewable energy

 Great potential of renewable

energy (in particular solar energy)

 Power consumption is in a constant

growth with peaks in summer (air
conditioner) which match with peak
sunlight availability.

(source: CDER)

Page  20
Projects in progress
 Many projects in progress

Page  21
Solar PV feed-in-tariff

Adjustment Number of 1 to 5 MW >5 MW

limit hours in Phase 1 Phase 2 Phase 1 Phase 2
operation US$/kWh US$/kWh US$/kWh US$/kWh

-15% 1275-1349 0,15 0,19 0,12 0,15

-10% 1350-1424 0,15 0,18 0,12 0,14
-5% 1425-1499 0,15 0,16 0,12 0,13
Reference 1500-1574 0,15 0,15 0,12 0,12
output
+5% 1575-1649 0,15 0,14 0,12 0,11
+10% 1650-1724 0,15 0,12 0,12 0,10
+15% >1725 0,15 0,11 0,12 0,09

 The feeding tariff has been increased in 2014. Renewable energy projects
are entitled to sell to the respective distributor the power produced at a
guaranteed fixed price for 20 years. tariff will be revised 5 years after
starting operations in order to adjust it to the real energy potential of the
site, up to a maximum of 15%.
Page  22
Regulatory assesment
RENEWABLE ENERGY REGULATION

General
Independent Law 02-01 establishes a regime for Independent Power Producers
Power Producer (IPP).
regulation
Land access Land ownership for foreign investors requires prior approval. Most
projects take place in state owned land under a concession regime.
Grid access Grid access is well developed by Algerian regulation. The
Transmission System Operator (TSO) takes charge of the costs of
the first 50 Km of connection infrastructure.
Energy related
Energy related permitting is well developed. The CREG
permitting
(Commission for the Regulation of Electricity and Gas) is the entity
in charge of issuing the permits.

Investment The investment framework is restrictive. 51% of local ownership

share is mandatory and financing is to be organized through local
banks.

Page  23
Institutional framework

 Energy Regulator (CREG)

 R&D Centre of Electricity and Gas (CREDEG)
 Agency of Promotion and Rationalisation of the Use of Energy (APRUE)
 Centre for Renewable Energies (CDER)
 National Fund for Renewable Energy (FNER)
 Ministry of Energy and Mines: in charge of designing Algeria’s energy policy
 Sonelgaz Group:
 Power producer : Société Algérienne de Production de l’Électricité (SPE):
 TSO : Société Algérienne de Gestion du Réseau de Transport de
l’Électricité (GRTE)
 Power production/transmission system operation : Opérateur Système
Électrique (OS)
 Power distributors : Sociétés Algériennes de Distribution de l’électricité et
du gaz d’Alger (SDA), du Centre (SDC) de l’Est (SDE) and de l’Ouest
(SDO):
Page  24
Regulatory framework

 Law n°99-09 of 28 july 1999 relative to the energy control

 Law n°02-01 of 5 February 2002 relative to the electricity and the public
distribution of gas.
 Law n°04-09 of 14 August 2004 relative to the promotion of renewable
energy.
 Finance Act 2010 lead to the creation of National Fund for Renewable
Energy.
 Executive Decree no 13-218 of June 2013 relating to feed-in tariffs.
 Ministerial order of 2 February 2014 fixing the tariffs for Photovoltaic.
 Executive Decree no.15-69 of 11 February 2015 laying down the
procedures for the certification of the origin of the renewable energy.

Page  25
FINANCIAL SERVICES

Page  26
Banking system

 The Algerian banking system is still poorly developed in view of the size of it’s
economy.
 Many financials institutions are already settled but the public sector still dominate.
 6 public banks still owns 90% of total banking sector assets.(source : Bank of Algeria)

Algeria Morocco Tunisia

Automated Banking
machine (ABM) per 6,57 25,11 23,59
100 000 inhabitants
Banking agency
network (per 100 000 5,1 24,4 18,3
adults)
Borrowers from
commercial banks 43,7 - 204
(per 1000 adults)
Source: WorldBank

Page  27
Banking Market Oportunities

Few modernization steps taken Market Opportunities

 Recapitalization of the public banks and the
stabilization of their portfolios.
 Launching of interbanking projects with new array
of products, international payment cards, data  Project financing
transmission networks, monetics.
 Creation of private equity firms.
 Banking services
 Improving secure communications networks and  Electronic banking
introducing a modern means of payment.
 Payment by bank check has become obligatory  Leasing
for a purchase of a good from a certain value.
(5M dinar for the purchase of a property and 1M
dinar for the purchase of a vehicle for
 Mobile banking
example).The goal is the reduction of the informal
economy and to channeling funds to the banking  Under developped stock
system.
market
 Algiers’ stock exchange is the smallest in the
MENA region with a capitalization of 0.1% of GDP  Professionnal asset
but officials aim to reach a capitalization of USD
7.8 billion in the next five years and enlist 50 new management
companies.

Page  28
Insurance

 According to the annual study of Swiss RE Market Opportunities

on the world insurance market made by
Swiss RE, Algeria ranks 64th for the amount
of income collected (on 147 countries) and
6th in Africa.  Life / Health Insurance
 The penetration rate in 2014 (premium/GDP)  Health services / Private
in Algeria is still weak with 0.76% of GDP,
against 8.15% in developed countries and
insurance health coverage
2.71% in emerging countries.
 Retirement financial
 The amount of premium/inhabitants is $40 products
USD against a global average of $662 USD
and the coverage rate is 1 sale point for
28 000 inhabitants against a global average
of 1 for 5000.
 Less than one house on ten is insured. In
2010, the house insurance only represents
2% of the global turn-over of the insurance
market.

Page  29
Insurance

 Emergence of new actors on the market and the process of reform

launched by the government since 2006 have contributed to the
development of this sector.
 However, the sector is still lagging in comparison with neighbors
countries.
Millions Usd (in 2013) Algeria Tunisia Morocco
Car insurrance 765 398 1043
Fire and casualty insurance 495 154 337
Transport insurance 68 45 72
Credit insurance 11 7 13
Life insurance 108 263 1191
Total 1447 868 2656
Percentage of GDP 0,81% 1,82% 2,95%
Source: World Bank

Page  30
HEALTH

Page  31
Health

 Algeria has one of the best healthcare coverage system in Africa.

 Algeria will continue to play a important role in the modernization of the
health system over the coming years. In addition, we note the Algeria has
become Africa's largest pharmaceutical market in 2014, after surpassing
South Africa.
 Pharmaceutical values and volumes will continue to be boosted by
various healthcare modernisation programmes. The government has
indicated its commitment to the improvement of its population's health,
outlining a program through to 2025. This situation will provide substantial
opportunities to foreign players - most of which operate in the country
through imports or local partnerships - as well as stronger domestic
companies, which will be well placed to respond to increased demand for
generic products.

Page  32
Health

Health care spending in the private Annual health spending per capita
and public sectors, in relation to in US $
GDP 500
10 475.87
450
9 9.12 + 490%
400 404.02
8
+ 79% 7.23
350
7
313.52
300
6
% PIB

250
5
系列1
系列1 200
4
3.7
3.24 150
3

2 100 98.31

1 50 53.12

0 0

Source: World Bank

Page  33
Health

Algeria Morocco Tunisia Middle East and

North Africa
Health expenditure
per capita 313 189 309 259
Prevalence rate of
diabetes 7,3% 7,9% 9,4% 9,2%
Total Health
expenditure (%GDP) 6,6% 6% 7,1% 5,97%
Life expectancy at
birth 71 71 74 70
Number of doctors per
1,000 inhabitants 1,21 0,6 1,2 1,48
Source: World Bank

 One of the biggest healthcare market in Africa.

 A National healthcare coverage system.
 To modernise the healthcare system, the government planned to build 172
hospitals, 45 specialised health centres, 377 clinics and 1,000 treatment
rooms
 .(source BMI)

Page  34
Potential of the pharmaceutical market (rapport BMI)

 Largest pharmaceutical market in Africa with $4,64bn turnover in 2014.

 Strong political will to develop the sector in Algeria:
 Prohibition in 2011 of the importation of drugs that are produced in place, official expect to
reach 70% of self production against 30% today.

 Market in strong growth with an average of 10% per year.

10.0 3.00%

8.0
2.00%
6.0 Pharmaceutical sales
4.0 USDbn
1.00%
2.0
%GDP

0.0 0.00%

Page  35
How to get in the market

Activities in the sector of pharmaceuticals regroup:

Production – Packaging - Wholesalers importers - Wholesale distributors -
Retailers (Pharmacies and others) - Joint-ventures, PPP

 The Algerian private pharmaceutical company

Biopharm and the Indian generic drug giant
Cipla, signed last February an agreement to
create a joint venture in Algeria in order to
market and distribute medicine dedicated to  The first insulin vials produced as part of the
respiratory diseases. The construction of this partnership between Algerian group Saïdal and
plant will require an investment of nearly USD the Danish laboratory Novo Nordisk, will be
15 million, held 60% by Biopharm and the placed on the market in the first half 2016. The
remaining 40% will be held by Cipla (EU), the amount of this investment is estimated at over
UK subsidiary of the Indian group. During the EUR 50 million.
same year, another partnership agreement
was signed between the Algerian laboratory  The two partners are initially local needs of the
Biopharm and the Anglo-Swedish AstraZeneca Algerian market and subsequently exported to
laboratory, for the construction of a countries in Africa and Asia.
pharmaceutical manufacturing plant in Algeria
for an investment of over USD 50 million.

Page  36
Legal framework

 Decree of 8 of May 2011 relative to the interdiction of the importation

of pharmaceutical products and medical devices for human medicine made in
Algeria.
 Decree of 6 June 2005 setting out the technical conditions for the importation of
pharmaceutical products to human medicine.
 The law n°85-05 of the 16 february 1985 relative to the protection and the
promotion of Health.
 Decree n°92-284 of the 6 of July 1992 relative to pharmaceutical product
registration to human medicine.
 Executive Decree n°92-285 of the 6 of July 1992 relative to the operations
authorization for an establishment of production and/or distribution of medicines.

Page  37
ITPO Tokyo, Local Advisors Program

Investment & Technology Office

(ITPO), TOKYO
 Mandate to promote and facilitate Japanese companies responsible
investments
 Local presence with local advisors in Algeria, Mozambique and
Ethiopia
 Available for providing local market knowledge and local facilitation
 Contact: l.kerrar@unido.org
Questions and Contact

Page  39