As part of the country’s ambitious infrastructure programme, the government has enacted new measures aimed at encouraging greater participation of local firms. Amendments to the 2010 public procurement law have also introduced new rules for foreign companies and outlined special procurement procedures for state-owned enterprises (SOEs).
New Legislation
When the current public procurement law was first adopted in October 2010, foreign firms could only participate in public tenders through partnership with a domestic company with a majority-Algerian shareholding. The original law also permitted the government to limit tenders to the domestic market, with foreign companies only allowed to bid in the event that no domestic match could be made. Local companies were also given greater scope for winning tenders, even if their bids were higher than those of foreign counterparts. Prior to the 2010 law, domestic firms could only be given preferential treatment if their bid was no more than 15% higher than the lowest foreign bid – this was increased to 25%.
The moves were not all that unusual. Procurement policies – from Nigeria to the US – often provide favourable treatment for local companies during tenders in an attempt to encourage greater domestic participation in what are often large-scale government contracts. However, the new rules came at a key time in Algeria, as the government embarked on a wave of massive public works projects in an effort to address the specific challenges facing Algeria in terms of transportation network development – particularly its roads.
Several major projects are already in the works in accordance with the 2005-25 National Road and Highway Plan (Schéma Directeur Routier et Autoroutier 2005-25), including the East-West Highway, the Hauts Plateaux Highway and the North-South Highway.
With the first phase of the initiative completed in 2009, then-minister of public works and current minister of transport, Amar Ghoul, announced in December 2010 that the government would be reducing its reliance on foreign companies and giving priority to local outfits for the next wave of projects.
Indeed, the government has indicated that the principal contractors for the three main segments of the Hauts Plateaux Highway will be predominantly domestic – in contrast to the East-West Highway, which saw heavy participation from Chinese and Japanese firms.
Impact
According to Ghoul, the number of Algerian engineers rose from 30 in 2005 to 5000 by 2010, while local engineering firms and construction companies also expanded over the same period, from 100 to 600 and 1000 to 7000, respectively, on the back of government investment in the first phase of the road and highway development plans. These figures are projected to see further growth over the medium term.
The benefits of local content preference will likely have a wider impact on Algeria’s attractiveness to foreign investors, though not necessarily in the negative ways one might expect. Despite the difficulties associated with operating in the country, the considerable opportunities available have continued to attract international firms with the requisite experience. Furthermore, laws and amendments designed to help boost domestic capacity through international partnerships are already having an impact.
Allowing domestic companies to play a central role while leaving the more challenging sections to foreign operators has long been part of the government’s strategy. However, efforts to attract foreign firms with the ability to improve Algerian know-how and build local content now go beyond the scope of construction.
In late 2012 state-owned Algérienne de Gestion des Autoroutes (AGA), which manages the highway network, announced plans to partner with a foreign company in the management of the East-West Highway; however, this is a temporary move, as AGA hopes to develop the requisite expertise to eventually manage the new highway solo. Similar partnership agreements are expected to help authorities gain the necessary skills to manage other types of transport infrastructure.
Two-Way Street
Encouraging stronger partnerships between foreign and local firms along the supply chain yields advantages for both parties. Not only will Algerian enterprises benefit from knowledge transfer and capacity building, but foreign firms also profit from local involvement, as the work environment in Algeria can be difficult for foreign construction companies, particularly in more challenging geographical areas.
An interim report on the East-West Highway development highlighted several difficulties that resulted in project delays, including landslides due to a lack of familiarity with local geology; a shortage of some construction materials; restrictions on blasting equipment; difficulties meeting French building standards when operating under Algerian conditions; and visa delays.
Tenders
To address concerns that have arisen since the original procurement law was passed, amendments were adopted in December 2012 to change the rules governing SOE procurement; alter investment requirements for foreign investors; and define new penalties in the event of problems under government contracts. To improve the competitiveness of SOEs, the amendments excuse state-owned firms from following the rules outlined in the public procurement law, allowing them to establish their own procedures based on the principles of freedom of access, fair treatment and transparency. This is expected to increase competition from public players. As state-owned Cosider Groupe is one of the largest actors in the construction sector, this change is likely to influence the transportation industry as well. Supply companies may see an increase in business as a result of the more flexible rules, while firms may face increased competition from the SOE.
While the old code required foreign bidders to engage in partnerships in order to participate in any Algerian project, the amended law only requires this for specific projects identified by the Algerian authorities — typically in strategically important sectors. Lastly, sanctions can now be placed on foreign companies for failing to conform to the methods and delivery deadlines outlined in the contract, resulting in financial penalties of up to 20%, termination of the contract and/or blacklisting of the offending party. The government has not been shy about applying this, as evidenced by the payment dispute with COJAAL over delays to the last segment of the East-West Highway, which resulted in the cancellation of COJAAL’s contract in October 2014.
There is another key factor that should also be considered by companies wishing to do business in Algeria. As for all foreign firms operating in the country, investments from international construction companies must be at least 51%-owned by a local partner.
The long-term impact of the amended public procurement code will take time to gauge, though the new laws make clear the government’s broader policy priorities in terms of cultivating local capacity and developing the domestic private sector.
While this raises the hurdles for participation by foreign firms, it also offers benefits, including a wider labour pool, a greater supply of subcontractors and stronger local partners that can offer added value.
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