The wilaya of Sétif develops as key industrial center in Algeria

 

Low oil prices have forced the Algerian government to encourage diversification outside of its traditional revenue-generators of oil and gas, which in turn has helped facilitate an increase in geographic diversification as well. Regions outside of the traditional economic centres of Algiers, the capital city, and Oran, the main port for hydrocarbons exports, are increasingly benefitting from higher public and private investment; infrastructure spending on road and rail networks, as well as a push to develop manufacturing activity, have been particularly visible in this regard.

Economic Centre

The recent uptick in capital spending in the wilaya (province) of Sétif serves as an example of these trends. The wilaya, which covers 6500 sq km, and at 1.8m people has the second-largest population after the wilaya of Algiers, has also become an important contributor to GDP. The services sector comprises the bulk of the region’s economy with 51%, followed by construction at roughly 26%, with agriculture and manufacturing accounting for 12% each.

The regional capital city of Sétif, with its 300,000 inhabitants, has risen in recent years to become a major economic centre. Development has been boosted by an array of industries, ranging from electronics and building materials to agri-business and household appliances, benefitting from the expansion of key utilities infrastructure as well as the implementation of sector-specific strategies by local authorities.

According to the Federation of Employers, 4000 applications for private investment projects were made in Sétif in 2015, of which 677 have been approved, while 250 concessions agreements have been granted and 146 investors have filed a building permit. The total volume of investment amounted to AD289bn (€2.4bn). A large portion of that investment has been dedicated to the service and consumption sector, such as the 140,000-sq metre €120m Park Mall, which was opened in February 2016. The mixed-use complex has a retail component, with 30,000 sq metres of gross leasable area — making it one of the country’s largest malls — as well as leisure facilities and a hotel.

Industrial Zones

One of the clearest indications of Sétif’s push to further increase industrial production have been the wilaya’s moves to expand the availability of land and improve local connectivity, with both the national government and local administration allocating significant volumes of capital to infrastructure projects.

In a bid to encourage industrial investment and further the diversification of its industry fabric, authorities are developing a new 740-ha industrial park in Ouled Saber. The new park – the largest in Algeria – will complement the two existing industrial zones located in Sétif and El Eulma, and will be connected to the East-West Highway and the Port of Djen Djen.

Energy

With gas and electricity connection rates of 93% and 98%, respectively, Sétif’s utilities infrastructure is well developed and largely in line with the country’s other major industrial regions. To meet the expected increases in demand in the Hauts Plateaux region, however, authorities are building a new combined-cycle power plant, with a capacity of 1015 MW in Aïn Arnat, near the city of Sétif. The AD25bn (€206.8m) project was awarded in 2012 to an Algerian-South Korean consortium composed of Hyundai Engineering & Construction and Daewoo International, with civil engineering carried out by INERGA, a subsidiary of state-owned power company Sonelgaz specialising in energy-related infrastructure projects.

The plant comes as part of a AD2trn (€16.5bn) national programme of developing power production to meet the rises in consumption, which includes the construction of nine power plants with a combined capacity of 8000 MW, as well as 300 high-voltage stations and 10,000 km of transmission network.

Transport Infrastructure

As part of its development programme, the wilaya has been working to upgrade several road sections in 2016, including the development of two road intersections near Aïn Trick (Aïn Trick- RN5 and Aïn Trick-RN28), as well as the doubling of two road sections on the RN5 and the RN75. Built by a consortium of six private and three public contractors, the doubling of lanes will enhance traffic flow and improve connectivity between the upcoming Ouled Saber industrial park and the warehouses and activities zones located in the south of the wilaya.

In a bid to facilitate the connection between El Eulma and the Port of Djen Djen, a 111-km, three-lane dual carriageway is currently under construction. Awarded to a consortium composed of Italy’s Rizzani De Eccher and local ETRHB Haddad in 2013, the AD160bn (€1.3bn) project has been running behind schedule due to a series of delays related to land studies, relocation of services and expropriation processes. Initially due to be completed in 2016, the highway project is now expected to be completed in 2019.

As part of the country’s national territorial development scheme, authorities are planning to construct an electrified double track railway linking Sétif and Jijel. The line, which will be built parallel the highway between El Eulma and Djen Djen, is expected to boost freight and passenger traffic between the two wilayas and improve access to the commercial port of Djen Djen.

Simultaneously, authorities are importing new trains for the transportation of freight including cereals, gas and oil between the wilaya of Sétif and the logistics base of Tixer-Béjaïa. According to the National Company for Rail Transport, the 10 locomotives imported from the US will be operational once they have gone through Customs clearing and certification processes.

Household Appliances

In recent years the household appliance sector has been the fastest-growing industry in Sétif, driven by a series of new investments carried out by Algeria’s largest private manufacturing group Cevital. In 2016 the group invested €250m in a 110-ha industrial park which aims to produce 8m household appliances per year, including televisions, air conditioning devices, washing machines and cookers. Scheduled to be completed in 2017, the new facility is expected to produce goods with a local content rate of 70-80% and create more than 7500 direct jobs.

This investment follows the €200m acquisition of Fagor-Brandt, Fagor Group’s French subsidiary, by Cevital in 2014. Cevital also took over Fagor-Brandt’s 1600 patents, and it plans to start up a second factory in Sétif that it expects to be one of the world’s largest production facilities for household electronics and the first Brandt production line with a design production capacity of 500,000 appliances per year. .

Consumer Goods

Sétif’s fast-moving consumer goods sector has also seen an uptick in activity in recent years. Faderco, Algeria’s largest private personal care and home hygiene manufacturing company, set up a diaper factory in Sétif in 2012. Three years later the company established a paper pulp plant at a cost of $70m. Spread across 55,000 sq metres, the facility – the largest in the Maghreb region – has a production capacity of 30,000 tonnes per day. In addition, Faderco is building a new tissue paper plant costing AD2.2bn (€18.2m) in the wilaya. Due to become operational in March 2017, the facility is expected to create 450 jobs.

Automotive

Following the establishment of the first automotive assembly line in Oran by Renault Algérie in 2014, Sétif authorities have been looking to develop a local car industry through the development of international partnerships. In 2016 the local government approved a $300m project between Iran’s car manufacturing company Société Anonyme Iranienne de Production Automobile (SAIPA), and Algeria’s Mahieddine Tahkout group for the installation of a new car assembly line in the Aïn Azal industrial zone in the south of Sétif. Scheduled to become operational in January 2017, the facility is expected to assemble 20,000 vehicles per year, with a projected integration, or local content, rate of 47%. The project includes the development of five spare parts and accessories production units for seats, radiators or windshield. Holding 25% of the shares, SAIPA is expected to bring its expertise in engineering and car production processes into the partnership.

The increased focus on auto manufacturing in the wilaya has also helped foster interest in production of other auto-related components. In 2016 Iris Group, a private local electronics company, invested €10m to set up Algeria’s first tyre plant. The 5-ha facility is expected to be finished in 2017, and it will have a production capacity of 2m tyres annually, of which 30-35% will be exported to European and African markets.

Cables

Over the years, cable production has remained one of the main industrial sectors of the area. In late 2015 K-Plast, a local bitumen processing company, set up a new AD2.7bn (€22.3m) facility, which produces a range of electric cables or wires for the low-, medium-and high-voltage segments. With a processing capacity of 30,000 tonnes of copper and aluminium, the plant is expected to substantially reduce Algeria’s import bill of electrical cables. Thanks to rising domestic demand, the company is planning to expand the new plant in a bid to reach a production capacity of 100,000 tonnes. Estimated to cost AD4.8bn (€39.7m), the new facility will manufacture cables with higher added value, including automotive harnesses and fibre-optic cables.

Building Materials

Driven by the country’s numerous housing and infrastructure development projects, building materials have seen a jump in demand over the past decade, with a number of production sites in Sétif benefitting as a result. Cement has been one of the key beneficiaries of the push to expand construction materials output. In 2015 demand stood at 22m tonnes, of which around 18m tonnes were produced locally and 4m tonnes imported. In a bid to bolster industrial diversification and reduce imports, authorities have been looking to boost cement production with a goal of reaching self-sufficiency by 2017 and starting exports as of 2019. As such, Algeria’s state-owned cement holding firm Groupe Industriel des Ciments d’Algérie (GICA), which owns 12 cement plants across the country and accounts for two-thirds of Algeria’s cement production (12m tonnes), initiated a $154m investment plan to increase its production capacity to 18.5m tonnes by 2017 and 23m tonnes by 2019, including the extension of an existing facility in Aïn El Kebira.

Managed by the Société des Ciments de Aïn El Kebira (SCAEK), a company fully owned by GICA, the nearly 40-year-old Aïn El Kebira plant is currently Sétif’s sole cement factory. In 2014 the plant generated a turnover of AD8.1bn (€67m) and produced 1.3m tonnes of cement, exceeding its designed annual capacity of 1m tonnes. As part of GICA’s development programme, the Aïn El Kebira plant is expected to boost its production capacity by 2m tonnes per year. The extension will be built by Germany’s ThyssenKrupp at a cost of AD32bn (€264.7m). To finance the works, SCAEK listed 35% of its capital on the Algiers Stock Exchange in February 2016; however, the listing was cancelled four months later as the company raised only 5% of the funds, below the 20% minimum subscription threshold required by Algeria’s capital market regulatory authorities.

Although it has faced heavy competition from Turkish and Chinese imports, Sétif’s aluminium sector has also seen an uptick in investment over the past year. Acher Min Ramadan, the country’s largest aluminium producer with an annual capacity of 30,000 tonnes, invested AD3.4bn (€28.1m) in building a new copper and aluminium profile plant in December 2015. Covering 145,000 ha in El Eulma, the facility is expected to significantly reduce Algeria’s imports and reinforce the local supply chain for new automotive and train factories. Similarly, Sétif’s ceramics industry has also seen several expansion projects over the past few years. In 2013 Algeria’s largest ceramic tile producer, Société Algérienne de Fabrication Céramique et Produits Rouges, built a factory that cost AD6bn (€49.6m) and has a capacity to produce 25,000 sq metres per day. Sétif-based Khenfri also opened a new AD3bn (€24.8m), 73,000-sq-metre glazed ceramic tile plant in 2015.

Cereals Production

Agro-industrial activities comprise one of the largest segments of the industrial sector in Sétif. Once considered as Algeria’s wheat granary, with 300,000 ha of cultivated agricultural area, Sétif is a major domestic producer of agricultural produce. Agricultural output is estimated to be worth AD83.9bn (€694m), equivalent to 2.9% of Algeria’s annual agricultural production, according to statistics from the wilaya’s agriculture department, Direction des Services Agricoles (DSA). Over the past decade, the sector has seen growth thanks to the implementation of the Agricultural and Rural Renewal Policy (Politique de Renouveau Agricole et Rural, PRAR) launched in 2008. Part of the country’s five-year national plan, the strategy aims to increase Algeria’s production of consumer staples via a series of measures set to boost technology acquisition, attract higher levels of private and foreign investment, reinforce the sector’s supply chain and improve its regulatory framework.

Although still largely dependent on weather conditions due to a lack of irrigation, Sétif’s grain production has been supported by a gradual increase in the surface area for cereals, from 182,000 ha in 2011 to 192,000 ha in 2016. At around 120,000 ha, durum wheat is the most widely cultivated crop, followed by barley (45,000 ha) and soft wheat (20,000 ha). Although national cereal production for the 2015-16 season fell to 34m quintals compared to 37m quintals in the previous season, according to the Ministry of Agriculture, Rural Development and Fisheries, mainly due to a drought which specifically impacted output in the western wilayas, the eastern wilayas – including Sétif which produced 3.2m quintals of cereals that year – recorded the highest cereal production in the country.

In a bid to improve yields, which averaged 17 quintals per hectare in 2016, Sétif’s government has made available around 150,000 quintals of seeds and 20,000 quintals of phosphate fertiliser for the next harvest, and extended AD110m (€910,000) in government-subsidised interest-free agricultural loans, known as RFIG credit, to 162 local farmers. Irrigation projects are also under way, with new infrastructure being installed to transport water from the wilayas of Jijel and Béjaïa to the more arid areas of Sétif. Ultimately, the new projects are expected to add another 40,000 ha of irrigated land, with the local government forecasting a five-fold increase in crop production.

Dairy Products

Cereals do not constitute Sétif’s only major agro-industrial segment. Over the past decade Sétif’s dairy sector has seen an increase in activity, with production roughly doubling over the past decade from 134m litres of milk in 2005 to 308m litres in 2015. As a result, the wilaya has become Algeria’s largest milk producing region, with seven dairy farms, 150 collectors, 16 collection centres and nearly 5000 livestock farmers. Sétif’s dairy cow population has increased by 50% since 2001 to 79,000 in 2016, equivalent to 10% of the national herd. Local production of pasteurised milk amounts to 60m litres per year and serves the needs of the surrounding wilayas of Béjaïa, Mila, Bord-BouArredirj, M’Sila, Constantine and Annaba.

However, as elsewhere in Algeria, Sétif’s dairy sector has been hampered by a low raw milk collection rate, which stood at 30% of the milk production in 2016. In a bid to reduce Algeria’s milk powder imports, authorities introduced a system of subsidies to encourage the domestic production of raw milk and consolidate the sector’s supply chain. However, the subsidy, which was traditionally handled by Algeria’s National Milk Office, has not always reached its intended recipients due to bureaucratic backlogs. As a result, for the first time in 2016 the DSA will handle distribution, which has led to forecasts for a rise in raw milk collection for 2017.

Defence

With the largest defence budget on the continent, totalling around $10.4bn in 2015, according to Stockholm International Peace Research Institute, Algeria is also hoping to stoke the beginnings of a defence manufacturing industry. In August 2016 the Ministry of Defence signed a deal with Italian aerospace group Leonardo-Finmeccanica for the establishment of a helicopter manufacturing plant in the town of Aïn Arnat in Sétif. The factory, which will produce Augusta Westland helicopters, is expected to help reduce Algeria’s import bill (Algeria has ordered 80 helicopters from Finmeccanica over the past five years) and provide spill-over effects for the growth of the manufacturing sector. The factory is intended to not only serve the country’s armed forces but also supply other major markets in the region, including Morocco and Egypt.

Outlook

In addition to the ongoing economic diversification efforts, the government is placing emphasis on the importance of regional development. Thanks to investment in infrastructure and the authorities’ efforts to boost industrial production and expand the availability of land – especially in the form of the nation’s largest industrial park to be built in Ouled Saber – Sétif is set to benefit from an increasing flow of private and public investment into sectors such as electronics, automotive and agri-industry. The new enterprises emerging in the Sétif region will provide employment opportunities for thousands of people, while also advancing the wilaya’s importance as a key contributor to Algeria’s economy.

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The Report: Algeria 2016

Sétif chapter from The Report: Algeria 2016

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